TMI Blog2010 (6) TMI 620X X X X Extracts X X X X X X X X Extracts X X X X ..... was accounting leave encashment based on actual payment, cannot preclude it from moving to a scientific method, especially when it was following mercantile system of accounting - no error in the order of the CIT(A) in deleting such addition while computing the book profits for the purpose of ascertaining MAT liability - Decided in favor of the assessee. Provision for bad and doubtful debts disallowed - Held that:- Parliament in its wisdom chose to add cl. (g) to the Explanation to s.115JA whereby any amount set aside for diminution of value of any asset had to be added back to the net profit as shown in the P&L a/c, for computing the book profit for ascertaining the MAT liability. As held in Mysore Breweries Ltd. (2009 (9) TMI 829 - KARNATAKA HIGH COURT) retrospective insertion of cl. (g) had to be considered. Hence, provision for bad debt needed to be added back to the net profit while working out MAT liability. In favour of revenue. Loss from assessee's windmill operations - whether be deleted while working out the MAT liability - Held that:-he amount of profits derived by the industrial undertaking from the business of generation and distribution of power has to be reduce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st. yrs. 1999-2000 and 2004-05 are directed against the orders of the CIT(A) for respective assessment years. The appeal for asst. yr. 1999-2000 is taken up first for disposal. 2. Ground No. 1 of the appeal is general in nature and needs no adjudication. 3. Vide its ground No. 2, grievance of the Revenue is that learned CIT(A) deleted the disallowance of depreciation on account of foreign exchange fluctuation. According to the Revenue, assessee had sold off its ships for which the loss on foreign exchange were incurred prior to asst. yr. 2003-04 and therefore there was no question of application of proviso to s. 43A of the IT Act (in short, 'the Act). Further, according to it CIT(A) did not consider the decision of Hon'ble jurisdictional High Court in the case of CIT v. Indian Overseas Bank [1985] 151 ITR 446 Mad.). 4. Short facts apropos are that assessee during the relevant previous year capitalized a sum of Rs. 7,05,44,088 representing loss on foreign exchange fluctuation. The foreign exchange loans on which such exchange fluctuations come about, were taken for acquiring ships and machinery. AO was of the opinion that such loss which was worked out by assessee based on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay of the previous year and assessee would be eligible for claiming depreciation based on such value, for the impugned assessment year. No interference is called for. Ground No. 2 of the Revenue is dismissed. 8. Vide its ground No. 3, grievance of Revenue is that CIT(A) deleted disallowance towards provision of leave encashment. According to the Revenue, assessee had changed the method of accounting in respect of leave encashment in the relevant previous year for the first time and by virtue of s. 145 of the Act it had to follow a consistent method of accounting. 9. Short facts apropos are that assessee made a provision for leave encashment of Rs. 32,69,982 which was sought to be added by the AO. Explanation of assessee was that it was an ascertained liability based upon actuarial valuation AO was of the opinion that such claim could be allowed only on payment basis. Assessee in appeal before CIT(A) was successful. According to the learned CIT(A), it was an ascertained liability based on actuarial valuation, and decision of Hon'ble Apex Court in the case of Bharat Earth Movers v. CIT [2000] 245 ITR 428 will apply. 10. Now, before us, learned Departmental Representative strong ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for ascertained liability. 14. Now, before us, the learned Departmental Representative attacked the findings of learned CIT(A) and argued that there is an amendment to s. 115JA by Finance (No. 2) Act, 2009 with retrospective effect from 1st April, 1998 whereby cl. (g) was added to Explanation to sub-s. (2) of s. 115JA of the Act. According to him by assessee's own admission, the provision was for diminution of value of asset Therefore by virtue of the above Explanation, such amount has to be added to the book profit for working out the MAT liability. Reliance was also placed on the decision of Karnataka High Court in the case of CIT v. Mysore Breweries Ltd. [I.T. Appeal No. 750 of 2008, dated 17-8-2009]. 15. We have perused the orders and heard the rival submissions. Learned CIT(A) had held in favour of the assessee on a reasoning that provision made for bad and doubtful debts were, in assessee's case, actually a provision for ascertained liability. It is also true that Hon'ble Apex Court in the case of Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273 (SC) held that provision for bad debt was only a provision for diminution of the value of an asset and not a provision against any l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to him, if profits were to be reduced, then losses were to be added back. Thus, he added back Rs. 40,00,433 while computing the MAT liability of the assessee, 18. In its appeal before CIT(A), argument of the assessee was that the AO had to confine himself to the adjustment prescribed in Explanation to s. 115JA of the Act. Relying on the decision of the Hon'ble Apex Court in the case of Apollo Tyres Ltd. (supra), assessee submitted that AO could not disturb the P L a/c which was prepared in accordance with Parts II and III of Sch. VI to the Companies Act, 1956. According to him, opinion of AO that income included losses was not correct since, wherever the legislature intended so, it was clearly specified as in Expln. 2 to s. 64(1A). Learned CIT(A) was in agreement with this contention. According to him, except for what was specified in the Explanation to sub-s. (2) of s. 115JA, AO could make no adjustment to the net profit as disclosed in the P L a/c of the assessee which was prepared, in accordance with Parts II and III of Sch. VI to the Companies Act, 1956. 19. Now, before us, the learned Departmental Representative submitted that Explanation to s. 115JA(2) stipulated redu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he relevant previous year shall 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 P L a/c for the relevant previous year in accordance with the provisions of Parts II and III of Sch. VI to the Companies Act, 1956 (1 of 1956) : Provided that while preparing P L a/c account, the depreciation shall be calculated on the same method and rates which have been adopted for calculating the depreciation for the purpose of preparing the P L a/c laid before the company at its annual general meeting in accordance with the provisions of s. 