DCIT, Central Cir-VI, Kolkata V. M/s J.K. Lakshmi Cement Ltd., Kolkata

ITA 608/KOL/2013

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3466 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 21-01-2013
• Court: TRIBUNAL
• Department Lawyers: SIDHAR TH JHAJHARIA FCAL
• Assessee Lawyers: NIRAJ KUMAR CIT LD
• Keywords: Depreciation; Unabsorbed depreciation
• Section: 143(3); 115JB

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, B BENCH, K OLKATA BEFORE : SHRI N.V. VASUDEVAN, JUDICIAL MEMBER, AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER I.T.A NO. 608/KOL/2013 A.Y : 2005-06 D.C.I.T, CENTRAL CIRCLE-VI, KOLKATA VS. M/S. J. K LAKSHMI CEMENT LTD PAN: AAECJ 6715G (APPELLANT/DEPARTMENT) (RESPONDENT/ASSESSEE) C.O NO.46/KOL/2013 [ A/O ITA NO.608/KOL/2013 A.Y 2005-06] M/S. J.K LAKSHMI CEMENT LTD VS. D.C.I.T, CE NTRAL CIRCLE-VI, KOLKATA (CROSS OBJECTOR/ASSESSEE ) (RESPONDENT/DE PARTMENT) FOR THE APPELLANT/DEPARTMENT: SHRI NIRAJ KU MAR, CIT/LD.DR FOR THE RESPONDENT/ASSESSEE: SHRI SIDHAR TH JHAJHARIA, FCALD.AR OF THE ASSESSEE DATE OF HEARING: 21-01-2016 DATE OF PRONOUNCEMENT: 22 -01-2 016 ORDER SHRI M.BALAGANESH, AM THIS APPEAL OF THE REVENUE AND CROSS OBJECTION OF THE ASSESSEE ARISE OUT OF THE ORDER OF THE LEARNED CIT(A), CENTRAL-I, KOLKATA IN APPEAL NO. 23/CC-VI/CIT(A) C-I/11- 12 DATED 28 TH JANUARY, 2013 FOR THE ASSESSMENT YEAR 2005-06 AG AINST THE ORDER OF ASSESSMENT FRAMED BY THE LEARNED AO U/S 143(3) OF T HE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). 2. THE ONLY GROUND TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE ASSESSEE IS ENTITLED TO REDUCE THE LEAST OF BROUGHT FORWARD BUS INESS LOSS AND UNABSORBED DEPRECIATION WHILE COMPUTING THE BOOK PROFIT U/S. 115JB OF THE A CT IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 2 2.1. THE BRIEF FACTS OF THIS ISSUE ARE THAT THE H ONBLE HIGH COURTS OF ORISSA AND GUJARAT SANCTIONED A SCHEME OF COMPROMISE AND/ OR ARRANGEME NT BETWEEN THE ASSESSEE AND ITS LENDERS, BANKERS AND SHAREHOLDERS AND CENTRAL PULP MILLS LTD AND ITS SHAREHOLDERS FOR RESTRUCTURING OF DEBTS OF ASSESSEE DUE TO ITS L ENDERS AND BANKERS AND FOR RECONSTRUCTION OF SAID TWO COMPANIES BY TRANSFER OF PAPER UNDERTA KING OF ASSESSEE TO M/S. CENTRAL PULP MILLS LIMITED. THE CLAUSE 10 OF PART II OF THE SAN CTIONED SCHEME PROVIDED THAT DEBIT BALANCE IN THE P & L ACCOUNT AS ON SEPTEMBER 30, 20 00 AMOUNTING TO RS.381.55 CRORES OF THE ASSESSEE SHALL STAND ADJUSTED AGAINST SHARE PRE MIUM ACCOUNT TO THE EXTENT OF RS. 281.55 CRORES AND REMAINING 100 CRORES AGAINST REVA LUATION RESERVE. THIS ADJUSTMENT WAS DULY EFFECTED IN THE BOOKS OF ACCOUNT OF THE ASSESS EE FOR THE FY 2000-01 RELEVANT TO AY 2001-02. HOWEVER, THE STATUTORY AUDITORS IN THEIR R EPORT DATED SEPTEMBER 29, 2001 HAD