TaxTMI 
TaxTMI 
2022 (6) TMI 1488
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.... much there was no valid search conducted in the premises of the appellant and consequently, the provisions of section 153A of the Act, have no application and therefore, the impugned order passed deserves to be cancelled. 2.1 Without prejudice to the above, there is no justification to issue the warrant to search the premises of the appellant as the conditions specified in terms of Sec. 132[1] of the Act did not exist and therefore the search action is illegal and consequently the impugned assessment order founded thereon deserves to be cancelled. 3. The learned CIT[A] is not justified in upholding the assessment of book profit u/s. 115JB of the Act, at Rs. 120,97,36,141/- under the facts and in the circumstances of the appellant's case. 3.1 The learned CIT[A] ought to have appreciated that the appellant had erroneously returned a book profit of Rs. 119,98,62,241/- in the return filed in response to the notice u/s. 153A of the Act and there cannot be an assessment merely on account of the consent of the appellant and therefore, the acceptance of the said returned book profit ought not to have been sustained. 3.2 The learned CIT[A] is further not justified in ....
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....dings, a search action u/s. 132 of the Act was conducted in the appellant's case on 18/12/2012. After the search, proceedings were initiated u/s. 153A of the Act by issue of notice dated 18/03/2014. The assessee filed the return of income in response to the aforesaid notice on 30/04/2012 by furnishing the same return of income that was filed earlier in response to the notice issued u/s. 148 of the Act, which proceedings abated after the search was conducted. 7. The AO passed the assessment order u/s. 153A rws 143(3) of the Act, by making an addition of Rs. 59,68,494/- as deemed dividend protectively. That apart, the A.O. has also made an addition u/s. 115JB of the Act of Rs. 98,73,900/- in respect of certain investments written off by the appellant and determined the book profit of the appellant at Rs. 120,97,36,141/-. 8. Aggrieved by the order of the AO the assessee preferred an appeal before the CIT(A). The assessee challenged the validity of the assessment made u/s. 153A on the legal ground relating to assumption of jurisdiction by the AO. The assessee also contended on merits of assessing on book profits of Rs. 1,20,97,36,141 and the addition of deemed....
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.... off litigation with the department. However, a search was initiated by the department and the assessee is embroiled with the litigation. The assessee submitted that the law is well settled that a mere concession or consent of the assessee does not confer jurisdiction for making an assessment. Thus, although the assessee has returned an income of Rs 1,19,98,62,241/- in the return filed in response to the notice u/s 153A of the Act, the same cannot form the basis for assessment of income u/s 115JB of the Act, which ought to have been determined by the AO in accordance with the provisions of sec. 115JB of the Act. Thus, the assessee submitted that the below amounts assessed as part of the book profit require to be excluded as they cannot be added back in terms of the Explanation 1 to section 115JB of the Act - a. Impairment loss Rs. 16,00,00,000/- b. Excess depreciation on Windmill. Rs. 17,70,66,417/- 13. The CIT (A) dismissed the appeal regarding the adjustments to book profits without going into the merits of the case and hence the assessee is in appeal before the Tribunal challenging the same. 14. The ld AR submitted that :- a. The impairment loss of Rs. 16,00,00,000 ....
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....her the said adjustments are correctly done in accordance with law. He cannot confirm the adjustments merely based on the fact that the assessee himself has made such adjustment. On the issue of whether the AO / CIT (A) can make adjustments to book profits computed u/s. 115JB, we notice that similar issue came up for consideration before this Tribunal in the case of DCIT v. M/s. Cauvery Aqua Pvt. Ltd. in ITA No. 375/Bang/2017, order dated 13.10.2017, wherein it was held as under:- "3.4.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements cited. We find that the only issue for adjudication before us in this appeal is with regard to the computation of book profits u/s 115JB of the Act. From perusal of the records, it is seen that as per the return of income filed that the assessee had computed and declared the 'Book Profits' u/s 115JB of the Act at a loss of Rs. (-)41,68,196/-. The assessee has claimed an amount of Rs. 2,99,00,000/- as depreciation on windmill @ 100% of the cost of windmill. In the order of assessment, the AO has restricted the claim for depreciation on windmill....
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....ndered while dealing with an identical provision of Section 115J of the Act. It is held thus: "Therefore, we are of the opinion, the Assessing Officer while computing the income under section 1151 has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the .Companies Act. The Assessing Officer thereafter has the limited power of making increases and reductions as provided for in the Explanation to the said section. To put it differently, the Assessing Officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to section 115J." 12. In the subsequent Judgment of the Apex Court in HCL Comnet Systems (supra), following the Judgment of Apollo Tyres (supra), it is held that the adjustment required to be made to the net profit disclosed in the profit and loss account for the purpose of section 349 of the Companies Act are quite different from the adjustment required to be made under the explanation to be made under section 11 51A of the Act. For the purpose of section 1151A, the....
