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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI MAHAVIR SINGHAND SHRI MANOJ KUMAR AGGARWAL
आदेश /O R D E R
PER MAHAVIR SINGH, VICE PRESIDENT:
This appeal by the assessee is arising out of the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi in order No.ITBA/NFAC/S/250/2022- 23/1049873392(1) dated 17.02.2023. The assessment was framed by the Income Tax Officer, Corporate Ward-2, Coimbatore - 2 - u/s.143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’) for the assessment year 2014-15 vide order dated 16.12.2016.
The only issue in this appeal of assessee is against the order of CIT(A) confirming the action of the AO in holding that the capital expenditure claimed by assessee while computing the total income could not be allowed as deduction while computing book profit u/s.115JB of the Act. For this, assessee has raised following effective grounds:- 2. The earned Commissioner of Income Tax (Appeals) erred in concluding that the capital expenditure which was added while computing the total income could not be allowed as a deduction when calculating book profit u/s 115JB of the Income Tax Act, 1961.
3. The learned Commissioner of Income Tax (Appeals) has erred in stating that the disallowance of capital expenditure in computation of book profit u/s 115JB did not violate the ratio laid down in the judgement of Supreme court in the case of Apollo Tyres Ltd Vs Commissioner of Income tax 255 ITR 273 (SC) without considering the crux of the case wherein it is held that "The Assessing Officer thereafter has the limited power of making increase and reductions as provided for in the Explanation to the said section, To put it differently, the Assessing Officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to section 115J".
The learned Commissioner of Income Tax (Appeals) ought to have considered the judgement in the case of Kavithalayaa Productions (P.) Ltd. vs. Assistant Commissioner of Income- tax in the ITAT Chennai Bench 'B' (IT APPEAL NO. 58 (CHNY.) OF 2020), wherein it has held that "we are of the considered view that on this issue, the A0 cannot make any adjustments to re-compute book profit u/s. 115JB of the Act, because said item does not come under any of the items of adjustments specified in clause (a) to (0 of - 3 - Explanation (1) to sec.115JB of the Act and thus, we direct the AO to delete additions made towards income admitted to claim TDS Credits while computing book profit u/s. 115JB of the Act."
The learned Commissioner of Income Tax (Appeals) has failed to consider the judicial pronouncement of High court of Karnataka in the case of Sri Hariram Hotels P Ltd vs Commissioner Of Income Tax (Iii) on 16 December, 2015 (1.T.A.No.53/2009) wherein it has been held that, "This order is confirmed by the appellate authority as well as by the ITAT. However, this exercise of the assessing authorities, in recomputing the book profit of the assessee is contrary to the principles of law laid down by the Apex Court in Apollo Tyres (supra). The Apex Court has held that the only power vested with the Assessing Officer is to make increases and deductions as provided in the explanation to Section 115JB of the Act."
For these and such other grounds that may be adduced at the time of hearing, it is prayed that the order of appellate authority may kindly be set aside.
We have heard rival contentions and gone through facts and circumstances of the case. We noted that the AO on examination of annual audit report for the financial year 2013-14 noted that the assessee company has shown repairs and maintenance expenditure under the head ‘other expenses’ to the building to the tune of Rs.1,38,84,965/-. The AO noted that repair to building carried out by the assessee and as per vouchers, most of the expenditure incurred is in the nature of capital and not revenue. Accordingly, the AO added the civil work carried out to the extent of Rs.1,27,68,335/- and allowed depreciation on the same @ 5% while computing book profit u/s.115JB of the Act and added an amount of - 4 - Rs.1,21,29,918/-. Aggrieved, assessee preferred appeal before CIT(A).
4. The CIT(A) also confirmed the action of AO by holding that capital expenditure should be disallowed while computing book profit for minimum alternate tax purposes even if the expenditure is not included in the list provided in the relevant legislation of specific adjustments to the statement of profit and loss required to determine book profit.
