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TMI Blog2014 (10) TMI 152X X X X Extracts X X X X X X X X Extracts X X X X ..... computing the book profits, revenue authorities cannot interfere in audited accounts. Penalty u/s 271(1)( c) is leviable with respect to the amount of 4215.03 lacs - The amount accounted for as deferred taxation is based on the same audit report which was provided based on consistent method of accounting policy and it has been accepted so by the C.A. and statutory auditors - The CIT(A) arbitrary held that part of it was liable for penalty - the proposition that once the assessee's accounts are audited and book profits are computed according to the audit report then the Revenue authority cannot interfere with the audited figures. Diminution in value of equity shares and 'provisions for deferred taxation" were made originally and contested by the assessee in appeal - the assessee cannot be penalized for claims which were not disallowable by any express provision on the statute book at the relevant time - once the book profits are computed on the basis of the audited accounts then the AO cannot interfere in the book profits calculations - penalty is impossible on the basis of information furnished the return - If the assesse has furnished all the relevant details and information alon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eafter the assessee filed a revised return of income u/s 139(5) on 30-03-2004 along with statement of reasons necessitating the revised return being depreciation loss of ₹ 4,01,43,383/-. Minimum Alternate Tax u/s 115J of the Act was worked out at ₹ 6,73,10,934/- i.e. 7.65% of book profit of ₹ 87,98,81,489/-. 3.0 On the basis of the revised return, the AO, Kota made various disallowances/additions and completed the assessment u/s 143(3) vide his order dated 29-03-2005. Aggrieved assesse preferred first appeal on merits of additions. 4.0 Ld. CIT(A) passed order on 14-12-2006 partly allowing the assessee's appeal. After giving the appeal effect, the income was determined at ₹ 33,62,71,496/- and book profit was worked out at ₹ 2,01,06,05,781/- resulting in tax liability of ₹ 15,38,1,343/-, as against the liability calculated by the assessee by way of revised return at ₹ 6,73,10,934/-. 5.0 Aggrieved, both the parties preferred second appeals. ITAT Jaipur Bench vide its consolidate order dated 22-10-2010 passed the order in which both the appeals were partly allowed. 6.0 In the meanwhile, the AO issued penalty notice u/s 271(1) ( c ) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit' is intended to be confined to business profits and not intended to include profit on realization of any asset. The ratio laid down by the Hon"ble High Court equally applies in the case of loss also. In the case of assessee, the provision for reduction in value of shares by the same logic cannot be part of book profits and has to be excluded from computation of book profits. The assessee's case is on a weaker footing then the cases referred above as by following the ratio of Hon'ble 1TAT, even actual loss has to be excluded from computation of book profits whereas in the case of assessee it was only notional loss as the shares were not sold during the year but only re-valued. The assessee's claim that the value of shares was permanently written down is also not correct as the value of shares keep on varying from time to time and this fluctuation cannot be treated as permanent. The examples of permanent reduction can be as under :- a). Reduction in share, capital (due to heavy losses). b). Liquidation of company resulting in reduction in value of share. The assessee's case does not fall in any of the above category or in a category which can be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion for taxation ₹ 10/- Provision for deferred tax (Rs.40-20-10) ₹ 10/- In AS-22, certain examples were also given for illustration, however the assessee's case does not fit into any of these for the reason that assessee has already made provision for part of the income tax. The case of assessee can be illustrated by following examples:- Profit as per Company Act ₹ 100 Tax on this ₹ 40 Income as per Income Tax Act ₹ 50/- Tax on this income ₹ 20 Provision for taxation ₹ 20/- ₹ 10. Provision for deferred tax 10/- (Rs. 40-20-10) Following the above illustration, the provision for deferred tax in the case of assessee is computed as under (enclosed Annexure-A for detailed working):- Profit as per Company Act ₹ 15438.37 lacs Tax on this @ 36.75% ₹ 5673.60 lacs Income as per Income Tax Act ₹ 5665.63 lacs Tax on this income ₹ 2082.12 lacs Provision for taxation as per(annual report) ₹ 1181.71 lacs Provision for deferred tax ₹ 2409.77 lacs (Rs. 5673.60 - 2082.12 - 1181.71 = 2409.77) From the above, it can be seen that maximum liability for payment of tax (treating the entire profit as p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ook