TMI Blog2013 (1) TMI 135X X X X Extracts X X X X X X X X Extracts X X X X ..... Unascertained liability – Held that: - The provisions regarding take or pay lease rental charges and the provisions for wage revision is a contingent liability. This is also submitted by assessee that this provision was written back in A.Y. 2006-07. In favour of revenue Computation of Book Profit u/s 115JB - Excess provision for doubtful advances – Held that:- It is seen that same amount was added in book profit but in view of the contradictory finding of A.O. in assessment order, we feel it proper that in the interest of natural justice, this matter should go back to the file of AO for fresh decision. Remand back to AO. Expenditure on the release of water and discharge of effluent and pollution control – Revenue or Capital expenditure – Held that:- Following the decision in case of Hooghly Mills Company Limited (2006 (11) TMI 137 - SUPREME COURT) that this expenditure did not result in the creation of any specific asset, without appreciating that the expenditure gave an advantage of enduring nature and fell in the capital field, and, for being capital expenditure, it is not always necessary that it results in creation of a new, depreciable asset for the assessee. In favour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 115JB – Provision for diminution in the value of assets - Provision for bad debts – Held that:- As the retrospective amendment was made by (Finance Act, 2002) with effect from 1-4-2001 as per which the amount set aside for a provision for diminution in the value of any asset is to be added back in book profit. In favour of revenue Computation of book profit u/s. 115JB – Deduction u/s 80 HHC – Held that:- Following the decision in case of Bhari Information Tech Systems (P) Ltd. (2011 (10) TMI 19 - SUPREME COURT OF INDIA) that that deduction claimed by the assessee u/s 80HHE has to be worked out on the basis of adjusted book profit u/s 115JA and not on the basis of the profits computed under regular provisions of law applicable to computation of profits and gains of business. In favour of assessee Penalty u/s 271(1)(c) - Tax payable as per MAT u/s 115JB - Taxable income was nil as per the regular provision - The tax was payable by the assessee on book profit u/s 115JB - Out of these two additions long term capital loss and depreciation on co-generation power unit for which penalty was imposed by A.O - No addition was made in computing book profit by the AO - There is no impa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts in confirming disallowance of Rs.641.53 Lacs under the nomenclature Take or P[assessment year lease rental charges to GCPTCL . The learned CIT(Appeals) erred in holding that payments / expenditure in question is contingent in nature and had not crystallized during the year. It is submitted that the expenditure having been incurred during the year under consideration, the same may please be allowed to be deducted. Without prejudice to the above, if at all any portion of the expenditure is held to be not allowable, the same may please be directed to be deducted from the income of the assessment year where the remission in respect of such expenditure has been offered for tax 3. It was fairly conceded by the Authorized Representative for the assessee that this ground of the assessee has to be rejected because in A.Y. 2006-07, the reversal of this liability has been held to be not taxable by Ld. CIT(A) and the Assessing Officer has given relief while passing appeal effect order in that year i.e. A.Y. 2006-07 and therefore, in the present year, this issue should be decided against the assessee. Accordingly, this ground of appeal of assessee is rejected. 4. Ground No.2 reads a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same may please be allowed. It is submitted that it be so held now. 4.1 The learned CIT(Appeals) has erred ion not giving direction to allow when payments made. It is submitted that direction be given to allow on payment basis, if held not allowable in the present year. 9. It was submitted by Ld. Authorized Representative of the assessee that admittedly, these expenditures were not provided for the books of account but were claimed vide note in the computation. He has also drawn our attention to letter dated 28-12-2006 submitted by the assessee before Assessing Officer and in particular our attention was drawn at pages 63 and 64 of the Paper Book which contains the relevant submission before the Assessing Officer. An alternative contention was also raised that if it is held that the deduction is not in the present year, direction may be given to allow the deduction in A.Y. 2010-11 in which the assessee has entered into an Memorandum of Understanding (MoU for short) dated 22-02-2010 with Labour Union as per which this issue has been finally settled. 10. Ld. Departmental Representative of the Revenue supported the orders of authorities below. 