Kilara Power Pvt. Ltd., Bangalore V. ITO, Bangalore

ITA 790/BANG/2011

• Counselvise Citation: 79021114 RSA 2011
• Duration Of Justice: 7 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-05-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 02-05-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 05-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K AMBASTHA CITI
• Assessee Lawyers: ASHOK KULKARNI
• Keywords: Depreciation; Opportunity of being heard; Principle of natural justice; Unabsorbed depreciation
• Section: 143(3); 115JB

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL BANGALORE BENCH A, BANGALORE BEFORE SHRI N.K.SAINI, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE,K. JUDICIAL MEMBER I.T.A. NO.790(BANG.)/2011 (ASSESSMENT YEAR : 2007-08) M/S KILARA POWER PVT.LTD., NO.204 C, 6 TH MAIN, 27 TH CROSS, III BLOCK, JAYANAGAR, BANGALORE-560 004 PAN NO: AABCK6685P APPEL LANT VS THE INCOME-TAX OFFICER, WARD-112), BANGALORE RESPONDEN T APPELLANT BY : SHRI ASHOK KULKARNI, ADVOCATE REVENUE BY : SHRI S.K.AMBASTHA, CIT-I DATE OF HEARING : 02-05-2012 DATE OF PRONOUNCEMENT : 04-0 5-2012 O R D E R PER SHRI GEORGE GEORGE, K. JM; THIS APPEAL INSTITUTED BY THE ASSESSEE IS DIRECTED AGAINST THE CIT(A)S ORDER DATED 19-07-2010. THE RELEVANT ASSE SSMENT YEAR : 2007-08. 2. THE GROUNDS RAISED READS AS FOLLOWS; A). THE LD. CIT(A) OUGHT TO HAVE CONSIDERED THE WORKINGS AND THE SUBMISSIONS FILED BEFORE HIM ON 9 TH MAY, 2011 ALONGWITH ADDITIONAL GROUNDS FILED BEFORE HIM ITA NO.790(B)/11 2 INSTEAD OF MERELY STATING THAT HE AGREES WITH THE SUBMISSIONS IN THE REMAND REPORT OF THE AO SENT WEL L BEFORE THE WRITTEN SUBMISSIONS AND THE ADDITIONAL G ROUNDS FILED ON 09-05-2011. HENCE THERE IS A SERIOUS MISCA RRIAGE OF PRINCIPLES OF NATURAL JUSTICE. B) THE DETERMINATION OF BOOK PROFITS U/S 115JB(2) IN A SUM OF RS.3.61 CRORES IS NOT IN ACCORDANCE WITH LAW AND DESERVES TO BE DELETED. C) THE SUM OF RS.3.59 CRORES CREDITED TO THE PROFI T & LOSS ACCOUNT (WHICH ACTUALLY SHOULD HAVE BEEN RS.3.47 CR ORES) CANNOT FORM PART OF THE BOOK PROFITS U/S 115JB(2). D) EVEN OTHER WISE THE SUM OF RS.3.59 CRORES CREDI TED TO THE PROFIT & LOSS ACCOUNT FOR THE CURRENT YEAR BEIN G OF THE NATURE OF PROFITS FALLING U/S 41(1), ASSUMING IT WA S ALLOWED IN THE EARLIER YEARS, BEING A NOTIONAL INCOME AND N OT HAVE ENTERED INTO COMPUTATION OF BOOK PROFITS U/S 115JB( 2) AS HELD BY HYDERABAD BENCH OF THE TRIBUNAL. E) IT SHOULD HAVE BEEN APPRECIATED THAT AS PER SCHEDULE-VI OF THE COMPANIES ACT AS WELL AS SEC.115 JB(2) THE AMOUNT TO BE CREDITED