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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI V. DURGA RAO & SHRI G. MANJUNATHA
आदेश /O R D E R Per G. MANJUNATHA, AM:
These three appeals filed by the assessee are directed against separate orders of learned Commissioner of Income Tax (Appeals)-13, Chennai, dated 28.11.2017, 01.12.2017 & 01.12.2017 and pertains to assessment year 2010-11 & 2012-13.
2 I.TA. Nos.730 to 732/Chny/2018 Since facts are identical and issues are common, for the sake of convenience, these appeals were heard together and are being disposed of by this consolidated order.
Assessment year 2010-11:- 2. The assessee has raised the following grounds of appeal:-
The order of the Commissioner of Income Tax (Appeals) in making additions to Book profit u/s 115JB is not against settled case law on the issue. The Learned commissioner of Income Tax should have been guided by the decision of the Jurisdiction High Court and that of the Apex court on the issue. 2. The Commissioner of Income Tax (Appeals) has not appreciated the fact that the collection towards an Association towards maintenance of the Appellant's tenant is not the income of the Appellant. The same is reflected as a liability in the books of the Company. Mere tax deduction will not constitute an income. 3. The commissioner of Income tax had failed to notice that there are apparent mistakes in the calculation made by the Assessing officer in the addition made to book profits u/s115JB. The disallowances u/s 14A read with Rule with 8D are not to be applied while determining the book profits u/s 115JB. 4. The Commissioner of Income Tax (Appeals) was inconsistent while making the addition u/s 14A at Rs.4,84,571/- while computing the book profits, and restricted the same to Rs.71,705/- in the normal computation. 5. For these and other reasons that maybe adduced at the time of hearing, it is prayed that the order of the learned commissioner of Income Tax (Appeals) may be set aside. 3. The first issue that came up for our consideration from ground Nos. 1 to 3 of assessee appeal is addition of
3 I.TA. Nos.730 to 732/Chny/2018 Rs.9,76,447/- made towards book profit computed u/s.115JB of the Income Tax Act, 1961 (hereinafter the ‘Act’) towards difference in income reported in Form No.26AS and income as per books of accounts of the assessee. The AO has made addition of Rs.9,76,447/- received from M/s. Shell India Markets Pvt. Ltd., on the basis of Form 26AS for the reason that said receipt was not included in books of accounts of the assessee. It was the contention of the assessee before the AO, that amount received from M/s. Shell India Markets Pvt. Ltd., relates to maintenance paid directly to M/s. Jayant Tech Park Owners Association and hence, not recognized in the books of assessee.
3.1. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The AO has made addition towards amount received from M/s. Shell India Markets Pvt. Ltd., as per Form No.26AS, on the ground that said amount was not reported in the books of accounts of the assessee. The assessee claims that said payment was directly paid to M/s. Jayant Tech Park Owners Association for maintenance and it is not its income and hence, not recognized in the books of the assessee. The AO however has not accepted
4 I.TA. Nos.730 to 732/Chny/2018 explanation offered by the assessee and according to him, when credit for TDS is taken, corresponding income needs to be offered to tax and accordingly made addition to total income of the assessee. Since book profit computed u/s.115JB of the Act is higher than income computed under normal provisions of the Act, the AO has made addition to book profit u/s.115JB of the Act. The ld.AR for the assessee contended before us that the AO has no jurisdiction to go behind net profit shown in profit & loss account except to extent provided in Explanation to section 115J of the Act. For this purpose, he relied upon decision of Hon’ble Supreme Court in the case of M/s. Apollo Tyres vs. CIT, 255 ITR 273 (SC).
