Kerala State Industrial Corporation Ltd, Trivandrum v. Assistant Commissioner of Income Tax, Trivandrum

ITA 202/COCH/2009 | 2005-2006
Pronouncement Date: 29-07-2011

Appeal Details

RSA Number 20221914 RSA 2009
Assessee PAN AAACK9434D
Bench Cochin
Appeal Number ITA 202/COCH/2009
Duration Of Justice 2 year(s) 3 month(s) 14 day(s)
Appellant Kerala State Industrial Corporation Ltd, Trivandrum
Respondent Assistant Commissioner of Income Tax, Trivandrum
Appeal Type Income Tax Appeal
Pronouncement Date 29-07-2011
Appeal Filed By Assessee
Bench Allotted DB
Tribunal Order Date 29-07-2011
Date Of Final Hearing 14-06-2011
Next Hearing Date 14-06-2011
Assessment Year 2005-2006
Appeal Filed On 15-04-2009
Judgment Text
IN THE INCOME TAX APPELLAT E TRIBUNAL COCHIN BEN CH COCHIN BEFORE S/SHRI N.VIJAYAKUMARAN JM AND SANJAY AR ORA AM I.T.A. NOS.200 201 & 202/COCH/2009 ASSESSMENT YEARS : 2003-04 TO 2005-06 KERALA STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD. KOWDIAR TRIVANDURM-695 003. [PAN: AAACK 9434D] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE-1(1) TRIVANDRUM. (ASSESSEE -APPELLANT) (REVENUE- RESPONDENT) I.T.A. NO. 367/COCH/2009 ASSESSMENT YEAR : 2005-06 THE ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE-1(1) TRIVANDRUM. VS. KERALA STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD. KOWDIAR TRIVANDURM-695 003. [PAN: AAACK 9434D] (REVENUE -APPELLANT) (ASSESSEE - RESPONDENT) ASSESSEE BY SHRI V.DEVARAJAN CA-AR REVENUE BY SHRI S.R.SENAPATI SR. DR O R D E R PER BENCH: THESE ARE A SET OF FOUR APPEALS I.E. THREE BY TH E ASSESSEE A PUBLIC SECTOR UNDERTAKING OF THE STATE GOVERNMENT ENGAGED IN AIDI NG AND FINANCING INDUSTRIAL PROJECTS IN THE STATE FOR THREE CONSECUTIVE YEARS BEING A. Y. 2003-04 TO 2005-06 WITH THE REVENUE BEING IN APPEAL FOR THE LAST YEAR ARISING OUT OF SEPARATE ORDERS OF EVEN DATE (15.1.2009) BY THE COMMISSIONER OF INCOME-TAX(APPEA LS)-I TRIVANDRUM (CIT(A) FOR SHORT). I.T.A. NOS. 200 201 202 & 367/COCH/2009 2 2. THE APPEALS RAISING COMMON ISSUES WERE HEARD TO GETHER AND ARE BEING DISPOSED OF BY A COMMON CONSOLIDATED ORDER. THE FIRST ISSU E COMMON TO ALL THE APPEALS BY THE ASSESSEE IS THE CONFIRMATION OF THE BOOK PROFIT U/ S. 115JB OF THE INCOME-TAX ACT 1961 ('THE ACT' HEREINAFTER) AS COMPUTED BY THE ASSESSIN G OFFICER (AO) BY THE LD. CIT(A). THE AO IN ARRIVING AT THE `BOOK PROFIT U/S. 115JB ADOPTED THE FIGURE OF PROFIT AFTER TAX (BEFORE ADDITIONAL PROVISIONS) RELYING ON THE DEFI NITION OF `BOOK PROFIT PER EXPLANATION TO S. 115JB(2). THE SAME DEFINES IT AS INCLUSIVE OF ANY AMOUNT CARRIED TO RESERVES (OTHER THAN RESERVE SPECIFIED IN S. 33AC) AND THAT SET ASI DE FOR PROVISIONS MADE FOR MEETING ANY LIABILITY OTHER THAN ASCERTAINED LIABILITY. THE SA ME STOOD CONFIRMED BY THE LD. CIT(A) ON THE SAME BASIS. WE OBSERVE THAT THE ADJUSTMENTS BY THE AO ARE TOWARD DEFERRED TAX LIABILITY AND PROVISION FOR TAX. FOR A.Y. 2004-05 A ND 2005-06 ADJUSTMENT WAS ALSO MADE IN RESPECT OF PROVISION FOR GRATUITY. WE SHALL DIS CUSS THE MATTER BY TAKING IT UP ON AN YEAR-WISE BASIS. 