Maini Precision Products Limited, Bangalore V. The Assistant Commissioner of Income Tax, Circle -4(1)(2), Bangalore

ITA 798/BANG/2019

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 1602 (ITAT-BANGALORE)
• Duration Of Justice: 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 16-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H N KHINCHA
• Assessee Lawyers: S T SESHADRI
• Keywords: Wholly owned subsidiary; Assessment record; Reason to believe; Revenue expenditure; Reassessment proceedings
• Section: 147; 148; 139; 143(3); 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI A.K.GARODIA, ACCOUNTANT MEMBER ITA NO.798/BANG/2019 ASSESSMENT YEAR : 2010-11 MAINI PRECISION PRODUCTS LTD., B-165, 3 RD CROSS, 1 ST STAGE, PEENYA INDUSTRIAL ESTATE, BENGALURU-560 058. PAN AABCM 8269 R VS. THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-4(1)(2), BENGALURU APPELLANT RESPONDENT APPELLANT BY : SHRI H.N KHINCHA, C.A ASSESSEE BY : SHRI S.T SESHADRI, JCIT DATE OF HEARING : 27.08.2019 DATE OF PRONOUNCEMENT : 06.09.2019 O R D E R PER SHRI N.V.VASUDEVAN, VICE-PRESIDENT: THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDE R DATED 1/3/2019 OF CIT-IV, BENGALURU RELATING TO ASST. YEA R 2010-11. 2. IN THIS APPEAL BY THE ASSESEE, TWO ISSUES HAVE T O BE ADJUDICATED. THE FIRST ISSUE IS WITH REGARD TO TH E VALIDITY OF INITIATION OF PROCEEDINGS FOR REASSESSMENT U/S 147 OF THE INCOME TAX ACT, 1961 (ACT). THE SECOND ISSUE IS WHETHER T HE REVENUE ITA NO.798/BANG/2019 PAGE 2 OF 11 AUTHORITIES WERE JUSTIFIED IN RECOMPUTING THE BOOK PROFITS OF THE ASSESSEE US/ 115JB OF THE ACT. 3. THE FACTS AND CIRCUMSTANCES GIVING RAISE TO THIS APPEAL ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSIN ESS OF MANUFACTURING OF PRECISION AUTOMOTIVE PARTS AND AER OSPACE COMPONENTS. FOR ASST. YEAR 2010-11, THE ASSESSEE F ILED A RETURN OF INCOME DECLARING A TOTAL INCOME OF RS.4,13,939/- AN D BOOK PROFIT OF RS.3,82,83,820/- UNDER THE PROVISIONS OF SEC. 115JB OF THE ACT. AS PER THE PROVISIONS OF SEC.115JB OF THE ACT, IN CAS E OF A COMPANY, THE INCOME TAX PAYABLE ON THE TOTAL INCOME AS COMPU TED UNDER THE INCOME TAX ACT IN RESPECT OF ANY PREVIOUS YEAR IS L ESS THAN 18.5% OF ITS BOOK PROFIT, THEN SUCH BOOK PROFIT SHALL BE DEE MED TO BE THE TOTAL INCOME OF THE ASSESSEE AND THE TAX PAYABLE ON SUCH TOTAL INCOME SHALL BE THE AMOUNT OF INCOME TAX AT THE RAT E OF 18.5%. IN OTHER WORDS EVERY COMPANY HAS TO COMPUTE ITS INCOME TAX LIABILITY AS PER TWO SETS OF PROVISIONS. (I) INCOME TAX COMP UTED AS PER NORMAL PROVISIONS OF INCOME TAX ACT. (II) INCOME TA X COMPUTED AS PER PROVISION OF SECTION 115JB OF INCOME TAX ACT. BOOK PROFIT IS DEFINED IN THE EXPLANATION 1 TO SECTION 115JB AS BO OK PROFIT MEANS THE NET PROFIT AS SHOWN IN THE PROFIT & LOSS ACCOUN T FOR THE RELEVANT PREVIOUS YEAR PREPARED IN ACCORDANCE WITH THE PROVI SIONS OF THE COMPANIES ACT, 1956 AND AS INCREASED AND DECREASED BY SOME PRESCRIBED ITEMS. 