TaxTMI 
TaxTMI 
2009 (5) TMI 615
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....puting the adjusted book profit at Rs. 2,86,09,379 under section 115JA of the Act and loss of Rs. 3,05,25,654 under other provisions of the Act. This return was revised on 28-3-2002 declaring adjusted book profit at Rs. 1,92,73,285 under section 115JA and total income under the other provisions at a loss of Rs. 3,05,25,654. The assessment was completed under section 143(3) of the Act on 28-3-2003 determining the adjusted book profit at Rs. 1,92,73,285, as declared in the revised return, and the total income at Rs. 2,45,57,950. The case record of the assessee was examined by the ld. CIT (Appeals). The assessment order was found to be prima facie erroneous and prejudicial to the interest of the revenue. Therefore, a notice under section 263 dated 29-6-2004 was served on the assessee. This notice was followed by another notice dated 28-7-2004 under the aforesaid provision. The assessee complied with both the notices. After considering the facts of the case and the submissions of the assessee, the ld. CIT revised the order, particularly vide paragraphs 3, 4 and 5 of her order, and directed the Assessing Officer to pass a consequential order. Such order was passed by the Assessing Offic....
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....o matters. Accordingly, it was also held that the assessee could not have reduced the aforesaid amount from the book profit while computing adjusted book profit. 3.3 Before us, the ld. counsel drew our attention to page 18 of the paper book, being the report of the Board of Directors, wherein it was mentioned that the capital assets of the company; being land, building, plant and machinery, which were acquired over last three decades, were revalued to reflect their current replacement cost as on 1-7-1985. The revaluation was carried out by a professional and accredited firm of valuers, which resulted in upward valuation of land, building, plant and machinery by Rs. 40.85 crore, which has been credited to "Assets Revaluation Reserve". Further our attention was drawn towards the accounts as on 30-6-1986, Schedule-2 of which shows addition of about Rs. 40.84 crore to the Capital Redemption Reserve. Our attention was also drawn towards page 145 of the paper book, being the last page of the order of "B" Bench of Delhi Tribunal in the case of the assessee for assessment year 1999-2000 in ITA No. 3923 (Delhi)/2002, dated 4-4-2006, wherein it was mentioned that "In over all analysis we ....
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....n this connection, it was submitted that the order pertained to assessment year 2000-01 and, therefore, in terms of the proviso, the aforesaid clause (i) could not have been invoked for working out the adjusted book profit. It was also submitted that the decision in the case of Apollo Tyres Ltd. (supra) supports the case of the assessee inasmuch as adjustments have to be made to the book profits as provided in the Explanation to the section and clause (i) of the Explanation has to be given effect to. In this connection, it was also submitted that the finding of the ld. CIT that the provision of the aforesaid Explanation (i) was not applicable was not based on any sound logic. In this connection, reliance was placed on the order of "D" Bench of Delhi Tribunal in the case of SRF Ltd. v. Asstt. CIT [1993] 47 ITD 504 , which dealt with analogous law contained in section 115J. The order dealt with the provision as it stood under section 115J for assessment year 1989-90. It was held that the withdrawal from the Revaluation Reserve, which had not been created by making a debit to the profit and loss account but by the increase in the value of assets on their revaluation, credited to profi....
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....ial on record and the Commissioner felt that there should be further enquiry, he could exercise such jurisdiction conferred on him under section 263 of the Act. Reliance was also placed on the decision of Hon'ble Delhi High Court in the case of Duggal & Co. v. CIT [1996] 220 ITR 456 , in which the reason for borrowing fund at a higher rate of interest and lending at a lower rate of interest was not examined by the Assessing Officer. The Hon'ble Court was of the view that the order was amenable to revisionary jurisdiction and the CIT was right in directing the Assessing Officer to disallow that part of the interest which was incurred for non-business purposes. Reliance was also placed on the order of Delhi Bench of the Tribunal in the case of Ranbaxy Laboratories Ltd. v. Addl. CIT [2008] 110 ITD 428 , in which it was held that acceptance of the value of an international transaction without application of mind by the Assessing Officer resulted into an order which was erroneous and prejudicial to the interest of revenue. 3.7 It was submitted that the whole position has to be seen on the date when the revisionary order was passed by the Commissioner as held by Hon'ble Supreme Court ....
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....t allowed by the Assessing Officer. At the time of creation of the reserve, the provision contained in section 115JA was not there on the statute. It was inserted in the Act by Finance (No. 2) Act, 1996, with effect from 1-4-1997. Thus, it became applicable for assessment year 1997-98 and onwards. Therefore, insofar as computation of adjusted book profit is concerned, the creation of reserve had no implication and even it did not alter in any manner the computation of the total income. This provision remained on the statute book for assessment years 1997-98 to 2000-01. Since the reserve was not created in these years, there was no question of any adjustment in the book profit in these years at the time of its creation. Accordingly, there could have been no implication of withdrawing certain amount from this reserve and crediting it to the profit and loss account. Therefore, the case of the ld. CIT is based on erroneous interpretation of law that the reduction could not be made in respect of amount withdrawn from this reserve as it had been credited to profit and loss account. In any case, such an interpretation is amenable to a valid difference of opinion, as held in the case of SR....
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.... during the previous years 1984-85 to 1997-98, aggregating to about Rs. 14.58 crore. The assessee earned dividends from these assets aggregating to about Rs. 13.42 crore. Therefore, by and large the whole of the investment was recouped by way of dividend. It was further submitted that it was argued before her that no expenditure was incurred for earning the aforesaid income. However, the ld. CIT worked out a formula on pages 8 and 9 of her order and allocated expenditure of Rs. 183.63 lakhs for earning the income. This amount was much more than the dividend income earned by the assessee. It was also submitted that some shares were also sold and, therefore, it can be said that the whole of the investment was recouped by the assessee. In such a situation, no expenditure could be allocated by making estimates and working out a formula to allocate expenditure in relation to earning this income. 4.3 In order to support the aforesaid contentions, reliance was placed on the decision of Hon'ble Bombay High Court in the case of CIT v. Reliance Utilities & Power Ltd. [2009] 178 Taxman 135 , a case dealing with the interpretation of section 36(1)(iii) regarding deduction of interest. The g....
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....es and bonds from this account, on which dividend income was earned. The case of the assessee was that it was in possession of huge funds of its own out of which investments were made. In support thereof certain charts were filed before the CIT (Appeals) listing year-wise profits and reserves. However, the Assessing Officer and the CIT (Appeals) allocated some interest towards earning of the dividend income without recording any positive finding that borrowed funds were used for investment in shares and bonds. On these facts, the Tribunal mentioned that various facts brought on record by the assessee were not considered in proper perspective. The lower authorities had also not established nexus between borrowed funds and investments. Consequently the matter was restored to the file of the Assessing Officer to re-examine the matter and ascertain whether any borrowed fund was invested in shares and bonds. 4.5 In the rejoinder, the ld. counsel relied on the decision in the case of Apollo Tyres Ltd. ( supra). It was also submitted that no change could be made to book profit for disallowing any expenditure for earning non-taxable income on assumptions and presumptions. 4.6 We have....
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....he order in the case of Daga Capital Management (P.) Ltd. (supra) heavily relied on the rules framed under sub-section (2) of section 14A, which is not applicable while interpreting clause (f) of the Explanation. 4.8 It is an admitted fact that the funds of the assessee are mixed funds. Investment was made in past and in this year there was a reduction in the investment as some were disposed of. Thus, there was no fresh investment in this year. No disallowance was made in past under the aforesaid clause (f). It is the case of the learned counsel that the investments have been more or less recouped by way of dividends received in past and the sales effected, thus, leading to a conclusion in the scenario of mixed funds that no expenditure was incurred in this year for earning the dividend income. It was also his case that the capital and free reserve far exceeded the investments. Therefore, prima facie, the presumption is that investment was made out of own funds. In this connection, he relied on the decision rendered under section 36(1)(iii) regarding ascertainment of interest-bearing funds which were not used for the purpose of business but diverted as interest-free advances to ....
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.... cannot be said to be prejudicial to the interest of the revenue because it did not find favour with the ld. CIT. In this view of the matter, these grounds are allowed. 5. Various parts of ground No. 9 are in relation to disallowance of the expenditure of Rs. 183.63 lakhs in computing the total income, holding it to be the expenditure incurred for earning the dividend income. The case of both the parties in this matter was same as in respect of ground Nos. 6 to 8 regarding computation of adjusted book profit. The learned DR heavily relied on the order of Special Bench of Mumbai Tribunal in the case of Daga Capital Management (P.) Ltd. (supra), in which it was held that provisions contained in sub-section (2) of section 14A and rule 8D of Income-tax Rules, 1962, operate retrospectively. The expenditure to be disallowed under rule 8D far exceeds the expenditure disallowed by the ld. CIT. We have already seen that the provisions of clause (f) of the Explanation to section 115JA are analogous to the provisions contained in sub-section (1) of section 14A. Therefore, on the basis of our order in respect of ground Nos. 6 to 8, it is held that the provision contained in sub-section (1) ....