TMI Blog2015 (3) TMI 926X X X X Extracts X X X X X X X X Extracts X X X X ..... as not designated to meet a liability, contingency, commitment or diminution in the value of assets known to at the date of balance sheet. Hence, the reserve can be set aside out of the profits and surpluses and the same cannot be claimed as deduction because it is not an expense laid out for the purpose of business. Coming to the facts of the present case, the contribution to the Molasses reserve fund can be viewed as a provision in nature and it is not an actual liability and the provision created for additional storage facility is obviously in the nature of provision for contingent liability, therefore, the impugned amount being contingent in nature deserves to be added back while computing income u/s 115JB of the Act. Finally, we reach to a conclusion that the action of the AO as well as order of the CIT(A) is well founded and justified and we are unable to see any perversity, infirmity or any other valid reason to interfere with the same on this issue. - Decided against assessee. Addition of capital subsidy to the book profits while computing income under the section 115JB of the Act - Held that:- t has already been accepted by the Hon’ble High Court in assessee’s own case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant : Shri M.P. Rastogi, CA For the Respondent : Shri Vikram Sahay, Sr. DR ORDER Per Chandra Mohan Garg, JUDICIAL MEMBER This appeal has been preferred by the assessee against the order of the CIT(A)-XVIII, New Delhi dated 4.12.2012 in Appeal No. 263/11-12 for AY 2009-10. In the beginning of the argument, ld. Counsel of the assessee submitted that the assessee does not want to press ground no. 1(a) and (b), therefore, the same is dismissed as not pressed. Remaining ground nos. 2 to 5 read as under:- 2. That the Learned CIT (A) has erred both on facts in law in holding that the amount contributed under U.P. Sheera Niyantran Adhiniyam is required to be added for the purposes of computing 'Book Profit' under section 115JB of the Act as the same is in the nature of reserve not specified under section 33AC of the Act. 3. (a) That the learned CIT (A) has erred in sustaining the addition made by the learned assessing officer in respect of the amount of capital subsidy to the book profits while computing income under the section 115JB of the Act, on the alleged contention that the appellant has transferred ₹ 27,55,420/- to a reserve which has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required under the provisions of the Act. Ground No. 2 2. Apropos ground no. 2, ld. Counsel of the assessee submitted that Learned CIT (A) has erred both on facts in law in holding that the amount contributed under U.P. Sheera Niyantran Adhiniyam is required to be added for the purposes of computing 'Book Profit' under section 115JB of the Act as the same is in the nature of reserve not specified under section 33AC of the Act. Ld. Counsel of the assessee further submitted that the net profit of the assessee remains the same because of two reasons, first, reserve fund is an allowable expenditure and secondly, the assessee has no right over the amount transferred to Molasses Reserve Fund due to overriding title. 3. Replying to the above, ld. DR supported the orders of the authorities below and submitted that the amount of contribution to Molasses Reserve Fund is a provision which is contingent in nature and in this situation, the claim of the assessee that it represents diversion of income on account of overriding obligation cannot be accepted. Ld. DR further contended that the assessee company has transferred ₹ 1,78,447 to a reserve which has not been s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which has not been specified u/s 33AC of the Act, therefore, as per Explanation 1 attached to provisions of section 115JB of the Act, the book profit is required to be increased by the amount carried to any reserve account. We also note that the AO has rightly relied on the decision of Hon ble Apex Court in the case of State Bank of Patiala reported as 219 ITR 706(SC) wherein it was clearly held that the issue of what construes reserve and provision and the ratio laid down in these decisions clearly enlighten us that to constitute a reserve, a particular amount set aside out of the profit and other surpluses, should be such as not designated to meet a liability, contingency, commitment or diminution in the value of assets known to at the date of balance sheet. Hence, the reserve can be set aside out of the profits and surpluses and the same cannot be claimed as deduction because it is not an expense laid out for the purpose of business. Coming to the facts of the present case, the contribution to the Molasses reserve fund can be viewed as a provision in nature and it is not an actual liability and the provision created for additional storage facility is obviously in the nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mining