BANGALORE, FEB 23, 2015: THE issues before the Bench are - Whether, for the purpose of Sec 14A, there is any difference between the expression 'expenditure relatable' and the expression 'expenditure incurred by the Assessee in relation to' and Whether, for the purpose of computing profits u/s. 115JB, both direct and indirect expenditures are to be disallowed. And the verdict goes against the assessee.
Facts of the case
The assessee is a property developer for housing projects in Indian metro cities. Under an arrangement with its sister company, M/s. Sobha Inner City Techno Qualis (STP), the assessee had developed a housing project, Sobha Daffodil, on land owned by STP. As the owner, STP had wholly conveyed the share of undivided interest in the land over which this project was developed by the assessee and the flats sold to prospective purchasers. The consideration payable by the purchasers of the flat from the assessee for the undivided share of land was appropriated to STP and the assessee. The assessee had shown profit on sale and development of land for its Sobha Daffodil project.
The AO observed that the assessee was only a builder of the project and development of land was carried out by the sister company and not by the assessee. The AO concluded that the assessee could not treat the profit on sale and development of land as part of the profits derived from developing the housing project and claim deduction on such projects u/s. 80IB(10). The AO thus denied the 80IB(10) deduction and made an addition against the assessee.
On appeal, CIT(A) found that similar issue was considered and decided by the Tribunal in assessee's own case for the A.Y. 2005-06 in ITA No.965/Bang/2009 in favour of the assessee holding that profits on sale of land will also be eligible for deduction u/s. 80IB(10). Following the aforesaid decision of the Tribunal, the CIT(A) directed the AO to allow deduction u/s. 80IB(10) on a sum of Rs.1,15,18,769. On further appeal, Tribunal held that similar issue had been considered by this Tribunal in assessee's own case for the A.Y. 2005-06 in ITA No.965/Bang/2009.
Computation of book profits u/s 115JB
The income of assessee was ultimately determined by applying the provisions of section 115JB. Tax payable under the normal provisions of the I.T. Act, 1961 was less than the tax computed u/s. 115JB and therefore total income and tax payable by the assessee was computed by the AO u/s. 115JB. While computing book profits u/s. 115JB, AO added to the profit as per P&L account prepared in accordance with the provisions of Part II of Schedule-VI to the Companies Act, 1956, an expenditure relatable to income to which provisions of section 10(35) and 10(2A) were applicable and therefore not forming part of the total income of the assessee. Assessee earned income in the form of dividends on units of mutual funds and also share income from a partnership firm in which it was a partner. Both the aforesaid items of income do not form part of total income under the Act, in view of provisions of sections 10(35) and 10(2A) respectively. According to the AO, in view of provisions of Explanation 1(f) to section 115JB(2), sum of Rs.24,64,632 which was expenditure incurred on earning the aforesaid exempt income should be added to the profits as per P&L account. A disallowance was also made u/s. 14A r.w. rule 8D of the I.T. Rules. The aforesaid computation of expenditure was made by the AO while computing income of the assessee under the normal provisions of the Act. It was noted that no direct expenses were attributable to earning of exempt income and disallowance was made only in respect of indirect expenses. It was also submitted that there has been an error in the computation of income u/s. 115JB in the revised return of income. On appeal, CIT(A) held that it was in agreement with the latter since the computation of book profit for purposes of Sec. 115JB for determining the MAT was done as per the book profit evident from the financial statements drawn under the Companies Act. Even where the book profit as per the Companies Act has been allowed to be adjusted by the IT Act, it has been done through very specific provisions in terms of the explanations to Sec. 115JB. When the language of the explanation was specific and unequivocal and mentions specific exempted incomes in explanation 1(f), there is no situation for reading in any other interpretation even if they were analogous to the specified sections. While Sec.14A deals with disallowance of expenditure related to exempt income, it cannot be equated in letter and spirit with exempted income u/s.10 and expenditure related to it which was provided in explanation 1(f) of Sec.115JB. Hence, the AO's extension of these provisions to the amount disallowed u/s. 14A was not within the scheme of the legal provisions and the same was therefore, directed to be deleted.
