TECHNICARTS PVT. LTD, MUMBAI v. ITO 8(3)(3), MUMBAI

ITA 5715/MUM/2008 | 2005-2006
Pronouncement Date: 31-03-2011 | Result: Dismissed

Appeal Details

RSA Number 571519914 RSA 2008
Assessee PAN AAACT4356P
Bench Mumbai
Appeal Number ITA 5715/MUM/2008
Duration Of Justice 2 year(s) 6 month(s) 20 day(s)
Appellant TECHNICARTS PVT. LTD, MUMBAI
Respondent ITO 8(3)(3), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 31-03-2011
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted E
Tribunal Order Date 31-03-2011
Date Of Final Hearing 29-03-2011
Next Hearing Date 29-03-2011
Assessment Year 2005-2006
Appeal Filed On 10-09-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E MUMBAI BEFORE SHRI P.M. JAGTAP (AM) AND SMT. ASHA VIJAYARA GHAVAN (JM) ITA NO. 5715/MUM/2008 ASSESSMENT YEAR- 2005-06 M/S. TECHNICARTS PVT. LTD. 802-A DEEPALI CO. OP. HSG. SOC. LTD. ST. CYRIL ROAD BANDRA (W) MUMBAI-400 050 PAN-AAACT 4356P VS. THE ITO 8(3)(3) AAYAKAR BHAVAN MUMBAI-400 020 (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI SATISH CHANDRA RESPONDENT BY: SHRI HEMANT LAL & SHRI D. SONGATE O R D E R PER ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER DATED 9.7.2008 PASSED BY THE LD. CIT(A)- XXX FOR T HE ASSESSMENT YEAR 2005-06. 2. THE FIRST GROUND RAISED BY THE ASSESSEE READS AS FOLLOWS: THE LD. CIT(A) HAS ERRED IN CONFIRMING THAT THE CA PITAL RECEIPTS I.E. SURPLUS ARISING FROM SALE OF FACTORY LAND AND BUILDING WHICH IS NOT TAXABLE AS PER THE PROVISIONS OF SEC. 45 R.W.S. 54EC OF THE I.T. ACT TO BE BROUGHT UNDER TAX NET BY CONSI DERING SUCH SURPLUS AS PART OF THE BOOK PROFIT AS PER THE PROVISIONS OF SEC. 115JB OF THE I.T. ACT 1961. ITA NO. 5715/M/08 2 3. THE LD. COUNSEL FOR THE ASSESSEE SHRI SATISH CHA NDRA GAVE ELABORATE SUBMISSIONS WHICH ARE AS FOLLOWS: THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF RNANUFACTURING PRESSURE COOKERS FOR OTHER BRAND OWN ERS DURING THE PREVIOUS YEAR ENDED ON 31.3.2005 IT DID NOT CARRY ON ITS MANUFACTURING ACTIVITY. THE ASSESSEE CLAIMED THAT FOR THE PURPOSE OF CALCUL ATING BOOK PROFIT U/S.1 I5JB CAPITAL GAIN ARISING FROM SALE O F FACTORY LAND AND BUILDING CREDITED TO THE P&L ALE REQUIRES TO BE DE DUCTED AS IT REPRESENTS RECEIPT IN THE NATURE OF INCOME NOT TAXA BLE U/S 50/S4EC. THE ASSESSEE RELIED ON THE DECISION IN THE CASE OF ITO V. FRIGSALES (I) LTD. 4 SOT 376 (PARA 5 OF ASST ORDER). THE ID. A.O. NEGATIVE THE CLAIM OF THE ASSESSEE AC CORDING TO HIM (PARA5. OF ASST. ORDER) EXPLANATION (I) TO (VII ) OF SEC. II 5JB DO NOT MENTION THAT CAPITAL GAIN NOT CHARGEABLE TO TAX BY VIRTUE OF SEC.54EC SHALL BE REDUCED FROM THE NET PROFIT FOR ARRIVING A T BOOK PROFIT FOR LEVYING MAT U/S. II 5JB. THE ED. AO PLACED RELIANCE ON THE FOLLOWING DECISIONS: I) APOLLO TYRES LTD. V. CIT 255 ITR 273(SC). II) CIT V. VEEKAYLAL INVESTMENT CO. (P) LTD. 248 IT R 597 (BORN). 