COMMENTED AS UNDER:- REGARDING ADJUSTMENT OF DEBIT BALANCE IN PROFIT AN D LOSS ACCOUNT, ATTENTION IS INVITED TO NOTE I- SCHEDULE 20, ACCORD ING TO WHICH THE DEBIT BALANCE IN PROFIT AND LOSS ACCOUNT HAS BEEN ADJUST ED AGAINST SHARE PREMIUM AND REVALUATION RESERVE AMOUNTING TO RS.281 .55 CRORES RESPECTIVELY PURSUANT TO THE SANCTION OF SCHEME OF COMPROMISE AND/OR ARRANGEMENT BY HONBLE HIGH COURTS OF ORISSA AND GU JARAT WHICH THOUGH NOT IN LINE WITH THE GENERALLY ACCEPTED ACCOUNTING PRACTICES HAS BEEN CARRIED OUT AS PER THE ORDERS OF THE SAID HIGH COURTS, IMPL EMENTATION WHEREOF IS BINDING ON THE COMPANY. 2.2 PURSUANT TO THIS ADJUSTMENT, THE LEAST OF UN ABSORBED DEPRECIATION AND BROUGHT FORWARD OF BUSINESS LOSS WAS WORKED OUT AT RS. NI L. ACCORDINGLY, THE LD.AO DID NOT ALLOW ANY REDUCTION OF THE SAME FOR COMPUTING THE B OOK PROFIT UNDER CLAUSE (III) OF EXPLANATION 1 TO SECTION 115JB OF THE ACT. 3. ON 1 ST APPEAL, IT WAS PLEADED BY THE ASSESSEE THAT THE S TATUTORY AUDITORS M/S. LODHA & CO HAD GIVEN A CERTIFICATE DULY COMPUTING THE BROUGHT FORWARD BUSINESS LOSSES AND UNABSORBED DEPRECIATION AS PER THE BOOKS OF AC COUNT COMMENCING FROM FY 1997-98 TO FY 2003-04, WHEREIN THEY HAVE CERTIFIED THAT THE BROUGHT FORWARD THE BUSINESS LOSS IS OF RS.272.15 CRORES AND UNABSORBED DEPRECIATION IS RS.331.43 CRORES AND LEAST OF THE SAME IS ENTITLED TO BE DEDUCTED FROM THE BOOK PROF IT COMPUTED U/S. 115JB OF THE ACT. IT 3 WAS ALSO PLEADED THAT ADMITTEDLY THE STATUTORY AUDI TOR HAD ISSUED THIS CERTIFICATE BY WORKING OUT THE STATUS OF LOSSES AND UNABSORBED DEPRECIATION WITHOUT CONSIDERING THE ADJUSTMENT OF RS.381.55 CONTEMPLATED AND SANCTIONE D SCHEME OF ARRANGEMENT APPROVED BY THE HONBLE HIGH COURTS OF ORISSA AND GUJARAT. R ELEVANT CERTIFICATE ISSUED BY M/S. LODHA & CO., CHARTERED ACCOUNTS IS REPRODUCED HERE IN BELOW :- 'TO WHOMSOEVER IT MAT CONCERN WE LODHA & CO. CHARTERED ACCOUNTANTS, THE STATUTORY AUDITORS OF J K LAKSHMI CEMENT LTD., FORMERLY J K CORP. LTD. (THE COMPANY) HAVE CHECKED UP BOOKS OF ACCOUNTS AND OTHER DOCUMENTS OF THE COMPANY. BASED ON OUR CHECKING WE CERTIFY CHAT THE COMPANY HAD DEBIT BALANCE OF &.381.55TRORE S AS ON 30.09.2000 IN PROFIT AND LOSS ACCOUNT OF THE COMPANY, WHICH PURSUANT TO THE SCHEME OF COMPROMISE AND/OR ARRANGEMENTS SANCTIONED BY THE HON 'BLE HIGH COURTS OF ORISSA AND GUJARAT WAS TRANSFERRED TO BALANCE SHEET AND STOOD ADJUSTED AGAINST BALANCE IN SHARE PREMIUM ACCOUNT AND REVALUATION RESERVE. WE HAVE BEEN ASKED BY THE COMPANY TO WORK OUT STATU S OF LOSSES AND UNABSORBED DEPRECIATION WITHOUT CONSIDERING ABOVE ADJUSTMENT, ADJUSTMENT OF DEBIT BALANCE IN PROFIT & LOSS ACCOUNT MADE AGAINST BALANCE AVAILABL E IN GENERAL RESERVE, TRANSFER OF OTHER RESERVES AS AVAILABLE TO/FROM PROFIT & LOS S ACCOUNT AND DEFERRED TAX