ACIT, Chandigarh V. M/s Cheema Spintex Ltd., Chandigarh

ITA 840/CHANDI/2011

• Counselvise Citation: 84021514 RSA 2011
• Duration Of Justice: 4 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 17-01-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 01-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N K SAINI
• Assessee Lawyers: ANOOP KUMAR SHARMA
• Keywords: Depreciation; Condonation of delay; Bonafide mistake
• Section: 80HHC; 115JB; 10B; 12; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH CH ANDIGARH BEFORE SHRI H.L. KARWA, VP AND SHRI D K SRIVASTAVA, AM ITA NO. 8 40/CHD/2011 ASSESSMENT YEAR: 2007-08 A.C.I.T. C-4(1), CHANDIGARH V M/S CHEEMA SPINTEX LTD SCO 206-07, 3 RD FLOOR SECTOR 34-A, CHANDIGARH PAN: AAACC 6786C (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI N.K. SAINI RESPONDENT BY: SHRI ANOOP KUMAR SHARMA DATE OF HEARING: 18.1.2012 DATE OF PRONOUNCEMENT: 20 .1.2012 ORDER PER H.L. KARWA, V.P THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER PASSED BY THE LD. CIT(A), CHANDIGARH DATED 27.1.2011 RELATING TO AY 2007-08. 2. IT IS OBSERVED THAT THE APPEAL FILED BY THE REVE NUE IS BARRED BY LIMITATION OF 89 DAYS. THE REVENUE HAS FILED APPLICATION FOR CONDON ATION OF DELAY DULY SUPPORTED BY AN AFFIDAVIT OF POONAM SHARMA, A.C.I.T. C-4, CHANDI GARH. IN THE AFFIDAVIT, IT IS STATED THAT THE REASON FOR FILING THE APPEAL LATE HAS BEEN ON ACCOUNT OF THE FACT THAT THERE WAS AMBIGUITY REGARDING CONCLUSIVE FINDINGS OF THE LD. CIT(A) IN HER ORDER, PAGE NO. 11 ON THE GROUND NO. 6. IT IS FURTHER STATED THAT THE AO INTERPRETED THAT THE ADDITION ON THIS GROUND HAS BEEN CONFIRMED IN FAVOUR OF THE REVENUE. HOWEVER, WHEN THE ASSESSEE APPLIED FOR THE REFUND THAT WAS DUE TO HIM ON APPEAL EFFECT, THE ORDER WAS RE-EXAMINED AND IT CAME TO THE NOTICE OF THE AO THA T THE ADDITION ON ACCOUNT OF GROUND NO. 2 HAS BEEN ALLOWED IN FAVOUR OF ASSESSE E. ACCORDINGLY IT WAS SUBMITTED BY THE REVENUE THAT THE AO WAS PREVENTED BY SUFFICI ENT CAUSE FOR NOT FILING THE APPEAL IN TIME AS THE DECISION OF THE LD. CIT(A) ON ONE OF THE ISSUE WAS NOT CLARIFICATORY AND IT WAS A BONAFIDE MISTAKE ON THE PART OF THE AO. THEREFORE, IT WAS PRAYED THAT THE DELAY OF 89 DAYS IN FILING THE APPE AL, SHOULD BE CONDONED. 3. WE HAVE HEARD BOTH THE PARTIES. IT IS WELL SETT LED LAW THAT THE LENGTH OF DELAY IS NOT TO MATTER IN THE CONTEXT OF CONDONATION OF DELAY. THE JURISDICTION TO CONDONE THE DELAY SHOULD BE EXERCISED LIBERALLY. THE MATTE R RELATING TO CONDONATION OF DELAY ITA NO. 840/CHD/2011 ACIT V. CHEEMA SPINTEX LTD 2 SHOULD BE JUDGED BROADLY AND NOT IN A PEDANTIC MANN ER. CONSIDERING THE RELEVANT FACTS OF THE PRESENT CASE AND ALSO THE LEGAL POSITI ON, WE HOLD THAT THE REVENUE WAS PREVENTED BY A SUFFICIENT CAUSE FROM FILING THE APP EAL IN TIME. WE THEREFORE, CONDONE THE DELAY IN FILING THE APPEAL AND PROCEED TO DECI DE THE APPEAL ON MERITS. 