3.1 FOR A.Y. 2003-04 THE AO HAVING ADOPTE D THE FIGURE OF PROFIT (BEFORE ADDITIONAL PROVISIONS) AS PER THE ASSESSEES PROFIT AND LOSS A CCOUNT ITSELF; THE ASSESSEE CONTENDS FOR ALLOWANCE OF PROVISION TOWARD DIMINUTION IN THE VAL UE OF THE INVESTMENT AS PER THE GUIDELINES ISSUED BY THE IDBI AT ` 174.70 LAKHS. THE BASIS IS THAT THE DEFINITION OF BOOK PROFIT U/S. 115JB PROVIDES FOR ADJUSTMENT OF PROVIS ION OF ASCERTAINED LIABILITY WHILE THE SAID PROVISION IS ONLY TOWARD INVESTMENT RELYING O N THE DECISIONS BY THE TRIBUNAL AS IN THE CASE OF USHA MARTIN INDUSTRIES LTD . 81 TTJ 518; HCL COMNET SYSTEMS AND SERVICES LTD. 305 ITR (AT) 409; J.G. VACUUM FLASK (P) LTD. 83 ITD 242. THE ARGUMENT HAS MERIT; THE TERM `BOOK PROFIT BEING DEFINED SO THA T THE SAME WOULD HAVE TO BE STRICTLY FOLLOWED. SO HOWEVER EXPLANATION 1 TO S. 115JB(2) STANDS AMENDED BY FINANCE ACT (NO. 2) 2009 W.R.E.F. 1.4.2001 TO INCLUDE CLAUSE (I) THERE-TO WHICH READS AS UNDER:- (I) THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISION FOR DIMINUTION IN THE VALUE OF ANY ASSET I.T.A. NOS. 200 201 202 & 367/COCH/2009 3 ACCORDINGLY THE SAME WOULD BE TAKEN INT O CONSIDERATION; THE ASSESSEE RATHER HAS ITSELF ONLY CONSIDERED IT THE SAME AS AN ADDITIONAL PROVISION. THOUGH THE LD. AR DID RAISE AN ARGUMENT THAT THE SAME REPRESENTS AN ACTUAL DECL INE IN THE VALUE OF THE RELEVANT INVESTMENTS WE FIND NO SUPPORT TO THIS ASSERTION. WHY WOULD IF SO IT RELY ON THE GUIDELINES ISSUED BY IDBI I.E. TO PRESS FOR IT CL AIM FOR DIMINUTION IN THE VALUE OF THE INVESTMENT? WHETHER THERE HAS BEEN AN ACTUAL DECLIN E/FALL IN THE VALUE OF THE INVESTMENT IS A MATTER OF FACT AND DOES NOT REQUIRE ANY SPECI FIC GUIDELINES IN THE MATTER. ALSO WHY WOULD THE ASSESSEE IN THAT CASE CREATE A PROVISIO N IN ITS RESPECT AND NOT CLAIM IT BY WAY OF DIRECT EXPENDITURE LOWERING OF THE VALUE OF THE INVESTMENT. THE ASSESSEES REPLY THAT IT DOES SO ONLY WHEN THE VALUE OF INVESTMENT FALLS BELOW PAR IS AGAIN NOT IN CONFORMITY WITH ANY PRINCIPLE OF ACCOUNTANCY. WHETHER THE REDU CTION IN VALUE OF THE INVESTMENT LEADS TO ITS VALUE BEING BELOW ITS PAR VALUE OR NOT THE SAME HAS TO BE RECOGNISED WHERE THE SAME REPRESENTS A DECLINE WHICH IS NOT TEMPORARY. THE PROVISION OF AS-13 IS ALSO BINDING ON THE ASSESSEE-COMPANY U/S. 209/210 OF THE COMPANIES ACT 1956. EVEN IF THE INVESTMENTS ARE CURRENT INVESTMENTS I.E. IN CONTR ADISTINCTION TO LONG TERM INVESTMENTS WHICH DOES NOT APPEAR TO BE THE CASE; THE ASSESSEE PARTICIPATING BY CONTRIBUTING FUNDS ON A LONG TERM BASIS I.E. WITH LONG TERM PERSPECTIVE ; RATHER CLAIMING TO HAVE FUNDED THE SAME OUT OF SHARE CAPITAL IT IS ONLY THE DECLINE I N THE `FAIR VALUE WHICH WOULD JUSTIFY REVISION IN THE VALUE. THE ASSESSEE