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2016 (3) TMI 1056 - ITAT KOLKATA

2016 (3) TMI 1056 - ITAT KOLKATA - TMI - MAT computation - Assessment u/s 115JA - Held that:- Retrospective amendment in Section 115JA of the Act, the provision for doubtful debts and advances requires to be added back to the book profits u/s 115JA of the Act.

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 Explan .....

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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.

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.

Disallowance of u/s 14A - Held that:- Provisions of Clause (f) of Explanation to Section 115JA of the Act cannot be invoked .....

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t no disallowance u/s 14A of the Act could be made for the purpose of computing book profits u/s 115JA of the Act. - ITA No. 1928/Kol/2008, ITA No.1815/Kol/2008 - Dated:- 3-2-2016 - N. V. Vasudevan, JM And M. Balaganesh, AM For the Appellant : Shri S Srivastava, CIT/ld.DR For the Respondent : Shri K R Vasudevan, Adv. ld.AR ORDER 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 .....

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1 & 2.2 filed by the appellant in the original appeal, if the deduction for purchases amounting to ₹ 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 boo .....

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purchases debited to P/L account in AY 200-01 and ₹ 2,53,87,000/- on account of amount withdrawn from provision for bad and doubtful debts and advances may please be allowed in computing book profit u/s. 115JA following the principle laid down by the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 Supreme Court of India in the case of National Thermal Power Corporation Limited reported in 229 ITR 383 (SC). 4. That the Appellant craves leave to amend, alter, modify, add to, abridge and/ or rescind any or all of the above gro .....

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ion 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." 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). 3. The brief facts of the case are that the assessee is engaged in the bu .....

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as provision made for unascertained liabilities vide order dated 11.3.2005:- Provision for doubtful debts and advances - ₹ 5,35,63,000/- Provision for wages - ₹ 14,78,000/- Provision for estimated loss in writing down the value of salt lake factory to realizable value - ₹ 6,84,79,000/- Material purchases erroneously omitted in P&L A/c but Actually debited during Fin Year 1999-2000 - ₹ 2,86,10,000/- Undepreciated value of fixed assets written off - ₹ 1,13,69,000/ .....

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/254/147 dated 14.11.2007 in respect of the following items :- Provision for doubtful debts and advances - ₹ 5,35,63,000/- Provision for wages - ₹ 14,78,000/- Provision for estimated loss in writing down the value of salt lake factory to realizable value - ₹ 6,84,79,000/- Material purchases erroneously omitted in P&L A/c but Actually debited during Fin Year 1999-2000 - ₹ 2,86,10,000/- On appeal before Learned CIT(A), partial relief was granted to the assessee and agai .....

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tional 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 .....

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nts had stated as miscellaneous expenses 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 includi .....

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r 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 .....

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ven 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 - ₹ 5,35,63,000/- (Ground No. 1 & 2 raised by the revenue and additional .....

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deduction under MAT when it is an unascertained liability and was correctly added back as such to arrive at book 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 ₹ 2,53,87,000/- as per clause (i) of the Explanation below second proviso to Section 115JA being amount wit .....

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lanation 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:- Explanation - For the purposes of this section, "book profit"means the net profit as shown in the profit and loss 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 ret .....

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on 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 ₹ 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 .....

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l purposes. 4.3. Provision for wages - ₹ 14,78,000/- (Ground No. 1.1 & 1.2 raised by the assessee) 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 'provis .....

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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 con .....

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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 ha .....

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ovided 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 ₹ 1 lakh in .....

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tible. 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 b .....

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f 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 deduc .....

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2000 amounting to ₹ 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 ₹ 2,86,10,000/- in order to avoid .....

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he 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 relie .....

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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. .....

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-claimed on account of provisions for diminution in the 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. 4. That the Ld CIT(A) erred in facts as well as law by not considering that the assessee himself had submitted that application before the Hon'ble Calcutta High Court had b .....

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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 cor .....

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ch 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 ₹ 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 awaiting the orders of the H .....

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ials 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 .....

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on in value was ₹ 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 addit .....

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e 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. Disa .....

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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 .....

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ct to the tune of ₹ 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 .....

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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 .....

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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 bei .....

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n 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 h .....

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d 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, 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 .....

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the facts of the case. The Learned AR argued that the assessee had derived dividend income of ₹ 43,94,663/- and out of this, a sum of ₹ 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 .....

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