3.2 Having heard both sides and considered facts brought on by the AO in the assessment order, we find that there is no merit in the arguments taken by the assessee in light of decision of Hon’ble Supreme Court in the case of Apollo Tyres vs. CIT, because when books of accounts of assessee are not in accordance with Part II and III of Schedule VI to the Companies Act, 1956, then AO is empowered to tinker with net profit by making additions. In this case, assessee has under reported
5 I.TA. Nos.730 to 732/Chny/2018 income received from M/s. Shell India Markets Pvt. Ltd., and hence it cannot be said that books of account of the assessee are prepared in accordance with Part II and II of Schedule – VI to the Companies Act. Therefore, we are of the considered view that there is no error in the reason given by AO to re-compute book profit by making addition towards income not reported in books of accounts of the assessee.
3.3 As regards case law relied upon by the assessee, in the case of Apollo Tyres vs. CIT, the same is not applicable because in that case, the books of accounts of assessee are prepared in accordance with Part II and III of Schedule VI to the Companies Act and under those facts, the Hon’ble Supreme Court held that once books of accounts are in accordance with Companies Act and approved by the Board, then the AO has no jurisdiction to go behind net profit shown in profit and loss account except to extent provided in Explanation to section 115J of the Act. Hence, we reject arguments of the assessee and confirm addition made by the AO towards income not reported in books to book profit computed u/s.115JB of the Act.
6 I.TA. Nos.730 to 732/Chny/2018 4. The next issue that came up for our consideration from Ground No.4 of assessee appeal is addition towards disallowance of expenditure u/s.14A of the Act to book profit computed u/s.115JB of the Act.
4.1 The AO has computed disallowance of expenditure incurred in relation to exempt income u/s.14A of the Act, by invoking Rule 8D of Income Tax Rules, 1962 (hereinafter the ‘Rules’) and determined total disallowance of Rs.4,84,571/-. The AO has also made addition towards disallowance of expenditure u/s.14A to book profit computed u/s.115JB of the Act.
4.2 We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The ld.AR for the assessee submitted that the issue is squarely covered in favour of assessee by series of orders of Courts and Tribunal, wherein it was held that computation under clause (f) of Explanation 1 to Section 115JB(2) is to be made without resorting to computation as contemplated u/s.14A r.w.rule 8D of Income Tax Rules, 1962. We find that ITAT, Special Bench of Delhi in the case of ACIT vs. Vireet Investments (P) Ltd., (2017) 82
7 I.TA. Nos.730 to 732/Chny/2018 taxman.com 415 held that computation under clause (f) of Explanation 1 to section 115JB(2) is to be made without restoring to computation as contemplated u/s.14A r.w.rule 8D of Income Tax Rules, 1962. The Hon’ble Madras High Court in the case of CIT vs. Shriram Ownership Trust, (2020) 122 taxmann.com 155 has considered an identical issue and held that no addition could be made to book profit in respect of disallowance of expenditure u/s.14A r.w.rule 8D of Income Tax Rules, 1962. The Hon’ble Karnataka High Court in the case of CIT vs. Gokaldas Images (P) Ltd., (2020) 122 taxmann.com 160 had considered an identical issue and held that disallowance made u/s.14A should not be added to book profit of assessee u/s.115JB of the Act. Therefore, we are of the considered view that the AO is erred in making addition towards disallowance u/s.14A to book profit computed u/s.115JB of the Act and hence, we direct the AO to delete adjustment made to book profit towards disallowance of expenses u/s.14A of the Act.
In the result, the appeal filed by the assessee for assessment year 2010-11 is partly allowed.
8 I.TA. Nos.730 to 732/Chny/2018 ITA No.731/Chny/2018, Assessment year 2012-13 6. The assessee has raised the following grounds of appeal. 1. The order of the Commissioner of Income Tax (Appeals) in treating factory shifting expenses as office shifting expenses is against the facts of the case. The Learned Commissioner of Income Tax should have been guided by the decision of the Jurisdiction High Court on the issue. 2 The Commissioner of Income Tax (Appeals) has not appreciated the fact that The Assessing Officer had made an addition of Rs. 1,50,000 by treating the amount directly credited by one the Directors by cash in the current account of the appellant" The explanation that the Director was an assessee in the same jurisdiction and the books of accounts of the Director filed with the Assessing Officer reflected the entry was not considered by the Commissioner of Income Tax. 3. The Commissioner of Income tax had failed to notice that there are apparent mistakes in the calculation made by the Assessing officer in the addition made to book profits u/s 115JB. The disallowances u/s 14A read with Rule with 8D are not to be applied while determining the book profits u/s 1l5JB. 4. For these and other reasons that maybe adduced at the time of hearing, it is prayed that the order of the learned Commissioner of Income Tax (Appeals) may be set aside.
