INCOME TAX OFFICE, WARD-6(3)(1), MUMBAI v. M/S. GALAXY SAWS P LTD., MUMBAI

ITA 3747/MUM/2009 | 2005-2006
Pronouncement Date: 11-03-2011 | Result: Dismissed

Appeal Details

RSA Number 374719914 RSA 2009
Assessee PAN AAACG2447G
Bench Mumbai
Appeal Number ITA 3747/MUM/2009
Duration Of Justice 1 year(s) 9 month(s) 2 day(s)
Appellant INCOME TAX OFFICE, WARD-6(3)(1), MUMBAI
Respondent M/S. GALAXY SAWS P LTD., MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 11-03-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted G
Tribunal Order Date 11-03-2011
Date Of Final Hearing 24-02-2011
Next Hearing Date 24-02-2011
Assessment Year 2005-2006
Appeal Filed On 09-06-2009
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH MUMBAI BEFORE SHRI RAJENDRA SINGH(AM) AND SHRI V.D.RAO (JM) ITA NO.3747/M/2010 ASSESSMENT YEAR 2005-06 THE ITO WARD -6(3)(1) M/S. GALAXY SAWS P. LTD. R.NO.558 AAYAKAR BHAWAN 132/134 PRADHAN BUILD ING SVP ROAD M.K.ROAD MUMBAI 400 020. DONGRI MUMBAI 400 009. PAN : AAACG 2447 G APPELLANT RESPONDENT REVENUE BY : MR PAWAN VED ASSESSEE BY : SHRI JITENDRA JAIN O R D E R PER RAJENDRA SINGH (AM) THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 24.4.2009 OF CIT(A) FOR THE ASSESSMENT YEAR 2005-06. THE ONLY DISPUTE RAISED BY THE REVENUE IN THIS APPEAL IS REGARDING COMPUTATION OF BOOK PROFIT UNDER SECTION 115JB. 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE DURING THE YEAR HAD SOLD ITS PREMISES AT NARIMAN POINT FOR RS.96 LA CS. THE VALUE OF THE PREMISES IN THE BOOKS OF ACCOUNT AT THE BEGINNING O F THE YEAR WAS SHOWN AT RS.3 29 143/-. THERE WAS THUS GAIN OF RS.92 70 857/ -. HOWEVER THE ASSESSEE HAD DEBITED A SUM OF RS.1 44 000/- AS LOSS ON SALE OF THE PROPERTY IN THE PROFIT AND LOSS ACCOUNT. THE ASSESSEE HAD GOT THE PREMISES REVALUED AT 2 RS.97 44 000/- BY A REGISTERED VALUER. THE ASSESSEE HAD TAKEN THE REVALUATION RESERVE AMOUNTING TO RS.94 14 857/- DIRECTLY TO THE BALANCE SHEET AND THE LOSS OF RS.1 44 000/- WAS DEBITED TO PROFIT AND LOSS ACC OUNT. AO ASKED THE ASSESSEE TO EXPLAIN AS TO WHY BOOK LOSS SHOWN BY THE ASSESSE E SHOULD NOT BE REJECTED AND THE ENTIRE GAIN OF RS.92 70 858/- SHOULD BE ADD ED TO THE BOOK PROFIT. THE ASSESSEE EXPLAINED THAT THE BOOK PROFIT HAD BEEN CO MPUTED ON THE BASIS OF PROFIT AND LOSS ACCOUNT PREPARED UNDER THE PROVISIO NS OF SCHEDULE VI OF THE COMPANIES ACT 1956. THERE WERE NO PROVISIONS FOR MA KING ANY ADDITION ON ACCOUNT OF REVALUATION RESERVE WHILE COMPUTING THE BOOK PROFIT UNDER SECTION 115JB. THEREFORE NO ADDITION