Income Tax Appellate Tribunal - Delhi
Dhir Global Industria Pvt. Ltd., New ... vs Department Of Income Tax
ITA NO. 3676/Del/2010
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "B", NEW DELHI
BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER
AND
SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER
I.T.A. No. 3676/Del/2010
A.Y. : 2004-05
ACIT, CIRCLE 10(1), vs. M/S DHIR GLOBAL INDUSTRIA
NEW DELHI PVT. LTD.,
207, OKHLA INDUSTRIES ESTATE,
PHASE-III, NEW DELHI
(PAN/GIR NO. : AAACD7431P)
(Appellant ) (Respondent )
Assessee by : Sh. R.S. SINGHVI, CA
Department by : Sh. S. KRISHNA, C.I.T.(D.R.)
ORDER
PER SHAMIM YAHYA: AM This appeal by the Revenue is directed against the order of the Ld. Commissioner of Income Tax (Appeals)-XIII, New Delhi dated 19.5.2010 pertaining to assessment year 2004-05.
2. The grounds raised read as under:-
i) On the facts and circumstances of the case and in law, the order of the Ld. Commissioner of Income Tax (A) is wrong, perverse, illegal and against the provisions of law which is liable to be set aside.1
ITA NO. 3676/Del/2010
ii) On the facts and circumstances of the case and in law, the Ld. Commissioner of Income Tax (A) has erred in holding that the reassessment has been initiated because of income has not been correctly computed u/s. 115JB, whereas this was not at all reasons for issuing notice u/s. 148.
iii) On the facts and circumstances of the case and in law, the Ld. Commissioner of Income Tax (A) has erred in holding that on merits the action of the Assessing Officer is also incorrect as Assessing Officer has not applied provisions of section 10B(6) as per which the provisions of section 32(2) are not relevant for the purpose of computation of benefit u/s. 10B of the IT Act, 1961.
iv) On the facts and circumstances of the case and in law, the Ld. Commissioner of Income Tax (A) has erred by directing the Assessing Officer to apply the provision of section 10B(6) and that if depreciation pertains to A.Y. ending a April, 2001 then such depreciation will not be part of current year depreciation and thus almost restore back the issue to the Assessing Officer which is not permissible as per law.
v) The appellant craves to lave, to add, alter or amend any ground of appeal raised above at the time of the hearing."
2ITA NO. 3676/Del/2010
3. In this case Assessing Officer observed that vide questionnaire dated 9.11.2009, assessee was required to explain as to why the amount of brought forward depreciation was not be set off along with the current years depreciation against the allowable business profits before allowing exemption u/s. 10B and why the amount of brought forward depreciation may not be disallowed to be carried forward as per provisions of sec. 10B(6). Assessee replied that brought forward depreciation should not be set off before allowing exemption u/s. 10B in view of the proceedings of sub sec. 6 of sec. 10B and stated that the provisions of sec. 32(2) do not apply for computing the exemption u/s. 10B.
3.1 Assessing Officer considered the above and observed that the assessee's submissions are found to be untenable. Assessing Officer observed that as per Chapter IV of the I.T. Act, 1961, the business income of the assessee company shall first be computed in accordance with the provisions of sec. 28 to 45 which would take precedent over the applicability of sec. 10B and by a legal fiction as held by the Supreme court in the case of C.I.T. vs. Isthmian Stemshiplines (1951) 201 ITR 572 (SC) and C.I.T. vs. Jaipuria Claymines Ltd. (1966) 59 ITR 555 (SC), the brought forward depreciation becomes a part of current year's depreciation which is required to deducted for computing the business profits. Hence, Assessing Officer held that the contention of the assessee company is therefore, rejected and income is recomputed as under:-
Business income as computed in the order u/s. 143(3) (before exemption u/s. 10B ` 2,35,70,785/-
3
ITA NO. 3676/Del/2010
Less : Brought forward depreciation
For A.Y. 2000-01 ` 1,96,83,485/-
For A.Y. 2001-02 ` 1,38,87,300/-
Set off to the extent of available profits ` 2,35,70,785/-
Nil
Unabsorbed depreciation allowed to be carried Forward for A.Y. 2001-02 ` 10,47,776/-
Since there are no business profits, no exemption u/s. 10B is available to the assessee as such, the amount of exemption u/s. 10B which the assessee has reduced from its book profits would also not be available. The tax liability of the assessee u/s. 115JB will also be recomputed accordingly:-
Net profit as per profit and loss a/c. ` 3,04,31,897/- As per col. 9 of the Report u/s. 115JB In form 29B submitted by the assessee Amount to be increased in accordance with The clause (a) to (f) of explanation of ` 18,87,76,585/- sub-section 2 of sec. 115JB. ` 21,92,08,482/-
