Income Tax Appellate Tribunal - Pune
Precision Volvetrain P.Ltd, Solapur vs Department Of Income Tax on 10 November, 2015
आयकर अपील�य अ�धकरण पुणे �यायपीठ "बी" पुणे म�
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "B", PUNE
सु�ी सुषमा चावला, �या�यक सद�य एवं �ी �द�प कुमार के�डया, लेखा सद�य के सम�
BEFORE MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA, AM
आयकर अपील सं. / ITA No. 70/PN/2012
�नधा�रण वष� / Assessment Year : 2007-08
Precision Camshafts Limited
(earlier known as Precision Valvetrain P. Ltd.)
E 102/103, MIDC, Akkalkot Road,
Solapur .... अपीलाथ�/Appellant
PAN: AABCC1368H
Vs.
The Asst. Commissioner of Income Tax,
Circle - 1, Solapur .... ��यथ� / Respondent
आयकर अपील सं. / ITA No. 72/PN/2012
�नधा�रण वष� / Assessment Year : 2007-08
The Asst. Commissioner of Income Tax,
Circle - 1, Solapur .... अपीलाथ�/Appellant
Vs.
Precision Camshafts Limited
(earlier known as Precision Valvetrain P. Ltd.)
E 102/103, MIDC, Akkalkot Road,
Solapur .... ��यथ� / Respondent
PAN: AABCC1368H
Assessee by : Shri Nikhil Pathak
Department by : Shri B.C. Malakar
सुनवाई क� तार�ख / घोषणा क� तार�ख /
Date of Hearing : 03.11.2015 Date of Pronouncement: 10.11.2015
2
ITA No. 70/PN/2012
ITA No.72/PN/2012
Precision Camshafts Limited
(earlier known as Precision Valvetrain P. Ltd.)
आदे श / ORDER
PER SUSHMA CHOWLA, JM:
The cross-appeals filed by the assessee and the Revenue are against the order of CIT(A)-III, Pune, dated 25.01.2011 relating to assessment year 2007-08 against order passed under section 143(3) of the Income Tax Act, 1961 (in short 'the Act').
2. The cross-appeals filed by the assessee and the Revenue were heard together and are being disposed of by this consolidated order for the sake of convenience.
3. The assessee in ITA No.70/PN/2012 has raised the following grounds of appeal :-
1. The learned CIT(A) erred on facts and in law in upholding A.O.'s action of reducing carried forward losses of Rs.1,79,31,080/- while computing 'profits of the eligible undertaking' u/s10B of the Act. He ought to have appreciated that the deduction u/s 10B has to be computed before setting off any carried forward losses.
2. The learned CIT(A) erred on facts and in law in upholding A.O.'s action of adding provision for outward freight of Rs. 2,65,57,598/- to the 'book profits' u/s 115JB as 'unascertained liability'.
3. Without prejudice to ground no.2 above, the learned CIT(A) ought to have appreciated that the said provision for outward freight admittedly related to the 'eligible undertaking' u/s 10B, thereby increasing the deduction u/s 10B and ought therefore have it excluded the same from the computation of 'book profits' in terms of clause (ii) to Explanation 1 to sec.115JB.
4. The appellant craves leave to add, alter, delete or substitute all or any of the above grounds of appeal.
4. The Revenue in ITA No.7 2/PN/2012 has raised the following grounds of appeal :-
1) On the facts and circumstances of the case and in law, the Ld .CIT(A)-
Ill, Pune has erred in deleting the addition of Rs.1,34,49,817/- made by the AO on account of disallowance u/s.40(a)(ia) of the Income Ta x Act, 1961 and considered as business income which is eligible for deduction u/s.10B of the Income Ta x Act, 1961.
3ITA No. 70/PN/2012 ITA No.72/PN/2012
Precision Camshafts Limited (earlier known as Precision Valvetrain P. Ltd.)
