TMI Blog2015 (12) TMI 1326X X X X Extracts X X X X X X X X Extracts X X X X ..... same cannot be the subject matter of addition to book profits under clause (f) of Explanation to section 115JB of the Act. The disallowance made u/s 14A of the Act read with Rule 8D is only artificial disallowance and obviously the same is not debited in the profit and loss account and the same cannot be imported into clause (f) of Explanation to Section 115JB of the Act. Rural Employment Cess and Primary Education Cess - whether would come under the ambit of provisions of section 43B ? - Held that:- In the facts of the instant case, the assessee had commenced its operations from Asst Year 2003-04 and in the very first year, this issue was taken up for disallowance and the same was deleted by the Learned CIT-A and the revenue chose not to file an appeal before this tribunal. The next scrutiny assessment was made for Asst Year 2006-07 wherein no addition on this account was made. This goes to prove that the revenue had already accepted to the contentions of the assessee on the impugned issue and satisfied that the cess collected from customers have been duly remitted in the succeeding year in accordance with the provisions of The West Bengal Rural Employment and Production Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... --------- 33,61,665 The assesee is holding investments as follows:- 31.3.08 31.3.07 Long Term Investments Investment in Noida Power Co Ltd 8,46,97,380 8,46,97,380 Investment in Crescent Power Ltd (Subsidiary) 56,49,99,940 29,99,99,940 Investment in RPG Power Trading CO Ltd 5,00,000 - Current Investments Investment in CESC Ltd 26,98,92,628 - Investment in Reliance Power Ltd 11,28,150 - Less: Change in carrying value of current investment (3,30,924) - 92,08,87,174 38,46,97,320 2.2. Out of the aforesaid investments, the assessee had earned dividend only from CESC Ltd and from UTI Mutual fund which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be less as enough dividend may not be paid by other companies due to lesser profits. He also observed that the companies in which assessee has made investments are almost from the same group of management and the payment of dividend is dependent on so many factors including the rate at which the same management (group) likes to declare dividend. 2.3.2. He further observed that the assessee may have taken the loans for specific purposes and none of the loan money taken for business purposes may have been utilised for the investments. He observed that there is no separate account maintained by the assessee for investments in the form of bank account or to show that only the capital funds are being invested in the investments. The funds are used from the common kitty. There may not be any immediate correlation between the funds taken for loan and investments in the shares. 2.3.3. He observed that there is no presumption provided in the Act that investments were made out of own funds of the assessee if the assessee has interest free loans, his own capital as share capital, reserves and surpluses and interest bearing loans and is earning exempt and taxable income. 2.3.4. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visors (P) Ltd vs Addl CIT reported in (2012) 18 taxmann.com 146 (Del ITAT) wherein it was held that where investment has been made in shares, which did not yield any dividend in the year under consideration, the expenditure incurred for earning the income is deductible notwithstanding the fact that no such income has been earned. It has been held as under:- 3. We have considered the facts of the case and submissions made before us. Section 14A(1) speaks about disallowance of expenditure incurred in relation to income which does not form part of the total income. The first argument of the learned counsel is that only those investments can be taken into account for the purpose of Rule 8D from which income has been earned. No specific argument has been advanced in this behalf. We find that sec. 57(iii) deals with any other expenditure ( not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning the income. In a number of cases decided under this provision, it has been held that actual earning of the income is not sine qua non for deciding the deduction of expenditure laid out or expended wholly or exclusively ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A of the Act by applying Rule 8D to the Income-tax Rules, 1962. 1(c) That the learned CIT(Appeals) erred in observing that the Assessing Officer has applied Rule 8D and has derived satisfaction by mentioning that the appellant has not debited any administrative charge of interest expenses in respect of exempted income. 2.4. The Learned AR argued that the borrowings in the form of term loan from bank had come down by ₹ 2 crores during the year. Hence the bank term loan could not have been utilized for making investments. A sum of ₹ 7 crores was received as unsecured loan by the assessee at the fag end of the year which was admittedly utilized only for the purpose of business and not for making any investments by the assessee. No interest was debited in respect of this unsecured loan of ₹ 7 crores. He argued that the Learned AO made this disallowance as if the same is automatically to be applied from Asst Year 2008-09 which is quite evident from the assessment order which is reproduced hereinabove. He argued that the assessee has got sufficient own funds to make these investments and borrowed funds were admittedly not utilized for the same. 2.4.1. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard to expenditure or no expenditure, as the case may be, in relation to exempted income, the AO has to indicate cogent reasons for the same. From the facts of the present case, it is noticed that the AO has not considered the claim of the assessee and straight away embarked upon computing disallowance under Rule 8D of the Rules on presuming the average value of investment at % of the total value. In view of the above and respectfully following the coordinate bench decision in the case of J.K. Investors (Bombay) Ltd., supra, we uphold the order of CIT (A) . CIT vs R.E.I. Agro Ltd in GA 3022 of 2013 in ITAT 161 of 2013 dated 23.12.2013 rendered by Calcutta High Court The Assessing Officer also disallowed the expenditure under section 14A of the Income Tax Act, 1961 without first recording that he was not satisfied with the correctness of the claim as regards the claim that no expenditure was made by the assessee. Challenging the order of the tribunal, the present appeal has been filed. We have heard Mr.Bhowmik and are of the opinion that no point of law has been raised. Therefore, this appeal is dismissed . The aforesaid two decisions of the Jurisdic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this regard is placed on the decision of the co-ordinate bench of this tribunal in the case of DCIT vs Selvel Advertising P Ltd reported in (2015) 58 taxmann.com 196 (Kolkata Trib.). We hold that even on this count, no disallowance u/s 14A of the Act could be made by the Learned AO. 2.6.3. We also find that the investments that did not yield any dividend income needs to be excluded from the computation of disallowance , if any, u/s 14A of the Act read with Rule 8D of the Rules as the basic intention behind introduction of section 14A itself is only to disallow the expenditure incurred for earning an income which does not form part of the total income. When there is no income which is claimed as exempt, then there is no scope for provisions of section 14A to operate. In the instant case, the assessee derived dividend income which is exempt only from CESC Ltd and from UTI Mutual Fund (which was purchased and sold during the year itself). Hence even assuming if disallowance is to be made u/s 14A read with Rule 8D, the investments which did not yield any dividend income during the year has to be excluded. We agree with the arguments of the Learned AR in this regard. Reliance in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n clause (f) of Explanation to section 115JB of the Act and hence needs to be added back for computation of book profits u/s 115JB of the Act. 3.2. We have heard the rival submissions. We find lot of force in the argument of the Learned AR that computation of disallowance under Rule 8D can be used only for computation of income under normal provisions of the Act and not for book profits u/s 115JB of the Act. Unless an item is debited in the profit and loss account, the same cannot be the subject matter of addition to book profits under clause (f) of Explanation to section 115JB of the Act. The disallowance made u/s 14A of the Act read with Rule 8D is only artificial disallowance and obviously the same is not debited in the profit and loss account and the same cannot be imported into clause (f) of Explanation to Section 115JB of the Act. 3.3. We have already held that no disallowance u/s 14A of the Act would operate in the facts and circumstances of the case. Accordingly, the ground no. 1(d) raised by the assessee is allowed. 4. The next ground to be decided in this appeal is as to whether provision for leave encashment which has been debited in the profit and loss account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied the liability is not a contingent one. The liability is in praesenti though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain.... Applying the abovesaid settled principles to the facts of the case at hand we are satisfied that the provision made by the appellant company for meeting the liability incurred by it under the leave encashment scheme proportionate with the entitlement earned by employees of the company, inclusive of the officers and the staff, subject to the ceiling on accumulation as applicable on the relevant date, is entitled to deduction out of the gross receipts for the accounting year during which the provision is made for the liability. The liability is not a contingent liability. The High Court was not right in taking the view to the contrary. 13. The appeal succeeds and is allowed. Section 43B(f) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RE Cess ) and Primary Education Cess ( PE Cess ) from enterprises engaged in the mining and extraction of coal within the State of West Bengal. The assessee is bound to pay Rural Employment Cess and Primary Education Cess on production of coal of each year payable in the succeeding year. The said cess is collected by the assessee in the sale bills raised by the assessee on the customers and assessee treated the same as advance from customers in the liability side of the balance sheet. When the said cess is paid in the subsequent year, the concerned liability account is debited by the assessee and the entire transactions is not routed through the profit and loss account of the assessee. The assessee has been consistently following this practice over the years commencing from Asst Year 2003-04 onwards. A detailed note in this regard was also mentioned in the notes to tax audit report stating the reasons for not statutorily accruing this receipt in the asst year under appeal. The Learned AO however observed that these receipts in the form of cess collected out of sale invoices are nothing but trading receipts and hence if the same are not paid within the due date of filing the return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of filing of return i.e. upto 30th September, 2008. 