11. We have heard the rival sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earlier years. Ld. DR of the Revenue supported the orders of authorities below. 14. We have considered the rival submissions, perused the material on record and gone through the orders of authorities below. In the details appearing at page 81 to 83 of the P.B., we find that the previous year expenditure includes Rs.270.11 lakhs on account of salary, wages, bonus and welfare expenses and Rs.74.39 lakh on account of water expenses and there are some small other expenses also which are having debit balance and there are some accounts which are having credit balance which are related to previous year and in this manner net expenses of previous year have been worked out at Rs.263.20 lakh. We find that clear finding is given by Ld. CIT(A) in para-21 of his order that assessee had failed to furnish any material to show that liability has crystallized during the present year. We also find that this direction is given by the Ld. CIT(A) to the Assessing Officer that AO will allow the expenditure in the year to which the same pertains to while giving effect to his order. In view of this direction of Ld. CIT(A), we are of the considered opinion that the AO must have allowed the deduction to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the addition of Rs.6,41,25,924/- to the book profit u/s. 115JB while computing the book profit u/s 115JB. It is submitted that in the facts and circumstances, the amount credited back to Profit Loss Account being excess provision for doubtful advances made in the earlier year ought to have been reduced. It be so held now. 7.1 The learned CIT(Appeals) failed to appreciate that the excess provision was made in earlier assessment year 2003-04 for which deduction was not allowed while computing the income of the said year as the same was added back to book profit while computing the book profit of Asst. Year 2003-04. It is submitted that since the said provision has been written back in Asst. year 2004-05, the same should have been directed to be deleted while computing book profit. It is submitted that it be so held now. 19. It is submitted by Ld. AR of the assessee that statement of total income of A.Y. 2003-04 is available at page 119 of the P.B. He further submitted that report of Chartered Accountant u/s. 115JB for A.Y. 2003-04 is also available at page 121-122 of the P.B. He submitted that as per clause (i) of Explanation to Section 115JB, book profit should be reduced by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reafter, AO should pass necessary order as per law. Before parting, we would like to observe that as per copy of assessment order for A.Y. 2003-04 which is available at pages 306 and 307 of the P.B, it is seen that total loss as per regular provision was assessed by AO at Rs.334.96 crores and there is no working of book profit in the assessment order which is available in P.B. A.O. should keep this aspect also in mind while deciding this issue. Ground No.7 and 7.1 are allowed for statistical purposes. 22. Ground No. 8 is regarding charge of interest u/s. 234B, 234C 234D. This issue is consequential and held accordingly. 23. In the result, appeal of assessee stands partly allowed for statistical purpose. Now, we take up Revenue s appeal in ITA No.4557/Ahd/2007 for A.Y. 04-05. 24. Ground No.1 of the Revenue is as under:- 1. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in allowing the expenditure of Rs.86.69 lacs on the release of water and discharge of effluent and pollution control, as revenue expendiitu9r, with the observation that this expenditure did not result in the creation of any specific asset, without appreciating that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts in the present year, we do not find any reason to interfere in the order of Ld. CIT(A) on this issue also. Ground No.2 is also rejected. 29. Ground No.3 is as under:- 3(a) On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the disallowance of Rs.91.80 lacs u/s. 14A towards interest and other expenses incurred in relation to exempted income of dividend, without taking note of the landmark decision in the case of CIT(A) vs. Abhishek Industries Ltd. 286 ITR 01 (P H), laying down that, in view of section 106 of the Indian Evidence Act, the facts being in the special knowledge of the assessee, it was up to him to adduce evidence that all the borrowings were used for the purposes of the business and it is the assessee s own surplus funds that were invested in the shares earning exempted income and, hence, even in case of mixed funds, the disallowance of interest was called for. (b) The ld. CIT(A) erred in accepting the assessee s plea that the investment in shares being less than the assessee s own funds in the balance sheet, no disallowance of interest was called for, without appreciating that the assessee s own funds already ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowance to the extent 10% of dividend income. So far interest expenditure is concerned for earning dividend income, we are of the considered opinion that the own fund is much higher than investment and therefore, it cannot be said that interest bearing borrowed funds were used for making investments in shares and therefore, no disallowance u/s. 14A is required in respect of interest expenditure. For other expenses, Ld. DR of the Revenue has requested to restore the matter back to the file of Assessing Officer whereas it was submitted by Ld. AR of the assessee that disallowance of Rs.5 lakh may be made here itself. Considering the facts of present case and volume and quantum of investment, we feel that if disallowance of Rs.5 lakh is made, it will meet both ends of justice. We confirm the disallowance of Rs.5 lakh in respect of administrative expenses. This ground of Revenue s appeal is partly allowed. 32. Ground No.4 of the Revenue s appeal is as under:- 4. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in directing to allow corporate debt restructuring expenses of Rs.2.57 crores on payment to financial consultants in connection with the wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business constitutes income receipt on being written off, by virtue of section 28(i) itself. (b) The ld. CIT(A) failed to appreciate that, when section 28(iv) charges the value of any benefit or perquisite, whether convertible into money or not, arising from business, it presupposes that any monetary benefit so arising is already covered by section 28(i) as held in the case of T.V. Sundaram Iyengar Sons Ltd. (supra); otherwise, there is no rational for excluding monetary benefits or perquisites when non-monetary benefits or perquisites are also included in the business profits. 36. Ld. DR of the Revenue supported the order of Assessing Officer whereas Ld. AR of the assessee supported the order of Ld. CIT(A). He further drawn our attention to the provision of Secton 41(1) of the Act. He also placed reliance on the judgment rendered in the case of CIT v. T.V. Sundaram Iyengar And Sons Ltd. (1996) as reported in 222 ITR 344 (SC). As against this, Ld. AR of the assessee supported the order of Ld. CIT(A). He placed reliance on the judgment of Hon ble jurisdictional High Court rendered in the case of CIT v. Chetan Chemicals Pvt. Ltd. (2004) as reported in 267 ITR 770 (Guj). In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls Ltd. vs. CIT 156 ITR (SC) (b) The Ld. CIT(A) wrongly equated this liability with that of leave encashment which accrues yare to year on account of the eligible employees not availing of leave during the year whereas gratuity liability provided in respect of all the employees on actuarial basis is purely contingent on their retirement in future and the mere fact that the accounting practice formulated as AS-15 enjoins such provision does not render it as ascertained liability as settled in the case of Indian Molasses Co. Pvt. Ltd. Vs. CIT 37 ITR 66, 76, (SC) and Tuticorin Alkali Chemicals Fertilizers Ltd. Vs. CIT 227 IGTR 172 (SC). 7. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the adjustment of book profit u/s.115JB by the provision for superannuation expenditure amounting to Rs.2,32,83,738/- , without appreciating its purely contingent and unascertained nature in view of being related to the superannuation of employees in future, by equating this provision with that of leave encashment which accrues from year to year on account of not availing of leave by the eligible employees in the relevant year and by ignoring the ratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be added back in book profit. We reverse the order of Ld. CIT(A) on this issue and restore that of the Assessing Officer. This ground of Revenue s appeal is allowed. 43. Ground No.9 of Revenue s appeal is as under:- 9.(a) On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in directing to adjust deduction u/s. 80HHC as per book profit and not as computed under the provisions of section 80HHC in the computation of deemed total income under section 115JB, by ignoring the language of clause (iv) of the Explanation below section 115JB(2) referring to amount of profits eligible for deduction u/s. 80HHC as computed under section 80HHC(3) subject to the conditions specified in section 80HHC, which includes the condition laid down in Explanation (baa) below section 80HHC. (b) Ld. CIT(A) erred in placing an interpretation which is discriminatory between an assessee paying tax on the normal total income and as assessee paying tax on the deemed total income under section 115JB, making only the later entitled to a benefit unintended in the letter as well as the scheme of the Act. 44. Ld. DR of the Revenue supported the order of Assessing Officer where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that under these facts, penalty is not justified and in support of this contention, reliance was placed on the judgment of Hon ble Delhi High Court rendered in the case of CIT v. Nalwa Sons Investments Ltd. (2010) as reported in 327 ITR 543 (Del) and also on judgment of Hon ble jurisdictional High Court rendered in the case of CIT v. Vijay Mistry Construction Rajakamal Builders Pvt. Ltd. in Tax Appeal No.2224 of 2009 dated 29-03-2011. 