TaxTMI 
TaxTMI 
2016 (6) TMI 525
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....processed under section 143(1) of the Act, and thereafter, the case of the assessee was selected for scrutiny assessment, and notice under section 143(2) of the Income Tax Act was issued on 8.8.2013 which was served upon the assessee. On scrutiny of the accounts, it revealed to the AO that the assessee has shown its income as under: PARTICULARS AMOUNT Business Income -1,68,97,684 Long term capital gain 11,85,91,872 Short term capital gain 1,30,95,761 Total 11,47,89,949 Less: Unabsorbed depreciation 11,47,89,949 Net Income Nil Working of Book profit u/s.115JB of the Act. PARTICULARS AMOUNT Book profit after adjustment 27,36,90,817 Less: Adjustment of c/f loss or unabsorbed depreciation as per clause (iii) of the explanation to section 115JB(2) of the Act. -27,36,90,817 Book Profit Nil 4. According to the AO, the assessee has not calculated book profit correctly. Therefore, he issued show cause notice dated 20.3.2015 and directed the assessee to explain why book profit should not be calculated at Rs. 27,51,00,602/- instead of NIL book profit shown by the assessee. The ld.AO has reproduced the show cause notice in para-4 of page no.2 o....
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....t, which is to be prepared on the basis of actual books of accounts of the assessee. The adjustment of debit balance in the profit & loss account against the credit in the rehabilitation scheme account does not have statutory backing, and merely it was done as part of rehabilitation scheme as per the directions given by the BIFR. It did not imply that it was in accordance with the Accounting Standard and books of accounts containing such adjustments were in conformity with the requirement of company law. Therefore, while preparing the accounts, under Schedule-VI of the Companies Act, the assessee has considered the brought forward loss as well as unabsorbed depreciation, under clause (iii) of Explanation to section 115JB (2) it has reduced the unabsorbed depreciation of earlier years. The assessee has appraised the AO with regard to the amounts which were of capital nature, and it was transferred to the credit of rehabilitation account. The AO has noticed such details on page no.9 of the assessment order. It is imperative upon us to take note of these details: "Addressing to query a) above, the Company submits that as a consequence of the Rehabilitation Scheme, the assessee during....
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.... income tax proceedings, and if the AO is able to point out specific circumstances, which can demonstrate that earlier year's view was contrary to law, then, he was justified to take a different view in subsequent year. On merit, he was of the opinion that once unabsorbed deprecation/loss were form part of the profit & loss account, and such debit balance was set off against the credit balance available in the rehabilitation account, then nothing remained with the assessee in the books of accounts, which can be claimed as reduction while computing the book profit for the purpose of section 115JB of the Income Tax Act. 7. Before us, the ld.counsel for the assessee has reiterated the stand of the assessee as was raised before the Revenue authorities. For buttressing his proposition that in earlier years, the AO himself allowed reduction of book profit by the alleged unabsorbed depreciation or loss, whichever was lower under clause (iii) of the Explanation to section 115JB(2) of the Act, he put reliance upon the judgment of the Hon'ble Supreme Court in the case of CIT Vs. Excel Industries, reported in 358 ITR 295. He further contended that in Asstt.Year 2010-11, the AO has allowed re....
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....ny, other than a company referred to in clause (b), shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of 97Part II of Schedule VI to the Companies Act, 1956 (1 of 1956); or (b) ...... Explanation [1].-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) (b) (c) (d) (e) (f) (g) (h) i) if any amount referred to in clauses (a) to (i) is debited to the profit and loss account and as reduced by, (iii) the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account. Explanation.-For the purposes of this clause,- (a) the loss shall not include depreciation; (b) the provisions of this clause shall not apply if the amount of loss brought forward or unabsorbed depreciation is nil; (vii) the amount of profits of sick industrial company for the assessment year commencing on and from the assessment year relevant to the previous year in which the said company has become a sick industrial compan....