COULD BE MADE. THE AO HOWEVER DID NOT ACCEPT THE EXPLANATION GIVEN. IT WAS OBSERVED BY HIM THAT THE ASSESSEE HAD ADOPTED A DEVICE TO AVOID TAX BY REVALUING THE PROPERTY IN TH E YEAR OF TRANSFER AND SUCH DEVICE WAS NOT PERMITTED IN VIEW OF THE JUDGMENT OF HONBLE SUPREME COURT IN CASE OF MCDOWELL & CO. (154 ITR 148). HE ALSO REFER RED TO THE JUDGMENT OF HONBLE HIGH COURT OF MUMBAI IN CASE OF VEEKAYLAL I NVESTMENT PVT. LTD. (249 ITR 597). IN THE SAID CASE THE INCOME FROM CAPITAL GAIN ARISING FROM SALE OF ASSETS HAD BEEN CREDITED TO THE PROFIT AND LOSS ACC OUNT BUT THE SAME HAD NOT BEEN TAKEN INTO ACCOUNT WHILE COMPUTING THE BOOK PR OFIT. THE HONBLE HIGH COURT HAD HELD THAT THE INCOME FROM CAPITAL GAIN WO ULD BE INCLUDED FOR THE PURPOSE OF COMPUTING THE BOOK PROFIT. THE AO ALSO N OTED THAT UNDER PROVISIONS OF CLAUSE (B) OF EXPLANATION TO SECTION 115JB(2) T HE NET PROFIT HAD TO BE INCREASED BY THE AMOUNTS CARRIED TO ANY RESERVE BY WHATEVER NAME CALLED AND THEREFORE ON THIS GROUND ALSO THE RESERVE WAS REQUI RED TO BE ADDED. AO THEREFORE ADDED THE SUM OF RS.94 14 857/- TO THE BO OK PROFIT. 2.1 THE ASSESSEE DISPUTED THE DECISION OF THE AO A ND SUBMITTED BEFORE CIT(A) THAT THE BOOK PROFIT HAD BEEN COMPUTED BY TH E ASSESSEE ON THE BASIS OF 3 PROFIT AND LOSS ACCOUNT PREPARED UNDER THE COMPANIE S ACT AND THE AO DID NOT HAVE ANY POWER TO MAKE CHANGES ON SUCH ACCOUNTS. TH E ASSESSEE PLACED RELIANCE ON THE JUDGMENT OF HONBLE SUPREME COURT I N CASE OF APOLLO TYRES VS CIT (255 ITR 273) AND THE JUDGMENT IN CASE OF MALAY ALA MANORAMA CO. LTD. VS CIT (300 ITR 251). THE CIT(A) OBSERVED THAT IN VIEW OF THE ABOVE JUDGMENTS THE JUDGMENT OF HONBLE HIGH COURT OF MUMBAI IN CAS E OF CIT VS VEEKAYLAL INVESTMENT CO. LTD. (SUPRA) WAS NO LONGER VALID. TH E JUDGMENT OF HONBLE SUPREME COURT IN CASE OF MCDOWEL & CO. WAS ALSO NOT APPLICABLE. CIT(A) ACCORDINGLY FOLLOWING THE JUDGMENT OF HONBLE SUPRE ME COURT IN CASE OF APOLLO TYRES (SUPRA) ALLOWED THE CLAIM OF THE ASSESSEE AND DELETED THE ADJUSTMENT MADE BY THE AO AGGRIEVED BY WHICH THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 3. BEFORE US THE LEARNED AR FOR THE ASSESSEE AT THE VERY OUTSET POINTED OUT THAT THE ISSUE WAS COVERED IN FAVOUR OF THE ASSESSE E BY THE DECISION OF THE TRIBUNAL IN CASE OF SISTER CONCERN WHO WAS A CO-OWN ER OF THE SAME PROPERTY I.E. GALAXY KNIVES PVT. LTD. IN ITA NO.7125/M/2008. IN T HAT CASE ALSO IN RESPECT OF TRANSFER OF THE SAME PROPERTY THE ASSESSEE HAD SHOW N NOTIONAL LOSS OF RS.1 93 340/- BUT THE AO HAD MADE