49. We have considered the rival submissions, perused the materials on record and gone through the judgments cited by Ld. AR of the assessee. We find that this issue has been decided by Ld. CIT(A) in favour of assessee in para-4.3 of his order, which is reproduced below:- 4.3 In the instant case, the assessee does not deny that its claim of depreciation was erroneous. However, as soon as the mistake was brought to its notice, it accepted the same and offered the difference for taxation. As held by the Supreme Court in Rajasthan Spinning and Weaving Mills, 23 DTR 158, it is not necessary that every case of addition would attract penalty u/s. 271(1)(c), but the penalty would be leviable only where either the assessee offered no explanation or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decline to interfere in the order of Ld. CIT(A) on this issue. This ground of Revenue s appeal is dismissed. 50. In the result, Revenue s appeal is dismissed. 51. Now we take up the 4th appeal of A.Y. 2004-05 i.e. arising in course of appeal effect order passed by Assessing Officer in ITA No.302/Ahd/2011. This appeal is filed by assessee and grounds raised by assessee are as under:- 1. The learned CIT(Appeals) erred in deciding the ground of not granting by learned A.O of 1/6th deduction out of expenses of Rs.2.57 crores paid to the Financial Consultants despite the direction of CIT(A) in earlier proceedings. It is submitted that it be so held now and the learned Assessing Officer be directed to grant 1/6th deduction out of expenses of Rs.2.57 crores paid to the Financial Consultants. 2. The learned CIT(Appeals) erred in upholding the disallowance u/s. 80HHC for Rs.1,21,22,000/- to the book profit u/s.115JB while computing the book profit u/s.115JB. It is submitted that in the facts and circumstances, the appellant is entitled to deduction u/s 80HHC of aforesaid sum while computing the book profit u/s. 115JB being profit eligible u/s. 80HHC. Your appellant further submits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zed Representative for the assessee that this issue is identical to ground No.1 of assessee s appeal in A.Y 2004-05 in ITA No.4522/Ahd/2007. He also submitted that in A.Y. 2006-07, reversal of this liability has been held to be not taxable by the Ld. CIT(A) and while passing the appeal effect order, the Assessing Officer has allowed relief in that year. Hence, this present ground of appeal of assessee is academic in nature only. Accordingly, this ground of assessee s appeal is rejected for this reason and for this reason also that in A.Y. 2004-05, ground No.1 of assessee s appeal was rejected. 59. Ground No.2 is as under:- 2. The learned Commissioner of Income tax erred in confirming disallowance of carry forward of long Term Capital Loss of Rs.7,55,38,949/- claimed in the Statement of Total income on account of conversions of Unit-64 of Unit Trust of India into Bonds of Unit Trust of India. The learned Commissioner of Income tax erred in confirming the action of Assessing Officer for rejecting the claim of brought forward loss and is further carry forward to future assessment years. Your appellant submits that in the facts and circumstances of case earlier assessment years lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is not envisaged in the Explanation provided u/s. 115JB of the Act and hence should not have been made. It is submitted that it be so held now and addition of the amounts made to the Book profit u/s. 115JB be deleted. 64. It was fairly conceded by Ld. AR of the assessee that this issue is same to ground No.6.1 of assessee s appeal in A.Y. 2004-05. In that year, we have decided this issue against the assessee as per paras 16 17 of this order. Accordingly, in the present year also, this issue is decided against the assessee on similar line. This ground of assessee s appeal is also rejected. 65. Ground No.5 is regarding interest u/s 234C 234D which is consequential in nature and held accordingly. 66. Additional Ground No. 6 of the appeal is as under:- 6. The learned CIT (Appeals) erred in law and on facts in not adjudicating ground no. 10.6 of appeal before him that the learned AO erred in not deducting a sum of Rs.1008.49 lacs out of the provision of liability of wage revision of workers and staff from the book profit of the year under consideration while computing income u/s. 115JB of the Act as the same was added to such book profit of earlier assessment year 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd No.1 of the Revenue s appeal, in that year, and the same was by following various Tribunal decisions in assessee s own case for earlier three years. Hence in the present year also, we do not find any reason to take a contrary view because no difference in facts could be pointed out by the Ld. DR of the Revenue. This ground of Revenue s appeal is rejected. 