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* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ INCOME TAX APPEAL No. 1179/2010
Reserved on: 22nd October, 2013
Date of decision: 9th December, 2013
(Assessment Year 2000-01)
THE COMMISSIONER OF INCOME TAX
(CENTRAL-II) ..... Appellant
Through Mr. Rohit Madan, Advocate.
versus
GOETZE (INDIA) LIMITED ..... Respondent
Through Mr. S. Ganesh, Sr. Advocate with
Ms. Geetanjali Mohan and Ms. Mansi
Gautam, Advocates.
ITA No. 1366/2010
(Assessment Year 2000-01)
THE COMMISSIONER OF INCOME TAX
(CENTRAL-II) ..... Appellant
Through Mr. Rohit Madan, Advocate.
versus
FEDERAL-MOGUL GOETZE (INDIA) LIMITED ..... Respondent
Through Mr. S. Ganesh, Sr. Advocate with
Ms. Geetanjali Mohan and Ms. Mansi
Gautam, Advocates.
+ INCOME TAX APPEAL No. 1979/2010
(Assessment Year 2001-02)
THE COMMISSIONER OF INCOME TAX
(CENTRAL-II) ..... Appellant
Through Mr. Rohit Madan, Advocate.
ITA Nos. 1179/2010, 1366/2010, 1979/2010 & 2106/2010 Page 1 of 40
versus
FEDERAL MOGUL GOETZE (INDIA) LIMITED ......Respondent
Through Mr. S. Ganesh, Sr. Advocate with
Ms. Geetanjali Mohan and Ms. Mansi
Gautam, Advocates.
ITA No. 2106/2010
(Assessment Year 2001-02)
THE COMMISSIONER OF INCOME TAX
(CENTRAL-II) ..... Appellant
Through Mr. Rohit Madan, Advocate.
versus
MOGUL GOETZE (INDIA) LIMITED ..... Respondent
Through Mr. S. Ganesh, Sr. Advocate with
Ms. Geetanjali Mohan and Ms. Mansi
Gautam, Advocates.
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE SANJEEV SACHDEVA
SANJIV KHANNA, J.:
ITA Nos. 1179/2010 and 1366/2010
These two appeals by the Revenue under Section 260A of the
Income Tax Act, 1961 (Act, for short) relate to Assessment Year 2000-
01. We note that the name of the assessee- Goetze (India) Limited
underwent a name change and is now known as Federal-Mogul Goetze
(India) Limited. In ITA Nos. 1179/2010 and 1366/2010 by order dated
16th May, 2012, the following substantial question of law was framed:-
"Whether the Income Tax Appellate Tribunal was
right in setting aside the order passed by the
ITA Nos. 1179/2010, 1366/2010, 1979/2010 & 2106/2010 Page 2 of 40
Commissioner of Income Tax under Section 263
of the Income Tax Act, 1961?"
2. The respondent-assessee for the assessment year 2000-01 had
filed return of income on 31st November, 2000 declaring loss of
Rs.3,05,26,654/- under normal provisions and positive book profit of
Rs.2,86,09,379/- under Section 115JA of the Act. This return was
subsequently revised on 28th March, 2002 and the positive book profit
declared under Section 115JA was reduced to Rs.1,92,73,285/-. By
assessment order dated 28th February, 2003, income declared under
Section 115JA was accepted but some additions were made on income
computed under the normal provisions and it was enhanced to
Rs.2,45,57,950/-.
3. Commissioner of Income Tax, thereafter passed an order under
Section 263 of the Act observing that income computed under Section
115JA by the Assessing Officer was erroneous and prejudicial to the
interest of the Revenue on two accounts; (a) the Assessing officer had
wrongly allowed deduction of Rs.1.53 crores made in the revised
return and excluded this figure from the book profits; (b) expenditure
of Rs.183.63 lacs was incurred for earning of exempt dividend income
under Section 14A of the Act but this expenditure was not disallowed
though the respondent-assessee had earned dividend income of
Rs.157.85 lacs, which was exempt under Section 10(33) of the Act.
ITA Nos. 1179/2010, 1366/2010, 1979/2010 & 2106/2010 Page 3 of 40
4. Consequently, the Assessing Officer vide order dated 5 th
January, 2005 passed an order giving effect to the order passed by the
Commissioner under Section 263 of the Act. The respondent-assessee
preferred an appeal before the Commissioner of Income tax (Appeals)
against the said order but the same was rejected on the two issues in
question vide order dated 29th November, 2006 read with order dated
23rd June, 2008 under Section 154 of the Act.
5. The respondent-assessee preferred further appeal before the
tribunal being ITA No. 409/Del/2007 and also preferred an appeal
against the order of Commissioner of Income Tax under Section 263,
which was registered as ITA No. 208/Del/2005. The said appeals have
been allowed, with the order under section 263 being quashed/set
aside.
6. The first question raised is whether the order under Section 263
of the Act is justified and in accordance with law. Section 263 has
been elucidated and explained in Commissioner of Income Tax versus
Nagesh Knitwears Private Limited, (2012) 345 ITR 135 (Delhi). In
the said decision, reference was made to Malabar Industrial Company
Limited versus CIT, (2000) 243 ITR 83 (SC) and decisions of Delhi
High Court in Nabha Investments Private Limited versus Union of
India, (2000) 246 ITR 41 (Delhi) and ITO versus DG Housing
Projects Limited, (2012) 343 ITR 329 (Delhi). It has been observed in
ITA Nos. 1179/2010, 1366/2010, 1979/2010 & 2106/2010 Page 4 of 40
Nagesh Knitwears Private Limited (Supra):-
"10. Revenue does not have any right to appeal
to the first appellate authority against an order
passed by the Assessing Officer. Section 263
has been enacted to empower the CIT to
exercise power of revision and revise any order
passed by the Assessing Officer, if two
cumulative conditions are satisfied. Firstly, the
order sought to be revised should be erroneous
and secondly, it should be prejudicial to the
interest of the Revenue. The expression
,,prejudicial to the interest of the Revenue is of
wide import and is not confined to merely loss
of tax. The term ,,erroneous means a
wrong/incorrect decision deviating from law.
This expression postulates an error which
makes an order unsustainable in law.
11. The Assessing Officer is both an
investigator and an adjudicator. If the Assessing
Officer as an adjudicator decides a question or
aspect and makes a wrong assessment which is
unsustainable in law, it can be corrected by the
Commissioner in exercise of revisionary power.
As an investigator, it is incumbent upon the
Assessing Officer to investigate the facts
required to be examined and verified to
compute the taxable income. If the Assessing
Officer fails to conduct the said investigation,
he commits an error and the word ,,erroneous
includes failure to make the enquiry. In such
cases, the order becomes erroneous because
enquiry or verification has not been made and
not because a wrong order has been passed on
merits.
