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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA & SHRI AMARJIT SINGH&
Date of Hearing –10/01/2019 Date of Order - 02/04/2019
O R D E R PER: SHAMIM YAHYA, AM & 6289/Mum/2012 These are cross appeals by assessee and revenue arising out of the order of Commissioner of Income Tax (Appeals)-17 (hereinafter referred as CIT(A)), Mumbai dated 31/07/2012 and pertain to A.Y.2009-10.
2. This appeal by the assessee arising out of the order of ld. CIT(A)-17, Mumbai dated 29/09/2017 levying penalty u/s.271(1)(c) arising out of quantum appeal as referred above.
3. The following grounds have been raised by the Revenue are as under:-
"On the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the disallowance computed as per provisions of Rule 8D(2)(iii) at Ra.32,32,254/- and restricting it to Rs. 2,60,848/- which is equal to the administrative expenses claimed in its return of income." 2. "On the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the addition made without appreciating the fact of the case and ignoring the provisions of Rule 8D(2)(iii)) of the income Tax Act 1961 and Sec. 14A of the Income Tax Act, 1961" 3. "On the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in holding that the disallowance u/s 14A r.w. Rule 8D(2)(iii) has to be restricted to the administrative expenditure claimed in Return of Income." 4. The appellant prays that the order of ld. CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored." 5. "The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.''
4. Assessee has raised additional grounds before the ITAT which related to the above grounds raised by the revenue. The grounds raised in this regard read as under:-
“1. On the facts and in the circumstances of the case and in law, the Addl. Commissioner of Income Tax, Circle -6(1), Mumbai ("the AO") erred in not granting relief towards suo-moto disallowance of interest amounting to Rs.4,03,64,646 u/s. 14A of the Income Tax Act, 1961 ('"the Act") when own funds are higher than tax free investments and in not restricting the disallowance to the extent of expenditure claimed amounting to Rs.2,60,848.
2. He failed to appreciate and ought to have held that: a. When own funds are higher than tax free investments, based on decisions of the Jurisdictional High Court, a presumption lies that investments have been made out of own funds and thus there ought to be no disallowance towards interest amounting to Rs.4,03,64,646; b. In light of the various judicial pronouncements, the disallowance u/s. 14A of the Act r.w.r. 8D of the Income Tax Rules, 1962 ("the Rules"), if any, cannot exceed the amount of expenditure claimed amounting to Rs. 2,60.848; c. Without prejudice to the above, in light of the various judicial pronouncements, the disallowance u/s. 14A of the Act r.w.r. 8D of the Rules, if any. cannot exceed the amount of exempt income earned amounting to Rs. 1,58,11,448; d. Even if the Appellant inadvertently made an excess suo-moto disallowance to the extent of Rs.4,03,64,646 in its computation of income, the AO ought to have given relief in accordance with the provisions of the Act and assessed the income correctly.
3. The Appellant prays that the AO be directed to restrict the disallowance u/s. 14A of the Act to the extent of expenditure claimed of Rs.2,60,848 and provide relief towards the excess suo-moto disallowance of interest amounting to Rs. 4.03,64,646.”
For the admission of aforesaid grounds, assessee’s Counsel has placed reliance upon the following case laws:-
Jute Corporation of India Ltd., vs. CIT and Another reported in 189 ITR 688(SC)
National Thermal Power Co. Ltd., vs. CIT reported in 229 ITR 383 (SC) 6. Brief facts of this issue are that during the year under consideration, the assessee received dividend income of Rs. 1,58,11,448/- which was exempt u/s. 10(34) of the Act. The assessee calculated the disallowance u/s. 14A read with Rule 8D at Rs. 4,06,17,945/- and suo moto added back the same to the total income. For calculating the disallowance u/s. 14A read with Rule 8D, the assessee had, as against the loans funds amounting to Rs. 34,64,36,427/- (as on March 31, 2008), taken gross total assets as under:
Particulars As on 31 .03.2008 As on 31. 03.2009 Investments 1,13,19,85,396 26,52,55,480 Current Assets, Loans 4,54,80,779 51,64,67,932 And Advances Gross Total Assets 1,17,74,66,175 78,17,23,412
The AO re-calculated the disallowance u/s. 14A of the Act read with Rule 8D, at Rs. 4,47,27,196/-. While re-calculating the disallowance, the AO took net total assets as under:
Particulars As on 31 .03.2008 As on 31 .03.2009 Investments 1,13,19,85,396 26,52,55,480 Current Assets, Loans And 4,54,80,779 51,64,67,932 Advances Gross total Assets 1,17,74,66,175 78,17,23,412 Less: Current Liabilities & 2,08,52,992 2,05,00,333 Provision Total Net Assets 1,15,66,13,183 76,12,23,079
It appears that the AO has wrongly stated this amount at Rs. 2,08,52,992/-instead of the correct figure of Rs. 2,46,27,787/-.
