M/s Harman Connected Services Corporation India Private Limited , Bangalore V. Assistant Commissioner of Income Tax, Circle-3(1)(2), Bangalore

MA 185/BANG/2023

• Counselvise Citation: [2023] 100 COUNSELVISE.COM (IT) 5664 (ITAT-BANGALORE)
• Duration Of Justice: 3 month(s) 8 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 02-11-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: C
• Next Hearing Date: 02-11-2023
• Assessment Year: 2009-2010
• Appeal Filed On: 24-07-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PARITHIVEL
• Keywords: Rectification of order
• Section: 115JB; 13

Judgement Text

MP No.185/Bang/2023 M/s. Harman Connected Services Corporation India Pvt. Ltd., Bangalore IN THE INCOME TAX APPELLATE TRIBUNAL “C’’ BENCH: BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER M.P. No.185/Bang/2023 (Arising out of ITA No.1980/Bang/2018) Assessment Year: 2009-10 M/s. Harman Connected Services Corporation India Pvt. Ltd. (Formerly known as Symphony Telecom Corporation India Pvt. Ltd.) No.3 & 3A EOIZ Industrial Area Survey No.85 & 86, Sadarmangala village Krishnarajapuram Hobli Bangalore 560 066 PAN NO : AABCG5658E Vs. Addl. CIT Range 12 {Currently with ACIT, Circle-3(1)(2)} Bangalore APPELLANT RESPONDENT Appellant by : Smt. Tanmayee Rajkumar, A.R. Respondent by : Shri Parithivel, D.R. Date of Hearing : 03.11.2023 Date of Pronouncement : 03.11.2023 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: This MA filed by the assessee seeking rectification of order of the Tribunal in ITA No.1989/Bang/2018 & others dated 12.1.2023 for the assessment year 2009-10. 2. The ld. A.R. submitted that assessee has raised ground Nos.29 & 30 in its original appeal memo as follows: “B. Under provisions of section 115JB of the Act 29. The learned CIT(A) has erred in enhancing the book profits of the appellant by adding deferred rent amounting to INR 5,200,596 in computing book profits under section 115JB of the Act. 30. The learned CIT(A) erred in relying on certain judicial precedents which are distinguishable from the facts of the Appellant.” MP No.185/Bang/2023 M/s. Harman Connected Services Corporation India Pvt. Ltd., Bangalore Page 2 of 6 2.1 However, these grounds are inadvertently not adjudicated by the Tribunal. 3. We have heard the rival submissions and perused the materials available on record. Admittedly, assessee has raised these grounds before this Tribunal, which is with regard to enhancing the book profit of the assessee by adding the differed rent amounting to Rs.52,00,596/- while computing the book profit u/s 115JB of the Income-tax Act,1961 ['the Act' for short]. The Tribunal recorded the argument of the ld. A.R. & ld. D.R. and also given a finding from para 14 to 16 of the order cited (supra) as follows: “14. The ld. A.R. submitted that the assessee had taken certain buildings on lease. Since the assessee did not intend to acquire the premises, they had been classified as operating lease, in line with AS-19. As per AS-19, lease payments are to be recognized as expense in the profit and loss account on a straight line basis unless another systematic basis is more representative of time pattern of the user’s benefit. Accordingly, the assessee distributed the total lease amount over the term of the lease and claimed deduction of the charge so created. 14.1 The Assessing Officer held that the deferred rent merely represents a book entry without there being any cash flow and therefore the same is not allowable as revenue expenditure. The CIT(A) affirmed the disallowance. In this regard, it is submitted that the assessee in line with AS 19 has created deferred rent charges. The total rentals for the period of the lease are equally distributed and written off to the profit and loss account over a period of time. The ld. A.R. submitted that the excess charge over payment in the current year is set right by excess payment over charge in the subsequent years, and therefore the treatment is merely a timing difference. The deferred rent calculated for one of the buildings is produced on page 544 of the paper book, showing the charge created and the payment made across 49 months. Therefore, the ld. A.R. submitted that the deferred rent charges are allowable as a deduction. Without prejudice, the ld. A.R. submitted that if the charge is disallowed during the year under consideration, the same ought to be allowed in the year of payment. He relied on the following Case laws: - CIT v. Virtual Soft Systems Ltd. (reported in [2018] 92 taxmann.com 370 (SC)- paras 13-18; and - CIT v. ICICI Venture Funds Management Co. Ltd. (reported in [2015] 62 taxmann.com 128 (Karnataka)- para 10. MP No.185/Bang/2023 M/s. Harman Connected Services Corporation India Pvt. Ltd., Bangalore Page 3 of 6 In any event, the ld. A.R. submitted that the rent equalization charges are not ‘reserve’ or an unascertained liability and therefore cannot be added while computing the book profits under Section 115JB of the Act. 15. The ld. D.R. relied on the order of the ld. CIT(A). 16. We have heard the rival submissions and perused the materials available on record. The assessee has been paying rent for various years at the different rates. In the first few assessment years, rent is lower. However, it was increased in subsequent assessment years. The assessee wants equalized rent from year to year by claiming uniform amount of rent in each assessment year. In our opinion, the actual rent paid by the assessee in the assessment year under consideration is to be allowed in each assessment years. There is no system of equalization of rent though it was increased and incurred in subsequent assessment years. Accordingly, we direct the AO to allow accrued rent as applicable in each assessment year as per terms of rent agreement. Ordered accordingly. This ground of the assessee’s appeal is partly allowed.” 