ITO, New Delhi V. M/s Dhir Global Industria P Ltd, Gurgaon

ITA 4894/DEL/2009

• Counselvise Citation: 489420114 RSA 2009
• Duration Of Justice: 1 year(s) 11 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 29-11-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 30-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K MONGADR
• Assessee Lawyers: R S SINGHVIAR
• Keywords: Depreciation; Search and seizure; Reassessment proceedings
• Section: 143(3); 115JB; 10B; 147; 148; 2; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI I BENC H BEFORE SHRI RAJPAL YADAV, JM & SHRI A.N. PAHUJA, AM ITA NO.4894/D/2009 ASSESSMENT YEAR:2003-04 INCOME TAX OFFICER, WARD 10(3),ROOM NO. 199C,CR BUILDING, NEW DELHI V/S . M/S DHIR GLOBAL INDUSTRIAL P. LTD., 375,PHASE-IV, UDYOG VIHAR, GURGAON [PAN:AAACD 7431 P] (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI R.S. SINGHVI,AR REVENUE BY SHRI A.K. MONGA,DR DATE OF HEARING 07-12-2011 DATE OF PRONOUNCEMENT 16-12-2011 O R D E R A.N.PAHUJA:- THIS APPEAL FILED ON 30.12.2009 BY THE REVENUE AGA INST AN ORDER DATED 16.10.2009 OF THE LD. CIT(A)-XIII, NEW DELHI, RAISES THE FOLLOWING GROUNDS:- 1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE CIT(A) HAS ERRED THAT THERE WAS NO OMISSION ON THE PART OF THE ASSESSEE TO COMPUTE THE TAX LIABILITY U/S 115JB . 2 ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED THAT INSUFFICIENT REASONS WERE GIVEN FOR THE ISSUE OF NOTICE U/S 148. 3 ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED THAT B/F DEPRECIATION ALONG WITH THE CURRENT YEAR DEPRECIATION WAS LIABLE TO BE EXCLUDED FOR WORKING OUT THE ELIGIBLE PROFIT FOR COMPUTING THE EXEMPTION U/S 10B TO BE REDUCED FROM THE BOOK PROFIT. 4. THE APPELLANT MAY BE ALLOWED TO ALTER, AMEND, MO DIFY, ADD OR ANY GROUNDS OF APPEAL DURING THE APPELLATE PROCEEDI NGS. 2. FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING NIL INCOME FILED ON 25.11.2003 BY THE ASSESSEE AFTER BEING PRO CESSED U/S 143(1) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS TH E ACT) WAS SELECTED FOR I.T.A. NO.4894/DEL./2009 2 SCRUTINY WITH THE SERVICE OF NOTICE U/S 143(2) OF T HE ACT. SUBSEQUENTLY, ASSESSMENT WAS COMPLETED VIDE ORDER DATED 31 ST MARCH, 2005 DETERMINING NIL INCOME AFTER SET OFF OF BROUGHT FORWARD DEPRECIATIO N. INTER ALIA, THE ASSESSING OFFICER[AO IN SHORT] REDUCED DEDUCTION U/S 10B TO A N AMOUNT OF ` 1,40,34,521/-, WITHOUT ANY REASONS OR DISCUSSION IN THE ASSESSMENT ORDER AS AGAINST THE CLAIM OF ` 2,83,97,520/- NOR DETERMINATION OF BOOK PROFITS FOR MS PART OF THE ORIGINAL ASSESSMENT ORDER .HOWEVER, THE ASSESSEE IS STATED T O HAVE REDUCED THE BOOK PROFITS BY AN AMOUNT OF ` 2,83,97,520/- ON