TMI Blog2018 (6) TMI 1751X X X X Extracts X X X X X X X X Extracts X X X X ..... HIGH COURT] to conclude that the impugned amount is to be understood as a known liability and not as a Reserve In our considered opinion, it is a well-settled proposition of law that in order to address a legal point, what is of relevance is the applicable legal position as emerging from the statutory provisions and the attendant jurisprudence and not merely the stand taken by the parties at a particular point of time. Thus, we are not going into the efficacy of the contradiction that is sought to be pointed out by the ld. CIT-DR as, in our view, the same is not germane to decide the controversy before us. Another aspect which has been emphasised by the ld. CIT-DR is that the adjustment sought to be made by the assessee is not in terms of the prescription in Explanation-1 to Sec. 115JB of the Act. We have already examined the said plea and in the context of our aforesaid discussion, find that the claim of assessee of the impugned Provision being in the nature of an ascertained liability is justified on facts as well as on point of law. In any case, this aspect of the matter has also been examined in detail by our coordinate Bench in the earlier year with which we concur. Thu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) is clearly borne out of record inasmuch as a perusal of the assessment order itself reveals that qua the aforesaid additions, there is no reference to any incriminating material found in the course of search. Therefore, we find no reasons to interfere with the factual findings arrived at by the CIT(A) and, in that background, no fault can be found with the CIT(A) for having applied the ratio of the judgment of the Hon'ble Bombay High Court in the case of Continental Warehousing Corporation (Nhava Sheva Ltd) (supra) in order to delete the aforesaid additions. Thus, on facts as well as on point of law, we find no reasons to interfere with the decision of the CIT(A), which we hereby affirm. - ITA NOS. 5848 TO 5850, 5496 TO 5498/MUM/2016 - - - Dated:- 13-6-2018 - SHRI G.S. PANNU AND SHRI RAM LAL NEGI, JJ. Assessee by : Shri Rakesh Joshi Revenue by : Ms. S. Padmaja ORDER G.S. PANNU, J. The captioned appeals relate to the same assessee and as certain common issues are involved, they have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity. 2. First, we shall take-up the appeals preferre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for us to observe that as per Sec. 115JB of the Act, book profit means net profit as shown in the Profit Loss Account for the relevant previous year prepared in accordance with the provisions of Part-II of Schedule-VI of the Companies Act, 1956 and increased or decreased by the items contained in ExplanationI below Sub-section (2) of Sec. 115JB of the Act. 5. In the course of assessment proceedings, the Assessing Officer noted that while determining the book profit for the purposes of calculating the tax liability u/s 115JB of the Act, assessee has reduced an amount of ₹ 2,42,15,414/- which comprised of (i) Provision for Preference Share Redemption Reserve ₹ 43,07,000/-; and (ii) 3% return ₹ 1,99,08,414/-. The Assessing Officer show-caused the assessee as to why the Provision for Preference Share should not be added back as the same was not revenue in nature. Assessee made submissions pointing out the issuance of redeemable preference shares and the fact that in addition to the redemption of face value and premium, an annual return of 3% was also provided as per the terms of the issue. It was explained by the assessee that it was providing for such cost o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee factually emphasised that the only claim made towards the reduction from the book profit was the premium and the additional premium/return of 3% and not the principal amount or the face value of the redemption of Preference shares. The claim of the assessee was that for the purpose of arriving at the book profit, all the known and ascertained liabilities/Provisions are allowable to be reduced and, in this context, referred to the specific provision contained in clause (c) of Explanation-1 to Sec. 115JB(2) of the Act. 7. Assessee also referred to the relevant provisions of the Companies Act, 1956, namely, Sec. 80 to emphasise that the premium payable on redemption of Preference shares was a charge against the profits of the company. Alternatively, it was pointed out that clause (c) of Sec. 80(1) permits charging of premium on redemption of Preference shares against the Share/Securities Premium account also. Assessee argued that it has opted for providing the premium on redemption of Preference shares against the profits of the assessee-company and, therefore, the Provision in question was in line with the mandate of Companies Act, 1956. Assessee also justified debiting o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not