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2016 (7) TMI 837 - ITAT MUMBAI

2016 (7) TMI 837 - ITAT MUMBAI - TMI - Penalty u/s.271(1)(c) - assessee’s claim for unabsorbed deposition in the computation of its’ book profit u/s. 115JB a little over 100% - Held that:- The balance brought forward (from the earlier years) can only be one, single balance, carried forward as at the end of the immediately preceding year, 31.3.2005 in the instant case. This is axiomatic, and there cannot conceivably be two (or more) balances, either of brought forward loss or unabsorbed depositio .....

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tem. If it is a positive balance, implying a cumulative profit, there is no question of any unabsorbed depreciation, which is thus nil in-as-much as depreciation is debited to the P & L account. If not, i.e., is a negative figure, the amount of depreciation included therein is to be segregated, so that the two, the unabsorbed depreciation and the balance loss are separately known, and the lower of the two set off. If the gross loss is lower than depreciation charged to the P&L A/c (be it for one .....

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The assessee adverts to there being no concept of carry backward of losses under the in Indian tax laws, which contemplate only carry forward of losses argument, though based on a truism, is both invalid and misconceived. - There is, further, nothing in the language of the provision of clause (iii) of Explanation 1 to section 115 JB that suggests or gives room to any ambiguity, much less of the sort being canvassed by the assessee. The profit or loss brought forward (to any year) is, as af .....

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tching and making the requirement to prove a bona fide conduct illusionary and ineffective and would fail to check and stop fanciful and incredible claims. It is noticeable, it continued, that most of the income tax returns are accepted without scrutiny or regular assessment and self-compliance of tax provisions is a rule required to be followed (reference in this regard is made to paras 16, 17 and 18 of the decision). In the present case, we have already shown that no ambiguity exists and the c .....

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15.10.2013, partly allowing the Assessee s appeal contesting its assessment u/s.143(3) r/w s. 147 of the Income Tax Act, 1961 ( the Act hereinafter) for the assessment year (A.Y.) 2006-07 vide order dated 23.11.2010. 2. The sole issue, agitated per four grounds by the assessee, as under, is the validity or otherwise in law of the levy of penalty u/s.271(1)(c) of the Act on the assessee s claim for unabsorbed deposition (for ₹ 41,68,938/-) in the computation of its book profit u/s. 115 JB o .....

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f Schedule VI of the Companies Act. 3. The learned CIT(A) further erred stating that the appellant has accepted the decision and no further appeals pending on this matter and hence, it becomes an undisputed matter of furnishing inaccurate particulars of income. 4. The learned CIT(A) erred in observing that the appellant has excessively claimed depreciation knowing fully well that the helipad was never used for its business purposes in the initial year of its claim of depreciation. 3. We have hea .....

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ssee, 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 1st day of April, 2001, is less than seven 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 tax payable by the assessee on such total income shall be the amount of income-tax at the rate of seven and one-half per cent. (2) ........... Explana .....

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urposes of this clause,- (a) the loss shall not include depreciation; (b) the provisions of this clause shall not apply if the amount of loss brought forward or unabsorbed depreciation is nil; or 3.2 We may next extract the relevant part of the assessee s profit and loss account, balance-sheet, and the directors report (PB pages 20-21, 22, 9): Profit and Loss Account For the year ended 31st March, 2006 (Rs. Lacs) 2005-06 2004-05 Income 5,147.57 (3,685.42) Expenditure 4,853.42 5,794.93 Profit (Lo .....

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eserve 48.82 0.00 Proposed Dividend 0.00 0.00 Dividend Tax for Earlier Year 0.00 23.70 General Reserve 0.00 0.00 Balance carried to Balance Sheet 27,635.29 25,863.14 27,684.11 25,886.84 Basic and Diluted Earnings Per Share (Rupees) 0.84 (32.24) (Refer Note 13 of Schedule 15) Significant Accounting Policies 14 Notes to Accounts 15 Schedules forming part of accounts As 31st March, 2006 (Rs. Lacs) As at 31.3.2006 As at 31.3.2005 Schedule 2 Reserves and Surplus Statutory Reserve As per last Balance .....

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.32) 0.42 Profit/(Loss) before taxation 2.94 (94.80) Less: Provision for Income - tax (0.21) Nil Fringe Benefit Tax (0.02) Nil Add/(Less): Deferred Tax (0.27) 0.76 Profit/(Loss) after depreciation and taxation 2.44 (94.04) Add: Provisions written back 15.57 Nil Add: Excess provision for taxation of earlier years (net) 0.20 Nil Add: Balance in Profit & Loss A/c brought forward 258.63 352.91 Amount available for appropriation 276.84 258.87 Transfer to Statutory Reserve 0.49 Nil Transfer to Gen .....

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hat the same could only be adjusted against future profits. The law, per clause (iii) of Explanation 1 to section 115JB, nowhere provides that it is the loss as per the balance-sheet which is to be adjusted, which could thus be that as per the profit and loss account, i.e., for the immediately preceding year, which in view of the non-carry of backward of losses, can only be, or equally be, regarded as brought forward. While the profit and loss is stipulated (per s. 115 JB(2)) to be in terms of P .....

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of presentation and does not mean that the loss (represented by the debit balance in the profit and loss account) is absorbed by past reserves in the books of account. Further, the assessee has already accepted the adjustment to its returned book profit, i.e., in the quantum proceedings, and it s explanation on merits is only qua penalty proceedings, which are separate and distinct proceedings and, further, that a wrong claim for deduction would not automatically result in a liability toward pen .....

