City Gold Media Ltd., Ahmedabad V. The Income tax Officer,Ward-1(3), Ahmedabad

ITA 72/AHD/2009

• Counselvise Citation: 7220514 RSA 2009
• Duration Of Justice: 2 year(s) 11 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 28-12-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 07-01-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Capital receipt; Capital expenditure
• Section: 234B; 115JB

Judgement Text

FIT FOR PUBLICATION SD/- SD/- BPJ MKS (AM) (JM) , , , , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD , .. !', #$ # % BEFORE SHRI MUKUL KR.SHRAWAT, JUDICIAL MEMBER AND SHRI B.P.JAIN, ACCOUNTANT MEMBER ./ I.T.A. NO.72/AHD/2009 ( ' ' ' ' ' ' ' ' / / / / ASSESSMENT YEAR : 2005-06) CITY GOLD MEDIA LTD. SARTHIK ANNEXE 2 ND FLOOR NR.FUN REPUBLIC ISCON CIRCLE, AHMEDABAD ' ' ' ' / VS. THE ITO WARD-1(3) AHMEDABAD ( #$ ./ ) ./ PAN/GIR NO. : AABCA 3137 E ( (* / // / APPELLANT ) .. ( +,(* / RESPONDENT ) (* - # / APPELLANT BY : SHRI DHIREN SHAH, A.R. +,(* . - # / RESPONDENT BY : SHRI ABHISHEK KUMAR, SR.D.R. '/ . 0$ / / / / DATE OF HEARING : 28/12/2011 12' . 0$ / DATE OF PRONOUNCEMENT : 30/12/2011 #3 / O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL AT THE BEHEST OF THE ASSESSEE W HICH HAS EMANATED FROM THE ORDER OF LEARNED CIT(APPEALS)-VI, AHMEDABAD DATED 10/10/2008. THE ONLY GROUND IS IN RESPECT OF THE DISALLOWANCE OF ITA NO.72/AHD/2009 CITY GOLD MEDIA LTD. VS. IT O ASST.YEAR 20 05-06 - 2 - DEDUCTION OF RS.33,11,687/- WHILE COMPUTING THE TAX U/S.115JB OF THE I.T.ACT, WHICH READS AS FOLLOWS:- I. DISALLOWANCE OF DEDUCTION OF RS.33,11,687/- FRO M THE NET PROFIT ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION DUE TO RESTATED OF TERM LOAN AT THE YEA R END 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE OF RS.33,11,687/- MADE BY THE A.O WHIL E MAKING AN OBSERVATION THAT THE DEDUCTION EFFECTED BY THE APPE LLANT FROM THE NET PROFIT REGARDING FOREIGN EXCHANGE FLUCTUATION DUE T O RESTATED OF TERM LOAN AT YEAR END IS NOT AT ALL IN ACCORDANCE WITH T HE PROVISIONS OF SECTION 115JB. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN FAILING TO CONSIDER THE FACT THAT THE DEDUCTION OF RS.33,11,687/- CREDI TED IN PROFIT & LOSS ACCOUNT IS THE DIFFERENCE OF TERM LOAN PAYABLE AS P ER BOOKS AND THE AMOUNT RESTATED AND CALCULATED AT THE MARKET RATE O F DOLLARS AS ON 31/3/2005 WHICH WAS NEITHER A CAPITAL RECEIPT NOR A NY REAL INCOME THAT WAS CALCULATED DUE TO ACCOUNTING STANDARD 11 AND AC COUNTED FOR IN THE BOOKS OF ACCOUNT SHOULD NOT BE TAXED U/S.115JB BEIN G NOTIONAL RECEIPT. 2. THE ASSESSEE-COMPANY IS IN THE BUSINESS OF RUNNING A MULTIPLEX THEATRE. RETURN OF INCOME WAS FILED AT A LOSS OF RS.(-)58,9 2,889/-. THE BOOK PROFIT WAS DISCLOSED AT RS.1,58,06,285/- U/S .115JB OF THE I.T.ACT. WITH THIS BACKGROUND, WHILE COMPUTING MINIMUM ALTER NATE TAX, THE ASSESSING OFFICER VIDE IMPUGNED ORDER PASSED U/S.14 3(3) DATED 28/03/2007 HAS NOTICED THAT AS PER THE WORKING OF T HE BOOK PROFIT GIVEN BY THE ASSESSEE A SUM OF RS.33,11,687/- WAS REDUCED FROM THE BOOK PROFIT WHICH PERTAINED TO FOREIGN EXCHANGE FLUCTUA TION DUE TO RESTATED OF TERM LOAN AT THE YEAR END. THE ASSESSING OFFICER HAS MENTIONED THAT UNDER EXPLANATION TO SUB-SECTION ( 2 ) OF SECTION 115JB, THE CLAIM WAS MADE. AS AGAINST THAT, ACCORDING