Binary Semantics Ltd., Gurgaon V. ACIT, New Delhi

ITA 5773/DEL/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 98092 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 1 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC 1
• Next Hearing Date: 16-11-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 28-10-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: YATENDRA SINGH
• Assessee Lawyers: SANJAY KALRA
• Keywords: Depreciation; Difference of opinion; Revised return
• Section: 244A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : C : NEW DELHI BEFORE SMT. DIVA SINGH, JUDICIAL M EMBER AND SH. O.P. KANT, ACCOUNTANT MEMBER ITA NO . 5773 /DEL/ 2014 ASSESSMENT YEAR: 2011 - 12 BINARY SEMANTICS LTD., VS. ACIT, CIRCLE - 3(1), PLOT NO. 38, SECTOR - 18, NEW DELHI ELECTRONIC CITY, GURGAON (PAN: AAACB0652N) (APPELLANT) (RESPONDENT) APPELLANT BY : SH. SANJAY KALRA, CA RESPONDENT BY : SH. YATENDRA SINGH, DR DATE OF HEARING: 16.11.2015 DATE OF PRONOUNCEMENT: 11.12.2015 ORDER PER O.P. KANT, A. M. : THE PRESENT APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 23.09.2014 OF CIT(A) - VI, NEW DELHI, FOR THE ASSESSMENT YEAR 2011 - 12, RAISING FOLLOWING GROUNDS OF APPEAL: 1. THAT ON FACTS AND IN LAW THE ORDERS PASSED BY THE A.O. AND CONFIRMED BY THE COMMISSIONER OF INCOME TAX(APPEALS) (HEREINAFTER REFERRED TO AS CIT(A) ) ARE BAD IN LAW AND VOID AB - INITIO. 2. THE ADDITION MADE BY THE AO AND CONFIRMED BY CIT(A) IN BOOK PROFIT OF THE INTEREST RECEIVED ON TAX REFUND OF RS. 2,50,737/ - IS INCORRECT AS INTEREST FOR THE YEAR 2010 - 11 (UP TO THE D ATE OF RECEIPT OF REFUND) WAS ALREADY INCLUDED IN INCOME OF THE COMPANY. THE ADDITION IS ARBITRARY, UNLAWFUL AND AGAINST FACTS. 3. THE APPELLANT PRAYS FOR LEAVE TO ADD, ALTER, AMEND OR WITHDRAW FROM ANY OF THE GROUNDS OF APPEAL AT OR BEFORE THE TIME OF HEARI NG. 2 ITA NO. 5773/DEL/2014 AY:2011 - 12 2. THE FACTS IN BRIEF AS C ULLED OUT FROM THE ORDER S OF THE LOWER AUTHORITIES ARE THAT IN THE REVISED RETURN OF INCOME FILED, THE ASSESSEE DECLARED LOSS OF RS. 15,32,790/ - AS PER NORMAL PROVISIONS OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) AND BOOK PROFIT OF RS 29,50,158/ - UNDER S ECTION 115JB OF THE ACT . IN THE COURSE OF SCRUTINY PROCEEDINGS, THE ASSESSING OFFICER (IN SHORT THE AO ) OBSERVED THAT THE ASSESSEE RECEIVED OF INTEREST OF RS. 4,66,110/ - ON INCOME TAX REFUNDS IN THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR, H OWEVER, OUT OF WHICH ONLY RS. 2,15,373/ - WAS CREDITED IN THE P&L ACCOUNT , THEREFORE, HE ADDED THE BALANCE AMOUNT OF RS. 2,15,737/ - TO THE BOOK PROFIT OF THE ASSESSEE AND ASSESSED THE INCOME ACCORDINGLY . AGGRIEVE D, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A). BEFORE THE LD. CIT(A), THE ASSESSEE ACCEPTED THAT WHILE MAKING