The ITO, Ward 4(1), Ahmedabad V. Gujarat State Investments Ltd., Deesa

ITA 971/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5963 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 27-07-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 01-04-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S K MEENA
• Assessee Lawyers: M G PATEL
• Keywords: Presumptive income; Depreciation; Principle of natural justice; Earning of tax free income
• Section: 143(3); 14A; 115JB; 12; 154; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'A' BEFORE SHRI BHAVNESH SAINI,JM & SHRI A N PAHUJA,AM ITA NO.971/AHD/2009 (ASSESSMENT YEAR:-2005-06) INCOME-TAX OFFICER, WARD- 4(1), ROOM NO.105, 1 ST FLOOR, NAVJIVAN TRUST BUILDING, NAVJIVAN P.O. AHMEDABAD V/S GUJARAT STATE INVESTMENTS LTD., 6 TH FLOOR, H K HOUSE, ASHRAM ROAD, AHMEDABAD PAN: AABCG 4649 M [APPELLANT] [RESPONDENT] REVENUE BY :- SHRI S K MEENA, DR ASSESSEE BY:- SHRI M G PATEL, AR O R D E R A N PAHUJA: THIS APPEAL BY THE REVENUE AGAINST AN ORDER DATED 12- 12-2008 OF THE LD. CIT CIT(APPEALS)-VIII, AHMEDABAD FOR THE ASSESSMENT YEAR 2005-06, RAISES THE FOLLOWING GROUN DS:- [1] THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.11,68,830/- MADE BY THE AO TO THE BOOK PROFIT U/ S 14A OF THE ACT, IGNORING EXPLANATION (1) TO SECTION 115JB R.W.S. 1 0 OF THE IT ACT, 1961. [2] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE L D. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE AO. [3] IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LD . CIT(A) MAY BE SET ASIDE AND THAT OF THE AO MAY BE RESTORED TO THE ABOVE E XTENT. 2. FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING NIL INCOME IN THIS CASE WAS FILED ON 30-10-2005 AFT ER SET OFF OF BROUGHT FORWARD LOSS TO THE EXTENT OF RS.1,67,95,68 5/-. SUBSEQUENTLY, ASSESSMENT IN THIS CASE WAS COMPLETED U/S 143(3) OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO A S THE ACT] VIDE ORDER DATED 22.11.2007, DETERMINING NIL INCOME AFT ER MAKING DISALLOWANCE OF RS.11,68,830/- U/S 14A OF THE OF TH E ACT. HOWEVER, BOOK PROFITS U/S 115JB OF THE ACT DO NOT SEEM TO HAVE BEEN 2 ITA NO.971/AHD/2009 DETERMINED AS IS EVIDENT FROM THE SAID ORDER DATED 22.11.2007 . LATER, THE ASSESSING OFFICER[AO IN SHORT] VIDE ORDE R DATED 31.3.2008 U/S U/S 154 OF THE ACT DETERMINE BOOK PROFITS U/S 1 15JB OF THE ACT AND ADDED BACK AN AMOUNT OF RS.11,68,830/- DISALLOW ED U/S 14A OF THE ACT, HAVING RECOURSE TO EXPLANATION 1 BELOW SE C. 115JB(2) OF THE ACT ON THE GROUND THAT BOOK PROFITS HAVE TO BE INCREASED BY THE AMOUNT OF EXPENDITURE RELATABLE TO ANY INCOME TO WH ICH PROVISIONS OF SEC. 10 APPLY, THE ASSESSEE HAVING CLAIMED DIVIDEND INCOME OF RS.13,59,06,000/- EXEMPT U/S 10(34) OF THE ACT. 3 ON APPEAL, THE LEARNED CIT(A) DELETED THE DISALLO WANCE IN THE FOLLOWING TERMS:- 