TaxTMI 
TaxTMI 
2025 (6) TMI 1463
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....ssment order dated 31/12/2019 u/s 143(3) of the Income tax Act (the Act] passed by the Assistant commissioner of Income tax. Circle -1 Jamnagar [the Ld. assessing officer] determining the total income of assessee as per normal computation of income at Rs. 50,17,35,726/- against returned income of Rs. 49,85,50,620/- and determining the Book profit u/s 115JB of the Act at Rs. 45,58,90,530/-against Returned Book loss of Rs. 28,40,37,610/-. 2. Grounds of Appeal in relation to computation of book profit u/s 115JB Hon. CIT(A) erred in law as well as in facts in (i). confirming addition made by assessing officer of Rs. 73.99 crores to the book profits under Clause (1) of Explanation 1 to Section 115JB(2) of the Income Tax Act. 1961. (ii). failed to appreciate that the amount written off is not a provision for diminution in the value of any asset as contemplated under Clause (i) of Explanation 1 to Section 115JB(2), but an actual write-off, which is not covered by the scope of adjustments permitted under the said Explanation. (iii). upholding assessing officer's treatment of 'the actual write off' made in the books of account as 'provision....
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....ued after the end of the previous year. 3. Grounds of Appeal in relation direction given to assessing officer Hon. CIT(A) erred in law as well as in facts in (i). proposing enhancement of assessment in the form of direction given to assessing officer for the matter which has not been considered by assessing officer in assessment order. (ii). proposing enhancement of assessment in the form of direction given to assessing officer without issuing a show cause notice to assessee as required u/s 251(2) of the Act. (iii). linking two different transactions i.e., the capital reduction of assessee- company and capital reduction of its investee companies. (iv). considering capital reduction of assessee company, as deemed dividend u/s 2(22)(d) of the Act, despite the fact that capital reduction is carried out for NIL consideration. (v). considering transaction of capital reduction of assessee- company, as buy back to be covered u/s 115QA, despite the fact that capital reduction is carried out for NIL consideration. 4. Grounds of Appeal in relation to computation of deduction u/s 80-1A Hon CIT(A) has erred in law....
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....al income at Rs. 49,85,50,620/-. The assessee`s case was selected for complete scrutiny under CASS. Therefore, notice under section 143(2) of the Act, was issued and served upon the assessee. Subsequently, notice under section 142(1) of the Act was issued along with detailed questionnaire, on 15.01.2019. The authorised representative of the assessee, in response to these notices, submitted written submissions and relevant documentary evidences, before the assessing officer, through ITBA. During the course of assessment proceedings, the assessing officer noticed that a sum of Rs. 73.99 Crores, (Rs.7399.28 lakhs,) has been debited to the profit & Loss Account, being "Exceptional Items". On a further perusal, the assessing officer observed that the said amount of Rs. 73.99 Crores, appears to be, on account of investments, written off, in the following companies: Company name Nature Amount (Rs. in lakhs) Polestar Maritime Limited Equity shares 200.00 Polestar Maritime Limited Preference shares 1913.51 Seabridge Reality Pvt. Ltd. Preference shares 3589.92 Triton Maritime Pvt. Ltd. Preference shares 1685.85 Total 7399.28 The....
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....per the provisions of the Companies Act, 1956 and according to order of the High Court, capital reduction has resulted in extinguishment and cancellation of shares. Extinguishment of any rights in assets amounts to transfer u/s 2(47) of the Income Tax Act,1961. Hence, capital reduction amounts to transfer of asset. Hence, an actual write off on account of capital reduction is in the context of the fact that at the end of the year there is no asset in respect of which loss on capital reduction is debited. Hence, in absence of any asset no amount can be considered to set aside for diminution in value of asset. Based on these facts, the assessee submitted before the assessing officer that the fundamental premise of existence of asset to treat the amount under clause (i) of Explanation 1 of Section 115JB(2) is lacking, and hence no addition should be made in the hands of the assessee. 8. However, the Assessing Officer rejected the above contention of assessee and observed that assessee has done these transactions under a larger scheme of planning to avoid taxes. Therefore, assessing officer did not accept the plea of the assessee that such reduction in value of investment cannot be ....