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.... with the accounting standards, where the profit and loss account and balance sheet of the company do not comply with the accounting standards, such companies shall disclose in its profit and loss account and the balance sheet the following mainly: (a) the deviation from the accounting standards; (b) the reasons for such deviation; and the financial effect, if any, arising due to such deviation. 15. For the purpose of Section (3C) of Sec. 211 of the Companies Act, the expression "accounting standards" means the standards of accounting recommended by the Institute of Chartered Accountants of India constituted under the Chartered Accountants Act, 1949 (38 of 1949) as may be prescribed by the Central Government in consultation with the National Advisory Committee on Accounting Standards established under sub-section (1) of Section 210(A). 16. The proviso to the said Section 211(3)(C) of the Companies Act makes it clear that the standards of accounting specified by the Institute of Chartered Accountants of India shall be deemed to be the accounting standards until the accounting standards are prescribed by the Central Government under the sub- section 3(C). The Assessing Office....
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....he said view taken by the A.O., it is clear that the appellant has provided depreciation at 100% of the cost in the profit and loss account and has mentioned in the notes to accounts at point 4 to Schedule 17 of the financial statements that Depreciation on Windmills is provided at 100% of the cost" and the same is duly disclosed and accepted by the Statutory Auditors and the Shareholders in the AGM. Thus, the same cannot be called into question by the A.O. in the assessment proceedings in light of the judgment of the jurisdictional High Court supra. It is also relevant to notice here that the A.O. has relied upon 2 decisions of the Hon'ble ITAT in support of the-view that the A.O. is entitled to rework the book profits of the appellant in the event the same is not prepared in accordance with the provisions of the Companies Act. The appellant has distinguished these decisions of Hon'ble ITAT by pointing out that the subsequent judgment of the Hon'ble Bombay High Court in the case of ADBHUT TRADING CO. PVT Ltd., in 338 ITR 94 (Born.). At any rate, there is a judgment of the jurisdictional High Court in the case of HARIRAM HOTELS (supra), which is binding on me and the ....
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....n Explanation (1) to sec. 115JB of the Act. We find that the ld CIT (A) has also tested the claim of depreciation as per the provisions of Explanation (1) to sec. 115JB while coming to the view that the AO was not authorized to make the addition while re-working the extent of depreciation claimed by the assessee. The accounts of the assessee have been certified by the Statutory Auditors. The accounting policies followed by the assessee have not been found fault with by the Statutory Auditors or the authorities concerned under the Companies Act. In such cases, the AO is not permitted to make any variation by holding that the assessee has not followed the mandate of the Accounting Standards and the provisions of Companies Act while preparing its financial statements. The object of sec. 115JB of the Act is to bring to tax the book profits as shown by the company to its shareholders and keeping in view the aforesaid object behind sec. 115JB of the Act and the judicial pronouncements on the scope of the 'AO's powers computing the book profits, we do not find any reason to interfere with the impugned order passed by the ld CIT (A) on this issue and therefore uphold the same. Consequently....
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....learned AR drew our attention to the ledger accounts of the assessee (page 318 of paper book) were the entries are made as investments write off against these two companies. 20. The ld DR submitted that these are provisions made and not actual write off as one of the companies is still in liquidation. 21. On perusal of the materials on record it is clear that the investments have indeed been written off by the assessee in the books of accounts and it is not provision made. Therefore it will not fall within the Explanation to section 115JB(2). In view of the above and respectfully following the decision of the coordinate bench of the Tribunal in the case of M/s. Cauvery Aqua Pvt. Ltd. (supra), we delete the addition made by the AO. Thus, this appeal is partly allowed. ITA No. 2002/Bang/2016 22. For the assessment year 2011-12, the assessee challenged the legality of order passed u/s. 153A r.w.s. 143(3). On merits the assessee raised grounds pertaining to the issue of addition made to book profits u/s. 115JB of the Act and also raised ground pertaining to disallowance made u/s. 14A r.w.r. 8D. 23. Before going into the merits of the case, the ld AR during the course o....
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....red to in section 153A, then, the books of account or documents or assets, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and for the relevant assessment year or years referred to in sub-section (1) of section 153A :' The provisions of Sec. 153C of the Act, shown in bold letter and underlined as given above were substituted by the Finance (No.2) Act, 2014 w.e.f 1.10.2014 for the following words "and that Assessing Officer shall proceed against each of such other person and issue such other person notice and assess or reassess income of such other person in accordance with the provisions of....
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.... so received by him which has a bearing on the determination of the total income of the other person. This is clear from the amended provisions of the law which reads thus: "and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and for the relevant assessment year or years referred to in sub-section (1) of section 153A :" The Kolkatta Bench of the ITAT in the case of Trishul Hi-Tech Industries (supra) dealt with the purpose behind the aforesaid amendment and as to why it should held to be retrospective. The condition precedent for assessing or reassessing income u/s. 153C is that the AO has to be satisfied that the seized material in the course of search has a bearing on determination of the total income of ....
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....dment to the provisions of Sec. 153C of the Act by the Finance Act, 2014, can lead to only one conclusion that the said amendment is clarificatory and therefore should be held to be retrospective in operation. 29. A plain reading of the amended provisions of section 153C(1) of the Act, would show that the AO is required to arrive at a satisfaction that the seized assets, books of account or documents belongs to or relates to a person other than the person was subjected to search. For arriving at such a satisfaction, it is necessary for the AO to prima facie spell out the nature of seized documents and how it belongs to or relates to the assessee. Before the Hon'ble High Court of Karnataka in the case of IBC Knowledge Park, 385 ITR 346 [Kar] the issue for consideration and adjudication was whether the Tribunal was right in holding that it was not necessary to record a satisfaction to the effect that seized material shows undisclosed income. While deciding this issue, the High Court came to the conclusion at para 50 thereof, that "the detection of seized material leading to an inference of undisclosed income is a sine qua non for invocation of section 153C of the Act". The Hon'ble ....
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....and can be only of assessing income that is not disclosed which is detected or which emanates from material found in the course of search of some other person and which relate to the Assessee. Since the impugned addition of disallowance of expenses are not based on any incriminating material found during the course of search, the additions are liable to be deleted. As far as the addition made on protective basis for AY 2008-09 to 2010-11 are concerned, the said addition was made not on the basis of any incriminating material found in the search of K. Mahesh Kumar which relate to the Assessee and therefore the said addition can also not be sustained as it is contrary to the provisions of Sec. 153C of the Act. There is no basis for protectively assessing the income in the hands of the Assessee and substantively in the hands of K. Mahesh Kumar. There is no material to show that the income declared by K. Mahesh Kumar is either his income or that of the Assessee. From the fact that K. Mahesh Kumar was a Partner in the Assessee firm it cannot be concluded that the income declared by K. Mahesh Kumar in his hands was either his income or the income of the partnership firm in which he was a....
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....facts, are allowed for AY 2008-09 in para 17 of this order. Considering the same, this ground raised by the assessee is allowed in favour of the assessee. 32. The other issue that remains for consideration in AY 2012-13 is regarding the disallowance made u/s. 14A of the Act with reference to the provisions of Rule 8D(2)(ii) & (iii) of the I.T. Rules (Ground 3). 33. The AO for the AY 2012-13 observed that the appellant had investment in shares of other companies of Rs. 8,36,95,987/- at the beginning of the year and Rs. 5,36,73,978/- at the end of the year and that dividend from the same was exempt from taxation. He thereupon proceeded to make the disallowance u/s. 14A of the Act, by applying the provisions of Rule 8D(ii) & (iii) totaling to Rs. 33,17,680. 34. The CIT(Appeals) directed the AO to recompute the disallowance u/s. Rule 8D(2)(ii) of the Rules considering other borrowing cost of Rs. 2,41,61,144 for AY 2012-13, observing that it cannot be said to relate to any particular source of receipt or source of income. 35. Before us, the ld. AR firstly submitted that :- a. The A.O. is not justified in making the impugned disallowance by invoking the provisio....
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.... Ltd. v. ACIT (ITA No. 6247/M/2012) - has held that disallowance u/s 14A cannot exceed the exempt income. (iv) DCM Ltd. v. DCIT (ITA No. 4567/Del/2012) - held that the disallowance u/s 14A of the Act cannot exceed the exempt income. 3.5 In view of the above settled position, the amount of disallowance u/s 14A of the I.T. Act needs to be restricted to the extent of exempted income earned during the relevant assessment year. As would be evident that in the facts and circumstances of the present case the amount of exempted income of Rs. 27,37,47,187 was earned on investment and consequently the amount of disallowance, if at all, to be made is to be restricted to Rs. 27,37,47,187. 3.6 However, in this case, the assessee had made disallowance of Rs. 145,02,09,668 voluntarily while filing the return of income. In this context, it is important to refer to the judgment of the Hon'ble Madras High Court in the case of M/s. Marg Limited v. CIT in Tax Case Appeal Nos. 41 to 43 & 220 of 2017 (judgment dated 30.09.2020). The Hon'ble Madras High Court followed the judgment of the Hon'ble Karnataka High Court in the case of Pargathi Krishna Gramin Bank v. ....
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....owable expenditure under Section 14A made by the Assessee or his claim that no expenditure was incurred is validly rejected by the Assessing Authority by recording reasonable and cogent reasons conveyed to Assessee and after giving opportunity of hearing to the Assessee in this regard. 22. We, therefore, dispose of the present appeal by answering question of law in favour of the Assessee and against the Revenue and by holding that the disallowance under Rule 8D of the IT Rules read with Section 14A of the Act can never exceed the exempted income earned by the Assessee during the particular assessment year and further, without recording the satisfaction by the Assessing Authority that the apportionment of such disallowable expenditure made by the Assessee with respect to the exempted income is not acceptable for reasons to be assigned the Assessing Authority, he cannot resort to the computation method under Rule 8D of the Income Tax Rules, 1962." (underlining supplied) 3.7 In view of the above judgment of the Hon'ble Madras High Court in the case of M/s. Marg Limited v. CIT (supra), it is clear that the disallowance u/s 14A of the I.T. Act cannot exceed the exempt income earne....