CREDIT, ACCORDINGLY THE POSITION OF LOSSES AND UNAB SORBED DEPRECIATION AS ON 31-3- 2004 IS AS UNDER:- FINANCIAL YEAR (APRIL-MARCH) ASSTT. YEAR LOSSES CR./RS, UNABSERBED DEP CR./RS TOTAL CR./RS 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 34.07 114.02 - 111.22 12.84 - - 45.58 61.81 63.99 48.62 50.36 36.39 24.68 79.65 175.83 63.99 159.84 63.20 36.39 24.68 272.15 331.43 603.58 FOR LODHA & CO. CHARTERED ACCOUNT ANTS' 4. IT WAS ARGUED THAT THE ACCOUNTING STANDARD DID N OT PERMIT THE ADJUSTMENT OF DEBITING THE BALANCE IN THE P & L ACCOUNT AGAINST T HE SHARE PREMIUM OR REVALUATION RESERVE. ACCORDINGLY, THE SAID ADJUSTMENT DID NOT HAVE STATUTORY BACKING THOUGH 4 PERMITTED IN THE SANCTIONED SCHEME OF ARRANGEMENT OF HIGH COURTS AS PART OF DEBT RESTRUCTURING EXERCISE. MERELY BECAUSE THE HONBLE HIGH COURT HAD PERMITTED SUCH ADJUSTMENT, IT DID NOT IMPLY THAT THE SAME WAS IN ACCORDANCE WITH ACCOUNTING STANDARD OR THE BOOKS OF ACCOUNT CONTAINING SUCH ADJUSTMEN T WERE IN CONFORMITY WITH THE REQUIREMENTS OF COMPANIES ACT, 1956. IT WAS FURTH ER ARGUED THAT THE COMPUTATION OF BOOK PROFIT WAS REQUIRED TO BE MADE STRICTLY IN ACCORDANCE WITH SECTION 115JB OF THE ACT. ACCORDINGLY, IT WAS ARGUED THAT THE ADJUSTM ENT MADE IN THE BOOKS OF ACCOUNT WAS NOT IN ACCORDANCE WITH THE ACCOUNTING STANDARDS/PRI NCIPLES AND/ PROVISIONS OF THE COMPANIES ACT, 1956, THOUGH PERMITTED BY SAID SCHE ME. THE SAME WAS REQUIRED TO BE EXCLUDED FROM CONSIDERATION FOR ARRIVING AT THE C ORRECT AMOUNT OF BOOK PROFIT. HE FURTHER ARGUED THAT THE STATUTORY AUDITORS OPINION THAT THE ADJUSTMENT WAS NOT IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES COU LD NOT BE IGNORED. IT WAS FURTHER ARGUED THAT IT WAS INCUMBENT UPON THE LD.AO TO DETERMINE THE CORRECT AMOUNT OF LOSS/DEPRECIATION FOR THE PURPOSES OF REDUCTION I N TERMS OF CLAUSE (III) OF EXPLANATION 1 TO SECTION 115JB OF THE ACT ON THE BASIS OF STATUTORY AUDITORS OPINION. IN TERMS OF SECTION 211(6) OF THE COMPANIES ACT 1956, THE BALANCE SHEET AND P & L ACCOUNT INCLUDED THE NOTES THEREON AND DOCUMENTS ANNEXED THERETO AND SUC H NOTES AND DOCUMENTS COULD NOT BE IGNORED BY THE LD.AO IN COMPUTING THE BOOK PROFIT U /S. 115JB OF THE ACT. IT WAS ALSO ARGUED BY HIM BY PLACING HIS RELIANCE ON CERTAIN D ECISIONS THAT IF ACCOUNTS WERE NOT PREPARED IN ACCORDANCE WITH PART II & III OF SCHEDU LE VI OF COMPANIES ACT1956, THE LD.AO HAD POWERS TO GO BEYOND THE BOOK PROFIT AS PE R THE AUDITED ACCOUNTS. 