TaxTMI 
TaxTMI 
2018 (6) TMI 1751
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....3. In this appeal, the assessee has raised the following Grounds of appeal:- "1. On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in confirming the action of Learned Assessing Officer in making disallowance of reduction on account of the provision made for premium on redemption of preference shares of Rs. 2,42,15,414/- while computing the book profits u/s 115JB of the Act, without appreciating the fact that it is an ascertained liability and hence liable to be reduced while computing book profit u/s 115JB of the Act. 2. On the fact and circumstances of the case as well as in law, the Learned CIT(A) has erred in confirming the action of Learned Assessing Officer in confirming the action of Assessing Officer in treating the interest income from FDR as income not derived from the business and accordingly not eligible for deduction u/s 80IB of the Income Tax Act, 1961 without considering the facts & circumstances of the case." 4. At the time of hearing, the learned representative for the assessee has not pressed Ground of appeal no. 2, which is hereby dismissed as not pressed. Thus, the only Ground surviving in this appeal ....
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....ing Officer observed that assessee had reduced the amount of Reserves used for redemption of Preference shares from the Profit & Loss Account, which is not allowable since assessee had not credited the amount of Reserves to the Profit & Loss Account. Accordingly, the Assessing Officer disallowed a sum of Rs. 2,42,15,414/-. 6. Before the CIT(A), assessee made detailed submissions, which have been elaborately brought out by the CIT(A) in his order, and which we may briefly note hereinafter. Assessee explained that as per the terms of the issue of Preference shares, the same are redeemable at the option of the assessee-company or at the option of the investors at the value of investment including premium. In addition to the redemption of the face value and premium, an annual return of 3% is provided on the total investment every year on a compounding basis. On a year-to-year basis, assessee-company has been providing for premium as well as 3% per annum return on investment by debiting the Profit & Loss Appropriation account. So far as the year under consideration is concerned, assessee explained that it had credited the Provision for Premium (to be paid back on redemption) as well ....
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....he net profit as per Profit & Loss Account other than the adjustments permitted in Explanation-1 to Sec. 115JB(2) of the Act. According to the CIT(A), the impugned adjustment made by the assessee to the net profit shown in the Profit & Loss Account prepared under the Companies Act, 1956 was not permissible as per Explanation-1 to Sec. 115JB(2) of the Act. 9. Further, the CIT(A) differed with the assessee on the nature of the impugned Provision to be an 'ascertained liability'. As per the CIT(A), the redeemable Preference shares in question were not in the nature of 'debt' and, therefore, any liability thereof could not be considered to be an 'ascertained liability'. The CIT(A) noted that it was not certain as to when the Preference shares would be converted into Equity shares. The CIT(A) has summed-up his stand in para 7.6 of his order, which reads as under :- "7.6 From above discussion it is clear that the basic issue in respect of this ground is whether the net profit, as per the statement of profit and loss account prepared in accordance with provisions of part-II of Schedule VI to the companies Act, 1956, is to be further reduced by the amount of preference share re....
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....ication is, whether the provision for additional premium payable on redemption of preference shares amounting to Rs. 39,82,140/- which was payable at a stipulated rate of 3% per annum can be allowed to be reduced while calculating the book profit under section 115JB or not. From the perusal of the profit and loss account, it is seen that the assessee had started its computation with the net profit above the line and thereafter has reduced the provision for additional premium on the preference share to arrive at the book profit for the purpose of 115JB. The relevant entries and the manner in which entries have been made in financial accounts in this regard are as under: - (Figures are in Rs. Lakhs as on 31.03.2010) IMAGES 1 Here the assessee has debited Preference Share Redemption Reserve of Rs. 39.82 lakhs to the Profit & Loss account and that is why the amount available for appropriation at Rs. 591.77 lakhs has been reduced to Rs. 429.41 lakhs. The appropriation is part of profit & loss account and the items debited cannot be ignored while calculating the book profit u/s 115JB. This working of Reserves and Surplus has again been given in Schedule B, whic....
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....ssee is in fact in compliance and in consonance with section 80 of the Companies Act, which reads as under:- " 80. POWER TO ISSUE REDEEMABLE PREFERENCE SHARES (1) Subject to the provisions of this section, a company limited by shares may, if so authorized by its articles, issue preference shares which are, or at the option of the company are to be liable, to be redeemed: Provided that - (a) no such shares shall be redeemed except out of profits of the company which would otherwise be available for dividend or out of the proceeds of a fresh issue of shares made for the purposes of the redemption; (b) no such shares shall be redeemed unless they are fully paid; (c) the premium, if any, payable on redemption shall have been provided for out of the profits of the company or out of the company's security premium account before the shares are redeemed; (d) where any such shares are redeemed otherwise than out of the proceeds of a fresh issue, there shall, out of profits which would otherwise have been available for dividend, be transferred to a reserve fund, to be called the capital redemption reserve account, a sum equal....
