TaxTMI 
TaxTMI 
2011 (8) TMI 515
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.... the I.T. Act. 3. Whether on the facts and in the circumstances of the case the ITAT is correct in law in holding that the credit given to the profit and loss account by the amount withdrawn from revaluation reserve account is to be reduced." Question No. 1 2. The assessee at the relevant time was in the business of manufacturing and selling nylon yarn, tyre coard fabrics, flours chemical etc. which was carried on through four divisions. In the course of business incurred expenses on travel undertaken by its employees. In consonance with provisions of section 37(3) of the Income-tax Act, 1961 (hereinafter referred to as 'IT. Act') read with Rule 6D of the Income-tax Rules, 1962 (hereinafter referred to as 'Rules'), the assessee had calculated the following disallowances for each of its four units: "ISD/HD 7,65,514 IFD 2,16,722 LD 1,334 FCD 34,537 10,18,107" 3. The disallowance had been computed by the assessee by aggregating trips made by an employee during the year. Thus, if there was any surplus amount, according to the limits prescribed under Rule 6D, the s....
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....ce had to be calculated bearing in mind the aggregate number of trips that an employee undertook in the assessment year in issue. Mr. Ganesh in support of his contention placed reliance on the judgment of the Division Bench of the Calcutta High Court in the case of CIT v. General Electric Co. of India Ltd. [2002] 255 ITR 22/[2003] 126 Taxman 55. 8. We have heard the learned counsel for the parties. In order to adjudicate upon this issue, it would be necessary to extract relevant portion of Rule 6D(2): "(2) The allowance in respect of expenditure incurred by an assessee in connection with travelling by an employee or any other person within India outside the headquarters of such employee or other person for the purposes of the business or profession of the assessee shall not exceed the aggregate of the amounts computed as hereunder:- (a) in respect of travel by rail, road, waterway or air, the expenditure actually incurred; (b) in respect of any other expenditure (including hotel expenses or allowances paid) in connection with such travel, and amount calculated at the following rates or the period spent outside such headquarters: &nbs....
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....her than an employee the limit is calculated keeping in mind the rates applicable to a highest paid employee. 10. As noticed above, there are two provisos to Rule 6D(2). The first proviso specifies that the limits prescribed in the Rule (which are referred to hereinabove by us) shall stand increased by a sum equal to 33.33 per cent if the stay of the employee or any other person outside the headquarters is in Bombay (now Mumbai), Calcutta (now Kolkata) and Delhi. The second proviso enters a further caveat, which is, that if such an employee or other person stays outside his or her headquarters, in a guest house maintained by the assessee then the limits prescribed shall be pegged at 1/3rd of the rates prescribed, and where, the employee or such other person is provided only free lodging, the limits prescribed shall stand reduced to one-half. 11. To our minds, clearly the disallowance will have to be worked on per journey basis. The reason being: it is quite possible that an employee or any other person may embark on a journey say in the first instance, to a place other than Bombay (now Mumbai), Calcutta (now Kolkata) and Delhi, while a subsequent journey may take him on a vis....
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....book profits submitted by the assessee, as required under the provisions of section 115J of the I.T. Act, vide its letter dated 31-3-1992, showed loss of Rs. 10,50,90,557. The Assessing Officer came to the conclusion that the assessee in calculating the figure of loss had not taken into account the amount transferred from the re-valuation reserve account in respect of two of its divisions, which according to him, ought to have been included so that depreciation debited in the books of account continued to be provided on original cost. According to the Assessing Officer what the assessee had done was that it had provided depreciation in its books of account on revalued assets but had not credited the profit and loss account with the difference between depreciation charged on the revalued account and that which was chargeable on the original cost. This, according to the Assessing Officer, had resulted in a higher amount of depreciation being charged to the accounts which resulted in the book profits being deflated. The Assessing Officer also noted that prior to the insertion of section 115J in the I.T. Act (i.e., prior to assessment year 1988-89) the assessee used to reflect the amou....
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....t Assessing Officer had erred in computing the taxable profits under section 115J at Rs. 2,15,90,554 as against the returned income which was declared as 'nil'. The CIT(A) after recording in detail the submissions of the assessee came to the conclusion that since the assessment order was passed on the same day on which the computation of book profits was handed over by the assessee, i.e., 31-3-1992, the Assessing Officer was not able to devote sufficient time with regard to the issue at hand, which in turn had prevented the assessee from putting forth his argument before the Assessing Officer, and hence, in the fitness of things the order of the Assessing Officer ought to be set aside on the said issue, and the matter remanded for a de novo adjudication. 16. The assessee, however, carried the matter in a further appeal to the Tribunal. Before the Tribunal it was contended that the issue involved, was a pure question of law, and hence, the Tribunal could hear and decide the issue. The Tribunal agreed with the contention of the assessee. The Tribunal on the merits agreed with the contention of the assessee that the amount withdrawn from the revaluation reserve account would have b....
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....88 the credit to the profit & loss account by the amount withdrawn from the reserve account, created in the previous year relevant to the assessment year commencing on or after 1st day of April, 1988, by debit to the profit and loss account, shall not be allowable to be reduced from the book profit, unless the book profit of such year has been increased by those reserves. Since, the revaluation reserve was created before 1-4-1988, and by not debiting to the profit & loss account, in the light of the explanation rendered at the time of the amendment, giving the intent of the legislature (reproduced above), and by virtue of the conclusion of the Special Bench (supra), the credit that has been given to the profit & loss account by the amount that is withdrawn from the revaluation reserve account, count not have been considered at all for arriving at the figure of the book profit. If, it is proceeded as if the reference to the net profit as per profit and loss account, is that figure after all adjustments on account of transfers to and from the reserves, then, since the revaluation reserve was not created by any debit to the profit & loss account, in the previous year relevant to th....
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...., the amount transferred to reserve account, it postulates that the reserve was a transfer out of current profits, which was not a fact." The above is suggestive of the position that, notwithstanding that, the profit & loss account has been credited with the amount that has been withdrawn from revaluation reserve account, it could not be added to the book profit, because, the prerequisite for such an addition postulates that, the reserve was created out of current years profits, which is not a fact in the instant case too. Therefore, the Special Bench decision, squarely provides answer on the issue, that, the addition to the book profit, by the amount withdrawn from the revaluation reserve is not tenable, because the credit to the reserve account was not by means of any debit to the profit & loss account in the current year, but, by the enhancement of the value of the assets, that too, in the earlier years, viz., 1983 & 1986. Respectfully following the Special bench (supra) decision, we hold that, the Assessing Officer, having introduced his own criteria of adjustments, not intended by the legislature, of taking the profit figure after credit of withdrawal from the revaluation r....
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.... whereas in the present case, the proviso had no application as the revaluation reserves have been created prior to 1-4-1988. 19. We have heard the learned counsel for the parties on this issue as well. In order to decide this issue it would be pertinent to bear in mind that Minimum Alternate Tax (in short 'MAT') was introduced in the IT Act only to get over a situation whereby, companies which were otherwise earning large profits and distributing huge amounts in the form of dividend to its shareholders were paying no tax or a negligible amount of tax by virtue of deductions and exemptions made available to them under various provisions of the IT Act. The Legislature, therefore, devised a methodology whereby at least 30 per cent of the book profits were made taxable by insertion of such like provisions. The MAT provisions have been amended from time to time. The history of MAT has been pithly noted by the Supreme Court in the judgment rendered in Indo-Rama Synthetic (I.) Ltd.'s case (supra). Therefore, we need not reiterate the same. However, since much stress was laid by the revenue on the observations it would be relevant to note what it dealt with and the observations made th....
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....ied in section 80HHD, or sub-section (1) of section 33AC) 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 (f) The amount or amounts of expenditure relatable to any income to which any of the provisions of Chapter III applies; or (g) The amount withdrawn from the reserve account under section 80HHD, where it has been utilised for any purpose other than those referred to in sub-section (4) of that section; or (h) The amount credited to the reserve account under section 80HHD, to the extent that amount has not been utilised within the period specified in sub-section (4) of that section; (ha) The amount deemed to be the profits under sub-section (3) of section 33AC, if any amount referred to in clauses (a) to (f) is debited or, as the case may be, the amount referred to in clauses (g) and (h) is not credited to the profi....
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....nt previous year prepared under sub-section (2), as increased by - .... (b) the amounts carried to any reserves, by whatever name called, other than a reserve specified under section 33AC; or if any amount referred to in clauses (a) to (f) is debited to the profit & loss account and is reduced by - (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 & 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 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 115JAA, as the case may be;" 20. As would be evident on a bare perusal of both section 115....
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....g 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 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 1-4-1988. 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 plaus....
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....ing the differential depreciation, was transferred out of the said revaluation reserve of Rs. 2,88,58,19,000 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 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 is credited to the profit and loss account. Now, from the above facts, it is clear that neither the said amount of Rs. 2,88,58,19,000 nor Rs. 26,11,74,000 had ever gone to increase the book profits in the said year ending 3....