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 different from the previous year under the Act, the method and rates for calculation of depreciation shall correspond to the method and rates which have been adopted for calculating the depreciation for such financial year or part of such financial year falling within the relevant previous year. Explanation : For the purposes of this section, 'book profit' means ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ick industrial company under sub-s. (1) of s. 17 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) and ending with the assessment year during which the entire net worth of such company becomes equal to or Exceeds the accumulated losses, Explanation : For the purposes of this clause, 'net worth' shall have the meaning assigned to it in cl. (ga) of sub-s. (1) of s. 3 of the Sick Industrial Companies (Special Provisions) Act, 198.5 (1 of 1986); or (viii) the amount of profits eligible for deduction under s. 80HHC, computed under cl. (a), (b) or (c) of sub-s. (3) or sub-s. (3A), as the case may be, of that section, and subject to the conditions specified in sub-ss. (4) and (4A) of that section; (ix) the amount of profits eligible for deduction under s. 80HHE, computed under sub-s. (3) of that section. (3) Nothing contained in sub-s. (1) shall affect the determination of the amounts in relation to the relevant previous year to be carried forward to the subsequent year or years under the provisions of sub-s. (2) of s. 32 or sub-s. (3) of s. 32A or cl. (ii) of sub-s. (1) of s. 72 or s. 73 or s. 74 or sub-s. (3) of s. 74A. (4) Save as otherwise provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to any absurdity or anything that would call for a departure from the golden rule of interpretation. Thus, we cannot come to a conclusion that profits mentioned in cl. (iv) would include a negative profit and loss. No doubt, apex Court in the case of Harprasad Co. (P.) Ltd. (supra) had held that income and profit should be understood, as including losses also. But this was so interpreted, while explaining the charging provision of the Act. It was held by the Hon'ble apex Court that in the charging provision, the words 'income or profit' should be understood as including loss, since in one sense, profit and gain represented plus income whereas loss represented minus income. We cannot, say that it is in the same sense as applicable for the charging provisions, that the term 'profits' has been used by the legislature in cl. (iv) of Explanation (supra). On the other hand, if we look at the decision of the Hon'ble apex Court in Apollo Tyres Ltd. (supra) it is clear that the AO while computing the income for the purpose of applying MAT has only a limited power of making increase and reduction as provided in the Explanation and nothing more. In other words, the AO does not have any jur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was required to be added under cl. (a) of Explanation to s. 115JA(2). So this sum was added while computing the book profit for the purpose of ascertaining liability. Before the CIT(A), the argument of the assessee was that only income-tax paid or payable or provision thereof comes within the ambit of cl. (a) of Explanation and wealth-tax being different from income-tax, could not be added back. This was accepted by the CIT(A). 24. Now, before us, the learned Departmental Representative relying on the decision of the Tribunal in the case of EID Parry (India) Ltd. v. Asstt. CIT [ITA No. 3305/Mad/2004, dt. 29th June, 2007] submitted that the Tribunal had held cl. (a) of the Explanation to include therein other direct taxes as well. Therefore, according to him, the decision of the CIT(A) should be reversed in this regard. 25. Per contra, learned Authorised Representative vehemently supported the order of the learned CIT(A). 26. We have perused the orders and heard the rival submissions. It is not disputed that the provision was for wealth-tax. The Tribunal in its order dt. 29th June, 2007 referred supra has held at para 10 as under : "10. After considering the rival submiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e are not the owner of the silo. This is essential since the fly ash is one of the basic ingredients for manufacture of cement. If we have not done so, the fly ash cannot be sold by Mettur Thermal Power Plant. The entire expenditure is incurred for storage of basic raw material viz. fly ash, The expenditure incurred is not for acquiring any capital asset. If the thermal plant authority stops supply of fly ash for any reason, we have to leave their premises leaving the silo put up by us. The cost incurred is revenue in nature and cannot be recovered from anyone. Unless such silo is constructed, we will not be in a position to buy the fly ash. The expenditure of putting up silo in another party's land for which we cannot claim ownership has to be written off as per accounting principles." AO relying on Expln. 1 to s. 32 of the Act which came into effect on 1st April, 1988, was of the opinion that even if assessee was not owner of the land, expenditure incurred by it for construction of a silo therein would result in an enduring benefits. According to him, the structure constructed by assessee was a capital asset. In this view of the matter, he disallowed the claim as revenue expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the orders and heard the rival submissions. There is no dispute that the assessee had an MoU with TNEB which clearly specified the fly ash system equipment installed by the assessee to be the property of the TNEB. It is also not disputed that silo was constructed in the premises of Mettur Thermal Power Plant. There is no case for the Revenue that Mettur Thermal Power Plant was owned by the assessee. Assessee for the purpose of collecting the fly ash had made a construction in a property not owned by it on a condition agreed with TNEB, that the construction and the equipment would become latter's property. If that be so, we wonder how it could be considered as capital asset of the assessee. Just because it facilitated the smooth procurement of an essential raw material, it could not be said that any enduring benefit had come to the assessee. Especially so, when the equipment became the property of another company. No doubt, Hon'ble apex Court in the case of Mysore Minerals Ltd. (supra) and in other cases relied on by the Revenue, has clearly laid down that test of enduring benefit is one of the criteria to be considered when deciding the nature of expenses, as to whether it was cap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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