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TMI Blog2022 (6) TMI 1488X X X X Extracts X X X X X X X X Extracts X X X X ..... ents to book profits computed u/s. 115JB, we notice that similar issue came up for consideration before this Tribunal in the case of DCIT v. M/s. Cauvery Aqua Pvt. Ltd. [ 2017 (10) TMI 638 - ITAT BANGALORE ] as held that the AO was not competent to go into the computation of Book Profits u/s 115JB of the Act except to the limited extent of making additions and reductions as laid out in Explanation (1) to sec. 115JB of the Act. We find that the ld CIT (A) has also tested the claim of depreciation as per the provisions of Explanation (1) to sec. 115JB while coming to the view that the AO was not authorized to make the addition while re-working the extent of depreciation claimed by the assessee. The accounts of the assessee have been certified by the Statutory Auditors. The accounting policies followed by the assessee have not been found fault with by the Statutory Auditors or the authorities concerned under the Companies Act. In such cases, the AO is not permitted to make any variation by holding that the assessee has not followed the mandate of the Accounting Standards and the provisions of Companies Act while preparing its financial statements. The object of sec. 115JB of the Act i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee. - Shri N.V. Vasudevan, Vice President And Shri Padmavathy S, Accountant Member For the Appellant : Shri V. Srinivasan, Advocate. For the Respondent : Shri Dilip, Standing Counsel for the Dept. ORDER PER PADMAVATHY S., ACCOUNTANT MEMBER These appeals by the assessee are against the separate orders of the CIT(A)-11, Bengaluru, all dated 26.09.2016 for the assessment years 2008-09, 2011-12 2012-13. Certain common issues are involved in these appeals which were heard together and disposed of by this consolidated order for the sake of convenience and brevity. 2. The assessee has raised the following grounds for the AY 2008-09:- 1. The orders of the authorities below in so far as they are against the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case. 2. The order of assessment passed u/s 153A rws 143[3] of the Act is bad in law and void-ab-initio in as much there was no valid search conducted in the premises of the appellant and consequently, the provisions of section 153A of the Act, have no application and therefore, the impugned order passed deserves to be cancelled. 2.1 Without prejudice to the above, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions of the Act. Book profit u/s. 115JB of the Act was determined at Rs. 87,03,95,824/- and this order of assessment was not challenged in appeal. 5. A survey action u/s. 133A of the Act was conducted in the business premises of the appellant on 24/07/2012. After the survey action was conducted, a notice u/s. 148 of the Act, dated 25/10/2012 was issued by the A.O. In response to the said notice, the assessee filed a return of income on 02/11/2012 re-computing the book profit u/s. 115JB of the Act at Rs. 119,99,86,225/- by making adjustment towards impairment of assets and depreciation on windmill. In connection with the survey proceedings and the additional income declared, the assessee had written a letter dated 30/10/2012 explaining that it was offering the additional income to purchase peace with the Department. 6. During the pendency of the assessment proceedings, a search action u/s. 132 of the Act was conducted in the appellant's case on 18/12/2012. After the search, proceedings were initiated u/s. 153A of the Act by issue of notice dated 18/03/2014. The assessee filed the return of income in response to the aforesaid notice on 30/04/2012 by furnishing the same retur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 70,66,417/- and filed the return in response to notice u/s. 148 with these adjustments to book profit. Subsequently there was a search conducted u/s. 132 of the Act in the business premises of the assessee. In response to notice u/s. 153A of the Act the assessee filed same return computing the book profits taking into account the adjustment towards impairment loss and depreciation on goodwill. During the course of assessment, the AO made an additional adjustment towards investments written off by the assessee of Rs. 98,73,900 to the book profits. 12. The assessee challenged the entire adjustment made to book profits before the CIT(A). It was submitted that the adjustment towards impairment loss and depreciation on windmill was done during the course of survey, only to buy peace and ward off litigation with the department. However, a search was initiated by the department and the assessee is embroiled with the litigation. The assessee submitted that the law is well settled that a mere concession or consent of the assessee does not confer jurisdiction for making an assessment. Thus, although the assessee has returned an income of Rs 1,19,98,62,241/- in the return filed in response to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts cannot be claimed as a deduction in the profit and loss account and therefore, the same has to be added back for computing the book profit u/s 115JB of the Act. 15. The ld. DR supported the decision of lower authorities. 