Income Tax Appellate Tribunal - Mumbai
Manoharlal Santram Hiring Co. Pvt. Ltd, ... vs Assessee
1
ITA Nos 2217 & 3299/2008
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI ' I ' BENCH
MUMBAI BENCHES, MUMBAI
BEFORE SHRI P M JAGTAP, AM & SHRI VIJAY PAL RAO, JM
ITA No. 2217/Mum/2008
(Asst Year 2005-06)
M/s Manoharlal Santram Hiring Co P Ltd Vs The Asst Commr of Income Tax
Sai Niwas Cir 6(3), Mumbai
154 P D Mello Road
Carnac Bunder, Mumbai
(Appellant) (Respondent)
ITA No. 3299/Mum/2008
(Asst Year 2005-06)
The Asst Commr of Income Tax Vs M/s Manoharlal Santram Hiring Co P Ltd
Cir 6(3), Mumbai Sai Niwas
154 P D Mello Road
Carnac Bunder, Mumbai
(Appellant) (Respondent)
PAN No. AAACM5951B
Assessee by Shri Arun Sathe
Revenue by Shri Sunil Kumar Singh
Dt.of hearing 28.7.2011
Dt of pronouncement 5th Aug 2011
PER VIJAY PAL RAO, JM
These cross appeals by assessee and the revenue are directed against the order dated 18.2.2008 of the CIT(A) for the Assessment Year 2005-06. ITA No. 2217/Mum/2008 (by the assessee) 2 The only ground raised by the assessee in its appeal reads as under:
"The ld CIT(A) has erred in confirming action of the ACIT 6(3), Mumbai of including excess deprecation written off previously credited to P&L Loss 2 ITA Nos 2217 & 3299/2008 Appropriation A/c of Rs. 14,72,414/- for the purpose of computation of income /s 115JB.
2.1 The assessee has also raised an additional ground vide letter dated 14th May 2009 as under:
"The CIT(A) erred in confirming the Assessing Officer's order in treating an amount of Rs. 6,85,000/- as deemed dividend and failed to appreciate that provisions of sec. 2(22)(e) of I T Act, 1961, are not applicable in the present case since no benefit accrues to any of the shareholders."
3 Regarding computation of book profit u/s 115JB, the Assessing Officer found that the assessee has shown net profit of Rs.5,17,238/-. Below this item a further amount of Rs. 14,72,414/- was credited as excess depreciation written off. Since this amount of Rs. 14,72,414/- was not added back for the purpose of computation of book profit u/s 115JB, the Assessing Officer asked the assessee to explain as to why this sum should not be included for the purpose of computation of income u/s 115JB. The assessee mainly contended before the Assessing Officer that due to change in the method of deprecation, the excess deprecation claimed previously was credited to profit and loss appropriation account and therefore, this amount cannot become the part of book profit as per sec. 115JB of the I T Act. The Assessing Officer did not accept the contention of the assessee and added the said amount while computing the book profit u/s 115JB and held that the entry made by the assessee on below line basis has the impact of increasing the reserves of the assessee and thus, squarely falls within clause (b) of Explanation to Sc. 115JB. On appeal, the CIT(A) confirmed the action of the Assessing Officer. 4 Before us, the ld AR of the assessee has submitted that since this excess deprecation was not debited to the P&L account but was credited to profit and loss 3 ITA Nos 2217 & 3299/2008 appropriation account; therefore, no adjustment is required under Explanation to sec. 115JB. The ld AR has submitted that the Assessing Officer has committed an error by making the adjustment of the amount under clause (b) of Explanation to sec. 115JB. He has referred the provisions of sec. 115JB and submitted that as per clause (b) of Explanation I, the amount carries to any reserves other than a reserve specified u/s 33AC after debited to the P&L account can be added back while computing book profit u/ 115JB. Since the assessee has not debited this amount to the P&L account in the relevant previous year and the amount was rather credited to profit and loss appropriation account; therefore, no adjustment is required as per Explanation 1 for computation of book profit. He has further contended that the accounts of the assessee are prepared as per provisions of Part II & II of Schedule VI of the Companies Act, which were duly audited and approved in the Annual Meeting. He has relied upon the decision of the Hon'ble Supreme Court in the case of National Hydroelectric Power Corpn Ltd vs CIT reported in 320 ITR 374 (SC); therefore, no adjustment can be made.
