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Income Tax Appellate Tribunal, “A” BENCH : KOLKATA
Before: Hon’ble Shri M.Balaganesh, AM & Shri S.S.Viswanethra Ravi, JM]
ORDER Per M.Balaganesh, AM
This appeal by the Revenue and Cross Objection by the assessee arise out of the order of the Learned Commissioner of Income Tax(Appeals)-2, Kolkata [in short the ld CIT(A)] in Appeal No.1016/CIT(A)-2/14-15 dated 16.05.2017 against the order passed by the DCIT, Circle-5, Kolkata [ in short the ld AO] under section 143(3) of the C.O. No. 116/Kol/2017 M/s Subh Shanti Service Ltd. A.Yr.2008-09 Income Tax Act, 1961 (in short “the Act”) dated 08.12.2010 for the Assessment Year 2008-09.
The first issue to be decided in this appeal is as to whether the Ld. CIT(A) was justified in granting relief of Rs. 1,24,76,183/- disallowed u/s 14A of the Act read with Rule 8D of the Rules, in the facts and circumstances of the case.
The brief facts of this issue is that the assessee is a non-banking finance company and had filed its return of income for the assessment year 2008-09 on 29.09. 2008 declaring total income of Rs. NIL. The assessee did not earn any dividend income or claimed any exempt income. Accordingly, the assessee had not computed any disallowance u/s 14A of the Act while filing the return of income. The Ld. AO directly adopted Rule 8D and made disallowance under second and third limb thereon and computed the disallowance made u/s 14A of the Act in the sum of Rs. 1,24,76,183/-. The Ld. CIT(A) by placing reliance on the decision of Hon’ble Delhi High Court in the case of Chem Invest Ltd. vs. CIT reported in 378 ITR 33 among other High Court decisions held that since no exempt income has been received by the assessee, the provisions of section 14A of the Act could not be invoked. Aggrieved, the revenue is in appeal before us on the following grounds:
1. Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in giving relief of Rs. 1,24,76,183/- disallowed u/s 14A of the Act read with Rule 8D(1) on the facts and in the circumstances of the case and in law.
We have heard the rival submissions. Admittedly, the assessee had not derived any income on its investments or had claimed any exempt income in the return of income. Hence, the provision of Section 14A of the Act cannot be made applicable in the instant case. Accordingly, we find that the Ld. CIT(A) had rightly placed reliance on the 2
C.O. No. 116/Kol/2017 M/s Subh Shanti Service Ltd. A.Yr.2008-09 decision of Hon’ble Delhi High Court (supra) and deleted the disallowance made u/s 14A of the Act in the sum of Rs. 1,24,76,183/-. Accordingly, ground no. 1 raised by the Revenue is dismissed.
The next ground of the revenue relates to disallowance u/s 14A of the Act read with Rule 8D of the Rule in the sum of Rs. 1,24,76,183/- while computing the book profits u/s 115JB of the Act. The decision rendered by us in the ground no. 1 with regard to disallowance u/s 14A of the Act under the normal provisions of the Act would hold with equal force as far as computation of book profits u/s 115JB of the Act also, in view of the fact that the assessee had not derived any exempt income and hence the provisions of section 14A of the Act cannot be made applicable. Accordingly, we hold that the Ld. CIT(A) had rightly deleted the same and hence, ground no. 2 raised by the Revenue is dismissed.
Now let us come to Cross Objection filed by the assessee.
The only issue to be decided in this appeal is as to whether the Ld. CIT(A) was justified in confirming the action of the ld. AO in increasing the book profit of the assessee u/s 115JB by a sum of Rs. 1,15,31,041/- representing interest income not credited to profit and loss account, in the facts and circumstances of the case.
