Ita/258/2016 Of M/S Golden Gate Properties Ltd v. Deputy Commissioner Of Income Tax

IN THE HIGH COURT OF KARNATAKA AT BENGALURUDATED THIS THE 4 DAY OF MARCH 27071 PRESENT| THE HON’BLE MR. JUSTICE ALOK ARADHE AND| THE HON’BLE MR. JUSTICE ASHOK S. KINAGLLT.A. NO.258 OF 2016 BETWEEN: M/S GOLDEN GATE PROPERTIES LID.REPRESENTED BY ITS.DIRECTORSRI.K.KRISHNANNO.820, GOLDEN HOUSE80 FEET ROAD, 8TH BLOCKKORAMANGALABANGALORE - 560 O95. — APPELLANT. (BY SRILA.SHANKAR SR. ADV. FOR MR.JAYACHANDRAN, ADV.). AND" DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 11 (3)BMTC BUILDING |KORAMANGALA 80 FEET ROAD|BANGALORE - 560 O95. .., RESPONDENT (BY SRILJEEVAN J.NEERALAGI, ADV.) THIS I.T.A. IS FILED UNDER SEC. 260-A OF INCOME TAX|ACT 1961, ARISING OUT OF ORDER DATED 29.12.2015 PASSEDIN ITA NO.1/708/BANG/2013 FOR THE ASSESSMENT YEAR 201011, PRAYING TO: (1) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW AS.STATED ABOVE AND SNWERE THE SAME IN FAVOUR OF THEAPPELLAN!. | (ii) TO ALLOW THE APPEAL AND SET ASIDE THE FINDINGS.TO THE EXTENT AGAINST THE APPELLANT IN TH EOQRDER PASSEDBY THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE “C_BENCH IN ITA NO.1708/BANG/2013 RELATING TO ASSESSMENTYEAR 2ZO1LO-1L1 VIDE ITS ORDER DATED 29.12.720 THIS ILT.A. COMING ON FOR’ HEARING, THIS DAY, |ALOK ARADHE J.,DELIVERED THE FOLLOWING: | JUDGMENT This appeal under Section 260A of the Income TaxAct, 1961 (hereinafter referred to as the Act for short)nas been preferred by the assessee. The subject matterof the appeal pertains to the Assessment year 2010-11.The appeal was admitted by a bench of this Court videorder dated 15.11.2017 on the following substantialquestions of law:| (i)Whether the tribunel erred in law.in not holding that as the provisions of|Schedule VI of the Companies Act, 1956 andthe applicable Accounting Standard, prior.period|expenditureofRs.14,37,10,403/-which Is disclosed as part of notes to accountsand also reduced from the accumulated| balance of the profit and loss account shouldbe considered in the facts and circumstances|of the case? (il)Whether the tribunal is Justified inlaw in setting aside the issue to the record ofthe Commissioner of Income Tax (Appeals)|with a direction to re-examine the issue in thelight of provisions of Schedule VI of the|Companies Act, 1956 and the _ applicablAccounting Standard and give a_ findingwhethertheamountofpriorperiod.expenditure is required to be part of the profit|and loss account or not on the facts andcircumstances of the case? (iii) Whether tne tribunal erred in not|appreciating that the Commissioner of IncomeTax (Appeals)nas followed tne judicial|precedentswhicnIt|Cturnhavealready|considered the provisions of Schedule VI of.the Companies Act, 1956 and the applicableAccounting Standard and thus given a finding|that the amount of prior period expenditure is reguired to be part of the profit and loss)account on the facts and circumstances of the Case? (iv) Without prejudice, whether the|tribunal ought to have itself decided the issuewhen the issue involved only application ofprovisions of law and did not require any.investigation or verification of records or|evidences on the facts and circumstances of|the case? 2 |Facts leading to filing of this appeal brieflystated are that the assessee is a public limited companyengaged in the business of real estate projects. The|assessee filed its return of income for the Assessment|Year2010-11ON|14.10.7010|declaringlossOF Rs.4,21,81,982/-. Subsequently, a revised return ofincome was filed on Q2.02.2011 deciaring ‘NIL’ totalincome by claiming exemption under Section 80IB of theAct. The return of income was processed under Section.143(1) of the Act. The return was selected for scrutiny|and the details sougnt for were furnisned. Tne Assessing Officer passed an order on 31.01.2013 under Section. 2 |Facts leading to filing of this appeal brieflystated are that the assessee is a public limited companyengaged in the business of real estate projects. The|assessee filed its return of income for the Assessment|Year2010-11ON|14.10.7010|declaringlossOF Rs.4,21,81,982/-. Subsequently, a revised return ofincome was filed on Q2.02.2011 deciaring ‘NIL’ totalincome by claiming exemption under Section 80IB of theAct. The return of income was processed under Section.143(1) of the Act. The return was selected for scrutiny|and the details sougnt for were furnisned. Tne Assessing Officer passed an order on 31.01.2013 under Section. 