Having heard the matter, the Tribunal held that,
++ in the present case we are concerned with one item which needs to be added to the total income laid down in the first part of Expln.1 clause (f) viz., the amount or amounts of expenditure relatable to any income to which section 10 (other than the provisions contained in clause (38) thereof) or section 11 or section 12 apply. Another item which needs to be excluded to the total income laid down in the second part of Expln.1 clause (ii) viz., the amount of income to which any of the provisions of section 10 (other than the provisions contained in clause (38) thereof) or section 11 or section 12 apply, if any such amount is credited to the profit and loss account. On the issue of reducing/excluding the share of profits from the profit as per the P&L account, in view of clause (ii) to Explanation (1) to section 115JB(2), viz., the amount of income to which any of the provisions of section 10, we are of the opinion that the contentions put forth by the assessee are acceptable. In this regard, we are also of the view that decision rendered by the Bangalore Bench of the Tribunal referred to by the counsel for the assessee clearly supports the stand taken by the assessee. We, therefore, concur with the view of the CIT(Appeals) on this issue and find no merit in ground No.4 raised by the revenue;
++ as far as ground No.3 is concerned, viz., the addition to the net profit as per profit and loss account expenditure incurred in earning income which does not form part of the total income under the Act, u/s.10, it is seen that the quantum of expenditure disallowed by the AO by invoking the provisions of Sec.14A while computing total income under the normal provisions of the Act has not been challenged by the Assessee and the said disallowance has been accepted by the Assessee. The provisions of section 115JB Explanation 1(f) lay down that the amount of expenditure relatable to income to which section 10 applies, should be added to the profit as per the P&L account. Section 14A r.w. Rule 8D of the Rules is a reasonable method of calculating the amount of expenditure, in a case where the Assessee has not been able to satisfy the AO regarding the quantum of expenditure incurred in earning income which does not form part of the total income under the Act. If the Assessee satisfies the AO regarding the quantum of expenditure incurred in earning income which does not form part of the total income under the Act than that can be adopted for the purpose of addition under clause (f) of Expln.1 below Sec.115JB(2). Rule 8D of the rules come into play only when there is no other basis for arriving at the quantum of expenditure incurred in earning income which does not form part of the total income under the Act;
++ in our opinion, the question formulated by the CIT(A) whether Sec. 14A read with Rule 8D of the rules can be imported into the provisions of clause (f) to Explanation (1) to section 115JB of the Act, is itself erroneous. The question to be asked is as to how to give effect to the provisions of clause (f) to Explanation (1) to section 115JB. We do not think that there is any prohibition to adopt the disallowance made by the AO u/s.14A read with Rule 8D of the rules, while computing total income under the normal provisions of the Act. The argument of the counsel for the Assessee that section 14A is very specific and is applicable only for the purpose of computing total income under Chapter IV of the Act and that section 115JB appears in Chapter XIIB of the Act dealing with specific provisions relating to certain companies and therefore the provisions of Sec.14A read with Rule 8D of the Rules cannot be applied while making addition to net profit as per profit and loss account u/s.115JB Expln.1 clause (f) of the Act, because the expression "expenditure relatable" is used in sub-clause (f) of Explanation (1) to section 115JB of the Act whereas expression with the expression used in 14A is "expenditure incurred by the assessee in relation to" and therefore only direct expenditure attributable to earning of income which does not form part of the total income under the Act can be added under clause(f) of Expln.1 below Sec.115JB(2) cannot be accepted. In our view, there is no difference between the expression "expenditure relatable" and the expression "expenditure incurred by the Assessee in relation to". Both the expressions mean that whatever expenditure are incurred to earn income which does not form part of the total income under the Act, both direct and indirect expenditure, have to be disallowed. There is no basis for the argument u/s. 115JB, it is only direct expenses that are contemplated as capable of being added to the profits as per P&L account under clause (f) to Expln.1 below Sec.115JB(2). As we have already seen, the quantum of expenditure disallowed by the AO by invoking the provisions of Sec.14A while computing total income under the normal provisions of the Act has not been challenged by the Assessee and the said disallowance has been accepted by the Assessee. In such circumstances, we do not see any reason why the same disallowance cannot be adopted while arriving at the book profits u/s.115JB (2) read with Explanation 1(f) thereto. In our view the CIT(A) has fallen into an error in coming to a conclusion contrary. We therefore reverse the order the CIT(A) and restore the order of the AO in this regard. In the result, appeal of the revenue is partly allowed.
