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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI S. RIFAUR RAHMAN & SHRI PAVAN KUMAR GADALE
PER S. RIFAUR RAHMAN, A.M.
The captioned appeals have been filed by the assessee challenging three separate orders dated 25th September 2019, for A.Y. 2011–12, and orders of even date 27th September 2019, for A.Y. 2012–13 and 2013–14, respectively, passed by the learned CIT(A)–6, Mumbai.
2 DCB Bank Limited 2. Since all the captioned appeals pertain to the same assessee involving common issue, except variation in figures, which arose out of identical set of facts and circumstances, therefore, as a matter of convenience, these appeals were heard together and are being disposed off by way of this consolidated order. However, in order to understand the implication, it would be necessary to take note of the facts of one appeal. We are, accordingly, narrating the facts, as they appear in the appeal being ITA no.7257/Mum./2019, for assessment year 2011–12, the conclusive result of which will be applicable equally to other two appeals being ITA no.7258/Mum./2019, for the A.Y. 2012–13 and ITA no.7259/Mum./2019, for A.Y. 2013–14.
ITA no.7257/Mum./2019 Assessment Year – 2011–12
The assessee has filed the present appeal on the following grounds:–
Tax Effect relating Sl. Grounds of Appeal to each ground of no. appeal The appellant submits that on the facts and circumstances of the case, the learned ` 8,61,57,497 Commissioner of Income Tax (Appeals) erred in 1. confirming the order passed u/s 154 of the Act (Aprox.) even though it is barred by limitation under the income tax provisions. The appellant submits that on the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeals) erred in ` 8,61,57,497 2. confirming the order passed u/s 154 of the Act (Aprox.) even though there was no error which was apparent from the record.
3 DCB Bank Limited
The appellant submits that on the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeals) erred in ` 8,61,57,497 3. confirming the order passed u/s 154 of the Act (Aprox.) read with section 115JB of the Act even though section 115JB of the Act is not applicable to Banking Company. The appellant submits that on the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeals) erred in ` 8,61,57,497 4. confirming the order passed u/s 154 of the Act (Aprox.) wherein the claim of unabsorbed depreciation as per books of account by the appellant was reduced / disallowed by the Assessing Officer. The appellant submits that on the facts and circumstances of the case, the learned ` 8,61,57,497 5. Commissioner of Income Tax (Appeals) erred in (Aprox.) confirming the order passed u/s 154 of the Act as it amounts to review of the assessment order.
Facts in brief:– In the present case, the assessee filed its 3. return of income on 29th September 2011, declaring total loss at ` nil. The Assessing Officer concluded assessment under section 143(3) of the Income Tax Act, 1961 (for short "the Act") after adjusting brought forward business loss of ` 52,88,74,650 and book profit at ` 43,08,18,446, which was set–off against unabsorbed depreciation of ` 50,99,00,000, and determined a revised book profit of ` (–)7,90,81,554. The Assessing Officer noticed that the assessee had carried forward the same amount of unabsorbed depreciation of ` 50,99,00,000 in the year under consideration. The Assessing Officer, accordingly, issued notice dated 16th March 2018, under section 154 of the Act to the assessee proposing to rectify the mistake of carry forward of unabsorbed depreciation. In response, the
4 DCB Bank Limited assessee vide letter dated 22nd March 2018, submitted its reply stating that the bank had correctly claimed deduction of brought forward losses and unabsorbed depreciation as it adopted the taxing provision which favoured the assessee following the decision of Hon'ble Supreme Court in CIT v/s Vegetable Products Ltd. [1973] 88 ITR 192 (SC). The assessee further stated that the provision of section 115JB of the Act was not applicable to it in the assessment year 2011–12 and cited various judicial pronouncements. The Assessing Officer, however, after considering the submission of the assessee, did not find the same to be acceptable. He observed that the issue is related to incorrect carry forward of unabsorbed depreciation and set off against the book profit. Hence, assessee's argument of non-applicability of book profit under section 115JB of the Act in its case is not allowable. The Assessing Officer was of the view that the assessee made this mistake which is apparent from record and this is not a review of assessment as stated by the assessee in its reply. The Assessing Officer further noticed that the assessee had carried forward incorrect amount of unabsorbed depreciation. In this regard, the Assessing Officer in his order has made a chart showing year-wise carry forward of business loss and unabsorbed depreciation as per books of the assessee and the amount eligible for deduction as per clause (iii) of Explanation 1 to section 115JB of the Act. The Assessing Officer observed that as per the chart, the unabsorbed depreciation available to be carried forward for the
5 DCB Bank Limited year under consideration is at ` 8,92,93,814. Since the mistake was apparent from record, the AO rectified the same. The total income of the assessee as per order under section 143(3) of the Act passed on 10th February 2014 was determined at Nil and book profit under section 1I5JB of the Act at Nil. The total unabsorbed depreciation to be carried forward for the year under consideration was determined at ` 8,92,93,814. The assessee being aggrieved by the order of the Assessing Officer, filed appeal before the first appellate authority.