ENTRIES FOR INTEREST IN THE PROFIT & LOSS ACCOUNT , DUE TO MISTAKE AT THE LOWER LEVEL OF THE ACCOUNTS DEPARTMENT , THIS OMISSION OCCURRED BUT I T WAS NOT INTENTIONAL. HOWEVER, THE ASSESSEE REQUESTED THAT FOLLOWING THE JUDGMENT OF THE HON BLE APEX COURT IN THE CASE OF APOLLO TYRES LTD. VS. CIT, 255 ITR 273(SC) AND THE DECISION OF ITAT, DELHI BENCH IN THE CASE OF DCIT VS. DUNE LEASING & FINANCING LT D., 4 ITR (TRIB.) 65 (DELHI.) , NO CHANGE COULD BE MADE BY THE ASSESSING OFFICER TO THE BOOK PROFIT COMPUTED IN ACCORDANCE WITH THE COMPANIES ACT, CERTIFIED BY THE CHARTERED ACCOUNTANT , PASSED BY THE GENERAL BODY OF THE COMPANY AND PLACED BEFORE THE REGIST R AR OF COMPANIES TO WHICH HE HAS NOT TAKEN OBJECTION . 3 ITA NO. 5773/DEL/2014 AY:2011 - 12 FURTHER, HE SUBMITTED THAT THE ASSESSING OFFICER COULD ONLY MAKE THE ADJUSTMENT TO BOOK PROFIT WHICH IS PERMISSIBLE UNDER THE EXPLANATION GIVEN IN SECTION 115JB OF THE ACT. T HE LEARNED CIT(A) DID NOT ACCEPT THE SUBMISSION OF THE ASSESSEE AND SUSTAINED THE ADDITION MADE BY THE ASSESSING OFFICER. 3. BEFORE US, THE LEARNED AUTHORIZED REPRESENTATIVE OF THE ASSESSEE REITERATED THE ARGUMENTS/SUBMISSIONS MADE BEFORE THE LEARNED CIT(A) THAT THE AO CANNOT ALTE R THE BOOK PROFIT EXCEPT THE CIRCUMSTANCES PERMITTED UNDER THE INCOME - TAX ACT . IN THE WRITTEN SUBMISSION FILED BEFORE US , THE ASSESSEE SUBMITTED THAT IN THE RETURN FILED FOR AY 2009 - 10, THE PRINCIPAL AMOUNT OF REFUND DUE WAS OF RS. 46,61,141 . IT WAS FURTHE R SUBMITTED THAT A S THE ASSESSEE FOLLOWED MERCANTILE SYSTEM OF ACCOUNTING, THE INTEREST OF RS. 4,66,110 WAS ACCRUED AT THE RATE OF 6 PERCENT PER ANNUM FOR THE PERIOD FROM 1 ST APRIL, 2008 TO NOVEMBER, 2010 IN RESPECTIVE ASSESSMENT YEAR, AND SO THE INTEREST OF RS. 1,85,663 WAS ONLY REQUIRED TO BE CREDITED FOR THE PERIOD FROM 1 ST APRIL , 2010 TO NOVEMBER, 2010 I N THE YEAR UNDER CONSIDERATION, AGAINST WHICH, THE ASSESSEE HAD ALREADY CREDITED RS. 2,15,373/ - . IN VIEW OF THE SUBMISSION OF THE ASSESSEE, THE LD. AR ARGUED THAT AS THE ASSESSEE WAS NOT REQUIRED TO CREDIT THE ENTIRE AMOUNT OF INTEREST OF RS. 4,66,110 IN THE YEAR UNDER CONSIDERATION, THE BOOKS OF ACCOUNT FOR THE YEAR WERE IN COMPLIANCE TO PART II AND PART III OF THE SCHEDULE VI OF THE COMPANY ACT AND, HE NCE, RELYING ON JUDGEMENT OF THE SUPREME COURT IN THE CASE OF APOLLO TYRES ( SUPRA), THE ALTERATION IN BOOK 4 ITA NO. 5773/DEL/2014 AY:2011 - 12 PROFIT WAS NOT JUSTIFIED. LEARNED SENIOR DEPARTMENT R EPRESENTATIVE , ON THE OTHER HAND, RELIED ON THE ORDER OF THE LOWER AUTHORITIES . 4. BO TH THE G ROUND NO. 1&2 BEING INTER CONNECTED, BOTH ARE TAKEN UP TOGETHER. 