4.2 DURING THE APPELLATE PROCEEDINGS THE LD. A.R. OF THE APPELLANT OBJECTED TO THE ORDER PASSED BY THE A.O. AND CONTENTED T HAT NO ADMINISTRATIVE EXPENSES WERE INCURRED BY THE APPELLANT FO R EARNING ANY EXEMPT INCOME. IT WAS FURTHER SUBMITTED THAT AS PER SEC. 115JB OF THE ACT ONLY PRESCRIBED ADJUSTMENT ARE PERMISSIBLE FOR COMPUTING THE BOOK PROFIT. IN THIS REGARD HE PLACED RELIANCE ON THE DECISION OF H ON'BLE SUPREME COURT IN THE CASE OF APOLLO TYRES LTD VS. CIT 255 ITR 273. 4.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUBMI SSIONS OF THE APPELLANT CAREFULLY. IT IS A WELL SETTLED LEGAL POSITI ON THAT THE A.O. CAN MAKE THOSE ADJUSTMENTS IN THE BOOK PROFIT FOR THE PURPOSES O F SECTION 115JB OF THE ACT WHICH HAVE BEEN ENUMERATED IN THE EXPLANATION BELOW SUB-SECTION (2) OF THE SECTION. HONBLE SUPREME COURT IN THE CASE OF MALAYALA MANORAMA CO. 300 ITR 251 (SC) HAS HELD '....... IT IS, THEREFORE, NOT OPEN TO THE ASSESSING OFFICER TO RESCRUTINIZE THE ACCOUN TS AND SATISFY THAT THESE ACCOUNTS HAVE BEEN MAINTAINED IN ACCORDANCE WITH TH E PROVISIONS OF THE COMPANIES ACT. WHILE COMPUTING THE INCOME OF A COMP ANY UNDER SECTION 115J, THE ASSESSING OFFICER HAS ONLY THE POWER OF EXAMINI NG WHETHER THE BOOKS OF ACCOUNT ARE CERTIFIED BY THE AUTHORITIES UNDER THE COMPANIES ACT AS HAVING BEEN PROPERLY MAINTAINED IN ACCORDANCE WITH THE COMPANIE S ACT. THE ASSESSING OFFICER THEREAFTER HAS THE LIMITED POWER OF MAKING INCREASE S AND REDUCTIONS AS PROVIDED FOR IN THE EXPLANATION TO THAT SECTION. THE ASSESSI NG OFFICER DOES NOT HAVE JURISDICTION TO GO BEHIND THE NET PROFIT SHOWN IN T HE PROFIT AND LOSS ACCOUNT EXCEPT TO THE EXTENT PROVIDED IN THE EXPLANATION TO SECTIO N 115J .' IN VIEW OF THE ABOVE, THE ADDITION MADE BY THE A.O. IS, THEREFORE, HEREBY DELETED. 3 ITA NO.971/AHD/2009 4 THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST TH E AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED DR SUPP ORTED THE FINDINGS OF THE AO WHILE CONTENDING THAT THE LD. CI T(A) DID NOT RECORD ANY FINDINGS ON THE APPLICABILITY OF CLAUSE (F) OF EXPLANATION 1 BELOW SEC. 115JB(2) OF THE ACT. THE LEARNED AR ON B EHALF OF THE ASSESSEE, ON THE OTHER HAND, INVITED OUR ATTENTION TO AN ORDER DATED 03-02-2009 OF THE ITAT AHMEDABAD BENCH-C IN THE ASS ESSEES OWN CASE FOR AY 2005-06 IN ITA NO.3928/AHD/2008 AND SUB MITTED THAT THE MATTER RELATING TO DISALLOWANCE U/S 14A OF THE ACT HAS BEEN SET ASIDE TO THE FILE OF THE LEARNED CIT(A). 5 WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH T HE FACTS OF THE CASE AS ALSO THE AFORESAID DECISION DATED 3.2. 