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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Dewanchand Ramsaran Dy. Commissioner of Income Tax, Industries P. Ltd. Mumbai, 7/8 B Trade World, Kamla City, Circle 6(2) Vs. Senapati Bapat Marg, Lower Mumbai Parel, Mumbai- 400 013 PAN No. AABCD7193H .. Appellant Respondent Assessee by .. Miss Arti Sathe, AR .. Shri B. S. Bist, DR Revenue by Date of hearing .. 05-04-2017 .. Date of pronouncement 05-04-2017 O R D E R PER MAHAVIR SINGH, JM:
This appeal by the assessee is arising out of the order of CIT(A)-12, Mumbai, in appeal No. CIT(A)-12/DCIT.6(2)(1)/122/13-14 dated 06-02-2015. The Assessment was framed by ACIT Circle-6(2), Mumbai for the A.Y. 2009-10 vide order dated 29-12-2011 u/s 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The only issue in this appeal of assessee is against the order of CIT(A) confirming the rectification order passed by AO under section 154 of the Act making addition of additional income declared during the course of survey under section 133A of the Act to the book profit under section 115JB of the Act amounting to Rs. 1.25 crores.
Briefly stated facts are that for the AY 2009-10, assessee filed its return of income on 21-09-2009. Subsequently the income tax department carried out a survey action under section 133A of the Act on 10-02-2010 and on 11-02-2010 letter in response to survey action was submitted by assessee before the AO that assessee will declare additional income of Rs.1.25 cores over and above the income in AY 2009-10. The assessee filed revised return of income declaring additional income found during the course of survey on 30-03-2010 and the Dewanchand Ramsaran Industries P. Ltd AY:09-10 . company declared a total income already declared at Rs. 6,43,11,900/- plus additional income offer at Rs. 1.25 crores. Assessment under section 143(3) was completed by the AO vide order dated 21-09-2011 at a total income of Rs. 10,59,90,850/-. However, the AO calculated the tax liability accepting the book profit under section 115JB at Rs. 21,36,48,817/-. Subsequently, assessee moved an application under section 154 of the Act on 05-01-2012 claiming an unabsorbed depreciation of Rs. 11,11,82,315/- pertaining to AY 2008-09. This was rectified by the AO under section 154 of the Act vide order dated 21-03- 2012 and accordingly, order was passed. The order of rectification under section 154 of the Act dated 21-03-2012 reduced unabsorbed depreciation of Rs. 11,11,82,315/- of AY 2008-09 from the total income of Rs. 10,59,990,850/- and revise the total income at nil and book profit was accepted at Rs. 21,36,48,817/- under section 115JB of the Act.
In view of the above facts now, the assessee stated that on 18-11-2013, the AO issued another rectification notice under section 154 of the Act for the reason that the disclosure made during the course of survey under section 133A of the Act on 10-02-2011 amounting to Rs. 1.25 crore was not considered by the AO during the course of original assessment proceedings or during the rectification order passed under section 154 of the act dated 21-03-2012. Accordingly, the AO vide order dated 02-01-2014 passed rectification order by making addition of additional income declared by assessee during the course of survey under section 133A of the Act at Rs. 1.25 crore by observing as under: - Total Income under normal provision as per order dated 21-03-2012 Rs. Nil Book Profit under section 115 JB Book Profit as per order u/s 154 dated 21-03-2013 Rs. 21,36,48,817 Add: Additional income declared by the assessee during action under section 133A as discussed above Revised Book Profits Rs. 1,25,00,000 Aggrieved against the action of AO, assessee preferred the appeal before CIT(A), who also confirmed the action of the AO. Aggrieved, now assessee is in second appeal before Tribunal. Page 2 of 8 Dewanchand Ramsaran Industries P. Ltd AY:09-10 .
