Deputy Commissioner of Income-tax, Bangalore v. M/s. Brindavan Threads Pvt. Ltd.,, Bangalore

ITA 2219/BANG/2016 | 2008-2009
Pronouncement Date: 29-11-2017 | Result: Dismissed

Appeal Details

RSA Number 221921114 RSA 2016
Assessee PAN AABCB1833E
Bench Bangalore
Appeal Number ITA 2219/BANG/2016
Duration Of Justice 11 month(s) 13 day(s)
Appellant Deputy Commissioner of Income-tax, Bangalore
Respondent M/s. Brindavan Threads Pvt. Ltd.,, Bangalore
Appeal Type Income Tax Appeal
Pronouncement Date 29-11-2017
Appeal Filed By Department
Tags No record found
Order Result Dismissed
Bench Allotted C
Tribunal Order Date 29-11-2017
Date Of Final Hearing 17-07-2017
Next Hearing Date 17-07-2017
First Hearing Date 17-07-2017
Assessment Year 2008-2009
Appeal Filed On 16-12-2016
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH C BEFORE SHRI JASON P BOAZ ACCOUNTANT MEMBER AND SHRI LALIET KUMAR JUDICIAL MEMBER ITA NO.2219 /BANG/2016 (ASST. YEAR 2008-09) THE DY. COMMISSIONER OF INCOME-TAX CENTRAL CIRCLE 2(3) BENGALURU. . APPELLANT VS. M/S BRINDAVAN THREADS PVT. LTD. #5/3 1 ST MAIN ROAD JAYAMAHAL EXTENSION BENGALURU. . RESPONDENT PAN AABCB1833E. CO NO.42/BANG/2017 (BY ASSESSEE) REVENUE BY : SHRI DEVA RATHNA KUMAR CIT ASSESSEE BY : SHRI V SRINIVASAN ADVOCATE DATE OF HEARING : 16-11-2017 DATE OF PRONOUNCEMENT : 29-11-2017 O R D E R PER SHRI JASON P BOAZ ACCOUNTANT MEMBER : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS) - 11 BANGALOR E DATED ITA NO.2219/B/16 & CO 42/B/17 2 26/9/2016 FOR ASST. YEARS 2008-09. THE ASSESSEE HA S ALSO FILED CROSS OBJECTIONS (C.O) IN RESPECT OF THE AFORESAID ORDE R OF THE CIT(A). 2. BRIEFLY STATED THE FACTS OF THE CASE RELEVANT F OR THIS APPEAL ARE AS UNDER:- 2.1 THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINES S OF MANUFACTURE AND SALE OF SEWING THREADS AND TRADING IN SOFT DRINKS. THE ASSESSEE FILED ITS RETURN OF INCOME FOR ASST. YEAR 2008-09 ON 24/9/2008 DECLARING TOTAL INCOME OF RS.54 08 360/- UNDER THE NORMAL PROVISIONS OF THE ACT AND REPORTED BOOK PROFITS AT RS.62 14 837/- U/S 115JB OF THE INCOME-TAX ACT 1961 (IN SHORT THE ACT). THI S RETURN WAS PROCESSED U/S 143(1) OF THE ACT AND THE CASE WAS SU BSEQUENTLY TAKEN UP FOR SCRUTINY. THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT VIDE ORDER DATED 13/12/2010 ACCEPTING THE RETURNED INCOME OF RS.54 08 360/- AND THE BOOK PROFITS COMPUTED BY THE ASSESSEE WAS ALSO ACCEPTED AS RETURNED. 2.2 ON 18/12/2012 SEARCH AND SEIZURE OPERATIONS U/ S 132 OF THE ACT WERE CONDUCTED AT THE ASSESSEES PREMISES. AFTER C ONCLUSIONS OF SEARCH OPERATIONS THE ASSESSING OFFICER (AO) ISS UED NOTICE U/S 153A OF THE ACT DATED 26/2/2014. IN RESPONSE THERE TO THE ASSESSEE FILED RETURN OF INCOME FOR ASST. YEAR 2008-09 ON 30 /4/2014 DECLARING INCOME OF RS.54 08 360/- AS DECLARED IN THE ORIGINA L RETURN OF INCOME FILED ON 24/9/2008 FOR THIS ASST. YEAR. THE AO COM PLETED THE ASSESSMENT U/S 143(3) R.W.S 153A OF THE ACT VIDE OR DER DATED 30/3/2015 WHEREIN THE RETURNED INCOME UNDER NORMAL PROVISIONS WAS ACCEPTED AS RETURNED. THE BOOK PROFITS U/S 115JB OF THE ACT WAS RE- ITA NO.2219/B/16 & CO 42/B/17 3 COMPUTED AT RS.3 41 21 503/- AS AGAINST RETURNED B OOK PROFITS OF RS.62 14 837/- REPORTED BY THE ASSESSEE. WHILE COMP UTING THE BOOK PROFITS THE AO MADE AN ADDITION OF RS.2 79 06 666/ - IN RESPECT OF EXCESS DEPRECIATION CLAIMED BY THE ASSESSEE ON WIND MILLS AS HE WAS OF THE VIEW THAT THE ASSESSEE HAD CLAIMED EXCESS DE PRECIATION AT 100% OF THE COST OF THE WINDMILLS AND HAD NOT FOLLOWED T HE ACCOUNTING STANDARDS FOR CLAIMING DEPRECIATION OVER THE LIFE O F THE ASSET. IN THAT VIEW OF THE MATTER THE AO RE-COMPUTED THE ALLOWAB LE DEPRECATION AT 1/15 TH OF THE COST OF THE WINDMILLS AND THEREBY RESTRICTE D THE ALLOWABLE DEPRECIATION AT RS.19 93 333/- FOR THE YEAR UNDER C ONSIDERATION. 