2) On the facts and circumstances of the case, the Ld.CIT(A)-IIl, Pune has erred in allowing the exemption u/s.10B, an amount of disallowance of Rs.1,34,49,817/- in respect of consulting fees for the A.Y.2007 -08 though the assessee has claimed the deduction for the same for the A.Y.2008 -09 on payment basis as per section 200 of the I.T.Act, 1961.
3) On the facts and in the circumstances of the case, the Ld.CIT(A)-IlI, Pune ought to have upheld the order of the A.O.
4) It is, therefore, prayed that the order of the CIT(A)- Ill, Pune may be set aside and that of the AO may be restored to the above extent.
5. The only issue raised in the appeal filed by the Revenue is against the computation of deduction under section 10B of the Act on the enhanced profits by way of disallowance of an expenditure, in view of non-deduction of tax at source under section 40(a)(ia) of the Act.
6. Briefly, in the facts of the present case, the assessee was 100% Export Oriented Unit, engaged in the business of manufacturing of camshafts required in automobile industry. For the year under consideration, the assessee had furnished return of income claiming deduction under section 10B of the Act. The assessee in the computation of total income filed along with return of income, had added back sum of Rs.1,34,49,817/- to the net profit being amount disallowable under section 40(a)(ia) of the Act on account of non-deduction of tax at source and the deduction under section 10B of the Act was claimed on the enhanced income. The Assessing Officer was of the view that the said disallowance does not form part of the net profit and the same should have been considered for computing eligible profit entitled to the deduction under section 10B of the Act.
7. The CIT(A) allowed the claim of assessee vis-à-vis deduction under section 10B of the Act on the enhanced income, in the absence of any provision under section 10B of the Act, wherein it has not been provided that the income enhanced after statutory disallowance under section 40(a)(ia) of the 4 ITA No. 70/PN/2012 ITA No.72/PN/2012 Precision Camshafts Limited (earlier known as Precision Valvetrain P. Ltd.) Act cannot be excluded from the business profits of the eligible undertaking while computing deduction allowable under section 10B of the Act. Reference was made to the proviso under section 92C(4) of the Act, wherein it has been clearly laid down that no deduction under section 10A/10AA/10B or under Chapter VIA, shall be allowed in respect of amount of income for which the total income of the assessee is enhanced after computation of income under the section. Further, reference was made to the decision of Hon'ble Bombay High Court in CIT Vs. Gem Plus Jewellery India Ltd. reported in 330 ITR 175 (Bom).
8. The learned Departmental Representative for the Revenue fairly placed reliance on the order of Assessing Officer.
9. However, the learned Authorized Represent ative for the assessee placed reliance on the CIT(A).
10. We find that the issue raised in the present appeal is in relation to the claim of deduction under section 10B of the Act on enhanced profits, which have been increased due to the disallowance made under section 40(a)(ia) of the Act. The said disallowance was made by the assessee suo motu in the return of income itself for the reason that the tax deductable on the said expenditure was not deposited within prescribed period and hence, the expenditure was not allowable under section 40(a)(ia) of the Act. Thereafter, in the said return of income itself, the assessee had claimed deduction under section 10B of the Act on the enhanced eligible profits. The case of the Assessing Officer was that such a disallowance, for which the profits of the business have increased, could not be considered while computing the deduction under section 10B of the Act. However, the CIT(A) allowed the claim of the assessee in turn, relying on the ratio laid down by the Hon'ble Bombay 5 ITA No. 70/PN/2012 ITA No.72/PN/2012 Precision Camshafts Limited (earlier known as Precision Valvetrain P. Ltd.) High Court in CIT Vs. Gem Plus Jewellery India Ltd. (supra). The Hon'ble Bombay High Court held as under:
"All profits of the unit of the assessee have been derived from manufacturing activity. The salaries paid by the assessee, it has not been disputed, related to the manufacturing activity. The disallowance of the provident fund / ESIC payments has been made because of the statutory provisions - section 43B in the case of the employer's contribution and section 36(v) read with section 2(24)(x) in the case of the employee's contribution which has been deemed to be the income of the assessee. The plain consequence of the disallowance and the add back that has been made by the Assessing Officer is an increase in the business profits of the assessee. The contention of the revenue that in computing the deduction under section10A the addition made on account of the disallowance of the provident fund / ESIC payments ought to be ignored cannot be accepted. No statutory provision to that effect having been made, the plain consequence of the disallowance made by the Assessing Officer must follow."