4. IN THE COURSE OF THE ASSESSMENT PROCEEDINGS, TH E AO NOTICED THAT THE ASSESSEE HAD WRITTEN OFF SUM OF RS.10,29,5 9,360/- AS INVESTMENT WRITTEN OFF AND THE SAME WERE REDUCED FROM THE COMPUTATION OF TOTAL INCOME AS PER THE NORMAL PROVI SION OF THE ACT. ITA NO.798/BANG/2019 PAGE 3 OF 11 5. THE AO CALLED UPON THE ASSESSEE TO EXPLAIN THE N ATURE OF THE CLAIM MADE BY THE ASSESSEE. IN REPLY THE ASSESSEE SUBMITTED THAT THE ASSESSEE MADE INVESTMENT IN 100% SUBSIDIARY COM PANY NAMED MPP HOLDINGS LTD. MPP HOLDINGS LTD., WAS IN THE BUS INESS OF MAKING INVESTMENTS AND HAD MADE INVESTMENTS IN VARI OUS COMPANIES IN EUROPE. ONE SUCH COMPANY IN WHICH MPP HOLDINGS LTD., HAD MADE INVESTMENT WAS A COMPANY BY NAME MPP -SLOVAKIA. MPP HOLDINGS LTD., HAD GIVEN BANK GUARANTEE TO HSBC , SLOVAKIA . DUE TO VARIOUS REASONS HSBC SLOVAKIA INVOKED THE BA NK GUARANTEE GIVEN TO IT BY MPP HOLDINGS LTD., AMOUNTING TO 6,00 ,000/- EUROS. CONSEQENTLY, THE VALUE OF INVESTMENTS HELD BY THE A SSESSEE IN MPP HOLDINGS LTD., ERODED CONSIDERABLY AND THE ASSESSEE WROTE OF THE DIMINUTION IN VALUE OF INVESTMENTS IN THE PROFIT AN D LOSS ACCOUNT AND CLAIMED THE SAME AS ALLOWABLE EXPENDITURE, INCI DENTAL TO ITS BUSINESS. ACCORDING TO THE ASSESSEE AS PER MEMORAN DUM OF ASSOCIATION OF THE COMPANY, ONE OF THE OBJECTIVES O F THE ASSESSEE WAS GIVING BANK GUARANTEE TO ITS SUBSIDIARY COMPANI ES. 6. THE AO DID NOT ALLOW THE CLAIM OF THE ASSESSEE F OR THE REASON THAT THE EXPENDITURE IN QUESTION WAS IN THE NATURE OF CAPITAL INVESTMENT AND ANY DIMINUTION IN THE VALUE OF SUCH INVESTMENT HAS TO BE REDUCED FROM CAPITAL AND CANNOT BE CLAIMED AS A DEDUCTIBLE REVENUE EXPENDITURE. 7. SIMILARLY THE ASSESSEE HAD CLAIMED AS DEDUCTION A SUM OF RS.47 LAKHS IN THE PROFIT AND LOSS ACCOUNT ON ACCOUNT OF PROVISION FOR OBSOLETE MACHINERY. THE AO HELD THAT THE EXPENDITU RE WAS NOT AN ACTUAL EXPENDITURE AND WAS ONLY A NATURE OF PROVISI ON AND HENCE CANNOT BE ALLOWED AS A DEDUCTION. ULTIMATELY THE A O COMPUTED THE TOTAL INCOME OF THE ASSESSEE AS FOLLOWS:- ITA NO.798/BANG/2019 PAGE 4 OF 11 THE TOTAL INCOME OF THE ASSESSEE AND THE TAX PAYAB LE THEREON ARE COMPUTED AS UNDER:- TAX UNDER MAT PROVISION: TAX UNDER NORMAL PROVISION :- SINCE TAX PAYABLE UNDER MAT PROVISION WORKS OUT TO HIGHER THAN WHAT TAX PAYABLE UNDER NORMAL PROVISION, THE INCOME UNDER MAT PROVISION IS ADOPTED FOR COMPUTATION OF TAX. 8. THE AFORESAID ORDER OF THE AO PASSED U/S 143(3) OF THE ACT WAS DATED 26/2/2013. THE AO ISSUED A NOTICE U/S 14 8 TO THE ASSESSEE FOR ASST. YEAR 2010-11 DATED 1/9/2017. RE ASONS RECORDED BY THE AO BEFORE ISSUE OF NOTICE U/S 148 OF THE ACT WERE AS FOLLOWS:- THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF PRECISION AUTOMOTIVE PARTS AND AEROSPACE COMPONENTS AND DERIVES INCOME FROM THE ITA NO.798/BANG/2019 PAGE 5 OF 11 SAME. FOR THE RELEVANT ASSESSMENT YEAR ASSESSEE HAD FILE RETURN OF INCOME ON 29-9-2010 DECLARING A TOTAL INCOME OF RS413939 AFTER SETTING OF LOSS OF RS15,24,14,086/- AND INCOME OF RS3,82,83820/- UNDER MAT PROVISIONS. THE RETURN WAS PROCESSED ON 31-8-2011 AND SCRUTINY ASSESSMENT WAS COMPLETED ON 26.2. 