TMI Blog2019 (7) TMI 1211X X X X Extracts X X X X X X X X Extracts X X X X ..... eated as incidental business loss and hence to be allowed as revenue expenditure to the assessee for the A.Y.2003-04. Accordingly, the ground No.2 raised by the assessee is allowed and ground No.3 raised by the revenue is dismissed. Enhancement by CITA) to book profit computation u/s.115JB - Provision of deferred tax, Provision for diminution in value of investments and Provision for bad and doubtful debts - CIT(A)'s enhancement powers u/s 251(1)(a) - HELD THAT:- Three issues viz. provision for deferred tax; provision for diminution in value of investments; Provision for bad and doubtful debts vis- -vis computation of book profits u/s.115JB were already added by the ld. AO in the re-assessment order framed on 31/12/2007. Admittedly, the ld. CIT(A) issues enhancement notice to the assessee by way of recording in the order sheet only on 07/03/2011, on which date these three additions have already been made by the ld. AO in the re-assessment order. Hence, by respectfully following the decision of Jaipur Tribunal, [ 2018 (7) TMI 1398 - ITAT JAIPUR] we hold that the ld. CIT(A) erred in exercising enhancement powers in terms of Section 251(1)(a) in the facts and circumstances o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out of the order by the ld. Commissioner of Income Tax (Appeals)-6, Mumbai in appeal No.CIT(A)XXX/IT-56/Rg.2(3)/08-09 dated 08/03/2011 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3)of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 31/01/2016 by the ld. DCIT, Circle-2(1), Mumbai (hereinafter referred to as ld. AO). Let us take up the assessee appeal in ITA No.3333/Mum/2011. 2. The first ground raised by the assessee is with regard to the action of the ld. CIT(A) deleting the disallowance u/s.43B of the Act in respect of sales tax collected under scheme notified by UP State Government. 2.1. The brief facts of the case are that the assessee had availed the benefit of UP State Government deferral scheme in respect of sales tax collected at Lucknow works. As per deferral scheme, sales tax collected was deferred and converted into loan. Though the deferral was permitted as per the scheme, the agreement was required to be signed with the UP State Government every year for completion of legal formalities. The agreement in respect of current year was signed subsequent to the due date of filing of re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urpose of business, and it is incidental to the business of the appellant. 3.1. Revenue has raised ground No.3 in this regard as under:- On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in holding the loss on sale of items as capital loss whereas the assessee company following the project completion method of accounting and loss should have been capitalized in the work in progress making the AO s action relevant. 3.2. The brief facts of this issue are that the ld. AO observed that in the computation of income, the assessee has reduced a sum of ₹ 3,26,29,707/- on account of loss on sale of items held in capital work in progress. As per Note No.14 to the return of income, the assessee has stated that during the F.Y.2001-02 relevant to the A.Y.2002-03 (immediately preceding A.Y), certain items lying in capital work in progress of ₹ 6,46,81,880/- were adjusted against Securities Premium Account as per the provisions of Section 78 r.w.s.100 of the Companies Act, 1956. These items have been sold during the previous year for a sum of ₹ 3,20,52,173/-. Sale proceeds of those items we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss u/s.45 of the Act. 3.4. Aggrieved, both assessee as well as revenue is in appeal before us. 3.5. We have heard rival submissions. At the outset, the ld. AR pointed out that these expenses incurred towards steel structures and steel fabrications were not incurred for a new project as such. Moreover, the assessee is not following project completion method. It is not known from where the ld. AO had material to come to this conclusion. These expenditures were incurred for an ongoing project which was kept in capital work in progress. We find that the reliance placed by the ld. AR on the Co-ordinate Bench decision of this Tribunal in the case of Idea Cellular Ltd., vs. Additional Commissioner of Income Tax reported in 47 Taxman.com 341 dated 13/05/2014 is well founded and consequently applicable to the facts of the instant case. The facts in that case before the Co-ordinate Bench of Mumbai Tribunal and the decision rendered thereon are as under:- 2. Ground No. 1 is regarding disallowance of expenditure on abondoned project. 