The learned CIT(A) considering the facts and circumstances of the case and submissions of the assessee did not consider the claim of the assessee as legitimate and dismissed the same. For better appreciation of facts, the relevant observation of the learned CIT(A) is reproduced below:–
“5.3 I have carefully considered the facts of the case, discussion of the AO in the impugned order, oral contentions and written submissions of the appellant and material available on record. The Assessing Officer vide the impugned order has passed rectification and has re-computed the amount of carry forward of unabsorbed depreciation at Rs.8,92,93,814/- and has rectified the order passed uls.143(3) dated 10.02.2014 since the mistake being apparent from record. However, the income computed remained Nil under the normal provisions as well as u/s.115JB of the Act. The appellant, in their submission, have contended that there was no mistake apparent from record as also the provisions of section 115JB of the Act is not applicable to them. The appellant has also contended that the order uls.154 cannot be passed after the expiry of four years from the end of the financial year in which the order sought to be amended was passed. It is seen that the assessment order for A.Y.2011-12 was passed u/s.143(3) on 10.02.2014 and the order under challenge has been passed on 31.03.2018. The assessee contends that since the same was delivered to them on 07.05.2018, it appeared that the order was
6 DCB Bank Limited passed after the expiry of four years from the end of financial year in which the order sought to be amended was passed. In this regard, it is stated that no factual details, proof etc. have been submitted that the order was passed on any date after 31.03.2018. The requirement of the law as per section 154(7) of the Act is only to pass order before the expiry of four years from the end of financial year in which the order sought to be amended was passed, which in this case was done by passing order on 31.03.2018. Simply for the reason that the order was delivered at a later date to the assessee, will not invalidate an otherwise legally valid passed order within the time allowed in the law. Accordingly, the contention of the assessee in this regard is not found to be acceptable. The appellant further states that the provisions of section 115JB are not applicable to a banking company and for this purpose, the appellant placed reliance on the decisions including the case of CIT(LTU) v. Union Bank of India (supra). In respect of such the contentions and submissions of the assessee are not found to be acceptable and are therefore, rejected. The only issue raised in this appeal is accordingly decided against the assessee and the ground raised are accordingly treated as dismissed.”
Insofar as the proceedings before the first appellate authority for the assessment year 2012–13 and 2013–14 is concerned, in these assessment years also, the learned CIT(A) did not find the claim of the assessee legitimate and dismissed the ground on identical issue by following his own order dated 25th September 2019, rendered in assessee’s own case for the assessment year 2011–12.
The assessee being unsuccessful before the learned CIT(A) is in further appeal before the Tribunal.
