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D.C.I.T,C. C-XXVIII, Kolkata Versus M/s. Binani Industries Ltd

2016 (3) TMI 873 - ITAT KOLKATA

Addition u/s 14A - Held that:- AO without appreciating the various contentions raised by the assessee had mechanically applied the provisions of Rule 8D(2)(ii) of the IT Rules without recording his satisfaction in terms of Rule 8D(1) of IT Rules as to why the disallowance made voluntarily by the assessee u/s 14A of the Act is incorrect. It is not in dispute that the assessee had voluntarily disallowed a sum of ₹ 1,37,12,550/- u/s 14A of the Act towards 0.5% of average value of investments .....

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h cash loss and depreciation loss) would continue to remain in the books of accounts till it is wiped off by earning profits by the assessee company and accordingly the same would be available for reduction from book profits u/s 115JB of the Act. We hold that the least of the cash loss or depreciation loss once adjusted / reduced from book profits in earlier assessment years, do not vanish out of the books until it is wiped out by profits in subsequent years. Till such time, the losses would onl .....

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tion u/s 115JB just because it has been credited in the profit and loss account as an extraordinary item? - Held that:- The assessee has duly disclosed the fact of forfeiture of share warrants in its notes on accounts vide Note No. 6 to Schedule 11 of Financial Statements for the year ended 31.3.2009. Hence respectfully following the aforesaid decision of the Mumbai Tribunal, the profit and loss account prepared in accordance with Part II and III of Schedule VI of Companies Act 1956, includes no .....

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of the Act and thereafter, the Learned AO has to make adjustments for additions / deletions contemplated in Explanation to section 115JB of the Act. - Decided in favour of assessee - ITA No. 144/Kol/2013 - Dated:- 2-3-2016 - Shri N.V.Vasudevan, Judicial Member, and Shri M. Balaganesh, Accountant Member For The Appellant: Shri Rajat Subhra Biswas, CIT, ld.DR For The Respondent: S/ Shri K.V. Beswal, FCA Vijay Mehta, ld.ARs ORDER SHRI M.BALAGANESH, AM : This appeal of the revenue arises out of the .....

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this issue is that the assessee filed its original return of income on 30.9.2009 disclosing total income at Rs Nil under normal provisions of the Act and declaring book profits u/s 115JB of the Act at ₹ 21,24,72,340/-. Later the assessee filed revised return of income on 31.3.2011 disclosing total income at Rs. Nil under normal provisions of the act and declaring book profits u/s 115JB of the Act at ₹ 33,90,47,340/-. In the said revised computation of book profits u/s 115JB of the A .....

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:- a) That only the third limb of Rule 8D(ii) would be applicable viz. 0.5% of average value of investments for the purpose of disallowance u/s 14A of the Act and accordingly worked out the disallowance at ₹ 1,37,12,550/- and disallowed the same under the normal provisions of the Act in the revised return filed. b) That since the investments were made by the assessee since 1997-98 onwards out of own funds in the form of share capital , free reserves and internal accruals , the second limb .....

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377; 32.95 crores represents dividend received from its subsidiary company viz. Binani Cement Ltd . f) That at one point of time, all these units viz BCL , GGFL and BZL were part of the composite business of the assessee company and after approval of the appropriate authorities in the respective years, these units were hived off to the subsidiary companies namely Binani Cement Ltd , Goa Glass Fibre Ltd and Binani Zinc Ltd in the year 1997 , 1998 and 2003 respectively. g) That the status of paid .....

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92 The Learned AO, however, simply resorted to make disallowance u/s 14A of the Act by applying the second limb and third limb of Rule 8D(ii) of IT Rules by rejecting all the contentions of the assessee without adducing any cogent reasons. On first appeal, apart from the aforesaid facts , the assessee stated that the interest expenditure amounting to ₹ 7.02 crores was not attributable to the acquisition of shares which were acquired due to the hive off of the companies as stated supra. In .....

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allowed u/s 14A of the Act read with Rule 8D of IT Rules. The Learned CIT(A) duly appreciated all the contentions of the assessee and deleted the disallowance made u/s 14A of the Act both under normal provisions of the act as well as for the computation of book profits u/s 115JB of the Act. Aggrieved, the revenue is in appeal before us on the following ground:- (i) That the Ld. CIT(A) has erred in Law as well as in facts and circumstances of the case in deleting the disallowance of ₹ 4,69, .....

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nexus between the borrowed funds and the investment in shares of various companies. We find that the following case laws relied upon by the Learned CIT(A) in his order are well placed and are squarely applicable to the facts of the instant case :- • CIT vs Reliance Utilities & Power Ltd ( 313 ITR 340 ) (Bom) Interest on borrowed capital - investments by assessee - finding that investments were from interest free funds available with assessee - borrowed capital used for purposes of busi .....

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w the funds for business use, it cannot be said that the borrowed funds have been used for the purposes of investments. 2.4. We also hold that the investments made in subsidiary companies are to be treated as strategic investments and hence the disallowance u/s 14A of the Act would not operate at all as the investment made thereon is not with an intention to earn any exempt income in the form of dividend but only for obtaining controlling interest in the said companies and to further the busines .....

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ke up the appeal for assessment year 2008-09. In this year, the assessee had three type of investments one relating to investment in subsidiary companies the amount of which is ₹ 101.74 crores. The second category relates to long term unquoted shares the amount of which is ₹ 31.53 crores. The third category is of equity shares the value of which is ₹ 14.88 lakhs and the last category is investment in units of mutual funds amounting to ₹ 10.15 crores. These facts and figur .....

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most of the interest bearing loans are for vehicle loans as mentioned in paper book page 203. During this year under consideration, the assessee has earned a cash profit of ₹ 11 crores. The cash flow statement at paper book page 200 reflects cash from operating activities including cash profits of ₹ 49.28 crores. The assessee has also raised an amount of ₹ 50.80 crores by issue of fresh preference shares as is apparent from paper book page 200. In view of the above facts and fi .....

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essee had invested in four debt oriented schemes of DSP Merile Lynch, reliance Liquid Plus, Reliance Monthly Interval Mutual Funds and SBI Liquid Plus Funds. We find that these are not really investments and these are in fact parking of surplus funds in a more tax efficient manner. However, since these gives rise to exempt income in the form of dividend section 14A read with Rule 8D is applicable as held by Hon'ble Delhi High Court in the case of Maxopp Investments. The Hon'ble Delhi Hig .....

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it was the intention of Parliament that it should appear in the statute book, from its inception, that expenditure incurred in connection with income which does not form part of total income ought not to be allowed as a deduction. The factum of making the said provision retrospective makes it clear that Parliament wanted that it should be understood by all that from the very beginning, such expenditure was not allowable as a deduction. Of course, by introducing the proviso it made it clear that .....

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debited against other taxable income. 25. We are of the view that the expression "in relation to" appearing in Section 14 A of the said act cannot be ascribed a narrow or constricted meaning. If we were to accept the submission made on behalf of the assessees then sub-section (1) would have to be read as follows:- "For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee with the main object .....

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made it very clear that the permissible deductions enumerated in sections 15 to 59 are now to be allowed only with reference to income which is brought under one of the heads of income and is chargeable to tax. The Supreme Court further clarified that if an income like dividend income is not part of the total income, the expenditure/deduction related to such income, though of the nature specified in sections 15 to 59, cannot be allowed against other income which is includable in the total income .....

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income has to be disallowance subject to compliance with the test adopted by Supreme Court in Walfort and it would not be permissible to restrict the provision of section 14A by an artificial method of interpretation. However, we find that the calculation of disallowance under Rule 8D(iii) made by the Assessing Officer and upheld by Ld CIT(A) is not correct In view of the fact that Assessing Officer had included the value of total investments for calculation of disallowance whereas in our opini .....

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at disallowance under Rule 8D(iii). The Tribunal had relied upon the findings of Kolkatta Tribunal in the case of Rei Agro Ltd. v. DCIT in I.T.A. No./1331/Del/2011 dated 29.7.2011. The relevant portion of Tribunal findings as contained in the Kolkatta Tribunal are reproduced below:- (iii) Further in Rule 8D(2)(ii), the words used in numerator B are the average value of the investment, income from which does not form or shall not form part of the total income as appearing in the balance sheet as .....

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, which is to be considered but it is the average of the value of investments which has given rise to the income which does not form part of the total income which is to be considered. The term average of the value of investment is used to take care of cases where there is the issue of dividend striping. iv) Under Rule 8D(2)(iii), what is disallowable is an amount equal to ½ percentage of the average value of investment the income from which does not or shall not form part of the total in .....

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nly by taking into consideration the investment which has given rise to this income which does not form part of the total income. (A.Y.) (I.T.A. No.1331/Kol/2011 dated 29.7.2011. Following the above judicial precedents, we held that value of strategic investments should be excluded for the purpose of disallowance under Rule 8D)iii) facts, we direct the Assessing Officer to calculate the disallowance under Rule8D(iii) by excluding the value of strategic investments in the calculation of disallowa .....

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tarily disallowed a sum of ₹ 1,37,12,550/- u/s 14A of the Act towards 0.5% of average value of investments applying the third limb of Rule 8D(2) of the IT Rules. The language of Rule 8D(1) is very clear in this regard. We place reliance on the following decisions in this regard:- (a) Decision of the co-ordinate bench of Mumbai Tribunal in the case of Fali S Nariman vs Addl. CIT reported in (2015) 56 taxmann.com 155 (Mumbai - Trib) dated 30.1.2015, wherein it was held that : 4. We have hear .....

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he apportionment of such expenditure. Income, which may or may not arise on incurring expenditure, and again with no certainty as to its quantum, cannot by itself form the basis of either incurring or allocation of expenditure. So however, we consider the Revenue s reading of r.8D as equally misplaced. The estimate per r. 8D(2) is only qua expenditure relatable to tax exempt income/s. The expenditure claimed stands debited in the assessee s accounts, which could be inquired into as to their purp .....

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e expenditure observed as relatable to the income not forming part of the total income by the Revenue are : salary (Rs. 3.54 lacs); printing and stationery (Rs. 0.11 lacs); and bank charges (Rs. 0.10 lacs), without specifying the relationship, so that the same is inferably casual. Even the claim of depreciation (Rs. 7.26 lacs) we observe as principally on law books. The ingredients of s. 14A(2) r/w r.8D(1) are clearly not satisfied in the instant case. We accordingly find no infirmity in the ass .....

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ectness of the claim of the assessee, then the AO shall determine the amount of expenditure incurred in relation to such income, which does not form part of total income under the Act. For this the method is prescribed in rule 8D. The provision of section 14A, sub-section (3) specifies the provision of 14A(2) would also apply where the assessee makes a claim that there is no expenditure incurred. This is because if the assessee does not make a disallowance under section 14A in its computation of .....

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with regard to accounts of the assessee. In the present case, there is no satisfaction by the AO and consequently, in view of the decision of the Coordinate bench of this Tribunal in the case of Balarampur Chini Mills Ltd. referred to supra, no disallowance under section 14A can be made. 7. Now coming to the merits of the issue. A perusal of the provision of section 14A(1) clearly shows the wordings, in relation to the income which does not form part of the total income under this Act . In the .....

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stments in respect of which the dividend income or exempted income has been earned which can be considered when computing the disallowance under section 14A read with rule 8D. A perusal of the provisions of rule 8D also talks of satisfaction in sub-rule (1). Rule 8D(2) has three sub-parts. The first sub-part i.e. (i) deals with the amount of expenditure directly relating to the income which does not form part of the total income. That issue is not in dispute here and therefore, we do not go into .....

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the assessee on the loans taken from the banks for its business purpose. There is no allegation from the banks nor the AO that the loan funds have been diverted for making the investment in shares or for non-business purposes. Further rule 8D(2)(ii) clearly is worded in the negative with the words not directly attributable . Thus for bringing any interest expenditure, claimed by the assessee, under the ambit of rule 8D(2)(ii) it will have to be shown by the AO that the said interest is not direc .....

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. The increase in the capital itself is to an extent of ₹ 4 crores and in respect of reserves and surplus, the increase is ₹ 112 crores. The loans taken during the year admittedly are for the letters of credit and the assessee is bound to provide the bank stock statement and other details to show the utilization of the loans. No bank would permit the loan given for one purpose to be used for making any investment in shares. The ld. CIT(A), it is noticed that after considering these f .....

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disallowance under Section 14A had to be rejected. Taikisha says that the jurisdiction to proceed further and determine amounts is derived after examination of the accounts and rejection if any of the assessee s claim or explanation. The second aspect is there appears to have been no scrutiny of the accounts by the AO - an aspect which is completely unnoticed by the CIT (A) and the ITAT. The third, and in the opinion of this court, important anomaly which we cannot be unmindful is that whereas t .....

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e tax exempt income surely cannot swallow the entire amount as has happened in this case . In view of the aforesaid facts and circumstances and respectfully following the various judicial precedents relied upon hereinabove, we hold that the addition u/s 14A of the Act deleted by the Learned CITA does not require any interference. Accordingly, the ground no.1 raised by the revenue is dismissed. 3. The second issue to be decided in this appeal is as to whether the assessee is entitled for reductio .....

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relying on certain case laws. Aggrieved, the revenue is in appeal before us on the following ground:- (ii) That the Ld. CIT(A) has erred in Law as well as in facts and circumstances of the case in directing to reduce the Book Profit u/s 115JB by an amount of ₹ 2,18,09,000/- when the admissible amount, i.e., lower of 'unabsorbed depreciation' or 'business loss' was actually 'NIL', 3.2. The Learned DR vehemently supported the order of the Learned AO. In response to t .....

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counts from book profits for computation u/s 115JB of the Act. 3.3. We have heard the rival submissions and perused the materials available on record. We are in agreement with the arguments of the Learned AR that the losses ( both cash loss and depreciation loss) would continue to remain in the books of accounts till it is wiped off by earning profits by the assessee company and accordingly the same would be available for reduction from book profits u/s 115JB of the Act. We hold that the least o .....

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AO that such loss once adjusted in earlier year is no longer available for set off is misconceived. Hence we do not find any infirmity in the order of the Learned CIT(A) in this regard. The Ground No.2 raised by the revenue is dismissed. 4. The last issue to be decided in this appeal is as to whether, the forfeiture of share warrants amounting to ₹ 12,65,75,000/-, being a capital receipt, would be liable for taxation u/s 115JB of the Act just because it has been credited in the profit and .....

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JB of the Act at ₹ 33,90,47,340/-. In the said revised computation of book profits u/s 115JB of the Act, an extraordinary item of receipt to the tune of ₹ 12,65,75,000/- representing forfeiture of share warrants was included by the assessee. Later the assessee vide letter dated 27.12.2011 at assessment stage stated that the said extraordinary receipt of ₹ 12,65,75,000/- was erroneously included in the computation of book profits reported in the revised return and pleaded for ex .....

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mpany during the period covered by the account and (b) shall disclose every material feature, including credits or receipts and debits or expenses in respect of non-recurring transactions or transactions of an exceptional nature. Before the Learned CIT(A), the assessee pleaded that the Learned AO had not disputed the fact that the accounts have been prepared in accordance with the provisions of Companies Act, 1956 and the provisions of Companies Act mandates the subject mentioned receipt of forf .....

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taxed by the Learned AO under normal provisions of the Act on the reason that it is only a capital receipt and further on the reasoning that what is not taxable as per law cannot be taxed by the Learned AO just because the same is offered erroneously by the assessee. The Learned CIT(A) appreciated the contentions of the assessee in this regard and directed the Learned AO to start the book profits computation as per original return of income filed by the assessee. Aggrieved, the revenue is in app .....

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nts together with notes on accounts thereon for the year ended 31.3.2009, copy of return acknowledgements (both original and revised returns), among others. At the outset, we find from Note No. 6 to Schedule 11 of the Financial Statements for the year ended 31.3.2009, the assessee had stated as below:- 6. As per Resolution passed by the members at the Extra Ordinary General Meeting held on 15th February, 2008, the Company had allotted 50,00,000 warrants on 18th March , 2008 to M/s K.B.Vyapar Pvt .....

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deposit and had requested the Company to treat the said convertible warrants as cancelled in accordance with the SEBI (DIP) Guidelines, 2000. Accordingly, the forfeited warrants were cancelled and the amount of upfront deposit of ₹ 1265.75 lakhs has been forfeited and credited to Profit and Loss Account as an extraordinary income. 4.3. It is not in dispute before us that the subject mentioned receipt of ₹ 12,65,75,000/- representing forfeiture of share warrants is only a capital rec .....

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the provisions of section 115J of the Act was tested by the Hon ble Kerala High Court in the case of Karimtharuvi Tea Estates Ltd and Another vs DCIT and Others reported in 247 ITR 22 (Ker) , wherein it was held that :- The object of the insertion of section 115J of the Income Tax Act, 1961, was to ensure levy of minimum tax on what are known as prosperous zero tax companies . Under the scheme of the section, where the total income of companies as computed under the provisions of the Income Tax .....

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unts in relation to the relevant previous year to be carried forward to the subsequent year or years will have to be made unaffected by the provisions in sub-section(1) of section 115J. The very object of the provisions of section 115J is to tax such companies which are making huge profits and also declaring substantial dividends, but are managing their affairs in such a way as to avoid payment of income tax, as a result of various tax concessions and incentives and for that purpose, the taxable .....

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lly done under section 115J is not exactly bringing to tax hypothetical income. What is really done is to limit or restrict or curtail deduction, carry forward and set off of losses, unabsorbed depreciation, unabsorbed allowance, etc., etc. Ordinarily, these deductions are permissible in view of the provisions introduced in the statute by Parliament and Parliament is equally competent to take away or restrict or limit such allowances for a definite purpose. Various concessions and allowances are .....

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the above principle would apply with equal force for companies falling under the ambit of provisions of section 115JA / 115JB of the Act as the case may be. 4.3.2. It was further contended by him that the Rule of Purposive Construction to be followed. He pointed out that the facts in the instant case was that the assessee issued share warrants for which payments were received by it in several phases. The applicant refused to pay the instalments as agreed upon and accordingly the assessee compan .....

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f income definition which is an inclusive definition u/s 2(24) of the Act. According to him when it is not disputed that forfeiture of share warrants is a capital receipt and cannot be subjected to tax and there is no provision to tax the same under the provisions of the Act, it would be just and fair to hold that what is not income as per the definition of the word income in the Act cannot be brought to tax under any other provision of the Act. In this regard, he drew our attention from the dec .....

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he remedy. There is no doubting the view that subtle inventions and devices resorted to by any person for continuance of the mischief should be suppressed. However, the proposition cannot be extended beyond the intended purpose and object of the law makers and cause hardship, serious inconvenience, injustice and absurdity. Reference was also made to the decision of the Hon ble Calcutta High Court in the case of SAIL DSP VR Employees Association 1998 vs Union of India and Others reported in 262 I .....

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uce a rational construction. An expression used in the statute is not always to be interpreted literally or grammatically. Sometimes it has to be interpreted having regard to the context in which the expression is used and having regard to the object and purpose for which the same is enacted. According to him therefore the intention of section 115J and the memorandum explaining the provisions of the Act and giving purposive construction to the same, it could be safely concluded that the Legislat .....

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receipt comprising of forfeiture of share warrants amounting to ₹ 12,65,75,000/- is not chargeable to tax as it is undisputably a capital receipt, the same would not be liable to be taxed u/s 115JB of the Act merely because it is credited in the profit and loss account by the assessee. In this regard, he pointed out the two different nature of receipts that might arise to an assessee. According to him there is a basic dichotomy between receipts which are not taxable at all and receipts whi .....

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hat the subject mentioned receipt of forfeiture of share warrants , which is admittedly not income, would fall in the former category and accordingly not liable to be taxed u/s 115JB of the Act. He also made reference to the provisions of section 115JB (5) of the Act which is reproduced herein below:- 115JB(5) - Save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee , being a company, mentioned in this section. Applying the aforesaid provision .....

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hich is admittedly not an income cannot be brought to tax under the deeming provisions of section 115J of the Act as it defies the basic intention behind introduction of provisions of section 115J of the Act. Further it was held that the Rule of Purposive Construction should be invoked to decide the applicability of MAT provisions. 4.5. He then ade a reference to the decision of the Special Bench of Hyderabad Tribunal in the case of Rain Commodities Ltd vs DCIT reported in (2010) 131 TTJ (Hyd)(S .....

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ision of Rain Commodities Ltd has to be understood in the proper perspective. It was submitted by him that the Rain Commodities (supra) did not say that the receipt ( a non-taxable receipt such as capital receipt) which is per se not taxable under the Act would enter the stream of taxation u/s 115JB of the Act. It only said that the capital gains derived by the assessee were subjected to exemption u/s 47(iv) of the Act which would be liable for taxation u/s 115JB of the Act and more so it is cre .....

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s of section 115J of the Act as enumerated supra. According to him, therefore, this decision does not in any way even remotely contemplate to bring to tax any receipt which is not chargeable at all to tax under the provisions of the Act. Hence a thin line of difference needs to be drawn between a receipt which is not taxable from its inception and that which is not taxable pursuant to claim of deduction / exemption. As stated earlier, the former case would be outside the ambit of book profits ta .....

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o tax under any provisions of the Act would not be liable for book profits tax u/s 115JB of the Act which was rendered after considering the decisions of Hyderabad Special Bench in Rain Commodities (supra) and the decision of Hon ble Apex Court in Apollo Tyres (supra) :- (a) Decision of Lucknow Tribunal in the case of ACIT vs L.H.Sugar Factory Ltd and vice versa in ITA Nos. 417 , 418 & 339/LKW/2013 dated 9.2.2016, wherein it was held that :- 49. We have considered the rival submissions. We f .....

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eady reference :- 13. We have heard the rival submissions and considered them carefully. We have also perused the orders of authorities below as well as other material on which our attention has been drawn. We have taken into consideration the ratio decidendi of all the decisions relied upon by the rival parties. 13.1. At the outset, the issue in hand is covered in favour of the assessee in its own case for A.Y. 2003-04 vide order dated 23-12- 2009 in ITA No. 942/Jp/08. The above decision of Tri .....

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e was given which itself provides that the subsidy was given to the Assessee to enhance the production, employment & sales in the state of Rajasthan, which are all post operational actvities. From the abvoem it could be clearly seen that Hon ble High Court admitted only the ground as to whether the impugned subsidy was a capital receipt or a revenue receipt. Hon ble High Court has not admitted the ground of the Revenue against relief granted by Tribunal under section 115JB of the Act on abov .....

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s support from the decision of Hon ble Apex Court in the case of Padmaraje R. Kadambande vs CIT (1992) 195 ITR 877 (SC) , wherein it has been held by the Apex Court that Capital Receipts are not income within the definition of section 2(24)of the Act and hence are not at all chargeable under the I.T.Act. A receipt which is neither Profit nor Income and which does not have any element thereof embedded therein, cannot be part of Profit as per Profit & Loss Account prepared in terms of Part II .....

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ual situation fits in with the fact situation of the decision on which reliance is placed. 13.4. From perusal of the decisions of Rain Commodities (supra) and Growth Avenues (supra) , we notice that both the decision dealt with the issue of taxability of capital gains in computing Book Profit u/s 115JB of the Act. These capital gains were otherwise income u/s 2(24) of the Act and exclusion was claimed in computing Book Profit u/s 115JB on the ground that the said capital gains was exempt either .....

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nch of the Tribunal. That being the case, it does not have any income or profit element embedded in it, since the incentive was granted to encourage industrial growth of industrially non developed area. No one can make profit out of the subsidy or incentive granted to it. Hence, it is not chargeable to tax under the Income Tax Act as held by the Apex Court in the case of Padmaraje (supra) and in the light of our fact finding as above, clearly not includible in P&L account prepared under Part .....

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C) has held that the object of MAT provisions is to bring out the real profit of the companies. The thrust is to find out the real working results of the company. Inclusion of receipt in the computation of MAT would defeat two fundamental principles, it would levy tax on receipt which is not in the nature of income at all and secondly it would not result in arriving at real working results of the company. The real working result can be arrived at only after excluding this receipt which has been .....

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profit u/s 115JB Profit and Loss a/c shall be prepared as per part II and III of Schedule VI to the Companies Act. Part II of Schedule VI prescribes the requirements as to Profit and Loss A/c. Clause 2(a) of Part II clearly spells that the profit and loss a/c shall be so made out as clearly to disclose the result of the working of the company during the period covered by the accounts. Hence, in our view, P&L Accounts do not reflect the true result of the working of the company for the year, .....

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as whether an AO can, while assessing a company for income tax u/s 115J of the IT Act, question the correctness of the P&L a/c prepared in accordance with requirements of Part II and III of Sch. VI to the Companies Act. From the question as framed before the Apex Court it is clear that the issue before the Hon ble Court was with regard to power of the AO to recast audited accounts prepared in accordance with Part II and Part III of Sch.VI to the Companies Act. Therefore, for applicability of .....

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has been relied upon by DR. On examination of the said order, we find that at Para 17 (last sub-para) & Para 18, after considering the decision of Supreme Court in Apollo Tyres Ltd (supra), Special Bench have held that if Profit & Loss account is not in accordance with Part II & III of Schedule VI to the Companies Act, it is permissible to alter the net profit so as to make it in accordance with Part II & III of Schedule VI, which is the starting point for computation of Book Pro .....

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y Diamond (supra) & that of Bangalore Tribunal in the case of Syndicate Bank (supra) [both analysed in Para 12.1 above], where also Tribunal, after considering the decision of Supreme Court in the case of Apollo Tyres (supra) and explaining the same, have permitted adjustment to the Profit as per P&L Account, so as to comply with Schedule VI , Part II & Part III of the Companies Act, which is a prerequisite for section 115JB. 13.11. In the light of the aforesaid, the additional Groun .....

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r the decision of Special Bench of the Tribunal rendered in the case of Rain Commodities Ltd vs DCIT, 41 DTR 449, if profit and loss account is not in accordance with Part II & Part III of Schedule VI to the Companies Act, 1956 because it is prerequisite for Section 115JB of the Act. The Tribunal in this case also considered two another Tribunal s orders rendered in the case of DCIT vs Bombay Diamond Company Ltd (33 DTR 59) and Syndicate Bank vs ACIT , 7 SOT 51 Bangalore, where it was held b .....

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m of sales tax subsidy needs to be excluded from profit as per P&L account for the purpose of computing book profit u/s 115JB of the Act. By respectfully following these Tribunal s orders, we hold that in the present case also, the receipt on account of transfer of carbon credit which is held to be a capital receipt needs to be excluded from profit as per P&L account for the present year while computing the book profit u/s 115JB of the Act. This issue is decided in favour of the assessee .....

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f a capital asset by a company to its wholly owned subsidiary company is not treated as income" u/s 2(24) of the Act and since it does not enter into computation provision at all under the normal provisions of the Act, the same should not be considered for the purpose of computing book profit u/s 115JB of the Act. 26. We shall now examine the scheme of the provisions of sec. 115JB of the Act. It is pertinent to note that the provisions of sec. 10 lists out various types of income, which do .....

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for. Clause (ii) of Explanation 1 to sec.115JB specifically provides that the amount of income to which any of the provisions of section 10 (other than the provisions contained in clause (38) thereof) is to be reduced from the Net profit, if they are credited to the Profit and Loss account. The logic of these provisions, in our view, is that an item of receipt which falls under the definition of "income", are excluded for the purpose of computing "Book Profit", since the said .....

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uot;book profit" u/s 115JB of the Act. Hence, we find merit in the submissions made by the assessee on this legal point. 27. A careful perusal of the decision rendered by the Special bench in the case of Rain Commodities Ltd. (supra) would show that the above said legal contentions were not considered by the Special bench. We notice that the Special bench considered the following decisions:- (a) Malayala Manorama Co. Ltd v.CIT [2008] 300 ITR 251/169 Taxman 471 (SC) (b) N.J. Jose & Co. ( .....

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t falling under the definition of "transfer" and hence under the definition of "Capital gains chargeable u/s 45" and consequently, the same does not fall within the purview of the definition of "income" given u/s 2(24) of the Act. Further, we notice that the Special bench did not have occasion to consider the argument urged before us that the profits and gains arising on transfer of a capital asset by a holding company to its wholly owned Indian Company does not fal .....

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erits also, we have earlier seen that the assessee herein has attached a note in the notes forming part of accounts and in the case before the Special bench, no such notes has been inserted, which fact was specifically noted by the Special bench. Hence on this factual aspect also, the decision rendered by the Special bench is distinguishable. 28. In view of the foregoing discussions, we find merit in the contentions of the assessee that the profit arising on transfer of capital asset to its whol .....

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