2.3 AGGRIEVED BY THE ORDER OF ASSESSMENT FOR DATED 30/3/2015 FOR ASST. YEAR 2008-09 THE ASSESSEE PREFERRED AN APPEA L BEFORE THE CIT(A)-11 BANGALORE. THE LD CIT(A) DISPOSED OFF T HE APPEAL ALLOWING THE ASSESSEE PARTIAL RELIEF. IN DOING SO THE LD CIT(A) ALLOWED THE ASSESSEES CLAIM THAT THE AO WAS NOT EN TITLED TO MAKE ADDITIONS TO THE BOOK PROFITS WHICH WAS ACCEPTED BY THE STATUTORY AUDITORS AND THE REGISTRAR OF COMPANIES (ROC) AND DIRECTED THE AO TO ACCEPT THE BOOK PROFITS AS DECLARED BY THE ASS ESSEE. THE LD CIT(A) HOWEVER REJECTED THE ASSESSEES CLAIM THAT THE AO WAS NOT ENTITLED TO VARY THE BOOK PROFITS IN THE ORDER OF A SSESSMENT FRAMED U/S 143(3) R.W.S 153A OF THE ACT IN THE ABSENCE OF ANY INCRIMINATING/SEIZED MATERIAL BEING FOUND AT THE TI ME OF SEARCH. 3.1 REVENUE BEING AGGRIEVED BY THE ORDER OF THE CI T(A)-11 BANGALORE DATED 26/9/2016 FOR ASST. YEAR 2008-09 H AS FILED THIS APPEAL WHEREIN IT HAS RAISED THE FOLLOWING GROUNDS: - ITA NO.2219/B/16 & CO 42/B/17 4 1.1 THE ISSUE UNDER APPEAL IS THERE -COMPUTATION O F THE BOOK PROFIT BY THE A.O ON THE ISSUE OF 100% DEPRECIATION CLAIMED ON THE WINDMILL IN THE BOOKS O F THE COMPANY TO ARRIVE AT THE BOOK PROFIT. THE ASSES SEE HAD CLAIMED 100% DEPRECIATION ON THE WINDMILL AS PER INCOME TAX ACT TO ARRIVE AT THE TOTAL SOME AS P ER NORMAL PROVISIONS OF THE ACT. HOWEVER WHILE COMPUTING THE BOOK PROFIT AS PER CONPANIES ACT ALS O THE ASSESSEE CLAIMED 100% DEPRECIATION ON THE WINDMILL AND ARRIVED AT A BOOK PROFIT. THE A.O WAS OF THE OPINION THAT DEPRECIATION AT THE RATE OF 100% W AS NEITHER IN ACCORDANCE TO THE SCHEDULE VI OF THE COMPANIES ACT 1956 NOR WITH THE ACCOUNTING STANDARD -6 . AS PER THE ACCOUNTING STANDARD- 6 DEPRECIATION IS TO BE CLAIMED OVER THE PERIOD OF TI ME OVER WHILE THE DEPRECIABLE ASSET WAS SUIPPOSED TO HAVE A USEFUL LIFE. THE ASSESSEE WAS ASKED TO EXPLA IN AS TO HOW THE ENTIRE DEPRECIATION I.E 1 1000/8 WAS CLAIMED IN THE FIRST YEAR ITSELF. THE ASSESSEE REPL IED THAT THE INTERPRETATION OF SECTION 205 READ WITH SCHEDULE XIV OF THE COMPANIES ACT 1956 WAS THAT TH E BOARD OF DIRECTORS OF THE COMPANY IF IN THEIR WISDO M DEEM FIT TO ADOPT HIGHER RATE OF DEPRECIATION FOR A N ASSET OVER AND ABOVE THE RATE OF DEPRECIATION IN TH E ITA NO.2219/B/16 & CO 42/B/17 5 SCHEDULE XIV THEN SUCH RATE CAN BE ADOPTED. SAME HAS TAKEN PLACE IN THIS CASE AS PER THE ASSESSEE. II NOTABLE IN THIS REGARD IS THAT AS PER SCHEDULE XIV DURING THIS YEAR THERE WAS NO PRESCRIBED RATE OF DEPRECIATION AS PER COMPANIES ACT FOR THE WINDMILL. FURTHER IT WAS ERRONEOUS ON THE PART OF THE ASSESS EE TO ASSUME AND CLAIM THAT THE BOARD OF DIRECTORS WAS EMPOWERED TO ADOPT ANY RATE OF DEPRECIATION FOR ANY ASSET. THERE IS NO SUCH EXPLICIT PROVISION IN THE COMPANIES ACT 1956. IN SUCH A SCENARIO THE ASSESSE E WAS SUPPOSED TO CLAIM DEPRECIATION AS PER AS-6 AND CLAIM IT OVER A PERIOD OF THE USEFUL LIFE OF THE AS SET. THUS IT WAS CLEAR THAT THE PROFIT AND LOSS ACCOUNT OF THE COMPANY WAS NOT IN CONFORMITY WITH SCHEDULE VI OF THE COMPANIES ACT. THUS THE A.O WAS CORRECT IN ALLOWING ONLY 1115TH OF THE DEPRECIATION ASSUMING THAT THE WINDMILL WILL BE IN OPERATION FOR AT LEAST 15 YEARS. 