2009 OF THE ITAT AHMEDABAD BENCH-C IN THE ASSESSEES OWN CASE FOR AY 2005-06 IN ITA NO.3928/AHD/2008, IN CONSEQUENCE OF AFORESAID A SSESSMENT ORDER DATED 22.112007 U/S 143(3) OF THE ACT. INDISP UTABLY, THE AO ADDED AN AMOUNT OF RS.11,68,830/- DISALLOWED U/S 14 A OF THE ACT, HAVING RECOURSE TO EXPLANATION 1 BELOW SEC. 115JB( 2) OF THE ACT ON THE GROUND THAT BOOK PROFITS HAVE TO BE INCREASED B Y THE AMOUNT OF EXPENDITURE RELATABLE TO ANY INCOME TO WHICH PROVIS IONS OF SEC. 10 APPLY, THE ASSESSEE HAVING CLAIMED DIVIDEND INCOME OF RS.13,59,06,000/- EXEMPT U/S 10(34) OF THE ACT. THE LD. CIT(A) WITHOUT ADVERTING TO THE FINDINGS OF THE AO AND REA SONS ADDUCED IN SUPPORT, DELETED THE ADDITION MERELY WHILE REFERRIN G TO DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF MALAYALA M ANORAMA CO. LTD., 300 ITR 251 (SC) RENDERED IN THE CONTEXT OF P ROVISIONS OF SEC. 115J OF THE ACT. IT MAY BE POINTED OUT THAT THE SAI D DECISION IN MALAYALA MANORAMA CO. LTD.(SUPRA) HAS NOW BEEN REFE RRED TO A LARGER BENCH IN DYNAMIC ORTHOPEDICS P. LTD. V. COMM ISSIONER OF INCOME-TAX, 321 ITR 300 (SC). 5.1 IN ANY CASE, AS IS APPARENT FROM A MERE GLAN CE AT THE IMPUGNED ORDER, THE LD. CIT(A) DID NOT EVEN ADVERT TO VARIOUS 4 ITA NO.971/AHD/2009 CLAUSES, MORE SPECIFICALLY CLAUSE (F) OF EXPLANATIO N 1 BELOW SEC 115JB(2) OF THE ACT NOR RECORDED HIS SPECIFIC FIND INGS ON THE CONCLUSION DRAWN BY THE AO. THE EXPLANATION 1 TO SE CTION 115JB IS REPRODUCED HEREUNDER FOR READY REFERENCE: EXPLANATION [1].FOR THE PURPOSES OF THIS SECTION, BOOK PROFIT MEANS THE NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCO UNT FOR THE RELEVANT PREVIOUS YEAR PREPARED UNDER SUB-SECTION (2), AS IN CREASED BY (A) THE AMOUNT OF INCOME-TAX PAID OR PAYABLE, AND T HE PROVISION THEREFOR; OR (B) THE AMOUNTS CARRIED TO ANY RESERVES, BY WHATEVE R 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 PROVISI ONS CONTAINED IN CLAUSE (38) THEREOF) OR [***] SECTION 11 OR SECTION 12 APPLY; OR] [(G) THE AMOUNT OF DEPRECIATION,] [(H) THE AMOUNT OF DEFERRED TAX AND THE PROVISION T HEREFOR, [(I) THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISION F OR DIMINUTION IN THE VALUE OF ANY ASSET, 5.2 CLAUSE (F) MENTIONED ABOVE REFERS TO THE AM OUNT OR AMOUNTS OF EXPENDITURE RELATABLE TO ANY INCOME TO WHICH [SE CTION 10 (OTHER THAN THE PROVISIONS CONTAINED IN CLAUSE (38) THEREO F) OR [***] SECTION 11 OR SECTION 12 APPLY; OR], WHICH IS NOTHING BUT PROVISIONS OF SEC.14A OF THE ACT. THOUGH PROVISIONS OF SEC. 115JB OF THE ACT ENVISAGE PRESUMPTIVE TAXATION ON BOOK PROFITS BUT F OR THE PURPOSE OF THIS SECTION, A FORMULA IS GIVEN TO ADD AND REDUCE VARIOUS ITEMS 5 ITA NO.971/AHD/2009 ENVISAGED IN THE EXPLANATION 1.WHEN THE ASSESSEE RECEIVES DEDUCTION OF EXEMPT INCOME FROM BOOK PROFITS THEN T HE CORRESPONDING EXPENSES IN RELATION TO EARNING THE S AID INCOME IS REQUIRED TO BE ADDED TO COMPUTE BOOK PROFITS. 