2.1 During the course of assessment proceedings, the AO noted that the assessee has inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the facts of the assessee's case. 2.4 On the other hand, the Ld. DR has submitted that the expenditure has been incurred not only on suvey of the sites but also for the development of the sites as well as feasibility report, therefore, the expenditure of such nature is in the capital field and loss due to the abandonment of the project would certainly be a capital loss and not revenue loss. He has relied uon the orders of authorities below and reiterated that the entire expenditure has been incurred for the purpose of brining into existence new asset and new source of income. Therefore, the expenditure of such nature is not allowable as revenue expenditure. 2.5 We have considered the rival submissions as well as relevant material on record. There is no dispute that the expenditure in question was incurred by the assessee for the purpose of construction/erection of cellular towers which were abondoned due to the reason that the same were not found suitable. The authorities below have disallowed the claim of the assessee on two reasons viz. (i) the expenditure has been incurred for bringing up a capital asset into existence.(ii) the capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal No. 7 of 2000, one more issue is involved and that is relating to the claim of the assessee of spending an expenditure to the tune of ₹ 3,16,490. It has been on the ground that the assessee though had one project in contemplation, but that was not completed and the project was abandoned, therefore, it is an abortive expenditure. The expenditure incurred by the assessee is as under :- 1. Architectural fee in respect of abandoned project ₹ 2,57,335/- 2. Old capital work in progress abandoned ₹ 46,379/- 3. Cost of damaged cabinets ₹ 12,776/- 13. The company's contention was that the company had entrusted the study and design, detail working and drawings of a multi-storied (12 storied) building to a party names Acme Compartments Pvt. Ltd., Calcutta. After the preliminary work was undertaken, the project was to be abandoned due to adverse soil and other adverse conditions at the proposed site. The assessee company had to incur some expenditure on preliminary work. It was said that all designs, drawings etc. became useless and that was why the expenditure was written off. After na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be a revenue expenditure actually and not a capital expenditure. 2.6 Since the expenditure has been incurred for the project which could not be accomplished and it was intended to facilitate the assessee's business activity to be carried out more conveniently and profitably, therefore, the said expenditure is an allowable revenue expenditure. Hence by following the decision of Hon'ble High Court of Jharkhand in the case of CIT Vs. Tata Robins Fraser Ltd. (supra), we set aside the order of authorities below qua this issue and allow the claim of the assessee. 3.6. We find that this decision of this Tribunal was also approved by the Hon ble Jurisdictional High Court in the case of CIT vs. Idea Cellular Ltd., reported in 76 taxmann.com 77 wherein it was held as under: 9. We have carefully perused the memo of the appeal. We have also perused the order of the assessing officer and that of the first appellate authority. Mr. Malhotra has elaborately taken us through these orders to submit that the assessing officer found from the record itself and particularly from a document, namely, a letter or response from the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... questions (a) and (b), as pressed, are substantial questions of law. The appeal is devoid of merits and it is dismissed. There would be no order as to costs. 3.7. Respectfully following the aforesaid decision, we hold that the losses incurred by the assessee in the sum of ₹ 3,26,29,707/- has to be treated as incidental business loss and hence to be allowed as revenue expenditure to the assessee for the A.Y.2003-04. Accordingly, the ground No.2 raised by the assessee is allowed and ground No.3 raised by the revenue is dismissed. 4. The ground No.3 raised by the assessee is challenging the action of the ld. CIT(A) in making enhancement to book profit computation u/s.115JB in respect of following items:- a) Provision of deferred tax b) Provision for diminution in value of investments c) Provision for bad and doubtful debts 4.1 We have heard rival submissions. We find that the ld. CIT(A) during the course of appellate proceedings show-caused the assessee vide order sheet noting dated 07/03/2011 wherein he proposed to enhance the book profit computed u/s.115JB by making the afo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 10 March 2011 CIT(A) order against AO's 147 order 9 27 April 2011 Assessee filed appeal before Tribunal against 143(3) order 10 27 April 2011 Assessee filed appeal before Tribunal against 147 order 11 16 June 2011 Department filed appeal before Tribunal against 143(3) Order 12 16 June 2011 Department filed appeal before Tribunal against 147 Order 4.2. From the aforesaid sequence of events it could be noticed that the ld. AO in the