TaxTMI 
TaxTMI 
2022 (6) TMI 1488
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 143[3] of the Act is bad in law and void-ab-initio in as 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....additional income to purchase peace with the Department. 6. During the pendency of the assessment proceedings, 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 asses....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t towards impairment loss and depreciation on windmill was done during the course of survey, only to buy peace and ward 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 app....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tention of the CIT (A) is not correct as there is no estoppel in tax laws. The CIT (A) ought to have examined the adjustment under the provisions of the Act before deciding whether 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aving not been done by the Assessee, the authorities have recomputed the book profit. At this juncture, it would be beneficial to refer to the Judgment of the Apex Court in Apollo Tyres (supra) which is rendered 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 acco....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Companies Act contemplates, form and contents of balance sheet and profit and loss account. Sub-sections 3(A),3(B) and 3(C) of Section 211 provides that every profit and loss account and balance sheet of the company shall comply 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 t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... A.O has rendered a finding that the appellant has claimed excess depreciation in the profit and loss account and therefore, the A.O has recomputed the same by allowing only 1/15th of the cost of the asset as depreciation. Whatever be the correctness or otherwise of the 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 pointin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Hon'ble Jurisdictional High Court in the case of Hariram Hotels in ITA No. 53/2009 dated 16/12/2015, while holding that the AO was not competent to go into the computation of 'Book Profits' u/s 115JB of the Act except to the limited extent of making additions and reductions as laid out in 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iminution in the value considering the investment made only if an asset has some positive value, but when the asset has NIL value, it is a case of total loss and not a mere diminution in value. The ld AR also submitted that the amounts written off is not a provision made but the actual write off. The 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... section 153, where the Assessing Officer is satisfied that,- (a) any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or (b) any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to, a person other than the person referred 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 :' T....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the Act, even if no incriminating material was found in the course of search. This created hardship and this was the reason why the provisions of Sec. 153C of the Act were amended by the Finance Act, 2014. With the amendment by the Finance Act, 2014, the AO of the other person after receiving the material from the AO of the Searched person has to make an Assessment based on the material 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....inter alia, from the Finance Bill, Memorandum Explaining the Provision of the Finance Bill. Any amendment to the substantive provision which is aimed at clarifying the existing position or removing unintended consequences to make the provision workable has to be treated as retrospective notwithstanding the fact that the amendment has been given effect prospectively. The above principles, if applied to the amendment 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... assessment proceedings which have been completed as on the date of search u/s. 132 of the Act will however continue to remain valid. Thus the former proceedings are referred to as "abated assessment proceedings" and the latter proceedings are referred to as "unabated assessment proceedings". 31. Therefore the scope of making assessment of total income u/s. 153C of the Act in an unabated assessment proceedings is limited 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f. During the year the assessee had written off a sum of Rs. 4,55,80,758 in M/s Deccan Aviation Ltd. and Rs. 7,28,000 in M/s. Guru Prasad Hotels Pvt Ltd., aggregating to Rs. 4,63,08,758 in the profit and loss account. The AO treated this write off as an addition to the book profits computed u/s. 115JB which was confirmed by the CIT(A). 31. The appeals on similar issue of computation of book profits u/s. 115JB, on identical 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) t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....unt of dividend income earned during the relevant assessment year. In this context, the following judicial pronouncements support the stand of the assessee:- (i) Joint Investments Pvt. Ltd. v. CIT (59 Taxmann.com 295) - it was held that disallowance u/s 14A of the Act is to be restricted to the tax exempt income. (ii) Daga Global Chemicals Pvt. Ltd. v. ACIT [2015-ITRV-ITAT-MUM-123) - has held that disallowance u/s 14A r.w. Rule 8D cannot exceed the exempt income. (iii) M/s. Pinnacle Brocom Pvt. 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 m....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essee nor the Revenue are entitled to take a deviated view of the matter. Because as already noted by us, the negative figure of disallowance cannot amount to hypothetical taxable income in the hands of the Assessee. The disallowance of expenditure incurred to earn exempted income has to be a smaller part of such income and should have a reasonable proportion to the exempted income earned by the Assessee in that year, which can be computed as per Rule 8D only after recording the satisfaction by the Assessing Authority that the apportionment of such disallowable 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, with....