5. WE HAVE HEA RD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD THE LD AR HAS SUBMITTED THAT THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND SO THE INTEREST ON SAID REFUND SHOULD HAVE BEEN ASSESSED IN THE YEAR OF ACCRUAL AND NOT IN THE YEAR IN WHICH IT IS RECEIVED. IN THE CASE OF THE ASSESSEE, RETURN FOR AY 2009 - 10 ( IN WHICH REFUND WAS DUE) WAS FILED IN FINANCIAL YEAR 2009 - 10 AND THAT REFUND WAS RECEIVED IN NOVEMBER, 2010, SO AS PER THE ASSESSEE , THE INTEREST ON SAID REFUND WAS TO BE ACCRUED FOR THE PERIOD FROM 1 ST APRIL, 2009 TO 31 ST MARCH, 2010 AND PERIOD FROM 1 ST APRIL, 2010 TO NOVEMBER, 2010. THE LD AR STATED THAT INTEREST OF 1,85,663 WAS PERTAINING TO THE PERIOD FROM 1 ST APRIL, 2010 TO NOVEMBER, 2010 , WHICH FALLS IN THE ASSESSMENT YEAR UNDER CONSIDERATION, SO THE BALANCE INTEREST OF RS. (4,66,110 - 1,85, 663= ) 2,80,447/ - PERTAINS TO ASSESSMENT YEAR 2010 - 11 , AS PER THE MERCANTILE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE. FIRST LY , WE DON T AGREE WITH THE CONTENTION OF THE ASSESSEE THAT THE INTEREST ON INCOME - TAX REFUND WAS ACCRUED AS PER MERCANTILE SY STEM OF ACCOUNTING. THE SECTION 244A OF THE ACT SAYS THAT WHERE REFUND OF ANY AMOUNT BECOMES DUE TO THE ASSESSEE 5 ITA NO. 5773/DEL/2014 AY:2011 - 12 UNDER THE ACT, HE WOULD BE ENTITLED TO RECEIVE INTEREST THEREON. FOR CLARITY, THE RELEVANT P A RT OF THE SECTION IS REPRODUCED AS UNDER: 244A . INTEREST ON REFUNDS (1) WHERE REFUND OF ANY AMOUNT BECOMES DUE TO THE ASSESSEE UNDER THIS ACT], HE SHALL, SUBJECT TO THE PROVISIONS OF THIS SECTION, BE ENTITLED TO RECEIVE, IN ADDITION TO THE SAID AMOU NT, SIMPLE INTEREST THEREON CALCULATED IN THE FOLLOWING MANNER, NAMELY: - (A) WHERE THE REFUND IS OUT OF ANY TAX COLLECTED AT SOURCE UNDER SECTION 206C OR] PAID BY WAY OF ADVANCE TAX OR TREATED AS PAID UN DER SECTION 199, DURING THE FINANCIAL YEAR IMMEDIATELY PRECEDING THE ASSESSMENT YEAR, SUCH INTEREST SHALL BE CALCULATED AT THE RATE OF [ONE - HALF PER CENT] FOR EVERY MONTH OR PART OF A MONTH COMPRISED IN THE PERIOD FROM THE 1ST DAY OF APRIL OF THE ASSESSME NT YEAR TO THE DATE ON WHICH THE REFUND IS GRANTED: PROVIDED THAT NO INTEREST SHALL BE PAYABLE IF THE AMOUNT OF REFUND IS LESS THAN TEN PER CENT OF THE TAX AS DETERMINED [ UNDER SUB - SECTION (1) OF SECTION 115 WE OR] ON REGULAR ASSESSMENT; (B) IN ANY OTHER CASE, SUCH INTEREST SHALL BE CALCULATED AT THE RATE OF [ONE HALF PERCENT] PER CENT FOR EVERY MONTH OR PART OF A MONTH COMPRISED IN THE PERIOD OR PERIODS FROM THE DATE OR, AS THE CASE MAY BE, DATES OF PAY MENT OF THE TAX OR PENALTY TO THE DATE ON WHICH THE REFUND IS GRANTED. FURTHER, THE SECTION 237 OF THE ACT SAYS THAT IF ANY PERSON SATISFIES THE ASSESSING OFFICER THAT THE AMOUNT OF TAX PAID BY HIM FOR ANY ASSESSMENT YEAR EXCEEDS THE AMOUNT WITH WHICH HE IS PROPERLY CHARGEABLE UNDER THIS ACT, HE WOULD BE ENTITLED TO A REFUND OF THE EXCESS. SO AS PER THE SECTION 237 OF THE ACT, REFUND IS DUE TO THE