Before us, at the time of hearing, the learned Authorised Representative submitted that the Assessing Officer passed rectification order under section 154 of the Act and submitted that the
7 DCB Bank Limited Assessing Officer cannot pass a rectification order on the issue on which he passed a rectification order which itself is a debatable issue. For that process, he relied upon the decision of the Hon’ble Delhi High Court in CIT v/s Eli Lilly & Co., India Pvt. Ltd., [2011] 334 ITR 186 (Del.). Further he submitted that the assessee is a scheduled bank and the Assessing Officer has dealt with the issue under section 115JB of the Act and he submitted that the provisions of section 115JB of the Act are not applicable in case of a Bank. For that proposition, he relied upon the decision of the Hon'ble Jurisdictional High Court in CIT v/s Union Bank of India, [2019] 263 Taxman 685 (Bom.). He further submitted that the learned CIT(A) distinguished the case relied upon by the assessee in Eli Lilly & Co., India Pvt. Ltd. (supra) by observing that the case relied upon by the assessee which was assessed under section 143(1) of the Act, whereas in assessee’s case the assessment was completed under section 143(3) of the Act, therefore, it is not applicable. However, he submitted that the issue is not about how the assessment was completed, but whether the issue involved under consideration is debatable or not. However, he submitted that with regard to the issue as debatable, the learned CIT(A) has not adjudicated the same. Further he invited our attention to Page–14 of the paper book to bring to our notice the computation of minimum alternate tax (MAT) for the assessment year 2011–12 and submitted that the assessee has followed the proper method of determining the
8 DCB Bank Limited tax as per MAT. He also brought to our notice Page–24 of the paper book and brought to our notice computation of MAT for the assessment year 2012–13 and he also brought to our notice the computation of un–absorbed depreciation / brought forward loss. Further he also brought to our notice Page–33 of the paper book and highlighted the computation of unabsorbed depreciation / brought forward losses for the assessment year 2013–14. He submitted that the calculation of determining the MAT liability was computed by the assessee as per law. For that proposition, he relied upon the case of Hemavati Power and Light Pvt. Ltd. v/s DCIT, ITA no.509/Bang./2016, dated 15th June 2018.
The learned Departmental Representative on the other hand submitted that the provisions of section 115JB of the Act is very clear in establishing / determining the MAT credit and application of the unabsorbed depreciation / brought forward losses for the purpose of computation of tax as per MAT. The Assessing Officer has rightly interpreted the provisions of clause (iii) of Explanation to section 115JB of the Act that the assessee can reduce the amount of loss brought forward or unabsorbed depreciation whichever is less as per books of account. Therefore, he supported the calculation adopted by the Assessing Officer in order under section 154 of the Act and he
9 DCB Bank Limited relied on the orders passed by the authorities below. For that proposition, he relied upon the following decisions:–
i) DCIT v/s Costal Resorts India Ltd., [2010] 125 ITD 170 (Cochin); ii) Smt. Batta Kalyani v/s CIT, [1985] 20 Taxman 387 (AP); iii) S.I.J. Chains Pvt. Ltd. v/s ACIT, [2006] 100 ITD 379 (Asr.); and iv) DCIT v/s Harjivandas J. Zaveri, [1998] 96 Taxman 338 (Ahd.).
In the rejoinder, the learned A.R. submitted that the Tribunal orders relied upon by the learned Departmental Representative are distinguishable in nature.
Considered the rival submissions and perused the material on record in the light of the decisions relied upon. We notice that the assessee has computed the minimum alternate tax in the present assessment year 2013–14 by following the unabsorbed depreciation / brought forward loss from the assessment year 2004–05. On careful verification of the computation submitted by the assessee at Page–33 of the paper book. Similarly, at Page–24 of the paper book, we notice that over the years i.e., financial year 2004–05 to 2011–12, the assessee has earned profit in financial year 2006–07, 2007–08, 2010– 11, 2011–12. Based on the calculation submitted before us, we notice that the assessee has adjusted the above declared profit against the business loss carried forward by the assessee. However, as per the Explanation–3 to section 115JB of the Act considering huge loss
10 DCB Bank Limited carried forward by the assessee and in few assessment years the assessee has earned net profit, the assessee is allowed to adjust the above said profits only to the extent of unabsorbed depreciation or business loss whichever is less. Keeping the Explanation in mind, in our considered view, the computation determined by the Assessing Officer is just and proper. However, we notice that the assessee is a scheduled bank and as per the decision of the Hon'ble Jurisdictional High Court in Union Bank of India (supra), the Hon’ble Court held that the provisions of section 115JB of the Act as it stood prior to its amendment by virtue of Finance Act, 2012, would not be applicable to a banking company. For the sake of clarity, it is reproduced below:–