TO ASSESSING OFFICER, ITA NO.72/AHD/2009 CITY GOLD MEDIA LTD. VS. IT O ASST.YEAR 20 05-06 - 3 - THERE WAS NO SUCH DEDUCTION PRESCRIBED U/S.115JB OF THE I.T.ACT. IN COMPLIANCE OF SHOW-CAUSE NOTICE THE ASSESSEE HAS RA ISED FOLLOWING POINTS; RELEVANT PORTION REPRODUCED BELOW:- WITH REFERENCE TO THE ABOVE CITED SUBJECT WE WOULD LIKE TO INFORM YOUR GOODSELF AS UNDER: 1. ASSESSEE IS CARRYING BUSINESS OF MULTIPLEX THEATR E. 2. ASSESSEE HAS BORROWED TERM LOAN FROM BANKS FOR CAPITAL EXPENDITURE (FIXED ASSETS). 3. ASSESSEE HAS CONVERTED RUPEE TERM LOAN TAKEN F ROM BANKS TO FOREIGN CURRENCY LOAN TAKEN FROM UTI. THE FOREIGN CURRENCY LOAN TAKEN AND REPAID RUPEE TERM LOAN. 4. UPTO 31/03/2004 THE FOREIGN CURRENCY TERM LOAN RESTATED AT THE YEAR END AT CLOSING RATE OF $ AND THE DIFFERENCE IF ANY HAS BEEN ACCOUNTED FOR IN FIXED ASSETS ACCOUNTS IN THE BOOKS OF ACCOUN TS. NO CHANGE HAS BEEN DONE IN THE BLOCK OF ASSETS AND THE DEPRECIATI ON AS PER INCOME TAX RULES. 5. AS-11 (REVISED-2003) SHALL BE APPLICABLE IN RESP ECT OF ACCOUNTING PERIOD COMMENCING ON OR AFTER 01/04/2004 AND IS MAN DATORY IN NATURE. 6. DURING THE YEAR WE HAVE CHANGED THE METHOD OF AC COUNTING OF DIFFERENCE IN FOREIGN EXCHANGE DUE TO RESTATED THE TERMS LOAN AND THE DIFFERENCE HAS BEEN ACCOUNTED FOR IN PROFIT AND LOS S ACCOUNT BEING NOTIONAL INCOME/EXPENDITURE. 7. WE ARE GIVING BELOW THE DETAILS OF AS-11.. 2.1. THE ASSESSEE HAS ALSO CITED FEW CASE LAWS LIST ED BELOW:- 1.RAJKOT DISTRICT GOPALAK CO-OP. MILK PRODUCERS UN ION LTD. V. CIT 204 ITR 590 (GUJ.) 2. CIT V. SHOORJI VALLABHDAS & CO. 46 ITR 144 (SC). 3. GODHRA ELECTRICITY COMPANY LTD. VS. CIT (225 ITR 74 6)[SC]. 4. HIGHWAYS CONSTRUCTION CO.PVT.LTD. VS. CIT (1992) (G AU.) 199 ITR 702. 5. HITKARI FIBRES LTD. VS. JT. CIT 90 ITD 654 (MUM.) 6. GKW LTD. VS. JT.CIT 74 ITD 161/68 TTJ (CAL.) 756 7. ITO VS. FRIGSALES (INDIA) LTD. 4 SOT 376 (MUM.) ITA NO.72/AHD/2009 CITY GOLD MEDIA LTD. VS. IT O ASST.YEAR 20 05-06 - 4 - 3. HOWEVER, AFTER DISCUSSING THE PROVISIONS OF SECT ION 115JB OF THE I.T.ACT, THE ASSESSING OFFICER HAS CONCLUDED THAT T HE DEDUCTION AS CLAIMED BY THE ASSESSEE IN RESPECT OF FOREIGN EXCHA NGE FLUCTUATION WAS NOT ALLOWABLE UNDER THE PROVISIONS OF SECTION 11JB OF THE I.T.ACT. THE ASSESSING OFFICER HAS WORKED OUT THE BOOK PROFIT U/S.115JB AT RS.1,91,17,972/-. BEING AGGRIEVED THE MATTER WAS C ARRIED BEFORE THE FIRST APPELLATE AUTHORITY. 4. THE LEARNED CIT(APPEALS) HAS DISCUSSED THE PURPO SE OF INTRODUCTION OF MINIMUM ALTERNATE TAX AND THE DEFIN ITION OF BOOK PROFIT PRESCRIBED U/S.115JB OF THE I.T.ACT. THE L EARNED CIT(APPEALS) HAS ALSO DISCUSSED ACCOUNTING STANDARD-11 (AS-11) I N THE CONTEXT OF THE ACCOUNTS FINALIZED BY THE ASSESSEE UNDER THE PROVIS IONS OF SECTION 210 OF COMPANIES ACT, 1956. THEREAFTER, HE HAS AFFIRMED T HE WORKING OF THE BOOK PROFIT COMPUTED BY THE ASSESSING OFFICER FOR THE PURPOSE OF TAX U/S.115JB OF THE I.T.ACT. NOW THE ASSESSEE IS FURT HER IN APPEAL. 