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2015 (8) TMI 1094 - ITAT PUNE

2015 (8) TMI 1094 - ITAT PUNE - TMI - Manner in which brought forward business loss and unabsorbed depreciation is to be dealt with under MAT provisions - Held that:- According to the provisions of section 115JB Explanation 1 Clause (iii) while computing book profit, the amount of loss brought forward (before depreciation) or unabsorbed depreciation, whichever is less (as per books of account), shall be reduced from net profit.

In the present case, the issue involved is identical. We .....

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th the findings of the order of Commissioner of Income Tax (Appeals) in assessment year 2008-09 in directing the Assessing Officer to calculate book profits in accordance with the method detailed by the Tribunal in aforesaid case. Accordingly, the appeal of Revenue is dismissed.

Disallowance made u/s. 14A r. W. Rule 8D - Held that:- Assessee in its return of income did not make any disallowance with respect to exempt income. The stand of assessee is that no expenditure was incurred fo .....

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rest bearing funds were utilized for making investment. A perusal of assessment order shows that the Assessing Officer has mechanically applied the provisions of Rule 8D without giving reasons for rejecting the assertions for making no disallowance by the assessee. Thus the disallowance made u/s. 14A r. W. Rule 8D is deleted. - Decided in favour of assessee.

MAT provisions - Whether the profits of Bangalore and Pune units that have been merged with the assessee company are to consider .....

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t out in Scheme of Arrangement were complied on 07-11-2008, therefore, scheme of arrangement was to be implemented w. E. F. 07-11-2008. Therefore, by no stretch of imagination the profits of amalgamating units could have been included in financial year ending on 31-03-2008. Thus the authorities below have erred in including profits of Bangalore and Pune units while computing book profits u/s. 115JB for the period relevant to assessment year 2008-09. Accordingly, we accept the second ground of ap .....

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ne for the respective assessment years. The Revenue has filed cross appeal in ITA No. 1713/PN/2012 against the order of Commissioner of Income Tax (Appeals)-V, Pune dated 30-05-2012 for assessment year 2008-09. 2. The brief facts of the case are : The assessee company is engaged in manufacturing and sale of Tippers and other Load bodies. The assessee filed its return of income computing taxable income under normal provisions as well as under MAT provisions (i. E. u/s. 115JB). The assessee in its .....

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4,24,21,240/- of Bangalore and Pune units of M/s. Kailash Auto Builders Ltd. (KABL) that were merged with the assessee company in pursuance of order from BIFR. Apart from above additions, the Assessing Officer made disallowance of ₹ 1,40,820/- u/s. 14A r. W. Rule 8D of the Income Tax Rule. Aggrieved by the assessment orders, the assessee filed appeals before the Commissioner of Income Tax (Appeals) for the respective assessment years. In assessment year 2007-08, the Commissioner of Income .....

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in ITA No. 519/PN/2009 for assessment year 2005-06 decided on 30-11-2011. The Commissioner of Income Tax (Appeals) observed that in the said order, the Pune Bench of the Tribunal had also considered the Ruling in the case of Rashtriya Ispat Nigam Ltd. (supra). However, as regards addition of profits of Bangalore and Pune units for computation of book profits u/s. 115JB and disallowance u/s. 14A r. W. Rule 8D, the Commissioner of Income Tax (Appeals) upheld the findings of the Assessing Officer. .....

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year 2008-09 are on same issue i. E. manner in which brought forward business loss and unabsorbed depreciation is to be dealt with under MAT provisions. The assessee has applied FIFO method for set off of loss against book profits. The Assessing Officer has erred in considering entire accumulated business/depreciation loss for set off against book profits. In assessment year 2007-08, the Commissioner of Income Tax (Appeals) had disallowed the claim of the assessee by following the decision in th .....

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ssment year 2008-09, the assessee has raised two grounds. The first ground relates to disallowance u/s. 14A r. W. Rule 8D. The Assessing Officer made disallowance on tax free dividend income and capital gains from sale of mutual funds, which are exempt from tax. The assessee had made investment in mutual funds in the year 1994 from its capital and reserves and no interest bearing funds were utilized. During the year there were only 18 transactions with respect to redemption of mutual funds. As f .....

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ssment year 2008-09 were finalized on 28-06-2008. The BIFR passed order for merger of Bangalore and Pune units on 18-08-2008 and the same was received on 01-10-2008. The assessee filed its return of income for assessment year 2008-09 on 21-08-2008. The Annual General Meeting of the assessee company was held on 29-09-2008. An appeal was filed against the order of BIFR before the Appellate Authority for Industrial and Financial Reconstruction (AAIFR) by the Director General of Income Tax (A). The .....

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count finalized cannot be redrafted for the purpose of section 115JB. In support of his submissions, the ld. AR placed reliance on the decisions of Hon'ble Supreme Court of India in the case of Apollo Tyres Ltd. Vs. CIT reported as 122 Taxman 562 (SC) and in the case of Malyalam Manorama Vs. CIT 169 Taxman 471(SC). The ld. AR made an alternate submissions that against the order of BIFR, the Department filed appeal before AAIFR. According to the order of AAIFR, the assessee is exempt from the .....

