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TMI Blog2024 (9) TMI 340X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) was right in deleting the adjustment by way of addition of provision for Bad and Doubtful debts of Rs 97,94,00,000/- to Book profit u/s 115JB, the addition of which was made in accordance with clause (c) provided in Explanation (1] under section 1151B/2) since this provision was in respect of unascertained liability? 4. Whether, On the facts and in the circumstances of the case and in law, the Id CIT(A) is justified in deleting the adjustment to book profit of provision of Staff Welfare expenses of Rs 10.58 Crores holding the same as ascertained liability ignoring the fact that the same was worked out on scientific basis by actuarial method despite the assessee not providing any supporting documents? 5. Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in deleting the adjustment to book profit under section 115JB of the Act for provision for loss on Guarantee of Rs 69,00,000/- holding the same as an ascertained liability? 3. In the Cross Objection, the assessee has raised the following grounds:- A. On the facts and in the circumstances of the case, the learned AO has erred in objecting the order of ld.CIT(A): General: 1. without a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion for staff welfare expenses of Rs. 10,58,00,000/- is worked out on a scientific basis by actuarial method represented provision for meeting ascertained liability and therefore the addition has been rightfully deleted by the Ld. CIT(A) for computing book profits under section 115JB of the Act; Addition in respect of provision for loss on guarantee of Rs. 69,00,000/- 7. failed to appreciate that Ld. CIT(A) had rightly deleted the addition to book profit under section 115JB of the Act in respect of provision for loss on guarantee of Rs. 69,00,000/- 8. failed to appreciate that Ld. CIT(A) had deleted the addition in the first round of proceedings and no appeal was filed by the Department and there by the issue has attained finality and there by this issue was wrongly added by the AO in remand proceedings which were rightly deleted by the Ld. CIT(A) in the second round of litigation; Order under section 143(3) r.w.s. 147 r.w.s. 254 of the Act dated 29 September 2021 issued in contravention to CBDT Circular No. 19/2019 dated 14 August 2019 9. without appreciating that the impugned order under section 143(3) r.w.s. 147 r.w.s. 254 of the Act dated 29 September 2021 has been passed witho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and hence the re-opening order passed by the Ld. AO is bad in law and liable to be quashed; Levy of interest under section 234B of the Act 17. ought to have appreciated that no interest under section 234B of the Act can be charged since the income for the year under consideration is taxable as per provisions of section 115JB of the Act; 18. ought to have appreciated that no interest under section 234B of the Act can be charged as the additions are made while computing the book profits under section 115JB on the basis of the retrospective amendment in the Act; The Appellant craves, to consider each of the above grounds of cross-objection without prejudice to each other and craves leave to add, alter, delete or modify all or any of the above grounds of cross-objection. 4. The brief facts and background of the issues involved are that the assessee is a company engaged in the business of manufacturing of chassis and vehicles for transport of goods and passengers including motor car and parts. It has filed its return of income for assessment year 2003-2004 on 30th October, 2003 declaring `Nil income as per the normal provisions of the Act (due to set off of brought forward losses). Howe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) held that since enhancement has already been made in respect of these grounds, therefore, no further adjudication was required. Thus, the ld.CIT(A) held that since enhancement has already been made in the normal assessment proceedings, therefore, reassessment proceedings does not require any adjudication qua these three issues. However, insofar as validity of reopening is concerned, he held that the same is academic and does not require any specific adjudication. In a summary manner, the issue decided by the ld.CIT(A) including enhancement and the appeal filed before the Tribunal against original assessment proceedings is as under:- Sr. No. Grounds Appeal in Tribunal 1. Adjustment to book profit in respect of provision for staff welfare of Rs.10.58 crore Allowed and agitated by the department before the Tribunal. 2. Adjustment in respect of the three issues on which enhancement was made in the 143(3) proceedings Ground dismissed as the adjustment was made in the normal proceedings 3. Validity of reopening proceedings Ground treated as academic in nature. 9. Before the Tribunal, in the first round of proceedings, which was appeal against CIT(A) s order dated 08th March, 2011, whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt against the Tribunal order and the learned Counsel for the assessee had drew our attention to the note of the PCIT not recommending the appeal on these three issues, whereas on some other issues the Revenue did filed appeal u/s 260A. Thus, qua these issues, matter had attained finality in the original assessment proceedings because the Department had not challenged the order of the Tribunal before the Hon ble High Court of Bombay. 