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....mpanies Act categorically provides that the company needs to provide for the payment of premium on preference shares and the same has to be reckoned in the either in the nature of 'provision' or a 'liability'. The concept of "Reserve" as defined in Accounting Standards 29, is that portion of earning/ receipts or other surplus of an enterprise, whether capital or revenue, is appropriated by the management for a general or specific purpose other than provision for depreciation or diminution in the value of assets or for known liability. On the other hand, "Liability" has been defined as a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an out flow from the enterprise of resources embodying economic benefits; and "Provision" is a liability which can be measured only by using substantial degree of estimation. Thus, the revenue's contention it is in the nature of the "reserve" is sans any merits and hence deserves to be rejected. Moreover, the Hon'ble jurisdictional High Court in the case of CIT vs Raymond Ltd. (supra) while deciding the issue of debenture reserve observed and held as under:- "The nature of a Deben....
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....liable to be added to the book profits for computing book profit u/s 115JB. 15. We have considered this aspect of the argument also. But, we do not find force in his contention of Ld. DR. It is well settled law that under the income tax law, taxability of an amount or otherwise is determined on the basis of intrinsic nature of a transaction and not necessarily on the basis of its nomenclature or the manner in which same is reflected in its accounts by an assessee. As discussed in detail above, the impugned amount has been debited in the Profit & Loss account of the assessee because of mandate of law. As discussed above in detail, section 80 of the Companies Act, 1956, stipulate that premium payable on the redemption on preference shares is to be provided for out of the 'profits' of the company or out of Company's Security Premium account. Thus, if this amount is not provided for from the security premium account, then, it has to be compulsorily provided for out of the 'profits' of the company. Under these circumstances, if this amount is debited in the P & L A/c, then it partakes the character akin to a 'charge' on the profits. Thus, the impugned amount debited in the prof....
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....eduction specified in Explanation-1, clauses (a) to (f) and (i) to (vii) respectively whereas in its claim before the Assessing Officer, the defence put-up by the assessee was that the Provision for Preference Share Redemption Reserve is an ascertained liability which is sought to be reduced from the book profit as per Explanation-1(c) to Sec. 115JB of the Act. The aforesaid factual matrix has been brought out by the ld. CIT-DR to point out the contradiction in the stand of the assessee inasmuch as while filing the return of income in ITR-6, assessee claimed the said amount as a deduction against the column described as "amount withdrawn from Reserves or Provision if credited to Profit & Loss Account" which was distinct from the claim made before the Assessing Officer of the impugned sum being an ascertained liability. 12. It is further emphasised that the Assessing Officer does not dispute the net profit as disclosed in the Profit & Loss Account prepared by the assessee but has only disagreed with the assessee on the adjustment claimed by it towards the Provision for Preference Share Redemption Reserve inasmuch as the same does not satisfy the requirements prescribed in Sec. 11....
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....n' or a 'charge against the profits' for the purposes of Sec. 115JB of the Act. It was contended that the impugned Provision was a Reserve and, therefore, clause (b) of Explanation-1 is attracted and the amount transferred to the Provision for Redemption of Preference Shares is includible in the 'book profit' as understood for the purpose of Sec. 115JB of the Act. 14. Apart from the aforesaid, the ld. CIT-DR also argued that in view of the judgment of Hon'ble Delhi High Court in the case of SREI Infrastructure Finance Ltd. (supra), the said amount could not be treated as a Provision as distinct from a Reserve. In the context of the reliance placed by the Tribunal in its order dated 22.11.2016 (supra) for Assessment Year 2010-11 on the judgment of the Hon'ble Bombay High Court in the case of CIT vs Raymond Ltd., [2012] 209 Taxman 65 (Bombay) to arrive at the conclusion that the impugned Provision for Redemption of Preference Shares was not a Reserve, it has been argued by the ld. CIT-DR that the judgment in the case of Raymond Ltd. (supra) has been rendered in different circumstances; as the same was in the context of Sec. 115JA of the Act whereas the applicable provision....