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ssing Officer for assessment year 2007-08 as well as assessment year 2008-09. The ld. DR also defended the order of Commissioner of Income Tax (Appeals) with regard to disallowance made u/s. 14A and inclusion of profits of Bangalore and Pune units while computing the book profits under the provisions of section 115JB. The ld. DR submitted that the Commissioner of Income Tax (Appeals) in assessment year 2007-08 had disallowed the set off of brought forward business loss and unabsorbed depreciatio .....

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year 2008-09, the ld. DR submitted that the assessee has included the profits of Bangalore and Pune units under normal computation but ignored the same for computation of book profits u/s. 115JB. Once, the assessee is including profits of the above said two units while computing profits under normal computation the same should have been considered for computation of book profits u/s. 115JB as well. Although, the order of AAIFR was passed after the preparation of books of account, however there .....

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we will first take up the appeal of the assessee in ITA No. 1322/PN/2011 for assessment year 2007-08 and appeal of the Revenue in ITA No. 1713/PN/2012 for assessment year 2008-09. As in both the appeals the issue involved is common. In the aforesaid impugned assessment years, the assessee computed income u/s. 115JB after set off of brought forward unabsorbed depreciation. The Assessing Officer in both the assessment years held that while computing book profits u/s. 115JB set off of brought forw .....

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of the assessee and allowed set off of brought forward business loss/unabsorbed depreciation while computing book profit u/s. 115JB of the Act. The relevant extract of the order of Coordinate Bench of the Tribunal in the case of Kirloskar Ferrous Industries Ltd. Vs. Addl. CIT (supra) is as under: 19. In this manner, the Assessing Officer computed book profits for section 115JB at ₹ 20,24,35,238/- as against nil determined by the assessee. We have examined the position set-up by the Assessi .....

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ion is not indicated in section 115JB inasmuch as the manner in which the losses and depreciation are set off against the profits has not been spelt out. However, an indication which is manifested in section 115JB itself is a safe premise to follow in such a situation. Clause (iii) speaks of adjustment for the lower of brought forward loss or unabsorbed depreciation. Therefore, the Legislature envisaged that while computing book profits for 115JB, reduction be allowed for the lower of carried fo .....

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by the spirit of section 205(1)(b) of the Companies Act, 1956. In terms of section 205(1)(b) also, the surplus is to be determined after reducing lower of the loss or depreciation. Though strictly speaking the rule of section 205(1)(b) of the Companies Act is not applicable, inasmuch as for the purposes of the said section the expression loss includes depreciation, whereas for the purposes of section 115JB it is specifically provided that for clause (iii) of Explanation 1 the expression loss sh .....

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nd unabsorbed depreciation in the past years also, it would be appropriate to reduce the lower of the two and thereafter, ascertain the amount of losses brought forward and unabsorbed depreciation. 20. Considered in the aforesaid manner, in our view, the methodology adopted by the Assessing Officer has to fail. This is for the reason that he has proceeded to adjust the unabsorbed depreciation as on 31.3.2003, whereas the correct approach would have been to compare and determine the losses in eac .....

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ile of the Assessing Officer, who shall revisit the working of book profit for the purposes of section 115JB in so far as it relates to clause (iii) of Explanation 1 to section 115JB(2) of the Act. The Assessing Officer shall carry out the aforesaid limited exercise in accordance with our aforesaid discussion and after allowing the assessee a reasonable opportunity of being heard as per law. 5.1 According to the provisions of section 115JB Explanation 1 Clause (iii) while computing book profit, .....

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mmissioner of Income Tax (Appeals) for assessment year 2008-09 in allowing the claim of the assessee in the light of order of Tribunal rendered in the case of Kirloskar Ferrous Industries Ltd. Vs. Addl. CIT (supra). After perusal of the order of the Tribunal, we also find that Ruling in the case of Rashtriya Ispat Nigam Ltd. (supra) was considered by the Co-ordinate Bench. We concur with the findings of the order of Commissioner of Income Tax (Appeals) in assessment year 2008-09 in directing the .....

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ssessment year 2008-09 is dismissed. ITA No. 1675/PN/2012 (A. Y. 2008-09) 7. Now, we proceed to decide the appeal of the assessee for assessment year 2008-09. The first ground raised by the assessee in appeal is disallowance made u/s. 14A r. W. Rule 8D. It is an undisputed fact that the assessee has earned exempt dividend income of ₹ 1,94,493/- and capital gain of ₹ 1,61,815/- on sale of mutual funds exempt from tax, during the period relevant to the assessment year in appeal. The As .....

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borrowing ₹ 1,00,81,717/-. The borrowed funds were entirely used for business purposes and thus, interest paid thereon is allowable u/s. 36(1)(iii). The dividend during the relevant period was directly credited in the bank account of the assessee through ECS, therefore, the assessee had not incurred any expenditure on managing and deposit of dividend income. Before the First Appellate Authority, the assessee had offered an amount of ₹ 3,000/- as expenditure on earning interest free .....

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ncome. In the present case the assessee in its return of income did not make any disallowance with respect to exempt income. The stand of assessee is that no expenditure was incurred for earning tax free income. However, the Assessing Officer made disallowance of ₹ 1,48,820/- without assigning cogent reasons. The burden lies on the Assessing Officer to prove the nexus between the expenditure to be disallowed and non-taxable income. The Assessing Officer cannot simply brush aside the claim .....

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the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. Thus, a bare perusal of above provisions would show that a duty is cast upon the Assessing Officer to give reasoned findings that the expenditure or even no expenditure disallowed by the assessee is incorrect before resorting to the provisions of Rule 8D. 7.2 The Assessing Officer has not .....

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-2013 had occasion to deal with the issue of disallowance u/s. 14A r. W. Rule 8D. The Co-ordinate Bench after thorough analysis of judgments rendered by the Hon'ble Apex Court, various Hon'ble High Courts and the Tribunal which inter alia include judgments rendered in the case of : 1. CIT Vs. Walfort Share & Stock Brokers Pvt. Ltd.; 326 ITR 1 (SC). 2. Godrej & Boyce Company Ltd. Vs. DCIT; 328 ITR 81 (Bom). 3. Maxopp Investment Ltd. Vs. CIT; 247 CTR 162 (Delhi). 4. CIT Vs. Hero Cy .....

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fficer entering upon a determination of the amount of the expenditure incurred in relation to exempt income is that the Assessing Officer must record that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. While rejecting the claim of the assessee with regard to the expenditure or no expenditure, as the case may be, in relation to exempt income, the Assessing Officer would have to indicate cogent reasons for the same. Therefore, it is all the mo .....

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nder section 14A required finding of incurring of expenditure and where it was found that for earning exempted income no expenditure had been incurred, disallowance under section 14A could not stand. We notice that assessee itself disallowed the interest which is directly applicable, Dmat charges and administrative exp on estimation totaling to ₹ 1,55,44,610. Assessee is a hundred crore turnover company. AO has not examined any expenditure claimed in P& L account so as to relate to exe .....

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s of Bangalore and Pune units that have been merged with the assessee company are to consider for the purpose of computation of book profits u/s. 115JB? During the course of assessment proceedings, the Assessing Officer observed that an amount of ₹ 4,24,21,240/- representing profits of Bangalore and Pune units were included in the normal computation of the income, but while computing book profits u/s. 115JB the same were not considered. The Assessing Officer in finalizing scrutiny assessme .....

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received after the finalization of the accounts of the assessee company. The books of account once finalized cannot be redrafted for the purpose of section 115JB. The ld. AR of assessee made an alternate plea that in appeal by the Department before the AAIFR, the AAIFR vide order dated 18-03-2009 had specifically directed to exempt the profits of the amalgamating units from the provisions of section 115JB. Against the order of AAIFR no appeal was filed by the Department. Thus, the same attained .....

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in the same. There is no dispute with respect to accounting principles followed by the assessee in the present case. 8.2 Before we proceed to decide this issue it would be essential to recapitulate some important dates: Sr. No. Date Events 1 28-06-2008 Books of account of the assessee were finalized. 2 18-08-2008 The order was passed by BIFR. 3 21-08-2008 Assessee filed its return of income. 4 29-09-2008 Annual General Meeting of the assessee held, Annual accounts for the year ending 31-03-2008 .....

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and Scheme of Arrangement to determine the effective date of implementation of merger. The assessee has placed on record in the form of paper book, the order of BIFR at pages 52 to 62 and the Scheme of Arrangement between Kailash Auto Builders Pvt. Ltd. and assessee at pages 147 to 178. A perusal of BIFR order shows that the sanctioned scheme finally accepted by the BIFR is to be implemented from the date of order i. E. 18-08-2008. In the Scheme of Arrangement sanctioned by BIFR the effective d .....

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ble BIFR have been filed with the Registrar of Companies, Kanpur and Mumbai respectively under the provisions of the Act. As per Clause 31 the scheme is to be effective on complying with two conditions, i. E. (i) Sanction of scheme by BIFR and (ii) Filing of certified copy of order of BIFR with Registrar of Companies (ROC), Kanpur and Mumbai. The assessee has placed on record a copy of challan/receipt (at pages 48 and 50) to show that the BIFR order was filed with ROC on 07-11-2008. Thus, from t .....

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amalgamation was sanctioned by the Hon'ble High Court on 20-09-2001. The appointed date of amalgamation as set out in scheme was 01-01-2001. It was argued that the date of sanction of scheme dates back to 01-01-2001, therefore, effect of amalgamation had to be given in financial year 2000-01. However, by the time Scheme was sanctioned by the Hon'ble High Court, the company had finalized the accounts and adopted the same in its Annual General Meeting. The Co-ordinate Bench of Tribunal in .....

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of preparing such accounts which it had laid before its annual general meeting. This proviso is conspicuously missing in s. 115J where sub-s. (1A) deals with the same issue. Apollo Tyres Ltd. s case (supra) of the apex Court, referred supra, was one under the provisions of section 115J, where a proviso similar to one given under sub-section (2) of section 115JB was absent. Therefore, we are of the opinion that application of the same ratio in a case to which s. 115JB applies, for the purpose of .....

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