12. Delhi High Court in Gee Vee
Enterprises v. Additional Commission of
Income-Tax, Delhi-I, (1975) 99 ITR 375, has
observed as under:-
ITA Nos. 1179/2010, 1366/2010, 1979/2010 & 2106/2010 Page 5 of 40
"The reason is obvious. The position and
function of the Income-tax Officer is very
different from that of a civil court. The
statements made in a pleading proved by the
minimum amount of evidence may be accepted
by a civil court in the absence of any rebuttal.
The civil court is neutral. It simply gives
decision on the basis of the pleading and
evidence which comes before it. The Income-
tax Officer is not only an adjudicator but also
an investigator. He cannot remain passive in the
face of a return which is apparently in order but
calls for further inquiry. It is his duty to
ascertain the truth of the facts stated in the
return when the circumstances of the case are
such as to provoke an inquiry. The meaning to
be given to the word "erroneous" in section 263
emerges out of this context. It is because it is
incumbent on the Income-tax Officer to further
investigate the facts stated in the return when
circumstances would make such an inquiry
prudent that the word "erroneous" in section
263 includes the failure to make such an
inquiry. The order becomes erroneous because
such an inquiry has not been made and not
because there is anything wrong with the order
if all the facts stated therein are assumed to be
correct."
7. Reference was also made to decisions of the Supreme Court in
Rampyari Devi Saraogi versus CIT, (1968) 67 ITR 84 (SC) and Tara
Devi Aggarwal (Smt) versus CIT, (1973) 88 ITR 323 (SC) wherein it
has been observed that where the Assessing Officer had accepted a
particular contention or issue without inquiry whatsoever, the order
was erroneous and prejudicial to the interest of Revenue. These two
decisions were explained in the case of DG Housing Project Limited
ITA Nos. 1179/2010, 1366/2010, 1979/2010 & 2106/2010 Page 6 of 40
(supra) in the following words:-
"These two decisions show that it is not
necessary for the Commissioner to make further
inquiries before cancelling the assessment order
of the Income-tax Officer. The Commissioner
can regard the order as erroneous on the ground
that in the circumstances of the case the
Income-tax Officer should have made further
inquiries before accepting the statements made
by the assessee in his return.
14. The aforesaid observations have to be
understood in the factual background and
matrix involved in the said two cases before the
Supreme Court. In the said cases, the Assessing
Officer had not conducted any enquiry or
examined evidence whatsoever. There was total
absence of enquiry or verification. These cases
have to be distinguished from other cases (i)
where there is enquiry but the findings are
incorrect/erroneous; and (ii) where there is
failure to make proper or full verification or
enquiry."
8. In Nagesh Knitwears Private Ltd. (supra), reference was made to
CIT Vs. Sunbeam Auto Ltd. (2011) 332 ITR 167, with the following
quote from the later decision:-
"15. In the case of CIT v. Sunbeam Auto Ltd
(2011) 332 ITR 167 (Delhi), the Delhi High
Court was considering the aspect, when there is
no proper or full verification and it was held as
under (page 179)
"We have considered the rival submissions
of the counsel on the other side and have gone
through the records. The first issue that arises
for our consideration is about the exercise of
power by the Commissioner of Income-tax
ITA Nos. 1179/2010, 1366/2010, 1979/2010 & 2106/2010 Page 7 of 40
under section 263 of the Income-tax Act. As
noted above, the submission of learned counsel
for the Revenue was that while passing the
assessment order, the Assessing Officer did not
consider this aspect specifically whether the
expenditure in question was revenue or capital
expenditure. This argument predicates on the
assessment order, which apparently does not
give any reasons while allowing the entire
expenditure as revenue expenditure. However,
that by itself would not be indicative of the fact
that the Assessing Officer had not applied his
mind on the issue. There are judgments galore
laying down the principle that the Assessing
Officer in the assessment order is not required
to give detailed reason in respect of each and
every item of deduction, etc. Therefore, one has
to see from the record as to whether there was
application of mind before allowing the
expenditure in question as revenue expenditure.
Learned counsel for the assessee is right in his
submission that one has to keep in mind the
distinction between "lack of inquiry" and
"inadequate inquiry". If there was any inquiry,
even inadequate that would not by itself give
occasion to the Commissioner to pass orders
under section 263 of the Act, merely because he
has a different opinion in the matter. It is only
in cases of "lack of inquiry" that such a course
of action would be open. In Gabriel India Ltd.
[1993] 203 ITR 108 (Bom), law on this aspect
was discussed in the following manner (page
113):
... From a rending of sub-section (1) of section
263, it is clear that the power of suo motu
revision can be exercised by the Commissioner
only if, on examination of the records of any
proceedings under this Act, he considers that
any order passed therein by the Income-tax
Officer is ,,erroneous in so far as it is prejudicial
to the interests of the Revenue. It is not an
arbitrary or unchartered power, it can be
ITA Nos. 1179/2010, 1366/2010, 1979/2010 & 2106/2010 Page 8 of 40
exercised only on fulfilment of the
requirements laid down in sub-section (1). The
consideration of the Commissioner as to
whether an order is erroneous in so far as it is
prejudicial to the interests of the Revenue, must
be based on materials on the record of the
proceedings called for by him. If there are no
materials on record on the basis of which it can
be said that the Commissioner acting in a
reasonable manner could have come to such a
conclusion, the very initiation of proceedings
by him will be illegal and without jurisdiction.
The Commissioner cannot initiate proceedings
with a view to starting fishing and roving
enquiries in matters or orders which are already
concluded. Such action will be against the well-
accepted policy of law that there must be a
point of finality in all legal proceedings, that
stale issues should not be reactivated beyond a
particular stage and that lapse of time must
induce repose in and set at rest judicial and
quasi-judicial controversies as it must in other
spheres of human activity. (See Parashuram
Pottery Works Co. Ltd. v. ITO [1977] 106 ITR
1 (SC) at page 10) ... From the aforesaid
definitions it is clear that an order cannot be
termed as erroneous unless it is not in
accordance with law. If an Income-tax Officer
acting in accordance with law makes a certain
assessment, the same cannot be branded as
erroneous by the Commissioner simply
because, according to him, the order should
have been written more elaborately. This
section does not visualise a case of substitution
of the judgment of the Commissioner for that of
the Income-tax Officer, who passed the order
unless the decision is held to be erroneous.
Cases may be visualised where the Income-tax
Officer while making an assessment examines
the accounts, makes enquiries, applies his mind
to the facts and circumstances of the case and
determines the income either by accepting the
accounts or by making some estimate himself.