Less:- Amount to be reduced in accordance With clause (i) to (vii) of exemption of sub sec. 2 of 115JB ` 21,57,37,021/-
Less:-
Amount of exemption u/s. 10B (Not Available to the assessee ` 1,70,38,715/- ` 19,86,98,306/-
Book profit ` 2,05,10,176/-
Tax due @ 7.5% thereof ` 15,38,263/-
Add: S.C. ` 38,456/-
Total tax liability ` 15,76,719/-
4. Against the above order the assessee was in appeal before the Ld. Commissioner of Income Tax (A). Ld. Commissioner of Income Tax (A) noted that in this case Assessing Officer observed that income u/s. 115JB has not been correctly computed as the exemption u/s. 10B 4 ITA NO. 3676/Del/2010 has not been correctly worked out and adjusted. Ld. Commissioner of Income Tax (A) further noted that Assessing Officer has further observed that for the purpose of working out exemption u/s. 10B, unabsorbed depreciation of earlier years has to be adjusted first and only if there is any resultant income, same is to be computed u/s. 10B for the purpose of assessment under the normal provisions or for the purpose of computation of income u/s. 115JB.
4.1 As regard the issue of jurisdiction in this case Ld. Commissioner of Income Tax (A) noted that there was no failure or omission on the part of the assessee in disclosing of the relevant facts for computation of income under the provisions of the Act. Ld. Commissioner of Income Tax (A) further noted that only basis on which the reassessment has been initiated is that income has not been correctly computed u/s. 115JB. Furthermore, as regards merits of the case Ld. Commissioner of Income Tax (A) noted the following submissions of the assessee.
"The Assessing Officer has not properly understood and appreciated the provisions of sec. 10(B) sub- clause-6 as per which for the purpose of computation of statutory benefit u/s. 10(B), provisions of sub·· clause-II of sec. 32 are not relevant. The relevant provisions are reproduced here under:
Sec.1O(B)(6) Notwithstanding anything contained in any other provision of this Act, in computing the total income of the assessee of the previous year relevant to assessment year immediately succeeding the last of the relevant assessment years, or of any 5 ITA NO. 3676/Del/2010 previous year, relevant to any subsequent assessment year.
(i) Section 32, section 32A, section 33, section 35 and clause (ix) of sub section (1) of section 36 shall apply as if every allowance or deduction referred to therein and relating to or allowable for any of· the relevant assessment years (ending before the 1st day of April, 2001) in relation to any building, machinery, plant or furniture used for the purpose of the business of the undertaking in the previous year relevant to such assessment year or any expenditure incurred for the purpose of such business in such previous year had been given full effect to for that assessment year itself and accordingly subsection (2) of section 32, clause (ii) of sub-section (3) of section 32A, clause (ii) of sub-section (2) of section 33, sub-section (4) of section 35 or the second proviso to clause (ix) of sub-
section (I) of section 36, as the case maybe, shall not- apply in relation to any such allowance or deduction.
These are special provisions and will override the general provisions of the act and in the section itself it has been specified that notwithstanding anything contained in any other provisions of this act, overriding provisions of sub- section 6 of sec. 10(B) will be relevant and operative. In view of the above said position the clause-6 of sec. 10(B) will override other provisions of the act and as such the observation of the Assessing Officer that provisions of sec.
6ITA NO. 3676/Del/2010 10(B), sub clause 6 have no relevance is highly arbitrary and misconceived. The Assessing Officer has made reference to decision of Supreme Court in the case of CIT Vs. Isthmain Steamshiplines 201 ITR 572 and CIT Vs. Jaipuria Claymines Ltd. 59 ITR 555. These judgments are relevant to normal provisions of the act and has no bearing to the provisions of sec. 10(B) as referred to and clarified above.
It was submitted that Section 10(B) is an independent code and it has been intended to provide incentive to the tax payers who are engaged in the business of exports and as such provisions have to be applied so as to advance spirit and objective of the section.
It was further submitted that these are incentive provisions and these provisions have to be considered in a liberal manner so as to advance the objection and spirit of the provisions and not to deprive the assessee of the statutory benefit on technical ground. Reference was made to decision of Supreme Court in the case of Bajaj Tempo Ltd. 196 ITR 189.
