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2024 (9) TMI 340 - AT - Income TaxValidity of reopening of assessment - Addition u/s.115JB of the Act in respect of provision for deferred tax, Addition u/s.115JB in respect of provision for diminution in the value of investments and Addition u/s.115JB in respect of provision for bad doubtful debt - HELD THAT - AO was strictly circumscribed on the issues and the directions given by the Tribunal. The AO could not be raked up the issues which already had attained finality. If the Department was aggrieved by the order of the Tribunal then they should have filed appeal before the Hon ble Bombay High Court, which on these three issues Revenue did not specifically prefer any appeal even if the order of the Tribunal was legally unsustainable according to revenue that post amendment such provision were to be disallowed. Even otherwise also, the Revenue had chances to raise the grounds before the Tribunal against the CIT (A) s order passed in relation to the order u/s.147 r.w.s. 143(3), however, the Revenue did not prefer any appeal before the Tribunal. Thus, how in the impugned assessment proceedings which is in pursuance of order of the Tribunal passed u/s.143(3) r.w.s. 147 r.w.s. 254 of the Act, these three issues coild not have been raised. Thus, on these three issues, the order of the AO is quashed as the additions are beyond the scope of the present assessment proceedings. We are not going into the merits of the addition, but we are deleting the additions on the reason that these are beyond the scope of present assessment proceedings. Provision for staff welfare expenses - The said issue has already been decided in the first round of proceedings where it was held that the provision had been worked out on scientific basis by accrual method and represents provision for meeting ascertained liabilities, and therefore, no adjustment could be made in the book profit. There is no rebuttal that the provision has been made on the basis of accrual method and therefore it cannot be held that it is an unascertained liability. The observation and the finding of the CIT(A) as noted above is thus confirmed. Further, similar issue has been decided by the Tribunal in assessee s group concerns in the case of Tata Motors Finance Limited, where in it was held that provision for staff welfare is an ascertained liability and the same cannot be added while computing book profits. Thus this issue is decided in favour of the assessee. Provision for loss on guarantee - This issue again has been considered in the first round of assessment proceedings wherein it was held that the provision for loss on guarantee is a contractual liability and is on the basis of the agreement and the company had to account for the accrued liability. Against this no appeal was filed by the Revenue before the Tribunal and this issue had attained finality. Thus, this issue is again decided in favour of the assessee. Interest u/s.234B - This issue is consequential and moreover we have deleted most of the additions, and therefore, the AO while giving effect to this order ensure that there would be no liability on interest u/s.234B.
Issues Involved:
1. Adjustment of provision for Deferred Tax to Book Profit under section 115JB. 2. Adjustment of provision for Diminution in Value of Investments to Book Profit under section 115JB. 3. Adjustment of provision for Bad and Doubtful Debts to Book Profit under section 115JB. 4. Adjustment of provision for Staff Welfare Expenses to Book Profit under section 115JB. 5. Adjustment of provision for Loss on Guarantee to Book Profit under section 115JB. 6. Validity of reassessment proceedings under section 147. 7. Levy of interest under section 234B. Detailed Analysis: 1. Adjustment of Provision for Deferred Tax to Book Profit under section 115JB: The Tribunal noted that the AO had already made additions for Deferred Tax in the reassessment order under section 143(3) read with section 147 dated 31 December 2007. The Tribunal held that the CIT(A) could not enhance the same items in the appellate proceedings pending before him against the order passed under section 143(3) of the Act. The Tribunal further observed that the AO could not have added these items in the computation of book profits under section 115JB of the Act on the date of passing the order under section 143(3) of the Act on 31 January 2006, as the law prevailing at that time did not allow such additions. Therefore, the Tribunal deleted the addition made by the CIT(A) by way of enhancement. 2. Adjustment of Provision for Diminution in Value of Investments to Book Profit under section 115JB: Similar to the Deferred Tax provision, the Tribunal held that the CIT(A) could not enhance the same items in the appellate proceedings pending before him against the order passed under section 143(3) of the Act. The Tribunal further noted that the AO could not have added these items in the computation of book profits under section 115JB of the Act on the date of passing the order under section 143(3) of the Act on 31 January 2006, as the law prevailing at that time did not allow such additions. Therefore, the Tribunal deleted the addition made by the CIT(A) by way of enhancement. 3. Adjustment of Provision for Bad and Doubtful Debts to Book Profit under section 115JB: The Tribunal held that the CIT(A) could not enhance the same items in the appellate proceedings pending before him against the order passed under section 143(3) of the Act. The Tribunal further noted that the AO could not have added these items in the computation of book profits under section 115JB of the Act on the date of passing the order under section 143(3) of the Act on 31 January 2006, as the law prevailing at that time did not allow such additions. Therefore, the Tribunal deleted the addition made by the CIT(A) by way of enhancement. 4. Adjustment of Provision for Staff Welfare Expenses to Book Profit under section 115JB: The CIT(A) held that the provision for staff welfare expenses of Rs.10.58 crores was worked out on a scientific basis by actuarial method and represented provision for meeting ascertained liability. Therefore, no adjustment should be made to the book profit in respect of the above ascertained liability. The Tribunal confirmed this observation and finding of the CIT(A), noting that the provision was made on the basis of accrual method and could not be held as an unascertained liability. 5. Adjustment of Provision for Loss on Guarantee to Book Profit under section 115JB: The CIT(A) held that the provision for loss on guarantee of Rs.69 lakh was a contractual liability of the company based on agreements and had to be accounted for as an accrued liability towards default by the dealer. The liability was accounted for on an accrual basis based on the amount of default intimated by the bankers. Therefore, the amount provided in the books of the assessee, being in accordance with the accounting standards, could not be said to be a "Contingent Liability" or liability other than "ascertained liability." The Tribunal confirmed this observation and finding of the CIT(A). 6. Validity of Reassessment Proceedings under section 147: The Tribunal noted that the AO did not follow the law laid down by the decision in the case of GKN Driveshafts (India) Limited (259 ITR 19) and did not supply the reasons recorded to the assessee. Therefore, the Tribunal remanded the matter back to the AO for de novo adjudication in respect of issues contested before it alone by both parties, after giving a clear finding on the validity of reopening of assessment. 7. Levy of Interest under section 234B: The Tribunal held that the interest under section 234B could be charged since the income for the year under consideration was taxable under the provisions of section 115JB. However, the AO was directed to ensure that there would be no liability on interest under section 234B while giving effect to this order, as most of the additions were deleted. Conclusion: The Tribunal dismissed the appeal filed by the Revenue and allowed the Cross Objection filed by the assessee except the issue relating to reopening, which was treated as academic. The Tribunal confirmed the deletion of additions made by the CIT(A) on the issues of provision for deferred tax, provision for diminution in value of investments, and provision for bad and doubtful debts. The Tribunal also confirmed the deletion of adjustments to book profit for the provision for staff welfare expenses and provision for loss on guarantee. The validity of reassessment proceedings under section 147 was remanded back to the AO for de novo adjudication. The levy of interest under section 234B was held to be consequential.
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