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ACIT, Circle II, Faridabad Versus M/s. N.H.P.C. Limited

2015 (9) TMI 222 - ITAT DELHI

Disallowance of provision for gratuity and other benefits since they are contingent in nature while computing book profit u/s 115JB - Held that:- The Tribunal for assessment year 2002-03 order [2010 (10) TMI 1022 - ITAT DELHI] has considered an identical issue and had decided the matter in favour of the assessee wherein AO is directed to compute the book profit without making any addition for aforesaid provisions. - Decided in favour of assessee.

Depreciation on land amortized while c .....

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of the appellant. Since the issue is already covered by the decision for earlier year, the addition made by the AO for the purpose of computing book profit u/s 115JB of the Act is directed to be deleted - Decided in favour of assessee.

Disallowance under section 14A - CIT(A) deleted the disallowance - Held that:- We find that the assessee has earned exempt income to the tune of ₹ 51,75,50,800/- and has suo motu disallowed ₹ 13.78 crores under section 14A of the Act. We fin .....

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See CIT vs. Taikisha Engineering India Limited [2014 (12) TMI 482 - DELHI HIGH COURT ] - Decided in favour of assessee. - ITA No.424/Del./2013 - Dated:- 26-8-2015 - SHRI S.V. MEHROTRA AND SHRI A.T. VARKEY, JJ. For The Assessee : S/Shri Ved Jain, Ashish Goel and Pranjal Shrivastava, Advocates For The Revenue : None ORDER PER A.T. VARKEY, JUDICIAL MEMBER : This appeal, at the instance of the revenue, is directed against the order of the Commissioner of Income-tax (Appeals), Faridabad dated 29.10.2 .....

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fit under the provisions of section 115JB of the Act was, however, declared at ₹ 1141,51,66,920/-. Thereafter, the assessee filed a revised return on 30.03.2010 revising book profit at ₹ 1115,30,68,920/- u/s 115JB of the Act. The case was selected for scrutiny through CASS and a notice u/s 143(2) of the Act was issued on 19.08.2010. In the assessment order, the AO has made several additions and disallowances while computing the income under the normal, provisions as well as under sec .....

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he judgment of Hon'ble supreme Court in the case of Shree Sajjan Mills in which it has been mentioned that nature of provisions for gratuity is a contingent liability because the payment of gratuity is made in consideration of the entire length of service & it's ascertainment depends upon several factors & until unless the employee is retired or his services are terminated, the right to receive gratuity remains as his contingent right. (B) On the facts & the circumstances of .....

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ge investments for earning tax free dividends & on other hand huge interest has been paid on loans. Hence the assessee has claimed expenditure on income not offered for taxation. (D) That the appellant craves for the permission to add, delete or amend the grounds of appeal before or at the time of hearing of appeal. 5. Apropos Ground 1 is in respect of claim of provision for gratuity and other benefits which are not allowable, since they are contingent in nature while computing book profit u .....

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ion 62,73,072/- 6 Provision for baggage allowance on superannuation 19,46,240/- Total 82,57,10,238/- The AO asked the assessee to show cause in this regard and the assessee vide letter dated 17.08.2011 submitted its explanation. After going through the submission of the assessee, the AO observed that the concerned provisions are not an ascertained provisions i.e. a contingent liability and accordingly ₹ 82,57,10,238/- was added to the book profit as per the provisions of section 115JB of t .....

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,57,10,238/- made on account of the Provision for gratuity, leave encashment, post retirement medical benefit, LTC, Baggage allowance and Matching Contribution on Leave Encashment etc., for the purpose of computing tax liability u/s 115JB of the Act. As discussed in para 3 of the assessment order, the AO has added the above provisions for the purpose of computing book profit u/s 115JB following the decision of Hon'ble Supreme Court in the case of Shree Sajjan Mills vs. CIT (156 ITR 585) afte .....

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per the Profit and Loss account should have not been disturbed in view of decision of Hon'ble Apex Court in the case of ApolloTyres Ltd. vs. CIT (255 ITR 273). The reliance has also been placed on the decision of Hon'ble Supreme Court in the case of Bharat Earth Movers Limited vs. CIT (112 Taxman 61) and the decision of Hon'ble Mumbai High Court in the case of CIT vs. Echjay Forgings Pvt. Ltd. (116 Taxman 322) in support of contentions that when the liabilities were determined on the .....

