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2016 (5) TMI 1035 - ITAT KOLKATA

2016 (5) TMI 1035 - ITAT KOLKATA - TMI - Addition for claiming the loss without the support of audited accounts - losses are claimed by the assessee on the investigation report carried out by KPMG - CIT(A) deleted the addition - Held that:- Supreme Court in the case of Lakshmi Machine Works (2007 (4) TMI 202 - SUPREME Court ) we find that income tax should be levied on the real profits. The real profit should be worked out on the basis of accounting principles and in the ordinary course of comme .....

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eport by holding that the matter is pending in the court of law. In our considered view the real income should be brought to tax and the AO should not merely rely on the data submitted by the assessee. Therefore we do not find any infirmity in the order of Ld CIT(A) - Decided against revenue

Addition on account of excess depreciation claimed in the revised return of income - Held that:- AO disallowed the excess depreciation claimed by the assessee in the revised return of income on th .....

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d that:- The remand report of the AO that in the earlier years the provisions were disallowed by the assessee in the computation of income. Accordingly, in our view, the provision written back should be allowed as deduction from the total income of the assessee - Decided against revenue

Profit declared in the original return of income held as book profit for the purpose of Section 115JB by CIT(A) - Held that:- Section 115JB of the Act starts with nonobstante clause ‘Notwithstanding an .....

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net profit as shown in Profit and Loss Account prepared for financial year in accordance with Part II and III of Schedule VI to the Companies Act, 1956, also complying with other conditions as stipulated in Section 115JB(2) of the Act. Such book profit has to be increased by item Nos. (a) to (k) of the Said Explanation 1 to Section 115JB of the Act if they are debited to the Profit and Loss Account and from such profit item Nos. (i) to (viii) of the Explanation are to be reduced. The figure arr .....

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13 - Dated:- 11-5-2016 - Shri N. V. Vasusdevan, Judicial Member And Shri Waseem Ahmed, Accountant Member For the Assessee : Shri N.K.Poddar, Sr-Advocate Shri A.K.Tibrewal, FCA & Shri Amit Agarwal, Advocate For the Revenue : Shri Sallong Yaden, ACIT, SR-DR ORDER Per Waseem Ahmed, Accountant Member These two appeals and two Cross Objection (CO) filed by Revenue and assessee are arising out of order of Commissioner of Income Tax (Appeals)- VI, Kolkata. dated 19.12.2012 & 20.12.2012. Assessm .....

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n filing of both the appeals by the Revenue. The Revenue has filed affidavits in this regard stating the reasons that the delay is occurred due to approval for filing of second appeal received followed with weekly holidays. Ld. AR for assessee submitted that considering the delay they should not be having any objection to the Bench for considering the delay of condonation. Thus, in our considered opinion, on the facts and circumstances, i.e. in this case deserves to be considered and same is con .....

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igned by the chartered accountant and approved in the AGM of the company. The directors of the company received several anonymous complaints about the financial irregularities of the company, so this issue was discussed in the 105th meeting of the Board of Directors held on dated 19th May 2009. Accordingly the Board of Directors of the assessee company engaged M/s KPMG Mumbai to carry out financial and tax due diligence of the assessee company to find out the financial irregularities. KPMG submi .....

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the necessary details of the overstatement of income was duly recorded in the ld. CIT(A) order. Based on the report of KPMG, the assessee took necessary steps against the persons who were involved in the financial irregularities by filing the police complaints. As per the report the higher amount of profit was declared in the AYs 2007-08, 2008-09 and 2009-10 by way of fraudulent and falsifying entries in the books of accounts. However as the time for revising the return of income for the assess .....

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07-08, 2008-09 & 2009-10 in the books of accounts. It is important to note that for the assessment year 2007-08, the assessment was framed u/s 143(3) of the Act but the same cannot be rectified as there is no provision under the income tax law. 3.1 For all the financial irregularities as noted by the assessee for the three years, effect in the books of accounts was given in the financial year 2009-10 corresponding to the assessment year 2010-11 because the assessee received the final report .....

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t of embezzlement are admissible only in the year in which such loss was detected and the amount crystallized on the basis of the final report submitted by the detective agency. 2. The claim of the assessee is based on the limited finding of the investigation report of KPMG and it does not give the Modus Operandi of the embezzlement. 3. The matter is sub-judice and has not reached to its finality. 4. It is not clear whether any recovery proceedings had been filed against the accused persons. 5. .....

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g the addition made on claim of loss when the same is not supported by any audited accounts 2. Whether on the facts and circumstances of the case, Ld. CIT(A) erred in law in deleting the addition made by AO in respect depreciation claimed in the revised return the data of which is not supported with any audit report. 3. Whether on the facts and circumstances of the case, Ld. CIT(A) erred in law in law in deleting the addition made by AO in respect provisions written back when no supporting evide .....