1.2 HON'BLE CIT(A) HAS HOWEVER DELETED THIS ADDITION TO THE BOOK-PROFIT PLACING RELIANCE ON THE JUDGMENT OF THE APEX COURY IN THE CASE6'F APOLLO TYRES 255 ITR 273 AND UPON KARNATAKA HIGH COURT ORDER IN THE CASE OF HAIR HOTELS ( ITA NO. 53/2009 DT- 16.12.15). HOWEVER IT HAS TO BE KEPT ON MIND THAT THE A.O RELIED UPON THE JUDGMENT IN CASE OF ITA NO.2219/B/16 & CO 42/B/17 6 BOMBAY DIAMOND CO. LTD 2009-TIOL-ITAT( MUMBAI) WHERE THE APEX COURT ORDER IN THE CASE OF APOLLO TYRES (SUPRA) WAS DISCUSSED AND WAS HELD THAT MERE BECAUSE AN AUDITOR HAS CERTIFIED THE ACCOUNTS OF THE COMPANY DOESNOT MEAN THAT THE ACCOUNTS OF THE COMPANY HAVE BEEN PREPARED ACCORDING TO SCHEDULE VI OF THE COMPANIES ACT. FURTHER AS FAR AS THE JUDGMENT IN THE CASE OF HARIRAM HOTELS ( SUPRA) IS CONCERNED THE FACTS OF THE CASE ARE NOT SQUARELY APPLICABLE IN THIS CAS E. IN THE CASE OF HARIRAM HOTELS WHAT WAS DISCUSSED WAS WHETHER CAPITAL GAINS HAS TO BE MANDATORILY TAKEN INTO ACCOUNT IN ARRIVING AT THE BOOK PROFIT. 13 IN THE INSTANT CASE THE ASSESSEE WITHOUT BEING ENABLED BY COMPANIES ACT 1956 HAS CHARGED HHER DEPRECIATION AND NOT MAINTAINED THE PROFIT AND LOSS ACCOUNTS AS PER SCHEDULE VI OF THE COMPANIES ACT THUS IT IS JUSTIFIED TO RE-COMPUTE BOOK PROFIT BY CHARGING DEPRECIATION AS PER AS-6. HENCE LEARNED CIT(A)-11 HAS ERRED IN GIVING RELIEF ON THIS COUNT WITHOUT CONSIDERING THE FACTS MENTIONED BY A.O. FOR RE-COMPUTATION OF BOOK PROFIT. 3.2 THE LD DR FOR REVENUE WAS HEARD IN SUPPORT OF T HE GROUNDS RAISED (SUPRA). ACCORDING TO THE LD DR THE LD CIT( A) ERRED IN ITA NO.2219/B/16 & CO 42/B/17 7 ALLOWING RELIEF TO THE ASSESSEE BY DIRECTING THE AO TO ACCEPT THE COMPUTATION OF BOOK PROFITS U/S 115JB OF THE ACT AS DECLARED BY THE ASSESSEE. IT IS CONTENDED THAT THE LD CIT(A) OUGHT TO HAVE APPRECIATED THAT THE ASSESSEE HAS NOT FOLLOWED THE ACCOUNTING S TANDARDS WHILE CLAIMING 100% DEPRECIATION ON WINDMILLS AND THEREFO RE THE AO WAS CORRECT IN RE-COMPUTING THE BOOK PROFITS U/S 115J B OF THE ACT BY ALLOWING THE ADMISSIBLE DEPRECIATION. IT WAS PRAYE D THAT THE FINDING OF THE LD CIT(A) ON THIS ISSUE BE REVERSED AND THAT OF THE AO RESTORED. 3.3 PER CONTRA THE LD AR FOR THE ASSESSEE SUPPORTE D THE FINDING RENDERED BY LD CIT(A) IN THE IMPUGNED ORDER SUBMIT TING THAT IN COMING TO THE CONCLUSION THAT THE AO WAS NOT AUTHOR IZED TO RE- COMPUTE THE DECLARED BOOK PROFITS U/S 115JB OF TH E ACT WHEN THE SAME WAS CERTIFIED BY THE STATUTORY AUDITORS AND AC CEPTED BY THE COMPANIES ACT 1956 THE LD CIT(A) FOLLOWED THE JUD GMENT OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF HARIRAM HOTELS (ITA NO.53/2009 DATED 16/12/2005) WHICH IN TURN HAD FOL LOWED THE DECISION OF HONBLE APEX COURT IN THE CASE OF APOLL O TYRES LTD. (255 ITR 273) (SC). THE LD AR ALSO CONTENDED THAT THE A O WAS NOT COMPETENT TO RE-COMPUTE THE BOOK PROFITS U/S 115J B OF THE ACT IN THE ABSENCE OF ANY SEIZED MATERIALS FOUND IN THE CO URSE OF SEARCH PROCEEDINGS U/S 153A OF THE ACT IN THIS REGARD. AC CORDING TO THE LD AR THE SCOPE OF THE ASSESSMENT U/S 153A OF THE ACT WAS A LIMITED ONE AND THE AO IN THE ABSENCE OF ANY SEIZED MATERI AL