11. Further as referred by the CIT(A), there is a provision by way of proviso under section 92C(4) of the Act that in case any addition is made on account of transfer pricing adjustment, no deduction under section 10A/10AA/10B of the Act or under Chapter VIA shall be allowed in respect of such amount of income by which the total income of the assessee is enhanced. However, there is no similar provision in respect of the disallowance made under section 40(a)(ia) of the Act. In the absence of specific provision of the Act, the income enhanced after the statutory disallowance under section 40(a)(ia) of the Act is to be considered as the eligible profits of the undertaking while computing deduction under section 10B of the Act. Upholding the order of CIT(A), we dismiss the grounds of appeal raised by the Revenue.
12. Now, coming to the appeal of the assessee. The learned Authorized Representative for the assessee pointed out that it has filed additional grounds of appeal which read as under:-
1] The learned CIT(A) erred in holding that the deduction u/s 10B is to be allowed only after set off of the brought forward losses and unabsorbed depreciation relating to the earlier years.
2] The learned CIT(A) erred in not appreciating that the deduction u/s 10B was to be allowed while computing the profits and gains of the undertaking and the unabsorbed losses and depreciation were to be set off only against the resultant profits and gains of the business, if any, after allowing deduction u/s 10B.6 ITA No. 70/PN/2012 ITA No.72/PN/2012
Precision Camshafts Limited (earlier known as Precision Valvetrain P. Ltd.) 3] The assessee submits that the action of the Id A.O. in adding back the provision made on account of outward freight amounting to Rs.2,65,57,598/- while computing the book profit amounts to double addition since the assessee itself had disallowed the said provision while computing the book profits u/s section 115JB in the revised Form 29B submitted to the Id A.O. and hence, the addition made by the Id A.O. amounts to double addition which should be deleted.
13. The perusal of the additional grounds of appeal reflect that the issue raised vide ground of appeal No.1, both in the original and the amended ground of appeal is identical i.e. the claim of deduction under section 10B of the Act to be allowed before set off of brought forward losses and unabsorbed depreciation relating to the earlier years. The learned Authorized Representative for the assessee at the outset pointed out that the issue in the present appeal is squarely covered by the decision of Pune Bench of Tribunal in M/s. Vishay Components India Pvt. Ltd. Vs. Addl.CIT & Anr. in ITA Nos.551/PN/2014 and 736/PN/2014, relating to assessment year 2005-06, vide order dated 08.10.2015.
14. The learned Departmental Representative for the Revenue on the other hand, placed reliance on the order of CIT(A).
15. We have heard the rival contentions and perused the record. The assessee was a 100% Export Oriented Unit and had claimed deduction under section 10B of the Act for the year under consideration on account of export sales made by it. The computation of income filed, copy of which is placed at pages 21 to 24 of the Paper Book reflects that the assessee had computed the eligible profits from the business and had claimed deduction under section 10B of the Act at Rs.5,22,96,716/-. Thereafter, the balance profits of the year i.e. Rs.1,17,68,716/- was adjusted against the brought forward losses of the earlier years. The details of the brought forward losses, unabsorbed depreciation and its adjustment was enlisted on pages 22 and 23 of the Paper Book itself as part 7 ITA No. 70/PN/2012 ITA No.72/PN/2012 Precision Camshafts Limited (earlier known as Precision Valvetrain P. Ltd.) of the computation of income itself. The Assessing Officer in this regard, was of the view that before allowing the deduction under section 10B of the Act, the brought forward unabsorbed depreciation is to be adjusted and only on the balance income, if any, the deduction under section 10B of the Act is to be allowed. The CIT(A) confirmed the action of the Assessing Officer and in view thereof, reduced carried forward losses of Rs.1,79,31,080/- while computing the profits of the eligible undertaking under section 10B of the Act.