TO THE PROFIT & LOSS ACCO UNT DURING THE YEAR ENDING 31-03-2007 ON ACCOUNT OF FOR GOING OF INTEREST BY IREDA SHOULD HAVE BEEN ONLY A SUM OF RSZ.1.08 CRORES BEING THE AMOUNT THAT WAS ACTUALLY DEBITED TO THE PROFIT & LOSS ACCOUNT IN THE EARLIER YEARS AND NOT ANY HIGHER FIGURE ERRONEOUSLY CREDITED TO THE P ROFIT & LOSS ACCOUNT FOR THE CURRENT YEAR. F) WITHOUT PREJUDICE IT SHOULD HAVE BEEN APPRECIA TED THAT THE ONLY PROVISION FOR INTEREST MADE BY WAY OF DEBIT TO THE PROFIT & LOSS ACCOUNT OF THE ASSESSEE FOR THE E ARLIER YEARS WAS RS.1.08 CRORES AND THIS ISSUE ALONE IF AT ALL COULD BE CONSIDERED AS BOOK PROFITS FOR THE SEC.115 JB. G) ANYWAY REGARDLESS OF THE AMOUNT INCLUDIBLE FOR THE PROFIT & LOSS ACCOUNT TO DETERMINE THE BOOK PROFITS FOR THE PURPOSE OF SEC.115JB(2) WHETHER IT IS NIL, RS.3.59 CORES OR RS.1.08 CRORES AS THE CASE MAY BE SUCH BOOK PROFITS HAS TO BE EDUCED BY A SUM OF RS.1.05 CRORES UNDER (III) BE LOW CLAUSE(I) OF THE EXPLANATION (I) TO SEC.115JB(2). 3. THE BRIEF FACTS OF THE CASE ARE AS FOLLOWS; T HE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF POWER GENERATION . FOR THE ITA NO.790(B)/11 3 CONCERNED ASSESSMENT YEAR THE RETURN OF INCOME WAS FILED ON 15-10- 2007 DECLARING NIL INCOME, AFTER SET OFF OF UNABSOR BED DEPRECIATION LOSS. THE AO IN THE ASSESSMENT ORDER PASSED U/S 143(3) DA TED 29-12-2009 HAD COMPUTED THE BOOK PROFITS U/S 115JB AT RS.3,61, 11,240/- IN WHICH AN AMOUNT OF RS.3,59,58,370/- WAS ADDED AS INTEREST ACCRUED AND DUE. THE AO ALSO REJECTED THE ASSESSEES CLAIM OF CARRY FORWARD OF UNABSORBED DEPRECIATION AND DETERMINED THE TAX LIAB ILITY AT RS.54,91,982/-. THE REASONING OF THE AO FOR ADDING BACK THE INTEREST FOR THE COMPUTATION OF BOOK PROFIT IS REPRODUCED BE LOW; THIS SUM OF RS.3,59,58,370/- SAID TO BE THE AMO UNT OF PROVISION FOR INTEREST NO LONGER REQUIRED NOW WITHD RAWN IS THE INTEREST ACCRUED AND DUE ON THE TERM LOAN OF RS.7,61,65,000/- FROM INDIAN RENEWABLE ENERGY DEVELOPMENT AGENCY LIMITED (IREDA) WHICH AS SHOWN A S LIABILITY UNDER SECURED LOAN IN THE BALANCE SHEET AS AT 31- 03-2006. DURING THE PREVIOUS YEAR RELEVANT ASSESSM ENT YEAR 2007-08 THE ASSESSEE COMPANY HAD MADE ONE TIM E SETTLEMENT WITH IREDA FOR THE SAID TERM LOAN FOR AN AMOUNT OF RS.4,75,00,000/- AS AGAINST PRINCIPAL OUTSTANDIN G OF RS.7,61,65,000/- AND OUTSTANDING INTEREST OF RS.3,59,58,370/-. THIS SUM OF RS.3,59,58,370/- IS OFFERED TO TAX. THE ASSESSEE COMPANY CONTENDED THAT THIS SUM IS A PROVISION MADE IN EARLIER YEARS WHICH IS WITHDRAWN NOW. THE BALANCE SHEET AS AT 31-03-2006 AND 31-03-2007 A ND 