1
M/s Garware Polyester Ltd
ITA No. 5996/Mum/2013
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IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "G", MUMBAI
BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND
SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER
ITA No. : 5996/Mum/2013
(Assessment year: 2007-08)
Dy Commissioner of Income Tax Vs M/s Garware Polyester Ltd,
Range -8(1), 50-A, Swami Nityanand Marg,
Mumbai. Western Express Highway,
Vile Parle (East),
Mumbai-400 057
.:PAN: AAACG 0571 D
(Appellant) (Respondent)
Appellant by : Shri Vikash Kr. Agarwal
Respondent by : Shri Vijay Mehta
/Date of Hearing : 12-08-2015
/Date of Pronouncement : 14-08-2015
ORDER
, . .:
PER AMIT SHUKLA, JM:
The aforesaid appeal has been filed by the revenue against
the impugned order dated 31.07.2013, passed by CIT(A)-16
Mumbai, for the quantum of assessment passed u/s 143(3) r.w.s.
147 for the assessment year 2007-08 on following grounds:
1. On the facts and in the circumstances of the case and in
law, the Ld. CIT(A) erred in deleting the
adjustment/addition in computing Book Profit u/s 115JB
of the IT Act, of Rs. 3,52,78,000/- of waiver of principal
amount on one Time Settlement (OTS) of loan by Vijaya
Bank, without appreciation the findings of the AO for
making such an addition.
2. On the facts and in the circumstances of the case and in
law, the Ld. CIT(A) erred in deleting the
adjustment/addition in computing Book Profit u/s 115JB
of the IT Act, of Rs. 3,52,78,000/- of waiver of principal
amount on one Time Settlement (OTS) of loan by Vijaya
Bank, without appreciating that the directly transfer of the
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M/s Garware Polyester Ltd
ITA No. 5996/Mum/2013
amount to General Reserve without routing the same
through Profit & Loss Account"
3. On the facts and in the circumstances of the case and in
law, the Ld. CIT(A) erred in deleting the
adjustment/addition in computing Book Profit u/s 115JB
of the IT Act, of Rs. 3,52,78,000/- of waiver of principal
amount on one Time Settlement (OTS) of loan by Vijaya
Bank, without appreciating that the direct transfer of the
amount to General Reserve without routing the same
through Profit & Loss Account is not in accordance with
Schedule VI of the Companies Act, 1952.
4. On the facts and in the circumstances of the case and in
law, the Ld. CIT(A) erred in deleting the
adjustment/addition in computing Book Profit u/s 115JB
of the IT Act, of Rs. 3,52,78,000/- of waiver of principal
amount on one Time Settlement (OTS) of loan by Vijaya
Bank, ignoring the decision dated 15/12/2009 of the
Hon'ble ITAT, Mumbai Bench, in DCIT vs Bombay Diamond
Co. Ltd. wherein the Hon'ble ITAT has held that even
Capital Profits have to be added for computing Book Profit
u/s 115JB".
2. The brief facts qua the issue involved is that, the assessee
has filed its return of income for the assessment year 2007-08 on
25.10.2007 declaring "Nil" income under the normal provisions of
the Act. However, the book profit u/s 115JB was shown at Rs.
2,49,44,465/-. Thereafter assessment was completed u/s 144C(4)
r w s 143(3) on 22.12.2010 on a `Nil' income, however, book profit
u/s 115JB was assessed at Rs. 4,43,54,908/-. Later on the
assessment so completed was reopened u/s 147 on the ground
that there is a cessation of liability of Rs. 3,52,78,700/- in the form
of waiver of principal amount of loan which were directly credited
to `General Reserves' in the balance sheet, which ought to have
been routed through profit and loss account and therefore, would
have form part of the book profit.
3. The assessee's case on merits before the Assessing Officer
was that in the relevant year, one time settlement (OTS) was
entered into by the assessee with Vijaya Bank in respect of loan
liability. The loan borrowed from Vijaya Bank in the earlier years
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M/s Garware Polyester Ltd
ITA No. 5996/Mum/2013
was utilized for the capital expenditure and capital expansion.
Under the OTS Agreement, lumpsum payment of Rs. 7 crores
against total outstanding of Rs. 12,81,12,000/- was to be made.
Thus, there was waiver of Rs. 5,81,12,000/-, which was bifurcated
into principal amount of Rs. 3,52,78,000/- and waiver on account
of interest amount of Rs. 2,28,33,000/-. The waiver of principal
amount was thus Rs. 3,52,78,000/-, which was transferred to
`General Reserve' in the balance sheet. In support of the contention
that Assessing Officer cannot disturb the P&L account maintained
in accordance with Part II & III of Schedule VI of the Company Act,
reliance was placed on the decision of Supreme Court in Apollo
Tyres Ltd vs CIT, reported in 255 ITR 273 (SC). However, the Ld.