16. We have considered the rival submissions and perused the material on record. We notice that the CIT (A) did not go into the merits of the case stating that the assessee s the return of income filed in response to notice u/s. 153C of the Act had recomputed the profits u/s. 115JB after adjusting impairment of assets and depreciation on Windmill. This contention of the CIT (A) is not correct as there is no estoppel in tax laws. The CIT (A) ought to have examined the adjustment under the provisions of the Act before deciding whether the said adjustments are correctly done in accordance with law. He cannot confirm the adjustments merely based on the fact that the assessee himself has made such adjustment. On the issue of whether the AO / CIT (A) can make adjustments to book profits computed u/s. 115JB, we notice that similar issue came up for consideration before this Tribunal in the case of DCIT v. M/s. Cauvery Aqua Pvt. Ltd. in ITA No. 375/Bang/2017, order date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be an amount equal to 7 % of such book profit. The Income Tax Officer has computed the book profit and the regular income. As tax on regular income is more than tax on book profit, tax on regular income is adopted. The Authorities have consistently relied upon Clause 3 (XII(b)) of Part-11 of Schedule VI to the Companies Act, to come to a conclusion that capital gains has to be mandatorily taken into profit and loss account while computing the book profit. That having not been done by the Assessee, the authorities have recomputed the book profit. At this juncture, it would be beneficial to refer to the Judgment of the Apex Court in Apollo Tyres (supra) which is rendered while dealing with an identical provision of Section 115J of the Act. It is held thus: Therefore, we are of the opinion, the Assessing Officer while computing the income under section 1151 has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the .Companies Act. The Assessing Officer thereafter has the limited power of making increases and reductions as provided for in the Explanation to the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sually undertaken by the Company or undertaken by the company or undertaken in circumstances of an exceptional or non-recurring nature, if material in amount and miscellaneous income, are required to be disclosed in the profit and loss account. Considering, the capital gain income falling under these clauses, it is incumbent on the Company to disclose the said amount of capital gain in the profit and loss account. Section 211 of the Companies Act contemplates, form and contents of balance sheet and profit and loss account. Sub-sections 3(A),3(B) and 3(C) of Section 211 provides that every profit and loss account and balance sheet of the company shall comply with the accounting standards, where the profit and loss account and balance sheet of the company do not comply with the accounting standards, such companies shall disclose in its profit and loss account and the balance sheet the following mainly: (a) the deviation from the accounting standards; (b) the reasons for such deviation; and the financial effect, if any, arising due to such deviation. 15. For the purpose of Section (3C) of Sec. 211 of the Companies Act, the expression accounting standards means the standards of account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C. has to examine the accounts and see if the same has been accepted by the Statutory Auditors of the company and the shareholders in the AGM. Thereafter, he has to only take the book profit as shown in the accounts and make the adjustments as per explanation to section 115JB of the Act. Testing the action of the A.O. on the ratio of the aforesaid decision, it is seen that the A.O has rendered a finding that the appellant has claimed excess depreciation in the profit and loss account and therefore, the A.O has recomputed the same by allowing only 1/15th of the cost of the asset as depreciation. Whatever be the correctness or otherwise of the said view taken by the A.O., it is clear that the appellant has provided depreciation at 100% of the cost in the profit and loss account and has mentioned in the notes to accounts at point 4 to Schedule 17 of the financial statements that Depreciation on Windmills is provided at 100% of the cost and the same is duly disclosed and accepted by the Statutory Auditors and the Shareholders in the AGM. Thus, the same cannot be called into question by the A.O. in the assessment proceedings in light of the judgment of the jurisdictional High Court supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 41,68,146/-requires to be accepted. It is directed accordingly. Grounds No. 3 4 are ALLOWED. 