×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
These are the latest case laws decided by various Income Tax Appellate Tribunals (ITAT) of India on Income Tax which have been published recently. The case laws are open for discussion and we invite expert comments from our members on its applicability and effect on relevant issues.
The captioned cross appeals – one by the assessee and the other by the Revenue are directed against the order of the Commissioner of Income Tax (Appeals)-18, Mumbai (in short ‘CIT(A)’) and arise out of the assessment order passed u/s 143(3) of the Income Tax Act 1961, (the ‘Act’). As a common order has been passed by the Ld. CIT(A), we are proceeding to dispose off these appeals through a common order, for the sake of convenience.
ITA No. 5048/MUM/2017
Assessment Year: 2012-13
2. The ground of appeal filed by the assessee reads as under: That on the facts and the circumstances of the case and in law, the Ld. CIT(A) erred in confirming addition of Rs.9,50,00,000/- made by the AO to book profit on account of debt redemption reserve which is created for timely payment of debt.
3. Briefly stated, the facts are that the assessee-company has debited a sum of Rs.9,50,00 000/- to the P&L account being “Debt Redemption” under the head “Other Expenses”. It worked out a net profit of Rs.30,12,848/- after considering the above expense. While working out income for tax purpose, the assessee has added the “Provision for Debt Redemption” of Rs.9,50,00,000/- and enhanced the business profit, thereby claiming deduction u/s 80IB(10) of the Act. The Assessing Officer (AO) while going through Form No. 29B along with Annexure-A observed that the assessee has not considered the above amount of Rs.9,50,00,000/- for computation of income u/s 115JB of the Act. As per the AO, the method for working of 115JB clearly states that “amount of net profit as shown in the profit and loss account should be increased by the amounts referred to in clause (a) to (i) of Explanation 1 of sub section (2) of section 115 of the Act”. The AO held that the “Provision for Debt Redemption” claimed by the assessee clearly falls under the purview of clause (b) and (c) of Explanation 1 of sub-section (2) of section 115 of the Act
“…(b) the amount carried to any reserve, by whatever name called other than a reserve specified under section 33AC or
(c) …the amount or amounts set-aside to provisions made for meeting liabilities, other than ascertained liabilities ; or
During the course of hearing, the assessee relied on the decision in IOL Ltd. v. DCIT 81 TTJ 525 (Kol), National Rayon Corp Ltd. v. CIT 142 CTR 2020 (SC), CIT v. Raymond Limited [21 taxmann.com 60]. However, the AO was not convinced with the explanation given by the assessee for the reason that the assessee itself has added in computation of income the “Provision for Debt Redemption” while claiming deduction u/s 80IB of the Act. Further, as per clause (b) to Explanation 1, the book profit prepared in accordance with Part II and III of Schedule VI of the Companies Act, 1956 will be increased by the amount created by any reserve by whatever name called, other than a reserve specified u/s 33AC of the Act. Relying on the decision in SREI Infrastructure Finance Limited v. Addl. CIT (IT Appeal No. 371 & 372 of 2012) dated 13.02.2015, the AO held that “Debt Redemption Reserve” is liable for tax u/s 115JB of the Act.
4. In appeal, the Ld. CIT(A) observed that :
“The liability is defined as per Sec II of the Companies Act, 2013 with reference to term current liabilities. Reserve falls on the other side i.e. associated with equity. Transfer to reserves is essentially an appropriation item out of earnings rather than expense. Morever, contingent liability is not a provision or liability which is less certain than a provision because it may or may not materialize. A provision is therefore, somewhere between accrual and contingent liability. In view of the above if provision is made for unascertained liability the same has to be added while computing books profits u/s 115JB. I therefore find that the facts of the case and case laws relied upon by the Appellant does not support the case in this regard. I find that the Appellant has created Debt redemption Reserve without any known liability and by no stretch of imagination the same could be referred to Debenture Redemption Reserve ”
Accordingly, the Ld CIT(A) confirmed the disallowance of Rs.9,50,00,000/- made by the AO for calculating profits u/s 115JB of the Act.
5. Before us, the Ld. counsel for the assessee submits that the above issue is squarely covered in favour of the assessee by the order dated of the Tribunal in the case of Rachana Finance & Investment P. Ltd. v. ITO (ITA No. 5816 & 5817/Mum/2015for AY 2012-13) and ACIT v. Genus Electrotech Ltd. (ITA No. 2826/Ahd/12 for AY 2006-07).
6. On the other hand, the Ld. DR submits that ‘Book Profit’ is arrived at after making specified adjustments to the net profit as shown in the profit and loss account so prepared. It is argued by him that the net profit as shown in the profit and loss account (prepared as per part II and III of Schedule VI) for the relevant previous year shall be increased