Income Tax Appellate Tribunal - Ahmedabad
West Inn.Lmited, Ahmedabad vs Assessee on 13 July, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "D" BENCH AHMEDABAD
BEFORE SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER,
AND SHRI S. S. GODARA, JUDICIAL MEMBER.
ITA. No.2796/Ahd/11
(Assessment Year:2003-04)
West Inn Limited
C/o Fortune Hotel Landmark,
Usmanpura Char Rasta, Ahmedabad - 380014 Appellant
Vs.
ACIT,
Circle-8, Ahmedabad Respondent
PAN: AAACW3363P
आवेदक क ओर से / By Assessee : Shri S. N. Soparkar, A.R.
राज
व क ओर से / By Revenue : Shri Prasoon Kabra, Sr. D.R.
सन
ु वाई क तार ख/Date of Hearing : 01.07.2016
घोषणा क तार ख/Date of
Pronouncement : 13 .07.2016
ORDER
PER S. S. GODARA, JUDICIAL MEMBER
This assessee's appeal for assessment year 2003-04, arises from order of the CIT(A) - XIV, Ahmedabad, dated 26.09.2011 passed in proceedings u/s.143(3) r.w.s. 147 of the Income Tax Act, 1961, hereinafter 'the Act'.
2. The assessee raises following substantive grounds in the instant appeal.
"1. Ld. CIT(A) erred in law and on facts in confirming action of AO in reopening of assessment u/s 147 of the Act beyond period of four years ITA No.2796/Ahd/2011 (West Inn Ltd. vs. ACIT) A.Y. 2003-04 -2- from the end of the assessment year under consideration. Ld. CIT (A) failed to appreciate the fact that reopening is without jurisdiction and not permissible either in law or on facts when all the material facts fully and truly disclosed at the time of original assessment were considered in passing order u/s 143(3) of the Act. The present proceedings, therefore ought to be held without jurisdiction and void ab initio.
2. Ld. CIT (A) erred in law and on facts in not quashing re assessment proceedings undertaken by AO to review the assessment made u/s 143 (3) of the Act in absence of any new material or information brought on record or pointing out any failure on part of the appellant to fully and truly disclose all material facts at the time of original assessment.
3 Ld. CIT (A) erred in law and on facts in confirming addition made by Assessing Officer of Rs. 4,20,00,063/- in computing Book Profits u/s 115JB of the Act of depreciation written back due to change in method from "written down method" to "straight line method". Ld. CIT (A) ought to have appreciated the controversy independently by deleting the addition made by AO."
3. This assessee company is in hotel business. It filed its return on 05.11.2003 stating nil income after setting off carried forward unabsorbed depreciation of Rs.85,66,650/-. The Assessing Officer framed a regular assessment on 26.03.2006 assessing nil income for the reason that even though he disallowed a sum of Rs.35,63,346/-, the net result thereof was only nil assessable income in view of the above stated brought forwarded depreciation. It transpires that the Assessing Officer thereafter formed reasons to believe that assessee's income liable to be assessed had escaped assessment. He accordingly issued Section 148 notice for the following reasons:
"1. Section 115JB(2)of the Act envisages that "every assessee, being a company shall for the purpose of this section, prepare its profit and loss account for the relevant provision in accordance with provisions of parts 2 and 3 of schedule 6 to the companies act 1956 and as per accounting standards.
The assessee company filed its return of income for 5/11/2003 declaring total income of Rs.Nil after setting of an unabsorbed depreciation of Rs.8566650/-. The assessee paid tax u/s. 115JB on book profit of Rs.10885487/-. The assessment was completed u/s. 143(3) on 26/3/2006 after making addition of Rs.3563346.
Scrutiny of records of assessee company revealed that as per auditor's report (note to Account) the company had changed its method of ITA No.2796/Ahd/2011 (West Inn Ltd. vs. ACIT) A.Y. 2003-04 -3- depreciation from WDV to straight line method and consequently profit of company had increased by Rs.42000063. The assessee company while preparing its computation of income had reduced an amount of Rs.42000063 from book profit on account of depreciation written back. This adjustment was irregular as it did not fall under any of the clause mentioned in section 115JB.
This observations is supportably the following judicial decisions :
(i) The judgments of Apex court in case of Apollo Tyres vs. CIT (255 ITR 273).
(ii) The judgement of Karnataka high Court in case of Varia India Ltd. Vs. CIT 242 ITR 678.
(iii) Further as per accounting standard-6 & 10 the company can take extra profit on change of method to reserve or may credit it to book profit. Once amount has been credited to P&L A/c., the same cannot be reduced from book profit as this adjustment is not permissible under the provisions of section 115JB of the Act.
