THE ACIT CEN CIR-29, MUMBAI V. M/S. ROCKFORT ESTATE DEVELOPMENT P. LTD, MUMBAI

ITA 7230/MUM/2007

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1567 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-11-2009
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: K
• Next Hearing Date: 18-11-2009
• Assessment Year: 2004-2005
• Appeal Filed On: 04-12-2007
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAJNISH ARVIND
• Section: 43B; 143(3); 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE S/SHRI R.K. GUPTA, J.M. AND PRAMOD KUMAR, A. M I.T.A. NO.7230/MUM./2007 (ASSESSMENT YEAR : 2004-05 ) DATE OF HEARING: 18.11.2009 ACIT, CENTRAL CIRCLE-29, R.NO.411 AAYAKAR BHAVAN, M.K. ROAD MUMBAI 400 020 VS M/S. ROCKFORT ESTATE DEVELOPER P. LTD., LEELA BAUG, ANDHERI KURLA RD, ANDHERI (E), MUMBAI 400059 PAN AAACR7896K APPELLANT RESPONDENT REVENUE BY : SHRI RAJNISH ARVIND ASSESSEE BY : NONE O R D E R PER PRAMOD KUMAR, A.M. BY WAY OF THIS APPEAL, THE ASSESSING OFFICER HAS CH ALLENGED CORRECTION OF LD. CIT(A)S ORDER DATED 10.12.2007, IN THE MATT ER OF ASSESSMENT U/S 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT ) FOR THE ASSESSMENT YEAR 2004-05, ON THE FOLLOWING GROUNDS:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE O F RS.8,25,000/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DEFERRE D TAX LIABILITY WHILE COMPUTING BOOK PROFITS U/S 115JB; AND 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN NOT APPRECIATING THE FACT T HAT DEFERRED TAX LIABILITY IS NOTHING BUT A PROVISION WHICH SHOULD H AVE BEEN AND WAS RIGHTLY ADDED BACK BY THE ASSESSING OFFICER INVOKIN G THE PROVISIONS OF CLAUSE (A) UNDER EXPLANATION TO SECTION 115JB. 2. WE HAVE HEARD THE LD. DEPARTMENTAL REPRESENTATIVE B UT NONE APPEARED FOR THE ASSESSEE. WE HAVE ALSO DULY CONSID ERED THE FACTUAL MATRIX OF THE CASE AS ALSO THE APPLICABLE LEGAL POSITION. 3. THE MATERIAL FACTS, SO FAR AS RELEVANT TO ADJUDICAT ION OF APPEAL BEFORE US, ARE AS FOLLOWS. IN THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS MAD E AN ADJUSTMENT OF RS.8,25,000/- AGAINST BOOK PROFIT ON ACCOUNT OF DEF ERRED TAX LIABILITY. WHEN THE ASSESSEE WAS REQUIRED TO SHOW CAUSE AS TO WHY I T SHOULD NOT BE ADDED /S. ROCKFORT ESTATE DEVELOPER P. LTD., I.T.A. NO.7230/MUM./2007 2 BACK TO THE BOOK PROFIT, THE ASSESSEE RELIED UPON T HE ACCOUNTING STANDARDS ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. IT WAS ALSO SUBMITTED THAT WHILE ASSESSING OFFICER COULD INDEED ADD BACK INCOME TAX, NO SUCH ADJUSTMENTS CAN BE MADE FOR THE DEFERRED TAX L IABILITY. IT WAS ALSO POINTED OUT THAT DEFERRED TAX LIABILITY IS NEITHER A RESERVE NOR PROVISION, OR, FOR THAT PURPOSE, EVEN A CONTINGENT LIABILITY. THE ASSESSING OFFICER WAS NOT IMPRESSED WITH ANY OF THESE SUBMISSIONS AND HE PROC EEDED TO ADD BACK THE DEFERRED TAX LIABILITY FOR THE PURPOSE OF PROVISION S OF SECTION 115JB BY OBSERVING AS FOLLOWS:- 1. AS PER THE PROFIT AND LOSS ACCOUNT, PROFIT BEFOR E TAX WAS RS.30,71,993/- AND APPROPRIATION WAS MADE ON ACCOUN T OF CURRENT TAX AND DEFERRED TAX LIABILITY RESULTING IN PROFIT AFTE R TAX AT RS.20,12,933/-. EVEN THE FINAL ACCOUNTS ACCEPTED BY THE BOARD OF DI RECTORS AND ADOPTED IN THE AGM TREATED THE ITEM OF DEFERRED TAX LIABILITY A MERE APPROPRIATION AND NOT THE PART OF BOOK PROFIT. 