A.C.I.T., CIR-II, KOLKATA, KOLKATA vs. M/S. PHILIPS ELECTRONICS INDIA LTD., KOLKATA

SHRI M.BALAGANESH, AM

These appeals of the assessee as well as the revenue arise out of the order of the Learned CIT(A)-XI, Kolkata in Appeal No. 68/CIT(A)-XI/Cir-11/07-08 dated July 23, 2008 for the Asst Year 1999-2000 against the order of assessment framed by the Learned AO u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’). Both these appeals are disposed off by this common order for the sake of convenience.

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Dated 12 June, 2012 “1. That on the facts and in the circumstances of the case and in law, the order dated 14 November, 2007 passed by the Learned Assessing Officer ('the AO') under section 115JA/254/147 of the Income tax Act, 1961('the Act') is bad in law and void-ab-initio since no addition has been made by the AO in the said order on the two specific items mentioned in the reasons for initiating the proceedings under section 147 of the Act, and accordingly, the additions made to book profit under section 115JA of the Act by the learned AO should be deleted.”

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These additional grounds are hereby admitted for adjudication as they go into the root of the matter and does not require any fresh examination of facts in that regard, in the light of the decision of the Hon’ble Apex Court in the case of NTPC Ltd reported in 229 ITR 383 (SC).

Provision for doubtful debts and advances – Rs. 5,35,63,000/- Provision for wages – Rs. 14,78,000/- Provision for estimated loss in writing down the value of salt lake factory to realizable value – Rs. 6,84,79,000/- Material purchases erroneously omitted in P&L A/c but Actually debited during Fin Year 1999-2000 – Rs. 2,86,10,000/- Undepreciated value of fixed assets written off – Rs. 1,13,69,000/- Sales tax surcharge – Rs. 8,19,15,000/-

On first appeal, the Learned CIT(A) granted partial relief to the assessee. On further appeal to tribunal both by assessee as well as by revenue, the tribunal in ITA No. 2444/Kol/2005 and ITA No. 2625/Kol/2005 had restored the matter back to the file of the Learned AO for re-verification of the issues added in the assessment.

3.1. In the second round, the Learned AO made additions to book profits computed u/s 115JA of the Act vide his order u/s 115JA / 254 / 147 dated 14.11.2007 in respect of the following items :-

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Provision for doubtful debts and advances – Rs. 5,35,63,000/- Provision for wages – Rs. 14,78,000/- Provision for estimated loss in writing down the value of salt lake factory to realizable value – Rs. 6,84,79,000/- Material purchases erroneously omitted in P&L A/c but Actually debited during Fin Year 1999-2000 – Rs. 2,86,10,000/-

On appeal before Learned CIT(A), partial relief was granted to the assessee and against which, both assessee as well as the revenue are in appeal before us on various issues which are hereby adjudicated independently.

4.1 Validity of re-opening of assessment u/s 147 of the Act (Additional Ground No. 1 dated 12.6.2012 raised by the assessee)

The assessee has raised the following additional ground on 12.6.2012 :- “1. That on the facts and in the circumstances of the case and in law, the order dated 14 November, 2007 passed by the Learned Assessing Officer ('the AO') under section 115JA/254/147 of the Income tax Act, 1961('the Act') is bad in law and void-ab-initio since no addition has been made by the AO in the said order on the two specific items mentioned in the reasons for initiating the proceedings under section 147 of the Act, and accordingly, the additions made to book profit under section 115JA of the Act by the learned AO should be deleted.”

We find that the assessee had questioned the validity of reopening the assessment u/s 147 of the Act in view of the fact that the assessment was reopened to make additions towards sales tax surcharge of Rs. 8,19,15,000/- and write off of undepreciated value of fixed assets to the tune of Rs. 1,13,69,000/-. The Learned AO found that the auditor in the note given in the financial statements had stated as miscellaneous expenses

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included provision for contingency wherein these items were included in miscellaneous expenses. Accordingly the Learned AO formed a prima facie belief that income had escaped assessment as they are provision for contingencies required to be added back to the book profits computed u/s 115JA of the Act and accordingly reopened the assessment. The Learned AO framed the reassessment order u/s 147 of the Act on 11.3.2005 by making totally six additions including the two additions for which reasons were recorded by the Learned AO. When this was challenged in the first round of appellate proceedings, this tribunal in ITA No. 2444/Kol/2005 and ITA No. 2625/Kol/2005 dated 25.6.2007 had upheld the validity of the reassessment proceedings on assumption of jurisdiction and on merits of the case, the issues were restored back to the file of Learned AO for re-verification. In second round of proceedings, the Learned AO vide order dated 14.11.2007 retained four additions and agreed to the views of the assessee in respect of two issues which were subject matter of reasons recorded by him for reopening the assessment. Accordingly, the assessee has now raised the aforesaid additional ground arguing that the entire reassessment needs to be quashed.

4.1.1. We have heard the rival submissions and we hold that while adjudicating whether the reopening of assessment is valid or not what is required to be seen is whether the Learned AO had any material at the stage of issue of notice on which a reasonable person could have formed the requisite belief of escapement of income. A subjective satisfaction of the Learned AO on the basis of relevant material would be sufficient to uphold the reopening of assessment. It is not necessary at that stage of issue of notice of escapement of income u/s 148, the Learned AO should finally ascertain the fact and arrive at a definite conclusion of escapement of income. Considering the facts of the case and the note given by the auditor and that there was no original regular assessment u/s 143(3) of the Act, we are of the opinion that the Learned AO had material available on record to reach to a subjective satisfaction of

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escapement of income at the stage of issue of notice u/s 148 of the Act. Accordingly, we dismiss the additional ground no. 1 raised by the assessee on 12.6.2012.

4.2. Provision for doubtful debts and advances – Rs. 5,35,63,000/- (Ground No. 1 & 2 raised by the revenue and additional ground no.2 dated 22.7.2011 raised by the assessee) The revenue had raised the following grounds before us:- 1. That the Ld CIT(A) erred in facts as well as law in not considering the provisions of section 115JA whereby provisions made for meeting liabilities, other than ascertained liabilities are to be added back to the net profit.

The assessee had raised the following additional ground in this regard before us on 22.7.2011:-

“ 1. That on facts and in the circumstances of the case, in computing book profit under the provisions of Section 115JA, the appellant is entitled to a deduction of Rs. 2,53,87,000/- as per clause (i) of the Explanation below second proviso to Section 115JA being amount withdrawn from provision for bad and doubtful debts and advances for utilization against debts proven to be bad and written off during the relevant previous year.”

We find that the decision relied upon by the Learned AR rendered by the Hon’ble Apex Court in the case of CIT vs HCL Comnet Systems & Services Ltd reported in 305 ITR 409 (SC) does not hold good in view of the retrospective amendment in the statute. For the sake of convenience, the relevant provision in clause (g) in the Explanation to section 115JA of the Act introduced in the statute vide Finance (No.2) Act 2009 with retrospective effect from 1.4.1998 is reproduced below:-

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Explanation – For the purposes of this section, “book profit”means the net profit as shown in the profit and oss account for the relevant previous year prepared under sub-section (2) , as increased by –

(g) the amount or amounts set aside as provision for diminution in the value of any asset.

We find that pursuant to the aforesaid retrospective amendment in Section 115JA of the Act, the provision for doubtful debts and advances amounting to Rs. 5,35,63,000/- requires to be added back to the book profits u/s 115JA of the Act. Accordingly, the Ground Nos. 1 & 2 raised by the revenue are allowed.

4.2.1. Apropos the additional ground no. 2 raised by the assessee on 22.7.2011 in respect of amounts withdrawn from provision for bad and doubtful debts and advances amounting to Rs. 2,53,87,000/- to be eligible for deduction from book profits u/s 115JA of the Act, we hold that there is no evidence that is brought on record by the Learned AO or by the assessee as to whether the same was added back to book profits in the earlier years in the year of making provision for bad and doubtful advances. We also find that this claim of seeking deduction of Rs. 2,53,87,000/- from book profits is made by the assessee before us for the first time. Accordingly, we deem it fit and appropriate, in the interest of justice and fair play, to set aside this additional ground no. 2 raised by the assessee to the file of the Learned AO to verify the veracity of this claim of the assessee afresh. Needless to mention that the assessee be given reasonable opportunity of being heard in this regard. The assessee is given liberty to file all the necessary documents and evidences before the Learned AO in support of his claim in this regard. Accordingly, the additional ground no. 2 raised by the assessee is allowed for statistical purposes.

4.3. Provision for wages – Rs. 14,78,000/- (Ground No. 1.1 & 1.2 raised by the assessee)

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The assessee had raised the following grounds before us:- “1.1. On the facts and in the circumstances of the case, the Learned CIT (A) erred in holding that the provision for wages provided by the assesse company is in nature of provisions for unascertained liability, 1.2. The CIT (A) failed to consider that certainty of liability is sufficient for considering the same as 'provision for ascertained liability' for the purpose of computing Book Profit u/s 115JA of the Income Tax Act.

The Learned AO found that the assessee had made provision for incremental wages in its books of accounts by debiting the profit and loss account amounting to Rs. 14,78,000/- . This provision for incremental wages offered for the employees would get crystallized subject to successful negotiation with the labour union. The assessee felt that the same is an ascertained liability. On the contrary, the Learned AO felt that since the incremental wages would be payable only on successful negotiation with the labour union, it only remains as an unascertained liability on the balance sheet date relevant to the assessment year under appeal and accordingly sought to add back the same to book profit treating the same as provision for unascertained liabilities which was upheld by the Learned CIT(A). We find that the Learned CIT(A) had found that the assessee was not able to given any concrete evidence with regard to the subsequent developments that had happened with regard to the crystallization of the negotiations with the labour union for the incremental wages. From the basic facts of the case, we find that the assessee had made provision for minimum incremental wages , being the minimum liability, which the assessee company had already accepted to pay. We find that the final quantification of the incremental wages alone were pending subject to the outcome of the negotiations with the labour union. Hence we hold that the said provision for incremental wages has been made on a scientific basis by the assessee based on some rationale and the same would not fall under the unascertained liabilities. The intention behind adding back the provision for unascertained liabilities to the book profits computed u/s 115JA of the Act is that the assesses should not make adhoc provision in their books by debiting their profit and loss account in order to reduce the book profits having consequential impact in payment of taxes. Whereas in

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the facts of the present case, the assessee had duly made provision for incremental wages based on actual workings and based on the minimum liability that has already been agreed by the management with the labour union. The negotiations with the labour union would only result in payment of higher wages or result in wages already provided by the assessee in its books. Hence there is no scope for reduction in the payment of wages already provided by the assessee in its books. In view of these, the decision relied on by the Learned AR of the Hon’ble Apex Court in the case of Bharat Earth Movers Ltd vs CIT reported in (2000) 245 ITR 428 (SC) would be squarely applicable. We also place reliance on the decision of the Hon’ble Bombay High Court in the case of CIT vs United Motors (India) Ltd reported in (1990) 181 ITR 347 (Bom) wherein it was held that :-

When the assessee company made a provision for a sum of Rs. 1 lakh in respect of the impending liability that arose on account of the revision in the service conditions of its workmen, it was done in the manner of a prudent businessman who knew that the service conditions would have to be bettered. The provision itself would have been allowable as a deduction whereas the assessee had claimed only the quantified liability which were discharged. The expenditure as such was incurred for the purpose of earning the income of the previous year and was, therefore, deductible. Provision for additional remuneration payable to employees on account of negotiated settlement with employees provided for allowable as business expenditure.

Hence we hold that the provision made for incremental wages remains an ascertained liability and not a contingent liability in the facts and circumstances of this case and accordingly does not requires to be added back as per Clause (c ) of Explanation to Section 115JA(2) of the Act. Accordingly, the ground nos. 1.1 & 1.2 raised by the assessee are allowed.

4.4. Addition in respect of adjustment of purchase of materials – Rs. 2,86,10,000/- (Ground Nos. 2.1 & 2.2 of assessee and additional ground no. 1 raised by the assessee on 22.7.2011)

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The assessee has raised the following grounds in this regard :- 2.1. On the facts and in the circumstances of the case, the Learned CIT(A) erred in confirming the action of the Assessing Officer in not reducing the book profit of the assessee by Rs. 2,86,10,000/- on account of adjustment of purchase account relating to earlier year.

2.2. The CIT(A) failed to appreciate that the assesse company has not claimed the said purchases in the A.Y.2000- 01 in which the said purchases was wrongly accounted for.

The assessee has also raised an additional ground no. 1 on 22.7.2011 in this regard as below:- “1. That on the facts and in the circumstances of the case, without prejudice to the Ground No. 2.1 & 2.2 filed by the appellant in the original appeal, if the deduction for purchases amounting to Rs. 2,86,10,000/- is not allowed to the appellant while computing book profit u/s 115JA in AY 1999-00, the same may please be allowed in AY 2000-01, being the year in which such amount bas actually been debited to the P/L Account and has been suo-moto offered by the appellant in the computation of book profit u/s 115JA”.

The brief facts of this issue is that the assessee had purchased materials during the financial year 1998-99 relevant to Asst Year 1999-2000 amounting to Rs. 2,86,10,000/-. The assessee inadvertently omitted to debit the purchases account in its books for the Asst Year 1999-2000 but had debited the same in Asst Year 2000-2001. The assessee filed a revised return making this claim of deduction both under normal provisions of the Act and under section 115JA of the Act. Correspondingly the assessee also fairly filed revised return for the Asst Year 2000-2001 and offered the said amount of Rs. 2,86,10,000/- in order to avoid double claim of deduction. The Learned AO allowed the claim of deduction under normal provisions of the Act for the Asst Year 1999-2000 but denied the same benefit for computation of book profits u/s 115JA of the Act in view of the fact that the accounts were audited and were subjected to approval by the shareholders in the Annual general meeting of the company and in view of the decision of the Hon’ble Apex Court in the case of Apollo Tyres Ltd

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reported in 255 ITR 273(SC). This action of the Learned AO was upheld by the Learned CIT(A).

4.4.1. We have heard the rival submissions and perused the materials available on record. The facts stated hereinabove remain undisputed are not reiterated herein for the sake of brevity. The Learned AR relied on the decision of the Hon’ble Apex Court in the case of K.J.Francis vs CIT reported in (1999) 236 ITR 308 (SC) in support of his contentions that the said claim of purchases are to be allowed as deduction. We find that the case law relied upon by the Learned AR does not apply to the facts of the instant case as the issue before us is with regard to computation of book profits u/s 115JA of the Act and hence we hold that the impugned issue is governed by the decision of the Hon’ble Apex Court in the case of Apollo Tyres Ltd reported in 255 ITR 273 (SC). We hold that since the purchases were not debited in the profit and loss account for the financial year 1998-99 relevant to Asst Year 1999- 2000, the same is not eligible for deduction from computation of book profits u/s 115JA of the Act. However, we hold that the same is liable to be granted deduction in Asst Year 2000-2001 , being the year in which the purchases were debited by the assessee, while computing book profits u/s 115JA of the Act. The Learned AO is directed to grant relief for the same in Asst Year 2000-2001 in section 115JA computation in order to avoid double disallowance of genuine expenditure incurred by the assessee. Accordingly, the ground nos. 2.1 & 2.2 raised by the assessee are dismissed and additional ground no. 1 raised by the assessee on 22.7.2011 is allowed subject to directions contained hereinabove.

4.5. Provision for estimated loss in writing down the value of salt lake factory to realizable value – Rs. 6,84,79,000/- - Ground No. 3 to 5 raised by the revenue

The revenue has raised the following grounds in this regard:- “3. That the Ld CIT(A) erred in facts as well as law in deleting the amount of Rs.6,84,79,OOO/-claimed on account of provisions for diminution in the

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value of w.d.v. of Salt Lake Factory contemplated to be sold as going concern in near future and added to arrive at the book profit by holding that assessee had restated the value of fixed asset and this is not a provision and therefore, is not covered by Sec. 115JA.

The Learned AR argued that during the assessment year under appeal, the assessee decided to restructure its manufacturing activity in consumer electronics to focus on technology intensive core processes and offload to third parties low added value assembly operations. Accordingly, the assessee entered into an agreement with M/s Kitchen Appliances India Limited (a Videocon group company) for sale of its Consumer Electronics Factory at Calcutta as a going concern for a lump sum consideration which was subject to obtaining approvals / permissions from various regulatory authorities and the decision of the Hon’ble High Court. The Learned AR argued that pursuant to entering of above such agreement, since the assessee was already aware of the expected sale consideration realizable on sale of its unit, the loss arising on account of difference between the net worth of the factory and the expected realizable value was worked out at Rs. 6,84,79,000/- and the same was charged to profit and loss account and claimed as deduction in the return of income. The Learned AO did not agree with the view of the assessee on the contention that the assessee was

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awaiting the orders of the Hon’ble Calcutta High Court for sale of salt lake factory unit as a going concern as on the date of preparation of balance sheet and accordingly the provision for loss on proposed restructuring was not a provision for ascertained liability and hence added back the same to the book profits computed u/s 115JA of the Act in terms of Clause(c ) of Explanation. On first appeal, relief was granted by the Learned CIT(A) to the assessee.

4.5.1. We have heard the rival submissions and perused the materials available on record. We find that the provision for restructuring of salt lake factory based on the difference between net worth of the said unit and its expected realizable value was made as per the mandate prescribed in Paragraph 14 of Accounting Standard (AS in short) 10 issued by the Institute of Chartered Accountants of India (ICAI in short) relating to disclosure of information, wherein, in case of retirement / disposal of fixed assets, any expected loss is recognized immediately in the profit and loss account and to be shown separately in the financial statements. The Learned CIT(A) had stated that the salt lake factory has been suspended from production but not closed down as it was awaiting approvals from various regulatory authorities and approval of the Hon’ble Calcutta High Court was in process. The Learned CIT(A) had stated that as against the book value of Rs. 15,14,79,000/- , the realizable book value was only Rs. 8,30,00,000/- and accordingly the diminution in value was Rs. 6,84,79,000/- was written off in the profit and loss account of the assessee. It is also undisputed that the said unit was actually sold in the next year at a figure close to the value on which the asset has been restated and capital gains tax on slump sale was paid in the next year by the assessee. These facts are not controverted by the Learned DR before us. Hence we hold that the charge is only on account of restatement of the value of fixed assets in the form of additional depreciation which is also covered in AS 6 issued by ICAI. Hence we hold that it not a provision but only amount actually restated in the books of accounts by bringing the value of fixed assets to the extent of its realizable value. We also hold that the amount of Rs. 6,84,79,000/- charged in the profit and loss account is

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to recognize an anticipated loss and not a mere provision for diminution in the value of asset. Hence it does not fall in any of the explanations (a) to (g) and hence does not require to be added back to book profits computed u/s 115JA of the Act. We place reliance on the decision of the Hon’ble Apex Court in the case of Apollo Tyres Ltd reported in 255 ITR 273 (SC) wherein it was held that the Learned AO does not have the jurisdiction to go beyond the net profit shown in the profit and loss account except to the extent provided in Explanation to Section 115JA of the Act. Accordingly, the ground nos. 3 to 5 raised by the revenue are dismissed.

4.6. Disallowance u/s 14A of the Act in computing book profits u/s 115JA of the Act – Rs. 17,71,201/- (Ground Nos. 3.1 to 3.4 raised by the assessee)

The assessee has raised the following grounds in this regard:- 3.1. The enhancement of the assessed income by Rs. 17,71,201/- u/s 14A read with rule 8D is arbitrary and bad in law.

3.2. The CIT (A) failed to consider the proviso to section 14A which is restricting the assessing officer for enhancement of assessed income u s 147 or 154 of the Income tax Act, 1961 for the cases pertaining to any assessment year beginning on or before the 1 S1 day of April, 2001..

3.3. The CIT(A) failed to appreciate that no expenditure in relation to exempt income has been incurred and claimed by the assesse.

3.4. On the facts and circumstances of the case, the Ld. CIT(A) erred in not providing the adequate opportunity to the appellant.

The Learned AO while completing the assessment u/s 115JA / 254 / 147 dated 14.11.2007 did not make any disallowance u/s 14A of the Act. In respect of other additions, assessee preferred first appeal before the Learned CIT(A). During the first appellate proceedings, the Learned CIT(A) found that the assessee had derived dividend income of Rs. 43,94,663/- and claimed exemption u/s 10 of the Act for the same and accordingly sought to invoke the disallowance u/s 14A of the Act. The Learned CITA sought to enhance the assessment by applying Rule 8D of the IT Rules

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and arrived at the figure of disallowance u/s 14A of the Act to the tune of Rs. 17,71,201/- and the same was added to the book profits u/s 115JA of the Act by applying Clause (f) of Explanation to section 115JA of the Act.

The Learned AR argued that the Learned CIT(A) erred in making disallowance u/s 14A of the Act for the assessment year under appeal by ignoring the proviso to section 14A of the Act wherein the Learned AO is prevented from making this addition in a reopened assessment for any assessment year beginning on or before 1.4.2001. In any case, he argued that this sum was not debited by the assessee in its profit and loss account and hence the same cannot be added to the book profits u/s 115JA of the Act. The Learned DR vehemently supported the order of the Learned CIT(A) in this regard.

4.6.1. We have heard the rival submissions and perused the materials available on record. We feel that the basic objection of the Learned AR that no disallowance u/s 14A of the Act could be made in the facts of the case is to be addressed first. The provisions of section 14A of the Act has been introduced in the statute vide Finance Act, 2001 with retrospective effect from 1.4.1962. We find that the proviso has been introduced in section 14A of the Act vide Finance Act, 2002 with retrospective effect from 11.5.2001, which reads as under:-

Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001.

We find that after the Finance Bill got the approval of the Parliament and assent of president was given to the Act, Circular No. 14 of 2001 dated 22.11.2001, containing Explanatory Notes on provisions relating to Direct Taxes (Finance Act, 2001), was

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issued by the Central Board of Direct Taxes relating to the provisions of Finance Act, 2001 reported in 252 ITR (St.) 65 on the issue of section 14A of the Act as under:- “25. No deduction for expenditure incurred in respect of exempt income against taxable income

25.1. Certain incomes are not includible while computing the total income, as these are exempt under various provisions of the Act. There have been cases where deductions have been claimed in respect of such exempt income. This in effect means that the tax incentive given by way of exemptions to certain categories of income, is being used to reduce also the tax payable on the non-exempt income by debiting the expenses incurred to earn the exempt income against taxable income. This is against the basic principles of taxation whereby only the net income, i.e gross income, minus the expenditure, is taxed. On the same analogy, the exemption is also in respect of the net income. Expenses incurred can be allowed only to the extent they are relatable to the earning of taxable income.