Supreme Court of India NATIONAL RAYON CORPORATION LTD. Vs. THE COMMISSIONER OF INCOME TAX DATE OF JUDGMENT: 29/07/1997 (1997) 227 ITR 764 (SC), BENCH: SUHAS C. SEN, K. T. THOMAS (WITH C.A NOS. 2/95, 198/89, 432/89, 433/89 AND 2970/81) JUDGMENT SEN, J. The point that falls for determination in this case is whether a sum of […]
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Supreme Court of India Vazir Sultan Tobacco Co. Ltd. Vs. Commlssioner of Income-Tax Andhra Pradesh, Hyderabad [1981] INSC 171 (25 September 1981) TULZAPURKAR, V.D. VENKATARAMIAH, E.S. (J) SEN, AMARENDRA NATH (J) CITATION: 1981 AIR 2105 1982 SCR (1) 789 1981 SCC (4) 435 1981 SCALE (3)1483 CITATOR INFO: RF 1986 SC 484 (13,17) F 1986 […]
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No penalty alleging sec. 269SS violation in absence of any evidence showing acceptance of cash loan by assessee
February 23, 2015[2015] 54 taxmann.com 159 (Delhi)
IT : Where Assessing Officer made addition under section 69C in respect of interest paid on loan taken in cash, since revenue had not filed any document or material to show that in fact loan was taken and interest payment was made, impugned addition was to be deleted
IT : In absence of any evidence on record showing that loan was in fact taken in cash by assessee, penalty order passed for violating provisions of section 269SS was not sustainable
कम्पनीज एक्ट 2013 में सिक्योरिटीज इशू करने के उपर बहुत सारे बदलाव किये गए है, अब यदि एक प्राइवेट लिमिटेड कंपनी भी सिक्योरिटीज इशू करना चाहती है तो प्राइवेट प्लेसमेंट प्रोसीजर को फॉलो करना होगा. प्राइवेट कंपनी निम्न दो तरीके से सिक्योरिटीज इशू कर सकती है(धारा 23 ऑफ़ कम्पनीज एक्ट 2013):-
Private Placement under Section 42 of Companies Act,2013
CA Santosh Mishra
कम्पनीज एक्ट 2013 में सिक्योरिटीज इशू करने के उपर बहुत सारे बदलाव किये गए है, अब यदि एक प्राइवेट लिमिटेड कंपनी भी सिक्योरिटीज इशू करना चाहती है तो प्राइवेट प्लेसमेंट प्रोसीजर को फॉलो करना होगा. प्राइवेट कंपनी निम्न दो तरीके से सिक्योरिटीज इशू कर सकती है(धारा 23 ऑफ़ कम्पनीज एक्ट 2013):-- Right Share या Bonus Share इशू करके या
- प्राइवेट प्लेसमेंट प्रोसीजर को फॉलो करके
चुकी प्राइवेट प्लेसमेंट का प्रोसीजर बहुत ही पेचीदा बना दिया गया है यदि एक प्राइवेट कंपनी अपने EXISTING SHARE HOLDERS को SHARE इशू करना चाहती है तो बिना प्राइवेट प्लेसमेंट के प्रोसीजर को फॉलो किये ही धारा 62 में दिए गए प्रावधानों को फॉलो करके RIGHT SHARE या BONUS SHARE इशू कर सकती है लेकिन यदि EXISTING SHARE HOLDERS के अलावा SHARE इशू करना चाहती है तो कंपनी को धारा 42 में बताये गये प्राइवेट प्लेसमेंट के प्रोसीजर को फॉलो करना ही होगा.