order passed u/s.143(3) r.w.s. 147 of the Act dated 31/12/2007 had already made additions to book profits by considering the aforesaid three items. While this is so, there is no scope left with the ld. CIT(A) to enhance the very same items in the appellate proceedings pending before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Income-tax Officer noted that die assessee had withdrawn at Calcutta on March 31, 1952, a sum of ₹ 5,30,000 from a Calcutta bank and had sent a sum of ₹ 5,95,000 to his Forbesganj branch on the same day to enable that branch to make payments including the repayment of ₹ 2,50,000 to Sri Kharag Bahadur one of the alleged creditors noted above. The Income-tax Officer discussed the impossibility of the amount having reached Forbesganj branch in Bihar on the very same day in order to enable discharge of the creditors there on March 31, 1952. In regard to this amount of ₹ 5,85,000 the Income-tax Officer observed as follows : On 31-3-1952 the Calcutta Office has withdrawn ₹ 5,30,000 from the Bank and has sent ₹ 5,95,000 to Forbesganj How the cash has reached Forbesganj (in remote corner in North Bihar) on the same day to enable the branch to make payments (including the sum of ₹ 2,50,000 to Kharag Bahadur) is something difficult to understand even in these days of fast travel. Lloyds Bank in Calcutta would not have obliged the assessee by paying out cash before 10 A.M. on 31-3-1952 and the only available train leaves in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not the subject-matter of the assessment made by the Income-tax Officer. The Appellate Tribunal took the view that the subject-matter in respect of which the enhancement was made was, in fact, considered by the Income Tax Officer and accordingly the Appellate Assistant Commissioner had jurisdiction to make the enhancement. At the instance of the assessee the Appellate Tribunal referred the following question of law for the opinion of the High Court under s. 66 ( 1) of the Income-tax Act, 1922 (hereinafter called the 'Act') : Whether on the facts and in the circumstances of the case the Appellate Assistant Commissioner was within his authority in enhancing the assessment of the assessee by ₹ 1,55,000 for the assessment year 1952-53 ? 6. In CIT vs. Shapoorji Pallonji Mistry (1962) 44 ITR 891 9SC): TC7R.576, it was held by this Court that in an appeal filed by the assessee the Appellate Assistant Commissioner has no power to enhance the assessment by discovering new sources of income not mentioned in the return of the assessee or considered by the Income-tax Officer in the order appealed against. In that case, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cular process but the amount which ought to have been computed if the true total income had been found. There is no doubt that this view is also possible. On the other hand, it must not be overlooked that there are other provisions like sections 34 and 33B, which enable escaped income from new sources to be brought to tax after following a special procedure. The assessee contends that the powers of the Appellate Assistant Commissioner extend to matters considered by the Income-tax Officer, and if a new source is to be considered, then the power of remand should be exercised. By the exercise of the power to assess fresh sources of income, the assessee is deprived of a finding by two tribunals and one right of appeal. The principle that emerges as a result of the authorities of this Court is that the Appellate Assistant Commissioner has no jurisdiction, under s. 31(3) of the Act, to assess a source of income which has not been processed by the Income- tax Officer and which is not disclosed either in the returns filed by the assessee or in the assessment order, and therefore. the Appellate Assistant Commissioner cannot travel beyond the subject- matter of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the sources of income which have been the subject-matter of consideration by the Income-tax Officer from the point of view of taxability. In this context consideration does not mean incidental or collateral examination of any matter by the Income-tax Officer in the process of assessment. There must be something in the assessment order to show that the Income-tax Officer applied his mind to the particular subject-matter or the particular source of income with a view to its taxability or to its non-taxability and not to any incidental connection. In the present case it is manifest that the Income-tax Officer has not considered the entry of ₹ 5,85,000 from the point of view of its taxability and therefore the Appellate Assistant Commissioner had no jurisdiction, in an appeal unders. 31 of the Act, to enhance the assessment. For these reasons we hold that the High Court rightly answered the question in favour of the assessee and this appeal must be dismissed with costs. 