ACCOUNT OF DEDUCTION U/S 10B OF TH E ACT. SINCE WHILE COMPLETING ASSESSMENT U/S 143(3) OF THE ACT ,DEDUCTION U/S 10B WAS ALLOWED TO THE EXTENT OF ` `140.34 LACS, ASSESSMENT WAS REOPENED U/S 147 OF THE ACT ON THE GROUND THAT INCOME OF ` 143.63 LACS ESCAPED ASSESSMENT DUE TO EXCESS DEDUCTION U/S 10B OF THE ACT HAVING B EEN ALLOWED WHILE COMPUTING BOOK PROFITS U/S 115JB OF THE ACT. ACCORDINGLY , A NOTICE DATED 30 TH APRIL, 2007 U/S 148 OF THE ACT WAS SERVED UPON THE ASSESSEE. TH ERE IS NOTHING TO SUGGEST AS TO WHETHER OR NOT THE ASSESSEE FILED ANY RETURN OR REPLY TO THIS NOTICE. HOWEVER, AFTER OBTAINING A COPY OF THE REASONS RECORDED BY T HE AO, THE ASSESSEE CONTENDED DURING THE COURSE OF REASSESSMENT PROCEED INGS THAT THE COMPUTATION OF BOOK PROFITS ENCLOSED BY THEM WITH RETURN WAS CO RRECT.. AFTER CONSIDERING THE REPLY OF THE ASSESSEE, THE AO WITHDREW EXCESS CLAIM OF DEDUCTION OF ` ` 143.63 LACS U/S 10B OF THE ACT WHILE DETERMINING BOOK PRO FITS U/S 115JB OF THE ACT.. 3. ON APPEAL, THE LEARNED CIT(A), WITHOUT GOING I NTO THE LEGALITY OF NOTICE ISSUED U/S 148 OF THE ACT ,CONCLUDED THAT THERE WAS NO MISTAKE IN PAYMENT OF TAX LIABILITY U/S 115JB OF THE ACT . THE FINDINGS OF TH E LD. CIT(A) READ AS UNDER:- THE REASONS FOR DIFFERENCE IN COMPUTATION OF EXEMP TION U/S 10B FOR THE PURPOSE OF REGULAR PROVISIONS AND UNDER MAT IS BECAUSE OF CLAIM OF DEPRECIATION. PRESCRIBED RATE OF DEPRECIA TIFON UNDER I.T. RULES AND UNDER COMPANIES ACT ARE DIFFERENT. THE B ALANCE SHEET IS PREPARED AS PER SCHEDULE-VI TO THE COMPANIES ACT 1956 AFTER TAKING INTO CONSIDERATION STIPULATED RATE OF DEPREC IATION AS PROVIDED IN THE COMPANIES ACT. HOWEVER, IN CASE OF REGULAR ASSESSMENT, DEPRECIATION IS REQUIRED TO BE CONSIDERED AS PER IN COME TAX RULES, WHICH PROVIDE FOR DIFFERENT RATE OF DEPRECIATION. THE APPELLANT HAS I.T.A. NO.4894/DEL./2009 3 PLACED ON RECORD STATEMENT OF INCOME IN SUPPORT OF CLAIM OF DEPRECIATION AS PER BOOKS AND AS PER I.T. RULES. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND LEGAL PROVISIONS. IT IS NOTICED FROM THE ASSESSMENT ORDER THAT THERE IS NO WORKING OF MAT CALCULATION IN THE ORIGINAL ASSESSME NT ORDER AND ONLY TAX LIABILITY THAT WAS WORKED OUT AND PAID IS ON THE BASIS OF COMPUTATION OF BOOK PROFIT MADE BY THE APPELLANT. T HE ASSESSING OFFICER HAS ALSO NOT GIVEN ANY SPECIFIC REASONS FOR REOPENING EXCEPT BY MAKING OBSERVATIONS THAT THERE WAS OMISSI ON IN COMPUTATION OF INCOME U/S 115JB. IN MY VIEW, ISSUE ON MERITS IS FULLY SUPPORTED AS P ER DECISION IN THE CASE OF APOLLO TYRES PVT. LTD. AND CIT VS. DYNAMIC ORTHOPEDICS PVT. LTD..IT HAS BEEN SPECIFICALLY PROVIDED THAT MA T CALCULATION IS TO BE ON THE