St The Orders Ofassessment. The Commissioner Of Income Tax (Appeals), Byorders Dated 08.03.7016 For Assessment Years 1998-99 To v. M/S.mgfindia Ltd." Dated 21.02,2018 Passed In Itano.378/2004And"Prakashleasingltd,Ys.deputy Commissioner Of Income-Tax (2012) 208Taxmann 464

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 3RD DAY OF AUGUST 2021 PRESENT| THE HON’BLE MR. JUSTICE ALOK ARADHE AND| THE HON’BLE MR.JUSTICE HEMANT CHANDANGOUDAR. BETWEEN: 1T.A. NO.678 OF 2017 M/S. ICDS LIMITED.SYNDICATE HOUSEMANIPAL - 5/6104REP. BY [ITS WHOLETIME DIRECTORSRI. T. MOHANDA PAIAGED 84 YEARS|S/O DR. T.M.A. PAIPAN: AAAC[43554.(BY MISS/SMT. JINITHA CHATTERJEE, ADV., FOR.SRI. S. PARTHASARATHI, ADV.) — APPELLANT| AND THE DEPUTY COMMISSIONER|OF INCOME-TAX, CIRCLE-1>UDUPI RANGE, CANARA TOWERS.MISSION HOSPITAL ROADUDUPI-5/76101. .., RESPONDENT| (BY SRI. K.V. ARAVIND, ADV.) THIS I.T.A. IS. FILED UNDER SECTION 260-A OFI.T.ACT, 1961 ARISING OUT OF ORDER DATED 02.05.2017PASSED IN ITA NO.1025 TO 1027/BANG/2016, FOR THEASSESSMENT YEAR 1998-99 TO 2000-01, PRAYING TO:I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW|STATED ABOVE. II]. ALLOW THE APPEAL AND SET ASIDE THE ORDER OFTHE ITAT, DATED 02.05.2017 BEARING ITA NO.1025 TO1027/BANG/2016 FOR THE ASSESSMENT YEAR 1998-99 TO2OOO-OL & ETC, THIS IL.T.A. COMING ON FOR HEARING, THIS DAY,ALOK ARADHE J.,DELIVERED THE FOLLOWING: JUDGMENT This appeal under Section 260-A of the Income TaxAct, 1961 (hereinafter referred to as ‘the Act’, for short) has|been filed by the assessee. The subject matter of the appealpertains to tne Assessment Years 1998-99 to 2000-01. Theappeal was admitted by a Bench of this Court on thefollowing substantial questions of law: a) Whether the Tribunal was Justified inholding that lease equalization charges provided isa provision for diminution of value of asset torope in clause (g) of Explanation to Section 115JAof the Act to increase the book profit for thepurpose of determination of tax under the saidsection ? b) Whether the Tribunal was justified inignoring the direction of this Hon'ble High Court inthe Appellant's own case to follow the ratio of theSupreme Court in the case of Apollo Tyres Ltd Vs.CIT (2002) 255 ITR 273 while setting aside theassessment originally made and proceeded tonoid the provisions of clause (g) of Explanation to.Section 115JA(2) of the Act would apply toincrease tne book profit for the purpose ofdetermination of tax? 2. Facts leading to filing of this appeal briefly stated aretnat assessee is a public limited company which is engaged inthe business of leasing and accepting deposits from thepublic. The assessee filed its return of income. forAssessment Year 1998-99. The Assessing Officer, whilecomputing the book profit under Section 115JA of the Act,did not allow lease equalization cnarges and by orders dated11.02.2015 and 29.01.2015 passed orders of assessment forAssessment Years 1998-99 to 2000-01, respectively. Theassessee thereupon filed an appeal against the orders ofassessment. The Commissioner of Income Tax (Appeals), byorders dated 08.03.7016 for Assessment Years 1998-99 to| 2000-01, has deleted the addition on account of lease|equalization cnarges and allowed the appeal. Tne revenuefiled appeal before the Income Tax Appellate Tribunal. TheTribunal, DY a common order dated 02.05.2017, has|confirmed the addition on account of lease equalization|charges. In the aforesaid factual background, this appealhas been filed.. 3. Learned counsel for the assessee submitted tnat tne|assessee can be cnarged only on real income which can becalculated after applying the prescribed accounting methodas per guidance note of the Institute of Chartered|Accountants of India (ICAI). It is further submitted that onconjoint reading of Section 145 of the Act with Section 211 oftne Companies Act, 1956, it is evident that the assessee isentitled to make such a bifurcation and there is no illegality|in the same. It is further submitted that lease equalizationcharges have to be taxed to the extent of real income andthe method of calculating the income has to be followed byapplying guidance note of ICAI. It is also submitted that theTribunal has cited the first substantial question of law 3. Learned counsel for the assessee submitted tnat tne|assessee can be cnarged only on real income which can becalculated after applying the prescribed accounting methodas per guidance note of the Institute of Chartered|Accountants of India (ICAI). It is further submitted that onconjoint reading of Section 145 of the Act with Section 211 oftne Companies Act, 1956, it is evident that the assessee isentitled to make such a bifurcation and there is no illegality|in the same. It is further submitted that lease equalizationcharges have to be taxed to the extent of real income andthe method of calculating the income has to be followed byapplying guidance note of ICAI. It is also submitted that theTribunal has cited the first substantial question of law mentioned in the order dated 02.05.2017 passed in ITANos.1025-27/2016 and relying on the answer to substantialquestion of law No.2. In support of aforesaid submission,rellance nas been placed on the decisions of High Court of Delni In|‘COMMISSIONER OF INCOME-TAX Vs. M/s.MGFINDIA LTD." DATED 21.02,2018 PASSED IN ITANO.378/2004and"PRAKASHLEASING|LTD,Ys.DEPUTY COMMISSIONER OF INCOME-TAX (2012) 208TAXMANN 464, 4. On the other hand, learned counsel for the revenue.submitted that lease equalization charges is in the nature ofprovision for diminution in the value of assets and theaforesaid fact has been admitted by the assessee before thisCourt and the Tribunal has therefore rightly answered theissue whether the aforesaid amount can be added back tobook profit under Section 115JA of the Act. In support ofaforesaid submission, reliance has been placed on the|decisions of the Supreme Court in"APOLLO TYRES LTD. Vs.COMMISSIONER OF INCOME-TAX (2002) 122 TAXMAN562 (SC) AND ‘COMMISSIONER OF INCOME-TAX Vs.| WEIZMANN HOMES LTD. (2013) 33 TAXMANN.COM171 (KAR). 5. We nave considered the SUDMISSIONS made on botnsides and have perused the record. The issue involved in thisappeal is wnether lease equalization charges debited to profitand loss account has to be added to the book profit. Therelevant extract of Section 115JA of the Act reads as under: "115JA. Deemed income relating to certain|companies.—(1)Notwithstandinganything|contained in any other provisions of this Act,|where in the case of an assessee, being 4acompany, 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, 1997 (hereafter in this—section referred to as the relevant previousyear) is less than thirty per cent of its book.profit, the total income of such’ assesseechargeable to tax for the relevant previous yearshall be deemed to be an amount equal to thirty|per cent. of such book profit.| (2) Every assessee, being a company, shall, for|the purposes of this section prepare its profit. and loss account for the relevant previous year|in accordance with the provisions of Parts II andIII of Schedule VI to the Companies Act, 1956 (1of 1956): Provided that while preparing profit and loss|account, the depreciation shall be calculated on)the same metnogd and rates which nave beenadopted for calculating the depreciation for the|purpose of preparing the profit and loss accountlaid before the company at its annual general|meeting in accordance with the provisions of|section 210 of the Companies Act, 1956 (1 of.1956): Provided further that where a company has.adopted or adopts the financial year under the.Companies Act, 1956 (1 of 1956) which Is.aifferent from tne previous year under tne Act,themethodandratesforcalculationOf|depreciation snali correspond to the metnod and.rates which nave been adopted for calculating|tne depreciation for sucn financial year or part of|sucn financial year failing witnin tne relevant.previous year. Explanation.—For the purposes of this section,|“book profit" means the net profit as shown in|the profit and loss account for the relevant| previousYEadfprepared|under.SUD-section (2), as increased Dy— (a) the amount of income-tax paid or payable, and the provision tnerefor; or| Provided further that where a company has.adopted or adopts the financial year under the.Companies Act, 1956 (1 of 1956) which Is.aifferent from tne previous year under tne Act,themethodandratesforcalculationOf|depreciation snali correspond to the metnod and.rates which nave been adopted for calculating|tne depreciation for sucn financial year or part of|sucn financial year failing witnin tne relevant.previous year. Explanation.—For the purposes of this section,|“book profit" means the net profit as shown in|the profit and loss account for the relevant| previousYEadfprepared|under.SUD-section (2), as increased Dy— (a) the amount of income-tax paid or payable, and the provision tnerefor; or| (b) the amounts carried to any reserves by.wnatever name called; or (c) the amount or amounts set aside _ tprovisions made for meeting labilities, other.tnan ascertained Habilities; or| (d) the amount by way of provision for losses ofSUDSidiary companies; or. (e) the amount or amounts of dividends paid or proposed; or| (f) the amount or amounts of expenditure|relatable to any income to wnhicn any of theprovisions of Cnapter III applies; (g) the amount or amounts set aside as.provisions for diminution in the value of any.asset, if any amount referred to in clauses (a) to (g) Isdebited to tne profit and loss account, and as.reduced Dy, XXXXXxxX” It is pertinent to note that clause (g) to explanation tosub-section (2) of Section 115JA of the Act has been insertedby Finance Act, 2009 w.e.f. 01.04.1998. The aforesaidprovision applies to companies. It provides tnat if total|income of the company as computed under the provisions oftne Act is less than 30% of the book profit, the total incomeof such assessee is chargeable to tax for the relevantprevious year snail be deemed to be an amount equal to30% of the such book profit. Tne explanation to sub-section(2) provides that for the purposes of this section book profit|means tne net profit as snown in the profit and loss account|for the relevant previous year prepared under sub-section (2)as increased by the amounts mentioned in clauses (a) to (g). 6. In the instant case, the assessee made a provision.of Rs.11,09,04,763/- on account of lease equalizationcharges. The aforesaid provision was made for meeting thellabilities other than the ascertained liabilities as provided inclause (g) of explanation to sub-section (2) of Section 115JAof the Act. This amount which was earmarked as a provisionof diminution in the value of the asset for the purposes of arriving at book profit under Section 115JA of the Act, ought|to have been included in view of retrospective operation ofclause (g) to sub-section (2) to Section 115JA of the Act.Similar view has been taken by another Division Bencn of this Court In}COMMISSIONER OF INCOME-TAX Vs.WEIZMANN HOMES LTD., SUPlTdTnerefore, the Tribunalhas rightly held that the aforesaid amount has to be addedback to book profits for the purpose of determining deemedincome under Section 115JA of the Act as it is specificallyautnorized by clause (g) to sub-section (2) to Section 115JAof tne Act. | For the aforementioned reasons, the substantialquestions of law are answered against the assessee and infavour of the revenue. In the result, the appeal fails and is hereby dismissed. Sd/-JUDGE Sd/-JUDGE