2013 TAKING MAT PROVISIONS FOR COMPUTATION OF TAX. IT IS SEEN FROM THE ASSESSMENT RECORDS THAT ASSESSEE DEBITED RS. 10,29,59,360/TOWARDS INVESTMENT WRITTEN OFF THIS EXPENDITURE WAS DISALLOWED IN SCRUTINY ASSESSMENT WHILE COMPUTING INCOME UNDER NORMAL PROVISIONS BY STATING THAT THE INVESTMENT MADE IN THE SUBSIDIARY COMPANY SHARES NAMELY MPP HOLDING IN TURN IN MPP SLOVAKIA IS CLEARLY OF CAPITAL INVESTMENT AND ANY DIMINUTION ON THE VALUE OF INVESTMENT HAS TO BE REDUCED FROM CAPITAL AND CANNOT BE CLAIMED IN P AND L ACCOUNT HENCE ASSESSEE COMPANY OUGHT TO HAVE ADDED THE ENTIRE AMOUNT WRITTEN OFF AS INVESTMENT WHILE ARRIVING AT THE TOTAL INCOME. SINCE THE SAME HAS NO T BEEN DONE, THIS AMOUNT OF RS.LO,2959,360/- SHOWN AS INVESTMENT WRITTEN OFF IS ADDED BACK TO THE RETURN INCOME OF THE ASSESSEE. ON PERUSAL OF RECORDS IT IS NOTICED THAT YOU ASSESS EE HAS NOT SOLD OUT ANY INVESTMENT AND IS MERELY PROVIDING FOR THE DIMINUTION IN VALUE OF THE INVESTMENT AS PER NOTES ON ACCOUNTS. AS THE PROVISIONS OF DIMINUTION OF VALUE IN INVESTMENT ARE TO BE ADDED TO THE BOOK PROFIT, THE SAID AMOUNT SHOULD HAVE BEEN ADDED TO THE BOOK PROFIT FOR THE COMPUTATION OF MAT. SIMILARLY A SUM OF RS 47 LAKH BEING PROVISION FOR OBSOLETE MACHINERY WAS DISALLOWED AND ADDED BACK TO THE INCOME UNDER NORMAL PROVISIONS. HOWEVER THE SAME WAS NOT ADDED TO THE MAT INCOME. FROM THE ABOVE DISCUSSION IT IS CLEAR THAT BOTH THE DISALLOWANCES WERE TO BE ADDED TO THE MAT INCOME ITA NO.798/BANG/2019 PAGE 6 OF 11 ALSO WHILE COMPUTING THE TOTAL TAX. THEREFORE I HAV E REASON TO BELIEVE THAT RSLO,7659,360/- HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTION 147 OF THE IT ACT 1961. 9. THE ASSESSEE FILED OBJECTIONS BEFORE THE AO POIN TING OUT THAT THE INITIATION OF REASSESSMENT PROCEEDINGS U/S 147 OF THE ACT WAS NOT VALID. THE AO BY AN ORDER DATED 18/9/2017 DISM ISSED THE AFORESAID CONTENTION OF THE ASSESSEE. IT WAS A PLE A OF THE ASSESSEE BEFORE THE AO THAT THE FIRST PROVISO TO SEC 147 MAK ES AMPLY CLEAR THAT WHERE AN ASSESSMENT UNDER SUB-SECTION (3) OF S ECTION 143 OR U/S 147 HAS BEEN MADE FOR THE RELEVANT ASSESSMENT Y EAR, NO ACTION SHALL BE TAKEN UNDER SECTION 147 OF THE ACT, AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF RELEVANT ASSESSMENT YEAR, UNL ESS ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR SUCH A SSESSMENT YEAR BY REASON OF THE FAILURE ON THE PART OF THE AS SESSEE TO MAKE A RETURN U/S 139 OR IN RESPONSE TO A NOTICE ISSUED UN DER SUB SECTION (1) OF SECTION 142 OR SECTION 148 OR TO DISCLOSE FU LLY AND TRULY ALL MATERIAL, FACTS NECESSARY FOR HIS ASSESSMENT, FOR T HE ASSESSMENT YEAR. 10. IN THE PRESENT CASE, THE ASSESSMENT U/S 143(3) FOR