TaxTMI 
TaxTMI 
2024 (9) TMI 340
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Act 2008 with retrospective effect from 01.04.2001 2. Whether on the facts and in the circumstances of the case and in law, the Ld CITA) was right in deleting the adjustment by way of addition of provision for Diminution in value of investments of Rs 26,00,00,000/-to Book profit u/s 115JB, the addition of which was made in accordance with clause (1) provided in Explanation 1] under section 115JB(2) as inserted by Finance Act 2009 with retrospective effect from 01.04.2001? 3. Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was right in deleting the adjustment by way of addition of provision for Bad and Doubtful debts of Rs 97,94,00,000/- to Book profit u/s 115JB, the addition of which was made in accordance with clause (c) provided in Explanation (1] under section 1151B/2) since this provision was in respect of unascertained liability? 4. Whether, On the facts and in the circumstances of the case and in law, the Id CIT(A) is justified in deleting the adjustment to book profit of provision of Staff Welfare expenses of Rs 10.58 Crores holding the same as ascertained liability ignoring the fact that the same was worked ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... have been rightly deleted by the Ld. CIT(A) in second round following the binding directions of the Hon'ble Tribunal; 5. failed to appreciate that these three additions were not made originally on the basis of retrospective amendment in section 115JB of the Act by Finance Act 2008 and Finance Act 2009 respectively, since on the date on which order under section 147 for reopening of assessment was passed, there was no amendment in the Act and thereby ground taken by the AO before the Hon'ble Tribunal is not correct and hence Department appeal is liable to be dismissed; Addition in respect of provision for staff welfare expenses of Rs. 10,58,00,000/- 6. failed to appreciate that provision for staff welfare expenses of Rs. 10,58,00,000/- is worked out on a scientific basis by actuarial method represented provision for meeting ascertained liability and therefore the addition has been rightfully deleted by the Ld. CIT(A) for computing book profits under section 115JB of the Act; Addition in respect of provision for loss on guarantee of Rs. 69,00,000/- 7. failed to appreciate that Ld. CIT(A) had rightly deleted the addition to book pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ded the original reasons for reopening recorded at the time of issue of notice under section 148 of the Act and thereby the entire reopening proceedings is bad in law; 15. ought to have appreciated that the Ld. AO erred in providing reasons for reopening (during remand proceedings as per directions of Hon'ble Tribunal) which is different from reasons originally recorded and thereby the reopening proceedings under section 148 in the remand proceedings should be quashed in the absence of supply of original reasons for reopening to the Assessee; 16. ought to have appreciated that by passing the order under section 143(3) r.w.s. 147 r.w.s.254 of the Act, without granting 30 days time from disposal of objections for reopening as mandated by the Hon'ble Supreme Court in case of GKN Driveshafts (India) Limited (259 ITR 19) and hence the re-opening order passed by the Ld. AO is bad in law and liable to be quashed; Levy of interest under section 234B of the Act 17. ought to have appreciated that no interest under section 234B of the Act can be charged since the income for the year under consideration is taxable as per provisions of section 115JB o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....T(A). 6. The learned CIT(A) insofar as the appeal filed earlier against regular assessment u/s.143(3) dated 31.01.2006, made following enhancement to the assessee's income vide his dated 08th March,2011:- Sr. No. Particulars Amount (Rs.) 1. Deferred Tax not added back to the profits for purposes of MAT computation. 190,55,00,000 2. Provision for diminution in value of investment 26,00,00,000 3. Provisions for bad and doubtful debts not added back to book profits for MAT 97,94,00,000 7. Thus, the enhancement was made by the CIT(A) on the same ground on which the A.O. had made addition in the reassessment order passed u/s 147, which were also pending before the CIT(A) as on the date of order u/s.250 of the Act dated 08th March, 2011. The ld. CIT(A) considered only those issues for enhancement which were subject to retrospective amendment by the Finance Act, 2008 and Finance Act, 2009. 8. Insofar as appeal against order u/s.143(3) r.w.s. 148 dated 31.12.2007, the ld.CIT(A) held that since enhancement has already been made in respect of these grounds, therefore, no further adjudication was required. Thus, the ld.CIT(A) held that since enhanc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he law prevailing on that date. The three items were sought to be added in the computation of book profits under section 115JB of the Act only pursuant to an amendment brought by the Finance Act 2008 with retrospective effect from 01 April 2001. Hence, on the date of passing order under section 143(3) of the Act on 31 January 2006, the AO could not have added these three items in the computation of book profits under section 115 JB of the Act. Hence what could not have been done by the AO as per law prevailing at that time, the learned CIT(A) could not do by exercising power of enhancement. 10. Thus, in a way the Tribunal has deleted the addition made by the CIT(A) by way of enhancement on the aforesaid three issues. 11. The AO while giving effect to the order of the Tribunal vide order dated 27th July, 2021 had granted relief on the issues deleted by the Tribunal. Thus no addition onn these 3 issues remained and matter had attained finality. It has been brought on record that the Department had not filed any appeal before the Hon'ble Bombay High Court against the Tribunal order and the learned Counsel for the assessee had drew our attention to the note of the PCIT not recomm....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... made all the eight additions, which were made originally in the order u/s.147 and 143(3). The AO only decided the issue on merits without even deciding anything about the validity of reopening despite the assessee had filed objections challenging the validity of reopening and as directed by the Tribunal which was blatant defiance of Tribunal's direction. 14. Now aggrieved by the assessment order dated 29th September, 2021 (that is, post direction by the Tribunal dated 03rd May, 2019), appeal was filed before the ld.CIT(A). The CIT(A) had granted relief on merits and deleted various additions / disallowances made by the AO. Insofar as the issue relating to adjustment of book profit u/s.115JB for the provision for deferred tax of Rs.190.55 crore, he held that since the issue has been considered by the Tribunal while adjudicating the appeal against original assessment order u/s.143(3) and thus following the same he deleted the same. Insofar as the adjustment of book profit u/s.115JB in respect of provision of diminution in value of investment of Rs.26 crore, he again referred to the order of the Tribunal dated 17.07.2019. lastly on the issue of adjustment to the book profit u/s.11....
X X X X Extracts X X X X
X X X X Extracts X X X X
....espect of provision for diminution in the value of investments of Rs.26,00,00,000. Addition u/s.115JB of the Act in respect of provision for bad & doubtful debt of Rs.97,94,00,000. Addition under section 115JB of the Act in respect of provision for staff welfare of Rs.10,58,00.000: The provision is admittedly an accrual worked out on a scientific basis by actuarial method and represent provision for meeting ascertained liability and concluded that considering the legal position brought out by the assessee, no adjustment should be made to the book profits. Addition under section 115JB of the Act in respect of provision for loss on guarantee of Rs.69,00,000 The liability is contractual in nature and that the liability has been accounted for on accrual basis based on the amount of default intimated by the bankers. Accordingly, the said amount provided in the books of assessee, being in accordance with the accounting standards cannot be said to be "Contingent Liability" or liability other than "Ascertained Liability" and granted relief. Addition under section 115JB of the Act in respect of provisions of wealth tax of Rs. 55,00,000: ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f because the department had not challenged the impugned order or filed any appeal before the Hon'ble Bombay High Court on these issues. For the sake of ready reference, the relevant observation and finding of the Tribunal qua these additions are as under:- "4.2 In this regard, we also find that with regard to provision for deferred tax, vis-à-vis the computation of book profits w/s. 115JB of the Act, the Id. AO in the original scrutiny assessment proceedings u/s. 143(3) had indeed called for a detailed note and assessee vide its letter dated 25/11/2005 had filed a detailed note thereon which are enclosed in pages 70 & 71 of the paper book. The Id.AO on due appreciation of the said note came to conscious conclusion that the same need not be added to the book profits u/s. 115/B of the Act. In this scenario, can this be a subject matter of enhancement by the learned CIT(A) is to be looked into. In this regard, the Id. AR placed reliance on the decision of Hon'ble Supreme Court in the case of CIT vs. Rai Bahadur Hardutray Motilal Chamaria reported in 66 ITR 443 (SC) wherein the facts of the issue before the Hon'ble Supreme Court and the decision rendered thereo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t the Assessing Officer can do and direct him to do what he has failed to do. Such powers are, however, subject to the limitation that what an Assessing Officer could not do validity, the first appellate authority also cannot do in appeal. This question, however, does not arise in this case as the assessee was entitled to file the audit report before the completion of the assessment with or without a revised return for the purpose of curing the defect in the original return filed without the audit report." 4.7. Respectfully following the observations of Hon'ble Calcutta High Court in para 16 above, the enhancement made by the learned CIT(A) with respect to aforesaid three items in the computation of book profits under section 115JB of the Act deserves to be deleted and is hereby deleted." 19. Thus, he submitted that these issues cannot be added in the proceedings. 20. Shri Vora submitted that in the first round of reopening proceedings in the appeal against the CIT(A) order pursuant to the reopening proceedings under section 147 of the Act, the Respondent had challenged the validity of the reopening proceedings and the Department had appealed before Tribunal only....
X X X X Extracts X X X X
X X X X Extracts X X X X
....planation to section 115JB of the Act. Reliance in this regard was placed by hi, on the following:- * Apollo Tyres Ltd (255 ITR 273) (SC) * Kinetic Motor Co (62 (TR 330) (Bom) - SLP dismissed by SC (270 ITR 3) (SC) * Usha Martin Industries Ltd (104 ITD 249) (Kol SB) * NCL Industries Ltd (88 ITD 150)(Hyd) 22. Ld. Counsel further submitted that even on the date of reopening, there was no retrospective amendment introduced in the Act. The amendments were introduced vide Finance Act 2008 and 2009 respectively whereas notice under section 148 of the Act was issued on 29 May 2006 on which day the amended provisions did not exist in the Act. Further, he submitted that reopening on the basis of retrospective amendment is not justified and cannot be done. Reliance was placed in this regard on the following:- * Own case order for AY 2003-04 (ITA No. 3333/Mum/2011) dated 17 July 2019 * Denish Industries Ltd. v. ITO (271 ITR 340) (Guj.) * Rallies India Ltd. v. ACIT (2010) 323 ITR 54(Bom) * SGS India Pvt. Ltd. v. ACIT (2007) 292 ITR 93 (Bom) Siemens Information Ltd. (2007) 293 ITR 548 (Bom) * Simens Housing Corp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ent actuarial valuation and based on the actuarial valuation, the assessee makes accrual every year. Therefore, in view of the above, it is submitted that the above amount represents accrual based on actuarial valuation and expenses incurred during the year. Since it is valued on a scientific method by following actuarial valuation, it constitutes accrual of expenses and is not an ad hoc provision in any manner. Reliance in this regard was placed on Hon'ble Bombay High Court decision in case of Echjay Forgings Pvt Ltd (251 ITR 15) (Bom) 26. Ld. Counsel pointed out that the learned CIT (A) in the first round of reopening proceedings vide order dated 10 March 2011 at para 7.3 of the order, had held that the provisions had been worked out on a scientific basis by actuarial method and represent provision for meeting ascertained liability and hence no adjustment could be made under book profits. There after, in the second round of proceedings, the CIT(A) at para 10.4 of the order deleted the adjustments made to the book profit under section 115JB of the Act by observing that the provision is admittedly an accrual worked out on a scientific basis by actuarial method and represent ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....said issue cannot be done. In view of the above, it is submitted that no adjustment can be made to book profit under section 115JB of the Act. `29. Lastly, on the issue of interest u/s.234B, he submitted that the interest u/s.234B can be charged since the income for the year under consideration is taxable under the provisions of section 115JB. 30. On the other hand, the learned DR submitted that in the original round of assessment proceedings, the ld. CIT (A) has made enhancement for which the Tribunal has held that since the AO had initiated reassessment proceedings u/s.147, therefore, enhancement could not have been done. The ld. CIT(A) insofar as the appeal relating to reassessment proceedings has held that since he has already held that the issue while enhancing the income in the original assessment proceedings u/s.143(3), therefore, these 3 issues were not adjudicated at all. Further these issues have not been dealt specifically on merits by the Tribunal also. Once an amendment has been brought with retrospective effect and the matter was pending before the Tribunal, then the amended law should have been applied. Accordingly, the AO is correct in making the said addition....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... issues of book profit adjustments. The Tribunal held that the validity of reopening has to be decided by the AO because the AO had not followed the law laid down by the decision in the case of GKN Driveshafts (India) Limited (supra) and not supplied the reasons recorded to the assessee, and the only issue which was challenged by the assessee and the Revenue was adjustment of book profit u/s.115JB for the provision for staff welfare expenses of Rs.10.58 crores. Thus, the mandate of the A.O. while giving effect to the aforesaid order was only to comply with the issues there before the Tribunal and the directions by the Tribunal. For the sake of ready reference, the relevant observation of the Tribunal setting aside the matter to the AO was as under:- "5. We have heard the rival submissions of both the parties and perused the material available on record. We find that the assessee has challenged the preliminary grounds on the validity of reopening of the assessment before us. Ld. AR before us argued that copy of actual reasons recorded by the AO for reopening of the assessment was never furnished to the assessee in order to enable the assessee to file its objections thereon ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fair-play, to remand both the appeals of the assessee as well as the Revenue to the file of Id. AO for de novo adjudication in respect of issues contested before us alone by both the parties, after giving a clear finding on the validity of reopening of assessment. In this regard, la. A is directed to supply the actual reasons recorded for reopening of the assessment to the assessee. The assessee, if it so desires, may file objections to the same. In case, if any objections are filed by the assessee to the reasons recorded, Id. AO is directed to pass a separate speaking order disposing off those objections. 7. We would like to make it clear that in view of the aforesaid directions, all the issues contested before us on merits by both the parties including the additional grounds raised by the assessee are left open and no decision is rendered thereon by us. 33. Thus, the AO was strictly circumscribed on the issues and the directions given by the Tribunal. The AO could not be raked up the issues which already had attained finality. If the Department was aggrieved by the order of the Tribunal then they should have filed appeal before the Hon'ble Bombay High Court, which on ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Insofar as the issue relating to interest u/s.234B, we hold it as consequential and moreover we have deleted most of the additions, and therefore, the AO while giving effect to this order ensure that there would be no liability on interest u/s.234B. 37. Insofar as the reopening and validity of proceedings u/s.147, the same is treated as academic as the matter has been decided on merits. 38. In the result, the appeal filed by the Revenue is dismissed and the Cross Objection filed by the assessee is allowed except the issue relating to reopening, which is treated as academic. Order pronounced on this 21st day of June, 2024. ============= Document 1 1 Order under section 143(3) dated 31 January 2006 (refer page nos. 81-97) Additions made under normal provisions, few issues raised under section 115JB but not additions made under book profits 2 Order under section 143(3) rws 147 dated 31st December 2007 (refer page nos.200-212) Addition under section 115JB of the Act, inter- alia, of Provision for deferred tax Amount (in Rs.) 190,55,00,000 Provision for diminution in 26,00,00,000 value of investment Provision ....