M/s Sri Vasavi Industries Ltd.,, Hyderabad v. ACIT, Hyderabad

ITA 235/HYD/2007 | 1997-1998
Pronouncement Date: 29-01-2010 | Result: Dismissed

Appeal Details

RSA Number 23522514 RSA 2007
Assessee PAN AADCS1262L
Bench Hyderabad
Appeal Number ITA 235/HYD/2007
Duration Of Justice 2 year(s) 11 month(s) 22 day(s)
Appellant M/s Sri Vasavi Industries Ltd.,, Hyderabad
Respondent ACIT, Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 29-01-2010
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 29-01-2010
Date Of Final Hearing 06-01-2010
Next Hearing Date 06-01-2010
Assessment Year 1997-1998
Appeal Filed On 06-02-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A HYDERABAD BEFORE SHRI G.C. GUPTA VICE PRESIDENTAND SHRI AKBER BASHA ACCOUNTANT MEMBER ITA NO.235/HYD/2007 : ASST T. YEAR 1997-98 SRI VASAVI INDUSTRIES LTD. HYDERABAD. (PAN:AADCS 1262L VS ACIT CIR- 3(2) HYDERABAD. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI.D. BALAJI RESPONDENT BY : SHRI A. PATRA O R D E R PER AKBER BASHA ACCOUNTANT MEMBER THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER PASSED BY THE LEARNED CIT (A) TIRUPATHI DATED 15-12-2006 FOR THE ASSESSMENT YEAR 1997-98. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY I S ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING IN IRON A ND STEEL ETC. AND FOR THE ASSESSMENT YEAR 1997-98 THE ASSESSEE'S TAXABLE INCO ME WAS ASSESSED U/S 143(3) READ WITH SECTION 147 OF THE ACT ON 30 -3-2005 AT RS.70 33 911 AGAINST NIL INCOME RETURNED. WHILE COMPLET ING THE ASSESSMENT THE ASSESSING OFFICER DISALLOWED A SUM OF RS.2 01 42 727 ON ACCOUNT OF REVALUATION OF RESERVE CREDITED TO PROFI T & LOSS A/C WHILE COMPUTING THE INCOME UNDER SECTION 115JA OF THE ACT. 2 3. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER THE ASSESSEE- COMPANY WENT IN APPEAL BEFORE THE CIT (A) TIRUPATHI . THE CIT (A) AFTER CAREFUL PERUSAL OF THE ASSESSMENT RECORDS AND THE ORIGINAL ASSESSMENT ORDER OF THE YEAR UNDER CONSIDERATION HELD THAT THE ASSESSING OFFICER HAS NOT DEALT WITH THE ISSUE IN THE ORIGINAL ASSESSMENT ORDER AND HENCE QUESTION OF CHANGE OF OPINION AS CONTENDED BY THE ASSESSEE DOES NOT ARISE AND HE FURTHER HELD THAT THE REOPENED ASSESSMENT I S PERFECTLY VALID AS PER LAW AND IT CANNOT BE TAKEN AS CHANGE OF OPINION. HENCE THE ADDITIONAL GROUND WAS NOT ACCEPTED AND HE UPHELD THE A CTION OF THE ASSESSING OFFICER BY REJECTING THE GROUNDS TAKEN BY THE ASSE SSEE AND FINALLY HE CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 4. FURTHER AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE U S. AT THE TIME OF HEARING THE LEARNED COUNSEL FOR THE ASSESSEE NOT PRESS ED THE GROUND TAKEN BY THE ASSESSEE IN RESPECT OF VALIDITY OF ORDER UN DER SECTION 147 OF THE ACT AND HENCE THE SAME IS DISMISSED AS NOT PRESSED. ON MERITS THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT REVALUATIO N RESERVE WAS DONE BEFORE 31-3-1997 AND HENCE THE EXPLANATION (1) TO SECTION 115JA IS NOT APPLICABLE IN THE CASE UNDER CONSIDERATION. ACCORD ING TO THE ACCOUNTING STANDARDS ISSUED BY ICAI WHILE DEBITING THE ADDITIONAL DEPRECIATION TO THE P & L A/C THE COMPANY MAY ALSO CRE DIT AN AMOUNT EQUAL TO THE ADDITIONAL DEPRECIATION TO THE P & L A/ C PASSING A CORRESPONDING