BASIS OF BOOK PROFIT AS PER THE AUDITED B ALALNCESHEET SUBJECT TO VARIOUS ADJUSTMENTS PROVIDED IN THE PROV ISIONS OF SEC. 115JB.IT IS NOT THE ASSESSING OFFICERS CASE THAT T HE MISTAKE IN COMPUTATION OF INCOME U/S 115JB BY THE APPELLANT IS ON ACCOUNT OF SUCH ADJUSTMENT. I HAVE TAKEN IN TO CONSIDERATION C OMPUTATION OF INCOME AS PLACED ON RECORD AND IT IS SELF EVIDENT T HAT ONLY DIFFERENCE IN THE WORKING OF EXEMPTION U/S 10B IS O N ACCOUNT OF CLAIM OF DEPRECIATION. THE CONCEPT OF TAX LIABILITY U/S 15JB IS WELL LAID DOWN IN THE SCHEME OF THE ACT ITSELF. AND ALSO SUPPORTED FROM LEGAL DECISIONS REFERRED TO ABOVE T HERE IS THUS NO MISTAKE IN PAYMENT OF TAX LIABILITY U/S 115JB BY THE APPELLANT. IN VIEW OF ABOVE DIRECTIONS, IT IS NOT N ECESSARY TO ADJUDICATE THE LEGAL GROUND. THE GROUND REGARDING CHARGE OF INTEREST IS OF CONSE QUENTIAL NATURE AND ASSESSING OFFICER MAY GIVE RELIEF AS PER LAW. 4. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST T HE AFORESAID FINDINGS OF LD. CIT(A).THE LD. DR SUPPORTED THE FINDINGS OF THE AO WHILE THE LEARNED AR ON BEHALF OF THE ASSESSEE RELIED UPON THE IMPUGNED ORD ER IN THE LIGHT OF DECISION OF HONBLE KERALA HIGH COURT IN CIT VS. DYNAMIC ORTHOP EDICS PVT. LTD. ,257 ITR 446. TO A QUERY BY THE BENCH, THE LD. AR POINTED OU T THAT THE ASSESSEE IS NOT IN APPEAL BEFORE THE ITAT. 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE AFORESAID DECISION OF HONBLE KERALA HIGH COURT RELIED UPON BY THE LD. I.T.A. NO.4894/DEL./2009 4 AR. INDISPUTABLY, DETERMINATION BOOK PROFITS U/S 115JB OF THE ACT DOES NOT FORM PART OF THE ASSESSMENT ORDER DATED 31 ST MARCH, 2005. IT APPEARS THAT THE ASSESSEE IN THEIR COMPUTATION U/S 115JB OF THE ACT, REDUCED THE BOOK PROFITS BY AN AMOUNT OF ` 2,83,97,520/- ON ACCOUNT OF DEDUCTION U/S 10B OF TH E ACT WHILE UNDER THE NORMAL PROVISIONS SUCH BENEFIT WORKED OUT TO ` ` 140,34,521/- DUE TO DIFFERENCE IN RATES OF DEPRECIATION IN ACCORDANCE W ITH IT RULES,1962 VIS--VIS PROVIDED IN THE COMPANIES ACT,1956. THE AO, IN THE REASSESSMENT PROCEEDINGS, VALIDITY OF WHICH IS NOT IN QUESTION BEFORE US NOR THE LD. CIT(A) ADJUDICATED THE LEGAL GROUND, RESTRICTED THE DEDUCTION U/S 10B OF THE ACT TO AN AMOUNT OF 1,40,34,521/- WHILE DETERMINING BOOK PROFITS U/S 11 5JB OF THE ACT. THE DETAILED WORKING OF THIS AMOUNT IS NOT EVIDENT FROM THE IMPU GNED ORDER NOR HAS BEEN PLACED BEFORE US. HOWEVER, IT IS SUBMITTED THAT VAR IATION IN DEDUCTION U/S 10B OF THE ACT IS DUE TO DIFFERENCE IN RATES OF DEPRECIATI ON IN TERMS OF IT RULES,1962 VIS- -VIS COMPANIES ACT,1956. IN THIS CONNECTION, THE LD. AR INVITED OUR ATTENTION TO DECISION OF THE HONBLE KERALA HIGH COURT IN THE CO NTEXT OF