TMI Blog2013 (7) TMI 192X X X X Extracts X X X X X X X X Extracts X X X X ..... ting statement, reducing the profit to that extent. Therefore, the Revenue is not incorrect in stating that the said set aside of the profits is only an appropriation of profits, and would not amount to a provision, so as to qualify for deduction in the computation of the profit of the assessee company. The issue, in fact, is not if it is a 'provision' or a 'reserve' per se, but whether it could be considered as deductible in computing the profit of the enterprise. On the contrary, the said accounting treatment, i.e., the set aside of profit, ensures capitalization of the profits, so that the debenture funds forming part of the capital structure, the same (capital) is no depleted on the redemption of the liability representing the said source of funds - the decision by the hon'ble jurisdictional high court in the case of CIT v. Raymond Ltd. (2012 (4) TMI 127 - BOMBAY HIGH COURT) is binding on this case & allow the assessee's appeal on its grounds, so that the adjustment made by it in the computation of book profit u/s. 115JB gets validated. The assessee succeeds on its relevant grounds. - Decided in favor of assessee Adjustment under clause (f) of Explanation 1 to s. 115JB i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeting a liability and, therefore, deductible in the computation of 'book profit' u/s.115JB of the Act. The same has been argued before us from the assessee's side as covered by the decision by the hon'ble jurisdictional High Court in the case of CIT v. Raymond Ltd. (2012) 209 Taxman 65 (Bom.), confirming the tribunal's view. The Revenue, though unable to rebut this claim, i.e., of the said issue as being the same as adjudicated by the hon'ble court, would yet contest the assessee's said ground on merits, relying on the orders by the authorities below. 5. We have given our careful consideration to the matter, pursuing the impugned orders by the assessing and the first appellate authority, as well as by the hon'ble jurisdictional high court, which is binding on us. Debenture is a loan liability, i.e., borrowed capital of the entity raising funds through the issue of debentures. The said liability is classified as a secured loan in the balance-sheet prepared under Part I of Schedule VI to the Companies Act, 1956 ('companies act' hereinafter). The interest accrued on the same would be a revenue expenditure of the enterprises, whether the said capital is utilized as working capital o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fund so created), and there are no defaults by the depositee-companies, as where the company invests its profits on expansion or in business or otherwise dissipates them, as by way of dividends, so that the liquid funds are not available for discharge of the loan liability at the relevant time, i.e., the time of redemption, but at hand through the sale/realization of the liquid securities. This can thus also be considered as a measure to protect investor's confidence as well as to promote investment climate and corporate discipline. The set aside of profits is, therefore, only a sinking fund to fund (meet) a capital liability (out of the profits), the rationale of which stands discussed herein above. In the case of National Rayon Corporation Ltd. vs. CIT [1997] 227 ITR 764 (SC), also relied upon by the assessee, sinking funds, which fall under the heading 'Reserve and Surplus' (in the balance-sheet as per Schedule-VI), stood specifically excluded u/r. 1 of second schedule to the Companies (Profits) Surtax Act, 1964 in the computation of 'capital'. The set aside of profits, though for meeting a liability, is of one on capital account, so that neither the assumption thereof (the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expressed by the co-ordinate bench of the tribunal, our purview in the present proceedings would only have been to refer this matter for consideration by a large bench of the tribunal. There is, under the circumstances, no question of taking any different view in the matter. Accordingly, respectfully following the said decision by the hon'ble high court, we allow the assessee's appeal on its grounds, so that the adjustment made by it in the computation of book profit u/s. 115JB gets validated. The assessee succeeds on its relevant grounds. 6. The next and fourth ground of appeal relates to the levy of interest u/s. 234D of the Act. The ld. AR would at the time of hearing concede that the appellant does not deny its liability to the said interest, but only seeks its modification in light of the revision in its tax demand consequent to this appellate order. The hon'ble apex court in Central Provinces Manganese Ore Co. Ltd. v. CIT (1986) 160 ITR 961 (SC) has clarified that levy of interest can be appealed against only where the assessee denies his liability thereto, i.e., the applicability of the provision itself. Further, in CIT v. Anjum Ghaswala (2001) 252 ITR 1 (SC), it was clar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the expenditure in relation to the dividend income, claimed exempt u/s. 10(34), at Rs. 8.59 lacs, which amount the assessee does not dispute, the same amount has been added back by it under cl.(f), while at the same time deducting the dividend income (Rs. 256.38 lacs) under cl. (ii) from the net profit in computing the book profit u/s. 115JB. The disallowance u/s. 14A is also with reference to the amount actually incurred and claimed by the assessee per its return of income, which in turn is based on the audited accounts. In any case, there can be no presumption of the expenditure qua which disallowance u./s. 14A has been made and sustained as being not debited in the account books, and which sums up the Revenue's case as made out by the ld. DR. The only option, therefore, under the circumstances available is that the matter is restored back to the file of the AO to allow the assessee an opportunity to show as to how the estimated expenditure of Rs. 8.59 lacs disallowed u/s. 14A as incurred in relation to the tax exempt income, is at either nil or a lesser amount, i.e., per the assessee's books. On this proposition being advanced to the ld. AR, requiring him to make out a prima f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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