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....ferred to clause (b) shall for the purpose of this section, prepare its profit & loss account in accordance with the provisions of Part-II and Part-III of Schedule-VI of the Companies Act, 1956. The area of dispute between the parties lies here. In other words, the controversy boils down to the issue whether the restructuring credits are required to be credited to the profit & loss account in terms of Part-II and III of schedule-VI of the Companies Act, which will wipe out or extinguish the debit balance available in the profit & loss account. The case of the AO is that once the assessee has made credits in the profit & loss account by way of restructuring, then, the debit balance would be considered as wipe out from the profit & loss account, and therefore, no loss/unabsorbed deprecation are available for reduction under clause (iii) of Explanation to section 115JB (2). In other words, the accumulated loss has been reduced from the restructuring credits in the profit & loss accounts and can be said that there are no losses as per the books of accounts. The ld.Revenue authorities below have not made reference to Part-II and III of Schedule-VI to the Companies Act specifically for h....
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....flows or encashment of assets or decrease of liabilities that result in increase in equities, other than relating to contributions from equity participants. Similarly, expression "expenses" has been defined to mean decrease in economic benefits during the accounting period in the form of outflows, the depletion of assets or increase of liabilities that result in decreases in equities, other than those relating to distributions to equity participants. This guidance note provides that while preparing statement of profit & loss account under Part-II, one has to identify revenue from operations which will include sale of products, sale of services, other operating revenue, less excise duty. The next item is "other income". Under the head "other income", the company has to show interest income, dividend income, net gain/loss on sale of investments, other non-operating income. The next item is share of profit & loss in partnership firm, share of profit/losses in limited liability partnership. Fifth item is "expenses". Under the head "expenses", the company has to show cost of material consumed, purchases of stock-in-trade, change in inventories of goods, work-in-progress, employee benefi....
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....ting to income and expenditure, as also appended in the Guidance Note. These items were to be arranged in seriatim against whom information should be disclosed in particular. Thus profit & loss account is to contain the income and expenditure of a company in respect of accounting period covered. There cannot be any question for including capital surplus which cannot be regarded as income. At this stage, we would like to refer the order of the ITAT, Jaipur Bench, (as relied upon by the ld.counsel for the assessee) in the case of ACIT Vs. Shree Cement Ltd. rendered in ITA No.635/JP/2010 and others. In this case, the assessee has received capital subsidy. The assessee excluded capital receipts from profit & loss account. The AO has included it for the purpose of section 115JB. The Tribunal observed as under: "13.2 Our above view also finds support from the decision of Hon'ble Apex Court in the case of Padmaraje R. Kadambande Vs. CIT (1992) 195 ITR 877 (SC), wherein it has been held by the Apex Court that Capital Receipts are not income within the definition of Sec 2(24) of the Act and hence are not at all chargeable under the I.T.Act. A receipt which is neither 'Profit' nor 'Income' ....
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....have been completely settled and the secured creditors have waived-off the aggregate: balance Rs. 40.94 crores on principal, interest, penal interest and other charges upon repayment bf OTS amount.. The promoters have contributed Rs. 3.67 crores towards additional working capital. In accordance with the rehabilitation scheme the Company-has issued 15,50,00,000 fresh equity shares of Re.1/- each .fully paid up on a preferential basis in favour of the promoter groups for an amount aggregating to Rs, 15.50 crores. In addition, the promoters of the Company have, brought in Rs. 29.00 crores by way of a soft loan to the" Company. The soft loan from the promoters is interest free and subordinated to banks/financial institutional loans and shall, not be withdrawn till the end of the Scheme period. The effects of Rehabilitation Scheme, in terms of write-down in Share Capital, utilization of reserves and-waiver of dues by secured creditors are as disclosed in the Profit & Loss account under "Effect Rehabilitation Scheme". 18. A perusal of the above would indicate that not a single item of alleged restructuring credit was of income nature. If that be so, then, how the loss can be set of....
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....st the alleged paid-up capital transferred to the profit & loss account. In subsequent years, it is not to be examined, the manner and purpose in which the said earlier business loss/depreciation had been adjusted by the assessee against its capital asset. When the dispute travelled to the Tribunal, the Tribunal has allowed the claim of the assessee, and discussion made by the Tribunal reads as under: "7. We have heard the rival submissions and perused the orders of the lower authorities and the material available on record. We find that in the instant case, the original assessment was completed u/s 143(3) on 28.12.2007 wherein book profit u/s 115JB was computed at NIL after allowing set off of brought forward loss or depreciation of Rs. 1,13,01,457/-. The said order of assessment was revised by the ld. CIT vide impugned order passed u/s 263 of the Act. The ld. CIT was of the opinion that there was no amount which could be allowed as deduction under clause (iii) of Explanation to section 115JB(2) of the Act as there was no loss balance in the profit and loss account. It is not in dispute in the instant case that the assessee company suffered loss continuously since F.Y. 2000-01 ti....
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.... 74A of the Act or u/s 32 of the Act. Herein, it may be noted that phrase used is 'books of account' and not 'profit and loss account' or 'balance sheet'. 'Profit and loss account, balance sheet and books of account' are different and distinct terms and in a given circumstance, may not carry the same meaning. Though 'profit and loss account' and 'balance sheet' are normally drawn up from the books of account and the amount reflected therein agree with the balance sheet as per books of account, but books of account also contain many details and break up of balances which are disclosed in a summarized manner in the profit and loss account and balance sheet and hence, a figure which may be available as per books of account may not always be necessarily apparently visible from either the profit and loss account or balance sheet. The said clause (iii) cannot be read to mean that if the loss suffered in a year and unabsorbed depreciation of that year are not kept separately and shown distinctly in the balance sheet, then no deduction for the said loss or depreciation can be allowed in the succeeding years in computing the book profit. There is no such further legal requirement that the l....
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....the book profit as per clause (iii) of Explanation to Section 115JB(2). The contention of the assessee, as discussed earlier was that accounts for the purpose of giving effect the scheme of BIFR were not required to be finalized in consonance with Part-II and III of Schedule-VI. Therefore, even if the assessee has shown the alleged set off of debit balance against the restructuring credits brought in the accounts, for the purpose of balance sheet and presentation, that does not mean that the assessee has been denuded to say that its accounts for subsequent period would not be prepared on the basis of annual affairs of the company in terms of Part-II and III of Schedule-VI. On other words, the maintenance of accounts under Part-II and III of Schedule-VI is an independent exercise which is to be prepared in consequent to the requirement under these provisions. Part-II and III of Schedule-VI nowhere envisage that the items which are not of income in nature are required to be recognized under the head "income" in the profit & loss account. The simple logic is how an entity or person can be put under a tax liability on its own on capital contribution ? If somebody has a reserve and surp....
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....s under Part-II and Part-III of Schedule-6, therefore, you are not entitled for higher rate of depreciation as per WDV method while assessing the income of the assessee under regular provision ? All these Acts operate independently in their field. As far as plea of the assessee that principle of consistency ought to be applied is concerned, this plea has been jettisoned by the ld.Commisisoner simply for the reason that res judicata is not applicable in the income tax proceedings. But this aspect has been considered by the Hon'ble Supreme Court in the case of CIT Vs. Excel Industries Ltd. (supra) and Radhasoami Satsang Vs. CIT, 193 ITR 321 (SC). In a number of authoritative pronouncements, it has been held that though the principle of res judicata is not strictly applicable in the income tax proceedings, but where the facts running in different assessment years have not changed, then, consistent approach ought to be adopted. The Income Tax Officer is free to take different opinions in different assessment years, but he should have disclosed the reasons why he is taking a different stand in different years. In the present case also, the ld.CIT(A) failed to justify why a different sta....