“8. In order to resolve the controversy, we may take note of the statutory provisions and the legislative history. As is well known, Section 115JB of the Act, pertains to special provisions for payment of tax by certain companies and provides a formula for payment of minimum tax in case of companies, whose tax payable on the total income works out to be below a certain minimum threshhold percentage of its book profit. This provision is a successor to Section 115JA of the Act, which was also introduced for the same purpose. In fact, the first legislative introduction of the provisions pertaining to what is popularly referred to as MAT companies (Minimum Alternative Tax) was Section 115J. The Circular No.762 dated 18th February, 1998 issued by the Central Board of Direct Tax ("CBDT" for short) explains the object for introduction of such MAT provisions. The circular clarifies that new Section 115JA has been inserted by the Finance Act, so as to levy a minimum tax on companies, who are having book profits and paying dividends, but not paying any taxes. Relevant portion of Section 115JB as is stood at the relevant time reads as under:— "Special provision for payment of tax by certain companies: 115JB. (1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a
11 DCB Bank Limited company, the income-tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, (2007) is less than (ten percent) of its book profit, (such) book profit 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 the rate of (ten percent). (2) Every assessee, being a company, shall, for the purposes of this section, prepare its profit and loss account for the 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 including profit and loss account,— (i) the accounting polices, (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 be the same as have been adopted for the purpose 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, 1956(1 of 1956): Provided further that where the company has adopted 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 account 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, accounting standards and the method and rates for calculating the depreciation which have been adopted for preparing such accounts including profit and loss account for financial year or part of such
12 DCB Bank Limited financial year falling within the relevant previous year." 9. In terms of sub-section (1) of Section 115JB of the Act thus notwithstanding anything contained in any of the provisions of the Act in case of an assessee being a company where the income tax payable on the total income as computed under the Act, is less than prescribed percentage of its book profit, such book profit shall be deemed to be the total income of the assessee. In so far as the language used under sub-section (1) of Section 115JB is concerned, the same pauses no challenge. Sub-section (1) of Section 115JB takes within its swip all companies with no further bifurcation or distinction between companies. However, the question that calls for our consideration is whether the machinery provision provided under sub-section (2) of Section 115 JB of the Act is workable when it comes to the banking companies and such other special companies governed by the respective Acts. In the context, the question would also be of the legislative intent to cover such companies within the swip of Section 115JB of the Act. These questions arise because of the language used in sub-section (2) of Section 115JB. These provisions we may peruse more minutely. As per sub-section (2) of Section 115JB, every assessee being a company would for the purposes of the said section prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI of the Companies Act, 1956. It is undisputed that the respondent-a banking company is not required to prepare its accounts in accordance with the provisions of Parts II and III of Schedule VI of the Companies Act, 1956. The accounts of the banking company are prepared as per the provisions contained in Banking Regulation Act, 1949. The counsel for the revenue may still argue that irrespective of such requirements, for the purposes of the said Act and special requirements of Section 115JB of the Act, a banking company is obliged to prepare its profit and loss account as per the provisions of the Companies Act, as mandated by sub-section (2) of Section 115JB of the Act. His contention would be that such legislative mandate is not impermissible. 10. At the first blush, this argument seems attractive. However, when we read sub-section (2) further, certain complications arise in this line of argument. The first proviso to sub-section (2) of Section 115JB provides that while preparing annual accounts including profit and loss account the accounting policies and accounting standards adopted for preparing the account and the method and rules adopted in calculating the depreciation shall be the same as have been adopted for the purpose of preparing such accounts and laid before the company at its Annual General Meeting in accordance with provisions of Section 210 of the
13 DCB Bank Limited Companies Act, 1956. There is no dispute that the respondent- bank in terms of Section 210 of the Companies Act, 1956 is also required to lay its accounts before the Annual General Meeting. However, such accounts would necessarily be prepared in accordance with the provisions of Banking Regulation Act, 1949 and never be those which even had it been possible to be prepared, in accordance with Parts II and III of Schedule VI of the Companies Act, 1956. The applicability of this proviso therefore, in case of a banking company would immediately create complications. On one hand, in terms of Section 210 of the Companies Act, 1956, the bank would be under an obligation to lay before Annual General Meeting its annual accounts including the profit and loss account. These accounts would be prepared in terms provisions contained in Banking Regulation Act, 1949. Sub- section (2) requires preparation of the accounts in terms of the Companies Act. Proviso to sub-section (2) would require maintaining the same parameters in relation to the accounting policies, accounting standards and method and rate of depreciation as adopted for the purpose of preparing the accounts, which would ultimately be laid before the Annual General Meeting. A Banking company in terms of sub-section (2) of Section 115JB can prepare additional accounts as per provisions of Parts II and III of Schedule VI of the Companies Act or fulfill the requirements of the proviso to sub-section (2) but cannot fulfill both the conditions. 11. This legal dichotomy emerging from the provisions of sub- section (2) of Section 115JB particularly having regard to the first proviso contained therein in case of a banking company, would convince us that machinery provision provided in sub-section (2) of section 115JB of the Act, would be rendered wholly unworkable in such a situation. In a well known judgment the Supreme court in case of CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294/5 Taxman 1 had observed that in the Income Tax Act, a charing section and the computing provisions together constitute an integrated code. In a case where the computation provision can not apply, it would be evident that such a case was not intended to fall within the charging section. It was a case of charging a partnership firm for transfer of a capital asset in the nature of goodwill. The Supreme Court was of the opinion that it would not be possible to envisage a cost of acquisition of goodwill. Since computation of capital gain cannot be done without ascertaining the cost of acquisition, it was held that no capital gain tax can be levied. 12. For the completeness of the discussion, we may note that section 211 of the Companies Act, 1956 pertains to form of contents of balance-sheet and profit and loss account, sub-section (1) of Section 211 provided that every balance sheet of a
14 DCB Bank Limited company shall give true and fair view on the state of affairs of the company at the end of the financial year and would be subject to the provisions of the said section and be in the form set out in the Forms 1 and 2 of schedule VI. This sub-section contained a proviso providing that nothing contained in said sub-section would apply to a banking company or any company engaged in generation or supply of electricity or to any other class of company for which a form of balance sheet shall be specified in or under the Act governing such company. Thus, Companies Act, 1956 excluded the insurance or banking companies, companies engaged in generation or supply of electricity or companies for which balance-sheet was specified in the governing Act, from the purview of sub-section (1) of Section 211 of the Companies Act, 1956 and as a consequence from the purview of Section 115JB of the Act. 13. What we have held above is duly supported by the division bench judgment of Kerala High Court. It was a case in which the assessee before the court was Kerala State Electricity Board, a statutory corporation constituted under Section 5 of the Electricity (Supply) Act, 1948. The revenue sought to cover the said Electricity Board under the provisions of Section 115JB which the assessee opposed. The issue reached the Kerala High Court. The Court referred to and relied upon the decision of the Supreme Court in case of B.C. Shrinivasa Setty (supra). It was noticed that the Board was required to keep and maintain its account in the manner specified by the Central Government and not in the manner specified in the Companies Act. In that view of the matter it was held that section 115JB would not apply to the Electricity Board. Learned counsel for the assessee has also brought to our notice decisions of Delhi High Court holding that such MAT provisions would not apply to the insurance companies and to the banking companies. 14. There are certain significant legislative changes made by Finance Act, 2012, which must be noted before concluding this issue. In the present form, post amendment by Finance Act, 2012, relevant portion of Section 115JB of the Act reads as under— "Special provision for payment of tax by certain companies. 115JB. (1) Notwithstanding anything contained in any other provision of this payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, (2012), is less than (eighteen and one-half percent) of its book profit, (such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total
15 DCB Bank Limited income shall be the amount of income-tax at the rate of (eighteen and one-half percent). (2) Every assessee,- (a) being a company, other than a company referred to in clause (b), shall, for the purposes of this section, prepare its (statement of profit and loss) for the relevant previous year in accordance with the provisions of (Schedule III) to the (Companies Act, 2013 (18 of 2013); or (b) being a company, to which the (second proviso to sub-section (1) of section 129) of the (Companies Act, 2013 (18 of 2013) is applicable, shall, for the purposes of this section, prepare its (statement of profit and loss) for the relevant previous year in accordance with the provisions of the Act governing such company:) Provided that while preparing the annual accounts including (statement of profit and loss),-
(i) the accounting policies; (ii) the accounting standards adopted for preparing such accounts including (statement of profit and loss); (iii) the method and rates adopted for calculating the depreciation, shall be the same as have been adopted for the purpose of preparing such accounts including (statement of profit and loss) and laid before the company at its annual general meeting in accordance with the provisions of (section 129) of the (Companies Act, 2013(18 of 2013)):" 15. The memorandum explaining the provisions made in the Finance Bill, 2012, in relation to minimum alternative tax stated as under :— "Minimum Alternate Tax (MAT) I. Under the existing provisions of section 115JB of the Act, a company is liable to pay MAT of eighteen and on half percent of its book profit in case tax on its total income computed under the provisions of the Act is less than the MAT liability. Book profit for this purpose is computed by making certain adjustments to the profit disclosed in the profit and loss account prepared by the company in accordance with the Schedule VI of the Companies Act, 1956. As per section 115JB, every company is required to prepare its accounts as per Schedule VI of the Companies Act, 1956.