THE AY 2010-11 WAS MADE ON 26.02.2013, AND SUBJECT MATTER OF REASONS RECORDED FOR REOPENING IS AS BELOW. A) WRITE OFF INVESTMENTS B) PROVISION FOR OBSOLETE INVENTORY BOTH OF ITEMS WERE FULLY AND TRULY DISCLOSED BY T HE ASSESSEE DURING THE COURSE OF ASSESSMENT U/S 143(3) ITSELF AND WOUL D BE EVIDENT FROM THE FACT THAT THESE ITEMS OF EXPENDITURE WERE CONSIDERED AND ITA NO.798/BANG/2019 PAGE 7 OF 11 DISALLOWED WHILE COMPUTING TOTAL INCOME OF THE ASSE SSEE UNDER THE NORMAL PROVISIONS OF THE ACT. THEREFORE, THE LIME LIMIT FOR ISSUANCE OF NOTICE BEFORE THE EXPIRY OF 4 YEARS ENDS ON 31.0 3.2015. THE ASSESSEE POINTED OUT THAT THE NOTICE U/S 148 WAS IS SUED ON 30.03.2017, HENCE IT IS TIME BARRED UNDER THE PROVI SO TO SEC.147 OF THE ACT. 11. IN SUPPORT OF THE AFORESAID CONTENTIONS THE AS SESSEE PLACED RELIANCE ON CERTAIN JUDICIAL PRONOUNCEMENTS. THE A O IN HIS ORDER DATED 18/9/2017 DISPOSED OF THE AFORESAID OBJECTION S AND HAS TAKEN THE VIEW THAT THE SUFFICIENCY OR CORRECTNESS OF THE MATERIAL IS NOT A MATTER TO BE CONSIDERED AT THE TIME OF INITIA TION OF RE- ASSESSMENT PROCEEDINGS. ULTIMATELY THE AO PASSED A N ORDER U/S 143(3) R.W.S C 147 OF THE ACT IN WHICH HE TOOK THE VIEW THAT PROVISION FOR DIMINUTION IN VALUE OF INVESTMENT AND PROVISION FOR OBSOLETE MACHINERY WERE CONTINGENT IN NATURE AND TH EREFORE WHILE COMPUTING BOOK PROFIT U/S 115JB OF THE ACT THEY H AVE TO BE ADDED TO THE PROFIT AS PER THE PROFIT AND LOSS ACCOUNT FO R ARRIVING AT BOOK PROFIT U/S.115JB OF THE ACT. ACCORDINGLY THE BOOK PROFIT WAS COMPUTED BY THE AO AS FOLLOWS:- COMPUTATION OF INCOME AS PER MAT PROVISON ITA NO.798/BANG/2019 PAGE 8 OF 11 SINCE TAX PAYABLE UNDER MAT PROVISION WORKED OUT TO HIGHER THAN WHAT TAX PAYABLE UNDER NORMAL PROVISION, THE INCOME UNDER MAT PROVISION WAS ADOPTED FOR COMPUTATION OF TAX. 12. THE ORDER OF THE AO WAS CONFIRMED BY THE CIT(A) ON BOTH THE ISSUES OF VALIDITY OF INITIATION OF RE-ASSESSMENT P ROCEEDINGS AS WELL AS THE ADDITION TO THE BOOK PROFITS MADE IN THE RE- ASSESSMENT PROCEEDINGS. 13. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSES SEE IS IN APPEAL BEFORE THE TRIBUNAL. 14. WE HAVE HEARD THE SUBMISSIONS OF THE LD COUNSEL FOR THE ASSESSEE ON THE VALIDITY OF INITIATION OF RE-ASSESS MENT PROCEEDINGS U/S 147 OF THE ACT. AT THE OUTSET WE OBSERVE THAT THE ASSESSMENT YEAR IN THE PRESENT CASE IS AY 2010-11 AND AN ORDER OF ASST. U/S 143(3) OF THE ACT WAS ALREADY PASSED BY THE AO ON 2 6/2/2013. THE RE-ASSESSMENT PROCEEDINGS HAVE BEEN INITIATED BY T HE AO BY ISSUE OF NOTICE U/S 148 OF THE ACT DATED 30/2/2017. AS P ER THE FIRST PROVISO TO SEC. 147 OF THE ACT AN ACTION U/S 147 CA N BE TAKEN IN A CASE WHERE AN ASSESSMENT WAS ALREADY COMPLETED U/S 143(3) OF THE ACT WITHIN THE PERIOD OF 4 YEARS FROM THE END OF RE LEVANT ASST. YEAR. HOWEVER, IF THERE IS FAILURE ON THE PART OF THE ASS ESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HI S ASSESSMENT