TMI Blog2013 (8) TMI 937X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer for verifying the provisioning done by assessee vis-à-vis the agreements entered with M/s GE Inc. USA. If it is strictly in accordance with agreements, the amount shown as provision has to be allowed. Amounts in excess of what is payable as per the agreements, can be disallowed. Thus we set aside the orders of authorities below on this aspect and remit the issue back to the file of A.O. for consideration afresh, in accordance with law.” - ITA No. 312/Mds/2013 - - - Dated:- 21-8-2013 - Shri N.S. Saini, Accountant Member Shri V. Durga Rao, Judicial Member Appellant by : Shri N. Madhavan, JCIT Respondent by : Shri Saroj Kumar Parida, Advocate ORDER PER V. DURGA RAO, JUDICIAL MEMBER: This appeal filed by the Revenue is directed against the order of the Commissioner of Income Tax (Appeals) III, Chennai dated 27.11.2012 relevant to the assessment 2008-09. 2. In the assessment order, the Assessing Officer has observed that the assessee has taken secured loan of `.224,44,90,718/-. It has debited interest of `.24,40,69,750/- on loans. It has also made investments in mutual funds to the extent of `.34,67,49,186/- during the previous year. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rise to tax-free income. Section 14A will have no applicability. In our opinion whether the investments were only in debt oriented mutual funds which yielded no income other than capital gains, needs to be verified and only if this is proved to be correct, application of Section 14A can be ruled out. We, therefore, set aside the orders of authorities below and remit the issue back to the file of the A.O. for consideration afresh, in accordance with law. 6. In view of the above, we set aside the order passed by the ld. CIT(Appeals) and remit the matter back to the Assessing Officer for fresh consideration in accordance with law after allowing sufficient opportunity of being heard to the assessee. 7. The next issue in ground No. 3 relating to book profit under section 115JB of the Act. 8. Facts are in brief that the assessee has shown book profits under section 115JB as per return at `.80,38,36,779/-. The Assessing Officer made disallowance under section 14A to the tune of `.89,24,289/- and assessed book profits as `.81,27,61,068/-. The assessee has submitted that the provisions of section 14A cannot be imported into, while computing book profit under section 115JB of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion (3), which do not find a place in clause (f). Therefore, insofar as computation of adjusted book profit is concerned, provisions of sub-section (2) and sub-section (3) of section 14A cannot be imported into clause (f) of the Explanation to section 115JA. The same was followed by ITAT, Delhi in the case of M/s.Quippo Telecom Infrastructure Ltd in ITA No.4931/Del/2010 for the assessment year 2007-08 while deciding the issue of addition of alleged expenditure incurred to earn exempt income while computing the book profit u/s.115JB of the Act. Further, in the instant case, as has been held above in para 4.2, no disallowance u/s 14A is made. Consequently, no adjustment u/s 115JB on this account should be made. The ratio of the above decisions are fully applicable to the facts of the appellant. Respectfully following the same, the disallowance made by the AO while computing book profit u/s115JB of the Act is deleted and this ground is allowed. 10. On being aggrieved, the Revenue carried the matter in appeal before the Tribunal. 11. At the time of hearing, the ld. Counsel for the assessee has submitted that the issue raised by the Revenue is squarely covered by the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in case of an industrial company in the first year of its operation when large amount of depreciation is claimed for deduction or when large amount of advertisement expenditure is incurred, such cases may result into loss, which can also happen in the case of dividend income where expenditure by way of interest on borrowed capital for investment and other expenses may exceed the dividend income. One of the arguments of the learned Departmental Representative was that the disallowance worked out on the basis of the order of the Special Bench of the Tribunal in the case of aforesaid Daga Capital Management (P) Ltd. (supra) will be more than the disallowance made by the learned CIT. The order in the case of Daga Capital Management (P) Ltd. (supra) heavily relied on the rules framed under sub-s. (2) of s. 14A, which is not applicable while interpreting cl. (f) of the Explanation. 14. In the case of Quippo Telecom Infrastructure Ltd. v. ACIT (supra), the Tribunal has observed that no addition to the book profit shall be made on account of alleged expenditure incurred to earn exempt income while computing the income under section 115JB of the Act. Therefore, we, respectfully followi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has held as under: 17. We have perused the orders and heard the rival submissions. It is not disputed that assessee was having two contracts with M/s GE Inc. USA. One was for long term maintenance of its main plant, second was for supply of spare parts for preventive maintenance and break down. As per the A.O., the provision made by the assessee for clearing the liability as per these agreements, was purely on an ad hoc basis and not based on any scientific work out. The A.O. in paras 7.6 and 7.7 of his order has clearly given why he considered the provision to be ad hoc. These paras are reproduced hereunder:- 7.6 Under these circumstances, provisions made by the assessee has to be treated as adhoc and excessive in nature without reference to the actuals. The said inference is furthered strengthened by a data presented in the following table: Particulars Opening Balance Current year provision Current year payments Closing Balance Escalation payable 47,09,987 7474322.64 Nil 12184309.64 Incen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecause assessee is legally bound to pay to M/s GE Inc. USA the amounts due to it as per the agreements. Actual date of payment is irrelevant. Though assessee has argued that the provisioning done by it was in accordance with such agreements, the table extracted above, does not substantiate such contention. We are, therefore, of the opinion that the matter requires re-visit by the A.O. We set aside the orders of authorities below and remit the issue back to Assessing Officer for verifying the provisioning done by assessee vis- -vis the agreements entered with M/s GE Inc. USA. If it is strictly in accordance with agreements, the amount shown as provision has to be allowed. Amounts in excess of what is payable as per the agreements, can be disallowed. 18. In the result, we set aside the orders of authorities below on this aspect and remit the issue back to the file of A.O. for consideration afresh, in accordance with law. 21. In view of the above, we set aside the order passed by the ld. CIT(Appeals) and remit the matter back to the Assessing Officer for fresh consideration in accordance with law after allowing sufficient opportunity of being heard to the assessee. 22. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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