ITA Nos. 1179/2010, 1366/2010, 1979/2010 & 2106/2010 Page 9 of 40
The Commissioner, on perusal of the records,
may be of the opinion that the estimate made by
the officer concerned was on the lower side and
left to the Commissioner he would have
estimated the income at a figure higher than the
one determined by the Income-tax Officer. That
would not vest the Commissioner with power to
re-examine the accounts and determine the
income himself at a higher figure. It is because
the Income-tax Officer has exercised the quasi-
judicial power vested in him in accordance with
law and arrived at a conclusion and such a
conclusion cannot be formed to be erroneous
simply because the Commissioner does not feel
satisfied with the conclusion ... There must be
some prima facie material on record to show
that tax which was lawfully exigible has not
been imposed or that by the application of the
relevant statute on an incorrect or incomplete
interpretation a lesser tax than what was just
has been imposed ... "
9. Thereafter, it was observed and elucidated in Nagesh Knitwears
Private Limited (Supra), when and how power under Section 263 can
be exercised where there was no proper or full verification and when
the twin pre-conditions are satisfied:-
"Thus, in cases of wrong opinion or finding on
merits, the CIT has to come to the conclusion
and himself decide that the order is erroneous,
by conducting necessary enquiry, if required
and necessary, before the order under Section
263 is passed. In such cases, the order of the
Assessing Officer will be erroneous because the
order passed is not sustainable in law and the
said finding must be recorded. CIT cannot
remand the matter to the Assessing Officer to
decide whether the findings recorded are
erroneous. In cases where there is inadequate
ITA Nos. 1179/2010, 1366/2010, 1979/2010 & 2106/2010 Page 10 of 40
enquiry but not lack of enquiry, again the CIT
must give and record a finding that the
order/inquiry made is erroneous. This can
happen if an enquiry and verification is
conducted by the CIT and he is able to establish
and show the error or mistake made by the
Assessing Officer, making the order
unsustainable in Law. In some cases possibly
though rarely, the CIT can also show and
establish that the facts on record or inferences
drawn from facts on record per se justified and
mandated further enquiry or investigation but
the Assessing Officer had erroneously not
undertaken the same. However, the said finding
must be clear, unambiguous and not debatable.
The matter cannot be remitted for a fresh
decision to the Assessing Officer to conduct
further enquiries without a finding that the
order is erroneous. Finding that the order is
erroneous is a condition or requirement which
must be satisfied for exercise of jurisdiction
under Section 263 of the Act. In such matters,
to remand the matter/issue to the Assessing
Officer would imply and mean the CIT has not
examined and decided whether or not the order
is erroneous but has directed the Assessing
Officer to decide the aspect/question.
This distinction must be kept in mind by the
CIT while exercising jurisdiction under Section
263 of the Act and in the absence of the finding
that the order is erroneous and prejudicial to the
interest of Revenue, exercise of jurisdiction
under the said section is not sustainable. In
most cases of alleged "inadequate
investigation", it will be difficult to hold that
the order of the Assessing Officer, who had
conducted enquiries and had acted as an
investigator, is erroneous, without CIT
conducting verification/inquiry. The order of
the Assessing Officer may be or may not be
wrong. CIT cannot direct reconsideration on
this ground but only when the order is
ITA Nos. 1179/2010, 1366/2010, 1979/2010 & 2106/2010 Page 11 of 40
erroneous. An order of remit cannot be passed
by the CIT to ask the Assessing Officer to
decide whether the order was erroneous. This is
not permissible. An order is not erroneous,
unless the CIT hold and records reasons why it
is erroneous. An order will not become
erroneous because on remit, the Assessing
Officer may decide that the order is erroneous.
Therefore CIT must after recording reasons
hold that the order is erroneous. The
jurisdictional precondition stipulated is that the
CIT must come to the conclusion that the order
is erroneous and is unsustainable in law. We
may notice that the material which the CIT can
rely includes not only the record as it stands at
the time when the order in question was passed
by the Assessing Officer but also the record as
it stands at the time of examination by the CIT
[see CIT v. Shree Manjunathesware Packing
Products, 231 ITR 53 (SC)]. Nothing
bars/prohibits the CIT from collecting and
relying upon new/additional material/evidence
to show and state that the order of the
Assessing Officer is erroneous.
It is in this context that the Supreme Court
in Malabar Industrial Co. Ltd. v. Commissioner
of Income Tax, (2000) 243 ITR 83 (SC), had
observed that the phrase ,,prejudicial to the
interest of Revenue has to be read in
conjunction with an erroneous order passed by
the Assessing Officer. Every loss of Revenue as
a consequence of an order of the Assessing
Officer cannot be treated as prejudicial to the
interest of Revenue. Thus, when the Assessing
Officer had adopted one of the courses
permissible and available to him, and this has
resulted in loss to Revenue; or two views were
possible and the Assessing Officer has taken
one view with which the CIT may not agree;
the said orders cannot be treated as an
erroneous order prejudicial to the interest of
Revenue unless the view taken by the
ITA Nos. 1179/2010, 1366/2010, 1979/2010 & 2106/2010 Page 12 of 40
Assessing Officer is unsustainable in law. In
such matters, the CIT must give a finding that
the view taken by the Assessing Officer is
unsustainable in law and, therefore, the order is
erroneous. He must also show that prejudice is
caused to the interest of the Revenue."
10. In the facts of the present case, as we examine the factual
position, the Commissioner in her order under Section 263 has
recorded specific findings as to why and for what reason she felt that
the order passed by the Assessing Officer on two accounts was
erroneous and prejudicial to the interest of Revenue. For the reasons
set out in the order, which we need not at this stage elaborate as this is
a question of merits, we reject the contention of the respondent-
assessee and also the findings and reasoning of the tribunal that the
Commissioner could not have invoked power and jurisdiction under
Section 263 of the Act, because the Assessing Officer had taken a
probable view, which may be debatable and not acceptable to the
Revenue. When an Assessing Officer takes a view but the said view is
not correct, erroneous as per the findings recorded by the
Commissioner, along with the finding that the order passed by the
Assessing Officer was prejudicial to the interest of the Revenue, then
the order of the Commissioner cannot be set aside on the ground that
the two views were possible or probable. In such cases, the order
under Section 263 of the Act can be set aside if the findings accorded
ITA Nos. 1179/2010, 1366/2010, 1979/2010 & 2106/2010 Page 13 of 40
by the Commissioner taking the particular view, whether on facts or in
law, is wrong or incorrect or the order of the Assessing Officer was not
prejudicial to the interest of the Revenue. The first aspect is essentially
a question of merits and not a question relating to whether or not two
views were possible. Commissioner can examine the issue on merits
even when the same issue was examined by the assessing officer.