3.1 Now the contention of the ld. A.R. is that the findings given by the Tribunal in para 16 are only with regard to computation of normal income of the assessee and is not relating to computation of book profit of the assessee u/s 115JB of the Act. This finding cannot be applied with regard to computation of book profit as the ld. AO cannot tinker the book profit in view of the judgement of Hon’ble Supreme Court in the case of Apollo Tyres Ltd. Vs. CIT reported in 255 ITR 273 (SC). She also relied on the explanation (1) to section 115JB of the Act. Thus, she submitted that this adjustment which is made by the ld. AO with regard to differed rent not fall under this explanation (1) to section 115JB of the Act and requested the Bench to rectify the order of the Tribunal on this issue. 4. The ld. D.R. relied on the order of the Tribunal. 5. We have heard the rival submissions and perused the materials available on record. The Tribunal has considered this ground in its appeal, which is in para 13 of its order, which is with regard to disallowance of differed rent in both normal computation of income and also computation of book profit u/s 115JB of the Act and in the consolidated manner it has given its findings in para 16 of the order. Now the contention of the ld. A.R. is that the ld. AO cannot MP No.185/Bang/2023 M/s. Harman Connected Services Corporation India Pvt. Ltd., Bangalore Page 4 of 6 tinker the book profit in view of the judgement of Hon’ble Supreme Court in the case of Apollo Tyres Ltd. cited (supra). As per section 115JB of the Act, profit & loss account of the assessee cannot be tinkered if it has been maintained in accordance with the provisions of Part II & III of Schedule VI of Companies Act, 1956. However, the ld. AO/Appellate authority always has the right to examine as to whether assessee’s profit & loss account has not been made in accordance with provisions of Companies Act, 1956. If it is so, the ld. AO/Appellate authority has the right to tinker with the assessee’s profit & loss account while computing the income u/s 115 JA/115JB of the Act. This view has been taken by Tribunal in various decisions, for example in the case of Kopran Pharmaceuticals Pvt. Ltd. Vs. Deputy Commissioner of Income-tax reported in (119 ITD 355) (Mumbai). Being so, in our opinion, in the present case, the assessee artificially reduced the profit by charging to P&L account, excess rent by showing that it is equalizing the rent from year to year by claiming uniform amount of rent in each assessment year. However, the Tribunal held that there is no system of equalization of rent though it has increased and incurred in subsequent assessment years and directed the ld. AO to allow accrued rent as applicable in each assessment year as per terms of rent agreement as the assessee is following mercantile system of accounting and this observation of the Tribunal is with regard to both normal computation of income as well as for computation of book profit. Now the ld. A.R. cannot say that the ld. AO/Appellate authority have no right to tinker the Profit & Loss account of the assessee when its books of accounts are not maintained in accordance with the provisions of Part II & III of schedule VI of Companies Act, 1956. Being so, we do not find any merit in the argument of ld. A.R. This issue raised by the assessee in its MA is dismissed. 6. Next ground in this MA is that assessee raised ground no.53 in its appeal as follows: MP No.185/Bang/2023 M/s. Harman Connected Services Corporation India Pvt. Ltd., Bangalore Page 5 of 6 “53. The ld. AO and the CIT(A) have erred in computing interest u/s 234C of the Act on assessed income instead of returned income.” 6.1 For this purpose, the assessee relied on the order of the Tribunal in the case of SAP India Pvt. Ltd. Vs. Deputy Commissioner of Income-tax 41 Taxmann.com 7 (Bang ITAT). The Tribunal given a finding on this issue in para 47 as follows: “47. We have heard the rival submissions and perused the materials available on record. We direct the AO to recompute the interest u/s 234C of the Act on assessed income only. This ground is partly allowed. Directed accordingly.” 6.2 According to the ld. A.R., the interest u/s 234C of the Act is to be computed on the returned income and not the assessed income. This view is supported by the judgement of Hon’ble Madras High Court in the case of MRF Ltd. Vs. Deputy Commissioner of Income- tax in TC No.234 of 2016 dated 4.8.2016. 7. The ld. D.R. relied on the order of the Tribunal. 8. We have heard the rival submissions and perused the materials available on record. Admittedly, there was a mistake crept in the order of the Tribunal in para 47 of the said order which is to be read as follows: “47. We have heard the rival submissions and perused the materials available on record. We direct the AO to recompute the interest u/s 234C of the Act on returned income only. This ground is partly allowed. Directed accordingly.” 8.1 There will be no other change in the impugned order of Tribunal cited (supra). 9. In the result, the miscellaneous application filed by the assessee is partly allowed. Order pronounced in the open court on 3 rd Nov, 2023 Sd/- (Beena Pillai) Judicial Member Sd/- (Chandra Poojari) Accountant Member Bangalore, Dated 3 rd Nov, 2023. VG/SPS MP No.185/Bang/2023 M/s. Harman Connected Services Corporation India Pvt. Ltd., Bangalore Page 6 of 6 Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(Judicial) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore.