IN INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G NEW DLEHI BEFORE SHRI O.P. KANT, ACCOUNTANT MEMBER AND SHRI K. NARASIMHA CHARY, JUDICIAL MEMBER I.T.A. No.280/Del/2016 Assessment Year: 2009-10 Ratna Commercial Enterprises P. Ltd. vs DCIT, Circle 15(1), 4th Floor, Punjabi Bhavan, New Delhi. 10 Rouse Avenue, New Delhi. (PAN: AAACR0354B) New Delhi (Appellant) (Respondent) Appellant by: Shri M.P. Rastogi, Advocate Respondent by: Shri S.S. Rana, CIT DR Date of hearing: 18.07.2019 Date of Pronouncement: 03.09.2019 ORDER PER K. NARASIMHA CHARY, JM Challenging order dated 04.12.2015 of learned Commissioner of Income-tax(Appeals)-7 {for short Learned CIT(A)}, passed in Appeal No.626/Del/14-15 for Asstt. Year 2009-10, assessee preferred this appeal. 2. Briefly stated facts are that assessee is non-banking financial company deriving its income from investment in shares 2 and mutual funds and also one of holding companies of Dabur Group of Companies. During financial year 2008-09, they have sold share of Dabur Pharma Ltd. for sale consideration of Rs.76,90,62,303/- and offer same as long term capital gain @ 10% of market transaction. They have filed their return of income on 29.9.2009 for Asstt. Year 2009-10 declaring gross total income of Rs.29,88,08,201/- and book loss of Rs.10,43,99,519/- u/s 115JB of Income-tax Act, 1961 ( Act ). Learned AO computed income of assessee at Rs.67,14,57,651/- u/s 115JB of Act which is more than tax on regular income which was assessed at Rs.35,72,54,455/-. In that process, ld. AO held that capital gain on sale of shares of Dabur Pharma which was directed credited to capital reserve account by assessee should have been entered in Profit and Loss account and added same to income of assessee u/s 115JB of Act. Ld. AO also made addition of Rs.24,46,254/- and Rs.43,42,613/- u/s 14A of Act. Simultaneously, ld. AO initiated penalty proceedings u/s 271(1)(c) of Act by issuance of notice dated 28.12.2011 and concluded same by order dated 31.3.2014 by levying penalty of Rs.26,37,12,000/- u/s 271(1)(c) of Act. 3. In appeal, learned CIT(A) deleted penalty in relation to addition made on account of disallowance u/s 14A of Act. Learned CIT(A), however, sustained penalty on account 3 of inclusion of capital gain on sale of shares of Dabur Pharma in profit and loss account for purpose of Section 115JB of Act and sustained penalty. assessee is in this appeal before us challenging same. 4. It is argument of ld. AR that assessee had neither concealed income nor furnished any inaccurate particulars thereof inasmuch as assessee furnished said information in Notes on Account No.B-11 forming part of balance sheet which was duly audited by auditors and also offered capital gains to tax at 10%. Learned AR submitted that in view of decision of Special Bench of Tribunal in case of Sutluj Cotton Mills Ltd. vs ACIY (1993) 199 ITR (AT) 164, assessee is not required to credit profit realized on capital assets to profit and loss account and such realized amount has to be credited to capital reserve account of Part II and III of Schedule VI of Companies Act because it is not regular income but only deemed income u/s 45 of Income- tax Act and not under Companies Act. Learned AR submitted that decision of Sutluj Cotton (supra) has been noticed by number of other judgments subsequently and in case of CIT vs Akshay Textiles and Trading P. Ltd., 304 ITR 4012 (Bom) and in case of CIT vs Sain Processing & Weaving Mills P. Ltd., 325 ITR 565(Del), Hon ble Delhi High Court while noticing decision of Hon ble Apex Court in case of Apollo Tyres Ltd. vs CIT, 4 255 ITR 273 held that no profit shown in profit and loss account should be taken into consideration and AO has no jurisdiction to go beyond profit shown in profit and loss account to extent provided in Explanation 1 to Section 115JB. Further, according to ld. AR, whether crediting of capital gain to capital reserve account is proper is debatable issue and in view of decision of Hon ble jurisdictional High Court in case of Devsons P. Ltd., 329 ITR 483 (Del), no penalty could be levied. 5. Per contra, it is argument of ld. DR that assessee had filed appeal against assessment but subsequently withdrew same which clearly shows that assessee had admitted default and, therefore, in view of decision in case Union of India vs Dharmendra Textile Processors (2007) 295 ITR 244, CIT vs Zoom Communication (P) Ltd. (2010) 327 ITR 510 (Del) and Mak Data P. Ltd. (2013) 358 ITR 593 (SC), assessee has no escapement from penalty. 