MEANING OF PRIVATE PLACEMENT : Any offer of securities or invitation to subscribe securities to a select group of persons by a company (other than by way of public offer) through issue of a private placement offer letter and which satisfies the conditions specified in section 42 of the Act.
PROCEDURES HAVE TO FOLLOWED FOR PRIVATE PLACEMENT
1. BOARD MEETING बुलाना : BOARD MEETING में निम्न कार्य करने होंगे
a. OFFER LETTER तैयार करना
b. उन लोगो का लिस्ट तैयार करना जिन्हें ऑफर दिया जायेगा
c. SHARE HOLDERS के मीटिंग में SPECIAL RESOLUTION पास करने हेतु नोटिस तैयार करना
2. SHARE HOLDERS का मीटिंग बुलाना: इस मीटिंग में निम्न कार्य किये जायेंगे
a. SHARE इशू करने के सम्बन्ध में SPECIAL RESOLUTION पास किया जायेगा
b. DRAFT OFFER LETTER को SHARE HOLDERS APPROVE करेगा
मीटिंग बुलाने और RESOLUTION पास करते टाइम मीटिंग और RESOLUTION के सम्बन्ध में कम्पनीज एक्ट,2013 में बताये गए प्रावधानों को ध्यान में रखना होगा.जैसे SHARE HOLDERS के मीटिंग और नोटिस में कम से कम 21 दिन का अंतर रखना, SPECIAL RESOLUTION पास करने हेतु आवस्यक मेजोरिटी से RESOLUTION पास करना और बोर्ड मीटिंग और नोटिस में कम से कम 7 दिन का अंतर रखना.
3. ROC में फाइल किये जाने वाले डाक्यूमेंट्स :
a. MGT-14: SPECIAL RESOLUTION पास होने के 30 दिन में MGT-14 ROC में फाइल किया जायेगा
b. PAS-4+PAS-5 : OFFER LETTER जारी होने के 30 दिन में PAS-4 और PAS-5, GNL-2 में ROC में फाइल करने होंगे
c. MGT-14: BOARD में SHARE ALLOTMENT के सम्बन्ध में RESOLUTION पास होने के 30 दिन में MGT-14 ROC में फाइल करना होगा
d. PAS-3 : अलोतमेंट के 30 दिन में PAS-3 ROC में फाइल करना होगा
MGT-14 कंपनी को दो बार फाइल करने होंगे पहला SPECIAL RESOLUTION के लिए दूसरा जब SHARE अलोटमेंट के लिए बोर्ड में RESOLUTION पास किया जायेगा सब्सक्राइबर का एप्लीकेशन फॉर्म और एप्लीकेशन अमाउंट रिसीव होने के बाद.
मुख्य पॉइंट्स जिन्हें प्राइवेट प्लेसमेंट्स के टाइम फॉलो करना अनिवार्य है :
SPECIAL RESOLUTION : प्राइवेट प्लेसमेंट में कोई भी सिक्योरिटीज तब तक जारी नहीं किये जा सकते है जब तक की इसके सम्बन्ध में SHARE HOLDERS के मीटिंग में SPECIAL RESOLUTION पास नहीं किया गया हो प्रत्येक ऑफर के सम्बन्ध में.
LIMIT OF MEMBERSHIP: एक फाइनेंसियल वर्ष में 200 से अधिक मेम्बर को SHARE अलोट नहीं किया जा सकता है, 200 को काउंट करने में QUALIFIED INSTITUTIONAL BUYERS को शामिल नहीं किया जायेगा.