The first issue that came up for our consideration from Ground No.1 of assessee appeal is addition towards factory shifting expenditure. The AO has made addition of Rs.1,80,436/- incurred towards shifting factory from Grigambakkam to Chrompet on the ground that said expenditure is in the nature of capital expenditure which gives enduring benefit to the assessee. It was the contention of assessee before the AO that expenditure
9 I.TA. Nos.730 to 732/Chny/2018 incurred towards transportation of assets, files and other administrative records is revenue in nature, which does not give enduring benefit to the assessee.
7.1 We have heard both the parties, perused materials available on record and gone through orders of the authorities below. Having heard both sides, we ourselves do not agree with the reasons given by the AO to disallow transportation expenses incurred for shifting factory from one site to another site, because transportation expenses incurred for shifting factory from one place to another place does not give any enduring benefit to the assessee and hence, the same cannot be treated as capital in nature. Hence, we direct the AO to delete addition made towards disallowance of factory shifting expenditure.
The next issue that came up for our consideration from Ground No.2 of assessee appeal is addition of Rs.1,50,000/- towards loan received from Shri Muthaiyah, Director of assessee company u/s.68 of the Act.
10 I.TA. Nos.730 to 732/Chny/2018 8.1 The AO has made addition of Rs.1,50,000/- on the ground that assessee has failed to explain the credit in the current account of State Bank of India maintained in the name of assessee. It was the explanation of the assessee before the AO, that the amount deposited in current account was received from Shri Muthaiyah, Director of the assessee company for which it has filed necessary evidences including financial statement of creditors.
8.2 We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The assessee has filed various evidences including financial statement of creditor Shri R. Muthaiyah to prove identity, genuineness of transactions & creditworthiness of the party. From the financial statement of creditors, we find that amount advanced to the company was recorded in loans and advances. The assessee has also explained creditworthiness by filing his Income Tax return for relevant assessment year. The AO except stating that loan was received in cash, no other observations were made to reject arguments of the assessee that the creditor is having creditworthiness to provide loan. Therefore, we are of considered
11 I.TA. Nos.730 to 732/Chny/2018 view that once identity of creditor is proved and genuineness of transaction is established then merely for the reason that loan is received in cash no addition can be made u/s.68 of the Act. Once initial burden was discharged then burden shifts to the Revenue to prove otherwise as held by the Hon’ble Supreme Court in the case of CIT vs. Orissa Corp. P. Ltd., 159 ITR 78. In this case, assessee has filed all possible evidences to prove loan but the AO has disregarded evidences filed by the assessee and made addition only on the ground of receipt of loan by cash. Therefore, we are of considered view that the AO is erred in making addition towards unsecured loan received from Shri R. Muthaiyah amounting to Rs.1,50,000/-. Hence, we direct the AO to delete addition made u/s.68 of the Act.
The next issue that came up for our consideration from Ground No.3 of assessee appeal is addition towards disallowance u/s.14A r.w.rule 8D to book profit computed u/s.115JB of the Act.
9.1 We find that an identical issue had been considered by us in assessee’s own case for assessment year 2010-11 in ITA No.730/Chny/2018 where, we by following the decision of ITAT,
12 I.TA. Nos.730 to 732/Chny/2018 Special Bench in the case of ACIT vs. Vireet Investment (P) Ltd., held that disallowance made u/s.14A should not be added to book profit of assessee u/s.115JB of the Act. The reasons given by us in preceding para No. 4.2 in assessee’s own case for assessment year 2010-11 shall mutatis mutandis apply to this appeal as well. Therefore, for similar reasons we direct the AO to delete addition made towards disallowance u/s.14A to book profit computed u/s.115JB of the Act.