2. DEFERRED TAX LIABILITY IS A PROVISION TOWARDS FU TURE INCOME TAX LIABILITY ONLY WHICH IS AN ITEM TO BE ADJUSTED AS P ROVIDED U/S 115JB ALTHOUGH WORD PROVISION IS NOT APPENDED TO IT. HO WEVER, THE WORD DEFERRED DENOTES A PROVISION TO BE MET IN FUTURE. THE ACCOUNTANT STANDARD 22 DEFINES DEFERRED TAX AS THE TAX EFFE CT OF TIMING DIFFERENCES. DEFERRED TAX LIABILITY IS A LIABILITY WHICH ARISES DUE TO TIMING DIFFERENCE AND WHICH HAS TO BE MET IN FUTURE . THUS IT IS NOTHING BUT A PROVISION. ON PERUSAL OF THE ITEMS WHICH IS P ART OF THE DEFERRED TAX, IT CAN BE SEEN THAT VARIOUS PROVISIONS LIKE PR OVISIONS OF GRATUITY ETC., HAS BEEN INCLUDED IN IT. 3. IN FACT, THERE WILL BE NO QUESTION OF ANY TIMING DIFFERENCE WHEN TAX LIABILITY U/S 115JB IS COMPUTED ON THE BASIS OF PROFIT & LOSS PREPARED UNDER THE PROVISIONS OF PART-II AND III OF SCHEDULE VI TO THE COMPANIES ACT WITH CERTAIN STIPULATED ADJUSTMENT AS PROVIDED UNDER SECTION 115JB OF THE ACT. THE QUESTION OF TIMING DI FFERENCE ARISES ONLY WHEN THE INCOME IS COMPUTED ON THE BASIS OF NORMAL PROVISIONS OF INCOME TAX ACT. FOR E.G., IN THE DEFERRED TAX WORKI NG THE ASSESSEE HAS INCLUDED ITEMS OF DISALLOWANCES U/S 43B AND THE ADJ USTMENT U/S 145A OF THE I.T. ACT. IT IS TO BE NOTED THAT BOOK PROFIT WHICH IS ADOPTED U/S 115JB OF THE ACT IS AS PER THE PROFIT & LOSS A/C AS PER THE COMPANIES ACT AND NOT AS PER I.T. ACT. 4. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEA L BEFORE THE LD. CIT(A) WHO, RELYING UPON TRIBUNALS DECISION IN THE CASE OF ACIT VS BALRAMPUR CHINI MILLS LTD., 109 ITD 146, DELETED TH E ADJUSTMENT. REVENUE IS AGGRIEVED AND IS IN APPEAL BEFORE US. 5. WE HAVE NOTED THAT THE LAW STANDS AMENDED, SO FAR A S THE QUESTION OF NOT TREATMENT OF DEFERRED TAX LIABILITY CREDITED IS THE PROFIT AND LOSS ACCOUNT, FOR THE PURPOSE OF COMPUTING 115JB LIABILITY IS CON CERNED, WITH RETROSPECTIVE /S. ROCKFORT ESTATE DEVELOPER P. LTD., I.T.A. NO.7230/MUM./2007 3 EFFECT FROM 1 ST APRIL 2001. BY INSERTING SPECIFIC PROVISION FOR RE DUCTION OF PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT, BY ANY SUCH AMOUNT IS CREDITED TO THE PROFIT AND LOSS ACCOUNT UNDER ITEM (VIII) OF EXPLANATION 1 TO SECTION 115JB, THIS CONTROVERSY HAS BEEN RESOLVED I N FAVOUR OF THE REVENUE AUTHORITIES. THE LEGAL POSITION IS NOW FREE FROM AN Y DOUBT OR AMBIGUITY. 6. IN VIE OF THE ABOVE DISCUSSION AND IN VIEW OF THE R ETROSPECTIVE AMENDMENT IN SECTION 115JB, WHICH HAS BEEN INTRODUC ED AS DISCUSSED ABOVE, WE VACATE THE RELIEF GRANTED BY THE LD. CIT( A). THE ORDER AND THE STAND OF THE ASSESSING OFFICER WHICH NOW STANDS FOR TIFIED BY THE AMENDMENT IN A STATUTE STANDS RESTORED. 7. IN THE RESULT, REVENUES APPEAL STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 25.11.2009. SD/- R.K. GUPTA JUDICIAL MEMBER SD/- PRAMOD KUMAR ACCOUNTANT MEMBER MUMBAI, DATED: 25.11.2009. COPY TO : (1) THE ASSESSEE (2) THE RESPONDENT (3) THE CIT(A), MUMBAI, CONCERNED (4) THE CIT, MUMBAI CITY CONCERNED (5) THE DR, K BENCH, ITAT, MUMBAI TRUE COPY BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI PRADEEP PRADEEP PRADEEP PRADEEP /S. ROCKFORT ESTATE DEVELOPER P. LTD., I.T.A. NO.7230/MUM./2007 4 DATE INITIAL 1. DRAFT DICTATED ON 19.11.2009 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 20.11.2009 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 20.11.2009 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 20.11.2009 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 20.11.2009 SR.PS/PS 6. DATE OF PRONOUNCEMENT 25.11.2009 SR.PS 7. FILE SENT TO THE BENCH CLERK 25.11.2009 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER