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TMI Blog2016 (3) TMI 1056X X X X Extracts X X X X X X X X Extracts X X X X ..... l, 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. 2. 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deduction of Rs. 2,53,87,000/- as per clause (i) of the Explanation below second proviso to Section 115JA being amount withdrawn from provision for bad and doubtful debts and advances, for utilization against debts proven to be bad and written off during the relevant previous year. 3. That on facts and in the circumstances of the case, the above additional claim for deduction of Rs. 2,86,10,000/- on account of purchases debited to P/L account in AY 200-01 and Rs. 2,53,87,000/- on account of amount withdrawn from provision for bad and doubtful debts and advances may please be allowed in computing book profit u/s. 115JA following the principle laid down by the Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 :- 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. We have heard the rival submissions and perused the materials available on record. We deem it fit and appropriate to give independent finding on various issues raised by assessee and the revenue. 4.1 Validity of re-opening of assessment u/s 147 of the Act (Additiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ival 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 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 22.7.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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) The assessee had raised the following grounds before us:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee 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 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) erred by accepting the submission that in the subsequent year the Unit was sold 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 when the transaction took place which does not negate the fact that in the year under consideration, this was an unascertained liability and correctly added back by the A.O since future occurrences does not justify the present unascertained and uncertain situation". 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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