provision/liability. Therefore, the said amount was not to be excluded from the net profit to arrive at the book profit u/s 115JB of the Act. Accordingly, the addition of ₹ 242,15,414/- is upheld and ground No. 4 5 are dismissed. Against such a decision of CIT(A), assessee is in further appeal before us. 10. Before us, the learned representative for the assessee, at the outset, submitted that a similar controversy has been considered by the Tribunal in assessee s own case as well as in the case of another sister concern, M/s. Wellknown Synthetics Pvt. Ltd. for Assessment Year 2010-11 vide ITA Nos. 2691 2692/Mum/2015 dated 22.11.2016, wherein similar addition made while computing the book profit u/s 115JB of the Act has been deleted. In this context, we have perused the decision of the Tribunal dated 22.11.2016 (supra) and find that the issue raised therein is very much similar to the controversy which is raised before us. Although the Tribunal has discussed the issue in a detailed manner in the context of assessee s sister concern, M/s. Wellknown Synthetics Pvt. Ltd., it has thereafter decided the issue in assessee s own case for Assessment Year 2010-11 also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the section 80 of the Companies Act; and lastly, the shares are optionally convertible in equity shares so in future the share cannot be redeemed and cannot be converted into equity shares and it will further amount to redemption of capital, hence it is in the nature of unascertained liability. From the perusal of the impugned order of the CIT(A) as well as Ld. Assessing Officer, first of all it is seen that nowhere these authorities have held that either the assessee s account has not been prepared as per Schedule -VI of the Companies Act or the assessee has not followed proper Accounting Policies or Accounting Standards, which has been accepted and adopted at the annual general meeting in accordance with provisions of Section 210 of the Companies Act, then there is no scope for the Assessing Officer to tinker with such accounts except for as provided under Explanation 1. So far as first contention of Ld. CIT(A) the same cannot be accepted, because the primary requirement of 115 JB is that account drawn by the assessee should be in accordance with schedule VI of the Companies Act. The receipt of securities premium account is a Balance Sheet item and hence, it is always credited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... added back the provision of premium payable on redemption of preference shares, that is, it is not claiming the provision in terms of Explanation 1 of section 115JB, albeit it has adjusted against the book profits on the ground that it is in nature of ascertained liability directly routed through profit and loss account and not under any of the clauses of Explanation 1 to section 115JB. Another objection of the revenue is that, redemption of preference share is reduction of capital and such capital amount cannot be allowed from the book profit. Such a contention of the revenue is not supported by any provisions of law either under the Companies Act or by any judicial precedence. The question whether the premium amount is capital or revenue is not relevant for the purpose of book profit. One has to debit or credit the items of income or expense as per the accounting principles and Section 80 of the Companies Act mandates the company to provide the premium on redemption either through profit loss account or through share premium account. Once the company has opted for providing for share premium through profits loss account it has to debit the same in the profit and loss account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounts of the company to redeem the debenture has to be treated as monies set apart to meet a known liability. Consequently, debentures have to be shown in the balance sheet of a company as a liability. Being monies set apart to meet a known liability, a Debenture Redemption Reserve cannot be regarded as a reserve for the purpose of Schedule VI to the Companies Act, 1956. In National Rayon Corporation, the Supreme Court followed its earlier decision in Vazir Sultan Tobacco Co. Ltd. Vs. CIT [[1981] 132 ITR 559], in holding that since the concept of reserve and of a provision is well known in commercial accountancy and is used in the Companies Act, 1956, while dealing with the preparation of balance sheets and profit and loss accounts the meaning of that concept would have to be gathered from the meaning attached in the Companies Act itself. The mere fact that a Debenture Redemption Reserve is labeled as a reserve will not render it as a reserve in the true sense or meaning of that concept. An amount which is retained by way of providing for a known liability is not a reserve . Here the preference shares is akin to debentures for the reason that, both are repayable and hence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e hold that the reasons assigned by the authorities below for making addition for book profit of ₹ 39,82,190/- on account of preference share redemption reserve cannot be upheld and Assessing Officer is directed to allow the same and the amount should be reduced from the working of the book profit u/s 115JB. Accordingly, ground No.1 as raised by the assessee is allowed. 