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er, is self-explanatory, and the case law in the matter legion, and toward which we may cite some celebrated decisions, viz Mak Data (P.) Ltd. vs. CIT [2013] 358 ITR 593 (SC); Union of India v. Dharmendra Textile Processors [2008] 306 ITR 277 (SC); K.P. Madhusudhanan vs. CIT [2001] 251 ITR 99 (SC); B.A. Balasubramaniam and Bros v. CIT [1999] 236 ITR 977 (SC); Addl. CIT vs. Jeevan Lal Shah [1994] 205 ITR 244 (SC); CIT vs. Nathulal Agarwala & Sons [1985] 153 ITR 292 (Pat)(FB): Failure to furni .....

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putation of the total income of any person under this Act,- (A) such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner Appeals or the Commissioner to be false, or (B) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and all the facts relating to the same and material to the computation of his total income have been disclosed by him, then, the amount .....

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d as per the books of account. This is as the law speaks of one figure (of loss or unabsorbed depreciation) as per the books of account. Could there be, one may ask, two figures (or two set of figures) for the same? Whether, therefore, one may refer to the balance-sheet or the profit and loss account, and irrespective of the manner of it s presentation - of which much is made out, the same would reveal or reflect the same figure, i.e., qua a particular aspect, as for example, the loss brought fo .....

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rence to one (profit and loss account) in preference to the other (balance-sheet), as does the assessee, is misleading. Could the books of account reveal different figures, whether one may look at the profit and loss account or the balance-sheet, both of which, termed final accounts, are drawn only from the books of account, and are to be read together. This would even otherwise be apparent from a mere browse of the final accounts, reproduced hereinbefore. The balance in the Profit & Loss A/ .....

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ely preceding year, 31.3.2005 in the instant case. This is axiomatic, and there cannot conceivably be two (or more) balances, either of brought forward loss or unabsorbed deposition. All that one needs to look at is at the balance of the profit and loss account as at the end of the immediately preceding year, or, equally at the beginning of the current year, and which would reflect the profit or, as the case may be, loss carried forward to, i.e., brought forward from the immediately preceding ye .....

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the unabsorbed depreciation and the balance loss are separately known, and the lower of the two set off. If the gross loss is lower than depreciation charged to the P&L A/c (be it for one or more years preceding the current year), it implies there is no loss, other than depreciation, so that it is nil, making the provision of clause (iii) of Explanation 1 to s. 115-JB inapplicable. Notably, the provision does not employ the word losses . In fact, even if it did, it would only imply losses f .....

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year at ₹ 20 (say), and of brought forward balance in the profit and loss account at a profit of ₹ 120/-, so that the balance in the profit and loss account, as per the balance-sheet as at the end of the of such year (or at the beginning of the current year) is ₹ 100/-. Going by the assessee s argument, there would be two sets of figures of profit (or loss) brought forward, i.e., profit of ₹ 120/- and a loss of ₹ 20/-, for the current year as per the books of accou .....

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to add to the amount of loss, if any, being carried forward in books or reduce the profit being, likewise, carry forward. When the loss is so adjusted, there is no carry backward of loss, so to speak, but the same only enters the or contributes to the general pool of profit or, as the case may be, loss, yielding a figure of cumulative profit/loss as per the books of account, which is carry forward to the following period and, likewise, from year to year. Nothing more and nothing less. Further, w .....

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he profit or loss brought forward (to any year) is, as afore-stated, a balance-sheet - which statement is a tabulation of the account balances in a manner so as to depict the (financial) state of affairs of the reporting enterprise as at the value date, generally the end of the account period, item. It thus reveals the sources of funds with it, and their application. There is no reference therein to any particular year or period to which a particular item pertains. An asset may be purchased a mo .....

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particular year merges in the profit and loss account, it looses it s separate identity and, in any case, has no bearing, either on the relevant provision of law (section 115JB) or its rationale. As depreciation is a mandatory charge to the profit and loss account (for a period), it is further clarified (per the provision itself) that the loss to be taken is exclusive of depreciation. The lower of the two, reckoned on an absolute basis, is to be allowed set off/adjusted. It may be recalled that .....

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n was not referred to by the ld. AR while pleading assessee s case, in-as-much as there is no reference to the said decision in the impugned order, we consider ourselves obliged to consider the same. The same stands carefully perused. The same is on a different aspect of the matter, from which therefore no support can be drawn. The issue in that case was whether it is the loss, gross of unabsorbed depreciation (Rs. 1648.74 lacs) or net of it (Rs. 261.04 lacs), that is required to be adjusted/set .....

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nable, and have its basis in the language of the provision, if not in its rationale as well. Speaking in the context of addition for an unexplained credit u/s. 68, the apex court in CIT vs. P. Mohanakala [2007] 291 ITR 278 (SC) clarified that the expression the assessee offers no explanation therein (which corresponds to the language of clause (A) of Explanation 1(A) to section 271(1)(c), which speaks of the assessee failing to furnish any explanation) means that where the assessee offers no pro .....

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a similar argument canvassed in CIT vs. Mirza Atullaha Baig [1993] 202 ITR 291 (Bom), the Hon ble Court, while admitting the proposition that in case of any doubt with regard to interpretation, the benefit of doubt should be given to the assessee, i.e., in principle, clarified that the said proposition cannot be stretched too far, and would not apply where the statutory provision is otherwise clear and brooks no doubt; it explaining its stand as under: The next submission on behalf of the asses .....

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rovision is clear and the law is well-settled. This principle cannot be stretched too far. It cannot be used to misinterpret a statutory provision which is otherwise clear and brooks no doubt about its meaning or interpretation just to give benefit to the taxpayer which the statute did not intend to give. We may finally advert to the decision in the case of CIT vs. NG Technologies Ltd. (in ITA No. 82/2012 dated 01.12.2014), SLP against which stands since dismissed by the Hon ble Apex Court. The .....

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