16. We find that identical issue of sequences of allowing the benefit of deduction under section 10B of the Act and the adjustment of brought forward losses / unabsorbed depreciation, arose before Pune Bench of Tribunal in M/s. Vishay Components India Pvt. Ltd. Vs. Addl.CIT & Anr. (supra). The Tribunal after considering the facts of the case, which are identical to the facts before us, observed as under:-
"27. We have heard the rival contentions and perused the record. The issue arising vide ground of appeal No.3 is in relation to the computation of deduction under section 10B of the Act after the amendment to section w.e.f. 01.04.2001. The persons invoking the said provisions are entitled to a deduction under the Act, as compared to the pre-amended provisions of the section, under which the income comprising under the said section was exempt from the total income. The issue arising before us is whether while computing deduction under section 10B of the Act, in cases where the assessee has unabsorbed losses or depreciation, brought forward from earlier years, then whether the said unabsorbed business losses / depreciation are to be adjusted from the gross total income before allowing the deduction under section 10B of the Act or the said losses or the deduction under section 10B of the Act is to be allowed in the hands of the assessee without considering the brought forward unabsorbed losses / depreciation, which can be set off against the other income of assessee. Both the authorities below had denied the claim to the assessee, in view of the ratio laid down by the Hon'ble Supreme Court in Himasingka Seide Ltd. Vs. CIT (supra). The perusal of the judgment of Hon'ble Karnataka High Court in the said case reflects that the years under appeal related to assessment years 1988-89 to 1990-91 i.e. the years where the benefit under section 10B of the Act was for being exempt from total income. However, the year under appeal before us is assessment year 2005-06, wherein the said section has been amended and the deduction now is allowable to the assessee as against the said income being exempt in the earlier years. The issue is settled by the Hon'ble Bombay High Court in CIT Vs. Black & Veatch Consulting Pvt. Ltd. (2012) 348 ITR 72 (Bom), wherein it was held as under:-
"The deduction under s. 10A, has to be given effect to at the stage of computing the profits and gains of business. This is anterior to the application of the provisions of s.72 which deals with the carry forward 8 ITA No. 70/PN/2012 ITA No.72/PN/2012 Precision Camshafts Limited (earlier known as Precision Valvetrain P. Ltd.) and set off of business losses. A distinction has been made by the Legislature while incorporating the provisions of Chapter VI-A. Section 80A(1) stipulates that in computing the total income of an assessee, there shall be allowed from his gross total income, in accordance with and subject to the provisions of the Chapter, the deductions specified in ss.80C to 80U. S.80B(5) defines for the purpose of Chapter VI-A "gross total income" to mean the total income computed in accordance with the provisions of the Act, before making any deduction under the Chapter. What the Revenue in essence seeks to attain is to telescope the provisions of Chapter VI-A in the content of the deduction which is allowable under s.10A, which would not be permissible unless a specific statutory provision to that effect were to be made. In the absence thereof, such an approach cannot be accepted. Thus ITAT was correct in holding that the brought forward unabsorbed depreciation and losses of the unit the Income which is not eligible for deduction under s.10A of the Act cannot be set off against the current profit of the eligible unit for computing the deduction under s.10A of the IT Act."
28. The said proposition of law has further been applied by the Hon'ble Bombay High Court in CIT Vs. M/s. Ganesh Polychem Ltd. in Income Tax Appeal No.2083 of 2012, order dated 25.02.2013 and in CIT Vs. Schmetz India Pvt. Ltd. (2012) 79 DTR (Bom) 356 and also by the Hon'ble High Court of Gujarat in CIT Vs. Ace Software Exports Ltd. in Tax Appeal No.687 of 2012, order dated 18.02.2013. The Mumbai Bench of Tribunal has also applied the said proposition in various cases.