143(3) of the Act. The Assessing Officer made addition|of Rs.14,37,10,403/- being the prior period expenses for.theDUFDOSES|ofdetermining»book|profitsat Rs.4,07,74,113/- under the provisions of Section 115JB.of the Act. Being aggrieved, the assessee filed an appealbefore the Commissioner of Income Tax (Appeals) who.by an order dated 30.09.2013 deleted the addition ofprior period expenses. Being aggrieved, the revenue|riied an appeal before the Income Tax Appellate Tribunal(hereinafter referred to as the tribunal’ for short). Thetribunal vide order dated 29.17.7015 set aside the order|of the Commissioner of Income Tax (Appeals) and.remitted the matter to Commissioner of Income Tax.(Appeals). In tne aforesaid factual background, theassessee Nas filed tnis appeal. 3Learned Senior counsel for the assesseesubmitted that the assessee had debited the prior periodexpenses of Rs.14,37,10,403/- in the profit and lossaccount in its financial statements for the year ending. 31.03.7010. It is further submitted that the details of the prior period items were disclosed by way of notes to.the financial statements in Note No.17(17). It is also.submitted that the Assessing Officer held that as the|prior period expenditure has not been passed through|the profit and loss account, the same cannot be claimed.as deduction for the purpose of computation of bookprofits under Section 115JB of the Act. It is also pointedout that the Commissioner of Income Tax (Appeals) neid_that the assessee is eligible to adjust the prior period|expenses while computing the book profits under|Section 115JB of the Act irrespective of whether such.prior period expenses are shown separately or not. It iscontended that the prior period expenditure nas been.debited by the assessee in the opening Dalance of theprofit and loss account to arrive at the closing balanceof |the profit and loss account. It is further contended thatas per provisions of Section 115JB of the Act, anassessee being a company Shall prepare its profit and loss ACCOUNT.for.therelevant.previous.YEdfFInaccordance with the provisions of Part II and III ofSchedule VI of the Companies Act, 1956. It is also.contended that as per accounting standard-5, Net profit|or loss of the period, prior period items and changes in|accounting policies the prior period item should be|separately disclosed. It is submitted that just Decause|the information is shown separately, adverse inferencecannot be drawn tnat tne same is not debited to tne'profit and loss account. It is also submitted that thetribunal was not justified in remanding the matter to|Commissioner of Income Tax (Appeals) and it ought to Nave upheld the order of the Commissioner of Income.Tax (Appeals). In Support of aforesaid submissions,reliance has been placed on decisions in.‘TAMIL NADUCEMENTS CORPORATION LTD. VS. JCIT'’, (2012)349ITR58(MADRAS),'CIT|VS,KHATTANCHEMICALS & FERTILIZERS LTD’, (2008) 307 ITR.150 (DELHI), CIT VS. SAIN PROCESSING & WVG. | MILLS P. LTD.', (2010) 325 ITR 565 (DELHI), ‘CITVS. KARNATAKA SOAPS & DETERGENTS LTD,|(2015) 59 TAXMANN.COM 43 (KAR.) AND ‘CIT.(LTU) VS. SANSERA ENGG. (P.) LTD.', (2016) 386.ITR 349 (KAR.).— MILLS P. LTD.', (2010) 325 ITR 565 (DELHI), ‘CITVS. KARNATAKA SOAPS & DETERGENTS LTD,|(2015) 59 TAXMANN.COM 43 (KAR.) AND ‘CIT.(LTU) VS. SANSERA ENGG. (P.) LTD.', (2016) 386.ITR 349 (KAR.).— a |On the other hand, learned counsel for therevenue submitted that the tribunal has merely remittedthe matter to the Commissioner of Income Tax!(Appeals) and has not recorded any findings on merits.It is further submitted that this court in this appealcannot record the findings on the question urged on|behalf of the assessee. It is also pointed out that in thefacts and circumstances of the case, the tribunal is.justified in remitting the matter to the Commissioner of.Income Tax (Appeals) and no interference is called for in.exercise of powers under Section 260-A of the Act. 5.|We have considered the submissions made.by learned counsel for the parties and have perused the record. In our opinion, the scope of this appeal is limited that is to ascertain whether the tribunal was justified in.setting aside the order passed by the Commissioner of Income Tax (Appeals) and remanding the matter to it..In other words, we Nave to examine the sufficiency ofthe material before the Commissioner of Income Tax!