74. Ground No.2 of Revenue s appeal is as under:- 2. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in allowing the expenditure of Rs.68.00 lacs on acquiring fire fighting equipments and on safety measure, as revenue expenditure, with the observation that these expenses were necessary for complying with the Government regulations and did not result in the creation of any asset, without appreciating that these are not the relevant considerations for determining the capital vis-a-vis revenue nature of an expenditure and the expenses, being in capital field and giving an advantage of enduring nature, constitute capital expenditure as settled in the case of Ballimal Naval Kishore vs CIT 224 ITR 414 (SC). 75. Ld. DR of the Revenue supported the assessment order whereas Ld. AR of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Supreme Court in the case of Motor General Finance vs. CIT 267 ITR 381 (SC). (d) The ld. CIT(A) erred in deleting the disallowance by putting arbitrary and narrow meaning on the term incurred in section 14A when this section nowhere refers to incurring of expressly quantified expenditure in relation to exempted income and, instead, uses the wider expression in relation to and not for earning of . 78. Ld. DR of the Revenue supported the assessment order whereas Ld. AR of the assessee supported the order of Ld. CIT(A). He further submitted that the issue is identical to ground No.3 of Revenue s appeal for A.Y. 2004- 05 in ITA No.4557/Ahd/2007 and hence, same can be decided on similar line. 79. We have considered the rival submissions and gone through the orders of authorities below. In A.Y. 2004-05, we have held that no disallowance u/s. 14A of the Act is called for in respect of interest expenditure because the own funds of the assessee is much higher than the investment in share etc., Regarding other administrative expenses, we have confirmed a disallowance of Rs. 5 lakh in A.Y. 2004-05 and hence, in the present year also, we confirm the disallowance of Rs.5 lakh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sndaram Iyengar Sons Ltd. (supra); otherwise, there is no rationale for excluding monetary benefits or perquisites when nonmonetary benefits or perquisites are also included in the business profit. 84. Ld. DR of the Revenue supported the assessment order whereas Ld. AR of the assessee supported the order of Ld. CIT(A). He also submitted that this issue is identical to ground No.5 of Revenue s appeal in ITA No.4557/Ahd/2007 for A.Y. 2004-05. 85. We have considered the rival submissions and perused the materials on record and gone through the orders of authorities below. We find that we have decided identical issue in A.Y. 2004-05 while deciding the ground No.5 of the Revenue s appeal in that year. Since no difference in facts could be pointed out by Ld. DR of the Revenue in present year, we do not find any reason to take a contrary view in the present year. Hence, this ground of Revenue s appeal is also rejected. 86. Ground No.6 is as under:- 6.(a) On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the adjustment of book profit u/s.. 115JB by the estimated gratuity provision of Rs.3,26,22,234/- made on the basis of actuarial va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xplanation below section 115jB(2) in view of not being actual amount of debts written off but only an arbitrary provision at an estimated fraction of total debts, which is treated as reserve even under rule 7(2) of Schedule VI of the Companies Act without the extension of meaning as in clause (b) of the aforesaid Explanation. 90. Ld. DR of the Revenue supported the assessment order whereas Ld. AR of the assessee supported the order of Ld. CIT(A). It was fairly conceded by Ld. AR that this issue is now squarely covered against the assessee by subsequent retrospective amendment in Sectdion 115JB of the Act and this issue is identical to ground No.8 of Revenue s appeal in ITA No.4557/Ahd/2007 for A.Y. 2004-05. 91. We have considered rival submissions and perused the materials on record. We find that this issue in A.Y. 2004-05 of Revenue s appeal in ITA No.4557/Ahd/2007 was decided by us in favour of Revenue and against the assessee while deciding ground No.8 of Revenue s appeal in that year and this decision is on the basis of subsequent retrospective amendment of Section 115JB of the Act. Accordingly, in the present year also this issue is decided against the assessee. Hence thi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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