whether the books of accounts are certified by the authorities under the Companies Act. The AR further submitted that the AO, thereafter has a limited power of making any change to the book profit as provided for in Explanation 1 to section 115JB of the Act as the AO does not have the jurisdiction to go beyond the net profit shown in the P L account except to the extent provided in Explanation thereto. To support the above contentions, ld. AR paled reliance on the decision of CIT vs HCL Comnet Systems Services Ltd. (2008) 305 ITR 409 and Apollo Tyres Ltd. vs CIT (2002) 255 ITR 273 and submitted that the AO has to accept the authenticity of the accounts maintained in accordance with the provisions of the Companies Act, which are also certified by the auditors and passed by the company in its Annual General Meeting. 7. Replying to the above, ld. DR supported the impugned order and submitted that u/s 115JB of the Act, net profit as per profit and loss account is to be increased and the amounts carried out to any reserves, by whatever name called, other than a reserve specified u/s 33AC of the Act, therefore, in accordance with Explanation 1 to provisions of section 115JB o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been decided in favour of the assessee in the earlier years by the CIT(A), ITAT Delhi and Hon ble Jurisdictional High Court of Delhi and, therefore, respectfully following the same, the first appellate authority granted relief for the assessee with a final conclusion that the interest on loan advanced by the central government is allowable and the capital subsidy received by the assessee company in this regard is not taxable. 10. Coming back to the issue involved in ground no. 3(a) and (b) of the extant appeal, at the very outset, we note that as per ratio of the decision of Hon ble Apex Court in the case of CIT vs HCL Comnet Systems Services Ltd. (supra) and Apollo Tyres Ltd. vs CIT (supra), the AO has to accept the authenticity of the accounts maintained in accordance with the provisions of the Companies Act which are also certified by the auditors and passed by the company in its Annual General Meeting. In this connection, we may also point out that the ld. DR has not disputed the fact that the subsidy against the interest paid by the assessee company on central government loan is granted with the object of incentive for the entrepreneur to establish sugar industry or to ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by wrongly holding that the precondition of depreciation is that it has to be used for the purpose of business and profession. Ld. AR further contended that the CIT(A) was also not justified in confirming the conclusion of the AO on the issue by holding that the depreciation on machines discarded by the assessee company as transfer to stores and spares cannot be said to satisfy the conditions mentioned in section 32(1) of the Act for the purpose of claiming depreciation and the user of machines would not include a passive user. Ld. AR placing reliance on the decision of Hon ble Jurisdictional High Court of Delhi in the case of CIT vs Oswal Agro Mills Ltd. (2012) 341 ITR 461 (Del) submitted that the passive user of the asset is also recognised as user for the purpose of business and the meaning of passive user has to be interpreted to mean that the asset is kept ready for use. Ld. AR also contended that if this condition is specified, then even if the machinery is not used for certain reason in the concerned assessment, the assessee would not be denied the claim of depreciation. Further, placing reliance on the decision of Hon ble Jurisdictional High Court of Delhi in the case of C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clined to hold that the AO was not justified in disallowing the depreciation to the assessee on the assets which were discarded and transferred to the stores and spares during the financial year under consideration. The CIT(A) was not correct in confirming the order of the AO on this issue and thus, we dismiss the same and direct the AO to allow the depreciation to the assessee on discarded assets in the light of our foregoing discussion on this issue. Accordingly, ground no. 4 of the assessee is allowed. Ground No.5 15. Apropos ground no. 5(a), (b), (c), (d) and (e) of the Act, the ld. Counsel submitted that the CIT(A) has not given any opportunity to the assessee to substantiate its claim with regard to miscellaneous receipt of ₹ 70,31,529/- being a part of business income and ineligible for deduction under section 80 IC of the Act. Ld. AR further contended that the AO had treated only ₹ 8,19,660 as income from other sources after going through the details furnished by the assessee during assessment proceedings out of an amount of ₹ 70,31,529 of miscellaneous receipts but the CIT(A) disallowed entire amount of miscellaneous receipts as income from other sourc ..... 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