(Appeals) on the basis of which challenge made by the|assessee with regard to addition of prior period|expenses in computing bDook profits, nas been allowed.The tribunal has dealt with the claim for disallowance of prior period expenses in the following terms: 4d PDISALLOWANCE OF PRIOR PERIODEXPENSES: RS.14,37,10,403/- [GR.NO.3 & 4].3.1 Tne grounds No.3 and 4 are in regard|to the addition of Rs.14,37,10,403/- towards|prior period expenses unaer tne provisions ofSection 115JB of the Act. The AO noted thet|in the Statement of Computation of TotalIncome under Section 115JB, the appellant.company aeducted prior period expenses.airectly aajusted in the opening’ reserveamounting to Rs.14,37,10,403/-. This amount| was not routed through the profit and loss|account. The AO called for clarification on this issue and vide letter dated 31.01.7013 the|appellant submitted its reply. However, the.AO was not satisfied with the appellant's|submissions and added the said expenses by.invoking proviso 1 of Explanation to Section|115JB of the Act. 4,2 At the time of appeal hearing, the|appellant made detailed submissions, which|have|been|mentionedIn|theprecedingparagraphs. The AR of the appellant also|placed reliance on _ the following judiciapronouncements: (i) CIT vs. Khaitan Chemicals & Fertilizers|Ltd., (2008) 307 ITR 150 (Delhl) (ii) CIT vs. Sain Processing & Weaving|Mills Pvt. Ltd. (2010) 325 ITR 565 (Delhi) (ili) K.K.Nag Ltd. Vs. Addl. CIT, (2012) 52|SOT 38]. 4 3 The information available on records|reveals that the appellant had shown profit of|Rs.4,07,74,114/-.in theprofitand lossaccount for the year ending 31.03.2010.|While|computing»thebook|profitUnder| Section 115JB of the Act, it reduced theaforesaid sum of Rs.14,37,10,403/- as shownunder the Notes to Accounts to arrive at book|profits as per Explanation 1 to second proviso of the aforesaid section. The Hon'ble High|Court of Delhi in the case of CIT vs. Khaitan Chemicals and fertilizers Ltd. (supra) held.that prior items / extraordinary items were.components of net profit as shown in the.profit and loss account prepared underSection 115JA(2). The assessee was not.claiming any reduction in the net profit on thebasis of any of the clauses appearing in the|Explanation. The assessee'’s claim was thatthe prior period items / extraordinary items|Were|In|dadneventcsubsumed|In|thecomputation of net profit. It is only that they|were to be shown separately so that their|impact on the current net profit or loss could |be perceived. The Hon'ble High Court of|Madras has concurred with the decision of|the Hon'ble High Court of Delhi while decidingthe case of Tamil Nadu Cements Corporation|Ltd. Vs. JCIT (Spl. Range) (2012) 349 ITR 58(Madras). Following the decision of the| Hon'ble High Courts of Delhi and Madras, theappellant is eligible to adjust the prior period|expenses while computing the book profit|under Section 115JB of the Act irrespective of|whether such prior period expenses are|shown separately or not. In view of the legalposition discussed above, this ground ofappeal is allowed in favour of the appel/ant. 6.|The aforesaid finding has been set aside bythe tridDunal on the following grounds: The CIT(A) has not gone into this aspect|of the [issue whether — thprior periodexpenditure was required to be part of profitand loss account as per Schedule VI of.Companies Act or not. Therefore, if this.amount was not required to be part of Profit & Loss Account prepared as per Schedule VI of.the Companies Act, then undisputedly this|amount not being part of any of the clauses ofExplanation to Section 115JB cannot beexcluded from net profit for the purposes ofcomputing book profit under Section 115JB.Since, neither the revenue nor the assessee|has furnished any record in support of their. respective claims, whether this amount. ofprior period expenditure was required to be.part of profit and loss account prepared as.perDrovisionsOF|ScheduleVALOF|theCompanies Act, therefore, in the facts andcircumstances of the case, we set aside this|issue to the record of the CIT(A) to re-examine the issue light of the relevant|provisions of Schedule VI of the Companies|Act as well as the relevant accounting|StandardapplicableOf)this.Itemofexpenditure and then give a finding whether|this amount of prior period expenditure is°required to be part of profit and loss account|or not. 7Thus, it is evident that while passing theorder, the tribunal has not adverted to the reasoning:assigned by the Commissioner of Income Tax (Appeals).Therefore, we answer the second substantial question oflaw in favour of the assessee and against the revenue.In the result, the impugned order passed by the tribunaldated 29.12.2015 is quashed. We may clarify that decision of this court in CIT VS. GMR INDUSTRIES LTD.(2020) 425 ITR 504 (KAR.) was rendered in the peculiarfacts of that case. Needless to state that it will be open.for the parties to raise all contentions as are admissible|to them in law. Therefore, it is not necessary for us to.answer the remaining substantial questions of law. | In the result, appeal is disposed of. Sd/-—JUDGE. SS| Sd/-JUDGE.