ASSESSEE ONLY WHEN IT IS DETERMINED BY THE ASSESSING OFFICER AND THE INTEREST ON REFUND WOULD ALSO BE DUE ONCE THE REFUND IS DETERMINED BY THE ASSESSING OFFICER. IN THE CASE OF THE ASSESSEE, THE REFUND WAS DETERMINED IN PREVIOUS YEAR 2010 - 11, CORRESPONDING TO ASSESSMENT YEAR 2011 - 12 I.E. PRESENT ASSESSMENT YEAR, SO THE INTEREST ALSO ACCRUED ONLY IN ASSESSMENT YEAR 2011 - 12 AND NOT IN ANY YEAR EARLIER TO IT. THEREFORE, WE HOLD 6 ITA NO. 5773/DEL/2014 AY:2011 - 12 THAT THE INTEREST OF RS. 4,66,110 ACCRUED IN RELEVANT ASSESSMENT YEAR ONLY. BEFORE THE CIT(A) , THE ASSESSEE ALSO DULY ACCEPTED THAT IT WAS MISTAKE AT LOWER LEVEL IN HIS OFFICE THEREFORE, IT COULD NOT CREDIT THE FULL AMOUNT. 6. NOW , ISSUE ARISES BEFORE US WHETHER THE AO WAS CORRECT IN ADDING THE BALANCE AMOUNT OF INTEREST OF RS. 2,50,737/ - TO THE BOOK PROFIT. BEFORE, THE LD. CIT(A), THE ASSESSEE TOOK PLEA THAT IN VIEW OF THE A PEX COURT JUDGEMENT IN THE CASE OF APOLLO TYRES LTD ( SUPRA) AND OTHER JUDICIAL PRONOUNCEMENTS , THE ASSESSING OFFICER CAN T OPEN THE ACCOUNTS WHICH HAVE BEEN DRAWN IN ACCORDANCE WITH THE COMPANIES ACT. THE SAM E ARGUMENT WAS REITERATED BEFORE US. WE ARE NOT IN AGREEMENT WITH THE LD AR ON THIS PROPOSITION OF LAW. THIS ISSUE HAS BEEN DEALT AT LENGTH BY THE SPECIAL BENCH OF TRIBUNAL IN CASE OF RAIN COMMODITIES LTD VS DCIT REPORTED IN (2010) 4 ITR 551 , AFTER CONSID ERING THE JUDGEMENT OF THE APEX COURT I N THE CASE APOLLO TYRES LTD ( SUPRA) HELD THAT : WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD AND THE CASE LAWS RELIED UPON BY BOTH THE PARTIES. WE HAVE TAK EN INTO CONSIDERATION THE RATIO DECIDENDI OF ALL THE DECISIONS RELIED UPON BY THE RIVAL PARTIES. THE OMISSION OF REFERENCE TO SOME OF THE CASES IN THE ORDER IS EITHER DUE TO THEIR IRRELEVANCE OR TO RELIEVE THE ORDER FROM THE REPETITIVE NATURE OF THE DECISI ONS. UNDER MINIMUM ALTERNATE TAX (MAT) PROVISIONS, THE AO IS CONCERNED WITH THE ADJUSTMENTS TO BE MADE WITH THE NET PROFIT AS SHOWN IN THE P&L A/C. ONE OF THE MOOT QUESTIONS RELEVANT TO THE ISSUE BEFORE US IS WHETHER THE AO HAS POWER TO ALTER THE NET PROFI T ? IN OUR CONSIDERED OPINION, YES. WE AGREE THAT IT IS SETTLED LAW THAT AO HAS THE POWER TO ALTER THE NET PROFIT. IN THE FOLLOWING TWO CASES, THE AO CAN REWRITE THE P&L A/C I.E. TO SAY THAT AO SHOULD RECALCULATE THE NET PROFIT AND THEN FOLLOW THE ADJUSTME NTS OF MAT AS USUAL: (1) IF IT IS DISCOVERED THAT P&L A/C IS NOT DRAWN UP IN ACCORDANCE WITH PART II AND PART III OF SCH. VI OF THE COMPANIES ACT. HOWEVER, THE AO CANNOT DISTURB THE NET PROFIT AS SHOWN BY THE ASSESSEE WHERE THERE ARE NO SUCH 7 ITA NO. 5773/DEL/2014 AY:2011 - 12 ALLEGATIONS, F RAUD OR MISREPRESENTATION BUT ONLY A DIFFERENCE OF OPINION AS TO WHETHER A PARTICULAR AMOUNT SHOULD BE PROPERLY SHOWN IN THE P&L