5.2. The Learned AR argued that the cess was collected from customers in the sale invoices and the same are payable only in the succeeding year as per The West Bengal Rural Employment and Production Act, 1976 and The West Bengal Primary Education Act, 1973. He took us to the relevant provisions of the said Act in this regard. He argued that the cess collected remains only as a liability and it does not become payable under the relevant law and hence the provisions of section 43B of the Act would not come into operation. In response to this, the Learned DR argued that the cess is collected by the assessee from the sale invoice and hence takes the character of a trading receipt and accordingly relied on the decision of the Hon ble apex court as stated supra. 5.3. We find that the Learned CITA also had reproduced the relevant provisions of The West Bengal Rural Employment and Production Act, 1976 and The West Bengal Primary Education Act, 1973 which states that the cess would be collected by the person engaged in the production of coal from the customers and the same would become payable in the succeeding year only. Hence t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the instant case cannot be construed as trading receipts chargeable to tax as the same are collected in advance for payment to the exchequer in the succeeding year under the relevant Act. Hence we cannot import a different meaning of accrual of liability for payment of cess into this relevant Act when more so the provisions of section 43B of the Act itself specifically states that amounts payable under the relevant law shall be allowed as deduction only on payment basis. Hence in these facts and circumstances, the decision of the Hon ble Apex Court in the case of Chowringhee Sales Bureau Pvt Ltd vs CIT reported in 87 ITR 542(SC) is not applicable to the facts of the assessee. 5.3.1. We also find that Asst Year 2003-04 was the first year of operation for the assessee wherein similar addition made by the Learned AO was deleted by the Learned CITA and the revenue had not preferred any appeal against the same before this tribunal. Similarly in Asst Year 2006-07, no disallowance under this head was made by the Learned AO eventhough the assessment was completed u/s 143(3) of the Act. These are the only two scrutiny assessments done by the Learned AO on the assessee prior to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... That being so, the revenue cannot be allowed to flip-flop on the issue and it ought let the matter rest rather than spend the taxpayers money in purusing litigation for the sake of it. 5.3.3. We are also reminded of the observations of Hon ble Justice P.N. Bhagwati while rendering the judgement in the case of Distributors (Baroda) P Ltd vs Union of India Ors reported in 155 ITR 120 (SC) larger bench decision as below:- To perpetuate an error is no heroism. To rectify the same is the compulsion of judicial conscience. In the facts of the instant case, the assessee had commenced its operations from Asst Year 2003-04 and in the very first year, this issue was taken up for disallowance and the same was deleted by the Learned CITA and the revenue chose not to file an appeal before this tribunal. The next scrutiny assessment was made for Asst Year 2006-07 wherein no addition on this account was made. This goes to prove that the revenue had already accepted to the contentions of the assessee on the impugned issue and satisfied that the cess collected from customers have been duly remitted in the succeeding year in accordance with the provisions of The West Bengal Rura ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act which defines as follows:- [29BA) manufacture with its grammatical variations, means a change in a non-living physical object or article or thing- (a) Resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or (b) Bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure;. 6.3. We have heard the rival submissions and we find that the only issue is whether the assessee engaged in coal mining could be construed as production of coal and if so, the assessee is entitled for additional depreciation. We find that this issue is squarely covered by the decision of the Jurisdictional High Court in the case of CIT vs G.S.Atwal Co reported in 254 ITR 592 (Cal) wherein it was held as below:- 13. Following an old and long standing decision given by Chakravarti C.J in 1959, which was later approved by the Supreme Court, the Division Bench opined that the winning of coal is no doubt production. At paragraph 12 of the judgment it said that after winning coal something that was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the undertaking in question, so that it stands out from the general category. We were not shown any such particular difference excepting that the assessee was also said to carry on transport business. 17. It suffices in this regard to mention that on the principle of Shan Finance (P) Ltd s case (supra), if the assessee owns the machinery for which investment allowance is claimed, and such machinery is used for production then the section applies, it does not matter if the use for production is made by the lessee or only in one industrial part of the assessee s business undertaking. Accordingly, the transport business of the assessee does not tilt the question one way or the other. Respectfully following the aforesaid decision of Hon ble Calcutta High Court, we find no infirmity in the order of the Learned CITA in this regard. Accordingly, the ground raised by the revenue in this regard is dismissed. 7. In the result, the appeal of the revenue is dismissed. 8. To sum up, the appeal of the assessee in ITA No. 1146 / Kol / 2012 is partly allowed and appeal of the revenue in ITA No. 1138 / Kol / 2012 is dismissed. This Order is Pronounced in Open Court On 30 / ..... 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