Principles of change of opinion do not apply. If an order of the
assessing officer is held to be erroneous and prejudicial to the interest
of the revenue, it can be revised. The contention of the assessee and
the reasoning of the tribunal in this regard is clearly fallacious as
Revenue does not have any right to appeal against the order of the
Assessing Officer. It is in these circumstances that power of revision
has been conferred on the Commissioner under Section 263 of the Act
to correct erroneous orders which are also prejudicial to the interest of
Revenue. Observations of the Supreme Court in the case of Malabar
Industrial Company Limited (supra) have to be understood in the
context in which they were made. An order will not be erroneous, if
the Commissioner does not decide whether the order of the assessing
officer is erroneous but observes that two views are possible and yet
remits the issue for fresh decision by the Assessing Officer. However,
it would be incorrect to state as a broad proposition that an order of the
Assessing officer cannot be erroneous, if the Assessing Officer has
ITA Nos. 1179/2010, 1366/2010, 1979/2010 & 2106/2010 Page 14 of 40
taken one of the two views possible. In such cases the order of the
assessing officer is erroneous provided the Commissioner holds and is
able to demonstrate that the view taken by the Assessing Officer was
not plausible, being legally unsustainable and incorrect. But the said
finding must be recorded. This would satisfy the statutory requirement
that the order passed and made subject matter of revision was
erroneous, subject to the second condition that the order under review
should also be prejudicial to the interest of the Revenue.
11. This brings us to the question of computation under Section
115JA of the Act and the order passed by the Commissioner on merits
directing that Rs.1.53 crores should be added to the book profits on
account of transfer from the revaluation reserve. The question is
whether the Commissioner was right in holding that the order of the
assessing officer on the said aspect was erroneous on merit? The
following facts may be noticed:
(i) Respondent-assessee had passed entries in the books of accounts on
30th June, 1986 debiting Rs.40.84 crores to the asset revaluation
account and crediting the same to capital reserve. This entry was not
routed through the profit and loss account. Thus, the profit and loss
account did not reflect this entry.
(ii) The respondent-assessee had claimed depreciation on the
enhanced value of the assets, which stood enhanced w.e.f. 30th June,
ITA Nos. 1179/2010, 1366/2010, 1979/2010 & 2106/2010 Page 15 of 40
1986 by Rs.40.84 crores.
(iii) In the year in question, Rs.1.53 crores was withdrawn from this
reserve and was credited to the depreciation account. Thus reducing the
enhanced value of the assets and increasing the book profits.
(iv) As per the annual report and audit report filed with the Registrar
of Companies by the respondent-assessee, Rs.1.53 crores was credited
to the profit and loss account and this enhanced the profits by this
figure. The book profits calculated and audited in accordance with the
provisions of Companies Act included this amount of Rs.1.53 crores.
(v) In the return filed on 30th November, 2000, Rs.1.53 crores was
included in the computation sheet declaring the book profits as per
Section 115JA of the Act.
(vi) In the revised return filed on 28th March, 2002, book profits
were recalculated for the purpose of the income tax return, and not for
the purpose of the return or statements filed before Registrar of
Companies, by reducing this amount of Rs.1.53 crores from the book
profits on which tax under section 115JA was payable.
12. Before the Commissioner, the respondent-assessee had
submitted that the reserve was created prior to 1 st day of April, 1997
and, therefore, withdrawal from the reserve was required to be reduced
from the profit and loss account in terms of clause (i) of proviso of
Explanation to Section 115JA. The said Explanation was amended by
ITA Nos. 1179/2010, 1366/2010, 1979/2010 & 2106/2010 Page 16 of 40
Finance Act, 2000 with effect from 1st April, 2001 to exclude reserves
created on or after 1st day of April, 1997 but ending before the 1st day
of April, 2001, otherwise than by debit to the profit and loss account.
Reliance was placed upon the decision of the tribunal in the case of
SRF Limited versus ACIT, reported in (1993) 47 ITD 504.
13. The Commissioner rejected the said contentions observing that
clause (i) was applicable only when the amounts were withdrawn from
any reserve which had been credited to profit and loss account. Once
sub-clause (i) was not applicable, book profits calculated in accordance
with the provisions of the Companies Act cannot be disturbed or
recalculated in terms of the judgment of the Supreme Court in Apollo
Tyres Limited versus Commissioner of Income Tax, (2002) 255 ITR
273 (SC). It was observed that the respondent had claimed
depreciation on enhanced value and as per accounting standards,
withdrawal from the capital reserve was to be debited to the
depreciation account and credited to the profit and loss account.
Withdrawals from the reserve were required to be credited to profit and
loss account, as at the time of creation of reserve it was not routed
through the profit and loss account. Judgment of the tribunal in the
case of SRF Limited (supra) was not applicable as it was not in
consonance with the law declared by the Supreme Court in Apollo
Tyres Limited (supra).
ITA Nos. 1179/2010, 1366/2010, 1979/2010 & 2106/2010 Page 17 of 40
14. Tribunal in the impugned order on merits did not agree with the
Commissioner and has observed that clause (i) permits reduction of
amount withdrawn from any reserve if such amount was credited to
profit and loss account. The proviso, which incorporates an exception,
was inapplicable as the provision/reserve was not created during the
period 1st April, 1997 till 30th March, 2001. Thus, book adjustment for
these years was permissible and not barred under the proviso.
15. In order to appreciate the controversy on merits, we would like
to reproduce the relevant portion of Section 115JA, which reads as
under:-
"115JA. Deemed income relating to certain
companies.--(1) Notwithstanding anything
contained in any other provisions of this Act,
where in the case of an assessee, being a
company, the total income, as computed under
this Act in respect of any previous year relevant
to the assessment year commencing on or after
the 1st day of April, 1997 2but before the 1st
day of April, 2001 (hereafter in this section
referred to as the relevant previous year) is less
than thirty per cent. of its book profit, the total
income of such assessee chargeable to tax for
the relevant previous year shall be deemed to
be an amount equal to thirty per cent. of such
book profit.
(2) Every assessee, being a company, shall, for
the purposes 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,
1956 (1 of 1956);
ITA Nos. 1179/2010, 1366/2010, 1979/2010 & 2106/2010 Page 18 of 40
Provided that while preparing profit and loss
account, the depreciation shall be calculated on
the same method and rates which have been
adopted for calculating the depreciation for the
purpose of preparing the profit and loss account
laid before the company at its annual general
meeting in accordance with the provisions of
section 210 of the Companies Act, 1956 (1 of
1956):
Provided further that where a company has
adopted or adopts the financial year under the
Companies Act, 1956 (1 of 1956), which is
different from the previous year under the Act,
the method and rates for calculation of
depreciation shall correspond to the method and
rates which have been adopted for calculating
the depreciation for such financial year or part
of such financial year falling within the
relevant previous year.
Explanation.--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; 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
ITA Nos. 1179/2010, 1366/2010, 1979/2010 & 2106/2010 Page 19 of 40
(f) the amount or amounts of expenditure
relatable to any income to which any of the
provisions of Chapter III applies;
if any amount referred to in clauses (a) to (f) is
debited to the profit and loss account, and as
reduced by,--
(i) the amount withdrawn from any reserves or
provisions 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 (including
the relevant 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, but ending before the 1st
day of April, 2001 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
(ii) the amount of income to which any of the
provisions of Chapter III applies, if any such
amount is credited to the profit and loss
account; or
(iii) the amount of loss brought forward or
unabsorbed depreciation, whichever is less as
per books of account."
