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TMI Blog2019 (12) TMI 1260X X X X Extracts X X X X X X X X Extracts X X X X ..... sued u/ s 153C was val id wi thout appreciating that no incriminating document belonging to the appellant was found in the course of search of M/s Kalpataru Properties Pvt. Ltd. and others and therefore, there was no reason to issue the notice u/s 153C. 2. The learned CIT(A) erred in holding that the interest received of Rs. 1,22,77,025/- is taxable as income from other sources as against business income claimed by the assessee. 3. Without prejudice to the above grounds, the learned CIT(A) erred in not al lowing netting off of the interest paid against the interest received and only the net interest should have been taxed as income from other sources. 4. The learned CIT(A) erred in conf irming the disallowance of depreciation in respect of block of asset of residential building, of Rs. 1,43,629/- without appreciating that the same was allowable as per law. 5. The learne d CIT(A) er r ed in n ot appr ec ia t ing that the prov i s io n for l eave encashment o f Rs. 15,30,070/- was not to be added back to the book profit for computation u/s. 115JB as it is an ascertained liability determined on actuarial basis. 6. The learned CIT(A) erred in not accepting the method of compu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of computing the 'book profit' under Sec.115JB Rs. 15,30,070/- 2. Addition of the provision for doubtful doubts written back for the purpose of computing the 'book profit' under Sec.115JB Rs. 23,74,772/- 3. Addition under the normal provision of the difference between the payment of net present value against future liability relating to deferred sales tax. Rs. 3,80,75,339/- 4. Addition on account of compensation for land acquisition. Rs. 6,59,327/- 5. Addition of the amount collected by the assessee from the Flat purchasers towards the maintenance of the society. Rs. 73,07,137/-. 6. Addition under Sec.41(i) of the provision written back during the year Rs. 23,74,772/-. 7. Addition of the amount received by the assessee from M/s Durable Trading Company Pvt. Ltd. as its undisclosed income. Rs. 3,18,000/- 8. Addition of the amount receivable by the assessee in terms of its agreement with M/s Kalpatru Homes Ltd. Rs. 2,09,73,640/- After making the aforesaid additions/disallowances the A.O assessed the income of the assessee company under the normal provision at Rs. 12,65,65,070/-. The 'book Profit' under Sec.115JB was reworked out at Rs. 9,6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the ld. A.R had relied on the judgment of the Hon'ble High Court of Punjab & Haryana in the case of CIT Vs. National Hydro Electric Power corporation Ltd. (2010) 45 DTR 117 (P&H). (iii). Per contra, the ld. Departmental Representative (for short 'D.R') relied on the orders of the lower authorities. It was the claim of the ld. D.R, that as the provision for leave encashment was in the nature of an unascertained liability, therefore, the lower authorities had rightly concluded that the same was liable to be added for the purpose of computing the 'book profit' under Sec. 115JB of the Act. Decision : (i). We have heard the authorized representatives for both the parties in context of the aforesaid issue, and also the perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements relied upon by them. In our considered view, if a business liability had definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. Our aforesaid view is fortified by the judgment of the Hon'ble Supreme Court in the case of Bharat Earth Movers Vs. CIT (2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision was covered under Sec. 115JB of the Act, the CIT(A) had upheld the view taken by the A.O. (ii) Aggrieved, the assessee has assailed the addition of the provision on account of wealth tax payable to the 'net profit' while computing its 'book profit' under Sec. 115JB of the Act. It was submitted by the ld. A.R, that as provision for wealth tax does not fall within any of the items of the 'Explanation' to Sec. 115JB, therefore, the same could not be added back while computing the 'book profit' under the said statutory provision. In support of his aforesaid contention the ld. A.R had relied on the order of the ITAT, Kolkata, Special Bench in the case of JCIT Vs. Usha Martin Industries Ltd. (2007) 104 ITD 249 (SB). (iii). Per contra, the ld. D.R has relied on the orders of the lower authorities. Decision : (i). We have heard the authorized representatives for both parties in context of the aforesaid issue, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements relied upon by them. On a perusal of Sec. 115JB of the Act, we find, that an addition to the 'book profit' which during the period relevant to the ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company paid the net present value of Rs. 3,07,23,725/-(as against its future liability of Rs. 6,87,99,064/-) of its deferred sales tax liability. As the assessee by paying the net present value of Rs. 3,07,23,725/- had obtained a discharge of its entire future liability of deferred sales tax liability of Rs. 6,87,99,064/-, therefore, it had credited the balance amount of Rs. 3,80,75,339/- [Rs. 6,87,99,064/- (-) Rs. 3,07,23,725/-] in its 'profit and loss account' for the year under consideration. In its return of income, the assessee did not claim that the aforesaid amount of Rs. 3,80,75,339/- credited in