11. In this background, the ld. CIT-DR appearing for the Revenue has supported the orders of the authorities below. Though the ld. CIT-DR did not contest that the controversy in question has indeed been considered by the Tribunal in the case of assessee itself in the order dated 22.11.2016 (supra), so however, she has sought to make out a case that the earlier bench has decided the issue inadequately inasmuch as the same has not taken into consideration the issue in its proper perspective and/or that the same has been decided by not considering the correct position of law and facts. In this background, the ld. CIT-DR has made elaborate submissions in support of the addition made by the Assessing Officer while computing the book profit u/s 115JB of the Act. Firstly, the ld. CIT-DR has referred to the copy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it arrived at in the Profit Loss Account prepared as per Schedule-VI of the Companies Act, 1956 but where there was an apparent and total departure from the Accounting Standards as per the provisions of the Companies Act, 1956 while preparing the accounts including the Profit Loss Account, then, the same is amenable to examination by the Assessing Officer while determining the book profit u/s 115JB of the Act. The ld. CIT-DR emphasised that such principle also operates against the assessee in as much as the assessee has made an adjustment to the book profit arrived at as per the Profit Loss Account prepared under the Companies Act, 1956, which is not expressly provided in Sec. 115JB of the Act itself. 13. The aforesaid aspect has been emphasised even in the context of the findings of the Tribunal in assessee s own case for the earlier assessment years to the effect that the Provision in question is a charge against the profit and is not an appropriation towards a Reserve. It is pointed out that in applying the aforesaid principle, the then Bench in its order dated 22.11.2016 (supra) did not consider the fact that the net profit disclosed in the Profit Loss Account prepar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and, therefore, the decision of the Tribunal in assessee s own case dated 22.11.2016 (supra) be departed from and the impugned orders of the lower authorities be upheld. 17. In the above background, we have considered the rival stands. Before proceeding to adjudicate the specific point raised in the appeal, a brief observation with regard to the provisions of Sec. 115JB of the Act is relevant. Sec. 115JB of the Act has been inserted by the Finance Act, 2000 w.e.f. 01.04.2001 and seeks to prescribe that the companies are liable to pay minimum tax if they have book profit under the Companies Act, 1956. Prior to this, the concept of companies being required to pay a minimum tax was initially introduced in 1996 by way of Sec. 115J of the Act. Thereafter, from Assessment Year 1997-98, Sec. 115JA of the Act was inserted which has yielded place to the present Sec. 115JB of the Act w.e.f. 01.04.2011. As we have noted earlier, Sec. 115JB of the Act prescribes that where the income tax payable on the total income as computed under the provisions of the Act in respect of any year is less than 18 % of the book profit under the Companies Act, 1956, then, such book profit shall be deemed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Hon'ble Supreme Court that the Assessing Officer under the Act has to accept the authenticity of the accounts with reference to the provisions of the Companies Act, 1956 as the same was scrutinised and certified by the statutory Auditors and is approved by the company in its General meeting and thereafter it is filed before the Registrar of Companies, who also has a statutory obligation to examine and satisfy that the accounts of the company are maintained in accordance with the requirements of the Companies Act, 1956. By pointing out the aforesaid, we are only trying to emphasise that the intrinsic soul of Sec. 115JB of the Act is the computation of book profit under the Companies Act, 1956. Ostensibly, the observations of the Hon'ble Supreme Court are apt even in the context of examining and understanding the basic structure of Sec. 115JB of the Act because there cannot be two set of income computations; one for the purpose of Companies Act, 1956 and another for the purpose of Income Tax Act, 1961 while both are being maintained under the same Act, i.e. the Companies Act, 1956. 