It is observed from the above, that the difference in the computation of the disallowance u/s. 14A between the AO and the appellant is on account of the fact that the AO has taken 'net total assets' instead of 'gross assets' taken by the Appellant. Thus, the AO made a disallowance of Rs. 4,47,27,196/- u/s 14A, which resulted in an addition of Rs 41,09,251/- (Rs. 4,47,27,196/- less Rs.4,06,17,945/-) to the total income of the appellant.”
Upon the assessee’s appeal, ld. CIT(A) accepted assessee’s contention that total assets as per Rule 8D means average value of total assets without deducting current liability. He further accepted the assessee’ contention that disallowance under rule 8D(2)(iii) should be restricted to the actual expenditure claimed i.e., Rs.2,60,848/-. Hence, ld. CIT(A) held that excess disallowance of Rs.32,32,254/- is deleted.
Against this order, revenue has filed an appeal stating that ld. CIT(A) erred in restricting the disallowance equivalent to the administrative expenses claimed in the return of income while with the additional ground in cross appeal, the assessee contends that assessee has made suomoto disallowance towards interest u/s.14A amounting to Rs.4,03,64,646/-. It has been contended that own funds are higher than tax free investments. Hence, assessee pleads that he be granted relief towards suomoto disallowance of interest amounting to Rs.4,03,64,646/- u/s.14A means own funds are higher than tax free investments.
We have heard both the Counsel and perused the records. Ld. DR submitted that ld. CIT(A) has erred in restricting the disallowance under rule 8D(2)(iii) to the expenditure incurred in this regard. Per contra ld. AR submitted that the ld. CIT(A) has correctly decided the issue in favour of the assessee. Learned Counsel for the assessee submitted that in several case laws, it has been held that disallowance towards administrative expenses under the rule 8D(2)(iii) should be restricted only to the extent of expenditure incurred. In this regard he referred to following case laws:-
ACITv. Iqbal M. ChaglaflTA No. 877/Mum/20l3) (Mum.) DCIT v. Derive Trading Pvt. Ltd. (ITA No. 310l/Mutn/20l2) (Mum.) ACfT v. Gagandeep Infrastructure Pvt. Ltd. (ITA No. 5784/Mum/201 1 ) (Mum.) ACITv. Passionate Investments Management (ITA No. 4578/Mum/20l2}(Mum.) Gillette Group India (P. ) Ltd. v. ACIT (5 1 SOT 22 1 ) (Del T) DCIT v. Renuka Financial Services Ltd. (ITA No. 3467/Del/201 1 ) (Del T)
Further, ld. Counsel submitted that Hon’ble Supreme Court in the case of Maxoop Investments Ltd., vs. CIT reported in 91 Taxmann.com 154 has also held that it is the expenditure alone which has been incurred in relation to the income which is included in total income that has to be disallowed. Hence, ld. Counsel pleaded that the position of law is now settled in favour of the assessee. As regards the other claim by way of additional ground, ld. Counsel for the assessee pleaded that the same needs to be admitted and he relied upon the case laws from Hon’ble Apex Court in the case of Jute Corporation of India Ltd., vs. CIT and Another reported in 189 ITR 688(SC) and National Thermal Power Co. Ltd., vs. CIT reported in 229 ITR 383 (SC). In this regard, the various propositions and case laws were submitted by the ld. Counsel for the assessee as under:- "Proposition : Assessed income can be lower than returned income if the assessee inadvertently does not avail relief available to him. HDFC Bank Ltd. (Successor to Centurion Bank of Punjab Ltd.) Vs. ACIT (ITA No. 5480 & 