4.3. Hence, respectfully following the aforesaid decision, in any case, the provision for deferred tax could not be the subject matter of addition in the computation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that, no return of income was filed by the assessee. The notice issued under section 148 dated 15.03.2013 talks about an amount of ₹ 16,50,000 deposited in assessee s bank account maintained with PNB, the source of which has not been explained and the same has thus escaped assessment. On perusal of the assessment order passed under section 143(3) read with section 147 of the Act, it is noted that the said deposits in assessee s bank has been examined however, there is no linkage with the impunged sale transactions which are the subject matter of enhancement by the ld CIT(A). Further, there is a sale transaction which is the subject matter of assessment which relates to sale of ancestral land situated at the same village Goner, Village Goner, Tehsil Sanganer, Jaipur vide sale deed dated 26.12.2006 to M/s Fine Tech Macro Developers Pvt. Ltd for a consideration of ₹ 13,20,000 and which has been valued by the stamp duty authorities at ₹ 14,88,000. The said transaction has been brought to tax by the Assessing officer after providing the index cost of acquisition. We thus find that the impunged sale transactions relating to sale of land by the assessee to his two daught ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sactions are brought to tax in the year under consideration are beyond the scope of her powers envisaged under section 251(1)(a) and the same thus cannot be accepted. However, the AO shall be free to take action as per law. 4.5. We find that the aforesaid decision of Jaipur Tribunal squarely addresses the issue in dispute before us. At the cost of repetition, we would like to state that the aforesaid three issues viz. provision for deferred tax; provision for diminution in value of investments; Provision for bad and doubtful debts vis- -vis computation of book profits u/s.115JB of the Act were already added by the ld. AO in the re-assessment order framed on 31/12/2007. Admittedly, the ld. CIT(A) issues enhancement notice to the assessee by way of recording in the order sheet only on 07/03/2011, on which date these three additions have already been made by the ld. AO in the re-assessment order. Hence, by respectfully following the decision of Jaipur Tribunal, supra we hold that the ld. CIT(A) erred in exercising enhancement powers in terms of Section 251(1)(a) of the Act in the facts and circumstances of the case before us. 4.6. Even on merits, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oes not arise in this case as the assessee was entitled to file the audit report before the completion of the assessment with or without a revised return for the purpose of curing the defect in the original return filed without the audit report. 4.7. Respectfully following the observations of Hon ble Calcutta High Court in para 16 above, the enhancement made by the ld. CIT(A) with respect to aforesaid three items in the computation of book profits u/s.115JB of the Act deserves to be deleted and is hereby deleted. 5. The next issue to be decided in the appeal of the revenue is as to whether the ld. CIT(A) was justified in allowing the assessee s claim of provision of warranty expenses in the facts and circumstances of the case. 5.1. We have heard the rival submissions. We find that this issue is squarely covered by the decision of this Tribunal in assessee s own case for A.Yrs. 1994-95, 1995-96, 1996-97, 1997-98, 1999-2000, 2004-05, 2005-06 2006-07. The facts of A.Y.1996-97 and the decision rendered thereon in ITA No.1015/Mum/2001 dated 31/07/2007 are as under:- 22. Ground No. 7 in the, revenue's appeal re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordingly, he disallowed assessee's claim of deduction. Though, the assessee objected to the aforesaid disallowance before the DRP, however, it was unsuccessful. Accordingly, the Assessing Officer carried out the disallowance in the final assessment order. 10. The learned Authorised Representative submitted, while deciding identical issue in assessee's own case for assessment year 2005-06, the Tribunal has deleted the disallowance made by the Assessing Officer. Thus, he submitted, the issue is covered by the decision of the Tribunal in assessee's own case for assessment year 2005-06. In this context, he drew our attention to the relevant observations of the Tribunal. Further, in support of his contention, he relied upon the decision of the Tribunal in Tata Iron Steel Co., ITA no.3965/Mum./ 2003 Ors., dated 7th March 2014. He also relied upon the decision of the Hon'ble Rajasthan High Court in CIT v/s Secure Meters Ltd., 321 ITR 611 (Raj.). 11. The learned Departmental Representative relied upon the observations of the Assessing Officer and the DRP. 12. We have conside ..... X X X X Extracts X X X X X X X X Extracts X X X X
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