4. THE ONLY GROUND RAISED BY THE REVENUE IN THIS AP PEAL READS AS UNDER:- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING DEDUCTION U/S 10B WHILE COMPUTING THE BOOKS PROFITS FOR THE PURPOSE OF COMPUTATION OF PROFITS U/S 115JB. 5. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE-COMPANY IS ENGAGED IN THE MANUFACTURING OF COTTON YARN. THE AO HAS DI SCUSSED THE ISSUE IN PARA 6 OF THE ASSESSMENT ORDER. THE AO HAS OBSERVED THAT HOWEVER , FOR CALCULATING THE PROFIT U/S 115JB OF THE INCOME-TAX ACT, 1961 (IN SHORT THE AC T) THE ASSESSEE HAS REDUCED DEDUCTION U/S 10B OF THE ACT AMOUNTING TO RS. 2,53, 09,131/-FROM THE PROFITS OF RS. 2,47,25,371/- . ACCORDING TO THE AO AS PER CLAUSE (II) TO EXPLANATION 1 OF SECTION 115 JB(1) ACT, THE PROFITS OF THE COMPANY SHALL BE REDUCED BY THE AMOUNT OF INCOME TO WHICH ANY OF THE PROVISIONS OF SECTION 10A OR 10 B THE ACT APPLY. THE AO FURTHER HELD THAT AS PER THIS CLAUSE THE PROFITS TO BE EXCL UDED FROM THE BOOK PROFITS WOULD BE THE PROFITS WHICH HAVE BEEN ALLOWED AS DEDUCTION U/ S 10B OF THE ACT. THE AO RELYING ON THE DECISION OF HON'BLE BOMBAY HIGH COUR T IN THE CASE OF CIT V. AJANTA PHARMA LTD, 223 CTR (BOM) 441 HELD THAT NO DEDUCTIO N U/S 10B OF THE ACT WILL BE ALLOWABLE FROM THE BOOK PROFITS OF THE ASSESSEE, SI NCE DEDUCTION OTHERWISE ALLOWABLE TO THE ASSESSEE AS PER THE ACT IS NIL. 6. ON APPEAL, THE LD. CIT(A) ALLOWED THE CLAIM OF T HE ASSESSEE OBSERVING AS UNDER:- 22 I HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIO NS AND MATERIAL ON RECORD. AS PER SUB-CLAUSE (F) OF THE EXPLANATION TO SUB-SEC TION (2) OF SECTION 115 JB FOR THE PURPOSE OF COMPUTING BOOK PROFIT UNDER THIS SECTION, THE NET PROFIT SHOWN IN THE PROFIT AND LOSS ACCOUNT SHALL BE INCRE ASED BY THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABLE TO ANY INCOME TO W HICH SECTION 10 OR SECTION 10A OR SECTION 10A OF SECTION 10B OR SECTION 11 OR SECTION 12 APPLY, IF SUCH AMOUNT IS DEBITED TO PROFIT AND LOSS ACCOUNT. SIMI LARLY AS PER SUB-CLAUSE (II) OF THE SAME EXPLANATION, THE AMOUNT OF INCOME TO WHICH ANY OF THE PROVISIONS OF ITA NO. 840/CHD/2011 ACIT V. CHEEMA SPINTEX LTD 3 SECTION 10 OR SECTION 10A OR SECTION 10B OR SECTION 11 OR SECTION 12 APPLY WILL BE REDUCED FROM NET PROFIT SHOWN IN PROFIT AND LOSS ACCOUNT, IF SUCH AMOUNT IS CREDITED TO PROFIT AND LOSS ACCOUNT. 