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TMI Blog2010 (12) TMI 830X X X X Extracts X X X X X X X X Extracts X X X X ..... ehold expenditure by the assessee. - Decided in favor of revenue. - ITA No. 2258/Ahd/2010 - - - Dated:- 16-12-2010 - Bhavnesh Saini, D.C. Agrawal, JJ. M. Mathivanan, DR, for the Appellant S.N. Divatia, AR, for the Respondent ORDER D.C. Agrawal: The appeal has been filed by the Revenue raising following grounds:- (1) The ld. CIT(A) has erred in law and on facts in deleting the additions of Rs.13,79,921/- out of addition of Rs.17,48,500/- made by the AO being unexplained cash deposits in bank account. (2) The ld. CIT(A) has erred in law and on facts in entertaining additional evidences regarding unexplained credit payment and unexplained cash deposited in the bank without giving opportunity to the AO, thus violating Rule 46A of the Incometax Rules. Whereas assessee has raised following grounds in its Cross Objection:- (1) The ld. CIT(A) has erred in law and or on facts in hpholding that the appellant had failed to explain satisfactorily the source of investment of Rs.17,48,500/- (2) The ld. CIT(A) has failed to appreciate that in view of confirmations of 15 depositors filed, the source of cash deposits of Rs.17,48,500/- should not h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted following remarks:- 1. Shri Arunsing B. Yadav - No such No. in Parth Avenue 2. Shri Prakash R. Patel - Left 3. Shri Ashish K. Jardosh - Not known 4. Shri Parin K. Jardosh - Not known 5. Shri Chetan H. Patil - Left In all other cases where summons apparently were served nobody attended on the given dates and, therefore, claim of borrowings remained unverified. The AO on the basis of non-verification of the claim of the assessee held that entire sum of Rs.17,48,500/- found deposited in the bank account is an unexplained investment under section 69A. He accordingly proposed the addition of this sum. In appeal ld. CIT(A) held that it will be better to work out the peak of deposits made in the bank account. He worked out such peak at Rs.3,68,579/- and confirmed the addition to this extent and allowed relief of the balance sum of Rs.13,79,921/-. The Revenue is in appeal against this relief whereas the assessee has filed the Cross Objection requesting to delete the balance addition sustained by the ld. CIT(A) as per grounds raised by both the parties as above. 3. B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... different signatures over confirmations and copy of the return. He referred to pages 11 and 12 of the Paper Book, 11 being the alleged confirmations and 12 being the copy of the acknowledgement of the return of Shri Prakash R. Patel one of the alleged depositor, showing different signatures. Even these signatures are not verifiable with the copy of the PAN. If their plea of giving money to the assessee is to be accepted then they should have appeared before the AO. The ld. DR also submitted that the date on which money was allegedly received from these parties and the date on which the money was deposited in the bank account do not tally. In the case of Shri Prakash R. Patel money of Rs.1,25,000/- was allegedly received on 10th April, 2006 and from Shri Arunsing B. Jadav of Rs.1 lacs on 4th April, 2006 but cash of Rs.1,50,000/- was claimed to be deposited on 17.4.2006. Thus there is no co-relation between alleged claim of receipt of money from these parties in cash and deposits in bank account. The ld. DR also pointed out that the payments made to these parties as shown in the confirmations are not supported by any withdrawals from the bank account. Therefore, such confirmations a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that only the amount of peak credit should be determined by the Assessing Officer and added as unexplained cash credit under section 68 of the Act. On a reference: Held,_ that in respect of the squared up accounts of the two depositors, the Assessing Officer himself had taken the peak credit as unexplained deposit and added it under section 68 of the Act. So far as the remaining deposits were concerned there was no transaction between the depositors and the assessee. The principle of peak credit could not apply in case of different depositors where there had been no transaction of deposits and repayment between a particular depositor and the assessee. The Tribunal was not justified in directing the Assessing Officer to take the peak credit for the purposes of section 68 of the Act." Hon. Allahabad High Court in the case of Bhailal Shyambehari vs. CIT (2005) 276 ITR 38 (All) held that benefit of peak can be given only when the assessee owns up all the cash credits in the books of accounts. The head Notes from the judgment are as under:- "In order to adjudicate upon the plea of peak credit the factual foundation has to be laid by the assessee. He has to own all cash cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its place new assets were purchased that did not mean that fresh unaccounted money was used. The Tribunal held that the additions in each of the years under appeal should be nil for the years in which the addition on the basis of difference in the peak money used from year to year exceeded the extra profit and where the extra profit addition was more than the addition on account of the peak credits, the bigger of the two should remain as the addition. On a reference it was contended that the findings of the Tribunal were speculative: Held, that, in the circumstances, the inference drawn by the Tribunal that there was a connection between unaccounted money and excess assets discovered in the business from year to year could not be said to be perverse or unreal. Clearly there was evidence to sustain it. The other inference of the Tribunal that there was a connection between the unaccounted money and the extra profits withheld from the account books from year to year was based on the testimony of the assessee. The findings of the Tribunal were not perverse. They were fully supported by the material on record." 