Assessing Officer held that the assessee should have credited the
waiver of loan liability in the profit and loss account and
accordingly, he made the adjustment in the book profit for the
same amount.
4. Before the CIT(A), it was reiterated that the term loan was
received in the year 1998, which was for `capital expansion plan'.
When the loan was waived off, the principal amount has been
credited to `General Reserve', because the waiver is on account of
capital receipt. This accounting entry was reviewed and accepted
by the Auditors and duly approved by the Board. The accounts
were prepared under Schedule-VI of the Companies Act and there
was no deviation from the same, hence, the same should not have
been adjusted by the Assessing Officer. The Ld. CIT(A) agreed with
the contention of the assessee and held that in view of the
principle laid down by the Hon'ble Supreme Court in the case of
Apollo Tyres Ltd. vs CIT (supra) that, once the profit and loss
account has been prepared under Part-I & Part-II of Schedule-VI of
the Companies Act; duly certified by the Auditors; placed before
the shareholders and adopted/approved by the AGM, then the
Assessing Officer cannot make any adjustments to the company's
book profit except to the extent provided in Explanation 1. The
assessee here in this case has prepared its account in accordance
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M/s Garware Polyester Ltd
ITA No. 5996/Mum/2013
with the Schedule-VI of the Companies Act and, therefore, he held
that the addition made by the Assessing Officer in the book profit
is not correct.
5. Before us, Ld. Counsel supported the order of CIT(A) and
submitted that this issue is now well settled by series of decisions
rendered by various High Court and by this Tribunal in catena of
case laws some of the decisions were also filed before us.
6. The Ld. DR, on the other hand, relied upon on the order of
the Assessing Officer.
7. We have heard the rival contentions and also perused
relevant finding given in the impugned orders. The sole dispute
raised is, whether the Assessing Officer could have made
adjustment to the book profits for an amount of Rs. 3,52,78,000/-,
which was on account of waiver of principal amount of loan, which
has been credited by the assessee directly in the Balance Sheet in
`General Reserve' account, which according to the Assessing Officer
should have been routed through profit and loss account and thus,
would have been part of the book profit. The provisions relating to
book profit u/s 115JB are absolutely clear that same is to be
computed on the basis of profit and loss account prepared in
accordance with the provision of Part-II and Part-III of Schedule-VI
of the Companies Act and to such profit only certain adjustments
as provided in Explanation 1 can be made. The Assessing Officer
does not have the power to tinker with such accounts prepared as
per Schedule VI and certified by the Auditors. Assessing Officer
has also not specified categorically that as to how the Part II & III
of Schedule VI has not been followed or is against the prescribed
accounting standard there is a requirement of law that waiver of
loan taken for utilizing capital expansion is to be routed only
through profit and loss account and cannot be credited to the
`General Reserve', i.e. directly in the Balance sheet. Thus, the
finding of the CIT(A) is purely in accordance with the provisions of
the law and the principle laid down by the Hon'ble Supreme Court
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M/s Garware Polyester Ltd
ITA No. 5996/Mum/2013
in the case of Apollo Tyres (supra). The Hon'ble Bombay High Court
in the case of CIT vs Akshay Textiles Trading And Agencies (P) Ltd.,
reported in 304 ITR 401 and later on in the case of CIT vs Adbhut
Trading Co. Pvt Ltd, reported in 338 ITR 94, following the aforesaid
decision of the Hon'ble Supreme Court held that accounts prepared
under the Companies Act and certified by the authorities under the
said "Act" have to be accepted. Thus, we do not find any merits in
the grounds raised by the revenue and is accordingly dismissed.
8. In the result, appeal of the revenue is dismissed.
Order pronounced in the open court on 14th August, 2015.
Sd/- Sd/-
(RAMIT KOCHAR) (AMIT SHUKLA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Date: 14th August, 2015
/Copy to:-
1) /The Appellant.
2) /The Respondent.
3) The CIT(A) -16, Mumbai.
4) The CIT 8, Mumbai.
5) "", , /
The D.R. "G" Bench, Mumbai.
6)
Copy to Guard File.
/By Order
/ / True Copy / /
/
,
Dy./Asstt. Registrar
I.T.A.T., Mumbai
* ..
*Chavan, Sr.PS
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