DEBIT TO THE ASSET REVALUATION RESERVE ACCOU NT WHICH HAS ALREADY BEEN CREATED BY THE COMPANY AT THE TIME OF R EVALUATION OF THE ASSETS SO THAT THE DIMINISHING EFFECT ON THE PROFIT OF T HE COMPANY GETS NEUTRALIZED. HE RELIED ON THE DECISION OF ITAT DELHI BENCH IN THE CASE OF ACIT VS. REDICO KHAITAN LTD REPORTED IN 24 SOT 156 IN SUPPORT OF HIS CONTENTION. ON THE OTHER HAND THE LEARNED DR SUBMIT TED THAT THE CASE 3 IS SQUARELY COVERED IN FAVOUR OF THE REVENUE BY THE D ECISION OF THE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF STERLING S TEELS AND WIRES LTD VS. DCIT REPORTED IN 271 ITR 260. HENCE HE SUBMIT TED THAT THE ORDER OF THE ASSESSING OFFICER IS TO BE UPHELD. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL AVAILABLE ON RECORD. THE EXPRESSION 'RESERVE OR PROVISION ON THE LIABILITIES SIDE OF BALANCE SHEET MEANS RESERVE OR P ROVISION CREATED BY WAY OF P & L A/C OR P & L APPROPRIATION A/C'. THE EXPRESSION 'RESERVE OR PROVISION ON THE LIABILITIES SIDE OF BALANCE SHEET IN ITS CONTEXT DOES NOT REFER TO ANY RESERVE OR PROVISION CREATED TO COUNTER BA LANCE THE INCREASE ON ACCOUNT OF REVALUATION OF FIXED ASSETS ON THE ASSETS SIDE OF BALANCE SHEET. THE BOOK PROFIT HAS NEVER BEEN INCREASED BY THE ACTUAL AMOUNT OF RESERVE OR PROVISION OUT OF WHICH THE AMOUNT CREDIT ED TO P & L A/C HAS BEEN WITHDRAWN AND CONSEQUENTLY THE AMOUNT CREDITED TO P & L A/C BY WAY OF WITHDRAWAL FROM ANY RESERVE OR PROVISION CAN NOT BE EXCLUDED. FOR THE PURPOSE OF COMPUTING THE BOOK PROFIT UNDER SE CTION 115JA OF THE ACT THE ASSESSEE IS NOT ENTITLED TO EXCLUDE THE AMOUNT CR EDITED TO P & L A/C BY WAY OF WITHDRAWAL FROM THE RESERVE OR PROVISIO N. THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE PROVISO U NDER CLAUSE (1) OF THE EXPLANATION UNDER SECTION 115JA(2) IS NOT APPLI CABLE IN THIS CASE ON THE GROUND THAT ANY RESERVE ACCOUNT WITHDRAWN FROM ANY RESERVE CREDITED TO THE P & L A/C SHALL BE REDUCED ONLY AFTER SU CH RESERVE WAS CREATED OR PROVIDED IN THE PREVIOUS YEAR RELEVANT TOE THE ASSESSMENT YEAR COMMENCING ON OR AFTER 1ST APRIL 1997 AND THAT I N THE CASE OF THE ASSESSEE THE REVALUATION RESERVE WAS DONE BEFORE 31-3-199 7 AND CONSEQUENTLY THE EXPLANATION IS NOT APPLICABLE. THE AR GUMENT OF THE COUNSEL FOR THE ASSESSEE IS NOT CORRECT AND THE PROVISION U NDER CLAUSE 4 (1) COMES INTO PLAY IN A CASE WHERE THE AMOUNT IS WITHDR AWN FROM RESERVES CREATED OR PROVISIONS MADE IN A PREVIOUS YEAR RE LEVANT TO THE ASSESSMENT YEAR COMMENCING ON OR AFTER THE 1ST DAY OF APRI L 1997. THE RESERVE HAVING BEEN CREATED DURING THE FINANCIAL YEAR 1996-97 BEING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 1997-98 AND HENCE THERE IS NO MERIT IN THE CONTENTION OF THE LEAR NED COUNSEL FOR THE ASSESSEE. 6. THE DECISION IN THE CASE OF ACIT VS. REDICO (SUPRA) R ELIED UPON BY THE LEARNED COUNSEL IS ALSO NOT APPLICABLE TO TH E FACTS OF THIS CASE UNDER CONSIDERATION. IN THAT CASE THE COURT HELD T HAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN RE-COMPUTING THE BO OK PROFITS BY DISALLOWING DEPRECIATION ON REVALUED ASSETS WHEREAS IN TH E CASE UNDER CONSIDERATION THERE IS NO SUCH KIND OF DISALLOWANCE BY TH E ASSESSING OFFICER WHILE COMPUTING THE BOOK PROFIT. THE PROVISION S AS