4.1 On the other hand, the ld DR has submitted that the excess depreciation earlier claimed and written off by the assessee during the year under consideration is required to be part of the book profit of the assessee. He has further submitted that the P&L account prepared by the assessee by excluding the written off excess depreciation amount is not as per the provisions of Companies Act. The amount should have been excluded for the purpose of computation of profit u/s 115JB r.w.s 205 of the Companies Act. He has relied upon the decision of the Hon'ble Karnataka High Court in the case of Kwality Biscuits Ltd vs CIT reported in 243 ITR 519(Kar) and the decision of the Hon'ble Bombay High Court in the case of in the 4 ITA Nos 2217 & 3299/2008 case of Alfa Laval India Ltd vs DCIT reported in 133 Taxman 740( Bom). The ld DR relied upon the orders of the authorities below.
5 We have considered the rival contention as well as the relevant material on record. The Assessing Officer has made the adjustment of Rs. 14,72,414/- by applying clause (b) of Explanation 1 to sec. 115JB(2). The Assessing Officer observed that the effect of the entry of writing back the depreciation would increase the reserves and surplus of the assessee. Thus, it is not the case of the revenue that the accounts of the assessee are not prepared as per Part II & III of Schedule VI of the Companies Act. The assessee has not credited this amount of writing back of excess deprecation due to change of rate of depreciation to the P&L account; but the entry was made to profit and loss appropriation account. Thus, there is no question of withdrawal or reducing the said amount from the profit as shown by the assessee and accordingly no adjustment for computation of book profit. Since the excess amount is not a reserve created by debiting to the P&L account; therefore, clause
(b) of Explanation 1 is not applicable. The decisions relied upon by the ld DR would also not applicable to the facts of the case because this is not a case where the amount was first credited to the P&L account and then reduced by the assessee while computing the book profit u/s 115JB. The Assessing Officer while computing book profit u/s 115JB has limited power in making any increase/reduction as provided in the explanation. The Assessing Officer does not have jurisdiction to go behind the net profit shown in the P&L account except provided in the explanation. The accounts of the assessee company are maintained as per the provisions of Companies Act and scrutinised and certified by the statutory auditors as well as approved by the Company in the general meting shall not be subjected to fresh 5 ITA Nos 2217 & 3299/2008 enquiry by the Assessing Officer in regard to the entries made in the books of account u/s 115JB as held by the Hon'ble Supreme Court in the case of Apollo Tyres vs CIT reported in 255 ITR 273. Accordingly, no adjustment is required in respect of the amount of Rs. 14,72,414/- being an entry in the profit and loss appropriation account on account of excess depreciation previously written off while computing the book profit u/s 115JB. Accordingly, this issue is decided in favour of the assessee and against the revenue.
Additional Ground:
6 We have heard the ld AR of the assessee as well as the ld DR and considered the relevant material on record. The ld AR of the assessee has submitted that this issue was raised before the CIT(A) and the CIT(A) had decided this issue against the assessee while passing the impugned order. However, inadvertently, this issue has not been raised in the original grounds while filing the appeal along with appeal memo in Form 36. He has further contented that since the issue has arisen from the impugned order and not a fresh issue; therefore, the same may be admitted for adjudication.
6.1 On the other hand, the ld DR vehemently objected to the admission of the additional ground and submitted that the assessee has not explained the sufficient reasons for not raising this issue in the original grounds of appeal. 7 After considering the rival contention and carefully perused the relevant material on record. We have noted that the issue was raised before the Assessing Officer as well as before the CIT(A) and the CIT(A) has adjudicated this issue in the impugned order; thus, this issue is not a fresh point raised by the assessee before this 6 ITA Nos 2217 & 3299/2008 Tribunal. However, the assessee did not raise this issue in the original ground but raised by way of additional ground.
7.1 This issue is purely legal in nature and no verification or examination of facts is required for adjudication of the issue. Therefore, having regard to the totality of the facts and circumstances of the case and in view of the decision of the Hon'ble Supreme Court in the case of NTPC, the additional ground raised by the assessee is admitted for adjudication 8 On merit, the ld AR of the assessee has submitted that the assessee is not a registered share holder of M/s Obham Warehousing P ltd from whom the assessee has taken a loan of Rs. 6,85,000/-. Therefore, the provisions of sec.2 (22)(e) are not applicable on the assessee when the assessee is not a registered share holder of the company, whose has provided this loan. He has relied upon the decision of the Hon'ble jurisdictional High Court in the case of CIT vs Universal Medicare P Ltd reported in 324 ITR 263 as well as the decision of the Hon'ble Rajasthan High Court in the case of CIT vs Hotel Hiltop reported n 313 ITR 116. He has also relied upon the decision of the Special Bench of the Tribunal in the case of ACIT vs Bhaumik Colour P Ltd reported 27 SOT 270 8.1 The ld DR has submitted that the assessee has not raised this argument before the lower authorities and for the first time raised this point before this Tribunal. Therefore, the matter is required to be examined by the lower authorities. He has relied upon the decision of the Hon'ble Madhya Pradesh High Court in the case of CIT vs Tolllaram Hassomal reported in 298 ITR 22.
7
ITA Nos 2217 & 3299/2008 9 We have considered the rival contention and perused the relevant material on records. Now, this issue is settled by various decisions including the decision of the Hon'ble Jurisdictional High Court in the case of Universal Medicare P Ltd (supra) wherein it has been held that section 2(22)(e) define the ambit of the expression 'dividend'. All payments by way of dividend have to be taxed in the hands of the recipient of the dividend namely the shareholder. The effect of sec. 2(22)(e) is to broaden inclusive of definition of expression 'dividend'. Clause (e) expands the nature of payments which can be classified as dividend. It was further held that the definition does not alter the legal position that dividend has to be taxed in the hands of the shareholder. Thus, it was observed that even assuming that it was a dividend, it would have to be taxed not in the hands of the assessee but in the hands of the shareholder. Accordingly, following the decision of the jurisdictional High Court in the case of Universal Medicare P Ltd (supra), we hold that deemed dividend as per sec 2(22)(e) cannot be taxed in the hands of the assessee, who is not a registered share holder of the company who has granted the loan.
ITA No. 3299/Mum/2008 ( by the revenue) 10 The only ground raised by the revenue reads as under:
"On the facts and in the circumstances of the case, ld CIT(A) erred in deleting the Assessing Officer to allow depreciation @ 40% on cranes as against 20% allowed by the Assessing Officer and thereby deleting the disallowance of Rs.. 11,25,223/- on the above account."
11 `We have heard the ld DR and the ld AR of the assessee and considered the relevant material on record. The only dispute in this case is treating the mobile crane as motor vehicle for the purpose of higher rate of depreciation. The assessee is in the business of crane hiring and transportation. The Assessing Officer denied the claim of the assessee of higher deprecation at 40% on the ground that mobile crane 8 ITA Nos 2217 & 3299/2008 does not fall under the definition of 'motor vehicle'. On appeal, the CIT(A) has allowed the claim of the assessee by following the decision of the Hon'ble Rajasthan High Court in the case of Bhola Ram reported in 260 ITR 381 as well as the decision of the Hon'ble Gujarat High Court in the case of Gujco Carriers reported in 256 ITR 50. Since nothing contrary has been brought before us; therefore, we do not find any error or illegality in the order of the CIT(A), who has adjudicated this issue by following the decision of the Hon'ble Rajasthan High Court in the case of Bhola Ram( supra) as well as Hon'ble Gujarat High Court in the case of Gujco Carriers (supra). 12 In the result, the appeal of the assessee is allowed whereas the appeal of the revenue is dismissed.
Order pronounced on the 5th, day of Aug 2011.
Sd/- Sd/-
(P M JAGTAP ) ( VIJAY PAL RAO )
Accountant Member Judicial Member
Place: Mumbai : Dated: 5th Aug 2011
Raj*
Copy forwarded to:
1 Appellant
2 Respondent
3 CIT
4 CIT(A)
5 DR
/TRUE COPY/
BY ORDER
Dy /AR, ITAT, Mumbai