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1,28,073/- in the revised return of income which arose from the financial irregularities found by the KPMG in the investigation report. However the AO has disregarded the claim of the assessee on account of following reasons. 1. The losses are claimed by the assessee on the investigation report carried out by KPMG which was not based on the independent audit findings or review of financial statements but it was based on the information shared by the management. 2. The dispute regarding financial .....

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t of the company was unnecessary inflated by showing more income and this fact has been duly investigated by KPMG after examination the financial irregularities, misconduct and falsification in the books of accounts. There was no embezzlement of cash or money but only the income was over stated by way of falsification of book entries. The learned CIT(A) accordingly and after considering the aforesaid facts of the case held that the loss claimed by the assessee is to be allowed under the normal p .....

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accepted as it does not fulfill the conditions enumerated under Section 115JB of the Act. Being aggrieved by this order of the order of Ld CIT(A) Revenue is in appeal 7. Before us both the parties relied on the orders of Authorities Below as favourable to them. The Ld. AR before us has filed a paper book which running from pages 1 to 979. We have heard the rival parties and perused the materials available on record. From the case in hand, we find that the assessee has filed original return of i .....

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to its finality. However, at the appellate stage Ld CIT(A) granted the relief to the assessee by observing that the AO has not brought on record any defects and deficiencies in the investigation report submitted by the assessee in the revised return filed by the assessee. The Ld. CIT(A) also observed that the AO has considered the revised return as he started computing the income in his assessment order with the amount of loss declared in the revised return but did not allow the losses claimed .....

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and gains. It is not a tax on gross receipts. Under section 2(24) of the Act the word income includes profits and gains. The charge is not on gross receipts but on profits and gains properly so-called. Gross receipts or sale proceeds, however, include profits. According to the Law and Practice of Income Tax by Kanga and Palkhivala, the word profits in section 28 should be understood in normal and proper sense. However, subject to special requirements of the income-tax, profits have got to be as .....

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be allowed. Profits should be computed after deducting the expenses incurred for business though such expenses may not be admissible expressly under the Act, unless such expenses are expressly disallowed by the Act [See : page 455 of The Law and Practice of Income Tax by Kanga and Palkhivala]… From the aforesaid decision of Hon ble Supreme Court in the case of Lakshmi Machine Works (supra) we find that income tax should be levied on the real profits. The real profit should be worked out .....

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ut the AO rejected the same instead of verifying the genuineness of the report by holding that the matter is pending in the court of law. In our considered view the real income should be brought to tax and the AO should not merely rely on the data submitted by the assessee. Therefore we do not find any infirmity in the order of Ld CIT(A). Hence this ground of Revenue s appeal is dismissed. 8. The 2nd issue raised by Revenue in this appeal is that Ld. CIT(A) erred in deleting the addition made by .....

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ce in the original return of income and revised return of income and added to the total income of the assessee. 9. Aggrieved, assessee preferred an appeal to Ld CIT(A) who has deleted the addition made by the AO by observing as under:- 24. I have carefully considered the observations of the Assessing Officer in the assessment order and submissions of the ape. The appellant has filed the details which have not been examined by the Assessing Officer. The revised claim is not supported by Tax Audit .....

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e order of Ld CIT(A) Revenue is in appeal before us. 10. We have heard the rival contentions and perused the materials available on record. Before us both the parties relied on the orders of Authorities Below as favourable to them. At the outset we observe that the AO disallowed the excess depreciation claimed by the assessee in the revised return of income on the ground that the revised return of income was not supported with the Tax Audit Report. However, we further find that the AO did not po .....

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ccount of provisions written back without having the supporting evidence. 12. The assessee has claimed in the computation of income a deduction of ₹ 28,56,345/- on account of provision written back but could not substantiate the same by producing the supporting evidence at the time of assessment. Therefore, the AO rejected the claim of the assessee and added the same to the total income of assessee. 13. Aggrieved, assessee preferred an appeal to Ld CIT(A) who deleted the addition made by A .....

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Therefore, the claim of the appellant is allowed and the addition made by the Assessing Officer ₹ 28,56,345/- in the profit/loss determination is deleted. Being aggrieved by this order of Ld CIT(A) Revenue is in appeal before us. 14. At the outset, it was observed from the remand report of the AO that in the earlier years the provisions were disallowed by the assessee in the computation of income. Accordingly, in our view, the provision written back should be allowed as deduction from the .....

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equire any adjudication. 17. In the result, Revenue s appeal is dismissed. Coming to ITA No.695/Kol/2013 AY 09-10. 18. Revenue has raised following effective grounds:- 1. That on the facts and circumstances of the case, Ld. CIT(A) erred in law by deleting the addition made on claim of loss when the same is not supported by any audited accounts. 2. Whether on the fact and circumstances of the case, Ld. CIT(A) erred in law in deleting the addition made by AO in respect provisions written back when .....