7. When we apply the above principles to the facts of the present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... standing the nature of cash inflow and its destination. Entire transaction of deposits in the bank account remained under crowd of secrecy and, therefore, the explanation furnished by the assessee remained unsatisfactory. Even the benefit of withdrawal through ATM mentioned as above cannot be given importance because they are apparently for household purposes and cannot be said to be available for redeposit in absence of any other evidence of meeting out household expenditure by the assessee. We apparently uphold the contentions of Revenue that entire sum of Rs.17,48,500/- deserves to be confirmed. As a result, we uphold the order of AO setting aside the order of ld. CIT(A). Appeal filed by the Revenue is allowed whereas the Cross Objection filed by the assessee is dismissed. 9. In the result, appeal filed by the Revenue is allowed whereas the Cross Objection filed by the assessee is dismissed. Order was pronounced in open Court on 16.12.2010. High Court of Punjab and Haryana CIT vs Steel Steips Leasing Ltd. ITA No. 176 of 2003 Adarsh Kumar Goel and Rajesh Bindal, JJ 4 March 2011 Urvashi Dhugga, Sr. Standing Counsel for the Appellant Akshay Bhan, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income had to be made in terms of the statutory scheme comprising Section 115J/115JA of the Act. Hence, levying of interest was inescapable. The assessee was bound to pay advance tax under the said scheme of the Act. Section 115J/115JA of the Act were special provisions which provided that where in the case of an assessee, the total income as computed under the Act in respect of any previous year relevant to the assessment year is less than 30% of the book profit, the total income of the assessee shall be deemed to be an amount equal to 30% of such book profit. The object is to tax zerotax companies. 8. Section 115J was inserted by Finance Act, 1987 w.e.f. 1.4.1988. This section was in force from 1.4.1988 to 31.3.1991. After 1.4.1991, Section 115JA was inserted by Finance Act of 1996 w.e.f. 1.4.1997. After insertion of Section 115JA, Section 115JB was inserted by Finance Act, 2000 w.e.f. 1.4.2001. It is clear from reading Sections 115JA and 115JB that the question whether a company which is liable to pay tax under either provision does not assume importance because specific provision(s) is made in the section saying that all other provisions of the Act shall apply to the MAT C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble in cases where Section 115J applied. This view of the Karnataka High Court in Kwality Biscuits Ltd. was not shared by the Gauhati High Court in Assam Bengal Carriers Ltd. v. CIT reported in (1999) 239 ITR 862 and Madhya Pradesh High Court in Itarsi Oil and Flours (P.) Limited v. CIT reported in (2001) 250 ITR 686 as also by the Bombay High Court in the case of CIT v. Kotak Mahindra Finance Ltd. reported in (2003) 130 TAXMAN 730 which decided the issue in favour of the Department and against the assessee. It appears that none of the assesses challenged the decisions of the Gauhati High Court, Madhya Pradesh High Court as well as Bombay High Court in the Supreme Court. However, it may be noted that the judgment of the Karnataka High Court in Kwality Biscuits Ltd. was confined to Section 115J of the Act. The Order of the Supreme Court dismissing the Special Leave Petition in limine filed by the Department against Kwality Biscuits Ltd. is reported in (2006) 284 ITR 434. Thus, the judgment of Karnataka High Court in Kwality Biscuits stood affirmed. However, the Karnataka High Court has thereafter in the case of Jindal Thermal Power Company Ltd. v. Dy. CIT reported in (2006) 154 TAXM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness income. As the assessee had adjusted such loss against the non-speculation share trading income, the Assessing Officer did not accept this treatment. The learned CIT(A) overturned the assessment order on this issue by holding that this loss was to be considered as non speculation business loss. 3. Having heard the rival submissions and perused the relevant material on record we find that this issue has been settled by the Special Bench of the tribunal in Shree Capital Services Limited vs. ACIT [(2009) 125 TTJ 740 (Kol.) (SB)] by holding that loss on account of transactions in derivatives, that is, F and O transactions, has to be considered as speculation loss up to assessment year 2005- 2006. Insertion of clause (d) of proviso to section 43(5) has been held by the Special Bench to be prospective as applicable from assessment year 2006-2007. Since the assessment year under consideration is 2004-2005, the issue is duly covered by the afore-noted Special Bench decision. We, therefore, reverse the finding given by the learned CIT(A) and restore the action of the Assessing Officer. This ground is allowed. 4. Second ground is against the deletion of disallowance of Adminis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch as there is variation in the degree of efforts put in to earn the income from these two segments. He stated that comparatively lower time and endeavor is required for carrying out the business in F and O segment. He, therefore, pleaded that the expenses should also be allocated in such a manner that these are not in proportion to the turnover. It was suggested that some relatively lower ad hoc disallowance towards such administrative and general expenses be sustained. 6. We are not impressed with this submission. Adverting to the facts of the instant case it is found that the Assessing Officer has taken total administrative and general expenses which have been bifurcated on the basis of ratio of turnover of speculation and non-speculation business. The obvious reason is that the assessee had clubbed expenses in relation to both these businesses. When the income from speculation business is required to be computed separately, the expenses claimed in a consolidated manner need to be bifurcated on some reasonable basis and not on ad hoc basis. In our considered opinion the splitting of expenses on the basis of turnover, in the absence of other reasonable measure suggested by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) as increased by the items set out in clauses (a) to (i) debited to the profit and loss account and as reduced by the items enumerated in clauses (i) to (viii). There is no dispute on the fact that the provisions of section 115JB are applicable in this case. The dispute only centers round the computation of 'book profit'. The Assessing Officer computed the book profit by increasing net profit as per profit and loss account with a sum of Rs.1.25 crores debited by the assessee in its profit and loss account with the narration "Provision for diminution in the value of investments". 