DY. COMMISSIONER OF INCOME TAX-VI, KANPUR vs. COMMERCIAL AUTOMOBILES PVT. LTD., KANPUR

Subsequently, the assessee filed additional grounds of appeal and prayed that the same were purely on legal grounds and went to the root of the matter, the revised grounds of appeal are as under:- “1.

01. Because the notice issued u/s. 143(2) dated 09.10.2007 is based on CASS (AST) module, and not on the satisfaction of the AO where he considers it necessary or expedient to ensure that the assessee has not under stated the income or has not computed excessive loss or has not under paid the tax in any manner, notice issued being contrary to the mandate of the section, is illegal, bad in law, and all proceedings initiated thereafter assuming jurisdiction and passing any order therein be quashed.

02. Because there being no valid notice u/s.143(2) the entire proceedings of assessment and the order passed u/s.143(3) is without jurisdiction, bad in law, the assessment order passed be quashed.

03. Because there being no valid notice u/s. 143(2), the AO ceases to have jurisdiction to make any variation to the income returned and as such the variation made to the income returned be deleted, and the income returned be accepted.” Therefore, placing reliance on the decision of the Hon’ble Supreme Court in the case of NTPC Limited vs. CIT 229 ITR 383 and the Hon’ble Gauhati High Court in the case of Assam Coal India Limited 256 ITR 423 and All Cargo Global Logistics Limited vs. DCIT 30 SOT 374 Mumbai, the assessee prayed that the additional grounds of appeal may kindly be admitted. After considering the nature of the additional grounds of appeal, the same are admitted for consideration. The facts of the case are that the assessee filed a return on 29.11.2006 3. declaring a total income of Rs. 5,27,73,080/-. During the course of assessment, the ld. AO made the following additions:- i. Out of bad debts claimed being TDS Rs. 5,30,187/- ii. Out of bad debts claimed as unrecoverable Rs. 4,05,770/- iii. On account of cessation of liabilities under section 41(1) Rs. 2,82,364/- Commercial Automobiles Pvt. Ltd. A.Y. 2006-07 iv. Inadmissible depreciation on car Rs. 33,762/- v. Misc. expenses Rs. 1,75,498/- vi. Addition on account of late deposit of ESI under section 2(24)(X) r.w.s. 36(i)(va) Rs. 7,771/- vii. Addition under section 14A Rs. 5,32,366/- Thus, addition of this amount was added to the net profit of Rs. 4,87,81,895/- that had been declared and the business income was determined at rupees nil, after allowing for unabsorbed business loss. In addition, the ld. AO made a disallowance; i. On account of difference on sale of land of Rs. 99,56,258/- ii. On account of disallowance of loss on sale of shares of Rs. 3,20,90,164/- thereby making a total disallowance of Rs. 4,20,46,422/-. Subsequently, he allowed deduction for unabsorbed depreciation of Rs. 3,13,97,298/- and worked out the net capital gain at Rs. 1,06,49,144/-. The ld. AO thereafter proceeded to compute the book profit under section 115JB of the Income Tax Act and found that the profit as per the consolidated profit and loss account was Rs. 6,03,02,570/-. Therefore, he completed the assessment at a total income of Rs. 1,06,49,144/- from long term capital gain under the normal provisions of the Act and at Rs. 6,03,02,570/- under section 115JB of the Act, 1961. As the tax worked out in respect of income determined under the normal provisions of the Act was less than the tax calculated on the book profit computed under section 115JB of the Act, he levied tax and income of Rs. 6,03,02,570/- under section 115JB and directed that interest be charged on the same.