25.2. Through Finance Act, 2001, a new section 14A has been inserted so as to clarify the intention of the Legislature since the inception of the Income Tax Act, 1961, that no deduction shall be made in respect of any expenditure incurred by the assessee in relation to income which does not form part of the total income under the Income Tax Act. 25.3. Vide Circular No. 11/2001 dated 23rd July, 2001, [published at (2001) 169 CTR (St) 1], a direction was issued by the Central Board of Direct Taxes that the assessments where the proceedings have become final before the first day of April, 2001 should not be reopened under section 147 of the act to disallow expenditure relatable to the exempt income by applying the provisions of section 14A of the Act. This circular has been issued by the Board by exercising its powers to issue beneficial circular under section 119(2)(a) of the Income Tax Act. 25.4. This amendment takes effect retrospectively from 1st April, 1962, and accordingly, applies in relation to the assessment year 1962-63 and subsequent assessment years.”

From the above, it could be safely concluded that no assessment shall be reopened for the limited purpose of making disallowance u/s 14A of the Act for assessment years beginning on or before 1.4.2001. . But if the assessment for earlier years are reopened for making some other additions and where reopening has been upheld to be valid,

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then the disallowance u/s 14A of the Act could also be made in that reopened assessment year even if it is for assessment year beginning on or before 1.4.2001. Moreover, the assessment for Asst Year 1999-2000 had not attained finality as the same has been reopened on some other grounds by the Learned AO. Hence the argument advanced by the Learned AR on this ground is rejected.

4.6.2. On merits, the Learned AR argued that investments which yielded dividend income were very old and no management expenditure were actually incurred in earning such dividend income and hence no disallowance u/s 14A of the Act could be made in the facts of the case. The Learned AR argued that the assessee had derived dividend income of Rs. 43,94,663/- and out of this, a sum of Rs. 37,20,000/- was received from investments in shares of Punjab Anand Lamp Industries Ltd which was invested with an intention to acquire controlling interest in the said company and not for earning dividend income and subsequently in Asst Year 2003-04, the said company was merged with the assessee company. The dividend income earned thereon was only incidental income derived by the assessee. He placed reliance on the decision of the Hon’ble Jurisdictional High Court in the case of CIT vs Rajeeva Lachan Kanoria reported in (1994) 208 ITR 616 (Cal) in this regard. These facts argued by the Learned AR are not controverted by the revenue before us. The next argument advanced by the Learned AR is that the said disallowance u/s 14A of the Act amounting to Rs. 17,71,201/- was not debited by the assessee in its profit and loss account, hence the provisions of Clause (f) of Explanation to Section 115JA of the Act cannot be invoked in the facts of the present case. We hold that unless an item is debited in the profit and loss account, the same cannot be the subject matter of addition to book profits under clause (f) of Explanation to section 115JA of the Act. The disallowance made u/s 14A of the Act read with Rule 8D is only artificial disallowance and obviously the same is not debited in the profit and loss account and the same cannot be imported into clause (f) of Explanation to Section 115JA of the Act. Reliance in this regard is placed on the following decisions:-

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a) Decision of Delhi Tribunal in the case of Quippo Telecom Infrastructure Ltd vs ACIT in ITA No. 4931/Del/2010 for Asst Year 2007-08 dated 18.2.2011 (Para 11 of judgement)

b) Decision of Delhi Tribunal in the case of Goetze (India) Ltd vs CIT reported in (2009) 32 SOT 101 (Del) dated 20.5.2009 for Asst Year 2000-01 (Para 4.6 of judgement)

In view of the aforesaid judicial precedents, we hold that no disallowance u/s 14A of the Act could be made for the purpose of computing book profits u/s 115JA of the Act. Accordingly, the ground nos. 3.1 to 3.4 raised by the assessee are allowed.

Sd/- Sd/- ( N.V. Vasudevan, Judicial Member ) (M. Balaganesh, Accountant Member) Date:

Date 03-02-2016

Copy of the order forwarded to:- 1.. The Appellant: The ACIT/DCIT, Cir-11, Aaykar Bhawan, P-7 Chowringhee Sq., Kol-69. 2 The Respondent- M/s. Philips Electronics India Ltd 7, Justice Chandra Madhab Road, Kolkata-700 020. 3 /The CIT, 4.The CIT(A)

**PRADIP SPS

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