29. The learned Departmental Representative for the Revenue on the other hand, placed reliance on the ratio laid down by the Hon'ble Supreme Court in Synco Industries Ltd. Vs. AO, (2008) 299 ITR 444 (SC), wherein the issue was whether while computing the quantum of deduction under section 80I(6) of the Act, the Assessing Officer has to treat the profits derived from an industrial undertaking as only source of income in order to arrive at deduction under Chapter VI-A. The Hon'ble Supreme Court held that the gross total income under section 80B(5) of the Act, which is also referred to in section 80I(1) of the Act, was required to be computed in manner provided under the Act, which pre- supposes that gross total income shall be arrived at after adjusting losses of other division against profits derived from an industrial undertaking. The issue before the Hon'ble Supreme Court is at variance with the issue before us and the said ratio is not applicable to the facts of the present case. The issue in the present appeal is squarely covered by the ratio laid down by the Hon'ble Bombay High Court in CIT Vs. Black & Veatch Consulting Pvt. Ltd. (supra), wherein deduction under section 10A of the Act was to be computed in the hands of assessee and the same was whether the brought forward losses had to be adjusted before computing deduction under section 10A of the Act. It may be pointed out that the provisions of section 10A and 10B of the Act are at parametria. Following the ratio laid down by the Hon'ble Bombay High Court, we hold that the deduction under section 10B of the Act is to be computed in the hands of the assessee before adjusting brought forward unabsorbed losses / depreciation. The ground of appeal No.3 raised by the assessee is thus, allowed."
17. The Tribunal relying on the ratio laid down by the Hon'ble Bombay High Court in CIT Vs. Black & Veatch Consulting Pvt. Ltd. (2012) 348 ITR 72 (Bom) and other decisions of the Hon'ble Bombay High Court, held that the deduction under section 10B of the Act was to be computed before adjusting brought 9 ITA No. 70/PN/2012 ITA No.72/PN/2012 Precision Camshafts Limited (earlier known as Precision Valvetrain P. Ltd.) forward unabsorbed losses / depreciation. The facts arising in the present case are similar to the facts before the Tribunal in Vishay Components India Pvt. Ltd. Vs. Addl.CIT & Anr. (supra) and following the same parity of reasoning, we hold that the deduction under section 10B of the Act would be allowed to the assessee in the first instance before allowing the adjustment on account of brought forward depreciation losses, the deduction under section 10B of the Act is to be first allowed against the eligible profits and in case there are any leftover profits, then the same are to be adjusted against brought forward unabsorbed depreciation / loss as claimed by the assessee in its return of income. Accordingly, we direct the Assessing Officer to re-compute the deduction under section 10B of the Act in the hands of the assessee. The additional ground of appeal Nos.1 and 2 raised by the assessee are thus, allowed.
18. Now, coming to the additional ground of appeal No.3 raised by the assessee, the issue is with regard to the addition made on account of outward freight amounting to Rs.2,65,57,598/-, while computing the book profits under section 115JB of the Act.
19. Briefly, the facts relating to the issue are that the assessee had debited sum of Rs.3,55,91,022/- towards outward freight, out of which sum of Rs.2,65,57,598/- represented the provision on account of transportation charges, that was likely to be payable to M/s. General Motors, USA. The assessee was supplying goods to M/s. General Motors through G-Clancy where the expenditure on account of airborne transportation was borne by the assessee. However, after 1 st April, 2006, the assessee started supplying goods directly to M/s. General Motors, transportation cost of which up to 28.02.2007 was borne by M/s. General Motors. According to the assessee, in case the 10 ITA No. 70/PN/2012 ITA No.72/PN/2012 Precision Camshafts Limited (earlier known as Precision Valvetrain P. Ltd.) transportation cost borne by M/s. General Motors would be claimed as reimbursement of cost later, the provision to that effect as a matter of prudence was made in the books of account. The Assessing Officer rejected the claim of the assessee since there was no agreement for supply in existence during the period 01.04.2006 to 28.02.2007 to that effect. Further, the liability being unascertained, could not be allowed. The Assessing Officer thus, held that the provision made amounting to Rs.2.66 crores was to be added to the business profits shown in the Profit & Loss Account under the normal provisions and also to the book profits for the purpose of MAT under section 115JB of the Act.