5481/Mum/2014)(Mum. Trib.) TATA Industries Ltd. V. ITO (4894/Mum/2008) (Mum. Trib.) Sajjan India Ltd. Vs. ADIT {89 taxmann.com 21) (Mum.) Proposition : Disallowance u/s I4A cannot exceed the exempt income Pr CIT v. Empire package Pvt. Ltd (286 CTR 457) (P&H HC) Joint Investments Pvt Ltd v. CIT (ITA No. 1 17/2015) (Del. HC) Daga Global Chemicals Pvt. Ltd. v. ACIT (!TA No. 5592/Mum/20l2) (Mum. Trib.) Pinnacle Brocom Pvt. Ltd. v. ACIT (ITA No. 6247/Mum/20!2)(Mum. Trib.) Parie Pet P. Ltd. V. DCIT (6482/Mum/2012) (Mum.) Nimbus Communications Ltd. v. ACIT (ITA No. l424/Mum/2014)(Mum ) Shri Sandcep BharatSingh Kothari v. ACIT (ITA No. 8706/Mum/20l l)(Mum.) ACIT V. M/S Claridges I lotcls Pvt Ltd (ITA No.2737/Del/20 1 2) (Del T) Proposition : Only Net Interest should be considered while making disallowance u/s. 1 4A
CIT Vs. Jubliant Enterprises Pvt. Ltd. (ITA No. 1512 of 2014) (Bom. HC) PCIT Vs. Nirma Credit & Capital (P.) Ltd. (2017) 85 taxmann.com 72 (Guj. HC) M/s. Four Dimensions Securities (India) Ltd. v ACIT (ITA No. 6935/Mum/201 1 ) (Mum 1 ilh ) Aditya Medisales Ltd. Vs. ACIT (20! 6) 67 taxmann.com 270 (Ahd. Trib.) Proposition : No disallowance towards interest can he made in cases where the own funds are higher than the tax free investments CIT v. Reliance Utilities & Power Limited (313 ITR 340) (Bom.) CIT v. HDFC Bank (366 ITR 505) (Bom ) HDFC Bank Ltd v. DCIT (383 ITR 529) (Bom.) CIT v. Microlabs Limited (ITA No. 471 of 2015) (Kar.) Mrs. Anahaita Nalin Shah v. ACIT (ITA No. 71 1 5/Mum/20l 3) (Mum.) Hind Filters Ltd. v. ACIT (ITA No. 1792 & 417/M/20I3) (Mum.) Palm Grove Beach Hotels Pvt. Ltd v. ACIT (ITA No. S63/M/201 3) (Mum.) Dena Bank v. DCIT (ITA No. 3676 & 4 II 3/M/201 2) Proposition : Only those investments which have yielded exempt income during the year should be considered while computing disallowance u/s I4A
ACB India Ltd. v. ACIT (374 ITR 108) (Del.) ACIT v Vireet Investments (P ) Ltd (82 taxmann.com 415) (Del. T rib.) (SB) M/s. Toshvm Analytical Pvt. Ltd Vs. DCIT (ITA No. 3089/Mum/20l3)(Mum)
Per contra, the ld. Departmental representative relied upon the decision of Hon’ble Apex Court in the case of Goetze India and opposed that admission of this ground which is otherwise then by revised return of income.
Upon careful consideration, we note that as regards the ld. CIT(A)’s action of disallowance of expenditure incurred u/s.14A towards administrative expenditure incurred is concerned, the same is sustainable in view of the various case laws cited by the ld. Counsel for the assessee as above. Hence, we agree with the finding of ld. CIT(A) that as regards disallowance u/s.14A r.w.r. 8D(2)(iii), the disallowance cannot exceed the expenditure incurred in this regard.
As regards additional ground raised by the ld. Counsel by the assessee is concerned, we admit the same on the touch stone of Hon’ble Apex Court decision and other case laws cited by ld. Counsel of the assessee. We noted that in the additional ground, assessee’s claim is that assessee has own funds which do not carry any interest for making the impugned investments. Furthermore, there are other propositions referred by the ld. Counsel of the assessee as above which also have a judicial mandate. However, in our considered opinion for proper adjudication on these aspects, the factual records need to be examined. For this purpose, we remand the issue to the file of the Assessing Officer, the Assessing Officer shall consider the factual records and examine the veracity of assessee’s submissions and thereafter, decide as per law.