5. FROM THE SIDE OF THE APPELLANT, LD.AR MR. DHIREN SHAH APPEARED. HIS MAIN PLANK OF ARGUMENT IS THAT ONLY A NOTIONAL INCOME WAS CREDITED IN THE PROFIT & LOSS ACCOUNT, FOLLOWING ACCOUNTING STANDARD-11(AS-11). SINCE IT WAS A NOTIONAL INCOME, THEREFORE, NEITHER IN THE NORMAL COMPUTATION OF TAX UNDER IT ACT NOR UNDER THE SPECI AL PROVISION OF TAX U/S.115JB OF THE I.T.ACT IT COULD BE SUBJECT TO TAX . THOUGH HE HAS ALSO ARGUED THAT TILL 31.3.2004 THE REPAYMENTS OF LOAN W AS PART AND PARCEL OF THE CAPITAL ASSET AND DEPRECIATION WAS ADMISSIBLE B UT EVEN ON ENQUIRY FROM THE BENCH HE HAS NOT FURNISHED ANY EVIDENCE IN SUPPORT OF THE SAID CONTENTION. MERELY BY MAKING A STATEMENT A CLAIM CA N NOT BE ALLOWED ITA NO.72/AHD/2009 CITY GOLD MEDIA LTD. VS. IT O ASST.YEAR 20 05-06 - 5 - UNLESS AND UNTIL DULY SUPPORTED BY A COGENT EVIDENC E. LD. A.R. HAS ADVANCED THIS ARGUMENT WITHOUT ANY COGENT EVIDENCE AND EVEN NOT FILED BEFORE THE LOWER AUTHORITIES, HOWEVER, OTHERWISE AL SO THIS ARGUMENT HAS NO FORCE AS FAR AS THE ISSUE IN HAND IS CONCERNED. FROM THE ACCOUNTS HE HAS SIMPLY DEMONSTRATED THAT A CALCULATION WAS MADE IN RESPECT OF FOREIGN EXCHANGE FLUCTUATION BUT THOSE FACTS ARE OT HERWISE NOT IN DOUBT AND THE ASSESSING OFFICER HAS ALSO NOT OBJECTED THO SE ESTABLISHED FACTS. MR.DHIREN SHAH, LD.AR, HAS ALSO ADVANCED AN ANOTHER ARGUMENT THAT THOUGH SECTION 115JB OVERRIDES THE O THER PROVISIONS OF IT ACT, BUT BY VIRTUE OF SUB-SECTION (5) OF SECTION 11 5JB ALL OTHER PROVISIONS OF IT ACT SHOULD ALSO APPLY WHILE COMPUTING THE BO OK PROFIT. HE HAS THEREFORE EMPHASIZED THAT THE INCOME WHICH IS NOT A REAL INCOME, SINCE COULD NOT BE TAXED UNDER THE NORMAL PROVISIONS OF T HE ACT, THEREFORE SHOULD ALSO BE OUT OF THE AMBITS OF BOOK PROFIT. THE LD.AR HAS PLACED RELIANCE ON ITO VS. FRIGSALES (INDIA) LTD. 4 SOT 37 6 (MUM.)( ORDER DATED22.6.2005), ITO VS. SU-RAJ JEWELLERY (INDIA) L TD. 21 SOT 79 (MUM)( ORDER DATED 10.10.2007), CIT VS. SHOORJI VAL LABHDAS & CO. 46 ITR 144 (SC), INDIAN OVERSEAS BANK VS. CIT 183 ITR 200 (MAD.) & EIH ASSOCIATED HOTELS LTD. VS. DY.CIT 16 DTR 181 (ITAT KOL.). 6. FROM THE SIDE OF THE REVENUE, LD.SR.DR MR.ABHISH EK KUMAR APPEARED AND PLACED STRONG RELIANCE ON THE WORDINGS OF THE PROVISIONS OF SECTION 115JB OF THE I.T.ACT. THE LD.DRS FIRST PL ANK OF ARGUMENT IS THAT THE LANGUAGE OF SECTION 115JB(2) IS VERY CLEAR THAT FOR THE PURPOSE OF THIS SECTION IF PROFIT & LOSS ACCOUNT IS PREPARED IN ACC ORDANCE WITH THE PROVISIONS OF COMPANIES ACT, 1956, THEN IN TERMS OF THE VERDICT OF ITA NO.72/AHD/2009 CITY GOLD MEDIA LTD. VS. IT O ASST.YEAR 20 05-06 - 6 - APOLLO TYRES LTD. VS. CIT 255 ITR 273(SC) NO ADJUSTMENT IS ADMISSIBLE. LD.SR.DR MR.ABHISHEK KUMAR HAS ALSO PLA CED RELIANCE ON A DECISION OF N.J.JOSE & CO. 321 ITR 132 (KER.) / 174 TAXMAN 141( ORDER DATED 20.2.2008) FOR THE LEGAL PROPOSITION THAT FOR THE COMPUTATION OF BOOK PROFIT ONLY PERMISSIBLE ADJUSTMENTS ARE P RESCRIBED UNDER EXPLANATION AND, THEREFORE NO MORE DEDUCTIONS, REBA TES ALLOWANCES OTHER THAN WHAT ARE STATED IN THE SAID EXPLANATION ARE AL LOWABLE. HE HAS EXPLAINED THAT IN THE SAID PRECEDENT CAPITAL GAIN W AS CLAIMED TO BE EXEMPT U/S.54E OF THE I.T.ACT, HOWEVER, THE HON'BLE COURT HAS HELD THAT THE ASSESSEE WAS NOT ENTITLED TO THE SAID EXEMPTION WHILE COMPUTING BOOK PROFIT. FROM THE SIDE OF THE REVENUE, IT HA S ALSO BEEN ARGUED THAT PROVISIONS OF SECTION 115JB ARE A SEPARATE CODE IN ITSELF THEREFORE IT WAS WRONGLY ARGUED BY THE ASSESSEES COUNSEL THAT 115JB (5) PROVIDES THE APPLICATION OF ALL OTHER PROVISIONS OF THIS ACT. T HE LD.DR HAS EXPLAINED THAT THE EXISTENCE OF SUB-SECTION(5) HAS DULY BEEN EXPLAINED BY THE HON'BLE COURTS AND HELD THAT THE PURPOSE OF THE SAI D SUB-SECTION IS TO APPLY THE PROVISIONS OF LEVY OF INTEREST ON THE TAX CALCULATED U/S.115JB OF THE I.T.ACT. IN THIS CONNECTION, HE HAS CITED THE DECISION OF CIT VS. KOTAK MAHINDRA FINANCE LTD. 265 ITR 119(MUM) AND CI T VS. KWALITY BISCUITS LTD. 284 ITR 434(SC). 