23. AS PER THE ABOVE-MENTIONED PROVISIONS, THE FOLL OWING INCOME WILL NOT BE SUBJECT TO MAT: (I) INCOME EXEMPTED UNDER SECTION 10 OF THE ACT. (II) INCOME OF NEWLY ESTABLISHED UNDERTAKINGS IN A FREE TRADE ZONE, ETC., UNDER SECTION 10A OF THE ACT. (III) PROFITS AND GAINS DERIVED FROM HUNDRED PER CE NT EXPORT-ORIENTED UNDERTAKINGS UNDER SECTION 10B OF THE ACT. (IV) INCOME FROM PROPERTY HELD FOR CHARITABLE OR RE LIGIOUS PURPOSES UNDER SECTION 11 OF THE ACT. (V) INCOME OF TRUSTS OR INSTITUTIONS FROM CONTRIBUT ION UNDER SECTION 12 OF THE ACT. THE EXPENSES RELATED TO THE ABOVE STATED INCOME WI LL BE CONSIDERED FOR COMPUTATION OF NET PROFIT FOR THE PURPOSE OF MAT. FROM THE PERUSAL OF SECTION 115JB IS QUITE CLEAR T HAT THE INCOME U/S 10B IS TO BE REDUCED WHEN COMPUTING THE INCOME UNDE R MAT. 24. THE AO PLACED RELIANCE ON THE CASE OF CIT V. AJ ANTA PHARMA LTD (2009) 223 CTR (BOM) 441 WHERE THE HON'BLE COURT CONCLUDED THAT FOR THE PURPOSE OF CALCULATING BOOK PROFIT U/S 115 JB UNDER EXPLANA TION 1, SUB CL. (IV) THE EXPORT PROFITS TO BE EXCLUDED FROM THE BOOK PROFIT WOULD B E THE EXPORT PROFIT ALLOWED AS A DEDUCTION UNDER SECTION 80HHC AFTER RESTRICTIN G THE DEDUCTION AS PER THE PROVISIONS OF SUB-SEC (1B) OF S. 80HHC AND NOT THE EXPORT PROFITS CALCULATED AS PER SUB-SEC (3) AND (3A) OF SEC 80HHC BEFORE APP LYING THE RESTRICTION CONTAINED IN SUB-SEC (1B) OF SEC 80HHC. 25. BUT THE ISSUE IN THE PRESENT CASE IS RELATED TO INCOME U/S 10B, WHICH SPECIFICALLY IS TO BE REDUCED WHILE COMPUTING INCOM E U/S 115 JB, SO THE FACTS OF THE CASE RELIED UPON BY THE AO ARE NOT APPLICABL E TO THE APPELLANTS CASE. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS. PROVISIONS OF SECTION 115JB OF THE ACT (AS APPLICABLE IN THE RELEVANT TIME) READS AS UNDER :- 115JB. SPECIAL PROVISION FOR PAYMENT OF TAX BY CE RTAIN COMPANIES. (1) NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT, WHERE IN THE CASE OF AN ASSESSEE, BEING A COMPANY, THE INCOME-TAX, PAYABLE ON THE TOTAL INCOME AS COMPUTED UNDER THIS ACT IN R ESPECT OF ANY PREVIOUS YEAR ITA NO. 840/CHD/2011 ACIT V. CHEEMA SPINTEX LTD 4 RELEVANT TO THE AY COMMENCING ON OR AFTER THE IST D AY OF APRIL, 2007 IS LESS THAN TEN PER CENT OF ITS BOOK PROFIT SUCH BOOK PROF IT SHALL BE DEEMED TO BE THE TOTAL INCOME OF THE ASSESSEE AND THE TAX PAYABLE BY THE ASSESSEE ON SUCH TOTAL INCOME SHALL BE THE AMOUNT OF INCOME-TAX AT T HE RATE OF TEN PER CENT. (2) EVERY ASSESSEE, BEING, A COMPANY, SHALL FOR THE PURPOSES OF THIS SECTION, PREPARE ITS PROFITS AND LOSS ACCOUNT FOR T HE RELEVANT PREVIOUS YEAR IN ACCORDANCE WITH THE PROVISIONS OF PARTS II AND III OF SCHEDULE VI TO THE COMPANIES ACT, 1956 (1 OF 1956). PROVIDED THAT WHILE PREPARING THE ANNUAL ACCOUNTS I NCLUDING PROFITS AND LOSS ACCOUNT: (I) THE