As regards objection of the ld. Departmental representative, for not admitting additional ground on the touch stone of Hon’ble Apex Court decision in the case of Getze India is concerned, we find that in the said case law, Hon’ble Apex Court had itself expounded that the said decision would not impinge upon ITAT powers to adjudicate grounds arising otherwise then by revised return of income. Furthermore, we further note that Hon’ble Jurisdictional High court in the case of CIT vs. Prithvi brokers & Shareholders pvt. Ltd., in Income Tax Appeal No. 3908 OF 2010 has also held that appellate authority can adjudicate due grounds raised otherwise then by revised return.
Accordingly, the objection raised by the ld. Departmental representative for admission of the additional ground is dismissed.
ITA No.5832/Mum/2012 (A.Y.2009-10)
Grounds of appeal raised by the assessee are as under:-
“1.On the facts and circumstances of the case and in law, the Commissioner of Income Tax (Appeals)-14, Mumbai ("the CIT(A)") erred in confirming the action of the Additional Commissioner of Income-tax, Circle 6(1), Mumbai ("the AO") in re-computing the net profit as per Profit and Loss Account for the purpose of section 115JB of the Income-tax Act, 1961 ("the Act") at Rs.43,59,94,336/- as against Rs.3,35,64,333/- by adding long term capital gain of Rs,49,50,25,669/- as per normal provisions of the Act and reducing profit on sale of shares amounting to Rs.9,25,95,666/- on the alleged ground that the books of account have not been maintained in accordance with Parts II & III of Schedule VI to the Companies Act, 1956.
2. He failed to appreciate and ought to have held that: • The accounts were duly audited and approved by the Statutory Auditors and were in accordance with the provisions of Parts II & III of Schedule VI to the Companies Act, 1956. • It was also laid before the Company at its Annual General Meeting in accordance with the provisions of section 210 of the Companies Act, 1956. * 3. The Appellant therefore, prays that profits as shown in profit and loss account should be considered for the purpose of calculating book profits u7s.H5JB of the Act and addition of long term capital gain calculated as per the normal provision amounting to Rs.49,50,25,669/-to the book profits u/s. 115JB of the Act be deleted. GROUND II: The Appellant craves leave to add to, alter, amend and 7 or delete all or any of the above grounds of appeal.”
Brief facts of the case are that the facts in regard to this issue are that in financial year 2007-08, Alankrita Finance & Investments Pvt. Ltd had amalgamated with the Appellant as per the scheme approved by the Bombay High Court. As per the said scheme, all the assets and liabilities of Alankrita Finance & Investments Pvt. Ltd which stood as on April 01,2007 in its books of account were taken over by the Appellant at their fair market value. The Appellant had acquired 53,77,248 shares and sold 20,05,546 shares of Piramal Healthcare Ltd ("PHL") during financial year 2007-08 at its fair value (received from Alankrita Finance & Investments Pvt. Ltd as investment in its books of account). The said transaction was exempt transfer u/s.47 of the capital purposes. Further, during the year under consideration, the assessee had sold the entire balance of 33,76,490 shares of PHL at Rs. 92,12,47,287/- and Rs.9,25,95,666/- as per the books of accounts. However, under the normal provisions of the I.T. Act, 1961 the capital gain computed by the appellant is Rs. 49,50,25,669/-. The calculation of profit had been submitted to the AO and the same has been reproduced in the assessment order. The profit of Rs. 9,25,95,666/- had been credited in the profit and loss account of the appellant and thus considered for the purposes of section 115JB of the Act. And as per computation of income filed with the return, the said profit of Rs. 9,25,95,666/- has been reduced/ considered separately and in its place, Rs. 49,50,25,669/- has been disclosed as capital gain as per normal provisions of the Act.