16. Sub-section (1) begins with a non-obstante expression, which
gives overriding effect to the provisions of Section 115JA. Sub-
Section 2 states that the assessee being a company shall prepare profit
and loss accounts for the previous year in accordance with the
provisions of Parts II and III of Schedule VI of the Companies Act,
ITA Nos. 1179/2010, 1366/2010, 1979/2010 & 2106/2010 Page 20 of 40
1956. First and the second proviso to Section 115JA need not be
examined as they are not relevant. Explanation in the first part refers
to increase of the book profits by the amounts specified in sub-paras
(a) to (g). Thereafter, the Explanation states that, it shall be reduced
under clauses (i) to (iii). Clause (i) states that the book profit shall be
reduced by the amount withdrawn from the reserve or provision if any
such amount was credited to the profit and loss account. The proviso
to the said clause states that such reduction shall not be made if the
amount was withdrawn from the reserves or provisions during the
period 1st April, 1997 and 31st March, 2001, unless the book profit of
such year was increased by the reserve or provision out of which the
said amount was withdrawn. The core dispute and issue relates to
clause (i) and the proviso appended to it.
17. The contention of the respondent-assessee is simple that the
amount withdrawn from the reserve or provision must be reduced once
the said amount was credited to the profit and loss account. It is stated
that Rs.1.53 crores was withdrawn from the reserve and credited to the
profit and loss account and, therefore, this reduction is mandated and
required and we need not go into the question whether such reduction
is justified and equitable or even the reason/purpose behind the
provision. As the language of the statue is clear, the proviso is not
applicable as the reserve was not created during the period 1 st April,
ITA Nos. 1179/2010, 1366/2010, 1979/2010 & 2106/2010 Page 21 of 40
1997 and 31st March, 2001 but was created earlier on 30th June, 1986.
18. The said contention though attractive and appealing has been
specifically rejected by this Court in CIT versus SRF Limited, ITR
No. 164/1995 decided on 4th August, 2011. We note that the High
Court reversed the decision of the tribunal in the case of SRF Limited
(supra) on the said aspect. In the impugned order in the present case,
tribunal followed their decision in the case of SRF Limited. The
reasoning given by the Division Bench in the case of SRF Limited,
which dealt with Sections 115J and 115JB is as under:-
"20. As would be evident on a bare perusal of
both section 115JB and Section 115J the
explanation defines as to the manner in which
book profit for the purposes of levy of MAT is
to be calculated. Broadly, in both Sections,
book profit means net profit as shown in the
profit and loss account which is to be increased
and reduced in terms of provisions contained
therein. Book profits are required to be
calculated bearing in mind the provisions part II
and III of Schedule VI of the Companies Act,
1956.
21. Before we proceed further we may notice
the relevant distinction in clause (i) of the
Explanation appended to Sections 115JB and
115J, respectively. In clause (i) of the
explanation in Section 115JB, in the bracketed
portion, the following words appear "excluding
a reserve created before the 1st day of April,
1997, otherwise than by way of a debit to the
profit and loss account". There is no such
mention in clause (i) to the explanation
contained in Section 115J. Furthermore, in the
ITA Nos. 1179/2010, 1366/2010, 1979/2010 & 2106/2010 Page 22 of 40
proviso appended to clause (i) to the
explanation in Section 115JB, there is a
reference to the effect that where the section is
applicable to an assessee in any previous year,
the amount withdrawn from reserves created or
provisions made in the previous year relevant to
the assessment year commencing on or after 1st
April, 1997, shall not be reduced from the book
profit unless the book profit of such year has
been increased by the reserves of provisions. As
against this in the proviso to clause (i) of the
explanation contained in Section 115J, the
wording is identical save and to the extent date
mentioned in the proviso is: "on or after 1st day
of April, 1998". A conjoint reading of clause (i)
to the explanation appended to Section 115JB,
read with, the proviso gives a clear clue that it
covers period both prior to 01.04.1997 as well
as that which commences on or after
01.04.1997. As indicated above, the bracketed
portion, which appears in clause (i) to the
explanation appearing in Section 115JB, does
not find mention in Section 115J.
21.1 This is in so far as the distinction in the
two Sections goes. The issue, therefore is,
whether the assessee ought to be allowed to
deduct the amount withdrawn from the
revaluation reserves by invoking the provisions
of clause (i) of the explanation given in Section
115J. It is not disputed that when the
revaluation reserves were first created in 1983
and 1986, the increase in the value of the assets
was reflected by debiting the asset account and
crediting the revaluation reserve account. The
profit and loss account by this methodology
was kept undisturbed. In these circumstances,
can it be said that when the amount is
withdrawn from the reserves it reflects the
difference in the depreciation calculated on the
revalued or the enhanced value of the assets and
that which is calculated on the historical cost.
In other words can the assessee be permitted to
ITA Nos. 1179/2010, 1366/2010, 1979/2010 & 2106/2010 Page 23 of 40
reduce the amount withdrawn from the
revaluation reserve if in the first instance was
created not by crediting any amount to the
profit and loss account but to the revaluation
reserve account.
22. Mr Ganesh has argued that clause (i)
appended to the explanation appearing in
Section 115J would have to be given its full
play. As noticed above, it was his contention
that the only situation in which such a reduction
is not permissible where reserves are created by
an assessee on or after 01.04.1988. Therefore,
his contention is, that since, the revaluation
reserves were created in 1983 and 1986 the
assessee ought to be allowed a reduction of the
amounts drawn from the revaluation reserve. In
our view at first blush this argument appears to
be both plausible and attractive as well.
However, a closer scrutiny would show that
clause (i) appended to the explanation
appearing in Section 115J would get triggered
only if amount is withdrawn from reserves or
provisions, if such reserve or provision was
created by crediting the amount to the profit
and loss account. Admittedly, such is not the
situation in the instant case. The intention of the
legislature in inserting clause (i) appended to
the explanation to Section 115J is to counter a
situation where credit is made to the profit and
loss account in the first instance at the time of
creation of the reserve. When such a situation
arises the book profit would stand increased
and thus consequently, any withdrawal from the
revaluation reserve would stand squared off by
reducing the amount from the book profit.
Since such a situation did not arise in the
instant case, the assessee in our view cannot be
allowed reduction in the amount. To that extent
the Assessing Officer is right in his conclusion.
We are fortified in our view by the observations
made in this regard by the Supreme Court. The
Supreme Court has considered the matter from
various angles. One such angle from which the
ITA Nos. 1179/2010, 1366/2010, 1979/2010 & 2106/2010 Page 24 of 40
matter has been considered and the resultant
view and the observations made by the supreme
court completely negate, in our opinion, the
submissions made by Mr Ganesh before us. We
can do no better than extract the observation of
the Supreme Court in that regard:
"The matter could be examined from another
angle. To recapitulate the facts, the fixed assets
of the assessee were revalued in the earlier
assessment year 2000-01 (i.e., financial year
ending March 31, 2011) (sic March 29, 2000)
and amount of enhancement in valuation was
288,58,19,000 which was credited to the
revaluation reserve. In other words, at the time
of revaluation of assets, the said figure of Rs
288,58,19,000 was added to the historical cost
of assets on the assets side of the balance sheet
and in order to equalize both sides of the
balance sheet the revaluation reserve to that
extent was created on the liabilities side. Thus,
the figure of profit remained untouched so far
as the revaluation of assets to the tune of Rs
288,58,19,000 is concerned. The profits were
not increased by the said amount when the asset
was revalued. During the assessment year in
question, i.e., the assessment year 2001-02, an
amount of Rs 26,11,74,000, being the
differential depreciation, was transferred out of
the said revaluation reserve of Rs
288,58,19,000 and credited to the profit and
loss account which the Assessing Officer
disallowed by placing reliance on the proviso to
clause (i) of the Explanation to Section
115JB(2). Consequently, the Assessing officer
added back the said amount of Rs 26,11,74,000
to the net profits. We agree with the Assessing
Officer. Under the provisions, as they then
existed certain adjustments were required to be
made to the net profit as shown in the profit and
loss account. One such adjustment stipulated
that the net profit shall be reduced by the
amount(s) withdrawn from any reserves, if any
ITA Nos. 1179/2010, 1366/2010, 1979/2010 & 2106/2010 Page 25 of 40
such amount is credited to the profit and loss
account. Thus, if the reserves created had gone
to increase the book profits in any year when
the provisions of Section 115JB were
applicable, the assessee became entitled to
reduce the amount withdrawn from such
reserves if such withdrawal iscredited to the
profit and loss account. Now, from the above
facts, it is clear that neither the said amount of
Rs 288,58,19,000 nor Rs 26,11,74,000 had ever
gone to increase the book profits in the said
year ending march 31, 2000 (being the financial
year). Thus, when such amount(s) has not gone
to increase the book value at the time of
creation of reserve(s), there is no question of
reducing the amount transferred from such
revaluation reserves to the profit and loss
account. Thus, the proviso to clause (i) of the
Explanation to section 115JB(2) comes in the
way of the claim for reduction made by the
assessee. In our view, the reduction under
clause (i) to the Explanation could have been
availed of only if such revaluation reserve had
gone to increase the book profits."
(emphasis is ours)
23. Mr Ganesh had tried to take advantage of
the fact that in the observations extracted
hereinabove there is a reference to the proviso
appended to clause (i) of the explanation to
Section 115JB. A closer scrutiny of the
observations made by the Supreme Court would
show that the main burden of the rationale
supplied by the Supreme Court is not pivoted
on the proviso. As noticed by us hereinabove
clause (i) of the explanation appearing in
Section 115JB read with the proviso covers the
period both before and after 01.04.1997. Even
though this is not specifically mentioned in
clause (i) to the explanation to Section 115J, the
plain reading of the said clause would show that
it only applies in those situations where credit is
made to the profit and loss account at the time
of creation of the reserve or the provision.
ITA Nos. 1179/2010, 1366/2010, 1979/2010 & 2106/2010 Page 26 of 40
24. If there was any doubt it stands clarified by
having regard to the "Memorandum Explaining
the Provisions in the Finance Bill, 1989" (in
short the memorandum). The memorandum,
according to us, clearly indicates that the
proviso was inserted to clause (i) of the
explanation appended to Section 115J to deal
with a situation where some delinquent
companies were taking advantage of clause (i)
of the explanation appended to Section 115J by
reducing their net profit by the amount
withdrawn from the reserve created or
provision made in the same year itself, though
the reserve when created was not added to the
book profit. It was to clarify this position that
the memorandum stated that clause (i) to the
explanation contained in Section 115J would
apply to amounts withdrawn from the reserves
or provision only if reserves had been created
before 01.04.1988 or where reserves or
provisions have been made after 01.04.1988
and have gone to increasethe book profits in
any year when the provisions of Section 115J of
the Income-Tax Act were applicable.
25. A close reading of the memorandum to the
amendment would show that the initial object
of allowing reduction under clause (i) to the
explanation contained in Section 115J was not
diluted. In other words the reduction of the
amount withdrawn from the reserves created or
provisions made was only available if such an
amount in the first instance have been credited
to the profit and loss account. This is clear if
one adverts to the following extract from the
memorandum:
"....Under the existing provisions certain
adjustments are made to the net profit as shown
in the profit and loss account. One such
adjustment stipulates that the net profits is to be
reduced by the amount withdrawn from
ITA Nos. 1179/2010, 1366/2010, 1979/2010 & 2106/2010 Page 27 of 40
reserves or provisions, if any, such amount is
credited to the profit and loss account......"
(emphasis is ours)
26. Therefore, the submission of Mr Ganesh
that it is only when the proviso is attracted that
the assessee would be disabled from seeking
reduction in terms of clause (i) to the
explanation appended to Section 115J even
though the reserves when created or provision
made did not get reflected in the profit and loss
account, is a submission, according to us, that
cannot be accepted."
19. Learned counsel appearing for the respondent-assessee tried to
distinguish the said judgment on two grounds. It was submitted that
book profits computed in the case of SRF Limited filed under Section
115J showed loss of Rs.10.50 crores, but the Assessing Officer had
calculated the book profits at a positive figure of Rs.2.15 crores. Thus,
substantial addition was made to the book profits. Secondly, the
Assessing Officer had observed that transfer from the valuation reserve
was essentially an equalisation device meant to ensure that the
depreciation continued in the books at the original cost, prior to such
valuation and that the accounts presented a true and correct picture of
net profits. The amount withdrawn from the valuation reserve was,
therefore, not covered under clause (i) of the Explanation. It was also
highlighted that in the case of Indo Rama Synthetics India Limited
versus Commissioner of Income Tax, (2011) 330 ITR 363 (SC) the
reserve was created in the Assessment Year 2000-01, i.e., financial
ITA Nos. 1179/2010, 1366/2010, 1979/2010 & 2106/2010 Page 28 of 40
year ending 31st March, 2000 (wrongly mentioned as financial year
ending 31st March, 2011). The assessment year involved in the case of
Indo Rama Synthetics India Limited (supra) was Assessment Year
2001-02 and differential amount of Rs.26,11,74,000/- being the
differential depreciation was transferred out of the revaluation reserve
and credited to the profit and loss account.
20. In SRF Limited (supra) the attempt to distinguish decision of the
Supreme Court in the case of Indo Rama Synthetics India Limited
(supra) was as the reserve was created during the financial year ending
31st March, 2000 and in the next year amount of Rs.26,11,74,000/-
being differential depreciation was transferred out of revaluation
reserve and taken to the profit and loss account, was specifically
rejected. The Supreme Court it was observed had held that under
clause (i) to Explanation the said amount shall not be reduced from the
profit and loss account. This could be only reduced when reserves
were created by increasing book profits in any year when the MAT
provisions were applicable. Rs.26,11,74,000/- had never reflected in
increase of the book profits in the year ending 31st March, 2000 and,
therefore, there was no question of reducing the said amount and the
proviso to clause (i) of the Explanation was fully applicable. The said
judgment as held in SRF Ltd. (supra) indicates, explains and elucidate
the reason why the Legislature has carved out exception in respect of
ITA Nos. 1179/2010, 1366/2010, 1979/2010 & 2106/2010 Page 29 of 40
reserves or provisions in the proviso. The proviso is applicable not
only when the reserve or provision was created during this period on
1st April, 1997 to 31st March, 2001, but whenever reserve/provision
was created unless the book profits had been increased by those
reserves or provisions at the time of creation and out of the said
increase, the amount has been withdrawn.
21. Literal interpretation in the manner suggested by the appellant of
clause (i) to Explanation 115JA and specially its proviso will lead to
absurdities and incongruities. Minimum alternation taxation on book
profits became a part of the Act, i.e., Income Tax Act, 1961, by
Finance Act, 1987 with effect from 1st April, 1988 with insertion of
Section 115J. The said Section became applicable with effect from 1 st
April, 1989 and was applicable till 1st April, 1991. Clause (i) of the
Explanation and the proviso thereto, which was introduced by Finance
Act, 1989 with retrospective effect from 1st April, 1988 were as under:
"i) the amount withdrawn from reserves
(other than the reserves specified in section
80HHD) or provisions, 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 (including the
relevant 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, 1988
shall not be reduced from the book profit unless the
book profit of such year has been increased by
ITA Nos. 1179/2010, 1366/2010, 1979/2010 & 2106/2010 Page 30 of 40
those reserves or provisions (out of which the said
amount was withdrawn) under this Explanation;
or"
22. Reading of the proviso to Section 115J elucidates that reference
to the date 1st April, 1988 is not with reference to the date on which
reserve or provision was created but with reference to the date on
which an amount was withdrawn from reserves created or provision
made. Thus, amount withdrawn from the reserves created or provision
made after 1st day of April, 1988 as per the proviso to clause (i) of
Explanation could be adjusted only if the book profit had been
increased at the time of creation of those reserves or provision made
and not otherwise. Section 115JA was inserted by Finance (No.2) Act,
1996 with effect from 1st April, 1997. The words "1st day of April,
1997" in the proviso to clause (i) of the Explanation is not with
reference to the date on which reserve was created or provision was
made but with reference to the amount withdrawn from the reserve
created or provision made. The proviso specifically stipulates that
reduction under clause (i) would not be allowable unless book profits
were increased by the reserves or provisions made at the time of
increase. The increase may relate to any period and even can be before
1st day of April, 1997. The words "but ending before the 1 st day of
April, 2001" are the cause of confusion but these words were inserted
by Finance Act, 2000 with effect from 1st April, 2001 and would
ITA Nos. 1179/2010, 1366/2010, 1979/2010 & 2106/2010 Page 31 of 40
accordingly be applicable to the Assessment Year 2001-02 and not the
assessment year in question. These words were introduced as the
Legislature had inserted a new provision for minimum alternative tax
by inserting Section 115JB with effect from 1st April, 2001. The
original clause (i) to Explanation 1 to Section 115JB was as under:-
"(i) the amount withdrawn from any reserves
or provisions, 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 (including the
relevant 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, 2001
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"
23. As there was possibility of ambiguity and doubt, the said clause
(i) and the proviso was substituted by Finance Act, 2002 but with
retrospective effect from 1st April, 2001 as under:-
"(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
ITA Nos. 1179/2010, 1366/2010, 1979/2010 & 2106/2010 Page 32 of 40
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"
24. In view of the aforesaid discussion, it is crystal clear that under
proviso to clause (i) of the Explanation to Section 115JA reserve or
provision made may relate to any period and not during the period
between 1st April, 1997 and 31st March, 2001. These two dates are
relevant as Section 115JA is applicable during this period. Clause (i)
operates when an amount is withdrawn from provision made or reserve
created but as per the proviso adjustment can be made only when at the
time of creation of reserve or the provision, the amount in question was
duly accounted for by increasing the book profits by the said reserve or
provision.
25. Thus, the respondent-assessee is clearly misreading the said
proviso and the purport and the purpose behind the proviso of clause
(i) to the explanation of Section 115JA.
26. The distinction and facts pointed out, as far as case of SRF
Limited (Supra) is concerned, are not the basis or the foundation of the
ratio in the said decision. The exact figure on account of revaluation of
assets withdrawn from the reserve was not indicated or mentioned.
ITA Nos. 1179/2010, 1366/2010, 1979/2010 & 2106/2010 Page 33 of 40
The contention that the Assessing Officer had given a finding that the
transfer from the reserve was essentially an equalisation device, i.e., to
ensure that depreciation to be provided in the books at the original cost
prior to revaluation and, therefore, the amount withdrawn should not
be covered under clause (i) of the Explanation cannot be accepted as
the basis or the foundation of the decision in SRF case. The Assessing
Officer in the said case had recorded that transfer from revaluation
reserve either should have been credited to the profit and loss account
or reduced from the depreciation provided in the books.
27. In the facts of the present case, it is apparent that the respondent-
assessee had credited the same amount to the depreciation account and
also the profit and loss account in the year in question. On being asked
why both the heads were duly credited, learned counsel for the
respondent-assessee could not give any explanation or answer. It could
not be also answered why the revaluation or reduction of Rs.1.53
crores was made to the revaluation reserve. Commissioner in her order
has specifically recorded that enhanced depreciation on re-valued
reserve was claimed in the earlier assessment years.
28. Commissioner in her order under Section 263 on the second
aspect has recorded that the Assessing Officer had failed to disallow
expenditure in respect of exempt income as per the mandate of Section
14A of the Act. Commissioner held that the said provision was
ITA Nos. 1179/2010, 1366/2010, 1979/2010 & 2106/2010 Page 34 of 40
applicable and the Assessing Officer had erred and had passed an
erroneous order prejudicial to the interest of the Revenue as the
respondent-assessee had earned gross exempt dividend income of
Rs.1.34 crores and Rs.23.43 lacs, but no disallowance under Section
14A was made. She worked out and calculated the disallowance of
expenditure under Section 14A to be Rs.183.63 lacs.
29. It is accepted and admitted that the Assessing Officer had not
applied Section 14A and no deduction under the said Section was
made. In respect of the present assessment year, i.e., Assessment Year
2000-01, the contention of the respondent-assessee is that in view of
the proviso to Section 14A, the said provision could not have been
invoked in a revision. It is not possible to accept the said contention.
Section 14A was introduced by Finance Act, 2001, which was tabled in
the Parliament on 28th February, 2001. The said provision was
introduced with retrospective effect from 1st April, 1962 and reads as
under:-
"14-A. Expenditure incurred in relation to
income not includible in total income.-For the
purposes of computing the total income under
this Chapter, no deduction shall be allowed in
respect of expenditure incurred by the Assessee
in relation to income which does not form part
of the total income under this Act:
Provided that nothing contained in this section
shall empower the Assessing Officer either to
ITA Nos. 1179/2010, 1366/2010, 1979/2010 & 2106/2010 Page 35 of 40
reassess under Section 147or pass an order
enhancing the assessment or reducing a refund
already made or otherwise increasing the
liability of the Assessee under Section 154, for
any assessment year beginning on or before the
1st day of April, 2001."
30. Interpreting the said provision in Honda Siel Power Products
Limited versus Deputy Commissioner of Income Tax and Another ,
(2012) 340 ITR 53 (Delhi), it has been held as under:-
"8. The Petitioner has relied upon the proviso to
Section 14A of the Act. The proviso according to
us is not applicable in view of the factual matrix
of the present case and does not protect or come
to the aid of the Petitioner. In the present case,
after return of income for the assessment year
2000-01 was filed on November 30, 2000, the
case was taken up in scrutiny. Assessment order
under Section 143(3) of the Act was passed on
March 7, 2003. The proviso only bars
reassessment/rectification and not original
assessment on the basis of the retrospective
amendment. The proviso does not stipulate and
state that Section 14A of the Act cannot be relied
upon during the course of the original assessment
proceedings. The Assessing Officer was,
therefore, required to disallow expenses incurred
for earning exempt or tax free income. Failure on
the part of the Assessing Officer to apply
Section 14A when he passed the assessment
order under Section 143(3) of the Act dated
March 7, 2003 has prima facie resulted in
escapement of income. The proviso is not
intended to apply to the cases of the present
nature. The object and purpose of the proviso is
to ensure that the retrospective amendment is not
made as a tool to reopen past cases, which have
attained finality."
ITA Nos. 1179/2010, 1366/2010, 1979/2010 & 2106/2010 Page 36 of 40
31. In view of the aforesaid legal position, we hold that the
Commissioner was justified in invoking Section 263 of the Act as the
order of the Assessing Officer was erroneous and prejudicial to the
interest of the Revenue. The assessment order was made on 28 th
February, 2003, which is after Section 14A of the Act was enacted.
The Assessing Officer should have been applied the said Section.
Failure to invoke Section 14A had resulted in an order both erroneous
and prejudicial to the interest of the Revenue.
32. On the question of quantum of deduction to be made under
Section 14A, the tribunal has not gone into the said question of
quantum. The deduction or quantum has to be decided in light of
decision of the Delhi High Court in the case of Maxopp Investment
Limited versus Commissioner of Income Tax, (2012) 347 ITR 272
(Delhi) and other cases.
33. In view of the aforesaid position, the substantial question of law
is decided in favour of the Revenue and it is held that the
Commissioner had rightly invoked Section 263 of the Act as the order
of the Assessing Officer was erroneous and prejudicial to the interest
of the Revenue to the extent that adjustment of Rs.1.35 crores should
not have been allowed under clause (i) to Explanation to Section 115JA
and deduction should have been also made towards expenditure to earn
dividend income, which did not form part of taxable income under
ITA Nos. 1179/2010, 1366/2010, 1979/2010 & 2106/2010 Page 37 of 40
Section 14A of the Act. However, on the question of quantum of
deduction to be made under Section 14A, the matter is remanded to the
tribunal.
ITA Nos. 2106/2010 and 1979/2010
34. These appeals by the Revenue relates to Assessment Year 2001-
02. The respondent-assessee, as noticed above, namely, Federal-
Mogul Goetze (India) Limited, had filed return of income on 31 st
October, 2001 declaring ,,nil income after setting for brought forward
losses and depreciation. Tax payable under Section 115JB was also
computed at ,,nil. The return was taken up for scrutiny assessment and
assessment order under Section 143(3) dated 29th March, 2004 was
passed. Total income under the normal provisions in spite of various
disallowances etc. was computed at ,,nil but income taxable under
Section 115JB was computed at Rs.90,40,4,412/-.
35. In this year, i.e., the Assessment Year 2001-02, the Assessing
Officer had noticed that there was withdrawal of Rs.1,49,55,335/- from
the valuation reserve, but the amount had not been added to the profit
and loss accounts filed with the income tax return for computing book
profits under Section 115JB. The assessee had placed reliance on
clause (i) of Explanation below Section 115JB (2) but the Assessing
Officer rejected the said contention. The assessee did not succeed in
the first appeal and the tribunal has observed that reliance placed on
ITA Nos. 1179/2010, 1366/2010, 1979/2010 & 2106/2010 Page 38 of 40
the order of the tribunal for the Assessment Year 2000-01 in ITA No.
208/Del/2005 was distinguishable as it related to the jurisdiction of the
Commissioner under Section 263 of the Act. In other words, tribunal
did not accept the plea of the respondent-assessee.
36. By order dated 16th May, 2012, the following substantial
questions of law were framed in the present appeals:-
"(i) Whether the Income Tax Appellate
Tribunal was right in holding that while
computing book profit under Section 115JA (sic.
Section 115JB) of the Income Tax Act, 1961, no
disallowance under Section 14A was required to
be made?
(ii) Whether the Income Tax Appellate Tribunal
was right in deleting interest under Section 234D
of the Income Tax Act, 1961?"
37. Learned counsel for the respondents-assessee, during the course
of hearing, has fairly conceded that the first question has to be
answered in favour of the Revenue and against the assessee in view of
specific provisions in the Explanation 1 below Section 115JB(2) clause
(f). The Assessing Officer it is stated had made an addition of
Rs.88,292/- to the book profits towards expenditure incurred having
nexus with dividend income, which were exempt under Section 10(33).
Recording the said statement, the first question is answered in favour
of the appellant-Revenue and against the respondent-assessee.
ITA Nos. 1179/2010, 1366/2010, 1979/2010 & 2106/2010 Page 39 of 40
38. Question No. (ii) is required to be answered in favour of the
appellant-Revenue and against the respondent-assessee in view of
Explanation 2 to Section 234D, which was inserted by Finance Act,
2012 with retrospective effect to assessments made on or after 1st June,
2003. We clarify that we are not required to examine the constitutional
validity of the said amendment with retrospective effect in the present
appeals.
(SANJIV KHANNA)
JUDGE
(SANJEEV SACHDEVA)
JUDGE
DECEMBER 09th, 2013
VKR
ITA Nos. 1179/2010, 1366/2010, 1979/2010 & 2106/2010 Page 40 of 40
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