18. Coming back to the provisions of Sec. 115JB of the Act, book profit refers to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 956 because what we are required to rely on is the manner of computing the book profit under the Companies Act, 1956. It is in this context one has to appreciate the claim made by the assessee consistently before the lower authorities, and which have found favour with our co-ordinate Bench in the earlier year, which is to the effect that Sec. 80 of the Companies Act, 1956 permits a company to consider the Premium payable on redemption of Preference shares as a charge against the profits. This has been countered by the ld. CIT-DR on the strength of the judgment of the Hon'ble Delhi High Court in the case of SREI Infrastructure Finance Ltd. (supra) to say that even the creation of a statutory mandated Reserve would not impart it the status of a Provision or a charge against the profits for the purposes of Sec. 115JB of the Act. In this context, we have perused the judgment of the Hon'ble Delhi High Court. The Hon'ble Delhi High Court was dealing with a controversy relating to computation of book profit u/s 115JB of the Act in relation to an amount transferred to a Special Reserve pursuant to Sec. 45-IC of the Reserve Bank of India Act, 1934 in the context of claus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e impugned claim cannot be seen as a Reserve, as sought to be made out by the ld. CIT-DR. 19. In fact, another aspect which was before the Hon'ble Delhi High Court was in relation to the transfer of an amount to Debt Redemption Reserve for which also it negated the stand of the assessee and held it to be a Reserve falling within the scope of clause (b) of Explanation-1 to Sec. 115JB of the Act. In coming to such a decision, in paras 22 and 23, the Hon'ble High Court specifically noted that the assessee therein had failed to explain the nature and character of the debt and went on to hold that in the absence of such explanation, the said sum would not be liable to be accepted as an ascertained liability in terms of clause (c) of Explanation-1 to Sec. 115JB of the Act. In fact, in the case before us, and which has also been noted in detail by our co-ordinate Bench in the earlier year, the Provision is for Premium payable on redemption of Preference shares and the additional Premium/return payable on such redemption. There is a complete explanation which reflects the nature and character of the Provision and it clearly underlines the obligation or the liability to pay ove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of such Provision. 22. Before parting, we may also say that the Revenue had, inter-alia, moved a petition to constitute a larger Bench ostensibly with the object of reviewing the earlier order of the Tribunal dated 22.11.2016 (supra). Both the sides did make respective pleas on this aspect, but in our view, no justifiable reasons exist, for the present, to set-up a Special Bench to review the earlier decision of the Tribunal dated 22.11.2016 (supra). In fact, the arguments on merits advanced by the ld. CIT-DR were also an attempt to persuade us to depart from the view adopted by the Tribunal earlier in its order dated 22.11.2016 (supra) and/or set-up a larger Bench. In our considered opinion, judicial discipline implores us to follow the precedent, especially where it has been rendered in assessee s own case and under identical set of facts. At this stage, we may hasten to add that we are in complete concurrence with the observations of our co-ordinate Bench in the case of Shri Homi K. Bhabha vs ITO, ITA No. 3287/Mum/2009 dated 28.09.2011 that to follow an earlier precedent of the co-ordinate Bench or to make a reference to a larger Bench is dependent on the satisfaction of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Bombay High Court in the case of All Cargo Logistics Ltd, without appreciting the fact that the department has not accpeted the order passed by the Hon'ble High Court in said case, and preferred to file Special Leave Petition before the Hon'ble Supreme Court. 2. On the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of ₹ 29,95,036/- made u/s. 14A read with rule 8D of Income Tax Rules 1962, on the ground that addition / disallowance was not based on any incriminating material , without appreciting the fact that the department has not accepted the order passed by the Hon'ble High Court in the case of All Cargo Logistics Ltd., and preferred to file Special Leave Petition before the Hon'ble Supreme Court. 