FOR THAT ASSESSMENT. YEAR THEN THE NOTICE U/S 148 OF TH E ACT CAN BE ISSUED WITHIN A PERIOD OF 6 YEARS FROM THE END OF T HE RELEVANT ASST. YEAR. 15. THE QUESTION THEREFORE IS AS TO WHETHER IT CAN BE SAID IN THE PRESENT CASE THAT THERE WAS A FAILURE ON THE PART O F THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSA RY FOR HIS ITA NO.798/BANG/2019 PAGE 9 OF 11 ASSESSMENT. IN THIS REGARD IT IS CLEAR FROM THE PE RUSAL OF THE ORDER PASSED U/S 143(3) OF THE ACT THAT SAME ITEM WHICH HAVE NOT BEEN ADDED TO THE BOOK PROFITS U/S 115JB OF THE ACT WERE ADDED IN THE ORIGINALLY CONCLUDED ASSESSMENT. PROCEEDINGS U/ S 143(3) OF THE ACT WHEN THE TOTAL INCOME OF THE ASSESSEE WAS COMPU TED UNDER THE NORMAL PROVISIONS OF THE ACT. THEREFORE, IT CANNOT BE SAID THAT THERE WAS ANY FAILURE ON THE PART OF THE ASSESSEE TO FULL Y AND TRULY DISCLOSE ALL MATERIAL FACTS NECESSARY FOR HIS ASSES SMENT. THE PLEA OF THE ASSESSEE IS SUPPORTED BY THE FOLLOWING DECISI ONS :- 1) MSEB HOLDING CO. LTD., VS. DCIT, 102 TAXMANN.COM 2 08 (BOM.) 2) GUJARAT ECO TEXTILE PARK LTD., VS, ACIT 60 TAXMANN. COM 296 (BOM.) 3) SUN INVESTMENT PVT. LTD., VS ACIT, 344 ITR 1 (DELH I) 4) CIT VS. MYSORE CEMENTS LTD., 35 TAXMANN.COM 294 (KA R) 16. IN VIEW OF THE AFORESAID JUDICIAL PRONOUNCEMENT S AND IN VIEW OF THE FACT THAT THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE TO FULLY AND TRULY DISCLOSE MATERIAL FACTS, THE REOPEN ING OF THE ASSESSMENT U/S 147 BEYOND THE PERIOD OF 4 YEARS IS NOT VALID. CONSEQUENTLY THE ORDER OF RE-ASSESSMENT U/S 147 OF THE ACT IS LIABLE TO BE ANNULLED ON THIS GROUND AND IS HEREBY ANNULLED. IN VIEW OF THE DECISION ON THE AFORESAID GROUND ON THE VALIDITY OF INITIATION OF PROCEEDINGS U/S 147 OF THE ACT, THE I SSUES ON MERITS OF THE APPEAL OF THE ASSESSEE ARE NOT BEING CONSIDERED . ITA NO.798/BANG/2019 PAGE 10 OF 11 17. IN THE RESULT, THE APPEAL OF THE ASSESSEE I S ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH SEPTEMBER, 2019. SD/- SD/- ( A.K.GARODIA ) ( N.V. V ASUDEVAN) ACCOUNTANT MEMBER VICE PRESI DENT BANGALORE, DATED, THE 6 TH SEPTEMBER, 2019. /VMS/ COPY TO: 1. APPELLANT (S) / CROSS OBJECTOR(S) 2. RESPONDENT(S) 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE. ITA NO.798/BANG/2019 PAGE 11 OF 11 1. DATE OF DICTATION 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO SR.P.S .. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER .. 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S. .. 6. DATE OF UPLOADING THE ORDER ON WEBSITE.. 7. IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO .. 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. DATE ON WHICH ORDER GOES FOR XEROX & ENDORSEMENT 10. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 11. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER . 12. THE DATE ON WHICH THE FILE GOES TO DISPATCH SECTION FOR DISPATCH OF THE TRIBUNAL ORDER . 13. DATE OF DESPATCH OF ORDER. ..