2. ON APPEAL BEFORE THE CITA (A) THE ASSESSEE CONT ENDED AS FOLLOWS: I) SUB-SEC. (5) OF SEC. 1 ISJB STATES THAT SAVE AS OTHERWISE PROVIDED IN THIS SECTION ALL OTHER PROVISIONS OFTH IS ACT SHALL APPLY TO EVERY ASSESSEE BEING A COMPANY MENTIONED IN THE SE CTION. SUB-SEC (4) OF SEC. 11 SJA IS IDENTICALLY WORDED. SEC. II 5 J HOWEVER DID NOT HAVE SIMILAR PROVISION WHILE INTERPRETING SUB-SEC( 4) OF SEC 115 JA THE TRIBUNAL IN THE CASE OF ITO V. FRIGSALES (I) LT D. 4 SOT376 (MUM) (COPY AT PP.65-7L OF PB) OBSERVED THAT SEC I I5JA I SPART OF THE ACT NOW AND EXEMPTION ALLOWED BY ONE PROVISION OF THE A CT CANNOT BE TAKEN AWAY BY ANOTHER PROVISION OF THE ACT THISOBSE RVATION WOULD APPLY TO SEC. II SJB AS WELL. ACCORDINGLY AN EXEMP T INCOME U/S. 54EC AND SEC. 50 WOULD REMAIN EXEMPTED U/S.115JB (5 ) AS WELL. THE DECISIONS RN APOLLO TYRES (255 ITR 273(SC) AND VEEKAYLAL INVESTMENT CO. (P) LTD (249 ITR 597 (BORN) ARE DIST INGUISHABLE BECAUSE THOSE DECISIONS HAD BEEN RENDERED IN THE CO NTEXT OF SEC. II 5J WHICH IS AN INDEPENDENT CODE. BY INSERTING SUB-S EC. (4) IN SEC. I ITA NO. 5715/M/08 3 ISJA AND SUB-SEC. (5) IN SEC. 11538 THE LEGISLATUR E HAS MADE BOTH THESE SECTIONS AS PART OFTHE ACT NOW. IT IS HELD IN SUTLEJ COTTON MILLS LTD. V. ACIT 45 L TD 22 (CAL) (SB) THAT THE EXPRESSION BOOK PROFIT U/S. 1155 IS I NTENDED TO BE CONFINED TO BUSINESS PROFIT AND THAT THE TERM BOOK PROFIT IS NOT INTENDED TO INCLUDE PROFIT IN REALIZATION OF ANY AS SET. IT IS FURTHER HELD THAT WHAT IS SPECIFICALLY EXEMPTED U/S. 54E CO ULD NOT BE TAXED U/S. 1153. THIS DECISION SUPPORTS THE CONTENTION OF THE ASSESSEE. IN ITO V. SURAJ JEWELLER) (INDIA) LTD. 21 SOT 79 ( MUM) [COPY AT PAGE 157-158 OF PB] IT IS HELD IN THE CONTEXT OF SEC. I ISJB THAT APITAL RECEIPTS WHICH DO NOT CONSTITUTE INCOME UNDE R THE ACT CANNOT BE BROUGHT TO TAX NET BY EMPLOYING THE MECHANISM OF SECTION II5JB. THE ABOVE CONTENTIONS WERE NOT ACCEPTABLE TO THE ID .CIT (A). IN PARA 3.8 THE ID. CIT (A) NOTED THAT THE MAIN ARGUME NT OF THE ASSESSEE IS THAT BY VIRTUE OF SUB-SEC (5) OF SECTIO N IL 53B THE ASSESSEE IS ENTITLED TO AVAIL ALL THE EXEMPTIONS AN D DEDUCTIONS PROVIDED IN THE IT ACT WHILE CALCULATING THE BOOK P ROFIT INCLUDING THE DEDUCTION U/S54EC. THIS ARGUMENT OF THE ASSESSEE CA NNOT BE ACCEPTED IN VIEW OF THE BOARDS CIRCULAR NO.13/2001 DATED 9.11.2001(252 ITR (ST) 50); DECISION OF KAMATAKA HI GH COURT IN LINDA! THERMAL POWER CO. LTD. V. DY CIT 286 ITR 18 2 (KAM); DECISION OF APEX COURT IN APOLLO TYRES LTD. 255 IT R 273; DECISION OF AAR IN NATIONAL HYDRO ELECTRIC POWER CORPN. LTD. 27 3 ITR 171 AND SPECIAL BENCH DECISION IN DCIT V. SYNCOME FORMULATI ONS (1) LTD. 292 ITR (AT) 144 (MUM) (SB). 3.1 IN PARA 3.15 THE LD.CIT (A) OBSERVED THAT ONCE P&L ALE IS PREPARED IN ACCORDANCE WITH PART II & III OF SCHEDU LE VI OF COMPANIES ACT 1956 NO VARIATION CAN BE MADE EXCEPT AS PROVIDED IN EXPLANATION U/S I I5JB. HENCE CONTENTION OF TH E ASSESSEE IS NOT SUSTAINABLE EITHER IN LAW OR ON THE PRINCIPLE OF CO NSISTENCY. 3.2 THE TD.CTT (A) FURTHER OBSERVED IN PARA 3.17 TH AT THE FINDING OF THE TRIBUNAL GIVEN IN PARA 13 IN THE CAS E OF SUTIEJ COTTON MILLS LTD. 45 LTD 22 (CAL) (SB) IS NO LONGER A GOOD LAW AFTER THE DECISION OF THE APEX COURT IN APOLLO TYRES. 3.3 THE ID CIT (A) ALSO OBSERVED THAT THE DECISION IN M/S. SURAJ JEWELLERY (INDIA) LTD. 21 SOT 79 (MUM) IS IN DIRECT CONTRADICTION TO THE SUPREME COURTS DECISION IN APO LLO TYRES AND SPECIAL BENCH DECISION IN SYNCOME FORMULATION (I) L TD. HENCE NOT A GOOD LAW. MOREOVER IN M/S. SURAJ JEWELLERY (INDIA) LTD. 21 SOT 79 (MUM) THE AMOUNT OF CAPITAL GAIN WAS NOT CREDITED T O P&L A/C. BUT ITA NO. 5715/M/08 4 WAS CREDITED TO P&L APPROPRIATION ACCOUNT. FURTHER THE DECISION IN MIS. SUTLEY JEWELLER> (INDIA) LTD. IS IN DIRECT CO NTRADICTION WITH BOMBAY HC DECISION IN VEEKAYLAL INVESTMENT CO. P. L TD. 249 ITR 597 (BORN). 3.4 IN PARA 3.20 THE ID.CIT (A) OPINED THAT IN FRIG SALES (I) LTD (SUPRA) THE TRIBUNAL DID NOT APPLY THE RATIO OF APP OLLO TYRES ON THE GROUND THAT SEC. I 15J WAS AN INDEPENDENT CODE WHER EAS SEE 115 JA WAS NOT SO. THIS IS NOT CORRECT AS CROT CIRCULAR SAYS THAT SEE. II 53A IS A SELF CONTAINED CODE WHICH IS ALSO THE VIEW OF KARNATAKA HIGH COURT IN JINDAL THERMAL POWER CO. LTDS CASE. 3.5 WITH THE ABOVE OBSERVATIONS THE LD CIT (A) CONF IRMED THE ACTION OF THE AO. THIS HAS BROUGHT THE ASSESSEE BEF ORE THE TRIBUNAL. SUBMISSIONS OF THE ASSESSEE BEFORE THE HONOURABLE T RIBUNAL. 4. ONE COMMON THREAD WHICH RUNS THROUGH SUBSECTION (1) OF SECTION II 5J 11 5JA AND 1 15JB IS THAT IT OPENS W ITH A NON OBSTANTE CLAUSE NAMELY NOT WITHSTANDING ANYTHIN G CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT WHICH MEANS THAT EVEN THOUGH THE TOTAL INCOME OF A COMPANY IS NOT TAXABLE IN THE NOR MAL CIRCUMSTANCE HAVING REGARD TO THE DEEMING PROVISION ENACTED IN T HIS SUB SECTION THE BOOK PROFIT SHALL BE LIABLE TO BE TA XED AS STIPULATED THEREIN. 4.1 THERE IS AN IDENTICAL PROVISION IN SECTION II 5 JA AND II 5JB WHICH IS ENSHRINED IN SUB SECTION (4) AND SUB - SECTION (5) THEREOF RESPECTIVELY WHICH PROVISION IS CONSPICUOUS BY ITS ABSENCE IN SECTION 1153. THE IDENTICALLY WORDED PROVISION IN SUB SEC TION (4) OF SECTION 11 5JA AND SUB SECTION (5) OF SECTION 1 I 5JB READS THUS. SAVE AS OTHERWISE PROVIDED IN THIS SECTION ALL OT HER PROVISIONS OF THE ACT SHALL APPLY TO EVERY ASSESSEE BEING A COMPANY MENTIONED IN THIS SECTION. 4.1.1. AAR NEW DELHI HAD OCCASION TO CONSIDER SUB SECTION (4) OF SECTION 1 153A IN ADVANCE RULING PETITION NO 14 OF 1997 IN REPORTED IN 234 ITR AT PAGE 335. THE AAR OBSERVED THAT SECTION I 153A (4) IMPLIES THAT ALL OTHER PROVISIONS OF THE ACT WILL CONTINUE TO AP PLY TO EVERY ASSESSEE COMPANY. THAT MEANS EVERY ASSESSEE COMPANY WILL COM E WITHIN THE SCOPE OF SECTION II5JA AND SAVE AS SPECIFICALLY PROVIDED THEREIN WILL CONTINUE TO BE GOVERNED BY OTHER PROVISIONS OF THE ACT. 4.1.2 THIS SEEMS TO BE THE PERCEPTION OF THE CBDT AS WELL IN CIRCULAR NO 13 OF200L DATED 9TH NOVEMBER 2001. THIS CIRCULAR WAS ISSUED PRIMARILY TO CLARIFY THAT ALL COMPANIES ARE LIABLE FOR PAYMENT OF ADVANCE ITA NO. 5715/M/08 5 TAX AND ON DEFAULT INTEREST U/S 234 B AND 234 C AS THE CASE MAY BE WILL BE CHARGEABLE. HOWEVER THIS CIRCULAR CONTAINS A FE W SIGNIFICANT OBSERVATIONS IN PARA 2 WHICH ARE EXTRACTED BELOW. SUB SECTION (1) LAYS DOWN THE MANNER IN WHICH IN COME TAX PAYABLE IS TO BE COMPUTED SUB SECTION (2) PR OVIDES FOR COMPUTATION OF BOOK - PROFIT. SUB SECTION (5) S PECIFIES THAT SAVE AS OTHERWISE PROVIDED IN THIS SECTION ALL THE PROV ISIONS OF THIS ACT SHALL APPLY TO EVERY ASSESSEE BEING A COMPANY MENT IONED IN THAT SECTION. IN OTHER WORDS EXCEPT FOR SUBSTITUTION OF TAX PAYABLE UNDER THE PROVISION AND THE MANNER OF COMPUTATION OF BOOK PROFITS ALL THE PROVISIONS OF THE ACT INCLUDING THE PROVISION RELAT ING TO CHARGE DEFINITIONS RECOVERIES PAYMENT ASSESSMENT ETC. WO ULD APPLY IN RESPECT OF PROVISIONS OF THIS SECTION. 5. AT THIS JUNCTURE IT IS RESPECTFULLY SUBMITTED TH AT THERE IS CLEAVAGE OF JUDICIAL OPINION AS TO A WHETHER SECTIO NS II 5JA & II 5JB ARE SELF CONTAINED CODE OR NOT EVEN AFTER THE INSER TION OF SUB-SECTION (4) AND SUB SECTION (5) IN SECTION 1 I5JA AND I I5J B RESPECTIVELY. MUMBAI TRIBUNAL HELD IN THE CASE OF FRIGSALES (INDI A) LTD REPORTED IN 4 SOT 376 THAT WHEREAS SECTION 1153 WAS A SELF-CONT AINED CODE SECTION I I5JA IS NOT AS SUB SECTION (4) HAS BEEN I NSERTED THEREIN WHICH WAS CONSPICUOUS BY ITS ABSENCE IN SECTION I 1 5J. 5.1 THE CIT (A) RELYING INTERALIA ON CBDT CIRCULA R NO 13/2001 DT.09 1 1.2001 SUBSCRIBES TO THE VIEW THAT SECTION I 15JB IN WHICH IDENTICAL SUB SECTION (5) HAS BEEN INSERTE D IS ALSO A SELF CONTAINED CODE. 6. IT IS RESPECTFULLY SUBMITTED THA T THE CIT (A) BEING SUBORDINATE AUTHORITY TO THE JURISDICTIONAL ITAT OU GHT TO HAVE FOLLOWED MUMBAI TRIBUNAL ON THE ISSUE IN VIEW OF TH E DECISION OF THE SUPREME COURT IN UNION OF INDIA V KAMALAKSHI FINANC E CORPORATION LTD AIR 1992 SC 711 712 WHEREIN IT IS OBSERVED THAT THE PRINCIPALS OF JUDICIAL DISCIPLINE REQUIRE THAT THE ORDERS OF T HE HIGHER APPELLATE AUTHORITIES SHOULD BE FOLLOWED UNRESERVEDLY BY THE SUBORDINATE AUTHORITIES. IF THIS HEALTHY RULE IS NOT FOLLOWED T HE RESULT WILL ONLY BE UNDUE HARASSMENT TO ASSESSEES AND CHAOS IN ADMINIST RATOR OF TAX LAWS. 6.1 IT IS HELD IN STATE BANK OF INDORE V CIT 269 IT R 459 (MP) THAT THE FIRST APPELLATE AUTHORITY HAS NO JURISDICT ION TO ACT CONTRARY TO THE ORDER PASSED BY THE TRIBUNAL. 6.2 MOREOVER THE POWERS EXERCISED BY THE CIT (A) A RE OF QUASI JUDICIAL NATURE SUCH POWERS CANNOT BE CONTROLLED B Y THE DIRECTION OR INSTRUCTIONS ISSUED BY THE CBDT AS HELD BY THE SUPR EME COURT IN ORIENT PAPER MILLS LTD V UOI AIR 1969 SC 48 ITA NO. 5715/M/08 6 6.3 NOT ONLY THIS THE CIT (A) HAS RELIED ON ONE PA RT OF THE SAID CIRCULAR NO 13/2001 DT. 09.11.2001 IGNORING COMPLET ELY THE OTHER RELEVANT PART OF THE CIRCULAR WHICH CLARIFIES THAT EXCEPT FOR SUBSTITUTION OF TAX PAYABLE UNDER THE PROVISION AND THE MANNER OF COMPUTATION OF BOOK PROFIT ALL THE PROVISIONS OF T HE ACT INCLUDING THE PROVISION RELATING TO CHARGE DEFINITIONS RECOVERY PAYMENTS ASSESSMENT ETC WOULD APPLY IN RESPECT OF THIS SECTI ON. 6.4 HENCE AS PER THE SAID CIRCULAR ALL THE PROVISI ONS OF THE ACT INCLUDING INTERALIA THE PROVISION RELATING TO ASSTT WOULD APPLY IN RESPECT OF SECTION II 5JB EXCEPT TAX PAYABLE UNDER THE PROVISION AND THE MANNER OF COMPUTATION OF BOOK PROFIT. THE WORD ASSTT ACCORDING TO THE APEX COURT CAN BEAR A VERY COMPREHENSIVE MEA NING IT CAN COMPREHEND THE WHOLE PROCEDURE FOR ASCERTAINING AND IMPOSING LIABILITY UPON THE TAX PAYER [(SEE KALAWATI DEVI HA RLALKA V CIT 661 ITR 680 (SC)]. 6.5 AGAIN IN S. SANKAPPA V ITO 68 ITR 760 (SC) TH E SUPREME COURT OBSERVED THAT THE WORD ASSTT IS USED IN THE IT ACT IN A NUMBER OF PROVISIONS IN A COMPREHENSIVE SENSE AND INCLUDES ALL PROCEEDINGS STARTING WITH THE FILING OF RETURN OR ISSUE OF NOTI CE AND ENDING WITH DETERMINATION OF THE TAX PAYABLE BY THE ASSESSEE. T HOUGH IN SOME SECTIONS THE WORD ASSTT IS USED ONLY WITH REFERENC E TO COMPUTATION OF INCOME IN OTHER SECTIONS IT HAS THE MORE COMPRE HENSIVE MEANING. 6.6 IT IS RESPECTFULLY SUBMITTED THAT WHAT IS ENVIS AGED IN NEWLY INSERTED SUB-SECTION (5) OF SECTION II 5JB IS THAT EXCEPT FOR SUBSTITUTION OF TAX PAYABLE UNDER THE PROVISION AND THE MANNER OF COMPUTATION OF BOOK PROFITS ALL OTHER PROVISION OF THE ACT INCLUDING COMPUTATION OF INCOME AND DETERMINATION TAX PAYABLE WOULD APPLY IN RESPECT OF THIS SECTION 1 I5JB. 6.7 TAX AS PER SECTION 2 (43) OF THE ACT MEANS INC OME TAX CHARGEABLE UNDER THE PROVISIONS OF THIS ACT. IF THA T BE SO WHILE DETERMINING THE MAT LIABILITY THE CAPITAL GAIN NOT CHARGEABLE TO TAX BY VIRTUE OF SECTION 54EC AND INCOME EXEMPT U/S 50 HAVE TO ADJUSTED FROM THE BOOK PROFIT COMPUTED AS PER THE P ROVISIONS OF SECTION 1 5JB (2). 6.8 IN SUPPORT THE ASSESSEE RELIES ON THE FOLLOWING DECISIONS I) SUTLEJ COTTON MILLS LTDS CASE REPORTED IN 45 LT D 22 FOR THE PROPORTION THAT WHAT IS SPECIALLY EXEMPTED U/S 54 E ( U/S 54EC) CANNOT BE TAXED U/S I 15J (U/S II 5JB) II) FRIGSALES (INDIA) ITD CASE REPORTED IN 4 SOT 37 6 (MUM) FOR THE PROPOSITION THAT CAPITAL GAIN ARISING U/S 50 ON DEP RECIABLE ASSET ITA NO. 5715/M/08 7 WOULD REMAIN EXEMPT AS PER THE PROVISIONS OF SUB-SE CTION (4) OF SECTION II SJA (SIMILARLY AS PER PROVISIONS OF SUB -SECTION (5) OF SECTION 115 JB). III) SURAJ JEWELLARY (INDIA) LTDS CASE REPORTED IN 21 SOT 79 FOR THE PROPOSITION THAT ALTHOUGH FOR COMPUT ING MAT PROFIT BUSINESS PROFIT SHOWN IN P & L A/C ARE TO BE ADOPTE D IN CASE THE SAID PROFITS INCLUDE CERTAIN RECEIPTS WHICH ARE NOT IN THE NATURE OF INCOME THE SAME ARE TO BE EXCLUDED BEFORE MAKING A NY CALCULATION IN THAT REGARD AND THAT SECTION 349 OF THE COMPANIE S ACT CLEARLY PROVIDES THAT CREDIT FOR THE PROFIT ARISING ON SALE OF ANY IMMOVABLE PROPERTY OR FIXED ASSETS OF CAPITAL NATURE SHOULD N OT BE TAKEN IN TO PROFIT & LOSS A/C AND THAT THE CAPITAL RECEIPTS WHI CH DO NOT CONSTITUTE INCOME UNDER THE ACT CANNOT BE BROUGHT U NDER THE TAX NET BY EMPLOYING THE MECHANISM OF SECTION I I5JB. 7. IT IS RESPECTFULLY SUBMITTED THAT THE DECISION O F SPECIAL BENCH RN SUTLEJ COTTON MILLS LTD. (SUPRA) APPLIES W ITH FULL FORCE TO THE FACTS OF THE ASSESSEES CASE. IN THE SAID DECISION IT IS HELD THAT BOOK PROFIT IS NOT INTENDED TO INCLUDE PROFIT IN REALIZA TION OF ANY ASSET. BOOK PROFIT IS INTENDED TO BE CONFINED TO BUSINESS PROFIT ONLY. IT IS SUBMITTED THAT THE ID CIT (A) HAS MIS DIRECTED HI MSELF IN HOLDING THAT DECISION IN SUTLEJ COTTON MILLS LTD. (SUPRA) I S NO LONGER A GOOD LAW IN VIEW OF APEX COURT JUDGMENT IN APOLLO TYRES. THERE IS NOTHING IN THE JUDGMENT OF THE APEX COURT IN APOLLO TYRES W HICH CONTRADICTS THE LEGAL PORTION SET OUT BY THE SPECIAL BENCH OF T HE TRIBUNAL IN SULTEJ COTTON MILLS LTDS CASE AS STATED ABOVE. 7.1 IN SYNCOME FORMULATIONS (I) LTDS CASE THE SPE CIAL BENCH HELD THAT THE DEDUCTION AS 80 HHC IN A CASE OF MAT ASSESSMENT IS TO BE WORKED OUT ON THE BASIS OF ADJUSTED BOOK PROF IT AND NOT ON THE BASIS OF THE PROFIT COMPUTED UNDER THE REGULAR PROV ISIONS OF LAW APPLICABLE TO COMPUTATION OF PROFITS AND GAINS OF B USINESS OR PROFESSION. THIS DECISION HAS NOTHING TO DO WITH TH E ISSUE INVOLVED IN THE PRESENT APPEAL. 7 2 BOARDS CIRCULAR NO.13/2001 AS ALSO THE DECISION IN JINDAL THERMAL POWER CO. LTD. RELATED TO LIABILITY FOR PAYMENT OF ADVANCE TAX AND INTEREST U/S 234 B AND 2 34 C ON DEFAULT BY COMPANIES LIABLE OF MAT ASSESSMENT. THES E ASPECTS ARE NOT UNDER DISPUTE IN THE PRESENT APPEAL 7.3 IN NATIONAL HYDRO ELECTRIC POWER CORPA LTDS CA SE DECIDED BY AAR THE APPLICANT CO SUPPLIED ELECTRICITY AT THE TARIFF RATE NOTIFIED BY CENTRAL ELECTRICITY REGULATORY COMMISSION (CERC) AND RECOVERED THE SALE PRICE FROM THE BENEFICIARIES. FOR THE PURP OSE OF COMPUTATION OF BOOK PROFIT THE APPLICANT HAD DEDUCTED THE ADVAN CE AGAINST DEPRECIATION COMPONENT FROM THE TOTAL SALE PRICE AN D THE BALANCE AMOUNT ALONE HAD BEEN TAKEN TO P & I A/C. THE AAR H ELD THAT THE AMOUNT OF ADVANCE AGAINST DEPRECIATION SO SET APART FROM THE SALES ITA NO. 5715/M/08 8 IN THE P & L ACCOUNT WAS NOTHING SORT OF CREATION OF RESERVE. AS RESERVE IT FELL WITHIN CLAUSE (B) OF EXPLANATION TO SECTION 1 I5JB AND THEREFORE ADVANCE AGAMST DEPRECIATION HAD TO BE A DDED TO THE TOTAL INCOME AND INCLUDED FOR THE COMPUTATION OF BOOK PR OFITS U/S I I5JB. THIS RULING ALSO DOES NOT RENDER ANY HELP TO THE RE VENUE. 8. ON THE OTHER HAND THE DECISION OF MUMBAI APPELL ATE TRIBUNAL IN SURAJ JEWELLERY (INDIA) LTD. REPORTED I N 21 SOT 79 (MUM) IS OF IMMENSE HELP TO THE ASSESSEE. IN THAT CASE TH E ASSESSEE HAD TRANSFERRED SOME OF ITS CAPITAL ASSETS TO ITS HOLDI NG COMPANY AND THE PROFIT ARISING ON SUCH TRANSFER WAS CREDITED TO P & I APPROPRIATION ALE. THE ASSESSEE DID NOT INCLUDE THE CAPITAL PROFI TS IN THE BOOK PROFIT AS CAPITAL GAINS ARISING IN SUCH TRANSFER IS SPECIF ICALLY EXCLUDED FROM THE PURVIEW OF SECTION 45 BY VIRTUE OF SECTION 47 ( V). THE ASSESSEE CONTENDED THAT SAID CAPITAL PROFITS WERE CAPITAL RE CEIPT WHICH DO NOT HAVE ANY ELEMENT OF INCOME AND THAT SUCH CAPITAL RE CEIPTS WAS NOT CHARGEABLE TO TAX. THE AO INCLUDED THE CAPITAL RECE IPTS AS PART OF BOOK PROFITS AND RELIED ON THE JUDGMENT OF THE SUPR EME COURT IN APOLLO TYRES (255 1TR 273) CIT (A) UPHELD THE CONT ENTION OF THE ASSESSEE. ON APPEAL BY THE REVENUE THE TRIBUNAL OB SERVED THUS. IN THE PRESENT CASE THE ASSESSEE IS NOT LIABLE TO PAY ANY TAX ON THE GAINS ARISING ON TRANSFER OF ITS ASS ETS TO HOLDING COMPANY. SUCH PROFITS ARE EXEMPT FROM TAX U /S 47 (V) OF THE IT ACT. THOUGH FOR COMPUTING THE MAT PROFIT ILLS 1 I5JB OF THE ACT THE BUSINESS PROFITS SHOWN IN THE P & L A/C ARE TO BE ADOPTED BUT IN CASE THEY SAID PROFIT INCLUDE CERTAIN RECEIPTS WHICH ARE NOT OF INCOME NATURE TH E SAME ARE TO BE EXCLUDED BEFORE MAKING ANY CALCULATIONS IN TH AT REGARD. SECTOR 349 OF THE COMPANIES ACT CLEARLY PROVIDES TH AT THE CREDIT FOR THE PROFIT ARISING ON SALE OF ANY IMMOVA BLE PROPERTY OR FIXED ASSETS OF CAPITAL NATURE SHOULD NOT BE TAK EN INTO P & L A/C AND ACCORDINGLY THE PROFIT? GAIN ARISING ON TRA NSFER OF ASSETS TO HOLDING COMPANY IS NOT INCLUDIBLE IN THE PROFITS OF THE ASSESSEE COMPANY. 8.1 THE TRIBUNAL CONFIRMED THE ORDER OF CIT (A) HOL DING THAT THE CAPITAL RECEIPTS WHICH DO NOT CONSTITUTE INCOME UNDER THE INCOME TAX ACT CANNOT BE BROUGHT TO TAX NET BY EMPLOYING T HE MECHANISM OF SECTION 115W AND THE SAID SECTION HAS NOT INTENDED TO BRING ALL NON INCOME ITEM WITHIN THE DOMAIN OF INCOME TAX ACT 9. THE DECISION OF BOMBAY HIGH COURT IN KEEKAYLAL INVESTMENT CO. PVT. LTD 249 ITR 597 DOES NOT COME I N THE WAY OF THE ASSESSEE AS THE ASSESSE HAS CREDITED THE CAPITAL GA INS IN THE P & L A/C WHICH FORMS THE VERY BASIS FOR COMPUTING THE BO OK PROFIT U/S ITA NO. 5715/M/08 9 I15JB. THE CONTENTION OF THE ASSESSEE IS THAT ONCE THE INCOME FROM CAPITAL GAIN IS EXEMPT U/S 50 AND 54EC THEN SUCH C APITAL GAIN CANNOT BE CONSIDERED FOR THE PURPOSE OF COMPUTING B OOK PROFIT U/S II 5JB BECAUSE THOUGH FT IS INCOME IT IS EXEMPT F ROM TAXATION IN VIEW OF APPLICABILITY OF THE PROVISIONS OF SECTION 50 AND 54EC OF THE ACT. 9.1. RECENTLY IN DCIT V BOMBAY DIAMONDS CO. LTD. (ITA NO.7488/MUM/07) DATED 30/11/2009 MUMBAI B BENCH O F THE TRIBUNAL HELD THAT IF BOOKS OF ACCOUNT ARE NOT PREP ARED IN ACCORDANCE WITH PART II AND PART 111 OF SCHEDULE VI TO COMPANIES ACT 1956 THE AO CAN MAKE ADJUSTMENT IN THE BOOK PR OFITS U/S 115JB EVEN IF THE BOOKS OF ACCOUNT ARE AUDITED OR C ERTIFIED BY THE AUDITORS AND ACCEPTED BY THE SHAREHOLDERS. 9.2 THE DECISIONS OF MUMBAI ITAT IN FRIGSALES (I) L TD AND SURAJ JEWELLARY (INDIA) LTD SUPRA HAVE NOT BEEN INT ERFERED WITH SO FAR BY ANY HIGHER COURT AND THEREFORE THE SAME ARE REQUIRED TO BE FOLLOWED BY THE CO-ORDINATE BENCHES OF THE TRIBUNAL AS ALSO THE SUBORDINATE LOWER AUTHORITIES. 4. WE FIND THAT THE ISSUE HAS BEEN DECIDED BY THE H YDERABAD SPECIAL BENCH IN THE CASE OF RAIN COMMODITIES LTD. VS DCIT 41 DTR 449. THE SPECIAL BENCH HELD THAT AS LONG AS PROFIT ON SALE O F ASSETS IS CREDITED TO THE P&L ACCOUNT THE SAME SHOULD BE TAKEN INTO ACCO UNT FOR COMPUTING BOOK PROFIT U/S. 115JB. MERELY BECAUSE THE CAPITAL GAINS ARISING FROM THE TRANSFER OF THOSE ASSETS IS NOT TAXABLE UNDER THE NORMAL PROVISIONS OF I.T. ACT IT CANNOT BE EXCLUDED FROM THE BOOK PROFI TS U/S. 115JB THE COMPUTATION OF BOOK PROFIT U/S. 115JB IS A SEPARATE CODE BY ITSELF. SUB- SEC.(5) PROVIDING THAT OTHER PROVISIONS OF THE ACT SHALL APPLY WILL NOT MEAN THAT THE PROVISIONS OF NORMAL COMPUTATION OF I NCOME CAN BE IMPORTED INTO SEC. 115JB. SUB-SEC (5) STARTS WITH SAVE AS OTHERWISE PROVIDED IN THIS SECTION WHICH CLEARLY MEANS THAT THE OTHER PROVISIONS OF THE I.T. ACT CANNOT ALTER OR AMEND THE COMPUTATION OF BOOK PROFIT AS PROVIDED U/S. 115JB. RESPECTFULLY FOLLOWING THE DE CISION OF THE SPECIAL BENCH WE HOLD THAT THE PROFIT ON SALE OF ASSETS CRE DITED TO THE P&L A/C CANNOT BE EXCLUDED WHILE COMPUTING THE BOOK PROFIT U/S. 115JB EVEN ITA NO. 5715/M/08 10 THOUGH THE CAPITAL GAINS ARISING FROM THE SALE OF T HAT ASSET IS NOT SUBJECT TO TAX UNDER THE NORMAL PROVISIONS OF THE I.T. ACT BY VIRTUE OF THE PROVISIONS OF SEC. 54EC. 5. GROUND NO. 2 HAS NOT BEEN PRESSED BY THE ASSESSE E THEREFORE IT IS DISMISSED AS NOT PRESSED. 6. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON THIS 31 ST DAY OF MARCH 2011 SD/- SD/- (P.M. JAGTAP) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED 31 ST MARCH 2011 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR E BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR I.T.A.T MUMBAI ITA NO. 5715/M/08 11 DATE INITIALS 1 DRAFT DICTATED ON: 2 9 .0 3 .2011 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 2 9 .0 3 .2011 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK: DATE ON WHICH FILE GOES TO AR _________ ______ 10. DATE OF DISPATCH OF ORDER: _________ ______ ITA NO. 5715/M/08 12