ASHAPURA MINECHEM LIMITED,MUMBAI vs. ADIT, CPC, BENGALURU

Brief facts of the case are that the assessee is a public limited company engaged in the business of mining and selling of minerals. It filed its original return of income for this year on 30-11-2019, declaring NIL total income. The assessee declared loss of Rs.191.80 crores under the head “Income from business”. It also declared Short Term Capital Gain of Rs.21.03 lakhs and Long Term Capital Gain of Rs. 253.83 lakhs. The business of loss of Rs.191.80 crores, un-absorbed depreciation of Rs.62.25 crores and the brought forward unabsorbed depreciation of Rs.110.41 crores were set off against the income declared under the head capital gains. Accordingly, the total income was returned as NIL.

Thereafter, the assessee filed a revised return of income on 30-03- 2020 excluding the Long Term Capital Gain of Rs.253.84 lakhs declared in the original return of income. Accordingly, the business loss was computed at Rs.191.59 crores after adjusting Short Term Capital Gain of Rs.21.03 lakhs. It is pertinent to note that the assessee had credited its profit and loss account with long term capital gains. However, for the purposes of computation of total income, the assessee took the stand in the revised return of income that the same is not taxable in this year on account of subsequent development. However, while processing the return of income, the CPC made adjustment to the extent of Rs. 259.20 crores, taking cognizance of the capital gains credited to the Profit and Loss account, which was mainly related to Long Term Capital Gain declared by the assessee in the profit and loss account.

The assessee filed an appeal before the Ld.CIT(A) challenging the adjustment made by the CPC. The assessee explained before the Ld.CIT(A) the reason for exclusion of long term capital gains in the revised return of income. It was stated that the assessee had pledged certain securities with a company, named, M/s. ASQ Connect Ltd. The above said company invoked the pledge and accordingly, the assessee considered the same as sale of securities. Accordingly, it computed capital gains at Rs.262.59 crores for book purposes and credited the same to the Profit and Loss account. For Income tax purposes, the Long Term Capital Gainwas computed at Rs.253.84 crores and was declared in the original return of income.

Subsequently, the assessee took the matter to arbitrator and it got a favorable order, wherein it was held that the invocation of pledge by M/s. ASQ Connect Ltd., is not justified, meaning thereby, there was no sale of securities as originally presumed by the assessee. In that case, there was no necessity to compute long term capital gains and accordingly, the long term capital gains declared in the original return of income needs to be reversed. Accordingly, the assessee filed revised return of income excluding the Long Term Capital Gain offered in the original return of income.

The Ld.CIT(A), however, took the view that the above said claim of the assessee is in the nature of “incorrect claim” apparent from the information given in the return. Accordingly, he upheld the adjustment made by the CPC while processing the return of income u/s. 143(1) of the Act.

We heard the parties and perused the record. Under the provisions of sec.143(1)(a) of the Act certain adjustments could be made by the CPC to the income returned by the assessee. The relevant provisions are extracted below:-

However, the assessee has explained before the Ld.CIT(A) the reasons for withdrawal of Long Term Capital Gain in the revised return of income. Apparently, the withdrawal of LTCG would not fall under the category of “incorrect claim”, as observed by Ld.CIT(A). From the reasons for making adjustments made by CPC, we notice that the CPC has referred to the Profit and Loss account for making adjustment of LTCG and also picked up the sale value of assets shown in the Schedule of Depreciation. Thus, there is no clarity on the adjustments made by CPC. Accordingly, we are of the view that the CPC has made the adjustments without properly appreciating the facts and the Ld CIT(A) has also confirmed the same in the similar manner. It is a well settled proposition of law that the entries made in the books of accounts are not relevant for determining total income under the Income tax Act. Hence, merely because the assessee has credited its profit and loss account with the amount of Capital gain on the basis of facts/state of affairs prevailing at that point of time, the same will become taxable under the Income tax Act, when the subsequent development would show that there was no transfer of security.

Accordingly, we are of the view that all the adjustments made by CPC requires fresh examination at the end of the AO. Accordingly, we set aside the order passed by the Ld.CIT(A) and restore all the issues to the file of the AO for examining the adjustments made by CPC and direct him to make only those adjustments which are permitted u/s.143(1)(a) of the Act. The assessee shall be given proper opportunity of being heard.

In the result, the appeal filed by the assessee is treated as allowed.