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2009 (5) TMI 615 - AT - Income TaxMinimum alternate tax - Assets Revaluation Reserve - Capital Redemption Reserve - Computing adjusted book profit u/s 115JA - Assessment completed u/s 143(3) - CIT(A) found assessment order to be prima facie erroneous and prejudicial to the interest of the revenue - notice u/s 263 served on the assessee - CIT revised the order and directed AO to pass a consequential order - AO determined the adjusted book profit and total income at nil - Whether view taken by AO was a possible view under the law? - while working out book profits of earlier years, the assessee had claimed depreciation on the enhanced value of the assets and, therefore, a further reduction of the amount in this year would lead to double deduction. HELD THAT - We are of the view that the case of the ld. DR did not base upon correct legal interpretation of the clause and the proviso thereto. The reserve was created in AY 1986-87 by enhancing the value of the assets, on which depreciation was being debited to the books of account. However, for the purpose of computation of total income, the depreciation could not have been claimed and was also not allowed by AO. At the time of creation of the reserve, the provision contained in section 115JA was not there on the statute. It was inserted in the Act by Finance (No. 2) Act, 1996, with effect from 1-4-1997. Thus, it became applicable for AY 1997-98 and onwards. Therefore, insofar as computation of adjusted book profit is concerned, the creation of reserve had no implication and even it did not alter in any manner the computation of the total income. This provision remained on the statute book for AY's 1997-98 to 2000-01. Since the reserve was not created in these years, there was no question of any adjustment in the book profit in these years at the time of its creation. Accordingly, there could have been no implication of withdrawing certain amount from this reserve and crediting it to the profit and loss account. Therefore, the case of the ld. CIT is based on erroneous interpretation of law that the reduction could not be made in respect of amount withdrawn from this reserve as it had been credited to profit and loss account. In any case, such an interpretation is amenable to a valid difference of opinion, as held in the case of SRF Ltd . 1993 (8) TMI 124 - ITAT DELHI-D under the analogous law contained in section 115J. Therefore, we are of the view that in terms of the decision in the case of Malabar Industrial Co. Ltd. 2000 (2) TMI 10 - SUPREME COURT , the order cannot be said to be erroneous and prejudicial to the interest of revenue. In view of the fact that the decision of the AO was one possible view in the matter, the other cases relied upon by the ld. DR regarding lack of enquiry etc. cease to have any implication. Accordingly, it is held that the ld. CIT could not have made adjustment in respect of this matter. Addition u/s 14A - Computation of adjusted book profits u/s 115JA - profit and loss account drawn under the Companies Act did not allocate any expenditure towards earning of the dividend income - HELD THAT - We may at the outset consider the provisions contained in clause ( f ) of the Explanation to section 115JA and sub-section (1) of section 14A. Since we are dealing with the issue of expenditure relating to dividend income, a matter falling under Chapter III, it becomes clear on perusal of these two provisions that they are similar in nature. Clause ( f ) uses the words expenditure relatable to any income , while section 14A uses the words expenditure incurred by the assessee in relation to income . These words have the same meaning. We may also add here that section 14A contains two more sub-sections, sub-section (2) and sub-section (3), which do not find a place in the clause ( f ). Therefore, insofar as computation of adjusted book profit is concerned, provisions of sub-section (2) and sub-section (3) of section 14A cannot be imported into clause ( f ). Mixed funds - No expenditure incurred in this year for earning the dividend income - capital and free reserve far exceeded the investments - The ratio of the decision in the case of Munjal Sales Corpn. 2008 (2) TMI 19 - SUPREME COURT is also applicable because no disallowance was made in the earlier years under aforesaid clause ( f ), leading to the presumption that funds were borrowed for the purpose of business. Thus, the position which emerges is that there is no evidence on record to show that the borrowed funds were deployed in the investments, the income from which was not to be included in the total income. It was also the case of the learned counsel that after making investments, no expenditure was incurred for earning dividend income and the same could not be estimated by working out certain formula. We tend to agree with this argument also. Thus, it is held that there was no expenditure incurred by the assessee which could be related to the dividend income. In any case, on the facts of the case, two views are possible. AO chose one course of action, which was permissible under the law. Therefore, his order cannot be said to be prejudicial to the interest of the revenue because it did not find favour with the ld. CIT. In this view of the matter, these grounds are allowed. In the result, the appeal of the assessee is allowed, and the appeal of the revenue is dismissed.
Issues Involved:
1. Legality and validity of the order passed by the CIT under section 263. 2. Deduction of Rs. 1.53 crore from book profit for calculating adjusted book profit under section 115JA. 3. Addition of Rs. 183.60 lakhs for computing adjusted book profits under section 115JA. 4. Disallowance of expenditure of Rs. 183.63 lakhs in computing total income, holding it to be the expenditure incurred for earning dividend income. 5. Initiation of penalty under section 271(1)(c). Detailed Analysis: 1. Legality and Validity of the Order Passed by the CIT under Section 263: The assessee contended that the order passed by the CIT under section 263 was illegal, erroneous, and untenable in law. The Tribunal found that the CIT's order was based on erroneous interpretation of law and that the Assessing Officer's (AO) order represented a possible view under the law. Therefore, the CIT could not have revised the AO's order under section 263. 2. Deduction of Rs. 1.53 Crore from Book Profit for Calculating Adjusted Book Profit under Section 115JA: The CIT held that the AO's order was erroneous as it allowed the deduction of Rs. 1.53 crore from book profit. The Tribunal noted that the reserve was created by revaluing assets in 1986-87, and the provision of section 115JA was not applicable at that time. The Tribunal also referenced the case of SRF Ltd., which held that withdrawal from revaluation reserve credited to the profit and loss account could not be added to book profits. Therefore, the Tribunal concluded that the CIT's order was based on an erroneous interpretation of law and the AO's order was not erroneous and prejudicial to the interest of the revenue. 3. Addition of Rs. 183.60 Lakhs for Computing Adjusted Book Profits under Section 115JA: The CIT added Rs. 183.60 lakhs to the book profits, stating it was expenditure incurred for earning dividend income. The Tribunal observed that the funds were mixed and no fresh investment was made in the relevant year. The Tribunal referenced the case of Reliance Utilities & Power Ltd., which allowed the presumption that investments were made out of interest-free funds if such funds were sufficient. The Tribunal concluded that no expenditure was incurred for earning the dividend income, and the AO's view was permissible under the law. Therefore, the CIT's revisionary jurisdiction was not applicable. 4. Disallowance of Expenditure of Rs. 183.63 Lakhs in Computing Total Income: The CIT disallowed Rs. 183.63 lakhs as expenditure incurred for earning dividend income. The Tribunal reiterated its findings from issue 3, noting that the AO's order was a permissible view under the law. The Tribunal also referenced the case of Max India Ltd., which held that the AO's order could not be revised if it was one of the possible views. Therefore, the Tribunal concluded that the CIT was not entitled to revise the AO's order in this matter. 5. Initiation of Penalty under Section 271(1)(c): This ground was not argued by the ld. counsel and was dismissed by the Tribunal. 6. Appeal of the Revenue: The revenue's appeal was withdrawn as it had become infructuous in light of a subsequent order passed by the CIT (Appeals). Therefore, the appeal was dismissed as withdrawn. Conclusion: The appeal of the assessee was allowed, and the appeal of the revenue was dismissed. The Tribunal found that the CIT's revisionary orders were based on erroneous interpretations of law and that the AO's orders represented possible views under the law. Consequently, the CIT's orders under section 263 were not upheld.
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