ADJUSTMENTS TO TH E BOOK PROFIT AT RS.1 51 96 858/- FOR THE SAME REASONS AS IN CASE OF THE ASSESSEE. THE TRIBUNAL HOWEVER FOLLOWING JUDGMENT OF THE HONBLE SUPREME C OURT IN CASE OF APOLLO TYRES VS CIT (SUPRA) HAD ALLOWED THE CLAIM OF THE A SSESSEE. IT WAS POINTED OUT THAT IN VIEW OF THE JUDGMENT OF THE HONBLE SUPREME COURT (SUPRA) THE JUDGMENT OF HONBLE HIGH COURT OF MUMBAI IN CASE OF VEEKAYLAL INVESTMENT PVT. LTD. COULD NOT BE FOLLOWED. 4 3.1 THE LEARNED DR ON THE OTHER HAND ASSAILED THE O RDER OF CIT(A). IT WAS ARGUED THAT IN THE DECISION OF THE TRIBUNAL IN CASE OF THE SISTER CONCERN (SUPRA) CITED BY THE ASSESSEE THE JUDGMENT OF HONBLE SUPRE ME COURT IN CASE OF MCDOWEL & CO. HAD NOT BEEN CONSIDERED WHEREAS IN CA SE OF THE ASSESSEE AO HAD DENIED THE CLAIM FOLLOWING THE SAID JUDGMENT. I T WAS ALSO SUBMITTED THAT THE CASE OF THE REVENUE WAS SUPPORTED BY THE JUDGME NT OF HONBLE HIGH COURT OF KARNATAKA IN CASE OF CIT & ANOTHER VS BRINDAVAN BEVERAGES LTD. (321 ITR 197) IN WHICH CASE THE HONBLE HIGH COURT HAD CONSI DERED THE JUDGMENT IN CASE OF APOLLO TYRES (SUPRA). IT WAS SUBMITTED THAT THE ASSESSEE HAD REVALUED THE ASSET IN THE YEAR OF SALE OF THE PROPERTY ONLY TO A VOID TAX AND SUCH DEVICE HAS TO BE DISCOURAGED. HE REFERRED TO THE JUDGMENT OF H ONBLE SUPREME COURT IN CASE OF M/S. MOTIBHAI PHULABHAI PATEL AND CO. (AIR 1970 SC 829) IN WHICH THE HONBLE SUPREME COURT HAS OBSERVED THAT NO RULE OF LAW SHOULD INTERPRETED SO AS TO PERMIT OR ENCOURAGE ITS CIRCUMVENTION. IT WAS ALSO SUBMITTED THAT THE ASSESSEE HAD REVALUED ONLY THE IMMOVABLE PROPERTY A ND NOT OTHER ASSETS WHICH ALSO MADE IT CLEAR THAT THE ASSESSEE HAD USED IT AS A DEVICE TO AVOID TAX WHICH SHOULD NOT BE PERMITTED. 3.2 THE LEARNED AR FOR THE ASSESSEE IN REPLY SUBMI TTED THAT REVALUATION OF THE PROPERTY WAS PERMITTED AS MENTIONED IN PARA 13 OF THE ACCOUNTING STANDARD 10 (AS-10). THE SECTION 211(3A) OF THE COMPANIES AC T ALSO PROVIDED THAT WHILE PREPARING THE ACCOUNT ACCOUNTING STANDARDS HAVE TO BE FOLLOWED. THUS THE ASSESSEE HAD MADE REVALUATION UNDER THE PROVISIONS OF ACCOUNTING STANDARD WHICH WAS PERFECTLY IN ORDER. HE ALSO REFERRED TO P ARA 13.7 OF AS-10 IN WHICH IT WAS CLEARLY MENTIONED THAT ANY INCREASE IN NET BOOK VALUE ON ACCOUNT OF REVALUATION HAS TO BE TAKEN INTO CAPITAL ACCOUNT AS REVALUATION RESERVE AND IS NOT AVAILABLE FOR DISTRIBUTION. THUS THE ASSESSEE H AD CORRECTLY TAKEN THE 5 REVALUATION RESERVE TO THE BALANCE SHEET AND THERE WAS NO PROVISIONS FOR MAKING ANY ADJUSTMENTS ON ACCOUNT OF SUCH RESERVE W HICH HAD NOT BEEN DEBITED TO PROFIT AND LOSS ACCOUNT. THE LEARNED AR ALSO POINTED OUT THAT THE PROVISIONS OF CLAUSE (IIA) (INSERTED FROM 1.4.2007) OF THE EXPLANATION TO SECTION 115JB(2) PROVIDED FOR REDUCTION OF BOOK PROFIT BY T HE AMOUNT OF DEPRECIATION DEBITED TO THE PROFIT AND LOSS ACCOUNT EXCLUDING TH E DEPRECIATION ON ACCOUNT OF REVALUATION OF ASSETS. BUT THERE IS NO CORRESPONDIN G PROVISIONS IN RELATION TO THE ADDITION TO THE BOOK PROFIT ON ACCOUNT OF REVALUATI ON OF ASSETS WHICH CLEARLY SHOWED THAT THE LEGISLATURE HAD CONSCIOUSLY NOT MAD E ANY PROVISION FOR ANY ADJUSTMENT ON ACCOUNT OF REVALUATION RESERVE TAKEN TO THE BALANCE SHEET. IN REGARD TO THE ARGUMENT OF THE LEARNED DR THAT THE A SSESSEE HAD SELECTIVELY MADE REVALUATION SO AS TO AVOID PAYMENT OF TAX THE LEARNED AR SUBMITTED THAT UNDER THE PROVISIONS OF PARA 13.5 OF AS-10 WHILE M AKING A REVALUATION THE WHOLE CLASS OF ASSETS IN A UNIT SHOULD BE CONSIDERE D AND NOT SELECTIVE ASSETS. IN THIS CASE THE ASSESSEE HAD ONLY ONE IMMOVABLE PROPE RTY WHICH HAD BEEN REVALUED AND THEREFORE THE WHOLE CLASS OF ASSET BEI NG THE IMMOVABLE PROPERTY HAD BEEN GOT REVALUED IN TERMS OF THE PROVISIONS OF ACCOUNT STANDARD AS-10 AND THEREFORE THERE WAS NO VIOLATION OF ANY PROVISI ONS. THE LEARNED AR ALSO PLACED RELIANCE ON THE DECISION OF THE TRIBUNAL IN CASE OF RAIN COMMODITIES LTD. VS DCIT (4 ITR (TRIB) 551). AS REGARDS THE JUDGMENT OF HONBLE HIGH COURT OF KARNATAKA IN CASE OF CIT & ANR. VS BRINDAVAN BEVERA GES LTD. (SUPRA) IT WAS SUBMITTED THAT THE SAME WAS DISTINGUISHABLE ON FACT S. 4. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE R IVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING ADDITION OF RS. 92 70 858/- BEING THE GAIN FROM THE SALE OF PREMISES WHILE COMPUTING THE BOOK PROFIT UNDER SECTION 115JB. THE ASSESSEE DURING THE YEAR HAD SOLD ITS PREMISES AT NARIMAN POINT FOR RS.96 6 LACS. THE BOOK VALUE OF THE PROPERTY WAS RS.3 29 14 3/- AND THEREFORE THERE WAS A GAIN OF RS.92 70 858/-. THE ASSESSEE HOWEVER GOT THE PROPERTY REVALUED AND AS PER THE REPORT OF THE REGISTERED VALUER THE VALU E OF THE PROPERTY WAS TAKEN AS RS.97 44 000/-. THE GAIN IN THE BOOK VALUE OF TH E PROPERTY I.E. RS.94 14 857/- WAS TAKEN BY THE ASSESSEE TO THE BAL ANCE SHEET AS REVALUATION RESERVE. THE LOSS ARISING ON SALE I.E RS.1 44 000/- (97 44 000/- - 96 00 000) WAS DEBITED BY THE ASSESSEE TO THE PROFIT AND LOSS ACCOUNT. THE AO HOWEVER HELD THAT REVALUATION OF PROPERTY MADE BY THE ASSES SEE WAS A DEVICE TO REDUCE THE BOOK PROFIT. HE THEREFORE REJECTED THE COMPUTAT ION OF BOOK PROFIT MADE BY THE ASSESSEE BASED ON REVALUED COST AND ADDED THE G AIN OF RS.92 70 858/- COMPUTED ON THE BASIS OF THE BOOK VALUE OF THE ASSE T ORIGINALLY SHOWN. CIT(A) HOWEVER NOTED THAT BOOK PROFIT HAD TO BE COMPUTED O N THE BASIS OF NET PROFIT DISCLOSED IN THE PROFIT AND LOSS ACCOUNT PREPARED U NDER THE PROVISIONS OF PART II AND PART III OF SCHEDULE VI OF THE COMPANIES ACT AN D NET PROFIT DISCLOSED UNDER THE COMPANIES ACT COULD NOT BE TINKERED WITH BY THE AO WHO COULD MAKE ONLY ADJUSTMENTS AS PROVIDED IN THE EXPLANATION-I TO SEC TION 115JB(2). CIT(A) FOLLOWED THE JUDGMENT OF HONBLE SUPREME COURT IN C ASE OF APOLLO TYRES LTD. VS CIT (SUPRA). THE REVENUE HAS CHALLENGED THE DECISIO N OF CIT(A). 4.1 WE HAVE CAREFULLY CONSIDERED THE VARIOUS ASPEC TS OF THE MATTER RELATING TO THE COMPUTATION OF BOOK PROFIT INCLUDING THE JUD ICIAL PRONOUNCEMENTS RELATING THERETO. THE BOOK PROFIT UNDER THE PROVISIONS OF SE CTION 115JB HAS TO BE COMPUTED ON THE BASIS OF NET PROFIT DISCLOSED AS PE R THE PROFIT AND LOSS ACCOUNT PREPARED UNDER THE PROVISIONS OF PART-II AND PART-I II OF THE SCHEDULE VI OF THE COMPANIES ACT AND LAID BEFORE THE COMPANY AT ITS AN NUAL GENERAL MEETING IN ACCORDANCE WITH THE PROVISIONS OF SECTION 210 OF TH E COMPANIES ACT 1956. ONCE THE ACCOUNTS HAVE BEEN PREPARED IN THE MANNER AFORE SAID AND ADOPTED AT THE 7 AGM OF THE COMPANY THE NET PROFIT DISCLOSED IN SUC H ACCOUNTS CANNOT BE TINKERED WITH BY THE AO WHILE COMPUTING THE BOOK PR OFIT. THE AO CAN ONLY MAKE ADJUSTMENTS SPECIFIED AS PER EXPLANATION 1 TO SECTION 115JB(2). THE SAID PROPOSITION OF LAW IS SETTLED BY THE JUDGMENT OF HO NBLE SUPREME COURT IN CASE OF APOLLO TYERS LTD. VS CIT (255 ITR 273). THE RELE VANT PORTION OF THE JUDGMENT OF HONBLE SUPREME COURT IS REPRODUCED BELOW AS A R EADY REFERENCE : THE ASSESSING OFFICER WHILE COMPUTING THE BOOK PR OFIT OF A COMPANY UNDER SECTION 115J OF THE INCOME-TAX ACT 1961 HAS ONLY THE POWER OF EXAMINING WHETHER THE BOOKS OF ACCOUNT ARE CERTIFIE D BY THE AUTHORITIES UNDER THE COMPANIES ACT AS HAVING BEEN PROPERLY MAI NTAINED IN ACCORDANCE WITH THE COMPANIES ACT. THE ASSESSING OF FICER THEREAFTER HAS THE LIMITED POWER OF MAKING INCREASES AND REDUC TIONS AS PROVIDED FOR IN THE EXPLANATION TO SECTION 115J. THE ASSESSING O FFICER DOES NOT HAVE THE JURISDICTION TO GO BEHIND THE NET PROFITS SHOWN IN THE PROFIT AND LOSS ACCOUNT EXCEPT TO THE EXTENT PROVIDED IN THE EXPLAN ATION. THE USE OF THE WORDS IN ACCORDANCE WITH THE PROVISIONS OF PARTS I I AND III OF SCHEDULE VI TO THE COMPANIES ACT IN SECTION 115J WAS MADE F OR THE LIMITED PURPOSE OF EMPOWERING THE ASSESSING OFFICER TO RELY UPON THE AUTHENTIC STATEMENT OF ACCOUNTS OF THE COMPANY. WHILE SO LOOK ING INTO THE ACCOUNTS OF THE COMPANY THE ASSESSING OFFICER HAS TO ACCEPT THE AUTHENTICITY OF THE ACCOUNTS WITH REFERENCE TO THE PROVISIONS OF THE COMPANIES ACT WHICH OBLIGATE THE COMPANY TO MAINTA IN ITS ACCOUNTS IN A MANNER PROVIDED BY THAT ACT AND THE SAME TO BE SCRU TINIZED AND CERTIFIED BY STATUTORY AUDITORS AND APPROVED BY THE COMPANY I N ANNUAL GENERAL MEETING AND THEREAFTER TO BE FILED BEFORE THE REGIS TRAR OF COMPANIES WHO HAS A STATUTORY OBLIGATION ALSO TO EXAMINE AND BE S ATISFIED THAT THE 8 ACCOUNTS OF THE COMPANY ARE MAINTAINED IN ACCORDANC E WITH THE REQUIREMENTS OF THE COMPANIES ACT. SUB-SECTION (1A) OF SECTION 115J DOES NOT EMPOWER THE ASSESSING OFFICER TO EMBARK UP ON A FRESH ENQUIRY IN REGARD TO THE ENTRIES MADE IN THE BOOKS OF ACCOU NT OF THE COMPANY. 4.2 IT IS THUS CLEAR THAT THE AO HAS TO GO BY THE A CCOUNTS PREPARED IN ACCORDANCE WITH THE PROVISIONS OF PARTS II AND III OF SCHEDULE VI OF THE COMPANIES ACT AND APPROVED IN THE ANNUAL GENERAL ME ETING. THE AO IS NOT EMPOWERED TO EMBARK INTO FRESH ENQUIRY IN REGARD TO THE ENTRIES MADE IN THE BOOKS OF ACCOUNT. THE JUDGMENT OF HONBLE HIGH COUR T OF MUMBAI IN CASE OF CIT VS VEEKAYLAL INVESTMENT CO. LTD. (SUPRA) RELIED UPO N BY THE DEPARTMENT CANNOT BE FOLLOWED IN VIEW OF THE SUBSEQUENT JUDGMENT OF T HE HONBLE SUPREME COURT IN CASE OF APOLLO TYRES LTD. SETTLING THE LEGAL POS ITION. MOREOVER IN CASE OF VEEKAYLAL INVESTMENT CO. LTD. (SUPRA) THE CAPITAL G AIN HAD BEEN CREDITED TO THE PROFIT AND LOSS ACCOUNT WHICH IS NOT SO IN THE PRES ENT CASE. IN THIS CASE THE REVALUATION RESERVE HAD BEEN TAKEN BY THE ASSESSEE DIRECTLY TO THE PROFIT AND LOSS ACCOUNT. THEREFORE THE JUDGMENT OF HONBLE HIG H COURT OF MUMBAI (SUPRA) IS ALSO DISTINGUISHABLE. THE LEARNED DR HAS ALSO RE LIED ON THE JUDGMENT OF HONBLE HIGH COURT OF KARNATAKA IN CASE OF CIT VS B RINDAVAN BEVERAGES LTD. (SUPRA). IT HAS BEEN ARGUED THAT HONBLE HIGH COURT HAD CONSIDERED THE JUDGMENT OF HONBLE SUPREME COURT IN CASE OF APOLLO TYRES (SUPRA). WE HAVE PERUSED THE SAID JUDGMENT OF HONBLE HIGH COURT OF KARNATAKA AND IN OUR VIEW THE SAID JUDGMENT ALSO DOES NOT HELP THE CASE OF TH E REVENUE. IN THAT CASE THE ASSESSEE HAD SOLD SOFT DRINK BOTTLING PLANT FROM WH ICH THERE WAS SURPLUS OF RS.43 16 59 811.69 WHICH HAD BEEN CARRIED TO THE BA LANCE SHEET AS A CAPITAL RESERVE. THE ISSUE WAS WHETHER THE GAIN ARISING FRO M THE SALE COULD BE ADDED TO THE BOOK PROFIT. THE HONBLE HIGH COURT OBSERVED THAT EVEN IF IT WAS A CASE 9 OF SLUMP SALE THE GAIN COULD BE COMPUTED AND IN FAC T THE ASSESSEE HAD ALREADY COMPUTED THE SURPLUS WHICH HAD BEEN TAKEN TO THE BA LANCE SHEET. THE HIGH COURT ALSO OBSERVED THAT EVEN AFTER THE PREPARATION OF PROFIT AND LOSS ACCOUNT AS PER PARTS II AND III OF SCHEDULE VI OF THE COMPA NIES ACT THE AO WAS REQUIRED TO APPLY THE PROVISIONS OF EXPLANATION 1 T O SECTION 115JB(2). THE MATTER WAS THEREFORE REMANDED TO AO FOR PROPER COMP UTATION. THUS THE HONBLE HIGH COURT HAD ONLY HELD THAT THE AO COULD APPLY THE PROVISIONS OF EXPLANATION 1 TO SECTION 115JB(2) AND IT WAS NOWHER E HELD THAT THE GAIN ARISING FROM THE SALE OF THE PLANT HAD TO BE ADDED TO THE B OOK PROFIT. THE MATTER HAD ONLY REMANDED TO THE AO. THE JUDGMENT CITED THEREFO RE IS OF NO HELP TO THE REVENUE. 4.3 THE LEARNED DR HAS ALSO ARGUED THAT REVALUING OF THE PROPERTY IN THE YEAR OF SALE AND TAKING THE REVALUATION RESERVE TO THE BALANCE SHEET WAS A COLOURABLE DEVICE ADOPTED BY THE ASSESSEE TO REDUCE THE BOOK PROFIT. SUCH DEVICE IT HAS BEEN ARGUED HAS TO BE DISCARDED. RELI ANCE HAS BEEN PLACED ON THE JUDGMENT OF HONBLE SUPREME COURT IN CASE OF MC DOW ELL AND CO. (154 ITR 148). HOWEVER AFTER CAREFULLY CONSIDERING THE SUBM ISSIONS MADE BY BOTH THE PARTIES WE ARE UNABLE TO SEE ANY CASE OF DEVICE. TH E COMPANIES ACT 1956 REQUIRES THAT WHILE PREPARING THE ACCOUNTS THE ACC OUNTING STANDARDS HAVE TO BE FOLLOWED AND PARA 13 OF THE ACCOUNTING STANDARD AS-10 ALLOWED THE ASSESSEE TO REVALUE ANY PROPERTY. FURTHER PARA 13.7 OF AS -10 ALSO PROVIDES THAT ANY INCREASE IN NET BOOK VALUE ON ACCOUNT REVA LUATION HAS TO BE TAKEN TO THE CAPITAL ACCOUNT AS REVALUATION RESERVE AND IS N OT AVAILABLE FOR DISTRIBUTION. THE ASSESSEE HAS THUS TAKEN THE REVALUATION RESERVE DIRECTLY TO THE BALANCE SHEET IN CONFORMITY WITH THE ACCOUNTING STANDARD. T HE LEARNED DR POINTED OUT THAT THE ASSESSEE HAD MADE SELECTIVE REVALUATION TO AVOID PAYMENT OF TAX 10 WHICH WAS NOT PERMITTED. WE FIND THAT PARA 13.5 OF AS-10 PROVIDES THAT WHILE MAKING REVALUATION WHOLE CLASS OF ASSETS IN A UNIT SHOULD BE TAKEN UP AND NOT ON SELECTIVE BASIS. THERE IS NO VIOLATION OF THIS R EQUIREMENT IN CASE OF THE ASSESSEE. THE ASSESSEE HAS ONLY ONE IMMOVABLE PROPE RTY WHICH HAD BEEN REVALUED AND THEREFORE ENTIRE CLASS OF IMMOVABLE PR OPERTIES GOT REVALUED WITHOUT VIOLATING THE PROVISIONS. THUS REVALUATION OF THE ASSETS WAS PERMITTED AND THE REVALUATION HAD BEEN MADE UNDER THE PROVISI ONS OF AS-10. THEREFORE IN OUR VIEW REVALUATION CANNOT BE CONSIDERED AS A COL ORABLE DEVICE. THE VALUATION HAS NOT BEEN FOUND TO BE EXCESSIVE BY THE DEPARTMEN T. THE VALUE HAD BEEN ADOPTED ON THE BASIS OF THE REPORT OF THE REGISTERE D VALUER WHICH HAS NOT BEEN QUESTIONED BY THE DEPARTMENT. THEREFORE IN OUR VIEW THE ARGUMENT BASED ON COLORABLE DEVICE HAS TO BE REJECTED. 4.4 WE ALSO NOTE FROM THE PROVISIONS OF EXPLANATION 1 TO SECTION 115JB(2) THAT AMOUNT CARRIED TO ANY RESERVE BY WHATEVER NAME CALLED HAS TO BE ADDED TO THE NET PROFIT IF THE AMOUNT HAD BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT. IN THIS CASE THE REVALUATION RESERVE HAD BEEN DIREC TLY TAKEN TO THE BALANCE SHEET AND NOT DEBITED TO THE PROFIT AND LOSS ACCOUN T AND THEREFORE THE AMOUNT COULD NOT BE ADDED UNDER CLAUSE (B) OF EXPLANATION 1 TO SECTION 115JB(2). IT IS ALSO PERTINENT TO NOTE THAT CLAUSE (IIA) WAS INSERT ED TO THE EXPLANATION 1 WITH EFFECT FROM 1.4.2007 IN WHICH IT WAS PROVIDED THAT AMOUNT OF DEPRECIATION DEBITED TO THE PROFIT AND LOSS ACCOUNT EXCLUDING TH E DEPRECIATION ON ACCOUNT OF REVALUATION OF ASSETS HAS TO BE REDUCED FROM THE NE T PROFIT. THUS THE LEGISLATURE THOUGH IT FIT TO EXCLUDE THE DEPRECIATION ON ACCOUN T OF REVALUATION OF ASSETS FROM THE AMOUNT TO BE REDUCED FROM THE NET PROFIT B UT THERE WERE NO SIMILAR PROVISION INSERTED FOR ADDITION OF REVALUATION RESE RVE TO THE NET PROFIT EVEN IF THE SAME WAS NOT DEBITED TO THE PROFIT AND LOSS ACC OUNT. THIS SHOWS THAT THE 11 LEGISLATURE HAD CONSCIOUSLY HAD MADE ANY PROVISION FOR ADDITION ON ACCOUNT OF REVALUATION RESERVE TAKEN TO THE BALANCE SHEET. 4.5 IN VIEW OF THE FOREGOING DISCUSSION AND FOR THE REASONS GIVEN EARLIER WE ARE OF THE CONSIDERED OPINION THAT NO ADDITION COUL D BE MADE TO THE NET PROFIT ON ACCOUNT OF REVALUATION RESERVE DIRECTLY TAKEN TO THE BALANCE SHEET WHILE COMPUTING THE BOOK PROFIT. WE ACCORDINGLY SEE NO IN FIRMITY IN THE ORDER OF CIT(A) DELETING THE ADDITION MADE BY THE AO AND THE SAME IS UPHELD. 5. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED . 6. THE DECISION WAS PRONOUNCED IN THE OPEN COURT ON 11.03.2011. SD/- SD/- ( V.D. RAO ) (RAJENDRA SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE : 11.03.2011 AT :MUMBAI COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) MUMBAI CONCERNED 4. THE CIT MUMBAI CITY CONCERNED 5. THE DR G BENCH ITAT MUMBAI // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI ALK