PROVISIONS OF SECTION 115J OF THE ACT, WHEREIN IT WAS HELD THAT THE BOOK PROFIT ESTIMATE UNDER SECTION 115J HAS TO BE MADE ON THE BASIS OF DEPRECIATION C ALCULATED IN ACCORDANCE WITH SCHEDULE VI TO THE COMPANIES ACT,1956 AND NOT AS PE R THE PROVISIONS OF THE ACT. THE FINDINGS OF THE HONBLE HIGH COURT READ AS UNDE R: SUB-SECTION (1A) OF THE ACT SAYS THAT EVERY ASSES SEE, BEING A COMPANY, SHALL, FOR THE PURPOSE OF THIS SECTION, PREPARE ITS PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR IN ACCORDANCE WITH THE PROVISIONS OF PARTS II AND III OF SCHEDULE VI TO THE COMPANIES ACT. THE ARGUMENT OF LEARNED COUNS EL FOR THE ASSESSEE IS THAT THE RESPONDENT BEING A PRIVATE COMPANY, THE PREPARA TION OF ITS PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR IN ACCORDANC E WITH THE PROVISIONS OF PART II OF SCHEDULE VI TO THE COMPANIES ACT IS NOT APPLICAB LE. SECTION 350 OF THE COMPANIES ACT, 1956, STATES AS FOLLOWS: 'THE AMOUNT OF DEPRECIATION TO BE DEDUCTED IN PURSUANCE OF CLAUSE (K) OF SUB-SECTION (4) OF SECTION 349 SHALL BE THE AMOUNT CALCULATED WITH REFERENCE TO THE WRITTEN-DOW N VALUE OF THE ASSETS AS SHOWN BY THE BOOKS OF THE COMPANY AT THE END OF THE FINANCIAL YEAR EXPIRING AT THE COMMENCEMENT OF THIS ACT OR IMMEDIATELY THEREAF TER AND AT THE END OF EACH SUBSEQUENT FINANCIAL YEAR AT THE RATE SPECIFIED IN SCHEDULE XIV'. WHAT IS SUBMITTED BY LEARNED COUNSEL IS THAT UNDER SECTION 355 OF THE COMPANIES ACT, NOTHING IN SECTION 349 SHALL APPLY TO A PRIVATE COM PANY UNLESS IT IS APPLICABLE TO THE PRIVATE COMPANY. HENCE, LEARNED COUNSEL CONTEND S THAT HIS CLIENT HAS CALCULATED THE DEPRECIATION ON THE BASIS OF THE PRO VISIONS OF THE INCOME-TAX ACT. I.T.A. NO.4894/DEL./2009 5 WE ARE AFRAID, THIS EXPLANATION CANNOT BE ACCEPTED. SECTION 115J HAS TO BE LOOKED INTO FOR THE FOLLOWING REASONS: 'IT IS ONLY FAIR AND PROPER THAT THE PROSPEROUS SHOULD PAY AT LEAST SOME TAX. THE PHENOM ENON OF SO-CALLED 'ZERO- TAX' HIGHLY PROFITABLE COMPANIES DESERVES ATTENTION . IN 1983, A NEW SECTION 80VVA WAS INSERTED IN THE ACT SO THAT ALL PROFITABL E COMPANIES PAY SOME TAX. THIS DOES NOT SEEM TO HAVE HELPED AND IS BEING WITH DRAWN. I NOW PROPOSE TO INTRODUCE A PROVISION WHEREBY EVERY COMPANY WILL HA VE TO PAY A 'MINIMUM CORPORATE TAX' ON THE PROFITS DECLARED BY IT IN ITS OWN ACCOUNTS. UNDER THIS NEW PROVISION, A COMPANY WILL PAY TAX ON AT LEAST 30 PE R CENT. OF ITS BOOK PROFITS. IN OTHER WORDS, A DOMESTIC WIDELY HELD COMPANY WILL PA Y TAX OF AT LEAST 15 PER CENT. OF ITS BOOK PROFIT. THIS MEASURE WILL YIELD A REVEN UE GAIN OF APPROXIMATELY RS. 75 CRORES'. SECTION 115J OF THE ACT BROADLY MAKES APPL ICABLE TO THE ASSERTIBLE DEPRECIATION