RESTRICTION ON FRESH OFFER: तब तक कोई फ्रेश SHARE अलोट नहीं किया जा सकता है जब तक पहले किये गये किसी प्रकार का ऑफर या अलोटमेंट कम्पलीट नहीं हो जाता है.
LIMIT SIZE : प्रत्येक पर्सन को जो ऑफर दिया गया है उनका फेस वैल्यू कम से कम RS. 20000 का होगा.
PAYMENT FROM BANK ACCOUNT: APPLICATION MONEY सिर्फ सेपरेट बैंक अकाउंट में ही रिसीव किया जायेगा मतलब, CASH में APPLICATION MONEY रिसीव करना पॉसिबल नहीं है.
ALLOTMENT OF SECURITIES: सिक्योरिटीज का अलोटमेंट SHARE APPLICATION MONEY रिसीव होने के 60 दिन में सिक्योरिटीज अलोट कर देने होंगे अन्यथा 60 दिन समाप्त होने के 15 दिन में SHARE APPLICATION MONEY रिफंड कर देने होंगे, यदि बताये गए टाइम में APPLICATION MONEY रिफंड नहीं किया जाता है तो कंपनी को 12% के दर से इंटरेस्ट के साथ रिफंड करने होंगे.
USE OF APPLICATION MONEY: कंपनी APPLICATION MONEY का यूज़ अपने बिजनेस में तब तक नहीं कर सकती है जब तक की सिक्योरिटीज अलोट नहीं हो जाता है.
MY PERSONAL OPINION ON USE OF MONEY: एक्ट में कही भी ये नहीं बताया गया है APPLICATION MONEY रिसीव होने के कितने दिन बाद सिक्योरिटीज अलोट करना है, यदि कंपनी फण्ड को अधिक दिन तक ब्लॉक रखना नहीं चाहती है तो जिस दिन APPLICATION MONEY बैंक में रिसीव होता है उसी दिन बोर्ड मीटिंग के लिए नोटिस दे दिया जाये और नोटिस के 7 दिन बाद बोर्ड मीटिंग करके सिक्योरिटीज अलोट कर दिया जाए इसके बाद कंपनी SHARE APPLICATION MONEY को अपने बिजनेस में लगा सकती है. लेकिन कंपनी को किसी भी हालत में कम से कम 7-8 दिन तो फण्ड को ब्लाक रखना ही होगा.
ADVERTISEMENT: किसी प्रकार का ADVERTISEMENT सिक्योरिटीज इशू करने के सम्बन्ध नहीं किया जायेगा.
WHEN TREATED AS PUBLIC OFFER: यदि धारा 42 में दिये गए प्रोसेस को फॉलो नहीं किया जाता है प्राइवेट प्लेसमेंट में सिक्योरिटीज इशू करते टाइम तो इस ऑफर को पब्लिक ऑफर माना जायेगा और SECURITIES CONTRACTS(REGULATION) ACT, 1956 और SECURITIES AND EXCHANGE BOARD OF INDIA ACT,1992 के सारे प्रावधान लागु होगा.
OFFENCE AND PENALTY: यदि एक्ट में दिए प्रावधानों को फॉलो नहीं किया जाता है तो कंपनी, प्रमोटर और डायरेक्टर को निम्न AMOUNT से पेनालिज़ किया जायेगा:
a. 2,00,00,000 या
b. वह AMOUNT जो इस अलोटमेंट में इन्वोल्व है
इन दोनों में जो अधिक हो
और पेनाल्टी का आर्डर पास होने के 30 दिन में SUBSCRIPTION AMOUNT को रिफंड भी करना होगा
CA S.K. MISHRA, SHRAWAN RUNGTA &CO. , NEW DAKBUNGLOW ROAD PATNA ,PH.-9570558536
PFA
DCM Ltd. Vs. Commissioner of Income Tax [2004] 192 CTR 0408 Issue- Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the sum of Rs. 10,69,542 credited to molasses storage fund out of the sale proceeds of molasses was to be included in the […]
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