ACCOUNTING POLICIES; (II) THE ACCOUNTING STANDARDS ADOPTED FOR PREPARIN G SUCH ACCOUNTS INCLUDING PROFITS AND LOSS ACCOUNT: (III) THE METHOD AND RATES ADOPTED FOR CALCULATING THE DEPRECIATION: SHALL BE THE SAME A S HAVE BEEN ADOPTED FOR THE PU RPOSE OF PREPARING SUCH ACCOUNTS INCLUDING PROFIT AND LOSS ACCOUNT AND LAID BEFORE THE COMPANY AT ITS ANNUAL GENERAL MEETING IN ACCORDANCE WITH THE PROVISIONS OF SECTION 210 OF THE COMPANIES ACT, 195 6 (1 OF 1956); PROVIDED FURTHER THAT WHERE THE COMPANY HAS ADOPTE D OR ADOPTS THE FINANCIAL YEAR UNDER THE COMPANIES ACT, 1956 (1 OF 1956), WHICH IS DIFFERENT FROM THE PREVIOUS YEAR UNDER THIS ACT: (I) THE ACCOUNTING POLICIES; (II) THE ACCOUNTING STANDARDS ADOPTED FOR PREPARING SUCH ACCOUNTS INCLUDING PROFIT AND LOSS ACCOUNT; (III) THE METHOD AND RATES ADOPTED FOR CALCULATING THE DEPRECIATION; SHALL CORRESPOND TO THE ACCOUNTING POLICIES, ACCOUN TING STANDARDS AND THE METHOD AND RATES FOR CALCULATING THE DEPT WHICH HAVE BEEN ADOPTED FOR PREPARING SUCH ACCOUNTS INCLUDING PROFIT AND LO SS ACCOUNT FOR SUCH FINANCIAL YEAR OR PART OF SUCH FINANCIAL YEAR FALLI NG WITHIN THE RELEVANT PREVIOUS YEAR. EXPLANATION 1- FOR THE PURPOSE OF THIS SECTION, BO OK PROFIT MEANS THE NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR PREPARED UNDER SUB-SEC (2) AS INCREAS ED BY (A) THE AMOUNT OF INCOME-TAX PAID OR PAYABLE, AND T HE PROVISIONS THEREFORE; OR ITA NO. 840/CHD/2011 ACIT V. CHEEMA SPINTEX LTD 5 (B) THE AMOUNTS CARRIED TO ANY RESERVE, BY WHATEVER NAME CALLED, OTHER THAN A RESERVE SPECIFIED UNDER SECTION 33AC; OR (C) THE AMOUNT OR AMOUNTS SET ASIDE TO PROVISIONS M ADE FOR MEETING LIABILITIES, OTHER THAN ASCERTAINED LIABILITIES; OR (D) THE AMOUNT BY WAY OF PROVISION FOR LOSSES OF SU BSIDIARY COMPANIES; OR (E) THE AMOUNT OR AMOUNTS OF DIVIDENDS PAID OR PROP OSED; OR (F) THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABLE TO ANY INCOME TO WHICH SECTION 10 (OTHER THAN THE PROVISIONS CONTAIN ED IN CLAUSE (38) THEREOF) OR SECTION 10A OR SECTION 10B OR SECT ION 11 OR SECTION 12 APPLY; OR (G) THE AMOUNT OF DEPRECIATION; (H) THE AMOUNT OF DEFERRED TAX AND THE PROVISIONS T HEREFOR; (I) THE AMOUNT OR AMOUNTS ASIDE AS PROVISIONS FOR D IMINUTION IN THE VALUE OF ANY ASSET; IF ANY AMOUNT REFERRED TO IN CLAUSES (A) TO (I) IS DEBITED TO THE PROFIT AND LOSS ACCOUNT, AND AS REDUCED BY- (I) THE AMOUNT WITHDRAWN FROM ANY RESERVE OR PROVIS IONS (EXCLUDING A RESERVE CREATED BEFORE THE IST DAY OF APRIL, 1997 O THERWISE THAN BY WAY OF A DEBIT TO THE PROFIT AND LOSS ACCOUNT), IF ANY SUCH AMOUNT IS CREDITED TO THE PROFIT AND LOSS ACCOUNT: PROVIDED THAT WHERE THIS SECTION IS APPLICABLE TO AN ASSESSEE