its 'profit & loss account' was not taxable. In fact, even in the course of the assessment proceedings the assessee did not claim that the profit/gain on payment of the sales tax liability was not taxable. However, it was only in the course of the proceedings before the CIT(A) that the assessee by way of an additional ground of appeal, for the first time claimed that the profit/gain of Rs. 3,80,75,339/- was not taxable. Although, the CIT(A) admitted the aforesaid additional ground of appeal that was raised by the assessee, but then observing that no such claim was raised either i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We have heard the authorized representatives for both the parties in context of the aforesaid issue, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements relied upon by them. As observed by us hereinabove, the assessee company was entitled to sales tax deferral benefit, as per which, it was allowed to collect the sales tax from the customers and pay the amount to the Government after sometime. As observed by us hereinabove, the sales tax department had thereafter introduced a scheme, as per which, the eligible units were allowed to pay the net present value of the future liability, and by making such payment obtain a discharge for the entire sales tax deferred liability. As the assessee had opted for the aforesaid scheme and paid the net present value of Rs. 3,07,23,725/- (as against the future liability of Rs. 6,87,99,064/-), therefore, it had credited the balance amount of Rs. 3,80,75,339/- in its 'profit and loss account'. Admittedly, the assessee had neither in its return of income nor in the course of the assessment proceedings claimed that the aforesaid profit/gain on payment of sales tax liability was not e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee. As observed by us hereinabove, it is the claim of the assessee that the difference of Rs. 3,80,75,339/- between the amount of the 'net present value' of the deferred sales tax liability and the 'future value' of the same was not exigible to tax in its hands. We have given a thoughtful consideration to the aforesaid claim of the assessee and find substantial force in the same. In our considered view, the first requirement of Sec. 41(1) is that an allowance or deduction is made in respect of the loss, expenditure or a trading liability incurred by the assessee. Apart from that, the other requirement is that the assessee should have specifically obtained a benefit in respect of such trading liability by way of a remission or cessation thereof. As observed by us hereinabove, the aforesaid scheme under which the sales tax liability of the assessee was deferred, therein enabled the assessee to remit the sales tax collected from the customers to the government, though not immediately, but after certain period. Although, the amount of sales tax collected by the assessee was not to be immediately paid to the government upon collection and was to be remitted later on in the terms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as assailed the impugned order on the following revised grounds of appeal: "1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in deleting the addition of Rs. 6,59,327/- made on account of compensation for land acquisition. 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in deleting the addition of Rs. 73,07,137/- and holding it as assessee's liability. 3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in allowing the assessee to reduce an amount of Rs. 23,74,772/- from the total income as being provision written back during the year. 4. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in deleting the addition of Rs. 3,18,000/- without appreciating the fact that the income pertains to A.Y. 2005-06. 5. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in deleting the assessee in the year under consideration and holding it as assessee's liability. 6. Whether on the facts and in circumstances of the case and in law the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year under consideration i.e A.Y. 2005-06. Observing, that the A.O had overlooked the aforesaid factual position, despite the fact that the complete details of sales were furnished by the assessee with him, the CIT(A) deleted the aforesaid addition. Decision : (i) We have heard the authorised representatives for both the parties in context of the issue under consideration, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements relied upon by them. As is discernible from the order of the CIT(A), the assessee company had duly accounted for the compensation of Rs. 6,59,327/- that was received on the compulsory acquisition of its land at Roha, Maharashtra, which formed part of its stock-in-trade, in its sales for A.Y. 2005-06. Admittedly, as the A.O had overlooked the fact that the aforesaid compensation received by the assessee was duly accounted for and formed part of the sales of the assessee for the year under consideration, therefore, he had erroneously assessed the same as the undisclosed income/receipts in the hands of the assessee. Nothing has been brought to our notice by the ld. D.R, which could persuade us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed by the CIT(A) that the accounts of the society had not been settled and an amount of Rs. 30,34,526/- i.e to the extent the same had not been spent was shown as a liability by the assessee in its 'books of