2012 (6) TMI 184 - AT - Income Tax

Tribunal grants relief on capital gains and leave encashment issues, dismisses Revenue's appeal on bad debt addition.

The Tribunal partly allowed the assessee's appeals, providing relief on the capital gain determination and deduction of leave encashment provision issues. ... Manner of determination of capital gain on sale of land and building - scope of the term 'May' - assessee contested that Revenue adopted the Stamp duty value of land and building as The total sale consideration without referring the matter to the Valuation Officer – Held that:- In terms of Sec 50C(2)(a) where an assessee claims before the AO that the value adopted or assessed by the Stamp valuation authority under sub-section (1) exceeds the fair market value of the property as on the date of transfer, then the Assessing Officer may refer valuation of the capital asset to the Valuation Officer - it is evident that the assessee had claimed in the return of income itself that the value adopted by the Stamp valuation authority exceeded the fair market value as on the date of transfer as provided in section 50C(2)(a) of the Act - notwithstanding the presence of the expression 'may' in section 50C(2)(a), Assessing Officer ought to have referred the matter to the Valuation Officer instead of straightaway deeming the value adopted by the Stamp valuation authority as the full value of consideration – in favour of assessee. Provision for leave encashment – ITA held that the provision for leave encashment of could not be reduced from 'book profits' while computing tax liability under section 115JB as while preparing such Profit & Loss account, the assessee company did not enter such amount in it and instead, the same formed a part of the Notes forming part of the accounts annexed to its annual accounts – Held that:- On a conjoint reading of sub-sections (2),(3A) of section 211 and Part II of Schedule VI to the Companies Act, 1956 and the Accounting Standard 15 once it is clear that the information towards incremental liability of leave encashment which has not been provided in the Profit & Loss account is otherwise disclosed in the Notes to the accounts, it would clearly fall within the ambit of Explanation 1 to the second Proviso to section 115JB of the Act which defines 'book profits' to mean 'net profit' as 'shown' in the Profit & Loss account for the relevant previous year prepared under sub-section (2) of section 115JB - in favour of assessee. Charging of interest under sections 234B and 234C - the appellant contested that the total income was computed under section 115JB of the Act and in such a situation interest under sections 234B and 234C are not leviable – Held that:- As decided in Jt. CIT v Rolta India Ltd[2011 (1) TMI 5 (SC) ]held that Interest under Sections 234B and 234C shall be payable on failure to pay advance tax in respect of tax payable under Section 115JA/115JB – against assessee. Deletion of the addition of bad debts – Held that:- as assessee explained that the amount in question represented cost of corrugated boxes charged by the assessee to client to whom certain goods were sold and he did not receive this amount from the said concern, the same was claimed as bad debt in the current year - since the cost of boxes as charged to client constituted a part of income of the assessee company for financial year 2000-01, the condition for claiming bad debt had been fulfilled - the reason cited by the Assessing Officer for making the disallowance that the amount was in the nature of reimbursement which had not been included in the income of the assessee for any previous year, was not factually correct – against revenue. Issues Involved:1. Determination of capital gain on the sale of land and building.2. Deduction of provision for leave encashment from 'book profits' under section 115JB.3. Deletion of the addition of bad debts.4. Charging of interest under sections 234B and 234C.Detailed Analysis:1. Determination of Capital Gain on Sale of Land and Building:The primary issue in the assessee's appeal was the adoption of the Stamp duty value of land and building at Rs 60,75,500/- as the total sale consideration for computing capital gain. The assessee contended that the Assessing Officer (AO) erred by not referring the matter to the Valuation Officer despite objections to the Stamp valuation authority's value. The Revenue argued that the AO's discretion under section 50C(2)(a) of the Income-tax Act, 1961, allowed not referring the valuation matter. However, the Tribunal found the assessee's plea justified, emphasizing that the AO should have referred the matter to the Valuation Officer as per section 50C(2)(a). The Tribunal set aside the Commissioner of Income-tax (Appeals)'s order and directed the AO to follow section 50C(2)(a) and determine the capital gain afresh, providing the assessee a reasonable opportunity of being heard.2. Deduction of Provision for Leave Encashment from 'Book Profits' Under Section 115JB:The second issue was whether the provision for leave encashment of Rs 8,35,447/- not debited to the Profit & Loss account could be deducted while computing 'book profits' under section 115JB. The Revenue held it non-deductible as it was not debited in the Profit & Loss account. The assessee argued that the incremental liability towards leave encashment, disclosed in the Notes to accounts, should be considered as per Accounting Standard - 15. The Tribunal, referencing the Delhi High Court's judgment in CIT v. Sain Processing & Weaving Mills P. Ltd., concluded that the Notes to accounts form part of the Profit & Loss account under section 211 of the Companies Act, 1956. Therefore, the leave encashment provision, though not debited, should be deducted while determining 'book profits.' The Tribunal upheld the assessee's plea and directed the AO to allow the deduction.3. Deletion of the Addition of Bad Debts:In the Revenue's cross-appeal, the issue was the deletion of the addition of bad debts of Rs 1,22,502/-. The AO disallowed the claim, stating the amount was a reimbursement, not income. The assessee demonstrated that the amount represented costs charged to M/s Voltas Ltd., included in the income for financial year 2000-01, and written off as bad debt. The Commissioner of Income-tax (Appeals) allowed the claim, which the Tribunal affirmed, finding no factual error in the assessee's claim.4. Charging of Interest Under Sections 234B and 234C:The assessee contended that interest under sections 234B and 234C should not be charged as the total income was computed under section 115JB. However, the Tribunal noted that the Supreme Court's judgment in Jt. CIT v. Rolta India Ltd. mandated charging such interest. Consequently, the Tribunal dismissed the assessee's ground on this issue.Conclusion:The appeals of the assessee were partly allowed, with significant relief granted on the issues of capital gain determination and deduction of leave encashment provision. The Revenue's appeal was dismissed, affirming the deletion of the bad debt addition. Interest under sections 234B and 234C was upheld as per the Supreme Court's precedent.