Income Tax Appellate Tribunal - Mumbai
Reach Data Services India Pvt. Ltd., ... vs Department Of Income Tax on 30 January, 2015
" आयकर अपीलीय अिधकरण, मुबं ई यायपीठ 'डी ' मुबं ई ।
IN THE INCOME TAX APPELLATE TRIBUNAL " D" BENCH, MUMBAI
ी संजय अरोड़ा, लेखा सद य, एवं ी िवजय पाल राव, याियक सद य के सम ।
BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER
AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER
आयकर अपील सं./ I.T.A. No.5798/Mum/2011
( िनधा रण वष / Assessment Year : 2008-09)
DCIT -Central Circle- बनाम/
बनाम M/s. Reach Data Services
9(3), 2 n d Floor,Room Vs. India Pvt. Ltd.
No.229, Aayakar Unit Nos. 14 & 15, 1 s t Floor,
Bhavan, M.K. Road, B-Wing, Plot No.12, Off
Mumbai-400 020. Goregaon Malad Link Road,
Mindspace, Malad (W)
Mumbai-400 064.
थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : AABCT 3343 D
(अपीलाथ /Appellant) .. ( यथ / Respondent)
अपीलाथ ओर से / Assessee by : Shri Jeetendra Kumar-DR
यथ क ओर से/Respondent by : Shri Girish Dave - DR
सुनवाई क तारीख / Date of 21/01/2015
Hearing :
घोषणा क तारीख /Date of 30/01/2015
Pronouncement :
आदेश / O R D E R
PER VIJAY PAL RAO, JM :
This appeal by the revenue is directed against the order of CIT(A) dated 14/6/2011 for the assessment year 2008-09. The revenue has raised the following grounds in this appeal.
"1. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition made to book profit u/s. 1 15JB of the Income Tax Act, 1961 without verifying the fact that the financial statement prepared by the assessee are not in consonance with the requirements of the Companies Act in view of the judgement of the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. vs. CIT (255 ITR 273).2 ITA No.5798/M/11
2. On the facts and in the circumstances of the case and in law, t he L d. CIT (A) erred in d elet ing t he add ition of Rs. 6,56,39,269 made to book profit u/s.115JB of the Income Tax Act, 1961 on re- characterisation of the depreciation claimed in its financial statement as an "impairment of assets" and also not treating the said impairment of assets as a provision for diminution in value of assets.
3. The appellant prays that the order of the CIT(A) on the grounds be set aside and that of the Assessing Officer be restored.
4. The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary."
2. The assessee filed its return of income declaring total income of Rs.86,42,010/- on 29/09/2008. The assessee has also worked out book profit as per Section 115JB at Rs.36,51,461/-. In the course of assessment proceedings the AO noted that the assessee recorded depreciation at Rs.2,48,37,448/- for the assessment year 2007-08. Whereas for the assessment year under consideration the assessee has claimed depreciation at Rs.6,56,39,269/- and there is no addition in the fixed assets during the year. The AO accordingly proposed to recast the profit and loss account for the purpose of computing book profit under section 115JB. The AO noted that in the current year the assessee has depreciated its asset within the period of 5-6 months and booked the depreciation in P&L Account at Rs.6,56,39,269/- . The assessee furnished the details for sale of asset to the scrap dealer on account of shifting office. The AO further noted that no profit or loss has been calculated by the assessee and therefore, no figure has been reflected in the profit and loss account. Thus, the AO observed that mere re-location of a unit cannot be attributed as reason for increase in depreciation. The AO has taken into consideration the Accounting Standard-26 (AS-26) regarding impairment of asset and held that what assessee should have provided in profit and loss is provision for impairment of asset rather than depreciating the asset in toto. Accordingly, the AO made an addition of Rs.6,56,39,269/- on account of provision of diminution in the value of asset, while computing book profit under section 115JB. On appeal, CIT(A) has deleted the addition on the ground that impairment of asset is not a provision but a direct expense, debited to P&L Account which is similar to depreciation. Therefore, 3 ITA No.5798/M/11 there is no question of same being added back to book profit while computing MAT as per clause(i) of the Explanation to section 115JB of the Act.
3. Before us, the ld. DR has submitted that CIT(A) has committed an error while holding that impairment of the asset is not a provision but a direct expense, debited to P&L Account. He has contended that this claim of the assessee is nothing but a provision for impairment of asset as per AS-28. He has relied upon the order of AO and submitted that if the value derived by the assessee from the commercial exploitation of the asset is lower than the book value then the difference is provided in the P&L Account as provision for impairment for loss which is nothing but provision for diminution in value of asset. Therefore, AO has rightly made an addition on this account.
3.1 On the other hand the ld. AR Shri Girish Dave has submitted that this is not an impairment but the assessee has sold depreciable asset during the year as per two agreements furnished before the AO. In the normal computation of income the assessee has not claimed depreciation but claimed capital loss under section 50. He has referred to computation of income at page-1 of the paper book and submitted that it is not at all a provision but the asset was discarded and sold during the year and block of asset ceased to exist. The ld. AR has contended that the provision is made only when the asset shown in the balance sheet is over-valued than its real realizable value but in the case of the assessee, the assessee has shifted the office from the leased premises to another premises and the asset in question is nothing but furniture, fixture and fittings which becomes obsolete when assessee changes office premises. The nature of assessee's business is providing telecom services, for which the furniture, fittings and fixtures in the old office cannot be shifted to the new office and therefore, the entire block of asset was discarded and sold as scrap. The ld. Counsel has submitted that in case of retirement of asset the relevant Accounting Standard is AS-10 and as per para- 14 of AS-10 the gain or loss arising on disposal are generally recognized in P&L Statement. Thus, the ld. Counsel has submitted that this is not a provision for 4 ITA No.5798/M/11 diminution in the value of asset and therefore, it does not fall under Explanation to section 115JB.
4. We have considered the rival submissions as well as relevant material on record. We note that during the year under consideration, the assessee has shifted its office from the existing leased premises and consequently the furniture, fixture and fittings in the old office were discarded and disposed off through scrap sale. The difference of opening written down value of these assets and sale realization has been debited to P&L Account under the head depreciation of Rs.6,56,39,269/-. The AO made the addition of this amount by treating the same as provision for diminution in the value of asset while computing book profit under section 115JB. It is pertinent to note that the provision is created on account of diminution in the value of existing asset which is shown in the books of account and particularly in balance sheet. However, in the case of the assessee the assets in question were ceased to be in existence as the same were disposed off as scrap. Once the asset in question ceased to exist and the loss arising on disposal of the depreciated asset is debited to P&L Account then it can not be regarded as a provision, much less, the provision on account of diminution in the value of asset. We find from the record that during the year under consideration the assessee has not shown any asset as on 31/03/2008. Therefore, when the asset is not in existence and disposed off then Accounting Standard-10 will be applied to deal with this case. The relevant provision, i.e..Para-14 of the Accounting Standard-10 reads as under :-
"AS-10 "14. Retirement and Disposals 14.1 An item of fixed asset is eliminated from the financial statements on disposal.
14.2 Items of fixed assets that have been retired from active use and are held for disposal are stated at the lower of their net book value and net realisable value and are shown separately in the financial statements. Any expected loss is recognised immediately in the profit and loss statement.
14.3 In historical cost financial statements, gains or losses arising on disposal are generally recognised in the profit and loss statement.5 ITA No.5798/M/11
14.4 On disposal of a previously revalued item of fixed asset, the difference between net disposal proceeds and the net book value is normally charged or credited to the profit and loss statement except that, to the extent such a loss is related to an increase which was previously recorded as a credit to revaluation reserve and which has not been subsequently reversed or utilized, it is charged directly to that account. The amount standing in revaluation reserve following the retirement or disposal of an asset which relates to that asset may be transferred to general reserve."
4.1 As per para-14.3 the treatment of gain or loss arising on disposal of fixed asset is recognized in the P&L Statement. The assessee has booked this amount in the P&L Account under the head depreciation being difference between the opening written down value and the realized value on sale as scrap. In view of the above facts and circumstances of the case we do not find any reason to interfere with the order of CIT(A) when the amount booked in the P&L Account is not a provision but the actual difference between the written down value and the amount realized on scrap sale.
5. In the result, appeal of the revenue is dismissed.
Order pronounced in the open court on 30/01/ /2015 आदेश क घोषणा खुले यायालय म) *दनांकः 30/01/2015 को क गई ।
Sd/- Sd/- ( Sanjay Arora ) ( Vijay Pal Rao ) लेखा सद य / ACCOUNTANT MEMBER याियक सद य / JUDICIAL MEMBER मुंबई Mumbai; *दनांक Dated 30/01/2015 व.िन.स./ Jv, Sr. PS 6 ITA No.5798/M/11 आदे श क ूितिल प अमे षत/Copy षत of the Order forwarded to : 1. अपीलाथ / The Appellant 2. ू यथ / The Respondent. 3. आयकर आयु (अपील) / The CIT(A)- 4. आयकर आयु / CIT 5. वभागीय ूितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT, Mumbai 6. गाड$ फाईल / Guard file. आदे शानुसार/ सार BY ORDER, सार स या पत ूित //True Copy// उप/सहायक उप सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, अिधकरण मुंबई / ITAT, Mumbai. =