31-03-2007 AND THE SCHEDULES TO BALANCE SHEET THERE ON ITA NO.790(B)/11 4 SHOWS THAT NO SUCH AMOUNT IS EITHER SHOWN AS RESERV E OR PROVISION ANYWHERE. BUT THIS SUM OF RS.3,59,58,37 0/- IS ONLY APPEARING AS A LIABILITY UNDER SCHEDULE-C SEC URED LOAN WHICH IS REPRODUCED AS UNDER; SCHEDULE C SECURED LOANS 31-03-2006 31-03 -2007 TERM LOAN FROM INDIAN RENEWABLE ENERGY DEVELOPMENT AGENCY LIMITED(IREDA) RS .7,61,65,000/- 0.00 INTEREST ACCRUED AND DUE ON ABOVE RS.3,59,58,370/ - 0.00 TOTAL RS.11,21,23,370. 0.00 THUS, IT IS CLEAR THAT THERE IS NO PROVISION MADE B Y THE ASSESSEE COMPANY BUT WAS ALL ALONG SHOWN ONLY AS LI ABILITY AS PAYABLE WHICH IS AN ASCERTAINED LIABILITY . THE PROVISO OF SEC.115JB OF THE IT ACT APPLIED BY THE ASSESSEE COM PANY IS REPRODUCED AS UNDER; THE AMOUNT WITHDRAWN FROM ANY RESERVE OR PROVISION (EXCLUDING A RESERVE CREATED BEFORE THE 1 ST DAY OF APRIL, 1997 OTHERWISE THAN BY WAY OF A DEBIT TO THE PROFIT AND LOSS ACCOUNT), IF ANY SUCH AMOUNT IS CREDITED TO THE PRO FIT & LOSS ACCOUNT. PROVIDED THAT WHERE THIS SECTION IS APPLICABLE TO A N ASSESSEE IN ANY PREVIOUS YEAR, THE AMOUNT WITHDRAWN FROM RESERVE CREATED OR PROVISIONS MADE IN A PREVIOUS YE AR RELEVANT TO THE AY COMMENCING ON OR AFTER THE 1 ST DAY OF APRIL, 1997 SHALL NOT BE REDUCED FROM THE BOOK PROF IT UNLESS THE BOOK PROFIT OF SUCH YEAR HAS BEEN INCREASED BY THOSE RESERVES OR PROVISIONS (OUT OF WHICH HE SAID AMOUNT WAS WITHDRAWN) UNDER THIS EXPLANATION OR EXPLANATION BE LOW SECOND PROVISO TO SEC.115JA, AS THE CASE MAY BE OR . THE CONDITION MENTIONED IN THE ABOVE PROVISO THAT THE AMOUNT WITHDRAWN FROM RESERVES CREDITED OR PROVISIO N MADE IN A PREVIOUS YEAR SHALL NOT BE REDUCED FROM THE BO OK PROFIT UNLESS THE BOOK PROFIT OF SUCH YEAR HAS BEEN INCREA SED BY THOSE RESERVES OR PROVISION, SQUARELY APPLY TO THE INSTANT CASE. ITA NO.790(B)/11 5 THEREFORE, IN THE ABSENCE OF ANY RESERVE CREATED O R PROVISION MADE, THE QUESTION OF REDUCTION FROM BOOK PROFIT DOES NOT ARISE. 3.1 SIMILARLY, THE AOS OBSERVATION FOR NOT ALLO WING THE CARRY FORWARD UNABSORBED DEPRECIATION WAS FOR THE FOLLOWI NG REASONS; THE SECOND ISSUE RELATES TO DISALLOWANCE OF RS.5,30,06,651/- CLAIMED BY THE ASSESEEE AS REDUCTI ON FROM NET PROFIT AS CARRY FORWARD OF UNABSORBED DEPRECIATION TO ARRIVE AT THE BOOK PROFIT U/S 115JB AT RS.5,28,53,783/-. TO DISALLOW THE SAME, THE AO WR OTE IN THE ASSESSMENT ORDER AS UNDER; AS REGARDS CARRY FORWARD OF UNABSORBED DEPRECIATI ON CLAIMED BY ASSESSEE COMPANY AS PER EXPLANATION TO SEC.115JB THE AMOUNT OF LOSS BROUGHT FORWARD OR UNABSORBED