accounts'. It was observed by the CIT(A) that the assessee had utilised part of the amounts which were collected from the flat purchasers for payment of municipal taxes, society maintenance charges, common area maintenance expenses etc. It was observed by the CIT(A) that the balance unutilized amount of Rs. 30,34,526/- which was available with the assessee was shown by it as a liability in its 'books of accounts'. Also, it was observed by the CIT(A) that the A.O while framing the assessment in the case of the assessee for A.Y. 2001-02 to A.Y. 2004-05, had observed, that the taxability of the aforesaid amount could only be considered at the time of the final settlement of the accounts of the society. On the basis of the aforesaid facts, the CIT(A) finding favour with the claim of the assessee, therein observed, that though the maintenance work was handed over by the assessee to the housing society during the year under consideration but the accounts were yet not finally s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view, part of the aforesaid amount which was collected by the assessee company from the flat owners was utilised for payment of taxes and maintenance of the building, while for the balance unutilised amount that was admittedly acknowledged by the assessee as an outstanding liability was ultimately to be handed over to the housing society at the time of final settlement of accounts. In fact, the assessee company had duly reflected the balance amount of Rs. 30,34,526/- i.e the amount outstanding towards the housing society as a liability in its 'books of accounts'. In the backdrop of the aforesaid facts, we find ourselves to be in agreement with the view taken by the CIT(A) that the amount of Rs. 73,07,137/- collected by the assessee company from the flat owners for the purpose of maintenance of the building and payment of taxes etc. could not have been assessed as its income for the year under consideration. Accordingly, finding no infirmity in the view taken by the CIT(A), we uphold the same. The Ground of appeal No. 2 is allowed. (C). Deletion of the amount of provision written back by the assessee during the year: Rs. 23,74,772/-. Facts : (i) On a perusal of the 'profit and lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e subsequent years could not be added to its income, as the same would otherwise lead to double addition in its hands. On the basis of his aforesaid observations the CIT(A) deleted the addition of Rs. 23,74,772/-made by the A.O. Decision : (iii) We have given a thoughtful consideration to the aforesaid issue and are persuaded to subscribe to the view taken by the CIT(A). As is discernible from the orders of the lower authorities, the assessee in its returns of income for the preceding years had while computing its income added back any provision that would be made towards doubtful doubts/advances and for diminution in value of investments. In sum and substance, the aforesaid provisions were not claimed as a deduction by the assessee in the preceding years. We find that the aforesaid factual position as had been canvassed by the assessee was verified by the CIT(A), and found to be correct. In fact, the said factual position has also not been disputed by the ld. D.R before us. We are in agreement with the view taken by the CIT(A) that now when the assessee had not claimed the provision made for doubtful debts and advances as a deduction in the preceding years, the same at the time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the aforesaid amount is also borne out from its accounts. In our considered view, the CIT(A) has rightly observed that the A.O had overlooked the factual position and had on the basis of misconceived facts made the aforesaid addition of Rs. 3,18,000/- in the hands of the assessee. Accordingly, finding no infirmity in the view taken by the CIT(A), who had rightly vacated the addition of Rs. 3,18,000/-, we uphold his order to the said extent. (E). Deletion of the amount receivable by the assessee from Kalpataru Homes Ltd: Rs. 2,09,73,640/-: Facts : (i) On a perusal of the records, we find, that the assessee company had entered into an 'agreement' with M/s Kalpataru Homes Ltd. for the realisation of its non-core assets. Originally the realisation value of the assets was fixed at Rs. 4,454 lacs. However, after negotiations the same was revised at Rs. 4,109 lacs. As per the 'agreement' M/s Kalpataru Homes Ltd. was entitled to retain any excess amount realised for such non-core assets over and above the agreed consideration. The cut off date for realisation was pegged at 31.03.2000, which thereafter was extended after some negation. (ii) In the course of the assessment proceedings, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esaid amount was to be routed through the 'balance sheet' and not the 'profit and loss account' of the assessee company. In fact, it was observed by the CIT(A) that the assessee had shown a 'debtor' of Rs. 2,09,73,640/- in its 'balance sheet' which had not been realised till date. As such, the CIT(A) was of the view that on the realisation of the aforesaid amount the same could not be held as the income of the assessee company. On the basis of his aforesaid observations, the CIT(A) was not persuaded to subscribe to the view taken by the A.O that as M/s Kalpataru Homes Ltd. had claimed the amount of Rs. 2,09,73,640/- as a 'loss' during the year under consideration, the same would thus automatically become the income of the assessee company for the said year. In the backdrop of his aforesaid deliberations the CIT(A) deleted the addition of Rs. 2,09,73,640/- made by the A.O. Decision : (i). We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record in context of the issue under consideration. Admittedly, the assessee had entered into an 'agreement' with M/s Kalpataru Homes Ltd., as per which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors. Accordingly, we are persuaded to subscribe to the view taken by the CIT(A), that as the aforesaid amount which was to be realised was generated over the years by the assesee and had been offered to tax, therefore, no addition as regards the same was called for in its hands. Accordingly, finding no infirmity in the view taken by the CIT(A) we uphold the deletion of the addition of Rs. 2,09,73,640/-. The Ground of appeal No. 5 is dismissed. (F). Provision of doubtful debts written back (for determining 'book profit' under Sec.115JB): Rs. 23,74,772 : Facts : (i). The assessee during the year had 'written back' the provision for doubtful debts of Rs. 23,74,772/- during the year under consideration. As observed by us hereinabove, it was the claim of the assessee that as it had not claimed the provision for doubtful debts as a deduction in the earlier years, therefore, the same on being 'written back' during the year, could not be assessed as its income under Sec.41(1) of the Act. On the basis of its aforesaid explanation the assessee had justified the reason for reducing the amount of provision for doubtful debts 'written back' during the year from its total income for the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of depreciation in respect or block of asset of residential building, of Rs. 1,36,448/- without appreciating that the same was allowable as per law. 5. The learned CIT(A) erred in holding that the provision for wealth tax was not to be reduced from the book profit to be computed u/s. 115JB 6. The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal." Facts : 13. Briefly stated, the assessee company had filed its return of income for A.Y. 2006-07 on 16.11.2006, declaring its total income at Rs. 3,19,62,343/-. In its return of income, the assessee while computing the 'book profit' under Sec. 115JB had added back the amount of the wealth tax provision. Return of income filed by the assessee was processed as such under Sec. 143(1) of the Act. On the basis of the assessment framed under Sec. 143(3) r.w.s 153C of the Act, the income of the assessee was assessed under the normal provisions at Rs. 7,62,58,750/-. The 'book profit' under Sec. 115JB was reworked out by the A.O at Rs. 11,79,14,682/-. Observing, that the provision for doubtful debts was to be added while computing the 'book profit' under Sec.115JB, the A.O reworked out the 'book profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding that the notice issued u/s 1 53C was valid without appreciating that no incriminating document belonging to the appellant was found in the course of search of M/s. Kalpataru Properties Pvt. Ltd. and others and therefore, there was no reason to issue the notice u/s 153C. 2. The learned CIT(A) erred in holding that the interest received of Rs.l,92,0l,615/ - is taxable as income from other sources as against business income claimed by the assessee. 3. Without prejudice to the above grounds, the learned CIT(A) erred in not allowing netting off of the interest paid against the interest received and only the net interest should have been taxed as income from other sources. 4. The learned CIT(A) erred in directing the learned A.O. to re- compute the disallowance u/s 14A without appreciating that no such disallowance was warranted. 5. The learned CIT(A) erred in not appreciating that the provision for leave encashment of Rs. 2,46,207/- was not to be added back to the book profit for computation u/s. 115JB as it is an ascertained liability determined on actuarial basis. 6. The learned CIT(A) further erred in holding that the provision for wealth tax was not to be reduced from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re dismissed as not pressed. 27. We find that the issue involved in the present appeal remains the same as was there before us in appeal of the assessee for A.Y. 2005-06 in ITA No. 4252/Mum/2011. We had while disposing off the 'Ground of appeal No. 5' raised by the assessee in its appeal for A.Y.2005-06 in ITA No. 4252/Mum/2011, therein concluded, that the provision for leave encashment being in the nature of an ascertained liability was to be reduced while computing the 'book profit' under Sec.115JB of the Act. As the facts and the issue involved in context of the present issue remains the same as were there before us in the appeal of the assessee for A.Y. 2005-06 in ITA No. 4252/Mum/2011 in Ground of appeal No. 5, therefore, our order therein passed shall apply mutatis mutandis for the disposal of the same. The Ground of appeal No. 5 is allowed in terms of our aforesaid observations. 28. Also, the order of the CIT(A) has been assailed before us, for the reason, that he had erred in concluding that the provision for wealth tax was to be added while computing the 'book profit' under Sec. 115JB of the Act. We find that the issue involved in the present appeal had been adjudicated ..... X X X X Extracts X X X X X X X X Extracts X X X X
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