5.3 AS ALREADY OBSERVED, THE AFORESAID ORDER OF T HE LD. CIT(A) IS NOT A SPEAKING ORDER. THE LD. CIT(A) WHILE DELETING THE ADDITION MADE BY THE AO DID NOT ANALYSE THE ISSUES IN PROPE R PERSPECTIVE NOR CONTROVERTED THE FINDINGS OF THE AO. A MERE GLA NCE AT THE IMPUGNED ORDER REVEALS THAT THE ORDER PASSED BY THE LD. CIT(A) IS CRYPTIC AND GROSSLY VIOLATIVE OF ONE OF THE FACETS OF THE RULES OF NATURAL JUSTICE, NAMELY, THAT EVERY JUDICIAL/QUASI- JUDICIAL BODY/AUTHORITY MUST PASS REASONED ORDER, WHICH SHOU LD REFLECT APPLICATION OF MIND BY THE CONCERNED AUTHORITY TO T HE ISSUES/POINTS RAISED BEFORE IT. THE APPLICATION OF MIND TO THE MA TERIAL FACTS AND THE ARGUMENTS SHOULD MANIFEST ITSELF IN THE ORDER. SECT ION 250(6) OF THE ACT MANDATES THAT THE ORDER OF THE CIT(A) WHILE DIS POSING OF THE APPEAL SHALL BE IN WRITING AND SHALL STATE THE POIN TS FOR DETERMINATION, THE DECISION THEREON AND THE REASON FOR THE DECISION. AS IS APPARENT, THE IMPUGNED ORDER SUFFERS FROM LAC K OF REASONING AND IS NOT A SPEAKING ORDER. IN VIEW OF THE FORE GOING, ESPECIALLY WHEN THE LD. CIT(A) HAS NOT PASSED A SPEAKING ORDER ON THE ISSUES RAISED IN GROUND NO. 1 IN THE APPEAL BEFORE US WHIL E DECISION IN MALAYALA MANORAMA CO. LTD.(SUPRA) RELIED UPON BY HI M HAS BEEN REFERRED TO A LARGER BENCH IN DYNAMIC ORTHOPEDICS P . LTD.(SUPRA) AND THE MATTER RELATING TO DISALLOWANCE U/S 14A OF THE ACT HAS BEEN SET ASIDE TO THE FILE OF THE LEARNED CIT(A) VIDE AF ORESAID ORDER DATED 03-02-2009 OF THE ITAT IN THE ASSESSEES OWN CASE FOR AY 2005-06 IN ITA NO.3928/AHD/2008 , WE CONSIDER IT FAIR AND A PPROPRIATE TO SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE M ATTER TO HIS FILE FOR DECIDING THE ISSUE AFRESH IN ACCORDANCE WITH LAW, AFTER ALLOWING SUFFICIENT OPPORTUNITY TO BOTH THE PARTIES. NEEDLES S TO SAY THAT WHILE REDECIDING THE APPEAL, THE LEARNED CIT(A) SHALL PAS S A SPEAKING 6 ITA NO.971/AHD/2009 ORDER, KEEPING IN MIND, INTER ALIA, THE MANDATE OF PROVISIONS OF SEC. 250(6) OF THE ACT, BRINGING OUT CLEARLY AS TO WHETH ER OR NOT THE AMOUNT DISALLOWED U/S 14A OF THE ACT FALLS WITHIN CLAUSE (F) OF EXPLANATION 1 BELOW SEC. 115JB(2) OF THE ACT . WITH THESE DIRECTIONS, GROUND NO. 1 IN THE APPEAL IS DISPOSED OF. 6 GROUND NOS.2 AND 3 IN THE APPEAL BEING MERE PRAYE R NOR ANY SUBMISSIONS HAVING BEEN MADE ON THESE GROUNDS, DO N OT REQUIRE ANY SEPARATE ADJUDICATION AND ARE, THEREFORE, DISMISSED . 7 IN THE RESULT, APPEAL IS ALLOWED BUT FOR STATIST ICAL PURPOSES. ORDER PRONOUNCED IN THE COURT TODAY ON 29 -07-2011 SD/- SD/- ( BHAVNESH SAINI ) JUDICIAL MEMBER ( A N PAHUJA ) ACCOUNTANT MEMBER DATED : 29-07-2011 COPY OF THE ORDER FORWARDED TO: 1. GUJARAT STATE INVESTMENTS LTD., 6 TH FLOOR, H K HOUSE, ASHRAM ROAD, AHMEDABAD 2. THE INCOME-TAX OFFICER, WARD-4(1), R. NO.105, 1 ST FLOOR, NAVJIVAN TRUST BUILDING, NAVJIVAN P.O. AHMEDABAD 3. CIT CONCERNED 4. CIT(A)-VIII, AHMEDABAD 5. DR, ITAT, AHMEDABAD BENCH-A, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD