DY. COMMISSIONER OF INCOME TAX, CIRCLE-3(2), HYDERABAD vs. STAR FEATURES INTERNATIONAL PRIVATE LIMITED, HYDERABAD

The Revenue has raised four grounds in its appeal however, the crux of the issue is that:

At the outset, the Ld. DR submitted that there is a delay of 93 days in filing the appeal before the Tribunal. In this regard, the Ld. DR filed condonation petition wherein it was stated that the appeal was filed beyond the prescribed time limit due to pandemic situation prevailed during the relevant period. Therefore, it was pleaded that the delay of 93 days in filing the appeal before the Tribunal may be condoned.

On perusal of the submissions of the Ld. DR, it appears that the reason for the delay was due to pandemic situation prevailed during the relevant period of time due to which the Revenue could not file the appeal before the Tribunal within the stipulated time. Therefore, relying on the decision of the Hon’ble Supreme Court in the case of Collector, Land Acquisition vs. MST. Katiji & Ors (167 ITR 471) (SC), in the interest of justice, We hereby condone the delay of 93 days in filing the appeal before the Tribunal and proceed to adjudicate the appeal on merits.

The brief facts of the case are that the assessee is a private limited company engaged in the business of Development of Software and IT Enables Services. The assessee filed its return of income for the relevant assessment year 2009-10 on 24/9/2009 admitting NIL income and the income of Rs. 45,52,843/- under the provisions of section 115JB of the Act. The case of the assessee was taken up for scrutiny and assessment was completed U/s. 144 r.w.s 147 of the Act on 13/12/2016 wherein amongst certain other addition the Ld. AO also made an addition of Rs. 25,22,000/- towards disallowance of expenditure incurred on account of premium paid for buy-back of shares while computing the income of the assessee U/s. 115JB of the Act. When the matter cropped up before the Ld. CIT (A), the Ld. CIT(A) deleted the addition by following the decision of the Hon’ble Apex Court in the case M/s. Apollo Tyres vs. CIT reported in 255 ITR 273 wherein it was held that the Assessing Officer does not have the jurisdiction to go behind the net profit shown in the P&L Account except to the extent provided in the explanation provided U/s. 115JB of the Act.

Before us, the Ld. DR vehemently argued stating that the premium paid for buy-back of shares is a capital expenditure and therefore as per the provisions of Companies Act, it cannot be debited to the P & L Account of the company. The Ld. DR therefore pleaded that the order of the Ld. AO has merits, and the order of the Ld. CIT (A) is required to be set aside. The Ld. AR on the other hand argued in support of the order of the Ld. CIT (A) and prayed for sustaining the same.

We have heard the rival submissions and carefully perused the materials on record. The plea of the Ld. DR before us is that as per the provisions of the Companies Act, premium paid for buy-back of shares is to be reduced from the capital reserves and therefore it cannot be debited to the P & L Account. Hence, the Ld. DR submitted before us that the order of the ld. AO does not call for any interference.

On examining the submissions of the Ld. DR we are of the view that the Ld. AO though he has disallowed the expenditure incurred towards premium paid for buy-back of shares while computing the income under the provisions of section 115JB of the Act he has not brought out the relevant provisions of the Companies Act in his order to justify his stand. No doubt the Hon’ble Apex Court has laid down that the Assessing Officer does not have jurisdiction to go behind the net profit shown in the P & L Account except to the extent provided in the Explanation to section 115J of the Act, however it does not mean that the ratio of the Hon’ble Apex Court has given liberty to the assessee to compute the P & L Account in according to its whims and fancies without adhering to the provisions of the Companies Act. Therefore, in the interest of justice, we hereby remit the entire matter back to the file of the Ld. AO to bring out the provisions of the Companies Act and if the assessee had violated the provisions of the Companies Act while drawing its P & L Account then make appropriate adjustments complying with the provisions of the Companies Act and thereafter decide the matter afresh in accordance with law and merit.

In the result appeal of the Revenue is allowed for statistical purposes as indicated herein above.