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2019 (12) TMI 139

..... oved in AGM, the AO cannot alter book profit for any items other than as provided as in explanation (1) to section 115JB - AO has accepted the claim of the assessee in preceding financial years when the assessee has claimed depreciation on alleged bogus fixed assets without any adjustment to book profit. Once the claim of the assessee has been accepted in earlier financial years, then there is no reason for the AO to disturb the settled position unless otherwise there is a complete change in facts for the year under consideration. Although, resadjudicata is not strictly applicable to income tax proceedings, but rule of consistency is to be followed as held in the case of CIT vs. Radhasoami Sathsung vs CIT [1991 (11) TMI 2 - SUPREME COURT] wherein it was held that rule of consistency has to be followed in income tax proceedings even though resadjudicata is not strictly applicable. AO as well as CIT(A) were erred in making additions towards depreciation on alleged fixed assets to book profit computed u/s 115JB. We direct the AO to delete additions made to book profit under section 115JB towards depreciation claim on fixed assets. Disallowance of expenditure incurred in relation to ex .....

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..... book profits u/s 115JB of the Income Tax Act, 1961, without considering the facts and circumstances of the case. 2) On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in confirming the action of Learned Assessing Officer in making disallowance u/s 14A of the Income Tax Act,1961 as per rule 8D, without appreciating the facts and circumstances of the case. 3) On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in confirming the action of the Learned Assessing Officer in making an addition of the disallowance made u/s 14A as per Rule 8D, to the book profits u/s 115JB of the Income Tax Act, without appreciating the facts St circumstances of the case. 4) The appellant craves leave to add, amend, alter or delete the said ground of appeal. 3. The brief facts of the case are that the assessee is engaged in the business of Information technology solutions and information technology infrastructure management services, providing wide spectrum of technology solutions and services to a diverse customer base, filed its return of income for assessment year 2012-13 on 26.09.2012 declaring total loss of ₹ 4,51,73,6 .....

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..... oking provisions of rule 8D and determined total disallowance of ₹ 77,41,478/- and similar adjustment has been made to book profit computed under section 115JB of the Income Tax Act, 1961. 4. Aggrieved by the assessment order, the assessee preferred appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee contended that as per provisions of section 115JB, only such items which are specifically mentioned in the explanation (1) to section 115JB can be added back to the book profits and no other additions can be made by the AO, once book of accounts are audited and approved by the shareholders in the annual general meeting. In this regard, the assessee relied upon the decision of Hon ble Supreme Court in the case of Apollo Tyres Ltd. vs. CIT 255 ITR 273. As regards, disallowance of expenditure incurred in relation to exempt income it was submitted that its own funds in form of share capital as well as reserves are in excess of investments made in shares, which yield exempt income and accordingly, no disallowance can be made in respect of interest disallowances. In this regard, the assessee has relied upon the decision of Hon ble Bombay High Court in the case of CIT vs. .....

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..... me from the foreign companies is taxable, accordingly, set aside the issue to the file of the AO and directed him to verify working of disallowances under section 14A read with rule 8D furnished by the assessee and make suitable adjustments. As regards re-computation of book profit under section 115JB by adding the amount of disallowance made under section 14A read with rule 8D, the Ld. CIT(A) has directed the AO to ascertain quantum disallowances under section 14A and also make recomputation of book profit by adding revised amount of disallowances under section 14A read with rule 8D in accordance with clause (f) of explanation (1) to section 115JB of the Income Tax Act, 1961. 6. Aggrieved by the Ld. CIT(A) s order, the assessee is in appeal before us. 7. The first issue that came up for reconsideration from ground No.1 of assessee s appeal is additions made towards disallowance of depreciation on fixed assets to the book profits computed under section 115JB of the Income Tax Act, 1961. The Ld. A.R. submitted that the Ld. CIT(A) confirmed additions made by the AO, without appreciating the fact that once books of accounts are audited and approved by the shareholders in the AGM, the .....

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..... the AO is right in recomputation of book profit under section 115JB by adding depreciation claimed on alleged bogus fixed assets, we find that the AO has made adjustment towards depreciation on alleged bogus fixed assets without making any observations as to incorrectness in books of accounts prepared by the assessee as per part II & III of schedule VI to the Companies Act, 1956. Unless otherwise, the AO makes out a case of inconsistency in financial statement prepared by the assessee in light of part II & III of schedule VI to the Companies Act, 1956, he cannot make any additions to the book profit computed under section 115JB of the Income Tax Act, 1961, other than as provided under explanation (1) to section 115JB of the Income Tax Act, 1961. This legal proposition is supported by the decision of Hon ble Supreme Court in the case of Apollo Tyres Ltd. vs. CIT (supra) wherein it was categorically held that the AO has only the power of examining whether the books of accounts are certified by the authorities under the Companies Act, as having been properly maintained in accordance with the Companies Act. Once books of accounts have been maintained in accordance with Compani .....

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..... f the assessee before the AO that it has not incurred any expenditure in relation to exempt income and hence, no disallowance can be made under section 14A of the Income Tax Act, 1961. The assessee had also taken another argument in light of certain judicial precedents and argued that own funds in form of share capital and reserves is in excess of investments in shares and securities which yield exempt income and hence no disallowance can be made towards interest expenditure under rule 8D(ii) of IT Rules, 1962. Similarly, the assessee had also challenged the action of the AO in disallowance of other expenses under rule 8D2(iii) on the ground that investments made in subsidiary companies for strategic control and investments made in foreign subsidiaries has to be excluded to determine average value of investments. The Ld. CIT(A) after considering relevant submissions of the assessee rejected the claim of the assessee regarding investment in subsidiary for strategic control in light of the decision of Hon ble Delhi High Court in the case of Maxopp Investment vs. CIT 347 ITR 372. However, he had accepted the claim of the assessee in so far as investments made in foreign subsidiaries, .....

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..... in shares and securities which yielded exempt income is out of own funds. The assessee claims that it has own funds in form of share capital and reserves to the extent of 664.29 crores, whereas its investments in shares and securities is at ₹ 144.96 crores. Therefore, no disallowance could be made in respect of interest expenditure under rule 8D(2)(ii) of IT Rules, 1962. This point needs verification from the AO, because the assessee has taken this plea for first time before the Tribunal. In so far as investments in subsidiaries for strategic control, we find that the Hon ble Supreme Court in the case of Maxopp Investment vs. CIT 347 ITR 372 had rejected the arguments of the assessee for investments in subsidiaries/group companies for strategic purpose and held that the moment exempt income is received provisions of section 14A are applicable. Therefore, even if investments are made in subsidiary companies for strategic control, the provisions of section 14A are applicable and consequent disallowances of expenses shall be determined in accordance with rule 8D of IT Rules, 1962. Therefore, we reject the arguments of the assessee. In so far as investments in foreign subsidiarie .....

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