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....unt of the relevant previous year prepared in accordance with the provisions of Part-II and Part-III of Schedule-VI of the Companies Act, 1956, subject to certain adjustments prescribed therein which would either increase or decrease such net profit. In fact, the prescription in Sec. 115JB of the Act to make adjustment in order to arrive at the 'book profit' was also similarly placed in the erstwhile Sec. 115J as well as Sec. 115JA of the Act. In the context of Sec. 115J of the Act, a question arose as to whether the correctness of the Profit & Loss Account prepared by an assessee-company and certified by the statutory Auditors of the company as having been prepared in accordance with the requirements of Part-II and Part-III of Schedule-VI of the Act the Companies Act, 1956 could be questioned by the Assessing Officer. This controversy was addressed by the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. (supra). Before the Hon'ble Supreme Court, a pertinent point raised by the Revenue was on the basis of Sub-section (1A) of Sec. 115J of the Act which, in the perception of the Revenue, empowered the Assessing Officer to independently inquire into the computation of 'b....
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....f such amounts are debited to the Profit & Loss Account; it also prescribes decrease of 'book profit' by clauses (i) to (viii) if the same is credited to the Profit & Loss Account. In the instant case, the short controversy revolves around the Provision for Premium payable on redemption of Preference shares, which has been sought to be reduced so as to determine the 'book profit' to arrive at the tax liability u/s 115JB of the Act. The assessee set-up its claim in terms of clause (c) of Explanation-1 which prescribes for increase in the book profit by the amount or amounts set-aside to Provision made for meeting liabilities other than ascertained liabilities. The claim of assessee is that the said Provision is an ascertained liability. It is also sought to be explained that the said Provision has been charged to the Profit & Loss Account by means of an appropriation and carried to the Balance-sheet. We have also observed earlier that the said stand of the assessee has been upheld by the Tribunal in assessee's own case for earlier year. Be that as it may, the ld. CIT-DR has relied upon the judgment of the Hon'ble Delhi High Court in the case of SREI Infrastructure Finance Ltd. (....
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.... The second point canvassed was that in terms of Sec. 45-IC of the Reserve Bank of India Act, 1934, transfer of a Reserve implied that the assessee does not have any title over such Reserve and it was a case of diversion of income at source. Both these arguments were negated by the Hon'ble Delhi High Court and it was held that clause (b) of Explanation to Sec. 115JB of the Act was attracted and such a Reserve would go to increase the net profit shown in the Profit & Loss Account in order to compute the 'book profit' u/s 115JB of the Act. Insofar as the first argument raised before the Hon'ble Delhi High Court was concerned, the Hon'ble Court noted that the expression "Reserve" in clause (b) of Explanation-1 was preceded by the word "any" and, therefore, it was inferred that the expression would include all types and categories of Reserves without exception. It also underlined the expression "Reserve by whatever name called" used in clause (b) of Explanation-1 to negate the plea of the assessee. Therefore, the ratio of the judgment of the Hon'ble Delhi High Court cannot be imported in the instant facts inasmuch as it is not the case of the assessee that the impugned amou....
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.... Ltd. (supra) to conclude that the impugned amount is to be understood as a known liability and not as a Reserve. 20. Now, we may take-up the plea raised by the ld. CIT-DR that there was a contradiction in the stand of assessee in justifying the amount claimed inasmuch in the return of income, assessee canvassed it to be an amount withdrawn from Reserve or Provision, which is liable to be reduced if credited to Profit & Loss Account vis-a-vis the claim made before the Assessing Officer that the impugned sum was an ascertained liability in terms of clause (c) of Explanation-1 to Sec. 115JB of the Act. In our considered opinion, it is a well-settled proposition of law that in order to address a legal point, what is of relevance is the applicable legal position as emerging from the statutory provisions and the attendant jurisprudence and not merely the stand taken by the parties at a particular point of time. Thus, we are not going into the efficacy of the contradiction that is sought to be pointed out by the ld. CIT-DR as, in our view, the same is not germane to decide the controversy before us. 21. Another aspect which has been emphasised by the ld. CIT-DR is that the adjustme....
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.... left without remedy inasmuch as the statute provides for appeal to the Hon'ble High Court against the order. Therefore, the said view of the Department is also negated. 23. In the result, we hereby allow the stand of the assessee following the precedent in assessee's own case dated 22.11.2016 (supra). 24. In the result, so far as the appeal of the assessee for Assessment Year 2012-13 is concerned, the same is partly allowed. 25. So far as the appeals of the assessee for Assessment Years 2013-14 and 2014-15 are concerned, though the amounts vary but the issues involved are identical to those considered by us in the appeal of the assessee for Assessment Year 2012-13 in the earlier paras. Therefore, our decision in appeal for Assessment Year 2012-13 shall apply mutatis mutandis to these appeals also. 26. Now, we may take-up the appeals of the Revenue for Assessment Years 2008-09, 2009-10 and 2010-11 which involve a common issue. In fact, the three appeals arise from a common order passed by the CIT(A) for the three assessment years. It was a common point between the parties that the facts and circumstances relating to the dispute in appeal are identical for all the th....
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....e computing the book profit u/s. 115JB of the Act without appreciting the fact that the department has not accpeted the order passed by the Hon'ble High Court in the case of All Cargo Logistics Ltd., and preferred to file Special Leave Petition before the Hon'ble Supreme Court. 5. On the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the disallowance made on account of interest received as excluded from, the claim of deduction u/s.80IB of Rs. 34,15,121/-, on the ground that addition / disallowance was not based on any incriminating material , without appreciating the fact that the department has not accpeted the order passed by the Hon'ble High Court in the case of All Cargo Logistics Ltd., and preferred to file Special Leave Petition before the Hon'ble Supreme Court." 28. As a perusal of the Grounds of appeal reveal, the pertinent dispute revolves around the scope and ambit of an assessment envisaged u/s 153A r.w.s. 143(3) of the Act. The principal point involved arises from the decision of CIT(A) to hold that in the case of an assessment u/s 153A of the Act where the original assessment does not abate in terms of the second p....
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.... property disclosed in the course of search." This decision of the ITAT Special bench, Mumbai has been approved by the Hon'ble High Court of Mumbai in the case of All cargo Global Logistics Ltd 374 ITR 645(BOM). 5.2. The A.O. while making the assessment order u/s. 143(3) r.w.s 153A of the Act has discussed the addition of Rs. 29,95,036/- on account of disallowance u/s.14A r.w. Rule 8D of the I.T. Act in para 4 of the assessment order. This addition includes Rs. 2995036/- under Rule 8D(2)(ii) with respect to disallowance of interest and Rs. 193662/- under Rule 8D(2)(iii) on account of expenses @0.5% of average value of investment. In the original assessment the addition of Rs. 193662/- was only made. From the perusal of the above said para 4, it is evident that there is no reference to incriminating document or undisclosed income emanating from the search dated 23.5.2013. Thus, it is clear that the A.O. has made a further disallowance of Rs. 29,95,036/- which is not on the basis of any incriminating material found in the course of search, but on the basis of information and material available in the return of income. Therefore, relying on the decision of All Cargo Globa....
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....uence to which, a notice u/s 153A(1) of the Act was issued to the assessee-company calling for a return of income for Assessment Year 2008-09. In response, assessee filed a return of income on 22.07.2014 declaring an income of Rs. 9,55,12,959/- as per the normal provisions of the Act and book profit u/s 115JB of the Act was returned at Rs. 18,06,81,757/-. This was against an income of Rs. 8,50,42,851/- declared as per the normal provisions of the Act in the return originally filed u/s 139(1) of the Act on 29.09.2008 wherein the book profit u/s 115JB of the Act was computed at Rs. 18,04,88,095/-. Notably, assessment u/s 143(3) of the Act was completed on 28.12.2010 determining the total income at Rs. 8,52,36,513/- under the normal provisions of the Act which, inter-alia, contained an addition of Rs. 1,93,662/- u/s 14A of the Act; and, so far as the computation of book profit u/s 115JB of the Act is concerned, the Assessing Officer did not disturb the computation made by the assessee at Rs. 18,04,88,095/-. The return of income filed by the assessee u/s 153A of the Act was taken up for assessment whereby the total income has been assessed at Rs. 10,53,38,240/- as per the normal provis....
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....self reveals that qua the aforesaid additions, there is no reference to any incriminating material found in the course of search. Therefore, we find no reasons to interfere with the factual findings arrived at by the CIT(A) and, in that background, no fault can be found with the CIT(A) for having applied the ratio of the judgment of the Hon'ble Bombay High Court in the case of Continental Warehousing Corporation (Nhava Sheva Ltd) (supra) in order to delete the aforesaid additions. Thus, on facts as well as on point of law, we find no reasons to interfere with the decision of the CIT(A), which we hereby affirm. 33. In the result, appeal of the Revenue for Assessment Year 2008-09 is dismissed. 34. Before parting, we may refer to the argument set-up by the ld. CIT-DR based on the decision of the Hon'ble Delhi High Court in the case of Smt. Dayawanti vs CIT, 390 ITR 496 (Delhi). Explaining the relevance of the said decision in the present context, the ld. CIT-DR contended that in the present case during the course of search, assessee group was found to have indulged in effecting bogus purchases, which were otherwise capitalised in the account books. Assessee had claimed d....