BAJAJ TEMPO LTD. Vs. CIT 196 ITR 189 (SC) A provision in a taxing statute granting incentives for promoting growth and development should be construed liberally; and since a provision for promoting economic growth has to be interpreted liberally, the restriction on it too has to be construed so as to advance the objective of the provision and not to frustrate. In the light of above facts, 7 ITA NO. 3676/Del/2010 there is no legal basis for reopening u/s. 148 or for recomputation of income."
5. Considering the above, Ld. Commissioner of Income Tax (A) held that Assessing Officer appears to be incorrect as Assessing Officer has not applied provisions of sec. 10B(6) as per which provisions of sec. 32(2) are not relevant for the purpose of computation of benefit u/s. 10B of the I.T. Act, 1961. Therefore, Ld. Commissioner of Income Tax (A) held that Assessing Officer is directed to apply the provision of section 10B(6) and if depreciation pertains to A.Y. ending before 1st April, 2001 then such depreciation will not be part of current year depreciation.
6. Against the above order the Revenue is in appeal before us.
7. Ld. Departmental Representative submitted that Ld. Commissioner of Income Tax (A) in this regard has erred in giving direction to the Assessing Officer as the same is beyond his powers. Ld. Departmental Representative further pleaded that order of the Assessing Officer is justified and the same should be sustained. Ld. Departmental Representative further referred the case law of C.I.T. vs. Himatasingike Seide Ltd. [2006] 286 ITR 0255 (Karnataka High Court) and another decision of ITAT, Chennai in the case of Sword Global (I) P Ltd. vs. ITO [2008] 306 ITR (AT) 0286.
8. Ld. Counsel of the assessee on the other hand submitted that the issue is covered in favour of the assessee by the decision of this Tribunal in assessee's own case in I.T.A. No. 4894/Del/2009 (A.Y. 2003-04) vide order dated 16.12.2011.
9. We have carefully considered the submissions and perused the records. In this case Assessing Officer held that the amount of brought forward depreciation have to be set off alongwith current year 8 ITA NO. 3676/Del/2010 depreciation against the allowable business profits before allowing the exemption u/s. 10B of the Act. This the Assessing Officer considered is applicable both for the computation of income under the normal provision of the Act and for the purpose of computation of income u/s. 115JB. Ld. Commissioner of Income Tax (A) on the other hand has given direction that Assessing Officer is not correct in applying the provision of sub-section 10B(6), as per which the provision 32(2) are not relevant for the purpose of computation of benefit u/s. 10B of the I.T. Act. In this regard, we can gainfully refer to the Tribunal decision in assessee's own case for the preceding assessment year, which read as under:-
"5. We have heard both the parties and gone through the facts of the case as also the aforesaid decision of Hon'ble Kerala High Court relied upon by the Ld. AR. Indisputably, determination book profits u/s 115JB of the Act does not form part of the assessment order dated 31st March, 2005. It appears that the assessee in their computation u/s 115JB of the Act, reduced the book profits by an amount of ` 2,83,97,520/- on account of deduction u/s 10B of the Act while under the normal provisions such benefit worked out to ` 140,34,521/- due to difference in rates of depreciation in accordance with IT Rules,1962 vis-a-vis provided in the Companies Act, 1956. The AO, in the reassessment proceedings, validity of which is not in question before us nor the Id. CIT(A) adjudicated the legal ground, restricted the deduction u/s 10B of the Act to an amount of ` 1,40,34,521/- while determining 9 ITA NO. 3676/Del/2010 book profits u/s 115JB of the Act. The detailed working of this amount is not evident from the impugned order nor has been placed before us. However, it is submitted that variation in deduction u/s 10B of the Act is due to difference in rates of depreciation in terms of IT Rules, 1962 visa-vis Companies Act,1956. In this connection, the Id. AR invited our attention to decision of the Hon'ble Kerala High Court in the context of provisions of section 115J of the Act, wherein it was held that the book profit estimate under section 115J has to be made on the basis of depreciation calculated in accordance with Schedule VI to the Companies Act, 1956 and not as per the provisions of the Act. The findings of the Hon'ble High Court read as under:
" Sub-section (1A) of the Act says that every assessee, being a company, shall, for the purpose of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act. The argument of learned counsel for the assessee is that the respondent being a private company, the preparation of its profit and loss account for the relevant previous year in accordance with the provisions of Part II of Schedule VI to the Companies Act is not applicable. Section 350 of the Companies Act, 1956, states as follows: "The 10 ITA NO. 3676/Del/2010 amount of depreciation to be deducted in pursuance of clause (k) of sub-section (4) of section 349 shall be the amount calculated, with reference to the written-down value of the assets as shown by the books of the company at the end of the financial year expiring at the commencement of this Act or immediately thereafter and at the end of each subsequent financial year at the rate specified in Schedule XIV". What is submitted by learned counsel is that under section 355 of the Companies Act, nothing in section 349 shall apply to a private company unless it is applicable to the private company. Hence, learned counsel contends that his client has calculated the depreciation on the basis of the provisions of the Income-tax Act.
We are afraid, this explanation cannot be accepted. Section 115J has to be looked into for the following reasons: "It is only fair and proper that the prosperous should pay at least some tax. The phenomenon of so-called 'zerotax' highly profitable companies deserves attention. In 1983, a new section 80VVA was inserted in the Act so that all profitable companies pay some tax. This does not seem to have helped and is being withdrawn. I now propose to introduce a provision whereby every company will have to pay a 'minimum corporate tax' on the profits 11 ITA NO. 3676/Del/2010 declared by it in its own accounts. Under this new provision, a company will pay tax on at least 30 per cent. of its book profits. In other words, a domestic widely held company will pay tax of at least 15 per cent. of its book profit. This measure will yield a revenue gain of approximately Rs. 75 crores". Section 115J of the Act broadly makes applicable to the assertible depreciation at the rates prescribed in Schedule VI. Thus, this provision is incorporated in the Act. Section 355 of the Companies Act cannot be made applicable in such cases. We are of the view that depreciation has to be calculated as stated in section 350 of the Companies Act."
5.1 Even otherwise, in view of decision of the Hon'ble Apex Court in Apollo Tyres Ltd. Vs. CIT,255 ITR 273, the AO, while assessing a company for incometax under section 115J of the Act, cannot question the correctness of the profit and loss account prepared by the assessee-company and certified by the statutory auditors of the company as having been prepared in accordance with the requirements of Parts II and III of Schedule VI to the Companies Act .In terms of the extant provisions of sec. 115JB of the Act, every company is required to prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to 12 ITA NO. 3676/Del/2010 the Companies Act, 1956 and while preparing the annual accounts including profit and loss account,--
(i) the accounting policies;
(ii) the accounting standards adopted for preparing such accounts including profit and loss account;
(iii) the method and rates adopted for calculating the depreciation, have to be the same as have been adopted for the purpose of preparing such accounts including profit and loss account and laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956 .
5.2 In view of the specific provisions contained in sub- section (2) of sec. 115JB of the Act, especially when the Id. CIT(A) merely followed the aforesaid decision in accepting the claim of the assessee while the Revenue have not brought to our notice any contrary decision nor any other material, so as to enable us to take a different view in the matter, we are n70in lined to interfere. Therefore, ground nos. 1 to 3 in the appeal are dismissed."
10. We find that in the aforesaid decision the tribunal has relied upon the Hon'ble Kerala High Court referred to above. The tribunal has further noted that even otherwise in view of the decision of the Hon'ble Apex Court in the case of Apollo Tyres Ltd. vs. C.I.T. 255 ITR 273, the 13 ITA NO. 3676/Del/2010 Assessing Officer while assessing a company for income tax under section 115J of the Act, cannot question the correctness of the profit and loss account prepared by the assessee company and certified by the statutory auditors of the company as having been prepared in accordance with the requirements of Parts II and III of Schedule VI of the Companies Act. In terms of the extant provisions of sec. 115JB of the Act, every company is required to prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 and while preparing the annual accounts including profit and loss account :
i) the accounting policies;
ii) the accounting standards adopted for preparing such
accounts including profit and loss account;
iii) the method and rates adopted for calculating the depreciation, have to be the same as have been adopted for the purpose of preparing such accounts including profit and loss account and laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956.
11. Considering the above, Tribunal held that in view of the specific provisions contained in sub-section (2) of sec. 115JB of the Act, especially when the Ld. Commissioner of Income Tax (A) merely followed the aforesaid decision in accepting the claim of the assessee while the Revenue have not brought to the notice any contrary 14 ITA NO. 3676/Del/2010 decision nor any other material, the tribunal did not take a different view in the matter and hence, the tribunal declined to interfere with the order of the Ld. Commissioner of Income Tax (A).
11.1 We further note that in the case laws referred by the Ld. Departmental Representative in the case of C.I.T. vs. Himatasingike Seide Ltd. [2006] 286 ITR 0255 (Karnataka High Court) following was held:-
"Held, that section 10B cannot be read in isolation of other provisions. It is only an exemption provision. It may be true that even after taking into consideration the unabsorbed depreciation, the assessee may get exemption but none the less it could not take only a portion of depreciation just to suit its income for the purpose of nil liability and adjust the balance of unabsorbed depreciation against other business income once again to show nil liability. The intention of the Legislature was to provide 100% exemption only for export income and not for other income. The petitioner by dividing the depreciation contrary to section 32 had virtually taken exemption from payment of tax even for other business income. That could not be allowed. The Commissioner was justified in holding that the assessee was not justified in showing nil income.
Interpretation of a statute has to be meaningful and acceptable and it cannot be against the intention of the legislation."15
ITA NO. 3676/Del/2010 And another decision of ITAT, Chennai in the case of Sword Global (I) P Ltd. vs. ITO [2008] 306 ITR (AT) 0286 following was held:-
"Held, dismissing the appeal, that the computation made by the assessee had also to be scrutinized by the Department as otherwise there was every chance of exemption being misused by any one. Even after taking into consideration, the unabsorbed loss the assessee may get exemption but he could not take a portion of the exemption just to suit his income for the purpose of nil liability and adjust the balance. The quantum of deduction under section 10B(1) was required to be computed with reference to the profits derived from the export of articles or things according to section 10B(4) of the Act. The profits were required to be first computed in accordance with the provisions of the Act and only then the net profits were required to be considered for working out the proportion of the eligible amount. According to the settled law, all the brought forward losses and depreciation were first required to be set off against the business profits of the current year before computing any deduction. Considering the facts and circumstances of the case and the provisions of the Act, the Commissioner (Appeals) was justified in confirming the finding of the Assessing Officer."
12. We have carefully considered the above, we find that the case laws referred by the Ld. Departmental Representative is applicable for computation of deduction u/s. 10B under the normal provisions of the 16 ITA NO. 3676/Del/2010 Act. As regards computation of income u/s. 115JB is concerned, we find that for computing deduction u/s 10B the decision of the Tribunal in assessee's own case is relevant. In this case the tribunal had relied upon the decision of the Kerala High Court in the case of C.I.T. vs. Dynamic Orthopedics Pvt. Ltd. 257 ITR 446. In this case it was held that in the context of provisions of section 115J of the Act, it was held that the book profit estimate under section 115J has to be made on the basis of depreciation calculated in accordance with Schedule VI to the Companies Act, 1956 and not as per the provisions of the I.T. Act.
12.1 The tribunal has further noted that even otherwise, in view of the decision of the Hon'ble Apex Court in the case of Apollo Tyres Ltd. vs. C.I.T. 255 ITR 273, the Assessing Officer while assessing a company for income tax under section 115J of the Act, cannot question the correctness of the profit and loss account prepared by the assessee company and certified by the statutory auditors of the company as having been prepared in accordance with the requirements of Parts II and III of Schedule VI of the Companies Act.
12.2 In the background of the aforesaid discussion and the decision of the Tribunal in assessee's own case immediately in the preceding year, we do not find any need to deviate from the decision of the Tribunal. Accordingly, we hold that the book profit estimate in this case u/s. 115JB has to be made on the basis of depreciation calculated in 17 ITA NO. 3676/Del/2010 accordance with Schedule VI of the Companies Act, 1956 and not as per the provision of the I.T. Act.
12.3 However, for the purpose of computation under the normal provision of the Act, we find that the case laws relied upon by the Ld. Departmental Representative are applicable and accordingly, we hold that the for the purpose of normal computation of income, Assessing Officer's action in this case has to be sustained.
12.4 As regards the issue of validity of jurisdiction in this case is concerned, we find that Ld. Commissioner of Income Tax (A) has not passed a speaking order. Since we have already decided the merits of the issue as above, we do find any need to go into the jurisdictional aspect in this case. Accordingly, we are not dealing with the same.
13. In the result, the appeal filed by the Revenue is partly allowed in the aforesaid manner.
Order pronounced in the open court on 20/7/2012.
Sd/- Sd/-
[U.B.S. BEDI]
BEDI] [SHAMIM YAHYA]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Date 20/7/2012
"SRBHATNAGAR"
Copy forwarded to: -
1. Appellant 2. Respondent 3. CIT 4. CIT (A)
5. DR, ITAT
TRUE COPY
By Order,
Assistant Registrar,
ITAT, Delhi Benches
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