12. Now in the appeal against the CIT(A) s order dated 10th March, 2011 pursuant to the order passed u/s.143(3) r.w.s. 147 of the Act, where in the assessee had challenged the validity of reopening and also filed various grounds incluiding applicability of interest u/s. 234B, the Department had also filed appeal before the Tribunal against the relief granted by the CIT(A) in respect of the adjustment in book profit u/s.115JB on the provision of staff welfare expenses to the extent of Rs.10.58 crore. It is important to note that, the Revenue again did not challenge the order of the CIT(A) on the impugned three issues and the appeal was filed only for the adjustment to the extent of staff welfare expenses only. The Tribunal vide order dated 03rd May, 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain referred to the order of the Tribunal dated 17.07.2019. lastly on the issue of adjustment to the book profit u/s.115JB in respect of provision for bad and doubtful debts of Rs.97.94 crore, again he followed the decision of the Tribunal. Thus, he deleted the addition on the issue of these three issues following the Tribunal order. 15. Insofar as the adjustment of book profit u/s.115JB for provision for staff welfare expenses of Rs.10.58 crore and the provision for loss on guarantee of Rs.69 lakh, the CIT(A) vide order dated 03.03.2011 had observed and held as under:- 10.4 After considering the facts of the issue and the written submissions made by appellant regarding the adjustment to book profit u/s 115JB in respect of provision for staff welfare of Rs. 10.58 crores, I find that this provision is admittedly an accrual worked out on a scientific basis by actuarial method and represent provision for meeting ascertained liability. Hence, considering the legal position brought out by appellant, no adjustment should be made to the book profit in respect of the above ascertained liability of Rs. 10.58 crores. Similarly, the provision in respect of loss on guarantee is noted to be a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 55,00,000: The issue has already been decided in favor of the assessee by learned CIT(A) vide order dated March 2011 wherein, relying on the decision in case of Echjay Forgings Pvt. Ltd (251 ITR 15) (Bombay HC), it was held that wealth tax cannot be added for the purpose of book profit computation. Addition under section 115JB of the Act in respect of current tax of Rs. 19,70,97,000 and contingencies of Rs. 96,86,000: Directed the learned AO to verify the amount of current tax and contingencies from the return on income and the P L account and, delete the addition in case the same have already been considered in the P L account. 17. Before us, the learned Counsel for the assessee, Shri Rajan Vora, insofaras ground No.1, 2 and 3 of the Revenue s appeal and cross objection No.1 to 5 of the assessee, submitted that the addition which has been made by the AO in the impugned order has already been decided by the Tribunal vide order dated 17th July, 2019 and the said issues cannot be considered in the order giving effect. He submitted that the Tribunal vide order dated 17th July, 2019 against the order passed u/s.143(3) held that additions were already made by the AO under reopening proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollowing the aforesaid decision, in any case, the provision for deferred tax could not be the subject matter of addition in the computation of book profits u/s.115JB of the Act. 4.6. Even on merits, we find that the Id. AO in the original assessment proceedings u/s. 143(3) of the Act completed on 31/01/2006 had applied the law prevailing on that date. These three items i.e. provision for deferred tax; provision for diminution in value of investments; Provision for bad and doubtful debts were sought to be added in the computation of book profits u/s. 115JB of the Act only pursuant to an amendment brought by the Finance Act 2008 with retrospective effect from 01/04/2001. Hence, on the date of passing of order u/s. 143(3) of the Act on 31/01/2006, the Id. AO could not have added these three items in the computation of book profits u/s.115 JB of the Act. Hence, what could not have been done by the Id. AO as per law prevailing at that time, the learned CIT(A) could not do by exercising enhancement powers. Reliance in this regard is placed on the decision of Hon'ble Calcutta High Court in the case of CIT vs. Hardeo Das Agarwala Trust reported in 198 ITR 511(CAL), where in it was held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 115JB of the Act for provision of staff welfare of Rs. 10,58,00,000. Therefore, it is pertinent to note that the Department did not challenge the CIT(A) order on the impugned issues and appeal was only filed on the adjustment to book profit under section 115JB of the Act for provision of staff welfare of Rs.10,58,00,000. Further, the same is also evident from recommendation given by the Department to appeal against the CIT(A) order, wherein it has been categorically mentioned that no appeal should be filed against the CIT(A) order on issues arising except for issue of provision for pension, provision for staff welfare and provision for loss on guarantee. The Tribunal concluded that actual reasons recorded were not communicated to the assessee for filing its objections to the same in the light of the decision rendered by the Hon'ble Supreme Court in the case of G.K.N Driveshafts (India) Ltd. vs ITO (2003) (259 ITR 19) (SC). Hence, the learned AO also could not pass a separate speaking order disposing off those objections to the reasons recorded. Accordingly, the Hon'ble Tribunal vide order dated 3 May 2019 remanded the matter back to the AO for de novo adjudicatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that provision for deferred tax and provision for diminution in value of investment and provision for bad and doubtful debts cannot be subject matter of addition under section 115JB of the Act. 23. In view of the above, he submitted that provisions are not to be added back for the purpose of computation of book profit under section 115JB of the Act and it has rightly been not added back in the assessment. Therefore, no adjustment should be made. 24. On the issue of ground of appeal No.4 of Department s appeal and cross objection No.6 of assessee s cross objection relating to adjustment of book profit u/s.115JB for the provision for staff welfare expenses of Rs.10.58 crores, Ld. Counsel submitted that the assessee is one of the largest automotive manufacturer in India engaged in design development and sale of all types of automotive vehicles and has certain facilities at remote areas in India where basic facilities of education, hospitals, etc were lacking. As a result, the assessee had to provide many facilities to employees to attract them to work in such remote areas. On account of this, assessee had introduced certain welfare measures for its employees. During the manufacturin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [ITA No. 7550/Mum/2016 dated 13 April 2022 (Mumbai ITAT)] it has been held that the provision for staff welfare is an ascertained liability and therefore allowable while computing income under normal provisions of the Act. Accordingly, it is submitted that the same can also not be added while computing book profits on the premise of the same being unascertained. In view of the above, it is submitted that no adjustment can be made to book profit under section 115JB of the Act. 28. Regarding ground of Appeal No. 5 of Departmental Appeal Cross Objection Nos. 7 8 of Assessee's Cross Objections relating to Provision for loss on Guarantee Rs. 69,00,000, Ld. Counsel submitted that the said issue was decided in favour of assessee by the learned CIT(A) in first round of proceedings, wherein the CIT(A) at para 7.3 had held that provision on loss of guarantee is a contractual liability on the basis of the agreement and company had to account for the accrued liability and no appeal has been filed against the same by Department before Hon'ble Tribunal as the same is accepted by Department which is also evident from the Department Memo mentioning issues on which appeal should be filed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ival parties and also perused the relevant facts and chronology of various orders passed in the case of the assessee. We have discussed in detail the checkered history of the assessments and the appeals for the same issue which is subject matter of appeal by the department, that is,: i) Addition u/s.115JB of the Act in respect of provision for deferred tax of Rs.190,55,00,000/-. ii) Addition u/s.115JB of the Act in respect of provision for diminution in the value of investments of Rs.26,00,00,000/-. iii) Addition u/s.115JB of the Act in respect of provision for bad doubtful debt of Rs.97,94,00,000/-. For the sake of ready reference, summary of various proceedings and orders are summarized as under:- Flow of events on 3 issues where enhancement made in normal appeal by CIT(A) 32. As discussed in the following observations, insofar as the issue relating to provisions for deferred tax of Rs.190.55 crores provision for diminution in the value of investment of Rs.26 crores and provision for bad and doubtful debts of Rs.97.94 crores, the same were subject matter of enhancement by the CIT (A) and also subject matter of reopening u/s.147 by the AO. The CIT(A) had passed the order dated 08t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, against which the assessee preferred an appeal before the Id.CIT(A). Before the Id. CIT(A), the assessee also challenged the validity of reopening of assessment while making several legal arguments thereon. We find from the perusal of the order of Id. CIT(A) that the Id.CIT(A) in para 10.1 at page 10 of his order had given his finding with regard to the challenge of the assessee on the question of validity of reassessment proceedings as under :- 10.1 It may be noted from a perusal of the foregoing paragraphs of this order that the additions /disallowances made by the AO as a consequence of the re-opening or the case for this year have either already been considered by this office for enhancement in the appellate order passed in the order u/s. 143(3) or relief has been allowed by this office in respect of such' additions / disallowances. Hence, the issue regarding the validity reassessment proceedings u/s.147 has become academic in nature which requires no adjudication. 6. From the above, it could be seen that the Id. CIT(A) had not adjudicated the legal issue which is preliminary in nature on the question of validity of reopening of assessment. At the time of hearing, Id. D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 dated 03.05.2019 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 f the reason that these are beyond the scope of present assessment proceedings. 34. Now coming to the issue of 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 findi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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