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ssue was decided in favour of the appellant. Since the issue is already covered by the decision for earlier years, the AO is directed to compute the book profit without making any addition for aforesaid provisions. The addition of ₹ 82,57,10,238/- made by the AO for the purpose of determining book profit u/s 115JB of the Act is deleted. The ground of appeal is allowed. 7. Aggrieved by the deletion of the said addition made by the AO, the department is before us. 8. At the outset itself, th .....

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terial on record. The Tribunal in ITA No.1105/Del./2006 for assessment year 2002-03 order dated 21.11.2008 has considered an identical issue and had decided the matter in favour of the assessee. The aforesaid order of the Tribunal was followed in subsequent assessment years 2005-06, 2007-08 and 2008- 09. Since identical issue has been considered by the Tribunal in the aforesaid assessment years and the issue raised before us is covered by the decision of the coordinate Benches of the Tribunal in .....

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,80,79,857/ - had been debited to profit and loss account and balance amount of ₹ 69,12,280/- had been added to the cost of capital work in progress. The AO confronted the assessee with these facts that Depreciation on the land was not allowed as per the Companies Act and accordingly, why the depreciation may not be added back to the shown book profit to work out the book profit as per Companies Act, 1956. The assessee replied the same vide submission dated 20.12.2011. The AO examined the .....

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t as far as Depreciation on land was concerned, it was neither prescribed in Income Tax Act, 1961 nor in Companies Act, 1956. Hence, accounts of the company are not in accordance with the provision of part II and III of Schedule VI of the Companies Act, 1956. Thus, he disallowed the claim being not in accordance with Companies Act to the extent of ₹ 1,80,79,857/- as this amount has been debited to P & L account and accordingly, added back to the figure of book profit. 11. While allowin .....

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the provision of part II and In of schedule VI of the Companies Act. The appellant, on the other hand, has contended that amortization of lease hold land has been made as per accounting standard 10 of ICAI and amortization of land unclassified as per Accounting Standard 6 of ICAI and in view of CAG, which has been done to meet the requirement of companies Act and amortization of land is permitted u/s 115JB. The identical issue was also involved in the case of appellant for A.Y.2008-09 and as pe .....

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r of the assessee in assessee s own case in ITA No.2449/Del/2008 for Assessment Year 2004-05 order dated 30.09.2014 of the Tribunal and took our attention to page 6, para 7 of the order. He also submitted that the ITAT, relying on the aforesaid order dated 30.09.2014 (supra), has decided this issue in favour of the assessee in assessee s own case in assessment years 2007-08 and 2008-09. 13. We have heard rival submissions and perused the material on record. The Tribunal in the order for assessme .....

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firm the order of the ld. CIT (A) on this issue. 14. Apropos Ground 3 is regarding disallowance under section 14A of the Act. The AO noticed from the balance sheet that there were dividend bearing investments and the assessee earned dividend during the year on such investments as per following details :- Name of the Company Investment as on 31.03.2009 Rs. Crores Dividend Received in Rupees NHDC 1002.42 50,42,88,000 Power Trading Corp. 12.00 1,20,00,000/- Indian Overseas Bank 0.36 12,62,800/- Nat .....

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ccording to the AO, the said disallowance of expenditure made by the assessee was not satisfactory and hence, he asked assessee again to show cause vide order sheet entry dated 20.12.2011 as to why appropriate disallowance as per the provisions of section 14A be not made. The AO also asked the assessee to file computation as per Rule 8D of the Incometax Rules, 1962 (hereinafter the Rules) as provided under the provisions of section 14A for this purpose. In response, the assessee filed a reply vi .....

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ich is ₹ 1015.20 crores) under the provisions of section 14A of the Act and accordingly, made an addition of ₹ 5.08 Crores. 15. Aggrieved, the assessee filed an appeal before the CIT (A) and the CIT (A) deleted the addition by observing as under :- 6.2. In ground No.5 of appeal, the appellant has challenged the addition of ₹ 15,97,10,866/- made by invoking the provisions of section 14A of the Act while computing regular income of the assessee. There is no dispute to the fact th .....

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er of Govt. of India, Ministry of Power, vide DO No.22/3/2000/28.3.2002 and order No.34/1/2003/DO/NHPC dated 29.5.2003, out of budgetary support and equity capital invested by the Govt. to the extent of ₹ 772.42 crores. The balance investment of ₹ 230.00 crores has been made in the shares of subsidiary company out of funds raised from the issue of 'O' series bonds. The interest and bond issue expenses aggregating to ₹ 13.78 crores consisting of interest of ₹ 13.67 .....