3. On the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the adhoc disallowance u/s. 14A read with rule 8D of Income Tax Rules 1962 while computing the book profit u/s. 115JB of the Act, on the ground that addition / disallowance was not based on any incriminating material , without appreciting the fact that the department has not accpeted the order passed by the Hon'bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal income of ₹ 850,42,851/-. The assessment u/s.143(3) was completed vide order dated 28.12.2010 assessing the total income at ₹ 852,36,513/-by making an addition of ₹ 193,662/- u/s.14A of the Act. The appellant did not prefer appeal against the said assessment order and the same became final. The appellant had computed book profit u/s.115JB at ₹ 180,488,095/-and the A.O. has not disturbed the book profit in the assessment made u/s.143(3) of the Act. The appellant has shown book profit in the return u/s.153A at ₹ 18,06,81,757/- after making an addition of ₹ 193,662/- u/s.14A of the Act. Total income as per normal provisions has been declared u/s 153A at ₹ 955,12,960/-. 5.1.1. In view of the above facts, the assessment for A.Y. 2008-09 had reached finality and no assessment was pending as on the date of search u/s. 132 of the I.T. Act i.e on 23.5.2013. Thus, it is a case where the assessment for A.Y.2008-09 were completed u/s. 143(3) and no assessment was pending that could abate as per second proviso to subsection (1) of section 153A, on the date of the search. 5.1.2. As per the decision of the special bench of ITAT, Mumbai in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 968,70,966/- on account of disallowance of provision created for redemption for preference shares and an amount of ₹ 29,95,036/- on account of disallowance u/s.14A to the book profit shown by the appellant in return filed u/s.153A at ₹ 18,06,81,757/-, These additions are found to be without jurisdiction as the same is not based on any incriminating material found in the course of search. The A.O. is directed to delete these additions and recompute the book profit u/s.115JB of the Act accordingly. 29. Now, in the above background, we may turn to the grievance of the Revenue as manifested in the aforestated Grounds of appeal. Pertinently, the Revenue has sought to assail the order of CIT(A) on a singular footing that the judgment of the Hon'ble Bombay High Court in the case of Continental Warehousing Corporation (Nhava Sheva Ltd), which has been relied upon by the CIT(A), has not been accepted by the Department and a SLP has been preferred before the Hon'ble Supreme Court which pending. Ostensibly, the said argument of the Revenue does not distract from the fact that the ratio laid down by the Hon'ble Bombay High Court in the aforesaid case c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been made twice by the Assessing Officer, as correctly noted by the CIT(A) firstly, as addition to business income ; and, secondly, by reducing the claim of deduction u/s 80IB of the Act. Thirdly, while computing the book profit u/s 115JB of the Act, the Assessing Officer made two adjustments (i) ₹ 9,68,70,996/- on account of Provision for redemption of preference shares; and, (ii) ₹ 29,95,036/- representing disallowance computed u/s 14A of the Act. With respect to the aforesaid additions, CIT(A) has noted that the same are not based on any incriminating material found in the course of search, and therefore he proceeded to apply the ratio of the judgment of the Hon'ble Bombay High Court in the case of Continental Warehousing Corporation (Nhava Sheva Ltd) (supra). 31. Pertinently, on the date of search, i.e. 23.05.2013, the assessment for Assessment Year 2008-09 was not pending and, therefore, in view of the second proviso to Sec. 153A(1) of the Act, such assessment did not abate. Clearly, in such a situation, the additions that are permissible in an assessment u/s 153A of the Act are only those which are based on incriminating material found in the cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt case. Firstly, as we have seen earlier, the judgment of the jurisdictional High Court in the case of Continental Warehousing Corporation (Nhava Sheva Ltd) (supra) clearly brings out that the impugned additions would not fall within the scope of the instant assessment order u/s 153A of the Act given the fact-situation that the original assessment did not abate and there was no incriminating material found in the course of search qua such additions. Secondly, so far as the facts in the case of Smt. Dayawanti (supra) are concerned, the additions sought to be made in the assessment u/s 153A of the Act was a direct fall-out of the admission made in the course of search. Notably, in the course of search in that case, assessee had offered additional income on the ground that certain business was carried outside the books of account. In the subsequent assessment, the Assessing Officer rejected the book results and made addition by estimating the profits. It is in this context that the Hon'ble High Court appreciated that the books were correctly rejected and estimation of income resorted to and that the statements recorded could be taken into consideration in arriving at such a concl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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