PROCON INSTRUMENTATION PVT. LTD.,CHENNAI vs. ACIT, CHENNAI

आदेश /O R D E R

PER G. PAVAN KUMAR, JUDICIAL MEMBER:

The Hon'ble High Court in Tax case appeal no. 1117/2015 dated

10.02.2016 has set aside the order of Tribunal in ITA No. 1648/Mds/2013

dated 28.11.2014 and condoned the delay in filing the appeal before the

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tribunal and directed the Tribunal to take up the case for hearing in the usual

course and as per the directions the case is heard.

2.1 The commissioner of Income Tax (Appeals) is wrong in confirming

the action of the Assessing Officer in re-computing the book profit,

when the Assessing Officer has no jurisdiction to do so.

2.2 The Commissioner of Income Tax (Appeals) ought to have seen that

sale of land being an extra-ordinary item need to be routed through

the profit and loss account.

2.3 The Commissioner of Income Tax (Appeals) went wrong in holding

that the profit and loss account prepared by the assessee is not in

accordance with schedule-VI of the companies Act, warranting re-

computation of book profits for the purpose of section 115JB of

Income Tax Act.

2.4 The Commissioner of Income Tax (Appeals) went wrong in not

following the decision of the Hon'ble Supreme Court in the case of

Appolo Tyres Vs. CIT.

2.5 The order of assessment and the order of the Commissioner of

Income Tax (Appeals) are liable to be quashed as contrary to facts

and due to non application of mind.

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Business of manufacturing of Electronic Process Control instruments including

supply, Erection and Commissioning and filed Return of income on 30.11.2006

with total income of Rs. 2,75,994/- and the return of income was processed

u/s. 143(1) of the Act on 18.02.2008. Subsequently, the Assessing Officer has

reason to believe that there is income escaping assessment and observed that

the assessee has claimed exemption u/s. 54EC to the extent of Rs.

2,22,94,324/- and not completed the provisions of the law and issued notice

u/s. 148 of the Act. In compliance to the notice the assessee company filed

letter to consider the return of income filed originally on 30.11.2006 as in

response to the notice. The Assessing Officer on verification of the records

found that the assessee has claimed expenditure of Erection and

Commissioning in Profit & Loss Account were as same has to be treated as

capital in nature and also excess claim of deduction u/s. 54EC of the Act.

Further, the Assessing Officer found that the assessee company has not

credited profit on sale of land to Profit and Loss Account in accordance with

the part II and III of Schedule VI of Companies Act and Accounting Standards

of ICAI, but the assessee company credited the profit on sale of land under

Appropriation Account under head of Extra ordinary income and is not in

accordance with the law. The Assessing Officer disputed that profit on sale of

land was not considered by the assessee for calculation of Book profits u/s.

115JB of the Act and unilaterally re-arranged the Profit and Loss Account and

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calculated the taxable income of Rs. 20,09,524/- under provisions of section

115JB of the Act on Book profits of Rs. 2,38,80,279/- and raised the demand

of Rs. 28,93,870/-including interest.

company has filed an appeal with the CIT(A), the Ld. AR and argued the

grounds and relied on the judicial decisions of Supreme Court, High Court and

submitted that the assessee company has followed the accounting policies and

the provisions under part II and part III of Companies Act. The Ld. CIT(A)

considered the decisions relied by the assessee and discussed the applicability

of provisions of section 115JB of the Act at page 6-8 of his order and is of the

firm opinion that the profit on account of sale land was excluded for Books

profits calculation and was credited to the Appropriation Account. The Ld.

CIT(A) justified the action of Assessing Officer on provisions of Schedule VI of

the Companies Act and calculation of Book profits u/s. 115JB of the Act and

the distinguished the cases relied by the assessee and uphold the action of the

Assessing Officer and partly allowed the appeal.

