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2019 (4) TMI 1283 - AT - Income TaxAdjustment in the book profit u/s 115JB - revaluation reserve at time of amalgamation - purchase method adopted for valuing the assets and liabilities at a fair market value and excess on such transfer of assets and liabilities has treated as part of the capital reserve - HELD THAT:- Here in this case, nowhere it has been disputed that the profit and loss account has not been prepared in compliance of requirement of Part-I and Part-II of the Companies Act, 2013 and as per accounting standard. The profit and loss account has been approved by the Statutory Auditors and also laid before the Members in the AGM, which is sacrosanct for computing the book profit u/s. 115JB. Thus, once the accounts have been prepared in accordance with the Companies Act duly certified by statutory auditors and approved by Company AGM, then same cannot be disturbed as held by Hon’ble Supreme Court in the case of Apollo Tyres [2002 (5) TMI 5 - SUPREME COURT]. Here the AO cannot tinker with such profit and loss account or treat the part of capital reserve by holding that it should have been routed through regular profit and loss account. The reasoning given by the CIT (A) too cannot be upheld for the same reason. As regards the capital gain computed u/s. 10(38), and application of 49(1) for computing the capital gain, the same would be relevant while computing the normal computation of capital gain in the computation of book profit where the sale of investment is included in the books prepared and profit and loss is included in the profit and loss account. It is only in such situation the said exemption u/s. 10(38) cannot be included. Here in this case, the difference between the cost of acquisition of the amalgamated assets and sale consideration has resulted in loss and the same has been duly recorded in the profit and loss account; and thus the contention of the CIT (A) that in computation of book profit capital gain should be computed by taking historical cost of assets is not correct. The proviso to section 10(38) resorted by the CIT (A) cannot be read independently as the same has to read alongwith clause (ii) of section 115JB. Such a finding of the CIT (A) to uphold the addition in our opinion is not correct. Thus, we hold that in this case the provisions of clause (j) of Explanation 1 to section 115JB would not be applicable at all as, there is no disposal of asset from the amount standing in revaluation reserve relating to revalued asset as per the reasoning given above; and accordingly, the addition made by the AO and sustained by the ld. CIT (A) is directed to be deleted. Addition made u/s. 14A - HELD THAT:- We find that the Assessing Officer while making the addition has not examined the veracity of claim made by the assessee nor has he examined the books of account which is a statutory mandate provided in subsection (2) of section 14A. Here in this case, the major exempt income has come from shares of IHFL which has been acquired by the assessee by way of amalgamation. Hence, it cannot be said that the assessee could have incurred any kind of indirect expenses for earning of dividend income. It is trite and well settled law by Hon’ble Delhi High court and Now by the Hon’ble Apex Court in Maxopp Investment [2018 (3) TMI 805 - SUPREME COURT OF INDIA] that if the Assessing Officer has not recorded his satisfaction to disbelieve the disallowance made by assessee, he cannot resort to the provisions of Rule 8D. Thus, in absence of any satisfaction being recorded by the Assessing Officer, no disallowance could have been made. Accordingly, disallowance made by the AO and confirmed by the CIT (A) is directed to be deleted. Since we have already deleted the addition made u/s. 14A, hence we do not deemed fit to decide, whether such disallowance should be made while computing the book profit u/s. 115JB which otherwise is covered by the decision of ITAT Delhi Bench in the case of ACIT vs. Vireet Investment Pvt. Ltd. [2017 (6) TMI 1124 - ITAT DELHI]. Appeal of the assessee is allowed.
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