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2021 (4) TMI 1018 - AT - Income TaxAddition made towards book profit computed u/s.115JB - difference in income reported in Form No.26AS and income as per books of accounts of the assessee - HELD THAT - We find that there is no merit in the arguments taken by the assessee in light of decision of Hon ble Supreme Court in the case of Apollo Tyres vs. CIT 2002 (5) TMI 5 - SUPREME COURT because when books of accounts of assessee are not in accordance with Part II and III of Schedule VI to the Companies Act, 1956, then AO is empowered to tinker with net profit by making additions. In this case, assessee has under reported income received from M/s. Shell India Markets Pvt. Ltd., and hence it cannot be said that books of account of the assessee are prepared in accordance with Part II and II of Schedule VI to the Companies Act. Therefore, we are of the considered view that there is no error in the reason given by AO to re-compute book profit by making addition towards income not reported in books of accounts of the assessee. As regards case law relied upon by the assessee, in the case of Apollo Tyres vs. CIT 2002 (5) TMI 5 - SUPREME COURT the same is not applicable because in that case, the books of accounts of assessee are prepared in accordance with Part II and III of Schedule VI to the Companies Act and under those facts, the Hon ble Supreme Court held that once books of accounts are in accordance with Companies Act and approved by the Board, then the AO has no jurisdiction to go behind net profit shown in profit and loss account except to extent provided in Explanation to section 115J of the Act. Hence, we reject arguments of the assessee and confirm addition made by the AO towards income not reported in books to book profit computed u/s.115JB of the Act. Disallowance of expenditure u/s.14A to book profit computed u/s.115JB of the Act - HELD THAT - We find that ITAT, Special Bench of Delhi in the case of ACIT vs. Vireet Investments (P) Ltd., 2017 (6) TMI 1124 - ITAT DELHI held that computation under clause (f) of Explanation 1 to section 115JB(2) is to be made without restoring to computation as contemplated u/s.14A r.w.rule 8D of Income Tax Rules, 1962. The Hon ble Madras High Court in the case of CIT vs. Shriram Ownership Trust, 2017 (6) TMI 1124 - ITAT DELHI has considered an identical issue and held that no addition could be made to book profit in respect of disallowance of expenditure u/s.14A r.w.rule 8D of Income Tax Rules, 1962. Hon ble Karnataka High Court in the case of CIT vs. Gokaldas Images (P) Ltd 2020 (11) TMI 345 - KARNATAKA HIGH COURT had considered an identical issue and held that disallowance made u/s.14A should not be added to book profit of assessee u/s.115JB of the Act. Therefore, we are of the considered view that the AO is erred in making addition towards disallowance u/s.14A to book profit computed u/s.115JB of the Act and hence, we direct the AO to delete adjustment made to book profit towards disallowance of expenses u/s.14A. Addition towards factory shifting expenditure - AO has made addition incurred towards shifting factory from Grigambakkam to Chrompet on the ground that said expenditure is in the nature of capital expenditure which gives enduring benefit to the assessee - HELD THAT - We ourselves do not agree with the reasons given by the AO to disallow transportation expenses incurred for shifting factory from one site to another site, because transportation expenses incurred for shifting factory from one place to another place does not give any enduring benefit to the assessee and hence, the same cannot be treated as capital in nature. Hence, we direct the AO to delete addition made towards disallowance of factory shifting expenditure. Addition towards loan received from Shri Muthaiyah, Director of assessee company u/s.68 - HELD THAT - From the financial statement of creditors, we find that amount advanced to the company was recorded in loans and advances. The assessee has also explained creditworthiness by filing his Income Tax return for relevant assessment year. The AO except stating that loan was received in cash, no other observations were made to reject arguments of the assessee that the creditor is having creditworthiness to provide loan. Therefore, we are of considered view that once identity of creditor is proved and genuineness of transaction is established then merely for the reason that loan is received in cash no addition can be made u/s.68 of the Act. Once initial burden was discharged then burden shifts to the Revenue to prove otherwise as held by the Hon ble Supreme Court in the case of CIT vs. Orissa Corp. P. Ltd., 1986 (3) TMI 3 - SUPREME COURT . In this case, assessee has filed all possible evidences to prove loan but the AO has disregarded evidences filed by the assessee and made addition only on the ground of receipt of loan by cash. Therefore, we are of considered view that the AO is erred in making addition towards unsecured loan received from Shri R. Muthaiyah - Hence, we direct the AO to delete addition made u/s.68. Levy of penalty u/s.271(1)(c) - addition made towards unexplained cash credit u/s.68 - HELD THAT - We find that in quantum appeal filed by the assessee, addition made by the AO towards unexplained cash credit has been deleted. Therefore, once addition on which penalty levied u/s.271(1)(c) of the Act was deleted, then penalty levied on said addition cannot survive under law. Therefore, penalty levied by the AO u/s.271(1)(c) of the Act is not sustainable under law and hence, the AO is directed to delete penalty levied u/s.271(1)(c) of the Act.