6. We have gone through record in light of submissions made on either side. There is no dispute that assessee had credited capital gain accrued on sale of Dabur Pharma share to capital reserve account and note has been given in Notes on Accounts No.B-11 forming part of balance sheet which was duly audited by auditors. It is not case of revenue that assessee had not disclosed 5 such capital gains at all. issue in this matter revolves around question as to whether, while preparing profit and loss account in terms of Part II and III of Schedule VI of Companies Act, capital gain accrued on account of sale of capital assets should have been credited to profit and loss account for purpose of computation u/s 115JB of Act. 7. As stated above, reliance is placed on decision of special bench of tribunal in case of Sutluj Cotton Mills (supra). In that decision after considering entire gamut of Section 115J which is in pari-materia to Section 115JB of Act clearly held, - (i) that having regard to pattern of Income-tax Act, capital receipts which do not have character of income cannot be made liable to income-tax by adding them to book profit; (ii) that capital gain is deemed to be income u/s 45 and deeming provision can be applied only to extent to which legislature has intended and cannot be extended to any other provision; and that what is deemed to be income under section 45 cannot be deemed to be income for purpose of section 115 J, for simple reason that book profits cannot include deemed income and more particularly when, because of operation of section 54E of Act, item in question is saved from that deeming provision; (iii) that legislative history shows that tax u/s 115J was with reference to business profit and there is sufficient indication that provisions was not intended 6 to withdraw concession granted in respect of computation of capital gains; (iv) that proceeds by way of sale of investment not being income, is not liable to tax u/s 115J unless there is clear intendment; and (v) that if book profits have been worked out in accordance with part II and III of schedule VI to Companies Act, in absence of any allegation of fraud or misrepresentation, but only difference of opinion as to question whether particular amount should be properly shown in Profit and Loss Account or in Balance Sheet, provisions of section 115 J do not empower assessing officer to disturb profit as shown by assessee. 8. It is, therefore, clear that whether capital gain that had arisen on sale of Dabar Pharma share was rightly credited by assessee to capital reserve account or rightly rejected by AO on ground that it has to be routed through profit and loss account, is debatable issue. 9. Further, there is no dispute that accounts of assessee were prepared in accordance with provisions of Part II of Schedule VI of Companies Act and Hon ble Apex Court in thecase of Apollo Tyres,(supra) held in unequivocal terms that Ld. AO while computing income u/s 115J has only power of examining whether books of accounts are certified by authorities under Companies Act as having been properly maintained in accordance with Companies Act; that AO thereafter has limited power of making increases and reduction as provided for in Explanation to said section and 7 to put it differently, AO does not have jurisdiction to go behind net profit shown in profit and loss account except to extent provided in Explanation to Section 115J. 10. It is not case of Revenue that profit and loss account of assessee was not prepared in accordance with provisions of Part II of Schedule VI of Companies Act nor has it been that same does not contain any certificate by competent authority under Companies Act as having been properly maintained in accordance with provisions of Companies Act. In such situation, we are in agreement with submission of assessee that non-inclusion of capital gains by assessee in profit and loss account is not ground for AO to levy penalty. In fact, in DCIT vs. Arundhati Traders P. Ltd. (2009) 27 SOT 305 (Mum), Tribunal held that once asset is held as investment by Company and reflected as investment in balance sheet of company from year to year, then any gain on sale of such investment is not link or to profit and gain of business carried on by respective company, and same could not be adjusted for working out book profit of company under section 115 JB of Act. Similar view is taken by Hyderabad Bench of Tribunal in case of New Oriental Trollers P. Ltd. vs DCIT (2011) 10 Taxmann.com 252 (Hyd). 11. Having regard to facts and circumstances and in view of law laid down by decisions referred to above, we are of 8 considered opinion that inclusion or otherwise of capital gains in capital reserve account directly without routing it through profit and loss account is debatable issue and no penalty can be levied basing on that issue. Assessee, however, revealed same by offering it to tax and also in notes of accounts. It is only difference of opinion between Revenue and assessee as to treatment given to capital gain either or not by routing it through profit and loss account. We, therefore, do not have any reason to sustain penalty and same is directed to be deleted. 12. In result, appeal of assessee is allowed. Order pronounced in open court on 3rd September, 2019. Sd/- sd/- (O.P. KANT) (K. NARASIMHA CHARY) ACCOUNTANT MEMEBR JUDICIAL MEMBER Dated 3rd September, 2019 VJ Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT By order Asstt. Registrar 9 Draft dictated 23.8.2019 Draft placed before author 23.8.2019 Approved Draft comes to Sr.PS/PS Order signed and pronounced on File sent to Bench Clerk Date on which file goes to AR Date on which file goes to Head Clerk. Date of dispatch of Order. Date of uploading on website Ratna Commercial Enterprises P. Ltd. v. DCIT, Circle 15(1), New Delhi