20. In appeal, the CIT(A) held that the provision was made on a monthly basis towards transportation cost for supply of camshaft to M/s. General Motors, USA during the period 01.04.2006 to 28.02.2007. Referring to the Note forming part of Notes to accounts, the CIT(A) observed as under:-
"4.3.1 As could be seen from the above note, from 01.04.2006, the appellant company started supplying the camshafts directly to General Motors as against the earlier practice of selling the camshafts through G- Clancy. It was also mentioned in the note that since there was no supply agreement between 1 st April 2006 to 28 th February, 2007, sales were booked at the rate as per agreement with G-Clancy under which the cost of transportation was on account of the appellant company. Admittedly, for the camshafts supplied till 28 th February, 2007, the General Motors had already incurred the transportation cost and not by the appellant. The impugned provision was made on the ground that transportation cost so paid by GE Motors for the period from 01.04.2006 to 28.02.2007 might be claimed as reimbursement by GE Motors and it was likely to be payable to General Motors. Thus, the liability is contingent upon the claim by General Motors for reimbursement of the costs, which may or may not happen and it is a contingent liability. Moreover, as per supply agreement entered with General Motors for supply of camshafts after 1st March, 2007, it is agreed that all the transportation costs are to be borne by General Motors only and not by the appellant. Thus, in March 2007 itself i.e. before the balance sheet date, the appellant was aware that there was no obligation on its part to bear the transportation cost for supply of camshafts as the General Motors agreed to bear such costs. Therefore, in the first place there was absolutely no necessity to make such a provision towards outward transportation cost for the said period in the accounts, which was already paid by General Motors. Even if such provision is made on commercial prudence as claimed by the appellant, the provision ought to have been reversed by the appellant in this year itself when it was known to the appellant in March 2007 that the appellant was not liable to incur such liability. As on the balance sheet date, it was certain that even for the period 01/04/2006 to 28/02/2007, the liability on account of transportation costs was no longer subsisting. Further, it is 11 ITA No. 70/PN/2012 ITA No.72/PN/2012 Precision Camshafts Limited (earlier known as Precision Valvetrain P. Ltd.) seen that the annual accounts of the company were finalized on 28th September, 2007 and the appellant ought to have reversed the provision in this year itself. Thus, the facts of the case clearly show that provision was made for meeting contingent liabilities and the same has to be added back to the book profits under clause (b) of Explanation 1 to Sec.115JB which clearly states that 'any amount set aside to provisions made for meeting liabilities, other than ascertained liabilities' is to be added to the book profit. In fact, no such liability existed as on 31.03.2007, much less an ascertained liability as it was known in March 2007 itself that transportation cost on sale of camshafts will be borne by General Motors for the entire period. Therefore, the Assessing Officer has rightly added back such provision made for contingent liability while computing the book profits under sec.115JB and the action of the Assessing Officer in this regard is upheld."
21. The assessee by way of additional ground of appeal No.3 has raised the issue that the addition made by the Assessing Officer and confirmed by the CIT(A) amounts to double addition. The learned Authorized Representative for the assessee referred to the computation of book profits under section 115JB of the Act, copy of which is placed at page 30 of the Paper Book. The learned Authorized Representative for the assessee referring to the provisions of section 10B of the Act and the Explanation thereunder, pointed out that while computing profits under section 115JB of the Act, the assessee had disallowed the provision on account of outward freight at Rs.2.65 crores and computed the book profits accordingly. In case, the order of the CIT(A) is approved, then there would be double addition on account of outward freight at Rs.2.65 crores. The learned Authorized Representative for the assessee however, fairly pointed out that the total turnover of the assessee for the year was Rs.49,45,27,699/- which included export turnover of Rs.48,97,86,162/- and in case the provision made on account of unascertained liability is added back to the net profit as shown in the Profit & Loss Account and thereafter, expenditure related to any income to which section 10B of the Act relates is worked out and the book profits are re-computed in line with the Explanation to section 115JB of the Act, then as against the book profits declared in the return of income at 12 ITA No. 70/PN/2012 ITA No.72/PN/2012 Precision Camshafts Limited (earlier known as Precision Valvetrain P. Ltd.) Rs.70,89,620/-, the book profits would be Rs.73,44,255/-, on which the assessee is liable to pay the tax @ 10% on book profits, including surcharge.
22. The learned Departmental Representative for the Revenue on the other hand, placed reliance on the order of CIT(A).
23. We have heard the rival contentions and perused the record. Under the provisions of section 115JB of the Act, book profits of the business are to be computed. Provisions of Section 115JB read as under:-
"Explanation [1].--For the purposes of this section, "book profit" means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2), as increased by--
(a) the amount of income-tax paid or payable, and the provision therefor; or
(b) the amounts carried to any reserves, by whatever name called [other than a reserve specified under section 33AC]; or
(c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or
(d) the amount by way of provision for losses of subsidiary companies; or
(e) the amount or amounts of dividends paid or proposed ; or
(f) the amount or amounts of expenditure relatable to any income to which [section 10 (other than the provisions contained in clause (38) thereof) or [***] section 11 or section 12 apply; or] [(g) the amount of depreciation,] [(h) the amount of deferred tax and the provision therefor, [(i) the amount or amounts set aside as provision for diminution in the value of any asset, [(j) the amount standing in revaluation reserve relating to revalued asset on the retirement or disposal of such asset, if any amount referred to in clauses (a) to (i) is debited to the profit and loss account or if any amount referred to in clause (j) is not credited to the profit and loss account, and as reduced by,--]] [(i) the amount withdrawn from any reserve or provision (excluding a reserve created before the 1st day of April, 1997 otherwise than by way of a debit to the profit and loss account), if any such amount is credited to the profit and loss account:
Provided that where this section is applicable to an assessee in any previous year, the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the 1st day of April, 1997 shall not be reduced from the book profit unless the book profit of such year has been increased by those reserves or provisions (out of which the said amount was withdrawn) under this Explanation or Explanation below the second proviso to section 115JA, as the case may be; or]
(ii) the amount of income to which any of the provisions of [section 10 (other than the provisions contained in clause (38) thereof)] 13 ITA No. 70/PN/2012 ITA No.72/PN/2012 Precision Camshafts Limited (earlier known as Precision Valvetrain P. Ltd.) or [***] section 11 or section 12 apply, if any such amount is credited to the profit and loss account; or [(iia) the amount of depreciation debited to the profit and loss account (excluding the depreciation on account of revaluation of assets); or (iib) the amount withdrawn from revaluation reserve and credited to the profit and loss account, to the extent it does not exceed the amount of depreciation on account of revaluation of assets referred to in clause (iia); or] [(iii) the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account.
Explanation.--For the purposes of this clause,--
(a) the loss shall not include depreciation;
(b) the provisions of this clause shall not apply if the amount of loss brought forward or unabsorbed depreciation is nil; or]
(iv) to (vi) [***]
(vii) the amount of profits of sick industrial company for the assessment year commencing on and from the assessment year relevant to the previous year in which the said company has become a sick industrial company under sub-section (1) of section 17 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) and ending with the assessment year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses.
Explanation.--For the purposes of this clause, "net worth" shall have the meaning assigned to it in clause (ga) of sub-section (1) of section 3 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986); or [(viii) the amount of deferred tax, if any such amount is credited to the profit and loss account.]
24. Section 115JB of the Act lays down the special provision for payment of tax by certain companies. For computing book profits under section 115JB of the Act, Explanation (1) under section 115JB of the Act lays down that to the net profit as shown in the Profit & Loss Account, certain adjustments are to be made i.e. by certain amounts as enlisted under Explanation (1), the net profits are to be increased by. For deciding the present appeal, reference is only being made to the relevant provision i.e. clause (c), which lays down that the amount(s) set aside to provisions made for meeting liabilities, other than ascertained liabilities, is to be added back. The Explanation further provided that certain amounts are to be reduced from the net profits as increased by the amounts referred in clauses (a) to (j). The relevant clause for deciding the present issue before us is clause (ii), under which the amount to which any of 14 ITA No. 70/PN/2012 ITA No.72/PN/2012 Precision Camshafts Limited (earlier known as Precision Valvetrain P. Ltd.) the provisions of section 10 (other than the provisions contained in clause (38) thereof) or section 11 or section 12 apply, if any such amount is credited to the Profit & Loss Account. The learned Authorized Representative for the assessee in this regard, drew our attention to the computation of book profits under section 115JB of the Act placed at page 30 of the Paper Book. The learned Authorized Representative for the assessee stated that the net profit shown in the Profit & Loss Account was Rs.6,51,78,891/-. It was further pointed out by him that the total turnover of the assessee company was Rs.49,45,27,699/- and the export turnover was Rs.48,97,86,162/- i.e. the majority of the turnover was from exports, on which the assessee was entitled to the claim of deduction under section 10B of the Act. He then referred to the Profit & Loss Account for the year under consideration placed at page 2 of the Paper Book and pointed out that majority of the expenditure related to the income to which section 10B of the Act applied and when the book profits were computed applying provisions of section 115JB of the Act, expenditure relatable to any income to which section 10B of the Act applies, was added back and in case the disallowance of the provision made for so-called unascertained liability is again made in the hands of assessee, then the same would amount to double addition in the hands of the assessee.
25. We find merit in the claim of assessee with special reference to the calculation of book profits by applying provisions of section 115JB of the Act. The assessee has also filed a revised computation of eligible book profits under section 115JB of the Act, which is also placed on record. In case, the amount of unascertained liabilities of Rs.2.65 crores is added back to the net profit shown in the Profit & Loss Account and the balance expenditure and income relatable to the deduction claimed under section 10B of the Act is added / reduced, then it cannot be held that the assessee had not added back the 15 ITA No. 70/PN/2012 ITA No.72/PN/2012 Precision Camshafts Limited (earlier known as Precision Valvetrain P. Ltd.) provision of Rs.2.65 crores. However, in fairness, we are of the view that the matter needs to be looked at by the Assessing Officer in this regard. Accordingly, we direct the assessee to furnish the requisite calculation before the Assessing Officer, who in turn shall verify the same and compute the book profits under section 115JB of the Act in this regard , after affording reasonable opportunity of hearing to the assessee. The ground of appeal No.3 raised by the assessee is thus, allowed for statistical purposes.
26. In the result, the appeal of the assessee is allowed and the appeal of Revenue is dismissed.
Order pronounced on this 10th day of November, 2015.
Sd/- Sd/-
(PRADIP KUMAR KEDIA) (SUSHMA CHOWLA)
लेखा सद�य / ACCOUNTANT MEMBER �या�यक सद�य / JUDICIAL MEMBER
पुणे / Pune; �दनांक Dated : 10th November, 2015.
GCVSR
आदे श क� ��त�ल�प अ�े�षत/Copy of the Order is forwarded to :
1. अपीलाथ� / The Appellant;
2. ��यथ� / The Respondent;
3. आयकर आयु�त(अपील) / The CIT(A)-IT/TP, Pune ;
4. आयकर आयु�त / The CIT-I, Pune;
5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, पुणे "बी" / DR 'B', ITAT, Pune;
6. गाड� फाईल / Guard file.
आदे शानुसार/ BY ORDER, स�या�पत ��त //True Copy // व�र�ठ �नजी स�चव / Sr. Private Secretary आयकर अपील�य अ�धकरण ,पुणे / ITAT, Pune