AT THE RATES PRESCRIBED IN SCHEDULE VI . THUS, THIS PROVISION IS INCORPORATED IN THE ACT. SECTION 355 OF THE COMPANI ES ACT CANNOT BE MADE APPLICABLE IN SUCH CASES. WE ARE OF THE VIEW THAT D EPRECIATION HAS TO BE CALCULATED AS STATED IN SECTION 350 OF THE COMPANIE S ACT. 5.1 EVEN OTHERWISE, IN VIEW OF DECISION OF THE H ONBLE APEX COURT IN APOLLO TYRES LTD. VS. CIT,255 ITR 273, THE AO, WHILE ASSE SSING A COMPANY FOR INCOME- TAX UNDER SECTION 115J OF THE ACT, CANNOT QUESTIO N THE CORRECTNESS OF THE PROFIT AND LOSS ACCOUNT PREPARED BY THE ASSESSEE-COMPANY AND CERTIFIED BY THE STATUTORY AUDITORS OF THE COMPANY AS HAVING BEEN PR EPARED IN ACCORDANCE WITH THE REQUIREMENTS OF PARTS II AND III OF SCHEDULE VI TO THE COMPANIES ACT .IN TERMS OF THE EXTANT PROVISIONS OF SEC. 115JB OF THE ACT, EVERY COMPANY IS REQUIRED TO PREPARE ITS PROFIT AND LOSS ACCOUNT FOR THE RELEVAN T PREVIOUS YEAR IN ACCORDANCE WITH THE PROVISIONS OF PARTS II AND III OF SCHEDULE VI TO THE COMPANIES ACT, 1956 AND WHILE PREPARING THE ANNUAL ACCOUNTS INCLUDING P ROFIT AND LOSS ACCOUNT,-- (I) THE ACCOUNTING POLICIES; (II) THE ACCOUNTING STANDARDS ADOPTED FOR PREPARING SUCH ACCOUNTS INCLUDING PROFIT AND LOSS ACCOUNT; (III) THE METHOD AND RATES ADOPTED FOR CALCULATING THE DEPRECIATION, HAVE TO BE THE SAME AS HAVE BEEN ADOPTED FOR THE PU RPOSE OF PREPARING SUCH ACCOUNTS INCLUDING PROFIT AND LOSS ACCOUNT AND LAID BEFORE THE COMPANY AT ITS ANNUAL GENERAL MEETING IN ACCORDANCE WITH THE PROVI SIONS OF SECTION 210 OF THE COMPANIES ACT, 1956 . I.T.A. NO.4894/DEL./2009 6 5.2 IN VIEW OF THE SPECIFIC PROVISIONS CONTAINE D IN SUB-SECTION (2) OF SEC. 115JB OF THE ACT, ESPECIALLY WHEN THE LD. CIT(A) MERELY F OLLOWED THE AFORESAID DECISION IN ACCEPTING THE CLAIM OF THE ASSESSEE WHILE THE RE VENUE HAVE NOT BROUGHT TO OUR NOTICE ANY CONTRARY DECISION NOR ANY OTHER MATE RIAL, SO AS TO ENABLE US TO TAKE A DIFFERENT VIEW IN THE MATTER, WE ARE NOT INC LINED TO INTERFERE. THEREFORE, GROUND NOS. 1 TO 3 IN THE APPEAL ARE DISMISSED. . 6. NO ADDITIONAL GROUND HAVING BEEN RAISED BEFORE U S IN TERMS OF RESIDUARY GROUND NO.4 IN THE APPEAL, ACCORDINGLY, THIS GROUND IS ALSO DISMISSED. 7. NO OTHER PLEA OR ARGUMENT WAS RAISED BEFORE US. 8. IN RESULT, APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT SD/- SD/- (RAJPAL YADAV) (A.N. PAHUJA) JUDICIAL MEMBER ACCOUNTANT MEMBER NS COPY OF THE ORDER FORWARDED TO :- 1. M/S DHIR GLOBAL INDUSTIA P. LTD., 375, PHASE-IV , UDYOG VIHAR, GURGAON. 2. INCOME TAX OFFICER, WARD 10 (3), NEW DELHI. 3. CIT (APPEALS)-XIII, NEW DELHI 4. THE CIT CONCERNED. 5. THE DR, ITAT,I BENCH, NEW DELHI 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, DELHI