IN ANY PREVIOUS YEAR THE AMOUNT WITHDRAWN FROM RESERVES CR EATED OR PROVISIONS MADE IN A PREVIOUS YEAR RELEVANT TO THE AY COMMENCING ON OR AFTER THE IST DAY OF APRIL, 1997 SHALL NOT BE RE DUCE ED FROM THE BOOK PROFIT UNLESS THE BOOK PROFIT OF SUCH YEAR HAS BEEN INCREASED BY THOSE RESERVES OR PROVISIONS (OUT OF WHICH THE SAID AMOUN T WAS WITHDRAWN) UNDER THIS EXPLANATION OR EXPLANATION BELOW SECOND PROVISO TO SECTION 115JA, AS THE CASE MAY BE; OR (II) THE AMOUNT OF INCOME TO WHICH ANY OF THE PROVI SIONS OF SECTION 10 (OTHER THAN THE PROVISIONS CONTAINED IN CLAUSE (38) THEREOF ) OR SECTION 10A OR SECTION 10B OR SECTION 11 OR SECTION 12 APPLY, IF A NY SUCH AMOUNT6 IS CREDITED TO THE PROFIT AND LOSS ACCOUNT: OR. 7.1 AS PER SUB-CLAUSE (F) OF EXPLANATION TO SUB-SEC (2) OF SEC 115 JB FOR THE PURPOSE OF COMPUTING THE BOOK PROFITS UNDER THIS SE CTION, THE NET PROFIT SHOWN IN THE ITA NO. 840/CHD/2011 ACIT V. CHEEMA SPINTEX LTD 6 PROFIT AND LOSS ACCOUNT SHALL BE INCREASED BY THE A MOUNT OR AMOUNTS OF EXPENDITURE RELATABLE TO ANY INCOME TO WHICH SEC 10 OR 10A OR S EC 10B OR SEC 11 OR SEC 12 APPLY, IF SUCH AMOUNT IS DEBITED TO PROFIT AND LOSS ACCOUNT. SIMILARLY AS PER SUB- CLAUSE (II) OF THE SAME EXPLANATION, THE AMOUNT OF INCOME TO WHICH ANY OF THE PROVISIONS OF SECTION 10 OR SEC 10A OR SEC 10B OR S EC 11 OR SEC 12 APPLY WILL BE REDUCED FROM THE NET PROFIT SHOWN IN THE PROFIT AND LOSS ACCOUNT IF SUCH AMOUNT IS CREDITED TO PROFIT AND LOSS ACCOUNT. 8. KEEPING IN VIEW THE ABOVE PROVISIONS OF SECTION 115JB AS APPLICABLE IN THE RELEVANT TIME, WE FIND THAT THE PROFITS AND GAINS D ERIVED FROM 100% EXPORT ORIENTED UNDERTAKINGS U/S 10B OF THE ACT WILL BE SUBJECT TO MAT. IN OTHER WORDS, THE PROVISIONS OF SECTION 115JB ARE CLEAR THAT THE INCO ME U/S 10B IS TO BE REDUCED WHILE COMPUTING THE INCOME UNDER MAT. CONSIDERING THE EN TIRE FACTS AND CIRCUMSTANCES OF THE CASE, WE DO NOT FIND ANY INFIRMITY IN THE FI NDINGS OF THE LD. CIT(A) ON THIS ISSUE. THE LD. CIT(A) HAS CORRECTLY HELD THAT THE INCOME E ARNED U/S 10B IS TO BE REDUCED WHILE COMPUTING THE INCOME U/S 115JB OF THE ACT. I T SEEMS THAT THE AO HAS REJECTED THE CLAIM OF THE ASSESSEE RELYING UPON THE DECISION OF HON'BLE BOMBAY HIGH COURT IN AJANTA FARMS (SUPRA) WHICH IS ON DIFFERENT CONTEXT AND NOT RELEVANT TO THE FACTS OF THE PRESENT CASE. 9. IN VIEW OF THE ABOVE, WE UPHOLD THE ORDER OF THE LD. CIT(A) AND DISMISS THE APPEAL OF THE REVENUE. ORDER PRONOUNCED ON 20 .01.2012 SD/- SD/- (D K SRIVASTAVA) (H.L. KARWA) ACCOUNTANT MEMBER VICE PRESIDENT CHANDIGARH, 20.01.2012 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/ THE DR ITA NO. 840/CHD/2011 ACIT V. CHEEMA SPINTEX LTD 7