appeal with the tribunal. The Ld. AR of the assessee reiterated submissions

made in the appeal proceedings and the lower authorities and argued that the

order of Ld. CIT(A) confirming the action of the Assessing Officer is bad in

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law. The assessee company sold the land and profit on sale was transferred

to the Capital Reserve Account and offered to tax separately. Whereas, the

Assessing Officer has re-caste the Profit and Loss Account and included profit

on sale of land for the purpose of calculation of Book profits u/s. 115JB of the

Act. The Ld. CIT(A) has not considered the decision of coordinate bench and

Apex Court decision of Apollo Tyres Vs. CIT (2002) 255 ITR 273 (SC) were

held that the Assessing Officer does not have power to make changes and

recast the financial were as the Ld. AO has unilaterally dealt on the issue

overlooking the judicial decisions. The Ld. AR also supported his submissions

with the decision of the coordinate bench in the case of M/s. Thambi Modern

Spinning Mills Ltd., ITA No. 765/Mds/2015 dated 30.12.2015 where the

Tribunal has considered the judgment of Jurisdictional High Court and other

coordinate bench decision and prayed for allowing the appeal.

the grounds. We heard the rival submissions and material on record perused

the material on record and judicial decisions cited, the assessee company is

engaged in manufacturing activity and complied the provisions of Companies

Act and the accounting standards and accounting policies. We found that the

similar issue on applicability of provision of section 115JB of the Act was dealt

in the case of M/s. Thambi Modern Spinning Mills Ltd. (supra) at para 9, page

6 of the order.

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" We heard the submissions of both the parties, material available on record, orders of the lower authorities and the judicial decisions cited. The assessee company's Accounts are Audited under the Companies Act and followed the accounting standards and accounting policies reported by the Auditor and placed in assessment proceedings. The assessee has reiterated the submissions before the lower authorities that there is no difference in the provisions of sec. 115J, 115JA and presently 115JB. Over a period of time, these provisions have been considered under different sections. We find the co-ordinate Bench of the Tribunal in the case of M/s. Besser Concrete Systems Ltd vs ACIT in ITA No. 458/Mds/2007 has considered similar issue and observed in para 8 and 9 of its order as under: “8. A similar issue has been considered by the Hon’ble High Court of Madras in the case of CIT v. Vijayashree Finance & Investment Co. (P) Ltd. (2008) 216 CTR (Mad) 191. The Hon’ble High Court was considering the issue in the context of Section 115J. In that case, the assessee-company had sold certain land and made certain gains out of the sale. The surplus on sale of land was transferred by the assessee-company directly to its “Capital Reserve” and it did not form part of the book profit. The Assessing Officer added the profit from the sale of land to the book profits while making computation under Section 115J of the Income-tax Act, 1961. In this context, the Hon’ble High Court, referring to the judgment of the Hon’ble Supreme Court in the case of Apollo Tyres Ltd. v. CIT (2002) 255 ITR 273 (SC), held that the Assessing Officer, while computing income under Section 115J of the Act, has only the power of examining whether the books of accounts are certified by the authorities under the Companies Act, 1956 as having been properly maintained in accordance with that Act. The Assessing Officer, thereafter, has the limited power of making increases or reduction as provided in the Explanation to the said Section. The Hon’ble High Court held that the assessing authority does not have the jurisdiction to go behind the net profit shown in the Profit & Loss account except to the extent provided for in the Explanation to Section 115J of the Act. 9. In view of the judgment of the Hon'ble jurisdictional High Court, we hold that the lower authorities are not justified in adding back

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7,46,46,043/- to the book profits of the assessee-company. The said addition is accordingly deleted.” ITA No. 765/15 We find that facts and circumstances of the present case are similar to the facts of the case decided earlier and respectfully following the same, we direct the Assessing Officer to delete the addition of profit on sale of land considered for calculation of Book Profits.."

Assessing Officer to delete the profit on sale of land for the purpose of

calculation of Book profits u/s. 115JB of the Act and the grounds of the

assessee are allowed.

Order pronounced on Tuesday, the 15th day of November, 2016 at Chennai.

Sd/- Sd/- (चं� पूजार�) (जी. पवन कुमार) (CHANDRA POOJARI) (G. PAVAN KUMAR) लेखा सद य /ACCOUNTANT MEMBER )या�यक सद य/JUDICIAL MEMBER चे�नई/Chennai, 1दनांक/Dated: 15th November, 2016 JPV आदेश क% (!त3ल4प अ5े4षत/Copy to: 1. अपीलाथ$/Appellant 2. ()यथ$/Respondent 3. आयकर आयु6त (अपील)/CIT(A) 4. आयकर आयु6त/CIT 5. 4वभागीय (!त!न�ध/DR 6. गाड: फाईल/GF