As the assessee had received these shares of PHL in the scheme of amalgamation and the transaction was exempt u/s. 47 of the Act, the assessee had calculated long term capital gain of Rs. 49.50,25,669/-[Rs 92.12.47,287/- being sale consideration less Rs. 42,62,21,618/- being the cost of acquisition of the previous owner] as per section 49 of the Act and claimed exemption u/s. 10(38) of the Act. The assessee's calculation of profit on sale of shares of PHL as per the books of accounts and as per computation of income is as follows:
Particulars As per Accounts As per computation of income 33,76,490 33,76,490 No. of equity shares of PHL 92,12,47,287 Sales consideration received 92,12,47,287 Cost of shares sold 82,96,72,030 42,62,21,618 9,25,95,666 49,50,25,669 Gain on above
The AO recalculated the book profit by adding long term capital gain of Rs. 49,50,25,669/- as per normal provisions of the Act. Thus the AO has made an addition of Rs. 40,24,30,003/- [Rs. 49,50,25,669/- less Rs. 9,25,95,666/-] to the 'book profit of the appellant.
Upon the assessee’s appeal, ld. CIT(A) noted that assessee’s submissions in this regard which are as under:-
“4.5. In this regard, the Appellant has submitted that the AO can alter the "book profit" only in two circumstances and except for the said two circumstances, the AO has no power to alter the net profit shown in the profit & loss account. The AO cannot disturb the net profit shown by the Appellant, where there are no allegations of fraud or misrepresentation. These two circumstances are as under: (i) If the profit & loss account is not in accordance with the provisions of Parts II & III of Schedule VI to the Companies Act, 1956; or (ii) If accounting policies, accounting standards, method & rate of depreciation have been incorrectly adopted for preparation of the profit & loss account. 4.6 It is pleaded by the appellant that the adjustments required to be made as per section 349 of the Companies Act, 1956 are different from the adjustments required to be made under Explanation 1 to section 115JB of the Act. The Appellant had prepared in accordance with the provisions of Parts II & III of Schedule VI to the Companies Act, 1956. The accounts were certified by the auditor and were approved in compares Annual General Meeting. Further, the profit on sale of shares was included in the profit and loss account and offered for MAT u/s.115JB of the Act and therefore, the alteration of profit as shown in the profit and loss the AO is ultra vires and bad in the law. 4.7 Also, what is to be taxed u/s.115JB is the book profit and not the profit as per normal provisions of the Act and hence addition of long term capital gain calculated by the AO as per the normal provisions in respect of the book profit is also not as per the provisions of section 115JB of the Act. It is stated that the Supreme Court in the case of Apollo Tyres Ltd vs. CIT (255 ITR 273) has examined similar provisions contained in section 115J of the Act in detail and held that while determining the "book profits" under section 115J, the Assessing Officer cannot re-compute the profits as shown in the profit and loss account and has the jurisdiction only to make adjustments to the extent provided in the Explanation to Section 115J. The relevant extract of the decision reads as under:
"The Assessing Officer, while computing the book profits of a company under section 125J of the Income-tax Act, 1961, has only the power of examining whether the books of account are certified 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 section 115J. The Assessing Officer does not have the jurisdiction to go behind the net profits shown in the profit and loss account except to the extent provided in the Explanation. The use of the words 'in accordance with the provisions of Parts H and III of Schedule VI to the Companies Act' in section 115J was made for the limited purpose of empowering the Assessing Officer to rely upon the authentic statement of accounts of the company. While so looking into the accounts of the company, the Assessing Officer has to accept the authenticity of the accounts with reference to the provisions of the Companies Act, which obligates the company to maintain its accounts in a manner provided by that Act and the same to be scrutinized and certified by statutory auditors and approved by the company in general meeting and thereafter to be filed before the Registrar of Companies who has a statutory obligation also to examine and be satisfied that the accounts of the company are maintained in accordance with the requirements of the Companies Act Sub-section (1A) of section 115J does not empower the Assessing Officer to embark upon afresh enquiry in regard to the entries made in the books of account of the company." 4.8 In the Appellant's case also, the books of accounts were certified by the auditors as having been properly maintained in accordance with the Companies Act, 1956. Further, the accounts were also approved by the company in the annual general meeting. Further, the Supreme Court noticed that the use of the words "in accordance with the provisions of Parts II and III of Schedule VI of 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. Since, the Appellant's statement of accounts were authenticated by the auditors, the AO should not have recomputed the net profits as shown in the profit & loss account. The Apex Court in the case of Apollo Tyres (supra) has also held that there cannot be two incomes, one for the purpose of the Companies Act and another for the purpose of income-tax, both maintained under the same Act. It is also pointed out that, if the legislature intended the Assessing Officer to reassess the company's income, then it would have stated so in section 115J that income of the company as accepted by the Assessing Officer". The above ratio laid down by the Supreme Court in the case of Apollo Tyres (supra) has been followed in the following other two decisions of the Supreme Court:
1) Malayala Manorama Co, Ltd. vs. CIT (169 Taxman 471) 2) CIT vs. HCL Comnet Systems and Services Ltd. (305 ITR 409) 4.9. I have considered the above submissions of the appellant, as also the decision of the AO in this regard, in view of the facts of the case and the case laws cited by the appellant. It is seen that the capital gain on sale of 3376490 shares disclosed by the appellant as per normal provisions of the Act is Rs. 49,50,25,669/- whereas the said books of the appellant is only Rs. 9.25,95,666/-. Such vast difference in the computation of capital gain is on account of the difference in cost of acquisition adopted for the two purposes. The cost of acquisition adopted by the appellant as per the normal provisions of the IT Act is Rs. 42,62,21,618/- whereas in the books of account of the appellant, the cost of acquisition adopted is Rs. 82,96.72,030/-. The question to be decided is whether the AO was justified in re-computing the book profit of the appellant in view of the fact that the book profit disclosed in the books of account was not correct in her opinion. The two conditions, as rightly stated by the appellant, in which the AO can disturb the book results of the appellant are a) If the profit & loss account is not in accordance with the provisions of Parts II & III of Schedule VI to the Companies Act, 1956 or b) If accounting policies, accounting standards, method & rate of depreciation have been incorrectly adopted for preparation of the profit & loss account. Parts II & III of Schedule VI to the Companies Act, 1956 are basically the guidelines prescribed for the preparation of t and Loss Account as per the Companies Act. These guidelines prescribe that a Company shall disclose various important details in the notes to accounts to the extent applicable. However, in the case of the appellant, although there is a vast difference in respect of the cost of shares adopted for the computation of capital gain as per the of account vis-a-vis as per the normal provisions of the IT Act, still nothing has been disclosed in the 'notes to accounts' in this regard. The extract of the 'notes to accounts' in the case of the appellant for the current year is as under: "1. Significant accounting policies • (a) The financial statements are prepared on an accrual basis of accounting. (b) The figures for the previous years have been regrouped/rearranged wherever necessary.
As the company is not a manufacturing company, the information required under clause 4C 85 4D of part II of schedule VI of the Companies Act 1956 has not been given.
Piramal Life Sciences Ltd has been listed on Bombay stock exchange and National stock exchange wef May 29, 2008. Consequently, the investment in PLSL has been regrouped accordingly.
Preliminary expenses has been written off during the year."
However, the ld. CIT(A) was not convinced. He was of the opinion that assessee’s claim that books of accounts had been prepared in accordance with Parts II & III to the Companies Act, 1956 is not correct and accordingly, he proceeded to confirm the order of the Assessing Officer and while doing so, he also passed adverse remark towards auditors of the company. He stated in his order as under:-
“4.10. It is evident from the above that the appellant cannot claim that its books of account have been prepared in accordance with parts II & III of Schedule VI to the Companies Act, 1956. Nothing has been stated in the accounts as to on what basis the capital gain/ profit on sale of 3376490 shares of PHL has been computed and for this purpose what cost of acquisition has been adopted. The appellant has also not stated as to whether the policy of valuation of cost of acquisition of these shares adopted in current year is consistent with the policy adoptedjQjJthis_p_uj-pose in earlier years. It is seen from the accounts of the appellant that in the preceding year the appellant had sold 20,05,546 shares of the very sarne^ company PHL and had declared profit of Rs. 4,58,63,0167-. The appellant has not disclosed in its books of account as to whether the policy adopted for computation of profit on sale of shares in earlier year was same as that adopted in the current year and if at all there was a change in this regard, what was the justification for the same. Part II of schedule VI to the Companies Act, 1956 mandates disclosure of such policies in the 'notes to accounts' which the appellant has not done as is evident from the above. 4.11 Therefore in my view, the appellant has not maintained its accounts in accordance with parts II & III of Schedule VI to the Companies Act, 1956 and hence the AO was justified in questioning the book results of the 19 appellant. Unfortunately the auditors of the appellant also did not bother to ascertain these facts and provide justification if any in this regard. 4.12 Furthermore, the appellant has also not explained as to why and how, it can be presumed that accounting policies, accounting standards etc. have been correctly adopted for preparation of profit and loss account. In these circumstances, therefore the action of the AO is liable to be upheld and I order accordingly.”
Against the above order, assessee is in appeal before us.
We have heard both the Counsel and perused the record. Ld. Counsel for the assessee submitted that the book profit as certified by the auditors and adopted in Annual General Meeting cannot be disturbed. In this regard, he placed reliance on the Apex Court decision in the case of Appollo Tyres Ltd., CIT (255 ITR 273) and relied upon the decision of Hon’ble Bombay High Court in the case of CIT vs. Akshay Textile Trading & Agencies Pvt. Ltd . [304 ITR 401] and also relied upon the decision of Hon’ble Supreme Court in the case of Malayala Manorama Co. Ltd., 300 ITR 251 (SC) and several other case laws. 27. Per contra, ld. Departmental representative relied upon the orders of the authorities below. He submitted that assessee has not prepared accounts in accordance with mandate of Companies Act, hence he submitted that the authorities below corrected it by making the impugned additions.
Upon careful consideration, we find that Hon’ble Apex Court in the case of Apollo Tyres reported in 255 ITR 273 which was duly followed by Hon’ble Jurisdictional High Court in several case laws including that of Akshay Textile Trading & Agencies Pvt. Ltd . (supra) have held that the book profit as certified by the Auditors and adopted in Annual General Meeting cannot be tinkered with. It was expounded in these case laws that the Assessing Officer have only power of examining whether the books of accounts were certified by the authorities under the companies Act as having been properly maintained in accordance with the companies Act and thereafter, he has limited of power of making addition and reduction as provided for in Explanation to said section. This proposition was duly relied upon by the decision of Hon’ble Apex Court in the case of Malayala Manorama Co. Ltd., (supra) and in the case of CIT vs. Adbhut Trading Co. P. Ltd. (2011) 338 ITR 94 and Hon’ble Bombay High Court has held as under:-
“1.In the present case, the Income Tax Appellate Tribunal has confirmed the order of the Commissioner of Income Tax (Appeals) in deleting the addition of Rs.1.98 crores made by the Assessing Officer while computing the book profit under Section 115JB of the Income Tax Act, 1961 by following the decision of the Apex Court in the case of Apollo Tyres V/s. CIT reported in 255 ITR 273. According to the Revenue, the assessee has intentionally prepared a wrong profit and loss account. Once the accounts including profit and loss account are certified by the authorities under the Companies Act, it is not open to the assessing officer to contend that the profit and loss account has not been prepared in accordance with the provisions of the Companies Act, 1956.
2.In these circumstances, deletion of the addition by the Tribunal by following the decision of the Apex Court in the case of Apollo Tyres Limited (supra) cannot be faulted. In the result, we see no merit in the appeal. The appeal is accordingly dismissed with no order as to costs.”
By considering the aforesaid judicial precedents, we are of the considered opinion that the authorities have clearly erred in holding that addition in book profit is required over and above what has already been audited and certified in the annual adopted accounts. It is not the case that addition is mandated by the Explanation to Section 115JB. Hence, we set aside the orders of the authorities below and decide the issue in favour of the assessee.
In the result, assessee’s appeal stands allowed for statistical purposes.
Grounds raised
in this regard reads as under:-
1. On the facts and circumstances of the case and in law, the Hon'ble Commissioner of Income Tax - Appeals, ["the Id. CIT(A)"], erred in upholding the action of Assessing Officer (''the Id. AO") in levying the penalty of Rs. 4,55,95,3197- u/s. 271(l)(c) of the Income-tax Act, 1961 (''the Act") on the alleged ground that the Appellant had furnished inaccurate particulars of income. The Hon'ble CIT(A) failed to appreciate the fact that the Appellant had 22 disclosed all the relevant facts and only on the basis of such details / facts, addition was made by the Ld. AO. The Appellant therefore, prays that the Id. AO to be directed to delete the penalty of Rs. 4,55,95,319/- levied u/s. 271(l)(c) of the Act. GROUND II: GENERAL The Appellant craves leave to add, alter, amend or vary all or any of the above grounds of appeal either before or at the time of hearing.