The brief facts of this issue is that the assessee is a non-banking finance company and is mandated to follow the prudential norms of Reserve Bank of India(RBI) with regard to income recognition and classification of assets and consequential provisioning thereon. In compliance with the said prudential norms issued by RBI, the assessee had not credited the interest income of Rs. 1,15,31,041/- in its profit and loss account for the year ended 31.03.2008. The assessee pleaded that though this interest income of Rs. 1,15,31,041/- was not credited in the profit and loss account, the same was duly offered 3
C.O. No. 116/Kol/2017 M/s Subh Shanti Service Ltd. A.Yr.2008-09 to tax under the normal provision of the Act while computing the total income. However, with regard to computation of book profit u/s 115JB of the Act, since the said interest income was not credited to profit and loss account, the same cannot be brought to tax u/s 115JB of the Act, in view of the fact that the said profit and loss account together with the balance sheet and notes thereon were duly approved by the shareholders of the assessee company in its general body meeting and that the Ld. AO does not have any power to tinker with the same except in respect of items provided in explanation 1 to 115JB of the Act. The assessee in support of this contention placed reliance on the decision of Hon'ble Supreme Court in the case of Apollo Tyres Ltd. vs. CIT reported in 255 ITR 273. The assessee also placed reliance on the decision of the Co-ordinate Bench of Delhi Tribunal in the case of DCIT vs. Dune Leasing & Finance Ltd. reported in 126 ITD 255 in support of the aforesaid contentions. The Ld. AO however did not agree to the contentions of the assessee and without giving any reason proceeded to make an addition of Rs. 1,15,31,041/- to the book profit computed u/s 115JB of the Act. This action of the ld. AO was upheld by the Ld. CIT(A) without any reason. Aggrieved, the assessee has preferred cross objection before us on the following grounds:
1. For that the Ld. CIT(A)-2 was not justified in confirming the order of the Assessing Officer (AO) in increasing the Book Profit of the Appellant by a sum of Rs.1,15,31,041/- being interest income not credited to the Profit and loss account in accordance with the RBI guidelines issued for NBFCs.
2. For that the Ld. CIT(A)-2 erred in confirming the order of the AO in re- determining the Book Profit of the Appellant by adding the sum of Rs. 1,15,31,041/- being interest income not credited to the Profit and loss account, which is contrary to the provisions of section 115JB of the Act and as per the judicial precedent laid down by the Apex Court.
3. For that the Appellant craves leave to ad, delete, amend or modify any ground before or at the time of hearing of the appeal proceeding.
C.O. No. 116/Kol/2017 M/s Subh Shanti Service Ltd. A.Yr.2008-09
We have heard the rival submissions. The fact stated hereinabove remain undisputed and hence the same are not reiterated herein for the sake of brevity. It is not in dispute that the assessee is a non-banking finance company and is accordingly mandated to follow the prudential norms prescribed by Reserve Bank of India with regard to income recognition, classification of assets and provisioning requirements thereon in its books of accounts. It is not in dispute that the assessee had made income recognition in its books of accounts in accordance with prudential norms issued by RBI. Accordingly, the assessee was justified in not crediting interest income of Rs. 1,15,31,041/- in the profit and loss account. The Hon'ble Supreme Court in the case of Apollo Tyres Ltd. vs. CIT reported in 255 ITR 273 had held that once the accounts of the assessee are approved by the shareholders in the general body meeting and no query later on has been raised by the Registrar of companies thereon, the ld. AO is not empowered to tinker with the same unless otherwise specified in items in Explanation 1 to 115JB of the Act. Admittedly, the addition of interest income of Rs. 1,15,31,041/- to the book profit does not fall in any of the clauses mentioned in Explanation 1 to 115JB of the Act. We also find that the Co-ordinate Bench of Delhi Tribunal in the case of DCIT vs. Dune Leasing & Finance Ltd. reported in 126 ITD 255 had held as under:
“5. Ground no. 2 is against the finding of the lower authorities that the interest income of Rs. 1,19,07,474, not credited to the accounts, could be added to the book profit u/s 115JB. This ground is similar to ground no. 2 in the appeal of the Revenue. The facts are that the aforesaid interest was not credited in the books of accounts, but offered for taxation while computing the income. The case of the learned counsel was that if interest liability not debited to the accounts could not be allowed u/s 115JB, then, this interest income, which is not credited to the accounts, can also not be added to the book profit under s. 115JB. The arguments of the learned Departmental Representative were also similar to the arguments taken in respect of computation of income under normal provision as well as under s. 115JB. We have already held that the AO does not have any power to reopen the accounts for this purpose, which has been filed after due process before the RoC and to which he has not taken any objection. Following our finding on that ground of the Revenue, it is held that the interest income of Rs. 1,19,07,474/- could not have been added to the book profit under s. 115JB. Thus, this ground is allowed.” 5
C.O. No. 116/Kol/2017 M/s Subh Shanti Service Ltd. A.Yr.2008-09 In view of the aforesaid fact and respectfully following the judicial precedents relied upon hereinabove, we hold that the revenue had grossly erred in adding the interest income of Rs. 1,15,31,041/- to the book profits u/s 115JB of the Act. Accordingly, grounds raised in the cross objection of the assessee are allowed.
In the result, the appeal of the revenue is dismissed and cross objection of the assessee is allowed.
Order pronounced in the Court on 14.02.2018