5. The ld.counsel for the assessee drew our attention to the provisions of section 115JJB of the Act and took us through the relevant provisions and stated that in the explanation, there are heads mentioned under which the amount is to be reduced or increased from the statement of profit & loss account but according to him, this capital expenditure or revenue expenditure does not fall under any of the head a per Explanation-1 to section 115JB of the Act. The ld.counsel for the assessee stated that the assessee has maintained its books of accounts and got it audited as per Companies Act and in accordance with the provisions of Part II and Part-III of Schedule VI to the Companies Act and hence, in view of the decision of Hon’ble Supreme Court in the case of Apollo Tyres - 5 - Ltd., vs. CIT, (2002) 255 ITR 0273, these amounts incurred as expenditure on account of building repair held by AO as capital expenditure cannot be added while computing book profit u/s.115JB of the Act. We noted that the Hon’ble Supreme Court in Apollo Tyres Ltd., supra has considered this issue and held as under:- “The above Speech shows that the income tax authorities were unable to bring certain companies within the net of income-tax because these companies were adjusting their accounts in such a manner as to attract no tax or very little tax. It is with a view to bring such of these companies within the tax net that Section 115-J was introduced in the IT Act with a deeming provision which makes the company liable to pay tax on at least 30% of its book profits as shown in its own account. For the said purpose, Section 115-J makes the income reflected int he companies books of accounts as the deemed income for the purpose of assessing the tax. If we examine the said provision in the above background, we notice that the use of the words "in accordance with the provisions of Part II and III of Schedule VI to the Companies Act" was made for the limited purpose of empowering the assessing authority to rely upon the authentic statement of accounts of the company. While so looking into the accounts of the company, an assessing officer under the IT Act has to accept the authenticity of the accounts with reference to the provisions of the Companies Act which obligates the company to maintain its account in a manner provided by the Companies Act and the same to be scrutinised and certified by statutory auditors and will have to be approved by the company in its General Meeting and thereafter to be filed before the Registrar of Companies who has a statutory obligation also to examine and satisfy that the accounts of the company are maintained in accordance with the requirements of the Companies Act. Inspite of all these procedures contemplated under the provisions of the Companies Act, we find it difficult to accept the argument of the Revenue that it is still open to the assessing officer to re-scrutinize this account and satisfy himself that these accounts have been maintained in accordance with the provisions of the Companies Act. In our opinion, reliance placed by the Revenue on Sub-section (1A) of Section 115-J of the IT Act in support of the above contention is misplaced. Sub-section (1A) of Section 115-J does not empower the assessing officer to embark upon a fresh inquiry in regard to the entries made in the books of - 6 - account of the company. The said sub-section, as a matter of fact, mandates the company to maintain its account in accordance with the requirements of the Companies Act which mandate, according to us, is bodily lifted from the Companies Act into the IT Act for the limited purpose of making the said account so maintained as a basis for computing the company's income for levy of income-tax. Beyond that, we do not think that the said sub-section empowers the authority under the Income-tax Act to probe into the accounts accepted by the authorities under the Companies Act. If the statute mandates that income prepared in accordance with the Companies Act shall be deemed income for the purpose of Section 115-J of the Act, then it should be that income which is acceptable to the authorities under the Companies Act. There can not be two incomes one for the purpose of Companies Act and another for the purpose of income tax both maintained under the same Act. If the legislature intended the assessing officer to reassess the company's income, then it would have stated in Section 115-J that "income of the company as accepted by the assessing officer". In the absence of the same and on the language of Section 115-J, it will have to held that view taken by the tribunal is correct and the High Court has erred in reversing the said view of the tribunal.
Therefore, we are of the opinion, the assessing officer while computing the income under Section 115-J has only the power of examining whether the books of account are certifies by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The assessing officer thereafter has the limited power of making increases and reductions as provided for in the Explanation to the said section. To put it differently, the assessing officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to Section 115-J.”
We in view of the above, are of the view that the addition made by the AO on account of capital expenditure incurred on repair to buildings amounting to Rs.1,27,68,335/- minus depreciation of Rs.6,38,417/- i.e., Rs.1,21,29,918/- cannot be added to the book - 7 - profit. Hence, we delete the addition and allow this issue of assessee’s appeal.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 27th September, 2023 at Chennai.