In the result, the appeal filed by the assessee for assessment year 2012-13 in ITA No.731/Chny/2018 is allowed.
ITA No.732/Chny/2018, Assessment year 2012-13 11. The assessee has raised the following grounds of appeal:- 1. The Commissioner of’ Income Tax (Appeals) has not appreciated the fact that The Assessing Officer had made an addition ofRs.1,50,000 by treating the amount directly credited by one the Directors by cash in the current account of the appellant. The explanation that the Director was an assessee in the same jurisdiction and the books of’ accounts of the Director filed with the Assessing Officer reflected the entry was no considered by the Commissioner of Income Tax. 2. Explanation to Section 27 1(1) raises a presumption of concealment, when a difference is noticed by the AO, between reported and assessed income. The burden is then on the assessee to show otherwise, by cogent and reliable evidence. When the initial onus placed by the explanation, has been discharged by him, the onus shifts on the Revenue to show that the amount in question constituted the income and not otherwise.
13 I.TA. Nos.730 to 732/Chny/2018 3. The Commissioner of Income tax (Appeals) ought to have seen that mere addition to the declared income during assessment proceedings would not ipso-facto lead to an imposition of penalty upon the Appellant. The imposition of penalty under Section 271(1) (c) of the Act can only take place where there has been either concealment of income or filing of inaccurate particular of income on the part of the respondent and the explanation is not found satisfactory. 4. The learned CIT (A) had completely ignored provisions of Section 275(1) (a) of the Income Tax Act, 1961.The said section grants time of 6 months for imposing a penalty in which the order of the CIT Appeals is received by Chief Commissioner/ Commissioner. The Commissioner of Income Tax had not considered the fact that while the addition towards unexplained cash credit was disputed in an Appeal before the Commissioner of Income Tax (Appeals) , the Assessing Officer imposed a penalty under section 271(1)(c). 5. The CIT (A) should have been guided by the decision of the jurisdiction of the Madras High Court, Rayala Corporation Pvt Ltd also has held that the time availability of 6 month from passing of the appellate orders. 6. For these and other reasons that maybe adduced at the time of hearing, it is prayed that the order of the learned Commissioner of Income Tax (Appeals) maybe set aside.
In this appeal, only issue that came up for our consideration from grounds of appeal of assessee, is levy of penalty u/s.271(1)(c) of the Act, in respect of addition made towards unexplained cash credit of Rs.1,50,000/- u/s.68 of the Act.
12.1 We find that in quantum appeal filed by the assessee, addition made by the AO towards unexplained cash credit of Rs.1,50,000/- has been deleted. Therefore, once addition on
14 I.TA. Nos.730 to 732/Chny/2018 which penalty levied u/s.271(1)(c) of the Act was deleted, then penalty levied on said addition cannot survive under law. Therefore, penalty levied by the AO u/s.271(1)(c) of the Act is not sustainable under law and hence, the AO is directed to delete penalty levied u/s.271(1)(c) of the Act.
In the result, the appeal filed by the assessee for assessment year 2012-13 in ITA No.732/Chny/2018 is allowed.
In the result, appeals filed by the assessee in ITA Nos. 731 & 732/CHNY/2018 for assessment year 2012-13 are allowed and ITA No.730/Chny/2018 for assessment year 2010-11 is partly allowed.
Order pronounced in the court on 21st April, 2021 at Chennai.
Sd/- Sd/- (वी दुगा� राव) (जी. मंजुनाथ) (V. Durga Rao) (G. Manjunatha) लेखा सद�य /Accountant Member �याियक सद�य/Judicial Member चे�ई/Chennai, �दनांक/Dated, the 21st April, 2021 RSR आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु� (अपील)/CIT(A) 4. आयकर आयु� /CIT 5. िवभागीय �ितिनिध/DR 6. गाड� फाईल/GF.