16 DCB Bank Limited However, as per the provisions of the Companies Act, 1956, certain companies, e.g. insurance, banking or electricity company, are allowed to prepare their profit and loss account in accordance with the provisions specified in their regulatory Acts. In order to align the provisions of Income-tax Act with the Companies Act, 1956, it is proposed to amend section 115JB to provide that the companies which are not required under section 211 of the Companies Act to prepare their profit and loss account in accordance with Schedule VI of the Companies Act, 1956, profit and loss account prepared in accordance with the provisions of their regulatory Acts shall be taken as a basis for computing the book profit under section 115JB. II. It is noted that in certain cases, the amount standing in the revaluation reserve is taken directly to general reserve on disposal of a revalued asset. Thus, the gains attributable to revaluation of the asset is not subject to MAT liability. It is, therefore, proposed to amend section 115JB to provide that the book profit for the purpose of section 115JB shall be increased by the amount standing in the revaluation reserve relating to the revalued asset which has been retired or disposed, if the same is not credited to the profit and loss account. III. It is also proposed to omit the reference of Part III of Schedule VI of the Companies Act, 1956 from section 115JB in view of omission of Part III in the revised Schedule VI under the Companies Act, 1956. These amendments will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years." 16. It can be seen that sub-section (2) of Section 115JB of the Act has now been bifurcated in two parts covered in the clauses (a) and (b). Clause (a) would cover all companies other than those referred to in clause (b). Such companies would prepare the statement of profit and loss in accordance to the provisions of schedule III of the Companies Act, 2013 (which has now replaced the old Companies Act, 1956). Clause (b) refers to a company to which second proviso to sub-section (1) of Section 129 of the Companies Act, 2013 is applicable. Such companies, for the purpose of Section 115JB, would prepare the statement of profit and loss in accordance with the provisions of the Act governing the company. Section 129 of the Companies Act, 2013 pertains to financial statement. Under sub-section (1) of Section 129 it is provided that the financial statement shall give a true and fair view of the state of affairs of the company, comply with the accounting standard notified under Section 113 and shall be in the
17 DCB Bank Limited form as may be provided for different classes of companies. Second proviso to sub-section (1) of Section 129 reads as under:— "Provided further that nothing contained in this sub-section shall apply to any insurance or banking company or any company engaged in the generation or supply of electricity, or to any other class of company for which a form of financial statement has been specified in or under the Act governing such class of company: 17. This proviso thus refers any insurance or banking companies or companies engaged in the generation or supply of electricity or to any other class of company in which form of financial statement has been specified in or under the Act governing such class of company. Combined reading of this proviso to sub-section (1) of Section 129 of the Act, 2013 and clause (b) of sub-section (2) of Section 115JB of the Act would show that in case of insurance or banking companies or companies engaged in generation or supply of electricity or class of companies for whom financial statement has been specified under the Act governing such company, the requirement of preparing the statement of accounts in terms of provisions of the Companies Act, is not made. Clause (b) of sub- section (2) provides that in case of such companies for the purpose of Section 115JB the preparation of statement of profit and loss account would be in accordance with the provisions of the Act governing such companies. This legislative change thus aliens class of companies who under the governing Acts were required to prepare profit and loss accounts not in accordance with the Companies Act, but in accordance with the provisions contained in such governing Act. The earlier dichotomy of such companies also, if we accept the revenue's contention, having the obligation of preparing accounts as per the provisions of the Companies Act has been removed. 18. These amendments in section 115JB are neither declaratory nor classificatory but make substantive and significant legislative changes which are admittedly applied prospectively. The memorandum explaining the provision of the Finance Bill, 2012 while explaining the amendments under Section 115JB of the Act notes that in case of certain companies such as insurance, banking and electricity companies, they are allowed to prepare the profit and loss account in accordance with the sections specified in their regulatory Acts. To align the Income Tax Act with the Companies Act, 1956 it was decided to amend Section 115JB to provide that the companies which are not required under Section 211 of the Companies Act, to prepare profit and loss account in accordance with Schedule VI of the Companies Act, profit and loss account prepared in accordance with the provisions of their regulatory Act shall be taken as basis for computing book profit under Section 115 JB of the Act.