COULD NOT HAVE RE-VISITED ISSUED THAT WERE ALREADY EXAMINED IN TH E ORDER OF ASSESSMENT EARLIER PASSED U/S 143(3) OF THE ACT. I N SUPPORT OF THE ITA NO.2219/B/16 & CO 42/B/17 8 ASSESSEES CONTENTIONS AND CLAIMS THE LD AR PLACED RELIANCE ON THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF CAUVERY AQUA PVT. LTD. WHEREIN IN ITS ORDER IN ITA NO.375 AND CO NO.81/BANG/2017 DATED 13/10/2017 THE CO-ORDINATE B ENCH DECIDED THE IDENTICAL ISSUE ON COMPUTATION U/S 115JB OF THE ACT IN FAVOUR OF THE ASSESSEE AND AGAINST REVENUE. 3.4.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUDING THE JU DICIAL PRONOUNCEMENTS CITED. WE FIND THAT THE ONLY ISSUE FOR ADJUDICATION BEFORE US IN THIS APPEAL IS WITH REGARD TO THE COMP UTATION OF BOOK PROFITS U/S 115JB OF THE ACT. FROM PERUSAL OF THE RECORDS IT IS SEEN THAT AS PER THE RETURN OF INCOME FILED THAT THE ASS ESSEE HAD COMPUTED AND DECLARED THE BOOK PROFITS U/S 115JB OF THE AC T AT RS.62 14 837/-. THE ASSESSEE HAS CLAIMED AN AMOUNT OF RS.2 99 00 000/- AS DEPRECIATION ON WINDMILL @ 100% OF THE COST OF WINDMILL. IN THE ORDER OF ASSESSMENT THE AO HAS R ESTRICTED THE CLAIM FOR DEPRECIATION ON WINDMILL TO 1/5 TH OF ITS COST I.E RS.19 19 333/- AND RECOMPUTED THE BOOK PROFITS U/S 115JB OF THE ACT AT RS.3 41 21 503/- BY MAKING AN ADDITION/DISALLOWANCE OF RS.2 79 06 666/- IN RESPECT OF DEPRECIATION. 3.4.2 IN THE FACTUAL MATRIX OF CASE AS DISCUSSED A BOVE THE LD CIT(A) WHILE ALLOWING THE ASSESSEES CLAIM HAS HELD AS UND ER AT PARA 6.2.6 OF THE IMPUGNED ORDER. ITA NO.2219/B/16 & CO 42/B/17 9 6.2.6 THE SECOND CONTENTION OF THE APPELLANT REGARDING THE POWER OF THE A.O. TO REWORK THE BOOK PROFITS OF THE APPELLANT IS WELL FOUNDED. I FIND THAT THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF HARIRAM HOTELS IN ITA NO. 53/2009 VIDE JUDGMENT DATED 16/12/2015 HAS HELD THAT THE A.O. HAS TO ACCEPT THE AUDITED ACCOUNTS AS CERTIFIED BY THE STATUTORY AUDITORS AND APPROVED BY THE COMPANY IN THE GENERAL BODY MEETING BY FOLLOWING THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF APPOLLO TYRES (SUPRA). THE RELEVANT OBSERVATIONS OF THE HON'BLE JURISDICTIONAL HIGH COURT ARE AS FOLLOWS:- '11. SECTION 1151B OF THE ACT DURING THE RELEVANT PERIOD PROVIDES THAT NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT IN THE CASE OF AN ASSESSEE BEING A COMPANY THE INCOME TAX PAYABLE ON THE TOTAL INCOME AS COMPUTED UNDER THE ACT IS LESS THAN 7 % OF THE BOOK PROFIT THE TAX PAYABLE FOR THE RELEVANT PREVIOUS YEAR SHALL BE DEEMED TO BE 7 % OF SUCH BOOK PROFIT. THUS THE ASSESSEE HAS TO FIRST COMPUTE THE TOTAL INCOME IN ACCORDANCE ITA NO.2219/B/16 & CO 42/B/17 10 WITH THE ACT AND IF THE TOTAL INCOME IS LESS THAN 7 % OF THE BOOK PROFIT THEN THE ASSESSEE HAS TO PREPARE PROFIT AND LOSS ACCOUNT FOR THE PREVIOUS YEAR THEN FICTIONALLY IT WILL BE DEEMED THAT ITS TOTAL INCOME CHARGEABLE TO TAX WOULD 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: ITA NO.2219/B/16 & CO 42/B/17 11 '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 SECTION. TO PUT IT DIFFERENTLY THE ASSESSING OFFICER DOES NOT HAVE THE JURISDICTION TO GO BEHIND THE NET PROFIT SHOWN IN THE PROFIT AND LOSS ACCOUNT EXCEPT TO THE EXTENT PROVIDED IN THE EXPLANATION TO SECTION 115J.' 12. IN THE SUBSEQUENT JUDGMENT OF THE APEX COURT IN HCL COMNET SYSTEMS (SUPRA) FOLLOWING THE JUDGMENT OF APOLLO TYRES (SUPRA) IT IS HELD TH AT THE ADJUSTMENT REQUIRED TO BE MADE TO THE NET PROFI T DISCLOSED IN THE PROFIT AND LOSS ACCOUNT FOR THE ITA NO.2219/B/16 & CO 42/B/17 12 PURPOSE OF SECTION 349 OF THE COMPANIES ACT ARE QUITE DIFFERENT FROM THE ADJUSTMENT REQUIRED TO BE MADE UNDER THE EXPLANATION TO BE MADE UNDER SECTION 11 51A OF THE ACT. FOR THE PURPOSE OF SECTI ON 1151A THE ASSESSING OFFICER CAN INCREASE THE NET PROFIT DETERMINED AS PER THE PROFIT AND LOSS ACCOUN T PREPARED AS PER PARTS II AND III OF SCHEDULE VI TO THE COMPANIES ACT ONLY TO THE EXTENT PERMISSIBLE UNDER THE EXPLANATION THERETO. 13. THE EXPLANATION APPENDED TO SECTION 115JB PROVIDES CERTAIN ITEMS WHICH IF DEBITED TO THE PROFIT AND LOSS ACCOUNT CAN BE ADDED BACK TO THE NET PROFIT FOR COMPUTING THE BOOK PROFI T. CLAUSE (B) OF THE SAID EXPLANATION PROVIDES FOR THE AMOUNT CARRIED TO ANY RESERVES BY WHATEVER NAME CALLED. IN THE PRESENT CASE IT IS TRUE THAT THE CA PITAL GAINS ARE DIRECTLY TAKEN TO CAPITAL RESERVE WITHOUT TAKING THE SAID AMOUNT OF CAPITAL GAIN TO THE PROFI T 'AND LOSS ACCOUNT HOWEVER NO SUCH CAPITAL GAIN IS DEBITED TO THE PROFIT AND LOSS ACCOUNT AS SUCH TH E SAID EXPLANATION IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. 14. WE HAVE NOTICED THE AUDITOR'S REPORT CERTIFIED WITH A QUALIFICATION THAT THE PRO FIT AND LOSS ACCOUNT AND BALANCE SHEET REFERRED TO IN ITA NO.2219/B/16 & CO 42/B/17 13 THE REPORT COMPLY SUBSTANTIALLY IN ALL MATERIAL RESPECTS WITH THE APPLICABLE ACCOUNTING STANDARDS REFERRED TO IN SECTION 211 (3C) OF THE COMPANIES AC T EXCEPT THE LAND AND BUILDING SOLD DURING THE YEAR THE CAPITAL GAIN HAS BEEN TRANSFERRED DIRECTLY TO CAPITAL RESERVE ACCOUNT INSTEAD OF CREDITING TO PRO FIT AND LOSS ACCOUNT WHICH IN THE OPINION OF THE DIRECTORS IS MORE APPROPRIATE. HOWEVER IT IS NOT DISPUTED THAT THIS AUDITOR'S REPORT IS ACCEPTED BY THE GENERAL BODY THE BOOKS OF ACCOUNT AND THE BALANCE SHEET ARE FILED BEFORE THE REGISTRAR OF COMPANIES. IT IS ALSO NOTICED BY US THAT CLAUSE 3(XII)(B) AND (C) OF PART II OF SCHEDULE VI OF THE COMPANIES ACT PROVIDES THAT PROFIT AND LOSSES IN RESPECT OF TRANSACTIONS OF A KIND NOT USUALLY UNDERTAKEN BY T HE 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 ITA NO.2219/B/16 & CO 42/B/17 14 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 TH E COMPANY DO NOT COMPLY WITH THE ACCOUNTING STANDARDS SUCH COMPANIES SHALL DISCLOSE IN ITS PRO FIT AND LOSS ACCOUNT AND THE BALANCE SHEET THE FOLLOWIN G MAINLY: (A) THE DEVIATION FROM THE ACCOUNTING STANDARDS; (B) THE REASONS FOR SUCH DEVIATION; AND THE FINANCI AL 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 ACCOUNTING RECOMMENDED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA CONSTITUTED UNDER THE CHARTERED ACCOUNTANTS ACT 1949 (38 OF 1949) AS MAY BE PRESCRIBED BY THE CENTRAL GOVERNMENT IN CONSULTATION WITH THE NATIONAL ADVISORY COMMITTEE ON ACCOUNTING STANDARDS ESTABLISHED UNDER SUB- SECTION (1) OF SECTION 210(A). 16. THE PROVISO TO THE SAID SECTION 211(3)(C) OF THE COMPANIES ACT MAKES IT CLEAR THAT THE STANDARDS OF ACCOUNTING SPECIFIED BY THE INSTITUTE OF CHARTER ED ITA NO.2219/B/16 & CO 42/B/17 15 ACCOUNTANTS OF INDIA SHALL BE DEEMED TO BE THE ACCOUNTING STANDARDS UNTIL THE ACCOUNTING STANDARDS ARE PRESCRIBED BY THE CENTRAL GOVERNMENT UNDER THE SUB- SECTION 3(C). THE ASSESSING OFFICER HAS PLACED RELIANCE ON THE ACCOUNTING STANDARDS VIDE NO.9949 DATED 25.1.1996 AND HAS HELD THAT THE TRANSACTION O F SALE PROPERTY SHOULD HAVE BEEN BROUGHT INTO THE PROFIT AND LOSS ACCOUNT AS AN EXTRAORDINARY ITEM SINCE THE ASSESSEE HAS FAILED TO FOLLOW THE ACCOUNTING STANDARDS DETERMINED THE BOOK PROFIT AFTER ALLOWING THE DEDUCTION TOWARDS COST AS PER PROVISION TO SECTION 115JB (2) OF THE ACT. THIS ORD ER IS CONFIRMED BY THE APPELLATE AUTHORITY AS WELL AS BY THE ITAT. HOWEVER THIS EXERCISE OF THE ASSESSING AUTHORITIES IN RECOMPUTING THE BOOK PROFIT OF THE ASSESSEE IS CONTRARY TO THE PRINCIPLES OF LAW LAID DOWN BY THE APEX COURT IN APPOLLO TYRES (SUPRA). THE APEX COURT HAS HELD THAT THE ONLY POWER VESTED WITH THE ASSESSING OFFICER IS TO MAKE INCREASES AND DEDUCTIONS AS PROVIDED IN THE EXPLANATION TO SECTIO N 115JB OF THE ACT. ASSESSING OFFICER HAS NO POWER TO EMBARK UPON A FRESH ENQUIRY IN REGARD TO THE ENTRIE S MADE IN THE BOOKS OF ACCOUNTS OF THE COMPANY. IN THE LIGHT OF THE JUDGMENT OF APOLLO TYPES (SUPRA) WE ARE OF THE OPINION THAT THE ASSESSING OFFICER HAS N O ITA NO.2219/B/16 & CO 42/B/17 16 POWER TO RECOMPUTE THE BOOK PROFIT AND HAS TO RELY UPON THE AUTHENTIC STATEMENTS OF ACCOUNTS OF THE COMPANY THE ACCOUNTS BEING SCRUTINIZED AND CERTIFIED BY THE STATUTORY AUDITORS THOUGH WITH A QUALIFICATION APPROVED BY THE COMPANY IN GENERAL BODY MEETING AND THEREAFTER FILED BEFORE THE REGISTRAR OF COMPANIES WHO HAS A STATUTORY OBLIGATION TO EXAMINE AND BE SATISFIED THAT THE ACCOUNTS OF THE COMPANY ARE MAINTAINED IN ACCORDANCE WITH THE REQUIREMENTS OF THE COMPANIES ACT' IT IS VERY CLEAR FROM THE ABOVE JUDGMENT OF THE JURISDICTIONAL HIGH COURT THAT THE POWER OF THE A.C. WITH REGARD TO THE COMPUTATION U/S. 115JB OF THE ACT IS VERY LIMITED IN SCOPE. THE AC. 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 ACCOUN TS 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 ITA NO.2219/B/16 & CO 42/B/17 17 PROFIT AND LOSS ACCOUNT AND THEREFORE THE A.O HAS RECOMPUTED THE SAME BY ALLOWING ONLY 1/15 TH 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 SUPRA. IT IS ALSO RELEVANT TO NOTICE HERE THAT THE A.O. HAS RELIED UPON 2 DECISIONS OF THE HON'BLE ITAT IN SUPPORT OF THE-VIEW THAT THE A.O. IS ENTITL ED TO REWORK THE BOOK PROFITS OF THE APPELLANT IN THE EVENT THE SAME IS NOT PREPARED IN ACCORDANCE WITH THE PROVISIONS OF THE COMPANIES ACT. THE APPELLANT HAS DISTINGUISHED THESE DECISIONS OF HON'BLE ITAT B Y POINTING OUT THAT THE SUBSEQUENT JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF ITA NO.2219/B/16 & CO 42/B/17 18 ADBHUT TRADING CO. PVT LTD. IN 338 ITR 94 (BORN.). AT ANY RATE THERE IS A JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF HARIRAM HOTELS (SUPRA) WHICH IS BINDING ON ME AND THE SAME HAS TO BE FOLLOWED. HENCE THE DECISIONS RELIE D UPON BY THE A.O. IN THE ASSESSMENT ORDER ARE OF NO AVAIL. 6.2.7 I HAVE ALSO CONSIDERED THE PROVISION OF EXPLANATION (1) TO SECTION 115JB OF THE LT UNDER WHICH THERE CAN BE ADDITIONS AND DELETIONS TO THE BOOK PROFIT AS PER THE PROFIT AND LOSS ACCOUNT. IN TERMS OF THE CLAUSE (G) OF EXPLANATION 1 THE BOOK PROFIT HAS TO BE INCREASED BY THE AMOUNT OF DEPRECIATION THAT HAS BEEN PROVIDED IN THE ACCOUNTS OF THE APPELLANT. HOWEVER BY VIRTUE OF CLAUSE (IIA ) OF THE VERY SAME EXPLANATION 1 THE AMOUNT OF DEPRECIATION DEBITED TO THE PROFIT AND LOSS ACCOUNT HAS TO BE DEDUCTED. HOWEVER WHILE DOING SO DEPRECIATION ON ACCOUNT OF REVALUATION OF THE ASSET CANNOT BE DEDUCTED BY VIRTUE OF THE EXCLUSION OF TH E SAME IN CLAUSE (IIA) OF EXPLANATION 1. FROM A COMBINED READING OF THESE 2 CLAUSES IT IS CLEAR TH AT THE LEGISLATURE HAS INTENDED TO PROHIBIT THE ALLOWANCE OF DEPRECIATION AS A DEDUCTION WHILE COMPUTING THE BOOK PROFITS TO THE EXTENT IT RELATES TO ITA NO.2219/B/16 & CO 42/B/17 19 THE DEPRECIATION ON REVALUATION OF T ASSETS. SUCH A SITUATION IS NOT OBTAINING IN THE CASE OF THE APPELLANT. THERE IS NO REVALUATION OF THE ASSET AND THE EXTENT OF DEPRECIATION CLAIMED IS ON THE ORIGIN AL COST OF THE WINDMILL. THUS EVEN IF THE PROVISIONS OF EXPLANATION 1 TO SEC. 115JB OF THE ACT ARE APPLIED THE AMOUNT OF INCREASE AS WELL AS REDUCTION IN THE FIGURE OF DEPRECIATION REMAINS THE SAME AND THUS THE BOOK PROFITS RETURNED BY THE APPELLANT CANNOT B E DISTURBED. 6.2.8 FOR THE AFORESAID REASONS THE COMPUTATION OF INCOME U/S. 115JB OF THE ACT BY MAKING AN ADDITION OF RS. 2 79 06 066/- BY THE A.O. CANNOT BE ALLOWED TO STAND. THE SAID COMPUTATION OF INCOME U/S. 115JB OF THE ACT IS HEREBY VACATED AND THE INCOME AS COMPUTED BY THE APPELLANT 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 L D CIT(A) ON THE ISSUE BEFORE US (SUPRA) WE FIND THAT THE LD CIT(A) HAS FOLLOWED THE JUDGMENTS OF THE HONBLE APEX COURT IN APPOLLO TYRE S LTD. (255 ITR 273) (SC) AND OF THE HONBLE JURISDICTIONAL HIG H COURT IN THE CASE OF HARIRAM HOTELS IN ITA NO.53/2009 DATED 16/1 2/2015 WHILE HOLDING THAT THE AO WAS NOT COMPETENT TO GO INTO T HE COMPUTATION OF ITA NO.2219/B/16 & CO 42/B/17 20 BOOK PROFITS U/S 115JB OF THE ACT EXCEPT TO THE L IMITED EXTENT OF MAKING ADDITIONS AND REDUCTIONS AS LAID OUT IN EXPL ANATION (1) TO SEC. 115JB OF THE ACT. WE FIND THAT THE AFORESAID VIEW OF THE HONBLE APEX COURT (SUPRA) AND HONBLE KARNATAKA HIGH COURT WAS FOLLOWED BY A CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF CAUVERY AQUA PVT. LTD. (SUPRA) FOR ASST. YEAR 2008-09 A CONNEC TED ENTITY WHICH IS PART OF THE ASSESSEES GROUP OF CONCERNS. ON THE I DENTICAL FACTS AND ISSUES AS IN THE CASE ON HAND. IN ITS ORDER THE CO -ORDINATE BENCH DECIDED THIS ISSUE BEFORE US IN FAVOUR OF THE ASSES SEE AND AGAINST REVENUE. WE FIND THAT THE LD CIT(A) HAS ALSO TESTE D THE CLAIM OF DEPRECIATION AS PER THE PROVISIONS OF EXPLANATION ( 1) TO SEC. 115JB WHILE COMING TO THE VIEW THAT THE AO WAS NOT AUTHOR IZED TO MAKE THE ADDITION WHILE RE-WORKING THE EXTENT OF DEPRECIATIO N CLAIMED BY THE ASSESSEE. THE ACCOUNTS OF THE ASSESSEE HAVE BEEN C ERTIFIED BY THE STATUTORY AUDITORS. THE ACCOUNTING POLICIES FOLLOW ED BY THE ASSESSEE HAVE NOT BEEN FOUND FAULT WITH BY THE STATUTORY AUD ITORS OR THE AUTHORITIES CONCERNED UNDER THE COMPANIES ACT. IN SUCH CASES THE AO IS NOT PERMITTED TO MAKE ANY VARIATION BY HOLDIN G THAT THE ASSESSEE HAS NOT FOLLOWED THE MANDATE OF THE ACCOUN TING STANDARDS AND THE PROVISIONS OF COMPANIES ACT WHILE PREPARING ITS FINANCIAL STATEMENTS. THE OBJECT OF SEC. 115JB OF THE ACT IS TO BRING TO TAX THE BOOK PROFITS AS SHOWN BY THE COMPANY TO ITS SHAREHO LDERS AND KEEPING IN VIEW THE AFORESAID OBJECT BEHIND SEC. 115JB OF T HE ACT AND THE JUDICIAL PRONOUNCEMENTS OF THE HONBLE APEX COURT I N THE CASE OF APOLLO TYRES LTD. (225 ITR 273) (SC) OF THE HONB LE KARNATAKA ITA NO.2219/B/16 & CO 42/B/17 21 HIGH COURT IN THE CASE OF HARIRAM HOTELS (ITA NO.53 /2009 DATED 16/12/2015) AND THE DECISION OF THE CO-ORDINATE BEN CH ON IDENTICAL ACTS AND ISSUE IN THE CASE OF CAUVERY AQUA LTD. IN ITA NO.375 & CO. NO.81/BANG/2017 ETC. ON THE SCOPE OF THE AO S POWERS COMPUTING THE BOOK PROFITS WE DO NOT FIND ANY REAS ON TO INTERFERE WITH THE IMPUGNED ORDER PASSED BY THE LD CIT(A) ON THIS ISSUE AND THEREFORE UPHOLD THE SAME. CONSEQUENTLY THE GROUN DS RAISED BY REVENUE ARE DISMISSED. 4. IN THE RESULT REVENUES APPEAL FOR ASST. YEAR 2 008-09 IS DISMISSED. ASSESSEES C.O NO.42/BANG/2017 FOR A.Y 2008-09 5.1 THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS/C ROSS- OBJECTIONS:- 1. THE ORDERS OF THE AUTHORITIES BELOW IN SO FAR AS THEY ARE AGAINST THE CROSS-OBJECTOR/RESPONDENT ARE OPPOSED TO LAW EQUITY WEIGHT OF EVIDENCE PROBABI LITIES FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LEARNED CIT[A] IS NOT JUSTIFIED IN REJECTING THE CONTENTION OF THE CROSS OBJECTOR THAT THE RE-COMPUT ATION OF THE BOOK PROFIT U/S. 115JB OF THE ACT AT RS. 3 41 21 503/- IN THE PROCEEDINGS U/S. 153A OF THE A CT WAS IMPERMISSIBLE ESPECIALLY SINCE THE BOOK PROFITS/(LO SS) COMPUTED BY THE APPELLANT AT RS.62 14 837/- WAS NO T ITA NO.2219/B/16 & CO 42/B/17 22 DISTURBED IN THE REGULAR ASSESSMENT FRAMED U/S. 143 [3] OF THE ACT COMPLETED BEFORE THE DATE OF SEARCH AND WHE N THERE WAS NO MATERIALS FOUND AND SEIZED AT THE TIME OF SEARCH TO TAKE A DIFFERENT VIEW IN THE PROCEEDINGS U/S. 153A OF THE ACT AND CONSEQUENTLY THE BOOKS PROFITS DETERMINED AT RS.3 41 21 503/- OUGHT TO HAVE BEEN VACATED ON THIS SCORE AS WELL. 3. FOR THE ABOVE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING OF THE CROSS-OBJECTION YOUR RESPONDENT/CROSS-OBJECTOR HUMBLY PRAYS THAT THE APP EAL FILED BY THE APPELLANT A.O. IN RESPECT OF THE RELIE F GRANTED BY THE CIT [APPEALS] MAY BE DISMISSED AND GROUNDS O F THE CROSS-OBJECTION MAY BE ALLOWED AND JUSTICE RENDERED. 5.2 SINCE WE HAVE DECIDED THE ISSUES RAISED IN REVE NUES APPEAL AGAINST REVENUE AND THEREBY UPHELD THE IMPUGNED ORD ER OF THE LD CIT(A) THE C.OS OF THE ASSESSEE IS NOW ONLY OF AC ADEMIC INTEREST AND THE SAME ARE DISMISSED AS INFRUCTUOUS. 6. IN THE RESULT THE ASSESSEES C.O FOR ASST. YEAR 2008-09 IS DISMISSED. ITA NO.2219/B/16 & CO 42/B/17 23 7. TO SUM UP BOTH REVENUES APPEAL FOR ASST. YEAR 20008-09 AND THE ASSESSEES CROSS-OBJECTIONS ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH NOVEMBER 2017 . SD/- SD/- (LALIET KUMAR) (JA SON P BOAZ) JUDICIAL MEMBER ACCOUNTANT MEM BER BANGALORE DATED : 29/11/2017 VMS COPY TO :1. THE ASSESSEE 2. THE REVENUE 3.THE CIT CONCERNED. 4.THE CIT(A) CONCERNED. 5.DR 6.GF BY ORDER SR. PRIVAT E SECRETARY ITAT BANGALORE ITA NO.2219/B/16 & CO 42/B/17 24 1. DATE OF DICTATION .. 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P. S. .. 4 DATE ON WHICH THE ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT .. 5. DATE ON WHICH THE ORDER COMES BACK TO THE SR. P.S. .. 6. DATE OF UPLOADING THE ORDER ON WEBSITE .. 7. IF NOT UPLOADED FURNISH THE REASON FOR DOING SO . 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. DATE ON WHICH ORDER DOES FOR XEROX & ENDORSEMENT . 10. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 11 THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER. 12 THE DATE ON WHICH THE FILE GOES TO THE DISPATCH SECTION FOR DISPATCH OF THE TRIBUNAL ORDER 13 DATE OF DISPATCH OF ORDER