Once this amount has been credited to P&L A/c., then only those adjustments which are specified in the section are permissible. The reduction of book profit by depreciation written back is not an permissible adjustment.
Thus, there was under assessment of book profit of Rs.42000063.
2. Section 115JB(2) of the Act envisages that "every assessee, being a company shall for the purpose of this section, prepare its profit and loss account for the relevant provision in accordance with provisions of parts 2 anc. 3 of schedule 6 to the companies act 1956 and per accounting standards.
The assessee company filed its return of income for on 5/11/2033 declaring total income of Rs. Nil after setting of an unobserved depreciation of Rs.8566650/-. The assessee paid tax u/s. 115JB on book profit of Rs.10885487/-. The assessment was completed u/s.143(3) on 26/3/2006.
Scrutiny of records of assessee company revealed that it is deferred tax asset of Rs.13631000/- as per notes on account (9). This amount was credited to P&L A/c. a/c. as per accounting standard- AS -22. However, while calculating the book profit for the purpose of sec. 115JB, this amount was excluded and book profit was reduced by amount of Rs. 1363 1000. This adjustment was irregular as assessee company was mandatorily required to debit or credit deferred tax liability/asset as per the requirement of AS-22. Further the Apex court in the case of Apollo Tyres (255 ITR 273) SC has held that no adjustments in book profit is admissible except those provided in the section itself. The debit or credit of deferred tax liability/assessee is mandatory as per accounting standards and this adjustment is not permissible under the provisions of section 155 JB.
(1) Kolkata bench in case of ACIT vs. Balrampur Chinis Mills Ltd. [2007] 14 SOT 372 and ITA No.2796/Ahd/2011 (West Inn Ltd. vs. ACIT) A.Y. 2003-04 -4-
"Therefore, deferred tax charge is not covered by any of the clauses of the Explanation to section 115JB(2) and, therefore, such deferred tax charge is not required to be added back in the computation of book profit for the purpose of section 115JB. Therefore, the Commissioner (Appeals) was justified in deleting the addition made by the Assessing Officer [Para 27] ".
[2] Jaipur Tribunal in case of Maharaja Sh. Umed Mills Ltd, vs. ACIT [200] 17 SOT 72 "deferred tax liability is neither income tax "paid" or "payable" nor a "provision" again same, but it is nevertheless and certain liability duly certified as such in term of legally incumbent accounting standards under Companies Act.
Due to irregular deduction of deferred tax asset from book profit resulted into underassessment of Rs.13631000/-
3. The assessee company filed its return of income for on 5/11/2033 declaring total income of Rs. Nil after setting of unobserved depreciation of Rs.8566650/-. The assessee paid tax under section 115JB on book profit of Rs.10885487/-. The assessment as completed under section 143(3) on 20-03-2006 after making addition of Rs.3563346/-.
It was revealed from record that as per column 17(e) of 3CD, assessee company paid an amount of Rs.36455/- on a/c. of c-form penalty. This amount was required to be added back to the total income in view of explanation u/s.37 of the Act. Further as per column -17(g) of 3CD, assessee company paid Rs.430000 on account of public relation in cash. As per provision of section 40A(3). An amount of Rs.86000 (20% of 430000) was required to be added back to the total income. However, only an amount of Rs.8600 was added back as per computation of income resulting into underassessment of income of Rs.77400 (86000- 8600). Thus, there was total underassessment of income of Rs.113855.
In view of the above facts and circumstance of the case, I have reason believe that income chargeable to tax escaped assessment for the A.Y. 2003-04."
This followed the impugned re-assessment being framed on 21.12.2010. The Assessing Officer assessed assessee's book profit u/s.115JB of the Act in the tune of Rs.6,65,16,550/-.
4. The assessee preferred appeal. It challenged legality of the impugned reopening as well as correctness of the 115JB book profits computation on merits. The CIT(A) rejects its former legal plea as under:
"2.3 Decision:ITA No.2796/Ahd/2011 (West Inn Ltd. vs. ACIT)
A.Y. 2003-04 -5- I have carefully perused the assessment order and the submissions given by the appellant. I have also examined the copy of annual report, Form No.29B and details regarding computation of book profit for the purpose of 115JB of the Income Tax Act (Annexure-A) filed with the return of income by the appellant. A perusal of the computation of book profit show that the appellant has himself not calculated the book profit correctly as mentioned in Point No.12 of Annexure-A. The accounting standards prescribed by the ICAI are very clear and it prescribes that in case of change of method of providing for depreciation, the deficiency / surplus in depreciation in respect of past years should be charged /credited in the statement of profit and loss. The appellant in spite of following the accounting standards did not follow the same while working out the book profit of the company. Therefore, this is a mistake attributable to the appellant and he has not disclosed fully and truly all material facts necessary for determining the book profit for the purpose of section 115JB of the I.T. Act. The report in Form 29B dated 25/10/2004 as prescribed by Rule 40B of the I. T. Rules filed by the appellant with the return certifies that the book profit has been computed in accordance with provisions of section 115JB. The computation itself is incorrect and is not in accordance with the provisions of the Act.
Further, Explanation -1 to section 147 reads as under:
"Production before A. O. of account books or other evidence from which material evidence could-with due diligence have been discovered by the A. O. will not necessarily amount to disclosure within the meaning of foregoing provision."
The case of the appellant is squarely covered by the above explanation. The details regarding change of method of charging depreciation were given by the appellant in the audited accounts and he also mentioned that in Annexure - A showing the computation of book profit, but he did not correctly calculate the book profit by taking into account the effect of change of method of charging the depreciation. Therefore, the appellant failed to disclose fully and truly all material facts necessary for computation of book profit and since he filed an incorrect calculation, it would not amount to disclosure within the meaning of first proviso to the section 147.
It is also worth nothing that at the time of making the original assessment, the A.O. did not make any enquiry about the calculation of book profit shown by the appellant in the return and he accepted the figures given by the appellant in the return. Therefore, the claim of the appellant that it is a change of opinion on the part of the A.O. is incorrect.
The appellant has also mentioned the judgment of Hon'ble Supreme Court in the case of Kelvinator of India Limited and the Hon'ble High Court of Guajrat in the case of Garden Silk Mills. I have carefully perused these judgments. Since the facts of the present case is different from the facts of the above cited cases, as has been demonstrated in the preceding paragraphs, the ratio of these judgments will not be applicable.
ITA No.2796/Ahd/2011 (West Inn Ltd. vs. ACIT)A.Y. 2003-04 -6- Considering all the above facts and circumstances, there is no irregularity in reopening the assessment by the A. O. The ground of appeal is, therefore, dismissed.
5. We have heard rival submissions. Learned counsel representing assessee submits that the Assessing Officer has reopened a regular assessment framed in his case beyond four years from the end of the impugned assessment year. The Revenue is fair enough in not disputing this factual position. Its only case is that the Assessing Officer has rightly resorted to the impugned reopening as per the reasons extracted in preceding paragraph. Shri Prasoon Kabra, learned Sr. Departmental Representative, strongly supports Assessing Officer's action. A perusal of the reopening reasons as reproduced hereinabove makes it clear that there is not even a single word uttered against the assessee quoting its failure in disclosing true and correct particulars as per the first provision of Section 147 of the Act. The factual position is just the opposite. The Assessing Officer rather forms his opinion on the basis of scrutiny of record/records only that is already available in the case file. We notice that the hon'ble apex court in (1977) 106 ITR page 1(SC) Parashuram Pottery Works Co. Ltd. vs. ITO dealt with the similar case to hold that an assessee is not to be held responsible for the ITO's remissness in not applying statutory provisions correctly and it could not be said that excess depreciation was allowed resulting in escapement of assessable income on account of such an omission and failure to disclose fully and truly all material facts. Hon'ble jurisdictional high court in its recent decisions (2013) 359 ITR 447 (Guj.) Kanak Fabrics vs. ITO and (2014) 360 ITR 496 (Guj.) Gujarat Lease Financing Ltd. vs. DCIT quashes identical reopening beyond four years from the end of the relevant assessment year for the reason that the assessing authorities had not uttered a single word attributing assessee's failure in disclosing fully and truly all facts. We reiterate that this is not even the Assessing Officer's case that the assessee ITA No.2796/Ahd/2011 (West Inn Ltd. vs. ACIT) A.Y. 2003-04 -7- has not disclosed fully and truly all the relevant facts since he forms reasons of reopening only on the basis of material already available on record. We accept assessee's legal ground challenging validity of the impugned reopening in these facts and law. His subsequent grounds on merit are rendered academic. The impugned reopening stands quashed.
6. This assessee's appeal is allowed.
Pronounced in the open Court on this the 13th day of July, 2016.
Sd/- Sd/-
(ANIL CHATURVEDI) (S. S. GODARA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad: Dated 13/07/2016
True Copy
S.K.SINHA
आदे श क त ल
प अ े
षत / Copy of Order Forwarded to:-
1. राज
व / Revenue
2. आवेदक / Assessee
3. संबं धत आयकर आय!
ु त / Concerned CIT
4. आयकर आयु!त- अपील / CIT (A)
5. )वभागीय ,-त-न ध, आयकर अपील य अ धकरण, अहमदाबाद /
DR, ITAT, Ahmedabad
6. गाड3 फाइल / Guard file.
By order/आदे श से,
उप/सहायक पंजीकार
आयकर अपील य अ धकरण, अहमदाबाद ।