5. THE LD. CIT(A) FOUND THAT THE SAME ISSUE HAS BE EN ADDRESSED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE AYS. 2006-07 AND 2007-0 8 IN ITA NOS. 1470/KOL/09 & 1275/KOL/2010 DATED 30-08-2011. ACCORDINGLY, HE ALL OWED THE APPEAL OF THE ASSESSEE ON THIS ISSUE. AGGRIEVED, THE REVENUE IS IN APPEAL BEF ORE US ON THE FOLLOWING GROUNDS:- (I) THAT THE LD. CIT(A) HAS FAILED TO APPRECIATE THAT T HE LOWER OF BROUGHT FORWARD LOSS OR UNABSORBED DEPRECIATION IN THE INSTANT CASE WAS NIL, AS NO LOSS WAS BROUGHT TOWARD AND, HENCE, HAS ERRED IN LAW AS WELL AS FACTS OF THE CASE IN DIRECT ING TO RE- COMPUTE THE BOOK PROFIT U/S. 115JB, EXCLUDING THE A DJUSTMENT OF 5 THE DEBIT BALANCE IN THE PROFIT & LOSS ACCOUNT WITH THE SHARE PREMIUM ACCOUNT AND THE REVALUATION RESERVE MADE ON 30.09.2000; AND (II) THAT THE DEPARTMENT CRAVES THE RIGHT TO ADD, MODIFY OR ALTER THE GROUNDS OF APPEAL DURING THE COURSE OF HEARING OF T HE CASE. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ISSUE BEFORE US IS SQUARELY COVER ED BY THE DECISION OF THE TRIBUNAL IN ASSESSEES CASE (REFERRED TO SUPRA). RELEVANT OPER ATIVE PORTION OF THE ORDER IS REPRODUCED HEREIN BELOW FOR THE SAKE OF BREVITY:- 14. TO SUM UP, IN OUR VIEW, IN COMPUTING THE BOOK PROFIT FOR THE ASSESSMENT YEARS 2006-07 AND 2007-08, THE ASSESSEE WAS ENTITLED TO DEDUCTION IN TERMS OF CLAUSE (III) OF THE EXPLANATION TO SECT ION 115JB OF THE ACT THE ADJUSTMENT OF DEBIT BALANCE IN THE PROFIT AND LOSS ACCOUNT WITH SHARE PREMIUM ACCOUNT AND REVALUATION RESERVE MADE ON SEP TEMBER 30, 2000, WHICH IS REQUIRED TO BE EXCLUDED FROM CONSIDERATION AND ACCORDINGLY, AO IS REQUIRED TO DETERMINE AMOUNT OF LOSS BROUGHT FORWAR D OR UNABSORBED DEPRECIATION FOR EACH OF YEARS WITHOUT TAKING SAI D ADJUSTMENT INTO CONSIDERATION AND ALLOW DEDUCTION IN RESPECT OF LES SER OF TWO AMOUNTS. HENCE, BOTH QUESTIONS FRAMED BY US ARE ANSWERED IN FAVOUR OF ASSSESSEE ON THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, WE ALLOW THIS ISSUE IN FAVOUR OF ASS ESSEE AND AGAINST REVENUE. 7. IN VIEW OF THE ABOVE, WE FIND NO INFIRMITY IN T HE ORDER OF THE LD. CIT(A). ACCORDINGLY, THE GROUND RAISED BY THE REVENUE IS DI SMISSED. C.O NO. 46/KOL/2013 (ARISING OUT OF ITA NO. 608/KOL /2013 A.Y 2005-06) 8. THE ASSESSEE HAS FILED THE CROSS OBJECTION IN SU PPORT OF THE ORDER OF THE LD.CIT(A). SINCE WE HAVE UPHELD THE FINDING OF THE LD.CIT(A) I N DISMISSING THE APPEAL OF THE REVENUE, THE CROSS OBJECTION FILED BY THE ASSESSEE IS DISMISSED AS INFRUCTUOUS. 9. IN THE RESULT, THE APPEAL OF THE REVENUE AND C ROSS OBJECTION OF THE ASSESSEE BOTH ARE DISMISSED AS STATED ABOVE. THIS ORDER IS PRONOUNCED IN OPEN COURT ON 22 -01- 2016 6 1.. THE APPELLANT: THE DCIT, CENTRAL CIRCLE-VI, AA YKAR BHAWAN POORVA, 3 RD FL., EM BYE PASS,110 SHANTIPALLY, KOL-107. 2 THE RESPONDENT-M/S. J.K LAKSHMI CEMENT LTD 7 COU NCIL HOUSE STREET, KOL-1. 3 /THE CIT, 4.THE CIT(A ) 5. DR, KOLKATA BENCH 6. GUARD FILE. TRUE COPY, BY ORDER, ASSTT REGISTRAR **PRADIP SPS SD/- ( N.V. VASUDEVAN, JUDICIAL MEMBER ) SD/- (M. BALAGANESH, ACCOUNTANT MEMBER) DATE 22 -01-2016 COPY OF THE ORDER FORWARDED TO:-