4. The matter then travelled to the ld. CIT(A)-2, Kanpur who after hearing the appeals of the assessee against the various additions, deleted the addition of Rs. 5,32,366/- under section 14A, deleted the addition of Rs. 99,56,258/- on account of Commercial Automobiles Pvt. Ltd. A.Y. 2006-07 difference in sale of property and deleted the addition of Rs. 3,20,90,164/- on account of loss claimed on sale of shares. While the other additions made by the AO on account of bad debts, liability under section 41(1) and misc. expenses were also deleted, the Department did not prefer any appeal against the same. However, the Department has filed an appeal against the deletion of the addition on account of difference in sale of property in view of the provisions of section 50C of the Act, addition with respect to section 14A r.w.r. 8D of the Act and addition on account of long term capital loss shown from sale of 2 Lac equity shares of Kailash Vaahan Udyog Limited.

5. Even before the Department could argue its case, a preliminary objection was raised by Sh. Rakesh Garg, Advocate (hereinafter referred to as the ld. AR) on the grounds that the appeal was not maintainable in view of CBDTs Circular No. 03/2018 dated 11.07.2018 and Circular No. 17/2019 dated 8.08.2019 involving the monetary limit of tax effect. It was pointed that “the return in the instant case was filed declaring income of Rs.5,27,73,080/-on book profit basis. A carry forward loss of Rs.5,07,50,613/- and unabsorbed depreciation of earlier years Rs.3,13,97,278/- was to be set off against the income returned. The assessment came to be framed on nil income (on the basis of normal computation of income returned) after making the following additions and after setting off of the carry forward losses:- Net Profit as declared Rs. 4,87,81,895/- Add: 1. Out of bad debts claimed being TDS as discussed above Rs. 5,30,187/- 2. Out of bad debts claimed being unrecoverable from different parties as discussed above Rs. 4,05,770/- 3. On account of cessation of liabilities u/s 14(1) as discussed above Rs. 2,83,364/- 4. Inadmissible Depreciation on Car as discussed Rs. 33,762/- 5. Out of Misc. Expenses as discussed above Rs. 1,75,498/- 6. Addition on account of late deposit of ESI u/s 2(24)(x) read with 36(1)(va) as discussed Rs. 7,771/- 7. Addition under section 14A as discussed above Rs. 5,32,366/- Total Rs. 5,07,50,613/- Less:

Commercial Automobiles Pvt. Ltd. A.Y. 2006-07 Unabsorbed business loss as claimed Rs. 5,07,50,613/- Total Business Income Nil Income from Long Term Capital Gain: 1. On account of difference on sale of land as discussed above Rs. 99,56,258/- 2. On account of disallowance of loss on sale of shares as discussed above Rs. 3,20,90,164/- Rs. 4,20,46,422/- Less: Unabsorbed depreciation as claimed Rs. 3,13,97,278/- Net Capital Gain Rs. 1,06,49,144/- The net income assessed for the year under consideration after setting off of the losses of earlier years is NIL. The income assessed on account of Long Term Capital Gains is Rs. 1,06,49,144/-. There is no tax on the business income as assessed as per general provisions of the computation of income. The tax on the net capital gains of Rs. 1,06,49,144/- @ 22% would come to Rs.23,42,812/-. The assessment has been framed on the basis of book profit. The income has been determined by the Assessing Officer as per the provisions of section 115JB i.e. the book profit. The book profit is Rs.6,03,02,570/-. Tax @ 7.5% as per section 115JB would come to Rs.45,22,693/-. The assessee has deposited the entire amount of tax as determined as per book profit. Thus, as on the date, there is no tax payable by the assessee. Even, if the additions made by the Assessing Officer and deleted by the CIT(A) are upheld by the Hon'ble Income-tax Appellate Tribunal, then also, the net assessable income would remain Rs. 1,06,49,144/- and tax on the same as submitted earlier @ 22% would come to Rs.23,42,812/- which would be less than the tax as per the book profit which the assessee has already paid. It is, therefore, submitted, that no purpose will be served by the Revenue agitating the said appeal because the tax effect involved in the departmental appeal would always remain nil. It is prayed, that the appeal filed by the Revenue be dismissed in light of the CBDT's circular, having no tax effect."