Before us, the learned Counsel for the assessee Miss Arti Sathe made an argument that the AO has no jurisdiction to make an addition under section 154 of the Act on disclosed additional income of Rs. 1.25 crore declared during the course of survey because this declaration was made to cover up any discrepancy if any found in the books of account or in the return of income during the course of assessment proceedings. The learned Counsel for the assessee stated that while framing original assessment these facts were available before officer and after consideration all these facts, the AO has passed an assessment order under section 143(3) of the Act and no addition on this count was made. She argued that there is no mistake apparent from the records in the order of the assessment passed under section 143(3) qua this disclosure because the income was declared in order to cooperate with department and to cover up any previous discrepancy in the books of account or in the return of income of the assessee company, if any found during the course of scrutiny assessment. But according to her, no discrepancy was found in the books of account. Even otherwise making this addition is a highly debatable issue which cannot be considered while adjudicating the issue under section 154 of the Act as 154 of the Act gives limited jurisdiction to the AO in respect of mistake apparent from records but not to the issues which are highly debatable and contentious. She particularly referred the judgement of the Hon’ble Delhi High Court in the case of CIT v. R. T. C. L. Ltd (2012) 348 ITR 120 (Del) vide order dated 28-03-2012 in Para 6 and 7 which reads as under: - “6. We are not inclined to go into the said question and issue in the present case as we feel that the Assessing Officer could not have examined and gone into the said aspect while exercising limited jurisdiction under Section 154 of the Act. The jurisdiction under the said Section is confined and restricted to rectification of errors and mistakes which are apparent from the record. The Assessing Officer cannot go into a debatable issue on which two or more views are possible and pass an order on merits. We have quoted the orders passed by the Page 3 of 8 Dewanchand Ramsaran Industries P. Ltd AY:09-10 . Assessing Officer as well as CIT(Appeals). They have not indicated or specifically stated how and why the issue was clear and that no debate or two views were possible. The contention of the assessee, which has been referred to by the Tribunal in the impugned order, shows that there was considerable controversy on the said aspect and this is clear when we read the following paragraph from the order of the Tribunal: - "As to whether the arrears of depreciation can be provided or not, the matter is settled by various decisions of the Tribunal as also by the decision of the Bombay High Court in the case of Kinetic Motor Co. Limited 262 ITR 330 wherein also there was a change in the method of providing depreciation and the profits of the assessee were lowered by Rs. 6,32,65,430/-. The High Court held that under the Companies Act, both the straight-line method and written down value method are recognized and, therefore, once the amount of depreciation actually debited in the profit and loss account was certified by the auditors, it was not permissible for the Assessing Officer to make any book adjustments in view of the decision of the Supreme Court in the case of Apollo Tyres Limited v. CIT 255 ITR 273 . Besides above, we find that there are decisions of the Tribunal holding the similar view, namely, Calcutta Bench of the Tribunal in the case of JCT Limited v. DCIT 253 ITR 61, Cochin Bench of the Tribunal in the case of Apollo Tyres Limited v. DCIT 43 ITD 464 , Bombay Bench of the Tribunal in the case of Modern Woollens, Ltd. v. DCIT 47 ITD 154 and Amritsar bench of the Tribunal in ITA No. 353/Ars./91 Page 4 of 8 Dewanchand Ramsaran Industries P. Ltd AY:09-10 . order dated 14.4.1994. In all these cases, it was held that the net profit as shown in the accounts of the assessee after writing off arrears of depreciation of the earlier years would alone represent the book profits of the assessee and it was not for the Assessing Officer to substantiate his own figures in its place. The learned DR however buttressed the view from a different angle and submitted that the arrears of depreciation had been claimed by the assessee below the line of the profit and loss account and, therefore, it cannot form part of the profit & loss account and book profit to be provided only above the profit line. This issue is also not res Integra and the Tribunal in the case of Gulf Oil Corporation Limited v. ACIT 111 ITR 124 dealt with the issue by observing as under:
"6. We have duly considered the rival submissions and material on record. Sub-section (2) of Section 115JB provides that every assesses company shall prepare its profit and loss account in accordance with the provisions of Part-II and Part-III of Schedule VI to the Companies Act, 1956. The said Schedule-VI does not speak of the Appropriation Account at all. It is only as a matter if presentation that most of the companies segregate to reflect as to what has been appropriated where out of the profits earned by them. Otherwise, sub- clauses (a) and (b) of clause (viii) of Note-II in para 3 of Part-II of Schedule- VI specifically provide that the aggregate amounts set aside or proposed to be set aside to reserves should be distinctly shown in the Profit and Loss account. Similarly, sub-clause (b) and sub-clauses (a) and Page 5 of 8 Dewanchand Ramsaran Industries P. Ltd AY:09-10 . (b) of clauses (xii) and (xiii) respectively in Note- II of Part-II of Schedule - VI provide that profits or losses in respect of transactions not usually undertaken or undertaken in exceptional circumstances or which are of non-recurring nature should be shown in the Profit and Loss Account. The aggregate amount of dividends paid and proposed are also to be shown in the Profit and Loss Account. The point we are trying to drive home is that all the items which are generally classified in the Appropriation Account are in fact to the included in the Profit and Loss Account prepared as Parts-II and III of Schedule- VI. Therefore, we are in agreement with the argument of the learned counsel that the starting point for computation of book profits for the purposes of Section 115JB should be Rs. 660.81 lakhs which is the final balance in the Profit and Loss account carried to balance Sheet. It may also be noted from the above discussion that even extraordinary items have to be debited to the Profit and Loss Account. Having adopted the figure of Rs. 660.81 lakhs as the starting point, the same has to be increased by the items specified in clauses (a) to (f) and has to be reduced by the items specified in clauses (i) to (vii) given in the Explanation. No other adjustment is permitted by law and also as laid down by the Supreme Court in the case of Apollo Tyres Ltd. (supra). None of the clauses given in the Explanation provide for the increase or decrease of the book profits by extraordinary items. The reference of AS-5 by the learned Department Representative does not in any manner advance the case of the revenue. It merely Page 6 of 8 Dewanchand Ramsaran Industries P. Ltd AY:09-10 . says that prior period and extraordinary items should be separately disclosed along with their nature so that their impact on the operating results can be perceived. It does not say that they are not part of the Profit and Loss Account. Similarly, the Guidance Note issued by the ICAI also does not help the revenue as it merely says that sometimes, Appropriation Account is included as a separate section of the Profit and Loss Account. But, as we have seen earlier, Parts- II and III of Schedule-VI to the Companies Act do not speak of Appropriation Account at all. In the light of this discussion, we are convinced that it was in accordance with law for the assessee to have taken Rs. 978.55 lakhs as the base figure to compute the book profits for the purposes of Section 115JB."
7. We may also notice that it is the contention of the assessee that the book profits as declared were in confirmity and as per provisions of parts II and III of the Schedule VI of the Companies Act, 1956. It is stated by the assessee that the Assessing Officer and the CIT(Appeals) have not adversely commented or stated that the entry was contrary to parts-II and III of the said Schedule. The first proviso to Section 115JB(2) has not been specifically referred to and applied by the Assessing Officer and the CIT(Appeals). They have not stated as to why and how the book profits were not computed in consonance with provisions of parts II and III of the Schedule VI of the Companies Act, 1956. The issues and contentions being debatable and in the realm of uncertainty, we do not think the Assessing Officer was right in invoking under Section 154 of the Act. The Tribunal was right in observing that the action of the Page 7 of 8 Dewanchand Ramsaran Industries P. Ltd AY:09-10 . Assessing Officer under Section 154 was not warranted. With the aforesaid observations, we decline to entertain the present appeal. We clarify that we have not examined the question on merits and it is left open. No costs.”
We have heard the rival contentions and going through the facts and circumstances of the case, we find that the amount declared during the course of survey was not added by the AO while framing the assessment under section 143(3) of the Act and now through backdoor entry Revenue want to enter by make this addition of Rs. 1.25 crore to the book profit declared by assessee under section 115JB of the Act. The assessee already offered this income while compute the income under section 143(3) of the Act i.e. normal computation of income. We find that this is highly contentious and debatable issue which cannot be brought under the ambit of the provision of section 154 of the Act. Accordingly, we delete the addition and allow the issue of assessee’s appeal.
In the result, the appeal of assessee is allowed.
Order pronounced in the open court on 05-04-2017.