Issues Involved:
1. Addition to book profit under Section 115JB of the Income Tax Act. 2. Disallowance of expenditure under Section 14A of the Income Tax Act. 3. Factory shifting expenditure. 4. Unexplained cash credit under Section 68 of the Income Tax Act. 5. Levy of penalty under Section 271(1)(c) of the Income Tax Act. Issue-wise Detailed Analysis: 1. Addition to Book Profit under Section 115JB: The primary issue here was the addition of ?9,76,447/- to the book profit computed under Section 115JB due to the difference in income reported in Form 26AS and the books of accounts. The Assessing Officer (AO) added this amount, received from M/s. Shell India Markets Pvt. Ltd., as it was not included in the books of the assessee. The assessee argued that this amount was maintenance paid directly to M/s. Jayant Tech Park Owners Association and not its income. However, the AO did not accept this explanation and held that when credit for TDS is taken, the corresponding income must be offered to tax. The Tribunal upheld the AO's decision, stating that the books of accounts were not prepared in accordance with Part II and III of Schedule VI to the Companies Act, 1956, and thus the AO was justified in recomputing the book profit. 2. Disallowance of Expenditure under Section 14A: The AO disallowed ?4,84,571/- under Section 14A by invoking Rule 8D of the Income Tax Rules, 1962, and added this to the book profit computed under Section 115JB. The Tribunal, however, found that the computation under clause (f) of Explanation 1 to Section 115JB(2) should be made without resorting to the computation as contemplated under Section 14A read with Rule 8D. This view was supported by the ITAT Special Bench in the case of ACIT vs. Vireet Investments (P) Ltd., and the decisions of the Hon’ble Madras High Court and Karnataka High Court. Consequently, the AO was directed to delete the adjustment made to the book profit towards disallowance of expenses under Section 14A. 3. Factory Shifting Expenditure: For the assessment year 2012-13, the AO added ?1,80,436/- incurred towards shifting the factory, treating it as capital expenditure. The assessee contended that this was revenue expenditure as it did not provide any enduring benefit. The Tribunal agreed with the assessee, stating that transportation expenses for shifting the factory do not give any enduring benefit and thus should not be treated as capital expenditure. The AO was directed to delete this addition. 4. Unexplained Cash Credit under Section 68: The AO added ?1,50,000/- as unexplained cash credit under Section 68, which was received from a director, Shri Muthaiyah. The assessee provided evidence, including the financial statements of the director, to prove the identity, genuineness, and creditworthiness of the transaction. The Tribunal found that the AO did not provide sufficient reasons to reject these evidences and held that once the initial burden of proof is discharged by the assessee, the burden shifts to the Revenue. The addition was thus directed to be deleted. 5. Levy of Penalty under Section 271(1)(c): The penalty under Section 271(1)(c) was levied in respect of the addition made towards unexplained cash credit of ?1,50,000/-. Since the quantum appeal resulted in the deletion of this addition, the Tribunal held that the penalty could not survive. The AO was directed to delete the penalty levied under Section 271(1)(c). Conclusion: The appeals for the assessment year 2012-13 were allowed, and the appeal for the assessment year 2010-11 was partly allowed. The Tribunal provided detailed reasoning for each issue, ensuring that the AO's decisions were either upheld or reversed based on the merits of the case and relevant legal precedents.
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