HAS AS AFOREN OTED NOT DISTURBED THE CARRYING AMOUNT OF THE INVESTMENT IN ITS BOOKS. FOR EACH YEAR IT M AKES ADJUSTMENT IN ITS ACCOUNTS ONLY FOR THE DIFFERENCE IN THE PROVISION REQUIRED I.E. WHE RE RECKONED FOR THE ENTIRE INVESTMENT PORTFOLIO EITHER DEBITING THE PROFIT AND LOSS ACCO UNT FOR THE ADDITIONAL PROVISION REQUIRED OR CREDITING IT WHERE AND TO THE EXTENT FOUND TO B E IN EXCESS. UNDER THE CIRCUMSTANCES WE FIND ITS CASE CLEARLY COVERED BY EXPLANATION 1(I) TO S. 115JB(2) AND RIGHTLY CONSIDERED ASSESSED AS PART OF ITS BOOK PROFIT FOR THE YEARS U NDER REFERENCE. 3.2 THE ASSESSEE HAS BEFORE US HOWEVER RAISE D ANOTHER PLEA. THAT IS THAT THE `PROVISION UNDER REFERENCE STANDS ALLOWED TO IT ON MERITS IN THE ASSESSMENT OF ITS INCOME UNDER THE REGULAR PROVISIONS OF THE ACT AND TOWARD WHICH IT ADVERTS TO ITS PROFIT AND LOSS I.T.A. NOS. 200 201 202 & 367/COCH/2009 4 ACCOUNT AND THE COMPUTATION OF INCOME (RETURN) FOR EACH OF THE RELEVANT YEARS. THE ALLOWANCE OF THE PROVISION ALTERS THE SITUATION COM PLETELY INASMUCH AS IT IS ONLY AN ACCEPTANCE BY THE REVENUE THAT THE SAME REPRESENTS AN ACTUAL LOSS CONSEQUENT TO THE REAL DECLINE/FALL IN THE FAIR VALUE OF THE RELEVANT INVE STMENTS/S. AS SUCH TO THE EXTENT ALLOWED PARTICULARLY CONSIDERING THAT THE SAME HAS BEEN ONL Y AFTER SUBJECTING THE RETURNS TO VERIFICATION BY THE REVENUE FOLLOWED BY ITS REVIEW BY THE FIRST APPELLATE AUTHORITY NOT ALLOWING THE SAME IN THE COMPUTATION OF `BOOK PROFI T ON THE GROUND THAT IT IS MERELY A PROVISION WOULD AMOUNT TO TAKING A CONTRARY STAND. 3.3 IN VIEW OF THE FOREGOING WE ACCEPT THE ASSESSEES CASE IN PRINCIPLE. HOWEVER THE WORKING OF THE QUANTUM WOULD REQUIRE VERIFICATI ON WHICH THE AO SHALL DO WHILE PASSING THE APPEAL-EFFECT GIVING ORDER TO THIS ORDE R. THIS IS ALSO FOR THE REASON THAT WE OBSERVE THAT A PART OF THE PROVISION STANDS DISALLO WED AND ALSO SUBSEQUENTLY SUSTAINED. WE THEREFORE ALLOW THE ASSESSEES PLEA IN PRINCIP LE SO THAT IT WOULD BE ENTITLED TO CLAIM DEDUCTION IN THE COMPUTATION OF BOOK PROFIT IN RESP ECT OF THE RELEVANT PROVISION TO THE EXTENT ALLOWED BY THE REVENUE. 3.4 THE SECOND ISSUE TAKEN UP BY THE ASSESSEE IN RELATION TO DETERMINATION OF `BOOK PROFIT PERTAINS ONLY TO AY 2003-04. IT CLAIMS RELI EF IN RESPECT OF CREDIT OF DEFERRED TAX TO ITS P&L STATEMENT AT ` 102.34 LACS WITH REFERENCE TO EXPLANATION 1(VIII) TO S. 115JB(2). THE PROVISION EXPLICITLY PROVIDES FOR A REDUCTION F OR THE AMOUNT OF DEFERRED TAX LIABILITY WHERE CREDITED TO THE PROFIT AND LOSS ACCOUNT. THE SAME IS ALSO IN CONFORMITY WITH THE PRINCIPLE THAT THE BOOK PROFIT U/S. 115JB OUGHT NOT TO BEAR ANY ACCOUNTING ADJUSTMENT IN RESPECT OF THE ASSESSEES TAX LIABILITY. WE ACCOR DINGLY HAVE NO HESITATION IN DIRECTING ALLOWANCE OF THE ASSESSEES SAID CLAIM. WE DECIDE ACCORDINGLY. THIS DECIDES ITS APPEAL FOR A.Y. 2003-04 AND GROUND NO. 3 FOR A.Y. 2004-05 AND 2005-06. 4. THE NEXT AND THE ONLY ISSUE ARISING IN THE ASSES SEES APPEAL FOR A.Y. 2004-05 AND 2005-06 IS THE DISALLOWANCE OF PROPORTIONATE ADMINI STRATIVE EXPENSES AS DIVIDEND I.T.A. NOS. 200 201 202 & 367/COCH/2009 5 INCOME BEING TAX EXEMPT U/S. 14A OF THE ACT. WE S AY ADMINISTRATIVE EXPENSES EVEN AS THE ASSESSMENT ORDER/S DOES NOT QUALIFY THE EXPENDI TURE DISALLOWED IN ANY MANNER AS IT IS THE ASSESSEES CONSISTENT STAND AND WHICH IT HAS S UBSTANTIATED BEFORE THE FIRST APPELLATE AUTHORITY WITH DETAILS THAT IT HAD ONLY EMPLOYED I NTEREST-FREE FUNDS FOR INVESTMENT IN SHARES WITH THE REVENUE BEING NOT IN APPEAL. THE LD. CIT(A) ADVERTING TO RULE 8D NOTIFIED W.E.F. 24.3.2008 HAS RESTRICTED THE DISAL LOWANCE TO 0.5% OF THE AVERAGE VALUE OF THE INVESTMENT I.E. AS PRESCRIBED THEREBY AS AGA INST AT 5% OF THE DIVIDEND INCOME BY THE AO RELYING ON THE DECISION IN THE CASE OF CIT VS. SCINDIA INVESTMENTS PVT. LTD. 190 ITR 128 (BOM.). THE ASSESSEES CASE IS THAT IT HAS NOT INCURRED ANY SPECIFIC EXPENDITURE FOR THE PURPOSE; THERE BEING NO SEPARATE INVESTMENT DEV ELOPMENT CELL IN THE COMPANY PLACING RELIANCE ON THE DECISION IN THE CASE OF STATE BANK OF INDORE VS. CIT 275 ITR 23 (M.P.) TO THE EFFECT THAT NOTIONAL EXPENDITURE COUL D NOT BE DISALLOWED. BOTH THE DECISIONS STATED BY THE OPPOSITE SIDES ARE IN THE CONTEXT OF S. 80M OF THE ACT AND THE RELIANCE BY THEM IS WITH RESPECT TO THE RATIO THEREOF. THE MAT TER IS NO LONGER RES INTEGRA AS FAR AS THE STATE OF KERALA IS CONCERNED. THE HONBLE JURISDICT IONAL HIGH COURT IN THE CASE OF CIT VS. DHANALAKSHMI BANK LTD. (IN I.T.A. NO.1324/2009 DATED 21.10.2010 COPY ON RECORD) HAS CLARIFIED THAT THERE BEING NO FORMULA FOR PROPORTIO NATE DISALLOWANCE NO DISALLOWANCE TOWARD (PROPORTIONATE) ADMINISTRATIVE COST ATTRIBUT ABLE TO EARNING TAX FREE INCOME COULD BE MADE UNTIL RULE 8D CAME INTO FORCE. LIKE-WISE P ER ITS DECISION IN THE CASE OF THE CATHOLIC SYRIAN BANK REPORTED AT 237 CTR 164. THE ISSUE IS THUS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND THE DISALLOWANCE U/S. 1 4A OF THE EXPENDITURE SUSTAINED; THE RELEVANT YEARS BEING PRIOR TO THE COMING INTO FORCE OF RULE 8D STANDS TO BE DELETED. WE DECIDE ACCORDINGLY. REVENUES APPEAL (A.Y. 2005-06) 5. THE ONLY ISSUE ARISING IN THE REVENUES APPEAL I S THE DISALLOWANCE OF THE ASSESSEES CLAIM QUA THE PROVISION WRITTEN BACK IN ACCOUNTS AT ` 182.20 LAKHS. THE ASSESSEE INCLUDED THE SAME IN THE COMPUTATION OF IT S REGULAR INCOME RELIEF IN ITS RESPECT WAS SOUGHT DURING THE COURSE OF ASSESSMENT PROCEEDI NGS PER ITS LETTER DATED 5.12.2007. I.T.A. NOS. 200 201 202 & 367/COCH/2009 6 THIS IS AS THE PROVISION WHEN I.E. FOR THE PRECED ING YEARS STOOD DISALLOWED IN ASSESSMENT. ACCORDINGLY THE WRITE BACK DISALLOWED EARLIER IF ADDED TOTHE TOTAL INCOME FOR THE YEAR WOULD AMOUNT TO DOUBLE ADDITION OF TH E SAME AMOUNT/INCOME. THE LD. CIT(A) ALLOWED THE ASSESSEE RELIEF ON THAT BASIS. AGGRIEVED THE REVENUE IS IN APPEAL. 6. WE HAVE HEARD THE PARTIES AND PERUSED THE MATER IAL ON RECORD. 6.1 THE ASSESSEE AS WE UNDERSTAND SEEKS RELI EF QUA THAT COMPONENT OF THE TOTAL WRITE BACK OF THE PROVISION TOWARD DIMINUTION IN THE VALU E OF THE INVESTMENTS FOR THE CURRENT YEAR AT ` 264.98 LAKHS WHICH IS WITH REFERENCE TO THE SHARES VALUED BY IT BY ADOPTING THE NOTIONAL FIGURE OF `1 PER SHARE FOLLOWING THE IDBI GUIDELINES IN THE MA TTER ON THE BASIS THAT THE LATEST BALANCE SHEET OF THE RELEVANT COMPA NY WAS NOT AVAILABLE CLAIMING THE SAME TO BE AT ` 182.20 LAKHS. THE LD. CIT(A) HAS DELETED THE SAME A FTER CONFIRMING THE EXTENT OF DISALLOWANCE UP TO THE IMMEDIATELY PRECEDING YEAR A .Y. 2004-05 I.E. AT ` 561.665 LAKHS AS REPORTED BY THE ASSESSEE. 6.2 THE REVENUE HAS UNNECESSARILY GONE INTO T HE MERITS OF THE DISALLOWANCE (OF THE PROVISION) WHICH STANDS SINCE UPHELD. AS SUCH TH E WRITE BACK OF SUCH PROVISION THOUGH WARRANTED IN ACCOUNTS WOULD NOT LEAD TO ANY ADJUST MENT TO THE TAXABLE INCOME AND WHERE AND TO THE EXTENT MADE IS ONLY AN OMISSION MERITING RECTIFICATION. THE PROPOSITION IS UNEXCEPTIONAL AND THE REVENUES ADV ERTENCE TO THE DECISION IN THE CASE OF GOETZE (INDIA) LTD. VS. CIT (2006) 284 ITR 323 (SC) IS MISCONCEIVED. HOW WAS T HE ASSESSEE TO KNOW THAT ITS CLAIM (FOR PROVISION TOWA RD DIMINUTION IN THE VALUE OF SHARES) WOULD STAND DISALLOWED IN THE ASSESSMENT AND FURTH ER TO WHAT (THE SAID) EXTENT. THE ASSESSEES CLAIM IS THUS FULLY MERITED IN PRINCIP LE. 6.3 WITH REGARD TO QUANTUM HOWEVER THERE APPEARS TO BE SOME CONFUSION. WHILE THE AO STATES THE VALUE OF THE IMPUGNED SHARES (AS AT T HE YEAR-END) AT ` 379.46 LAKHS THE LD. CIT(A) STATES THE SAID VALUE AS WITH REFERENCE TO T HE EXTENT OF PROVISION RELATABLE TO THE CURRENT YEAR OUT OF THE TOTAL PROVISION DISALLOWED UP TO A.Y. 2004-05. THERE IS NO I.T.A. NOS. 200 201 202 & 367/COCH/2009 7 QUESTION OF ANY PROVISION FOR THE CURRENT YEAR AS IT IS ONLY ON THE SAME HAVING BEEN FOUND (WITH REFERENCE TO THE VALUE OF SHARES AS AT THE YE AR END) AS MADE IN EXCESS THAT THE WRITE BACK OF THE PROVISION HAS BEEN MADE IN THE ACCOUNTS . 6.4 IN VIEW OF THE FOREGOING SUBJECT TO THE VERIFICATION OF QUANTUM PER A SPEAKING ORDER AND AFTER ALLOWANCE OF OPPORTUNITY TO THE ASS ESSEE WE ALLOW THE ASSESSEES CASE AND CONFIRM THE IMPUGNED ORDER. 7. IN THE RESULT THE ASSESSES APPEALS ARE ALLO WED AND THE REVENUES APPEAL IS DISMISSED. SD/- SD/- (N.VIJAYAKUMARAN) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: ERNAKULAM DATED: 29TH JULY 2011 GJ COPY TO: 1. KERALA STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD. KOWDIAR TRIVANDURM-695 003. 2. THE ASST. COMMISSIONER OF INCOME-TAX CIRCLE-1(1 ) TRIVANDRUM. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-I TRIV ANDRUM. 4. THE COMMISSIONER OF INCOME-TAX TRIVANDRUM. 5. D.R. I.T.A.T. COCHIN BENCH COCHIN. 6. GUARD FILE .