the gross receipts of service charges and made an addition of ₹ 7,80,018/- to the total income as well as for computing the book profits. In the appeal, the Id. CIT(A) upheld the action of AO. During the appellate proceedings, it has also been pointed out to the CIT(A) that the amount of TDS which was not included in the total income was ₹ 9,28,030/- instead of ₹ 7,80,018/-. Hence, the CIT(A) directed to take the figure of TDS at ₹ 9,28,030/- and therefore, amount of concealment of income on this account is taken at ₹ 9,28,030/~. For this penalty for concealment / furnishing inaccurate particulars is also initiated u/s 271(l)(c) of the IT Act, 1961". The assessee did not offer any explanation w.r.t. levy of penalty on this amount. Accordingly, it is held that penalty in respect to this amount is leviable.' Thus to sum up, the ld. CIT(A) held that penalty is leviable with respect to following additions only: (i) Diminution in value of shares ₹ 9,17,90,000/- (ii) Excess provision for deferred taxation ₹ 42,15,03,000/- (iii) Receipt from IMACID ₹ 9,28,030 Total ₹ 51,52,21,030/- Tax @ 7.65% on the above S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have made this claim. The ld. Counsel vehemently countered this proposition on the pleading that if the provision was so clear there was no need for the legislature to pass the retrospective amendment. Besides no case laws as mentioned above would have been passed. Thus in any case there existed a judicial debate on such claim, besides all the relevant details were disclosed along with the return by way of audited account statements and certificates. The assessee is following a consistent method of accounting on mercantile basis. There is no adverse qualification by the auditors either on accounting policies or consistency in method of accounting. Reliance is placed on the decision of Hon'ble Apex Court in the case of Apollo Tyres vs. CIT, 255 ITR 273. It is settled law now that while computing the book profits, revenue authorities cannot interfere in audited accounts. In this legal position no penalty can be levied. 11. The ld. CIT(A) despite considering the legislative retrospective amendment has presumed that penalty was leviable. In any case, the consistent method of accounting followed is supported by various judgments like Sutlej Cotton Mills vs. ACIT (Cal.), Rajasthan S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anation w.r.t. levy of penalty on this amount. Accordingly, it is held that penalty in respect of this amount is levaiable'' It is pleaded that the observation of the ld. CIT(A) is not correct inasmuch as before lower authorities the assessee submitted the following submissions . 1. That according to the DTAA between India and the Kingdom of Moroco in the case of India double taxation is to be eliminated as follows:- "Where a resident of India derives income which, in accordance with the provision of this Convention, may be taxed in Morocco, India shall allow as a deduction from the tax on the income of that resident as deduction at source. Such amount shall not, however, exceed that part of income tax, as computed before the deduction is given, which is attributable to the income, which may be taxed in Morocco.'' 2. Further , the said DTAA is silent on the point as to whether the net income or gross income is to be taken as taxable income. 3. As regards the claim of TDS beyond the prescribed one year but during the course of assessment proceedings u/s 143(3) i.e. before the completion of the assessment proceedings for the relevant assessment year we wish t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er.) 2. DCIT vs. Escorts Construction Equip. 36 CCH 124 (Del) 3. CIT vs. Petals Engineers (P) Ltd. 42 Taxman 433 (Bombay) 15. The ld. DR relied on the order of the AO and further relied on the following case laws. 1. CIT vs. Gold Coin Health Food (P) Ltd.304 ITR 308 (SC) 2. CIT vs. Moser Baer India Ltd., 315 ITR 460 (SC) 16 Apropos Revenue's appeal, the ld. Counsel for the assessee pointed out that Ground No. 1 and 2 of the Revenue are infructuous inasmuch as quantum addition in this behalf have been deleted by ITAT which is recorded by the ld. CIT(A) in his order. 17. Apropos Ground No. 3rd issue, the same is interconnected with the assessee's appeal on the issue of provision for deferred taxation. 18. We have heard the rival contentions and perused the materials available on record. It is clear that two of the additions i.e.' diminution in value of equity shares' and 'provisions for deferred taxation" were made originally and contested by the assessee in appeal. By the time the appeal reached the ITAT level a retrospective amendment was introduced by Finance Act, 2009 wef 1-4-2001 which retrospectively covers the impugned assessment year i.e. 2002 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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