DEPRECIATION WHICHEVER IS LESS AS PER TH E BOOK PROFIT. IN THE INSTANCE CASE, THE ASSESSEE COMPANY HAS ONLY UNABSORBED DEPRECIATION LOSS AND HENCE THIS PR OVISO IS ALSO NOT APPLICABLE AND THUS CANNOT BE CONSIDERE D. 4. THE ASSESSEE BEING AGGRIEVED CARRIED THE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. THE CIT(A) R EJECTED THE APPEAL OF THE ASSESSEE. THE ASSESSEES CLAIM OF REDUCTION OF RS.3,59,58,370/- TO ARRIVE AT THE BOOK PROFIT WAS REJECTED BY THE CIT( A) BY OBSERVING THUS; THUS, THE AO STRIKES AT THE ROOT AND QUOTES FROM THE HORSES MOUTH, I.E. THE AUDITED BALANCE SHEET TO PR OVE THAT THE INTEREST AMOUNT WAS PART OF SECURED LOAN, A LIABILITY AND DOWN THE YEARS HAD NEVER BEEN SHOWN A S PROVISION MADE OR RESERVES CREATED FOR REPAYMEN T OF LOAN OF IREDA. NEITHER THROUGH WRITTEN SUBMISSION DATED 25-01-2011 NOR BY THE REJOINDER DATED 09-05 - 2011 THE AR HAS BEEN ABLE TO SHOW THAT SUCH AMOUNT OF RS.3,59,58,370/- HAD BEEN SHOWN IN ANY OF THE EARLI ER YEARS BALANCE SHEET AS PROVISION CREATED IN THE BALANCE SHEET BY DEBIT TO P&L ACCOUNT. ON THE OTHE R HAND, HE HAD COMPUTED THE INTEREST PAYABLE TO IREDA ITA NO.790(B)/11 6 AT A SUM OF RS.2,53,41,128/- AS AGAINST THE AUDITED BALANCE SHEET SHOWING IT AT RS.3,59,58,370/- THUS CREATING CONFUSION. THUS, ON FACTS, I HOLD THAT TH E REDUCTION OF INTEREST AMOUNT OF RS.3,59,58,370/- FR OM THE NET PROFIT IS NOT BORNE BY EVIDENCE. THE SAME C ANNOT BE ALLOWED TO BE TREATED AS PROVISION. IT IS ONLY A PART OF SECURED LOAN. HENCE, I HOLD THE DISALLOWANCE OF S UCH WITHDRAWAL AS PROVISION NO LONGER REQUIRED ALSO NOT AS PER LAW I.E.PROVISO TO CLAUSE(I) OF EXPLANATION I T O SEC.115JB(2) OF THE IT ACT. THUS, ON FACTS AND ON LAW, I UPHOLD THE ADDITION. 4.1 SIMILARLY, THE CIT(A) UPHOLDING THE AOS ACTIO N IN NOT REDUCING RS.5,30,06,651/- BY OBSERVING THE FOLLOWIN G; I HAVE CONSIDERED THE RIVAL ARGUMENTS. I FIND TH AT THE COMPUTATION OF INCOME FILED BEFORE THE DEPARTME NT ONLY SPEAKS OF CARRY FORWARD OF UNABSORBED DEPRECIATION AND TOTALLY SILENT ABOUT THE CASH LOSS SHOWN IN AY: 2002-03 AS PER THE WRITTEN SUBMISSION DATED 25-01-2011 AND REJOINDER DATED 09-05-011. BESIDES, SEC.115JB IS A CODE BY ITSELF. PROVISIONS OF SEC.41(1) OF THE IT ACT, HAS NO ROLE TO PAY IN IT. IN VIEW OF THE ABOVE, ON LAW AND ON FACT, I UPHOLD THE DISALLOWANCE OF REDUCTION OF RS.5,30,06,651/- 4.2 THE ASSESSEE BEING AGGRIEVED IS IN APPEAL BEFOR E US. 5. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THERE IS A SERIOUS MISCARRIAGE OF THE PRINCIPLES OF NATUR AL JUSTICE, SINCE THE CIT(A) HAS NOT CONSIDERED THE SUBMISSIONS THAT WAS FILED BEFORE HIM ON 09-05-2011 ALONGWITH THE ADDITIONAL GROUND. THE CIT(A) INSTEAD OF ADDRESSING THE SUBMISSIONS THAT WAS FILE D BEFORE HIM, HAD MERELY STATED THAT HE HAS AGREED WITH THE SUBMI SSIONS IN THE REMAND REPORT OF THE AO, SENT WELL BEFORE THE WRITT EN SUBMISSIONS ITA NO.790(B)/11 7 AND THE ADDITIONAL GROUND THAT WAS FILED ON 09-05-2 011. IT WAS FURTHER SUBMITTED THAT SUBSEQUENT TO THE ASSESSMENT WAS COMPLETED, THE ASSESSEE FILED A WRIT PETITION CHALL ENGING THE ASSESSMENT BEFORE THE HONBLE HIGH COURT OF KARNATA KA. THE HONBLE HIGH COURT, VIDE ITS JUDGMENT DATED 29-11-2 010, DIRECTING THE CIT(A) TO PASS ORDERS ON MERITS WITHIN 4 WEEKS FROM THE DATE OF RECEIPT OF THE JUDGMENT. THE JUDGMENT OF THE HONB LE HIGH COURT WAS RECEIVED BY THE CIT(A) ON 20-06-2011 AND THE CI T(A) PASSED THE IMPUGNED ORDER ON 19-07-2011 WITHOUT GIVING ADE QUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 5.1. THE LEARNED DR ON THE OTHER HAND, SUPPORTED TH E ORDERS OF THE INCOME-TAX AUTHORITIES. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. AS RIGHTLY POINTED OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE THERE IS MISCARRIAGE OF THE PRINCI PLES OF NATURAL JUSTICE. THE CIT(A) IN HIS IMPUGNED ORDER HAS NOT ADDRESSED UPON THE WRITTEN SUBMISSIONS OF THE ASSESSEE, BUT HAS ME RELY CONCURRED WITH THE REASONING OF THE AO IN THE REMAND REPORT, WHICH WAS FORWARDED TO THE CIT(A) WELL BEFORE THE WRITTEN SUB MISSIONS OF THE ASSESSEE WAS SUBMITTED TO THE CIT(A). FURTHER, THE HONBLE HIGH COURT OF KARNATAKA, IN ITS JUDGMENT DATED 29-11-201 0 HAD DIRECTED THE CIT(A) TO PASS ORDERS ON MERITS WITH IN 4 WEEKS FROM THE DATE OF ITA NO.790(B)/11 8 RECEIPT OF THE JUDGMENT. THE JUDGMENT OF THE HONB LE HIGH COURT IS ADMITTEDLY RECEIVED BY THE CIT(A) ON 20-06-2011. S UBSEQUENT TO THE RECEIPT OF THE JUDGMENT OF THE HONBLE HIGH COU RT, WE FIND ONLY ONE OPPORTUNITY OF HEARING WAS GRANTED BY THE CIT(A ) TO THE ASSESSEE I.E. IS ON 19-07-2011, THE DATE ON WHICH T HE IMPUGNED ORDER WAS PASSED. THEREFORE, IN THE INTEREST OF JU STICE, WE ARE OF THE OPINION, PROPER HEARING WAS NOT BEEN GRANTED TO THE ASSESSEE IN THIS CASE. THEREFORE, THE ISSUE IS RESTORED TO THE FILE OF THE CIT(A) FOR DE NOVO CONSIDERATION. IT IS ORDERED ACCORDINGLY. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THE 4 TH MAY, 2012. SD/- SD/- (N.K.SAINI) (GEORGE GEORGE,K) ACCOUNTANT MEMBER JUDICIAL MEMBER PLACE: BANGALORE DATED: AM* COPY TO : 1. THE ASSESSEE 2. THE REVENUE 3. CIT(A) 4. CIT 5. DR 6. GF (BLORE) BY ORDER AR, ITAT, BANGALORE