7. WE HAVE HEARD BOTH THE SIDES AT SOME LENGTH. WE HAVE CAREFULLY PERUSED THE COMPILATION FILED BEFORE US IN THE LIGH T OF THE ORDERS OF THE AUTHORITIES BELOW AND THE CASE LAWS CITED. UNDISPU TEDLY, WHILE WORKING THE BOOK PROFIT FOR THE PURPOSE OF THE COMPUTATIO N OF MINIMUM ALTERNATE TAX U/S.115 JB OF THE I.T.ACT THE ASSESSE E HAS REDUCED AN AMOUNT OF RS.33,11,687/- WHICH WAS STATED TO BE FO REIGN EXCHANGE ITA NO.72/AHD/2009 CITY GOLD MEDIA LTD. VS. IT O ASST.YEAR 20 05-06 - 7 - FLUCTUATION DUE TO RESTATED OF TERM LOAN AT YEAR EN D THIS ALSO NOT IN DISPUTE THAT THE INCOME TAX RETURN OF LOSS OF RS.( -)58,92,889/- WAS FILED BY THE ASSESSEE. THESE ADMITTED FACTS ARE EVIDENC ED BY THE COMPUTATION OF INCOME PLACED AT PAGE NO.2 OF THE COMPILATION. WE DEEM IT PROPER, FOR THE SAKE OF COMPLETENESS, TO PLACE ON RECORD TH E WORKING OF THE SAID FLUCTUATION IN FOREIGN EXCHANGE AS APPEARED ON PAGE NO.25 OF THE COMPILATION HEREINBELOW:- TOTAL FCNR USD LOAN AS ON 31.03.2005 1. ACCOUNT NO.003020600011538 USD OUTSTANDING LOAN ON 31.03.2005 16,83,195.33$ RATE PER $ RS.42.7450 TERM LOAN IN TERMS OF RUPEES OUTSTANDING/S AS ON 31.03.2005 AS PER BANK 07,36, 379.71 LOAN OUTSTANDING AS PER BOOK AS ON 31.03.2005 7,62,10.032.71 DIFFERENCE FOREIGN EXCHANGE FLUCTUATION (RS.) 31.03.2005 (A) 25,78,653.00 2. ACCOUNT NO. 003020600022880 USD OUTSTANDING LOAN ON 31.03.2005 10,66,992.12$ RATE PER $ RS.43.7450 TERM LOAN IN TERMS OF RUPEES OUTSTANDING AS ON 31.03.2005 AS PER BANK 4,66,75,570.29 TERM LOAN OUTSTANDING AS ON 31.03.2005 AS PER BOOK 4,74,08,604.29 DIFFERENCE FOREIGN EXCHANGE FLUCTUATION (RS.) 31.03.2005 (B) 7,33,034.00 TOTAL DIFFERENCE (A-B) BEING FOREIGN EXCHANGE FLUCTUATION DUE 33,11,687.00 TO RESTATED OF TERM LOAN ITA NO.72/AHD/2009 CITY GOLD MEDIA LTD. VS. IT O ASST.YEAR 20 05-06 - 8 - 7.1. THIS COMPILATION CONSISTED AN ACCOUNT OF UTI F CNR LOAN ACCOUNT NO.11538 AND UTI FCNR LOAN ACCOUNT NO.22880 AND THE TOTAL OF THE CLOSING BALANCE WAS STATED TO BE RS.12,03,26,737/-. WE HAVE ALSO FOUND THAT ONLY THROUGH A JOURNAL VOUCHER THE SAID ADJU STMENT OF FOREIGN EXCHANGE TERM LOAN OF RS.25,78,653 + RS.7,33,034 T OTALLING TO RS.33,11,687/- RESPECTIVELY FOR BOTH THE ACCOUNTS WAS ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS. IT HAS BEEN EXPLAINED THAT THE LOAN WAS RAISED IN FOREIGN EXCHANGE FOR THE PURPOSE OF SETTING UP OF T HE MACHINERY IN MULTIPLEX THEATRE BUSINESS. WITH THIS FACTUAL BACK GROUND AND THE ACCOUNTS MAINTAINED BY THE ASSESSEE NOW WE HAVE TO EXAMINE THE RELEVANT PROVISIONS OF THE ACT. 8. AT THE OUTSET, IT IS WORTH TO MENTION THAT THE A SSESSEE HAS PLACED ON RECORD THE STATEMENT OF ACCOUNT AND THE DULY AUD ITED BALANCE-SHEET OF THE COMPANY, WHICH WAS DULY APPROVED THROUGH ANNUAL GENERAL MEETING (AGM). ONCE IT IS AN ACCEPTED FACTUAL POSITION, TH EN IT CAN BE SAFELY HELD THAT SUB-SECTION (2) OF SECTION 115JB OF THE I.T.AC T SHOULD BE APPLICABLE ON THE ASSESSEE; REPRODUCED BELOW:- SECTION 115JB (2) EVERY ASSESSEE, BEING A COMPANY, SHALL, FOR TH E PURPOSES OF THIS SECTION, PREPARE ITS PROFIT AND LOSS ACCOUNT F OR THE RELEVANT PREVIOUS YEAR IN ACCORDANCE WITH THE PROVISIONS OF PARTS II AND III OF SCHEDULE VI TO THE COMPANIES ACT, 1956 (1 OF 195 6): PROVIDED THAT WHILE PREPARING THE ANNUAL ACCOUNTS I NCLUDING PROFIT AND LOSS ACCOUNT, (I) THE ACCOUNTING POLICIES; ITA NO.72/AHD/2009 CITY GOLD MEDIA LTD. VS. IT O ASST.YEAR 20 05-06 - 9 - (II) THE ACCOUNTING STANDARDS FOLLOWED FOR PREPARI NG SUCH ACCOUNTS INCLUDING PROFIT AND LOSS ACCOUNT; (III) THE METHOD AND RATES ADOPTED FOR CALCULATING THE DEPRECIATION, SHALL BE THE SAME AS HAVE BEEN ADOPTED FOR THE PURP OSE OF PREPARING SUCH ACCOUNTS INCLUDING PROFIT AND LOSS A CCOUNT AND LAID BEFORE THE COMPANY AT ITS ANNUAL GENERAL MEETING IN ACCORDANCE WITH THE PROVISIONS OF SECTION 210 OF THE COMPANIES ACT, 1956 (1 OF 1956): PROVIDED FURTHER THAT WHERE THE COMPANY HAS ADOPTED OR ADOPTS THE FINANCIAL YEAR UNDER THE COMPANIES ACT, 1956 (1 OF 1956), WHICH IS DIFFERENT FROM THE PREVIOUS YEAR UNDER THI S ACT, (I) THE ACCOUNTING POLICIES; (II) THE ACCOUNTING STANDARDS ADOPTED FOR PREPARIN G SUCH ACCOUNTS INCLUDING PROFIT AND LOSS ACCOUNT; (III) THE METHOD AND RATES ADOPTED FOR CALCULATIN G THE DEPRECIATION, SHALL CORRESPOND TO THE ACCOUNTING POLICIES, ACCOUN TING STANDARDS AND THE METHOD AND RATES FOR CALCULATING THE DEPREC IATION WHICH HAVE BEEN ADOPTED FOR PREPARING SUCH ACCOUNTS INCLU DING PROFIT AND LOSS ACCOUNT FOR SUCH FINANCIAL YEAR OR PART OF SUCH FINANCIAL YEAR FALLING WITHIN THE RELEVANT PREVIOUS YEAR. 8.1. THIS SUBSECTION THUS PRESCRIBES THAT FOR THE P URPOSE OF THE APPLICATION OF SECTION 115JB OF THE I.T.ACT A COMPA NY IS UNDER OBLIGATION TO PREPARED ITS PROFIT & LOSS ACCOUNT FOR A RELEVAN T PREVIOUS YEAR IN ACCORDANCE WITH THE PROVISION OF PART-II & III OF S CHEDULE-VI OF COMPANIES ACT, 1956. THIS SUB-SECTION HAS PROVIDE D THAT WHILE PREPARING THE ANNUAL ACCOUNTS, THE ACCOUNTING POLI CIES AND THE ACCOUNTING STANDARDS ADOPTED FOR PREPARING THOSE AC COUNTS, SHALL BE THE SAME AS HAVE BEEN ADOPTED AND LAID AT THE AGM IN AC CORDANCE WITH THE ITA NO.72/AHD/2009 CITY GOLD MEDIA LTD. VS. IT O ASST.YEAR 20 05-06 - 10 - PROVISIONS OF SECTION 210 OF THE COMPANIES ACT. UP TO THIS EXTENT, THERE IS NO DISPUTE THAT THE ACCOUNTS IN QUESTION OF THIS ASSESSEE-COMPANY ARE AS PER THE COMPANIES ACT SCHEDULE-VI AND THOSE WERE DULY LAID BEFORE THE AGM AS PRESCRIBED U/S.210 OF THE COMPANIES ACT. THE ONLY EXCEPTION PRESCRIBED IS THAT WHERE THE COMPANY HAD ADOPTED THE ACCOUNTS, HOWEVER, THOSE WERE DIFFERENT FROM THE AC COUNTING POLICIES, THEN THEY SHOULD BE ADJUSTED, SO THAT THEY SHOULD C ORRESPOND TO THE ACCOUNTING POLICIES AND ACCOUNTING STANDARDS. 8.2 THIS SECTION OVERRIDES THE GENERAL PR OVISIONS OF IT ACT. THE OPENING SENTENCE IS NOTWITHSTANDING ANYTHING CONTA INED IN ANY OTHER PROVISIONS OF THIS ACT, MEANING THEREBY THE SECTIO N STARTS WITH THE NON- OBSTANTE CLAUSE. ONCE A COMPANY HAS FINALIZED THE BOOKS O F ACCOUNT IN ACCORDANCE WITH THE SCHEDULE-VI AND THAT ACCOUNT HA S BEEN LAID BEFORE THE AGM AND DULY APPROVED AND ALSO THAT THOSE ACCOU NTS CORRESPOND WITH THE ACCOUNTING POLICIES, THEN NO ADJUSTMENT IS PERMISSIBLE AS PER THE PROVISIONS OF THIS SECTION. AT THIS JUNCTURE, IT I S WORTH TO MENTION THAT PERMISSIBLE ADJUSTMENTS ARE PROVIDED IN EXPLANATION -1 TO THIS SECTION. THROUGH THIS EXPLANATION, THE TERM BOOK PROFIT HA S BEEN DEFINED WHICH MEANS THE NET PROFIT AS SHOWN IN THE PROFIT & LOSS ACCOUNT. FOR THIS LEGAL PROPOSITION, WE DRAW SUPPORT FROM AN ORDER OF HON'B LE KARNATAKA HIGH COURT PRONOUNCED IN THE CASE OF N.J.JOSE & CO. 321 ITR 132 (KAR.), WHEREIN THE HON'BLE COURT HAS SAID THAT FOR THE PUR POSE OF COMPUTATION OF BOOK PROFIT PERMISSIBLE ADJUSTMENTS IN THE FORM O F ADDITIONS AND DEDUCTIONS ARE PROVIDED UNDER EXPLANATION AND NO MO RE DEDUCTIONS OR ALLOWANCES OTHER THAN WHAT ARE STATED IN THE SAID E XPLANATION ARE AVAILABLE. ITA NO.72/AHD/2009 CITY GOLD MEDIA LTD. VS. IT O ASST.YEAR 20 05-06 - 11 - 9. THE NEXT CONTENTION OF THE LD.AR IS THAT IN VIEW OF THE SUB-CLAUSE (5) OF SECTION 115JB ALL OTHER PROVISIONS OF THIS A CT SHOULD APPLY TO THE ASSESSEE AND, THEREFORE, AN INCOME WHICH WAS NOT RE AL INCOME, THEREFORE, NOT TO BE ADDED IN THE BOOK PROFIT. THIS ARGUME NT OF THE LD.AR IS NOT ACCEPTABLE TO US PRIMARILY BECAUSE OF THE REASON TH AT WHILE DEALING WITH THE APPLICABILITY OF THIS SUB-SECTION, THE HON'BLE COURTS HAVE GIVEN AN INTERPRETATION THAT ALL OTHER PROVISIONS OF THIS AC T PERTAINS TO THE CHARGING OF INTEREST U/S.234-B OF THE I.T.ACT AND LIKE NATUR E SECTIONS ARE MEANT FOR CONSIDERATION. FOR THIS LEGAL PROPOSITION WE WANT TO DRAW SUPPORT FORM THE ORDER OF HON'BLE KARNATAKA HIGH COURT PRONOUNCE D IN THE CASE OF CIT & ANOTHER VS.BRIDAVAN BEVERAGES LTD. 321 ITR 197 (KARN.), WHEREIN AN OBSERVATION WAS THAT THERE WAS NO INCONG RUITY BY ADDING SUB- SECTION(4) AND THAT BY THE SAID SUBSTITUTION THE P ROVISIONS LIKE 234A, 234B & 234C OF THE ACT WHICH ARE VIRTUALLY IN THE N ATURE OF CHARGING SECTIONS HAS BEEN INCLUDED AND, THEREFORE, ENLARGE D THE PROCEDURAL SCOPE OF SECTION 115JA/115JB OF THE IT ACT. EVEN IN THE CASE OF CIT VS. KWALITY BISCUITS LTD. 284 ITR 434(SC) AND OF CIT VS . KOTAK MAHINDRA FINANCE LTD. 265 ITR 119(MUM) THE CHARGEABILITY OF THE INTEREST U/S.234 HAS BEEN APPROVED IN RESPECT OF THE TAX IMPOSED VID E APPLICATION OF MINIMUM ALTERNATE TAX (MAT) PROVISIONS. HENCE, W E HEREBY HOLD THAT THE PROVISIONS OF SECTION 115JB OF THE I.T.ACT BEING CODE BY ITSELF THEREFORE THE ADJUSTMENTS CAN BE MADE AS PRESCRIBED WITHIN THIS CODE. UNDER THIS CODE IF A PROFIT & LOSS ACCOUNT HAS BEEN MADE IN TERMS OF THE COMPANIES ACT, THEN NO ADJUSTMENT OR TINKERING IS A VAILABLE EXCEPT AS PROVIDED IN EXPLANATION. THE LD.AR HAS NOT DEMONSTRATED THAT AS PER SCHEDULE-VI OF COMPANIES ACT, THE IMPUGNED INCOME I S BEYOND THE SCOPE OF PROFIT OF THE COMPANY. NATURALLY, THE ACCOUNTS OF THE COMPANY ITA NO.72/AHD/2009 CITY GOLD MEDIA LTD. VS. IT O ASST.YEAR 20 05-06 - 12 - HAVE BEEN FINALIZED BY THE AUDITORS AFTER ANALYZING THE NATURE OF RECEIPTS WHICH THEY HAVE FOUND TO BE THE PROFITS OF THE COMP ANY THEREFORE DULY CREDITED IN THE PROFIT & LOSS ACCOUNT . HENCE THAT CREDIT HAVE FORMED PART AND PARCEL OF THE NET PROFIT OF THE COMPANY. HAD THAT INCOME, I.E. FOREIGN EXCHANGE FLUCTUATION TERM LOAN WAS NOT T HE ELIGIBLE PROFIT AS PER COMPANIES ACT, NATURALLY THEY HAVE NOT INCLU DED IN THE PROFITS OF THE COMPANY. BY VERY ADOPTION AND INCLUSION OF THE SAID INCOME IN THE PROFITS OF THE COMPANY IT HAS BEEN AFFIRMED BY THE AUDITOR THAT THE SAME HAD COME WITHIN THE AMBITS OF THE BOOK PROFIT. WE THEREFORE HOLD THAT THE ASSESSEE WAS NOT JUSTIFIED IN REDUCING THE SAID AMOUNT WHILE COMPUTING THE BOOK PROFIT. 