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this regard were filed by the assessee but the AO did not consider the suomoto disallowance made by the assessee as satisfactory and in accordance with Rule 8D of the Income Tax Rules, 1962. The AO has therefore, applied Rule 8D and worked out the disallowance of ₹ 0.10 crores, 24.57 crores and ₹ 5.08 crores, aggregating to ₹ 29.75 crores, under clause (i), (ii) and (iii) of Sub-Rule (2) of Rule 8D, respectively. The fact that the investment of ₹ 772.42 crores made by the .....

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ble interest in a case where the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt. Thus, there is no direct interest expenditure for the investment of ₹ 772.42 crores and the direct interest expenditure of ₹ 13.78 crores pertaining to investment of ₹ 230.00 crores in the shares of NHDC has already been disallowed by the appellant. The Hon'ble ITAT, Bench 'F' Delhi in .....

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mpt income, it was wrong on part of Assessing Officer to proceed to compute disallowance of expenses under section 14A by merely applying rule 8D(2)(iii). The legal implications of sub-section (2) and (3) of section 14A have been examined by the Hon'ble Delhi High Court in Maxopp Investment Ltd. vs. CIT (347 ITR 272) and it has been decided in para 29 of the order as under: "29. Sub-section (2) of Section 14 A of the said Act provides the manner in which the Assessing Officer is to dete .....

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er the said Act. In other words, the requirement of the Assessing Officer embarking upon a determination of the amount of expenditure incurred in relation to exempt income would be triggered only if the Assessing Officer returns a finding that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Therefore, the condition precedent for the Assessing Officer entering upon a determination of the amount of the expenditure incurred in relation to exempt .....

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ositive amount of expenditure in relation to income which does not form part of the total income under the said Act and sub-section (3) applies to cases where the assessee asserts that no expenditure had been incurred in relation to exempt income. In both cases, the Assessing Officer, if satisfied with the correctness of the claim of the assessee in respect of such expenditure or no expenditure, as the case may be, cannot embark upon a determination of the amount of expenditure in accordance wit .....

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said Rules. While rejecting the claim of the assessee with regard to the expenditure or no expenditure, as the case may be, in relation to exempt income, the Assessing Officer would have to indicate cogent reasons for the same." It is however, observed from para 5 of the assessment order that the AO has not assigned any reason while finding the submissions of the appellant as unsatisfactory. The identical issue was also involved in the case of appellant for A.Y. 2008-09 and as per the detai .....

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er of the CIT(A), the Revenue is before us. The ld DR, supported the order of the AO, and took us to the same and argued that since admittedly the assessee is in receipt of exempt income, the AO, rightly invoked Rule 8D, to disallow expenditure as mandated by the Rule. So, he wants us to reverse the order of CIT(A) and restore the order of AO. On the other hand, Ld. AR for the assessee submitted that the assessee has suo motu disallowed an amount of ₹ 13.78 crores. He submitted that the AO .....

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ssee suo motu, without giving any reason why the amount disallowed by the assessee himself is not satisfactory. He submitted that it is a settled position that before invoking the provisions of Rule 8D, the AO has to record an objective satisfaction with regard to the disallowance made by assessee not being satisfactory, which has not been done in this case. He further submitted that this issue is squarely covered with the judgment of Hon ble jurisdictional High Court in the case of CIT Vs Taiki .....

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the records. We find that the assessee has earned exempt income to the tune of ₹ 51,75,50,800/- and has suo motu disallowed ₹ 13.78 crores under section 14A of the Act. We find that the AO has invoked Rule 8D without spelling out the reason for not being satisfied with the computation made by the assessee in respect to expenditure incurred for earning the exempt income. Without recording the objective satisfaction as required under sub-section (2) to section 14A that he is not satis .....

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ot form part of the total income under the Act. Under sub Section (2) to Section 14A of the Act, the Assessing Officer is required to examine the accounts of the assessee and only when he is not satisfied with the correctness of the claim of the assessee in respect of expenditure in relation to exempt income, the Assessing Officer can determine the amount of expenditure which should be disallowed in accordance with such method as prescribed, i.e. Rule 8D of the Rules (quoted and elucidated below .....

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