CONTAINED IN THE EXPLANATION TO SECTION 115JA OF THE ACT ARE SPECIFI C AND THEY OPERATE TO DETERMINE THE DEEMED INCOME STARTING FROM THE BOOK PROFIT OR REDUCING THE BOOK PROFIT SO ARRIVED AT WITH SPECIFIC ITE MS MENTIONED IN THE SAID EXPLANATION. TO THE EXTENT OF THE ARRIVING BOOK PROFIT THERE IS NO CONFLICT BETWEEN THE PROVISIONS OF SECTION 115JA OF THE ACT AND THE PROVISIONS OF PARTS II AND III OF SIXTH SCHEDULE TO THE COMPANIES ACT. FURTHER IT IS WELL SETTLED LAW THAT THE SPECIFIC PROV ISIONS CONTAINED IN THE INCOME-TAX ACT OVER RIDE THE PROVISIONS OF ANY OTHER L AW FOR THE PURPOSE OF COMPUTATION OF INCOME. THE LEARNED DR REFERRED TO THE DECISION IN THE CASE OF STERLING STEELS & WIRES LIMITED VS. DCIT (SUPRA) IS SQUARELY APPLICABLE TO THIS CASE UNDER CONSIDERATION THE HIGH COUR T HELD AS FOLLOWS:- ' THE AFORESAID PROVISO WAS INSERTED BY THE FINANCE A CT 1989 WITH RETROSPECTIVE EFFECT FROM 1ST APRIL 1998. AS PER CLAUSE (1) 5 ABOVE THE AMOUNT WITHDRAWN FROM ANY RESERVE CREATE D DURING ANY PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR C OMMENCING ON OR AFTER 1SKT APRIL 1988 CANNOT BE REDUCED FROM THE BOOK PROFIT UNLESS IT IS SHOWN THAT THE BOOK PROFITS OF THE YEAR IN WHICH THE SAID RESERVE (OUT OF WHICH THE SAID AMOUN T WAS WITHDRAWN) HAD BEEN INCREASED BY THOSE RESERVES. I N THE PRESENT CASE THE UNDISPUTED FACTS ARE THAT THE RES ERVES HAVE BEEN CREATED IN THE PREVIOUS YEAR RELEVANT TO THE A SSESSMENT YEAR 1990-91 WHICH HAD COMMENCED AFTER 1ST APRIL 1 988. IT IS ALSO NOT DISPUTED THAT THE BOOK PROFITS O0F THE ASS T. YEAR 1990-91 HAD NOT BEEN INCREASED BY THE SAID RESERVE. THUS THE WITHDRAWAL MADE BY THE ASSESSEE FROM REVALUATION RE SERVE WAS CLEARLY HIT BY THE PROVISO TO THE CLAUSE ((I) OF TH E EXPLANATION TO SECTION 115J OF THE INCOME-TAX ACT 1961(THE ACT). THE TRIBUNAL WAS THEREFORE RIGHT IN HOLDING THAT THE AMOUNT TR ANSFERRED FROM THE REVALUATION RESERVE COULD NOT BE TAKEN OUT OF N ET PROFIT WHILE COMPUTING THE BOOK PROFITS FOR THE PURPOSE OF SEC. 115J OF THE T ACT. THOUGH THE CASE WAS DECIDED WITH REFERENCE TO THE PROVISI ONS OF SEC. 115J OF THE ACT IT APPLIES WITH THE EQUAL FORCE TO TH E PROVISIONS OF SEC. 115JA OF THE ACT ALSO AS BOTH THE PROVISIONS ARE IN PARI MATERIA. IN VIEW OF THE ABOVE THE LOWER AUTHORITIES ARE RIGHT IN HOL DING THAT THE CALCULATION OF BOOK PROFIT UNDER SECTION 115JA OF THE A CT DONE BY THE ASSESSEE WAS NOT IN ACCORDANCE WITH THE PROVISIONS OF SEC. 115J A OF THE ACT. FOR THE PURPOSE OF ARRIVING AT THE DEEMED INCOME UNDER SECTION 115JA OF THE ACT THE WITHDRAWAL MADE FROM THE REVAL UATION RESERVE AND CREDITED TO THE P & L A/C CANNOT BE REDUCED FROM THE NE T PROFIT AS SHOWN IN THE P & L A/C. IN VIEW OF THE ABOVE WE DO NOT SEE ANY INFIRMITY IN THE ORDERS OF LOWER AUTHORITIES AND THE SAME IS CONFIRMED. 6 7. IN THE RESULT THE APPEAL FILED BY ASSESSEE STAND DIS MISSED. ORDER WAS PRONOUNCED IN THE COURT ON 29-1-2010. SD/- (G.C. GUPTA) SD/- (AKBER BASHA) VICE PRESIDENT ACCOUNTANT MEMBER. DT/- 29TH JANUARY 2010. COPY FORWARDED TO: 1. M/S. VASAVI INDUSTRIES LIMITED 2ND FLOOR PLOT NO.8 ROAD NO.2 BANJARA HILLS HYDERABAD. 2. ACIT CIR-3(2) HYDERABAD. 3. CIT VIJAYAWADA/TIRUPATHI. 4. C.I.T(A) TIRUPATHI. 5. THE D.R. ITAT HYDERABAD. JMR