TaxTMI 
TaxTMI 
2019 (2) TMI 115
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....ers u/s 263 of the Act, observed that an amount of Rs. 64.0 crores, being loss on sale of investments, was reduced from the total income in the statement of computation of total income and computation of book profit u/s 115JB, even though the same was not debited in the P&L account. Since the tax on the regular income was less than the book profit computed as per the provision of section 115JB of the Act, the book profit was deemed to be the taxable income of the assessee and while doing so, the book profit was computed by deducting the loss on sale of investments referred above. However, as per the provision of section 115JB no deduction of any amount of this nature is allowable and the action of the assessing officer in allowing the same is contrary to law and therefore rendered assessment order erroneous and the allowance of deduction resulted in prejudice to the interests of the revenue. 3.1 In view of the above observations, a show cause notice u/s 263 dated 04/12/2017 was issued to the assessee, calling for its objections, if any, as to why the impugned assessment order should not be revised or set aside. 4. In response to the said show cause notice, the assessee vide lette....
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....he case law relied upon is not applicable. 12. In view of the above, the adjustment of loss on sale of investments amounting to Rs. 64.00 Crores is not in conformity with the provisions of section 115 JB and therefore by allowing the same, the AO committed an error and caused prejudice to the revenue, by way taxing lesser amount of book profits. Thus the above order is not only erroneous but also prejudicial to revenue. Therefore, by virtue of the powers vested in me u/s 263 of the Income tax Act, I hereby set aside the order of the AO with a direction to disallow the claim of deduction of loss on sale of investments of Rs. 64.00 crores and to recompute the book profits in line with the directions issued as above." 6. Aggrieved by the order of CIT, the assessee is in appeal before us raising the following grounds of appeal: 1. That on the facts and in the circumstances of the case and in law, the learned Principal Commissioner of Income Tax ('Pr.C1T') erred in assuming jurisdiction under Section 263 of the Income-tax Act, 1961 ('the Act'). 2. That on the facts and in the circumstances of the case and in law, the order passed by the Assessing Officer for th....
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....g officer on the weight of facts and circumstances which is not permitted for initiating revision proceedings. c. Where a matter is debatable or because either views are possible, revision does not lie. d. Mere loss of revenue because more tax can be collected by increasing the book profits u/s.115JB does not justify initiation of revisionary proceedings. e. In any case the reduction of loss - of Rs. 64 Crores on the sale of shares is an item that should reflect in the P&L account and was correctly done to bring it in conformity with part II of Schedule VI read with Section 211(1),(2),(3A) and Accounting Standards as prescribed lCAl u/s. 211 (3C) or the Companies Act. The assessing officer was correct in permitting the deduction of this amount from profits shown in P&L account. Reasoning of the Principal Commissioner given in the impugned order 14. The learned Principal Commissioner of Income tax -2, Hyd. passed the impugned order u/s 263 of the I.T Act directing the Assessing Officer to disallow the claim of deduction of loss on the sale of investments of Rs. 64 crores and to recompute the book profits. The said impugned order is passed on the basis that: a) the ....
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....dt.21-3-2016 (Pages 90 and 91 of paper book). It is also admitted position that a detailed reply dt. 28-3-2016 was filed in response to the show cause notice (Pages 92 to 110 of paper book). After taking and considering the explanation on record, the book profit was computed by deducting the loss on the sale of investments amounting to Rs. 64 crores from profit shown in the Profit & Loss account. However, the assessment order is silent because the explanation of the appellant was accepted and therefore it entailed no discussion. It is settled law that when a query was raised and there was a reply, but there is no discussion in the assessment order, it amounts to consideration of the explanation furnished. It is not necessary that the assessment order should contain any reference or discussion as the explanation was accepted. Attention is invited to the following cases on the subject: a) MOIL Ltd. Vs. C.I.T, 396 ITR 244 @ 249-250 Bom) b) CIT Vs. Aroni Commercial Ltd., 393 ITR 673 @ 676 (Bom) c) CIT vs. Nirav Modi, 390 ITR 292 @ 301 (Bom.) d) CIT vs. Fine Jewellery (India) Ltd., 372 ITR 303 @ 306-307 (Bom) e) Aroni Commercial Ltd. Vs. DCIT 362 lTR 403 @ 414 (Bom.) f....
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.... Companies Act further requires that every profit & loss account should comply with the accounting standards. Sub section (3C) of section 2 of the Companies Act requires that the profit & loss account should confirm to the Accounting Standards prescribed by ICAI The Accounting Standards require that the profit & loss on the sale of investments should be charged or credited to the P&L account. Therefore, it is incumbent on the part of the appellant to make such adjustments to the profit or loss to bring it in conformity with the provisions of section 211, accounting standards and Part II of Schedule VI. 23. Since it is an admitted position that the loss was sustained and the said loss should have been charged to the profit & loss account which was not done so, the explanation offered for reduction of book profits was accepted and the Assessing Officer permitted the deduction of profit the loss of Rs. 64 crores sustained on the sale of investments from the profit shown in the P&L account. 24. The appellant referred before the Pr. CIT the following case law in support that where the profit or loss arrived at is not in conformity with the provisions of the Companies Act viz. Part....
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.... adjusted only in accordance with the explanation (1) and no further. The appellant submits that there are two stages spoken of in section 115JB of the I.T. Act for calculation of MAT profit or loss. The first stage is that the profit or loss should be in conformity, with Part II of Schedule VI. If it is not in conformity the tax payer or the revenue is required to make such adjustments to bring the figure in, conformity with the requirements of the Companies Act, 1956. The second stage is to the profit or loss so arrived at as per Part II of Schedule VI, further adjustments ('MAT adjustments') needs to be made as provided in the Explanation-I. 27. The learned Principal Commissioner of Income tax ignored Stage 1 adjustments completely and straightaway proceeded to Stage-2 viz MAT adjustments It would be appropriate to state here that Form No.29B issued under Rule 40B by the Chartered Accountant should specify whether the profit and loss account is in accordance with the provisions of Part II of Schedule VI of the Companies Act and if there is any variation to report the same. The learned Principal Commissioner of Income tax accepts at para 11 of the impugned order that t....
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.... No. Name of the case Reported in 1 Spectra Shares & Scrips Pvt. Ltd. 354 ITR 35 (A) 2 Moil Ltd. Vs. CIT 396 ITR 244 (Bom.) 29. The learned Principal Commissioner of Income tax in his impugned order dt.15-3-2018 referred to some cases in support of his order. The appellant submits that all these cases refer to general principles and proceed on the basis that there was an error in the order. He referred to the cases which does not in any way cover the factual position explained in the case of the appellant. In fact, the various authorities cited by the appellant support the appellant's case that there is no error in the assessment originally made and in any event, the initiation of proceedings uls 263 of the I.T Act is uncalled for on the facts of the case. The cases referred to in these submissions are more direct, relevant and cover the issue. 30. The learned Principal Commissioner of Income tax dismissed the decision of the Hon'ble A.P High Court in the case of Spectra Shares & Scrips Pvt. Ltd. Vs. C.I.T (reported in 354 ITR 35) stating that it is no longer applicable in view of the amendment to section 263 of the I.T Act by way of insertion of Explanation-....
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....trial Co. Ltd. Vs. CIT, [2000] 243 ITR 83 2. CIT Vs. Varanasi Khanta Rao, [2015 377 ITR 602 9. Considered the rival submissions and perused the material on record. We notice that assessee is in appeal on assuming jurisdiction u/s 263 by ld. Pr. CIT and on merit. On perusal, it is clear from the fact that assessee has prepared its financial statement without following one of the accounting standard, which was relevant for the transaction during this AY. The assessee brought this issue before the AO and submitted its submission that it was legally empowered to modify the book profit for the purpose of section 115JB. After initial verification and after further submissions of assessee, he accepted the contention of the assessee without discussing in his order. The same was noticed by ld. Pr. CIT during verification of assessment records having jurisdiction u/s 263. By invoking power u/s 263, he termed the assessment as erroneous as well as prejudicial to the interests of the revenue. After considering the submissions, in our considered view, as held in the case of M/s Malabar Industrial Co. Ltd., [2000] 243 ITR 83, an incorrect assumption of facts or an incorrect application of l....
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....al general meeting in accordance with the provisions of section 210 of the Companies Act, 1956 (1 of 1956) : Provided further that where the company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956), which is different from the previous year under this Act,- (i) the accounting policies; (ii) the accounting standards adopted for preparing such accounts including profit and loss account; (iii) the method and rates adopted for calculating the depreciation, shall correspond to the accounting policies, accounting standards and the method and rates for calculating the depreciation which have been adopted for preparing such accounts including profit and loss account for such financial year or part of such financial year falling within the relevant previous year." From the above, it is clear that for the purpose of section 115JB, the financial statements including profit or loss statement shall be prepared duly following the required accounting standards, policies, accepted methods and the same should also laid before the company at its AGM. Therefore, it requires two conditions to be fulfilled. One, the annual accounts should be prepared duly....