10. THE LD.AR HAS RAISED AN ISSUE THAT THE IMPUGNED AMOUNT WAS NOT THE REAL INCOME OF THE ASSESSEE. THOUGH IN THE LI GHT OF THE ABOVE DISCUSSION, IT IS NO MORE RELEVANT WHETHER IT WAS R EAL OR UNREAL BECAUSE IT HAD BEEN INCLUDED IN THE BOOK PROFIT OF THE ASSES SEE-COMPANY FOR THE PURPOSE OF MAT PROVISIONS AS PER THE COMPANIES ACT , BUT STILL WE HAVE NOTICED THAT THE LIABILITY AS PER THE BANK ACCOUNTS WAS LOWER THAN THE LIABILITY IN INDIAN RUPEES AS PER THE BOOKS OF THE ASSESSEE. RELEVANT CALCULATION HAVE ALREADY BEEN REPRODUCED SUPRA. ME ANING THEREBY, IF IN THE BOOKS OF ACCOUNT A LIABILITY HAS BEEN ACCOUNTED FOR TOWARDS HIGHER SIDE THEN THE ACTUAL LIABILITY AS ASCERTAINED BY TH E THIRD PARTY, I.E. THE BANK, THEN THE DIFFERENCE BETWEEN THE TWO IS NOTHIN G BUT IN THE NATURE OF SAVINGS, TANTAMOUNT TO PROFITS OF THE BUSINESS CONC ERNED. AS FAR AS THE AS-11 IS CONCERNED, IN SIMPLE LANGUAGE, IT IS EXP ECTED FROM A BUSINESS ENTERPRISE TO ADJUST THE INTEREST DIFFERENCE, SO TH AT THE AMOUNTS OUTSTANDING IN INDIAN RUPEES IN THE BOOKS OF ACCOUN T OF THE ASSESSEE ITA NO.72/AHD/2009 CITY GOLD MEDIA LTD. VS. IT O ASST.YEAR 20 05-06 - 13 - SHOULD MATCH WITH THE CORRESPONDING AMOUNT SHOWN AS OUTSTANDING BY A BANK OR ANY THIRD PARTY IN FOREIGN EXCHANGE BY APPL YING THE CURRENT FOREIGN EXCHANGE RATE. THOUGH AT PRESENT WE ARE NO T CONCERNED ABOUT THE INTERPRETATION AND APPLICABILITY OF AS-11 BUT TO OUR HUMBLE UNDERSTANDING THE AUDITOR HAVE RIGHTLY ACCOUNTED FO R THE FOREIGN EXCHANGE FLUCTUATION DUE TO RESTATED TERM LOAN AND THAT WAS MADE THE COMPONENT OF THE NET PROFIT OF THE ASSESSEE-COMPANY . 11. THE LD.AR ARGUED THAT IN THE CASE OF ITO VS. F RIGSALES (INDIA) LTD. 4 SOT 376 (MUM.) AND OF ITO VS. SU-RAJ JEWELLERY ( INDIA) LTD. 21 SOT 79 (MUM), IT WAS HELD THAT THE GAINS OR PROFITS BEI NG EXEMPT FROM TAX THEREFORE NOT TO BE INCLUDED IN MAT PROFIT. OUR FOR EMOST OBSERVATION IS THAT AS PER THE LATEST ORDER OF THE HONOURABLE KERA LA HIGH-COURT, PRONOUNCED ON 20.2.2008 THE VIEW EXPRESSED BY THE T RIBUNAL HAS BEEN REVERSED. THOSE DECISIONS OF THE TRIBUNAL WERE OF P REVIOUS DATE. EVEN THE DECISION OF BRINDAVAN BEVERAGES ( SUPRA ) IS DATED 30.9.2009. ALL THESE DECISIONS ARE IN PUBLIC DOMAIN AND OUGHT TO BE IN T HE KNOWLEDGE OF THE LD.A.R. MOREOVER, WE HAVE NOTED THAT THE RESPECTED CO-ORDINATE BENCHES HAVE DISCUSSED SECTION 349 OF COMPANIES ACT WHICH PROVIDES THAT CREDIT FOR THE PROFIT ARISING ON SALE OF IMMOV ABLE PROPERTY SHOULD NOT BE TAKEN INTO PROFIT & LOSS ACCOUNT. WE HAVE ALSO EXPRESSED IN ABOVE PARAGRAPHS THAT ACCOUNTS ARE REQUIRED TO BE FINALIZ ED IN ACCORDANCE WITH SCHEDULE-VI OF COMPANIES ACT, AND IF THOSE PROVISI ONS PROHIBIT INCLUSION OF ANY SUCH INCOME IN THE NET PROFIT OF T HE COMPANY, THEN NATURALLY SUCH RECEIPTS OR INCOME SHOULD NOT FORM P ART OF THE BOOK PROFIT. BUT THAT ASPECT OUGHT TO HAVE BEEN CONSID ERED AND LOOKED INTO BY THE AUDITORS WHILE FINALIZING THE ACCOUNTS AND DECL ARING THE NET PROFIT OF ITA NO.72/AHD/2009 CITY GOLD MEDIA LTD. VS. IT O ASST.YEAR 20 05-06 - 14 - A COMPANY. IN THE PRESENT CASE AS WELL, THEY SH OULD HAVE UNDERGONE THAT PROCESS AND THEREAFTER ONLY SHOULD HAVE ARRIVE D AT THE FIGURE OF THE NET PROFIT OF THE COMPANY. 