9. At this juncture it would be relevant to note the judgment of the Hon'ble Supreme Court in CIT vs. HCL Comnet Systems and Services Limited [(2008) 305 ITR 409 (SC)] in which the controversy was about the adding back of provision for doubtful debts to the net profits under clause (c) of the Explanation to section 115JA. The Hon'ble Supreme Court noted that clause (c) of Explanation to section 115JA talks of : "the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities". It was held that clause (c) would be applicable only if the amount is set aside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r book, in which the figure of Investment has been depicted at Rs.17.28 crores. Taking us through the details of the figure of such investment, at page 5 of the paper book, he submitted that in the previous year ending on 31.3.2003 the amount of provision for diminution in the value of investment was at Rs.9.08 crores and with the addition of the amount of Rs.1.25 crores, being the provision for this year, the total amount of provision as at the end of the year stood reflected at Rs.10.33 crores. He showed that the assessee had reduced the amount of such provision for diminution in the value of investment from the gross value of investment at Rs.27.62 crores and resultantly only the net sum of Rs.17.28 crores was shown in the balance sheet. It was, therefore, argued that by reducing the amount of provision for diminution in the value of investment from the gross figure of investment, the assessee had shown net figure of investment in the asset side of the balance sheet and as such no figure of provision was appearing in the liability side. Reference was made to the judgment of the Hon'ble Supreme Court in the case of Vijaya Bank vs. CIT [(2010) 323 ITR 166 (SC)] in which the questi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, succeed with the expression 'if debited to the profit and loss account'. The learned A.R. vehemently argued that section 115JB has to be considered as code in itself. We are in full agreement with this argument for the reason that this section is a special provision for payment of tax by certain companies and opens with non-obstante clause thereby excluding any other provision of this Act in the matter of determination of payment of tax by certain companies. Book profit is computed by adding back certain amounts to the net profit as shown in the profit and loss account which have been debited to the profit and loss account and thereafter reductions start, which have been specified in the later part of the Expl. in clauses (i) to (viii) if such amounts have been credited to the profit and loss account. From here it follows that if the amount set aside as provision for diminution in the value of any asset, appears on the debit side of the profit and loss account, which implies that the amount of net profit as per profit and loss account is after the amount of such provision, then such amount will be added back to the net profit for computing 'book profit' as per Explanation 1 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nution in the value of asset debited to the profit and loss account has to be added to the amount of net profit for the purpose of computing book profit. As the relevant conditions have been fully satisfied in the instant case in terms of the assessee debiting provision for diminution in the value of investment to its profit and loss account, the same is required to be added for determining book profit. 13. The learned Counsel for the assessee supported the impugned order from another angle. He submitted that since section 115JB is a code in itself, only those adjustments to the net profit can be made which are clearly stipulated under Explanation 1 to section 115JB(2). Accentuating on the language of clause (i), which talks of provision for "diminution" in the value of any asset, the learned AR contended that the term 'diminution' in this clause refers to reduction in the value of an asset. He submitted that this word presupposes one higher value of an asset before diminution and another lower value of the same asset after diminution. Referring to the meaning of word "diminution" in the Webster's Dictionary and Shorter Oxford English Dictionary, the learned A.R. contended that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 1 to section 115JB that some value of the asset must remain after diminution, as a precondition for adding it to the net profit. It is paramount to note that we are concerned with the amount of provision for "diminution in the value of any asset" and not with the value of asset which remains after diminution. Explanation 1 contemplates the adding back of the provision for diminution in the value of any asset to the amount of net profit. Once provision is made for diminution in the value of any asset, the same has to be added for computing book profit, regardless of the fact whether or not there is any balance value of the asset. In view of the foregoing discussion it is manifest that the as Explanation 1 to section 115JB(2) deals with the computation of book profit and specifically provides that the net profit as shown in the profit and loss account for the relevant previous year has to be increased inter alia by the amount of provision for diminution in the value of any asset, the amount of provision for diminution in the value of any asset debited to the profit and loss account before the determination of net profit has necessarily to be added. We, therefore, reject this con ..... X X X X Extracts X X X X X X X X Extracts X X X X
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