3.4.3 On a perusal of the finding rendered by the ld CIT (A) on the issue before us (Supra), we find that the ld CIT (A) has followed the judgments of the Hon ble Apex Court in Appollo Tyres Ltd., (255 ITR 273) (SC) and of the Hon ble Jurisdictional High Court in the case of Hariram Hotels in ITA No. 53/2009 dated 16/12/2015, while holding that the AO was not competent to go into the computation of Book Profits u/s 115JB of the Act except to the limited extent of making additions and reductions as laid out in Explanation (1) to sec. 115JB of the Act. We find that the ld CIT (A) has also tested the claim of depreciation as per the provisions of Explanation (1) to sec. 115JB while coming to the view that the AO was not authorized to make the addition while re-working the extent of depreciation claimed by the assessee. The accounts of the assessee have been certified by the Statutory Auditors. The accounting policies followed by the assessee have not been found fault with by the Statutory Auditors or the authorities concerned under the Companies Act. In such cases, the AO is not permit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CIT (A) confirmed the addition without going into merits. 19. The ld AR submitted that there was no justification for the AO to hold that the write off of investments amounts to diminution in the value of assets. He also submitted that there can be a diminution in the value considering the investment made only if an asset has some positive value, but when the asset has NIL value, it is a case of total loss and not a mere diminution in value. The ld AR also submitted that the amounts written off is not a provision made but the actual write off. The learned AR drew our attention to the ledger accounts of the assessee (page 318 of paper book) were the entries are made as investments write off against these two companies. 20. The ld DR submitted that these are provisions made and not actual write off as one of the companies is still in liquidation. 21. On perusal of the materials on record it is clear that the investments have indeed been written off by the assessee in the books of accounts and it is not provision made. Therefore it will not fall within the Explanation to section 115JB(2). In view of the above and respectfully following the decision of the coordinate bench of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The provisions of section 153C(1) reads as follows:- 153C. (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that, (a) any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or (b) any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to, a person other than the person referred to in section 153A, then, the books of account or documents or assets, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for six assessment years immediately preceding the assessment year relevant to the previous year in which search i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the case of the other person u/s. 153C of the Act for the six assessment years referred to in Sec. 153A of the Act, even if no incriminating material was found in the course of search. This created hardship and this was the reason why the provisions of Sec. 153C of the Act were amended by the Finance Act, 2014. With the amendment by the Finance Act, 2014, the AO of the other person after receiving the material from the AO of the Searched person has to make an Assessment based on the material so received by him which has a bearing on the determination of the total income of the other person. This is clear from the amended provisions of the law which reads thus: and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The intention of the legislature while introducing the provision is gathered, inter alia, from the Finance Bill, Memorandum Explaining the Provision of the Finance Bill. Any amendment to the substantive provision which is aimed at clarifying the existing position or removing unintended consequences to make the provision workable has to be treated as retrospective notwithstanding the fact that the amendment has been given effect prospectively. The above principles, if applied to the amendment to the provisions of Sec. 153C of the Act by the Finance Act, 2014, can lead to only one conclusion that the said amendment is clarificatory and therefore should be held to be retrospective in operation. 29. A plain reading of the amended provisions of section 153C(1) of the Act, would show that the AO is required to arrive at a satisfaction that the seized assets, books of account or documents belongs to or relates to a person other than the person was subjected to search. For arriving at such a satisfaction, it is necessary for the AO to prima facie spell out the nature of seized documents and how it belongs to or relates to the assessee. Before the Hon ble High Court of Karnataka in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as well as materials found in the course of search. The assessment proceedings which have been completed as on the date of search u/s. 132 of the Act will however continue to remain valid. Thus the former proceedings are referred to as abated assessment proceedings and the latter proceedings are referred to as unabated assessment proceedings . 31. Therefore the scope of making assessment of total income u/s. 153C of the Act in an unabated assessment proceedings is limited and can be only of assessing income that is not disclosed which is detected or which emanates from material found in the course of search of some other person and which relate to the Assessee. Since the impugned addition of disallowance of expenses are not based on any incriminating material found during the course of search, the additions are liable to be deleted. As far as the addition made on protective basis for AY 2008-09 to 2010-11 are concerned, the said addition was made not on the basis of any incriminating material found in the search of K. Mahesh Kumar which relate to the Assessee and therefore the said addition can also not be sustained as it is contrary to the provisions of Sec. 153C of the Act. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestments written off. During the year the assessee had written off a sum of Rs. 4,55,80,758 in M/s Deccan Aviation Ltd. and Rs. 7,28,000 in M/s. Guru Prasad Hotels Pvt Ltd., aggregating to Rs. 4,63,08,758 in the profit and loss account. The AO treated this write off as an addition to the book profits computed u/s. 115JB which was confirmed by the CIT(A). 31. The appeals on similar issue of computation of book profits u/s. 115JB, on identical facts, are allowed for AY 2008-09 in para 17 of this order. Considering the same, this ground raised by the assessee is allowed in favour of the assessee. 32. The other issue that remains for consideration in AY 2012-13 is regarding the disallowance made u/s. 14A of the Act with reference to the provisions of Rule 8D(2)(ii) (iii) of the I.T. Rules (Ground 3). 33. The AO for the AY 2012-13 observed that the appellant had investment in shares of other companies of Rs. 8,36,95,987/- at the beginning of the year and Rs. 5,36,73,978/- at the end of the year and that dividend from the same was exempt from taxation. He thereupon proceeded to make the disallowance u/s. 14A of the Act, by applying the provisions of Rule 8D(ii) (iii) totaling to Rs. 33 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of the assessee:- (i) Joint Investments Pvt. Ltd. v. CIT (59 Taxmann.com 295) it was held that disallowance u/s 14A of the Act is to be restricted to the tax exempt income. (ii) Daga Global Chemicals Pvt. Ltd. v. ACIT [2015-ITRV-ITAT-MUM-123) has held that disallowance u/s 14A r.w. Rule 8D cannot exceed the exempt income. (iii) M/s. Pinnacle Brocom Pvt. Ltd. v. ACIT (ITA No. 6247/M/2012) has held that disallowance u/s 14A cannot exceed the exempt income. (iv) DCM Ltd. v. DCIT (ITA No. 4567/Del/2012) held that the disallowance u/s 14A of the Act cannot exceed the exempt income. 3.5 In view of the above settled position, the amount of disallowance u/s 14A of the I.T. Act needs to be restricted to the extent of exempted income earned during the relevant assessment year. As would be evident that in the facts and circumstances of the present case the amount of exempted income of Rs. 27,37,47,187 was earned on investment and consequently the amount of disallowance, if at all, to be made is to be restricted to Rs. 27,37,47,187. 3.6 However, in this case, the assessee had made disallowance of Rs. 145,02,09,668 voluntarily while filing the return of income. In this context, it is importan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has to be a smaller part of such income and should have a reasonable proportion to the exempted income earned by the Assessee in that year, which can be computed as per Rule 8D only after recording the satisfaction by the Assessing Authority that the apportionment of such disallowable expenditure under Section 14A made by the Assessee or his claim that no expenditure was incurred is validly rejected by the Assessing Authority by recording reasonable and cogent reasons conveyed to Assessee and after giving opportunity of hearing to the Assessee in this regard. 22. We, therefore, dispose of the present appeal by answering question of law in favour of the Assessee and against the Revenue and by holding that the disallowance under Rule 8D of the IT Rules read with Section 14A of the Act can never exceed the exempted income earned by the Assessee during the particular assessment year and further, without recording the satisfaction by the Assessing Authority that the apportionment of such disallowable expenditure made by the Assessee with respect to the exempted income is not acceptable for reasons to be assigned the Assessing Authority, he cannot resort to the computation method under R ..... X X X X Extracts X X X X X X X X Extracts X X X X
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