A/C OR IN THE BALANCE SHEET, (2) IF ACCOUNTING POLICIES, ACCOUNTING STANDARDS ARE NOT ADOPTED FOR PREPARING SUCH ACCOUNTS AND M ETHOD, RATES OF DEPRECIATION WHICH HAS BEEN INCORRECTLY ADOPTED FOR PREPARATION OF P&L A/C LAID BEFORE THE ANNUAL GENERAL MEETING. EXCEPT FOR THE ABOVE TWO CASES, THE AO HAS NO POWER TO ALTER THE NET PROFIT SHOWN BY THE COMPANIES FOR THE PURPOSE OF COMPUTI NG THE BOOK PROFIT. THUS IT IS CLEAR THAT UNDER MAT, THE AO SHOULD TAKE THE NET PROFIT AS COMPUTED BY THE ASSESSEE AND THEN MAKE THE ADJUSTMENTS UNDER S. 115JB OF THE ACT. IT IS COMMON THAT SOME COMPANIES FOLLOW AN ACCOUNTING YEAR UNDER THE COMPANIES ACT, 1956 WHICH IS DIFFERENT FROM THE FINANCIAL YEAR UNDER IT ACT, 1961. THESE COMPANIES GENERALLY PREPARE TWO SETS OF ACCOUNTS - ONE FOR COMPANIES ACT AND ANOTHER FOR IT ACT. THE REASON BEING DIFFERENT ACCOUNTING POLICIES, STANDARDS, DEPRECIATION METHODS AND RAT ES ARE ADOPTED IN TWO SETS OF ACCOUNT SO THAT HIGHER PROFIT IS REPORTED TO SHAREHOLDERS AND LOWER PROFIT FOR THE IT AUTHORITIES. TO CURB THE ABOVE PRACTICE ONLY THIS RECALCULATION OF NET PROFIT UNDER MAT WAS INCORPORATED SO THAT THERE SHOULD BE A CONSISTEN CY IN ACCOUNTING POLICIES, STANDARDS, METHODS AND RATES OF DEPRECIATION WITHIN THE KNOWLEDGE OF IT AUTHORITIES. (EMPHASIS SUPPLIED) THE SPECIAL BENCH HAS CLEARLY HELD THAT WHEN THEN PROFIT AND LOSS ACCOUNT IS NOT DRAWN AS PER PART II AND PART III OF SC HEDULE VI OF THE COMPANIES ACT, THEN THE ASSESSING OFFICER HAS POWER TO ALTER THE BOOK PROFIT. SINCE IN THE CASE IN HAND THE INTEREST WAS NOT ONLY ACCRUED IN THE RELEVANT YEAR BUT THE ASSESSEE HAS ALSO ACCEPTED THE MISTAKE OF NOT CREDITING THE AMOUNT OF R S. 2,50,737 IN ITS PROFIT AND LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION. THE CASE OF THE ASSESSEE FALLS IN FIRST CATEGORY OF CASES AS IT WAS DISCOVERED BEYOND DOUBT THAT PROFIT AND LOSS ACCOUNT WAS NOT DRAWN UP IN ACCORDANCE WITH THE PART II AND PART I II OF THE SCHEDULE VI OF THE COMPANIES ACT. THEREFORE, RE SPECTFULLY FOLLOWING , THE DECISION OF THE SPECIAL BENCH OF TRIBUNAL IN THE CASE OF RAIN C OMMODITIES ( SUPRA) , WE HOLD THAT THE AMOUNT OF RS. 8 ITA NO. 5773/DEL/2014 AY:2011 - 12 2,50,737 WAS CORRECTLY ADDED BY THE ASSESSING OFFICER WHILE COMPUTING THE BOOK PROFIT OF THE ASSESSEE AND NO INTERFERENCE IS REQUIRED IN THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX ( APPEALS) . BOTH THE GROUNDS OF THE APPEAL OF THE ASSESSEE ARE DISMISSED. 7. IN THE RESULT, THE APPEAL FILED BY THE AS SESSEE IS DISMISSED . THE DECISION IS PRONOUNCED IN THE OPEN COURT ON 11 TH D E C E M B E R , 2015. SD/ - SD/ - ( DIVA SINGH ) ( O.P. KANT ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 11 TH D E C E M B E R , 2015. RK/ - COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI