Income Tax Appellate Tribunal - Hyderabad
Suryalakshmi Cotton Mills Ltd., ... vs Dcit, Circle-3(2), Hyd, Hyderabad on 21 December, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH "B", HYDERABAD
BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER
AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER
ITA No. 1299/Hyd/2015
Assessment Year: 2008-09
M/s Suryalakshmi Cotton vs. DCIT, Circle-3(2).
Mills Ltd., Secunderabad Hyderabad
PAN - AAECS1921R
(Appellant) (Respondent)
ITA No. 1385/Hyd/2015
Assessment Year: 2008-09
DCIT, Circle-3(2). vs. Suryalakshmi Cotton Mills
Hyderabad Ltd., Secunderabad
PAN - AAECS1921R
(Appellant) (Respondent)
Assessee by : Shri V. Siva Kumar
Revenue by : Smt G. Aparna Rao
Date of hearing : 15-12-2016
Date of pronouncement : 21-12-2016
ORDER
PER B. RAMAKOTAIAH, A.M.:
These are cross appeals by Assessee and Revenue against the order of the CIT(A)-3, Hyderabad, dated 04-09-2014.
ITA No. 1299/Hyd/20152. This is an Assessee's appeal in which Assessee is contesting the adjustment made to the prior period expenses while computing the book profit u/s 115JB of the IT Act.
21299 & 1385/Hyd/2016 M/s. Surya Lakshmi Cotton Mills Ltd.
3. Briefly stated, Assessee is a Public Ltd., Company, engaged in the business of manufacture and sale of Cotton/blended yarn and denim cloth. For the A.Y. 2008-09, the Assessee filed its Return of income on 30-09-08 declaring loss of Rs. 4,05,25,130/- under normal provisions of the Act and Rs. 1,19,47,050/- under the provision of section 115JB of the Act. The Assessment was completed u/s 143(3) of the Act, determining income at 5,42,40,381/- under the normal provisions and Rs. 1,46,50,347/- u/s 115JB of the Act. The adjustments made was of prior period expenditure to the extent of Rs.27,03,302/- under the provisions of Sec.115JB. Assessee started the computation from the net profit and reduced dividend income, as per the provision and offered book profits of Rs. 1,19,47,050/-. AO without any discussion in the order made prior period adjustment of Rs. 27,03,302/- and revised book profit was determined at Rs. 1,46,50,347/-. Assessee contested the same before the Ld. CIT(A) submitting that the prior period expenses debited to Profit and Loss account is not one of the items to be added back as specified in the explanation to section 115JB of the Act and hence, there is no justification in adding back the amount as was done by the A.O. It was further submitted that in view of the decision of the Hon'ble Supreme Court in the case of Apollo Tyres Ltd., Vs CIT to ITA Nos. 225 ITR 273, no adjustment can be made to the profit as per Profit and Loss account. other than those specified in explanation to section 115JB. Ld. CIT(A) however, rejected the contentions by stating as under:
" For the purpose of 115JB the book profit to be considered is net profit as shown in P&L a/c of relevant previous year as increased by / reduced by certain items specifically mentioned therein.3
1299 & 1385/Hyd/2016 M/s. Surya Lakshmi Cotton Mills Ltd.
Therefore, the Assessing Officer is correct in adopting net profit at Rs. 1,46,50,347/-. Therefore, this ground of appeal is dismissed."
4. After considering the rival contentions, we are of the opinion that CIT(A) is not justified in confirming the action of the AO. First of all, Ld. CIT(A) has not discussed whether the prior period expenditure claimed in the profit and loss account can be adjusted while computing the income u/s 115JB of the Act. This is not one of the item which is to be considered as per explanation to section 115JB of the Act. As stated earlier neither the A.O discussed in the order while making adjustment nor the CIT(A) considered the submissions of the Assessee in detail. While rejecting the ground, the CIT(A) gave very brief reason, which is not as per the provisions. We are of the opinion that the action of the A.O. and CIT(A), are not correct as the provisions of section 115JB of the Act do not allow such an adjustment. The Hon'ble High Court of Madras in the case of Tamil Nadu Cements Corporation Ltd., Vs JCIT Chennai, 23 taxman.com, 145 (Madras), has considered similar issue and decided that an Assessee is eligible to adjust prior period expenses while computing book profit u/s 115JA, irrespective of as to whether such prior period expenses are shown separately or not. In the said case, the Hon'ble Madras High Court has held as under:
"The Supreme Court has in the decision of Apollo Tyres Ltd. v. CIT, [2002J 2551TR 273/122 Taxman 962 pointed out that sub-section (1A) of section 115J does not empower the Assessing Officer to embark upon a fresh inquiry with regard to the entries made in the books of account of the company. The said sub-section mandates the company to maintain its account in accordance with the requirements of the Companies Act for the limited purpose to find out whether the computation is done in accordance with the provisions of the Companies Act. The assessing authority has a limited jurisdiction to 4 1299 & 1385/Hyd/2016 M/s. Surya Lakshmi Cotton Mills Ltd.
satisfy himself that the accounts are maintained in accordance with the provisions of the Companies Act. Beyond that, the assessing authority has no jurisdiction to go further into accounts. [Para 9] The Delhi High Court in the case of CIT v. Khaitan Chemicals and Fertilizers Ltd. [2008] 307 ITR 150/ 175 Taxman 195 while dealing with facts similar to instant case had pointed to the Accounting Standard(AS-5) and stated that Accounting Standards clearly stipulates that prior period items are income or expenses which arise 'in the current period' as a result of errors or omissions in the preparation of the financial statement of one or more prior periods. Referring to paragraph 7 of AS-5, the Delhi High Court pointed out that the net profit or loss comprise of extraordinary items and the same should be disclosed on the face of the statement of profit and loss. [Para 12] Prior period items are also enumerated in paragraphs 15 and 19 of Accounting Standard. Dealing with the Accounting Standard-5, the Delhi High Court pointed out that income or expenses relating to prior period items, merit to be included in the determination of net profit or loss. It reasoned out that both the prior period items and extraordinary items are to be included in the determination of the net profit or loss and as per paragraph 15 of the AS-5, that prior period items should be separately disclosed in the statement of profit and loss. [Para 13 ] Thus, the Delhi High Court held that whether the prior period expenses were shown separately or not, the assessee would nevertheless be entitled to have the adjustment of the prior period expenses in the matter of computing the net profit of the assessee. Thus on mere fact that the assessee had shown its prior period expenses in the extraordinary items separately, did not mean the net profit was arrived at de hors these items. The Delhi High Court further pointed out that the assessee had not claimed any deduction with the net profit on the basis of any clauses given in the Explanation to section 115JA(2). Consequently the question was answered in favour of the assessee. The view expressed by the Delhi High Court is agreed with and is applied to the instant case. [Para 14] Thus going by the decision of the Supreme Court in Apollo Tyres Ltd.'s case(supra) and applying the facts thus found that 5 1299 & 1385/Hyd/2016 M/s. Surya Lakshmi Cotton Mills Ltd.
in computing the net profit the assessee had adjusted prior period expenses, rightly, the assessee offered the book profit for assessment. No exception could be taken to the course adopted by the assessee in adjusting the prior period expenses in computing the net profit. In the light of the law declared by the Supreme Court as to the jurisdiction of the Assessing Officer in respect of the matter of MAT assessment, it is to be held that once the Officer accepts the book profit, he cannot travel beyond what had been disclosed in the book profit. In the matter of granting adjustment to the prior period expenses, applying the decision of the Delhi High Court in the Khaitan Chemical & Fertilizers Ltd.'s case (supra), the order of the Tribunal is to be set aside and the appeal is to be allowed. The substantial question of law is decided infavour of the assessee. [Para 16]"
4.1 As the provisions of section 115JA are paripassu with the provisions of section 115JB, respectfully following the principles laid down by the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. Vs CIT), by the Madras High Court in the case of Tamil Nadu Cements Corporation Ltd., Vs JCIT Chennai, (supra), we have no hesitation in deleting adjustment so made by the A.O. The ground of the Assessee is accordingly allowed.
5. In the result appeal of the Assessee is allowed.
ITA No. 1385/HYD/20156. This is a Revenue appeal against the interest subsidy of Rs.9,47,65,511/-, added by the A.O. but deleted by the Ld. CIT(A). The grounds raised by the Revenue are as under:
"1. The order of the Assessing Officer is erroneous and contrary to law and facts of the case.
2. a) The Assessing Officer is not justified in considering (9,47,65,511 (interest subsidy of current year and earlier year) as income of the appellant for the A Y 2008-09 ignoring the submissions of the appellant.6
1299 & 1385/Hyd/2016 M/s. Surya Lakshmi Cotton Mills Ltd.
b) The Assessing Officer ought to have seen that the interest subsidy of (9,47,65,511 was reduced from the interest expenditure either in the earlier assessment year or in the AY 2008-09 as explained in the statement of facts and hence there is no justification in making addition towards interest subsidy while computing the income for the AY 2008-09.
3. a) The Assessing Officer grossly erred in determining the book profits u/s 115JB at n,46,50,347 by adding back prior period expenses of (27,03,302 debited to profit and loss account. The Assessing Officer failed to see that the net profit as per profit and loss account for the purpose of computing book profits is (1,20,49,145 but not (1,47,52,447 i. e. before considering the prior period expenses debited to profit and loss account.
b) The Assessing Officer ought to have seen that in view of the decision of the Hon'ble Supreme Court in the case of Apollo Tyres Ltd v. CIT 255 ITR 273 no other adjustments can be made to the profit as per profit and loss account other than those specified in explanation to sec.115JB and therefore not considering prior period adjustments for deduction for deduction from the profit as per profit and loss account to arrive at book profit is not correct.
4. For all of the above and such other grounds that may be raised at the time of hearing."
7. Briefly stated, while completing the assessment, the A.O. has noticed that Assessee has accrued interest as on 01-04-2007, to an extent of Rs. 6,53,83,545/-, out of which Assessee received of R.s 4,46,09,949/- during the assessment year 2008-09, leaving the balance to be brought to tax of Rs. 2,07,73,596/-. It is further, observed that the interest accrued during the F.Y. was 7,39,91,915/-, which was not offered to tax. Thus he made an addition of Rs. 9,47,65,519/-.
8. Before the Ld. CIT(A), Assessee made detailed submissions on facts. Ld CIT(A) has considered the same in detail and deleted the addition by stating as under:
"5.2 During the course of appeal proceedings, the appellant submitted that an amount of ~ 65,383,545 was already brought to tax in AY 2007-08 as under:7
1299 & 1385/Hyd/2016 M/s. Surya Lakshmi Cotton Mills Ltd.
a. Interest subsidy receivable upto 31.03.2006 12,535,378 b. Interest subsidy accrued and offered as income in AY 2007-08 75,164,325 c. Interest subsidy received during FY 2006-07 22,316,158 d. Interest subsidy received upto 31.03.2007 65,383,545 a+(b-c) For FY 2006-07 (AY 2007-08) the finance charges debited to P&L etc were Rs. 66,931,462 the details of which are as under:
Interest payable to banks and institutions 171,570,392
Less: Interest subsidy offered to tax
in AY 2007-08 75,164,325
Net finance charges 96,406,067
Less: Interest transferred to capital ale 29,474,605
Net finance charges debited to P&L ale 66,931,462
As evident for annual report of assessee for FY 2006-07 and 2007- 08 the finance charges debited under the head interest on term loan was Rs. 66,931,462. Therefore it is evident that the interest subsidy of Rs. 65,383,545 was already offered to tax in AY 2007- 08 itself.
5.3 Similarly for AY 2008-09 the interest accrued of Rs.
73,991,915 were already considered by the assessee as under:
Interest payable to finance institutions 156,806,186 Less: Interest subsidy received during year 73,991,915 Net interest debited to P&L ale 82,814,272 The figures mentioned above, matches with the figures mentioned in annual report of the assessee for FY 2006-07 and 2007-08. Therefore the Assessing Officer brought the amounts to tax without calling for I verifying the details whether the interest subsidy was offered to tax or not. Therefore the addition made by the Assessing Officer is deleted."
9. Revenue is contesting that Ld. CIT(A) admitted the additional evidence. As seen from the order of the CIT(A), there is 8 1299 & 1385/Hyd/2016 M/s. Surya Lakshmi Cotton Mills Ltd.
no additional evidence filed by the Assessee at all. In fact, all those computations made by the Assessee is from the balance sheet of the Assessee itself. In fact Ld. Counsel has pointed out that these details were completely available in the statement of subsidy for each assessment year placed before the authorities but A.O has not examined/considered the same in correct perspective. On examination of the documents placed in the schedules of the Balance sheet in the paper book placed by the Assessee, we are of the opinion that no additional evidence has been filed before the Ld. CIT(A), therefore, the grounds raised by the Revenue does not have any merit. Even otherwise also, there is no need to make any addition as the Assessee is correctly accounting the interest accrued in respective assessment years. Assessee being a Public Limited company filed its details by way of schedules to the accounts. In view of that, we would not find any merit in the Revenue contentions, accordingly the grounds raised by Revenue are dismissed.
10. In the result, Revenue appeal is dismissed.
11. To sum up, Assessee's appeal is allowed and the Revenue appeal is dismissed.
Pronounced in the open court on 21st December 2016.
Sd/- Sd/-
(P. MADHAVI DEVI) (B. RAMAKOTAIAH)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, Dated: 21st December, 2016
KRK
9
1299 & 1385/Hyd/2016
M/s. Surya Lakshmi Cotton Mills Ltd.
Copy to:-
1 M/s Suryalakshmi cotton Mills Ltd. 105, 6th floor, Surya towers S.P. Road, Secunderabad - 500 003.
2) DCIT, Circle - 3(2) Hyderabad.
3) CIT(A)-3, Hyderabad.
4 Pr. CIT-3, Hyderabad.
5) The Departmental Representative, I.T.A.T., Hyderabad.
6) Guard File
S.No. Description Date Intls
ds1. Draft dictated on 15-12-16 PS
2. Draft placed before author 19-12-16 PS
Draft proposed & placed
3 before the second Member
4 Draft discussed/approved by
second Member
5 Approved Draft comes to the
Sr.P.S./PS
6. Kept for pronouncement on
7. File sent to the Bench Clerk
8 Date on which file goes to the
Head Clerk
9 Date of Dispatch of order