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....rred shares), Seabridge Reality Pvt. Ltd. (preferred shares), and Triton Maritime Pvt. Ltd. (preferred shares) and because of this "write off", the assessee did not get any amount from the Investor, and the assessee- company under consideration also did not claim this "write off" as an expense in the profit and loss account, hence, there is no tax evasion on the part of the assessee. However, this action of "write off" does not fall in clause (i) of Explanation 1 of section 115JB(2) of the Act, therefore, the assessing officer should not make any adjustment for the purpose of calculation of MAT liability under section 115 JB of the Act. That is, the Ld. Senior Counsel for the assessee submitted that there was no inflow of on-money on account of capital reduction, and this capital reduction was done by the assessee company as per the order of the Hon`ble Bombay High Court, and hence the Ld. Senior Counsel for the assessee took us through paper book page-18, which is the order passed by Hon'ble Bombay High Court in respect of assessee, in relation to capital reduction, wherein the Hon'ble Bombay High Court in Company Scheme Petition No. 917 of 2016, vide order dated 22.12.2016, has o....
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.... hereinabove AND in view of the averment made in paragraph 17 of the Company Scheme Petition inter alia stating that there is one (1) Secured Creditor of the Petitioner Company and fifty one (51) Unsecured Creditors AND in view of the averments made in paragraphs 18 and 20 of the Company Scheme Petition wherein it is further inter alia sated that the proposed capital reduction does not affect or prejudice the interests of its creditors and does not involve the diminution of liability in respect of unpaid equity and preference share capital or payment to any equity and preference shareholder of any paid up equity and preference capital AND in view of the above, the provisions of and the procedure prescribed under Section 101(2) of the Companies Act, 1956 was not applicable and the same was dispensed with along with publication of the notice of hearing of the Petition in the Maharashtra Government Gazette and newspapers and the formality of words "And Reduced" while describing the capital structure of Petitioner Company while confirming the proposed reduction of equity and preference capital was also dispensed with vide order dated 15th December, 2016 passed in Company Summons for Di....
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....ssessee-company. 13. The Ld. Senior Counsel for the assessee also took us through the profit and loss account ( vide page No.34 of paper book), which is audited and approved by the Board of Directors and Annual General Meeting, wherein loss was shown to the tune of Rs. (-) 2,421.71 lakhs, which is the profit shown by the assessee- company after making all the adjustments on account of capital reduction and the same loss was taken, as a base to compute the Minimum Alternate Tax (MAT)/ book profit u/s 115JB of the Act. The Ld. Senior Counsel also took us through the audit report of the Chartered Accountant, (vide page-74 of the paper book) wherein ld. Counsel has explained that audit report has not expressed any negative comment on the assessee, that is, the audit report was not qualified by the chartered accountants of the assessee-company. Thereafter, Ld. Senior Counsel also submitted that on account of capital reduction, the assessee-company has not received any amount from the holders, therefore the same should not be taken into consideration for the calculation of book profit u/s 115JB of the Act. To prove the above stand, the Ld. Senior Counsel for the assessee relied on the....
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....see should not applicable when especially, there is a provision in bare Act, itself. 15. In rejoinder, Ld. Senior Counsel for the assessee submitted that the clause-(i) of Explanation 1 of sub-section (1) of 115JB of the Act, states about the amount, as provisions of diminution in the value of any asset. However, in assessee`s case under consideration, there is no diminution in the value of any asset. The reduction in capital without paying any amount, does not fall in the definition of diminution. The diminution in the value of asset means when let say, any asset held by the company is value at Rs. 100/- and at the time of making balance-sheet, the Fair Markt Value the said asset, is only Rs. 20/-, then it would be said that Rs. 80/- has to be set aside on a provision for diminution in the value of the asset, which is not the case here in the assessee`s case under consideration. The concept of "reduction in capital" is different then diminution in the value of the asset. The ld. Counsel further stated that on account of reduction of capital, there is a loss, which assessee-company could have claimed in its profit and loss account. However, the assessee-company has not claimed a....
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....13 (18 of 2013); or (b) being a company, to which the second proviso to sub-section (1) of section 129 of the Companies Act, 2013 (18 of 2013) is applicable, shall, for the purposes of this section, prepare its statement of profit and loss for the relevant previous year in accordance with the provisions of the Act governing such company: Provided that while preparing the annual accounts including statement of profit and loss],- (i) the accounting policies; (ii) the accounting standards adopted for preparing such accounts including [statement of profit and loss]; (iii) the method and rates adopted for calculating the depreciation, shall be the same as have been adopted for the purpose of preparing such accounts including [statement of profit and loss] and laid before the company at its annual general meeting in accordance with the provisions of [section 129] of the Companies Act, 2013 (18 of 2013)]: Provided further that where the company has adopted or adopts the financial year under the [Companies Act, 2013 (18 of 2013)], which is different from the previous year under this Act,- (i) the accounting policies; ....
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....lotted by the trust referred to in clause (xvii) of section 47 or the amount representing notional loss resulting from any change in carrying amount of said units or the amount of loss on transfer of units referred to in clause (xvii) of section 47; or (fd) the amount or amounts of expenditure relatable to income by way of royalty in respect of patent chargeable to tax under section 115BBF; or (g) the amount of depreciation, (h) the amount of deferred tax and the provision therefor, (i) the amount or amounts set aside as provision for diminution in the value of any asset, (j) the amount standing in revaluation reserve relating to revalued asset on the retirement or disposal of such asset, " 17. Having gone through the above Clause (i) of Explanation 1 to Section 115JB(2) of the Act, we note that as per clause (i) of Explanation 1 of Section 115JB(2) of the Act, the following adjustment is made, in computing the book profit: "the amount or amounts set aside as provision for diminution in the value of any asset" 18. Therefore, as per clause (i), above, the amount, set-aside, as provision for diminution, in the value of any a....
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....ded back to the Book Profit. Thus, it is undisputed fact that it is an actual write off of investment on account of capital reduction which is different from provision for diminution in value of asset. For this we, place reliance on the following judgements of Hon'ble jurisdictional High Court of Gujarat and Supreme Court: (1). Hon'ble Gujarat High Court in the case of PCIT v/s Torrent (P.) Ltd. "wherein vide Para 21 it was held that in terms of the accounting standards, in view of the decline in the value of the provisions created in the current year (as shown at page 57 of the paper book) the carrying amount of such investments has been reduced and in case of provisions where there was a rise in the value, the provisions are written back and the net amount of provision has been debited to the profit and loss account. Thus, insofar as the provision for diminution of value of investment to the extent of Rs. 13.85 crores are concerned, the same has actually been written off from the asset side of the balance sheet and, therefore, is in the nature of a write off. Under the circumstances, the amount of Rs. 13.85 crore is not of the nomenclature of provision for d....
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....ll as by the Registrar of Companies. This view of the Tribunal was not accepted by the High Court which held that the Assessing Officer has the authority to examine whether the accounts of the company have been maintained in accordance with the requirement of sub-section (1A) of section 115J and in that process if he finds that the accounts of the company are not in accordance with the provisions of the Companies Act, he could make the necessary changes before proceeding to assess the company for tax under the Explanation to section 115J. The relevant part of section 115J reads as follows : "115J. Special provisions relating to certain companies.-(1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee being a company (other than a company engaged in the business of generation or distribution of electricity), the total income, as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1988 but before the 1st day of April, 1991 (hereafter in this section referred to as the relevant previous year), is less than thirty per cent of its book p....
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....ssessment year commencing on or after the 1st day of April, 1988, shall not be reduced from the book profit unless the book profit of such year has been increased by those reserves or provisions (out of which the said amount was withdrawn) under this Explanation; or (ii) the amount of income to which any of the provisions of Chapter III applies, if any such amount is credited to the profit and loss account; or (iii) the amounts as arrived at after increasing the net profit by the amounts referred to in clauses (a) to (f) and reducing the net profit by the amounts referred to in clauses (i) and (ii) attributable to the business, the profits from which are eligible for deduction under section 80HHC or section 80HHD; so, however, that such amounts are computed in the manner specified in sub-section (3) or sub-section (3A) of section 80HHC or sub-section (3) of section 80HHD, as the case may be; or (iv) the amount of the loss or the amount of depreciation which would be required to be set off against the profit of the relevant previous year as if the provisions of clause (b) of the first proviso to sub-section (1) of section 205 of the Companies Act, 1956 (1 ....
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....se of empowering the assessing authority to rely upon the authentic statement of accounts of the company. While so looking into the accounts of the company, an Assessing Officer under the Income-tax Act has to accept the authenticity of the accounts with reference to the provisions of the Companies Act which obligates the company to maintain its account in a manner provided by the Companies Act and the same to be scrutinised and certified by statutory auditors and will have to be approved by the company in its General Meeting and thereafter to be filed before the Registrar of Companies who has a statutory obligation also to examine and satisfy that the accounts of the company are maintained in accordance with the requirements of the Companies Act. In spite of all these procedures contemplated under the provisions of the Companies Act, we find it difficult to accept the argument of the revenue that it is still open to the Assessing Officer to rescrutinise the accounts and satisfy himself that these accounts have been maintained in accordance with the provisions of the Companies Act. In our opinion, reliance placed by the revenue on sub- section (1A) of section 115J in support of the....
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....in sums of money representing as 'dividend' from units of the UTI and had included the said sums in the computation of its profit as an income from 'eligible business'. It also claims that out of such income from 'eligible business', it had purchased certain new machineries for its factory because of which it claimed a deduction of 20 per cent of the said income as provided in section 32AB of the Income-tax Act. This claim of the company has been allowed by the Tribunal and confirmed by the High Court. The argument of the revenue in this regard is that the income received by the assessee-company from its investment in the UTI has been declared by the company itself as an 'income from other sources' which head of income is different from income from 'Profits and gains of business or profession' and under section 32AB, income from business alone is entitled for the benefit of that section. The assessee contends that its income from sale and purchase of units of the UTI is part of its regular business and that it has held these units as stock-in-trade and has been doing the business of buying and selling the same. The assessee also contends that....
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....uses (a) and (b) of section 32AB(2). It is nobody's case that this business of the assessee-company is one of those businesses which falls under business enumerated in clauses (a) and (b) of sub-section (2) of section 32AB. Therefore, there is no doubt that the business of the assessee-company is an eligible business. The fact that it is shown under a different head of income would not deprive the company of its benefit under section 32AB so long as it is held that the investment in the units of the UTI by the assessee- company is in the course of its 'eligible business'. Therefore, in our opinion, the dividend income earned by the assessee-company from its investment in the UTI should be included in computing the profits of 'eligible business' under section 32AB. 8. The last point for our consideration is: whether buying and selling of units by the assessee- company can be treated as a speculative business? For this purpose, the revenue argues that the units purchased by the assessee-company from the UTI are shares, therefore, as per Explanation to section 73 of the Act, the said business of purchasing and selling of shares will have to be treated as a....
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....ese reasons, we are in agreement with the finding of the High Court on this point also. 10. For the reasons stated above, we allow C.A. No. 6100 of 1998 preferred by the assessee to the extent of our finding in the first point formulated by us but without costs. 11. Based on our finding in regard to point Nos. 2 and 3 formulated by us hereinabove, C.A. Nos. 2518-19 of 1999 are dismissed with costs." 20. We also find that at the assessment stage, the assessee submitted before the assessing officer that the write off of Rs. 7399.28 lacs, is on account of capital reduction of investment in equity shares and preference shares in the group companies. This capital reduction is carried out u/s 100 to 104 of the Companies Act, 1956. This is duly approved by the Board of directors of the assessee/ investor company; approved by Shareholders of the investee companies; and approved by Hon'ble Bombay High Court. The assessee submitted the Copy of order of Bombay High Court, copy of petition for capital reduction and working of actual write off / loss on capital reduction has been submitted during the course of assessment proceedings. Under section 101 of the Companies Act, ....
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....on 115QA of the Act, is directly applicable, as there is reduction of share capital, by way of buy- back and of course consideration has been paid indirectly in the form of investment in shares. Therefore, Ld. CIT(A) has given the direction to the Assessing Officer to proceed against the assessee, in terms of provisions of section 2(22)(d) of the Act and Section 115QA in respect of capital reduction of Rs. 2.71 crores. The learned Counsel submitted that such enhancement order passed by the ld. CIT(A) is without any notice to the assessee. Therefore, such enhancement in the assessment order, is without giving an opportunity of being heard to the assessee and without giving any notice to the assessee for enhancement. Hence, such addition should not be made in the hands of the assessee. 25. On the other hand, Ld. CIT-DR for the Revenue submitted that during appellate proceedings, there was an issue before the Ld. CIT(A) pertaining to clause (i) of Explanation 1 to Section 115JB(2) of the Act, for calculation of book profit u/s 115JB of the Act. Therefore, the direction of enhancement, which is given by the Ld. CIT(A), is very much connected with the adjudication of the issue in rel....
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....se, he may pass such orders in the appeal as he thinks fit.] (2) The [Joint Commissioner (Appeals) or the] [Commissioner (Appeals)] [as the case may be,] shall not enhance an assessment or a penalty or reduce the amount of refund unless the appellant has had a reasonable opportunity of showing cause against such enhancement or reduction. Explanation. In disposing of an appeal, the [Joint Commissioner (Appeals) or the] [Commissioner (Appeals)], may consider and decide any matter arising out of the proceedings in which the order appealed against was passed, notwithstanding that such matter was not raised before the [Joint Commissioner (Appeals) or the] [Commissioner (Appeals)] [as the case may be] by the appellant." 27. From the above provisions of section 251(2) of the Act, it is vivid that Commissioner (Appeals), shall not enhance an assessment, unless the appellant has had a reasonable opportunity of showing cause against such enhancement or reduction.Therefore, we find that direction given by the Ld. CIT(A) to the Assessing Officer for enhancement of assessment, without issuing show cause notice to the assessee u/s 251(2) of the Act to treat deemed dividend u....
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....rdingly. 31. The assessee, in response, to the above notice, vide letter dated 20.12.2019 has furnished following written submissions before the assessing officer: "B. Exclusion of rental income from deductions u/s 80-IA - Rs. 30.84 lacs 1. During the year under consideration, the assessee has earned rent income of Rs. 30.84 lacs from providing office space to various user's agencies like Custom House Agents, Shipping Agent etc. and State Bank of India. 2. The Container Freight Station (CFS) facility of the Company is approved by the Ministry of Commerce on certain terms & conditions in respect of minimum level of facilities required at CFS. The terms and conditions as well as the minimum level of facilities required and prescribed for setting up of CFS, as set out in the permission letter (copy attached herewith), are reproduced hereunder: 1. ................ 2. Office building for ICD, Customs office and a separate block for user agencies equipped with basic facilities. ............. (j) Accommodation for bank. ............ Condition at Serial No. (b) requires separate block for user agen....
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....come Tax Act, 1961. 7. We further submit that if there being no change either in facts or in law, as compared to the earlier and subsequent years, the position accepted/ determined needs to be followed even on the principle of consistency. Reliance in this regard is placed on the following decisions: • CIT vs. Excel Industries Ltd.: 358 ITR 295 (SC) • Radhasoami Satsang v. CIT: 193 ITR 321 (SC) • DIT (E) v. Apparel Export Promotion Council: 244 ITR 734 (Del) • CIT v. Neo Polypack (P) Ltd: 245 ITR 492 (Del.) • CIT v. Dalmia Promoters Developers (P) Ltd: 281 ITR 346 (Del.) • DIT v. Escorts Cardiac Diseases Hospital: 300 ITR 75 (Del.) • CIT v. P. KhrishnaWarrier: 208 ITR 823 (Ker) • CIT v Harishchandra Gupta 132 ITR 799 (Ori) • CIT v. SewaBharti Haryana Pradesh: 325 ITR 599 (P&H) • CIT v. Rajasthan Breweries Limited.: ITA 889/2009 (Del) - SLP dismissed. Hence, based on above we submit deduction u/s 80-IA should not be restricted by amount of rental income." 32. However, the assessing officer, rejected the above contentions of the assess....
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....ra and is not being repeated for the sake of brevity. 37. We have heard both the parties and perused the materials available on record. We note that during the year under consideration, the assessee- company had earned rent income of Rs. 30.84 lacs from providing office space to various user's agencies like Custom House Agents, Shipping Agent etc. and Stat Bank of India. Since these user's agencies were covered under the permission letter granted by the Ministry of Commerce vide Sr. No.(b) & (c), the rental income earned from the CFS (Container Freight Station) was considered as income earned from the business of eligible industrial undertaking and hence, deduction u/s 80IA of the Income Tax Act, 1961 was claimed. Further, this claim u/s 80IA is also supported by circular no.76/2017 dated 25.04.2017 issued by CBDT. Further, this issue has also been decided by Hon'ble ITAT Rajkot in assessee's own case for A.Y 2006-2007, 2007-08 and 2008-09 and CIT(A) for AY 2013-14, 2012-13, 2011-12, 2010-11, 2009-10 where in appeal of the assessee is allowed holding that rental income of the CFS is a part of the income derived from the eligible business and therefore eligible for deduction u/s ....