18 DCB Bank Limited
Before closing, we may also take note of explanation (3) below sub-section (2) of section 115 JB of the Act which reads as under :— "Explanation 3-For the removal of doubts, it is hereby clarified that for the purposes of this section, the assessee, being a company to which the proviso to sub-section (2) of section 211 of the Companies Act, 1956(1 of 1956) is applicable, has, for an assessment year commencing on or before the 1st day of April, 2012, an option to prepare its profit and loss account for the relevant previous year either in accordance with the provisions of Part II and Part III of Schedule VI to the Companies Act, 1956 or in accordance with the provisions of the Act governing such company." 20. This explanation starts with the expression "For the removal of doubts". It declares that for the purpose of the said section in case of an assessee-company to which second proviso to section 129 (1) of the Companies Act, 2013 is applicable, would have an option for the assessment year commencing on or before 1st April, 2012 to prepare its statement of profit and loss either in accordance with the provisions of schedule III to the Companies Act, 2013 or in accordance with the provisions of the Act governing such company. To our mind, this is some what curious provision. In the original form, sub-section (2) of section 115JB of the Act did not offer any such option to a banking company, insurance company or electricity company to prepare its profit and loss account at its choice either in terms of its governing Act or as per terms of Section 115JB of the Act. Secondly, by virtue of this explanation if an anomaly which we have noticed is sought to be removed, we do not think that the legislature has achieved such purpose. In plain terms, this is not a case of retrospective legislative amendment. It is stated to be clarificatory amendment for removal of doubts. When the plain language of sub-section (2) of Section 115JB did not permit any ambiguity, we do not think the legislature by introducing a clarificatory or declaratory amendment cure a defect without resorting to retrospective amendment, which in the present case has admittedly not been done. 21. In the result, we hold that sub-section 115JB as it stood prior to its amendment by virtue of Finance Act, 2012, would not be applicable to a banking company. We answer the question No.2 in favour of the assessee and against the revenue. In view of this, question of correctness of the order of rectification passed by the Assessing Officer becomes unimportant. Question No.1 is therefore not answered. All the appeals are dismissed.”
19 DCB Bank Limited
Respectfully following the aforesaid decision, we are inclined to allow the grounds of appeal raised by the assessee even though the calculation submitted by the assessee is not proper. However, the provisions of section 115JB of the Act are not applicable to a scheduled bank. Consequently, we set aside the impugned order passed by the learned CIT(A) and allow the grounds of appeal raised by the assessee.
In the result, assessee’s appeal is allowed.
ITA no.7258/Mum./2019 Assessment Year – 2012–13 ITA no.7259/Mum./2019 Assessment Year – 2013–14
The grounds of appeal raised by the assessee in these appeals are identically worded except variation in figures. The facts of the issue raised are materially identical to the issue decided by us vide ground no.1 to 5, raised by the assessee in its appeal being ITA no. 7257/Mum./2019, vide Para–10 and 11 above, wherein we have decided the issue in favour of the assessee and against the Revenue for the reasons stated therein. Since the issue being identical in the present appeals, consistent with the view taken therein, we set aside the impugned order passed by the learned Commissioner (Appeals) for
20 DCB Bank Limited the assessment year 2012–13 and 2013–14, and allow the grounds raised by the assessee.
In the result, all the appeals of the assessee are allowed. Order pronounced in the open court on 06.08.2021
Sd/- Sd/- PAVAN KUMAR GADALE S. RIFAUR RAHMAN JUDICIAL MEMBER ACCOUNTANT MEMBER
MUMBAI, DATED: 06.08.2021 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Mumbai City concerned; (5) The DR, ITAT, Mumbai; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary Assistant Registrar ITAT, Mumbai