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. 20. In the result, Revenue s appeal is dismissed. Coming to assessee s COs No. 50/Kol/2013 for A.Y. 08-09. 21. Assessee has raised following effective grounds:- 1. That the learned CIT(A) has correctly allowed deduction of ₹ 28,56,345 under the heading provision written back as the respective provisions made in the earlier years were never allowed as a business deduction to the Assessee Company in any of the years whatsoever.. 2. That the learned CIT(A) has rightly allowed depreciation i .....

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ries while applying section 115JB, in so far as these affected the taxable income for the assessment year 2008-09 merely because the accounting entries rectifying / modifying the effect of such fraudulent / fictitious entries were made by the Assessee Company in the financial year ending 31st march, 2008 corresponding to the assessment year 2008-09. 5. That the learned CIT(A) erred in arbitrarily applying section 115JB while ignoring the revised return filed by the Assessee Company on 30th March .....

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h, 2009 corresponding to the assessment years 2007-08, 2008-09 & 2009-10. 6. The Assessee Company has not incurred any expenditure on debit cards during the assessment year and hence the question of the learned CIT(A) treating the same as revenue expenditure does not arise. Hence this ground is absolutely infructuous. 22. At the outset it was observed that ground no. 1 and 2 in the CO of assessee were supporting the order of Ld. CIT(A) and We have already upheld the order of Ld.CIT(A) theref .....

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audulent/fictitious entries shown in the books of accounts. In actual there was loss under the normal provisions of the Act but the effect of fraudulent entries were not rectified in the year under consideration as the final report of KPMG was received on 30-4.2010 but was made in the financial year 2009-10 corresponding to the assessment year 2010-11. The ld. CIT(A) should have accepted the book profit as per the revised return of income. On the other hand the ld. DR relied on the order of Ld. .....

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yment of tax by certain companies. 115JB (1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a company, the income-tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1std day of April, 2012, is less than eighteen and one-half per cent of its book profit, such book profit shall be deemed to be the total income of the assessee and the ta .....

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11 of the Companies Act, 1956 (1 to 1956) is applicable, shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of the Act governing such company: Provided that while preparing the annual accounts including profit and loss account,- (i) the accounting policies; (ii) the accounting standards adopted for preparing such accounts including profit and loss account; (iii) the method and rates adopted for calculating .....

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e accounting standards adopted for preparing such accounts including profit and loss account; (iii) the method and rates adopted for calculating the depreciation, Shall correspond to the accounting policies, accounting standards and the method and rates for calculating the depreciation which have been adopted for preparing such accounts including profit and loss account for such financial year or part of such financial year falling within the relevant previous year. Explanation 1,- For the purpo .....

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d to in clause (j) is not credited to the profit and loss account, and as reduced by,- ** ** ** 25.1 We have observed hat Section 115JB of the Act starts with nonobstante clause Notwithstanding anything contained in any other provision in this act, meaning thereby that the Section 115JB shall be applicable notwithstanding anything contained in any other provision of the Act and shall have overriding effect upon other provisions of the Act. The Section 115JB stipulates payment of Minimum Alternat .....

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Said Explanation 1 to Section 115JB of the Act if they are debited to the Profit and Loss Account and from such profit item Nos. (i) to (viii) of the Explanation are to be reduced. The figure arrived at after the above exercise is the book profit of the assessee for the relevant previous years. In the instant case the profit declared in the original return of income was as per the requirement of section 115JB of the Act and the profit declared in the revised return does not meet the conditions .....

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panies Act as having been properly maintained in accordance with the Companies Act. The Assessing Officer, thereafter, has the limited power of making increases and reductions as provided for in the Explanation to section 115J. the Assessing Officer does not have the jurisdiction to go behind the net profits shown in the profit and loss account except to the extent provisions of Parts II and III of Schedule VI to the Companies Act. in section 115J was made for the limited purpose of empowering t .....

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gistrar of Companies who has a statutory obligation also to examine and be satisfied that the accounts of the company are maintained in accordance with the requirements of the Companies Act. Sub-section (1A) of section 115J does not empower the Assessing Officer to embark upon a fresh enquiry in regard to the entries made in the books of account the company. In the case in hand, we find that the assessee has filed the revised return declaring the loss as several financial irregularities were not .....

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013 for AY 09-10. 28. Assessee raised following grounds:- 1. That the learned CIT(A) has correctly allowed deduction of ₹ 22,73,347 under the heading provision written back even when the respective provisions made in the earlier years were never allowed as a business deduction to the Assessee Company in any of the years. 2. That the learned CIT(A) has rightly allowed the business expenditure in the sum of ₹ 3,87,65,172 (Rs.23,87,51,298 minus ₹ 19,99,86,126) on the ground that c .....

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