12. BEFORE WE CONCLUDE THIS JUDGEMENT, WE HEREB Y PLACE RELIANCE ON THE JUDDGEMENT OF APOLLO TYRES LTD. VS. CIT 255 IT R 273(SC), WHEREIN TINKERING IN THE BOOK PROFIT HAS BEEN PROHIBITED. THE HON'BLE COURT HAS EXPRESSED THAT QUOTE THE ASSESSING OFFICER, WHILE COMPUTING THE BOOK PROFITS OF A COMPANY UNDER SECTION 115J OF THE INCOME-TAX ACT, 1961, HAS ONLY THE POWER OF EXAMINING WHETHER THE B OOKS OF ACCOUNT ARE CERTIFIED BY THE AUTHORITIES UNDER THE COMPANIES AC T AS HAVING BEEN PROPERLY MAINTAINED IN ACCORDANCE WITH THE COMPANIE S ACT. THE ASSESSING OFFICER, THEREAFTER, HAS THE LIMITED POWE R OF MAKING INCREASES AND REDUCTIONS AS PROVIDED FOR IN THE EXPLANATION T O SECTION 115J. THE ASSESSING OFFICER DOES NOT HAVE THE JURISDICTION TO GO BEHIND THE NET PROFITS SHOWN IN THE PROFIT AND LOSS ACCOUNT EXCEPT TO THE EXTENT PROVIDED IN THE EXPLANATION. THE USE OF THE WORDS IN ACCO RDANCE WITH THE PROVISIONS OF PARTS II AND III OF SCHEDULE VI TO TH E COMPANIES ACT IN SECTION 115J WAS MADE FOR THE LIMITED PURPOSE OF EM POWERING THE ASSESSING OFFICER TO RELY UPON THE AUTHENTIC STATEM ENT OF ACCOUNTS OF THE COMPANY. WHILE SO LOOKING INTO THE ACCOUNTS OF THE COMPANY, THE ASSESSING OFFICER HAS TO ACCEPT THE AUTHENTICITY OF THE ACCOUNTS WITH REFERENCE TO THE PROVISIONS OF THE COMPANIES ACT, W HICH OBLIGATE THE COMPANY TO MAINTAIN ITS ACCOUNTS IN A MANNER PROVID ED BY THAT ACT AND THE SAME TO BE SCRUTINIZED AND CERTIFIED BY STATUTO RY AUDITORS AND APPROVED BY THE COMPANY IN GENERAL MEETING AND THER EAFTER TO BE FILED BEFORE THE REGISTER OF COMPANIES WHO HAS A STATUTOR Y OBLIGATION ALSO TO ITA NO.72/AHD/2009 CITY GOLD MEDIA LTD. VS. IT O ASST.YEAR 20 05-06 - 15 - EXAMINE AND BE SATISFIED THAT THE ACCOUNTS OF THE C OMPANY ARE MAINTAINED IN ACCORDANCE WITH THE REQUIREMENTS OF T HE COMPANIES ACT. SUB-SECTION (1A) OF SECTION 115J DOES NOT EMPOWER T HE ASSESSING OFFICER TO EMBARK UPON A FRESH ENQUIRY IN REGARD TO THE ENT RIES MADE IN THE BOOKS OF ACCOUNT OF THE COMPANY. UNQUOTE. IF ON ONE HAND THE REVENUE AUTHORITIES ARE STOPPED FROM ANY ADJUSTMENT THEN, I N THE LIKE MANNER, THE ASSESSEE IS ALSO NOT EXPECTED TO REDUCE THE BOOK P ROFIT WHILE FILING THE INCOME-TAX RETURN AS IT WAS DONE BY THIS ASSESSEE. WE THEREFORE DRAW A CONCLUSION THAT THE THEORY OF REAL INCOME AS PROPAG ATED BY THE LD.AR IN THE PRESENT SET OF FACTS OF CIRCUMSTANCES DO NOT AP PLY IN THE CONTEXT OF THE PROVISIONS OF SECTION 115JB OF THE I.T.ACT. THE V IEW TAKEN BY THE AUTHORITIES BELOW IS HEREBY AFFIRMED. 13. IN THE RESULT, ASSESSEES APPEAL IS DISMISSED. SD/- SD/- ( .. !' ) ( ) #$ ( B.P. JAIN ) ( MUKUL KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL ME MBER AHMEDABAD; DATED 30/ 12 /2011 40..', .'../ T.C. NAIR, SR. PS #3 . +5 6#5' #3 . +5 6#5' #3 . +5 6#5' #3 . +5 6#5'/ COPY OF THE ORDER FORWARDED TO : 1. (* / THE APPELLANT 2. +,(* / THE RESPONDENT. 3. 7 / CONCERNED CIT 4. 7() / THE CIT(A)-VI, AHMEDABAD 5. 5:; +' , , / DR, ITAT, AHMEDABAD 6. ;< =/ / GUARD FILE. #3' #3' #3' #3' / BY ORDER, ,5 + //TRUE COPY// > >> >/ // / ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD