TaxTMI 
TaxTMI 
2008 (9) TMI 399
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.... was dividend received from UTI amounting to Rs. 3.30 lakhs. These investments in UTI were made years back and were made out of assessee's own funds and not out of the borrowed funds. Hence, it was submitted that no portion of interest expenditure incurred during the year could be attributed to the investment made in UTI in the earlier years. Similarly, there was no expenditure incurred during the year to earn the said dividend, it was submitted. The AO held that the assessee has not given any bifurcation of expenses incurred for earning dividend income and by virtue of provisions of s. 14A, expenditure incurred by the assessee for earning income which is exempt, proportionately to be disallowed. Coming to the quantum of interest attributable for earning dividend, AO held that, as rightly mentioned by the assessee, it was difficult to say that the monies invested in the shares and securities have come from totally assessee's own funds or from borrowed funds. He held that the assessee has used reserves and surplus funds for making the investments. Since both the borrowed funds and own funds were kept by the assessee without appropriate bifurcation, AO made the impugned disallowance.....
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.... 145A of the Act, viz., opening stock, purchase cost, closing stock were considered, the net impact of such adjustments would be nil. The AO, after considering assessee's explanation was of the opinion that even if exclusive method was followed for making the adjustments required under s. 145A of the Act, assessee was bound to follow the decision of Hon'ble Bombay High Court in the case of Melmould Corporation. According to the AO, a change in method of accounting, if it results change in value of closing stock, no corresponding adjustment would be required in opening stock since such a change would have the effect of disturbing the accounts leading to a chain reaction. In this view of the matter, the learned AO added back Rs. 14,18,294 to the closing stock of the assessee. 8. In its appeal before learned CIT(A), assessee submitted that if similar adjustment as made in the closing stock was not made in the opening inventory, it would result in artificial inflation of profits. According to the assessee, s. 145A of the Act laid down the principles of valuation of inventory and it has to be done uniformly. Learned CIT(A) accepted the submissions of the assessee and directed the AO to....
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....ng inventory' disregarding the 'opening inventory' will be not in accordance with the plain meaning of the term 'inventory' used in the section. Inventory will necessarily include within its fold both opening as well as closing. In the case of Melmould Corporation, the jurisdictional High Court was not dealing with the issue regarding application of s. 145A of the Act. Issue there was change in method of valuation and how the effect thereof has to be given. Hon'ble Court was not dealing with an issue where it was called to interpret the application of s. 145A of the Act. In Melmould Corporation's case, assessee had made a change in the method of valuation, which was not thrusted upon the assessee but voluntarily elected by it. Such a change suo motu done would definitely be different from the one, which is statutorily inflicted where an assessee per se is forced to make an adjustment to value of its inventory. Here, in the case before us, assessee was following exclusive method for accounting duty and was forced to adopt an increased valuation in its closing stock on account of application of s. 145A. In our opinion, when such a change is thrusted upon the assessee due to applicati....
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....; Amount (Rs.) Net profit as per P&L a/c 8,03,30,177 Add: Amounts referred to in cls. (a) to (f) of Explanation to sub-s. (2) of s. 115JB viz., provision for gratuity (pertaining to amalgamating company) made on estimated basis 28,478 8,03,58,455 Less: Amounts referred to in cls. (i) to (vii) of Explanation to sub-s. (2) of s. 115JB &nb....
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....sp; 8,03,58,455 Less: Amounts referred to in cls. (i) to (vii) of Explanation to sub-s. (2) of s. 115JB 5,62,27,445 Book profits for the purpose of s. 115JB 2,41,31,010 Tax @ 8.475% (i.e., 7.5% plus surcharge on income-tax @ 13%) on book profits. 25,45,103 The net result of the above was that assessee's book profit came down from Rs. 8,03,58,455 as given in the original computation to Rs. 2,41,31,010 in the revised computation. The difference arose solely on account of deduction claimed on account of Expln. (iii) to sub-s. (2) of s. 115JB of the Act, which was earlier nil and which in the revised computation came to Rs. 5,62,27,445. As aforesaid....
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....wever, the learned CIT(A) was not impressed by any of these arguments. According to him, assessee had prepared two sets of accounts, one for the purpose of Companies Act and another for the purpose of IT Act, the latter done to give effect to the amalgamation. Learned CIT(A) noted that the annual accounts which were adopted by the board of directors in general meeting and submitted to the RoC in accordance with the provisions of the Companies Act were the former one. Learned CIT(A) was of the opinion that assessee interfered with the audited accounts accepted by its own board of directors and this was against the ratio laid down by the apex Court in Apollo Tyres Ltd.'s case. The legal fiction created by s. 72A of the Act, as per the learned CIT(A), was restricted to the carry forward and set off of unabsorbed losses and depreciation and such fiction could not be extended for computation of book profits under s. 115JB of the Act. Thus, the learned CIT(A) confirmed the order of the AO. 18. Now before us, the learned Authorised Representative submitted that when the amalgamation scheme was sanctioned by the jurisdictional High Court on 20th Sept., 2001, it dated back to 1st Jan., 200....
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....ance with the Companies Act and laid by it before its general meeting. According to him, the AO could not take into cognizance a revised account for the purpose of computing liability under MAT provisions and he was justified in ignoring such revised computation filed by it. 20. We have heard the rival contentions and carefully perused the orders. Undisputed facts are that the assessee had originally, while filing its return, did not claim deduction of the unabsorbed losses remaining out of the amalgamating company's P&L al c for the purpose of computing its MAT liability. No doubt, it was disabled from doing so since the scheme of amalgamation was approved by the Hon'ble High Court later to the date of filing of the return and though such scheme sanctioned the amalgamation with retrospective effect it had no occasion to consider it while filing its return. There is also no dispute that the assessee had revised its computation for MAT liability whereby it claimed deduction under Expln. (iii) to s. 115JB(2) for the balance of Rs. 5,62,27,445 remaining in the amalgamating company's P&L a/c after setting off the surplus in its own P&L a/c. There is also no dispute that the second set....
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....ions of s. 115J, where a proviso similar to one given under sub-s. (2) of s. 115JB was absent. Therefore, we are of the opinion that application of the same ratio in a case to which s. 115JB applies, for the purpose of considering the allowability or otherwise of a second set of final accounts would not be relevant. Sub-s. (2) of s. 115JB, through its proviso simply mandates that an assessee has to adopt the same accounting policies, standards, etc. when preparing its annual accounts for the purpose of s. 115JB, which of course, has to be in accordance with the provisions of Parts II and III of Sch. VI to the Companies Act, 1956. Nowhere in this section is there a ban on an assessee from doing such an exercise, when it can do so legitimately, on account of a scheme of amalgamation, which has retrospective effect. Hence, the only question remaining is whether such accounts, post-amalgamation, were prepared in accordance with the mandate under sub-s. (2) of s. 115JB. Neither the AO nor the learned CIT(A) has cast any doubt on this aspect. Assessee had indeed filed full set of audited accounts as per the post-amalgamated scenario and this was done in accordance with the provisions of ....