TMI Blog2012 (5) TMI 728X X X X Extracts X X X X X X X X Extracts X X X X ..... nds of Appeal have been raised in the appeal preferred against the Order dt. 24-03-2008 of CIT(A), Mumbai: Ground No.1 On the facts and circumstances of the case and in law, the Commissioner of Income Tax (Appeals)-XXX ( the CIT(A) ) erred in upholding the action of the Assistant commissioner of Income Tax, Circle 2(3), Mumbai ( the A.O ), in treating interest and other operating expenses aggregating to ₹ 18,09,53,825/- as having been incurred for earning income exempt u/s. 10(15) and 10(33) of the Income Tax Act, 1961 ( the Act ) He thereby erred in disallowing expenditure by an amount (i.e., ₹ 18,09,53,825) which is higher than the amount claimed as exempt by the appellant (i.e., ₹ 14,85,56,061). Ground No.2 On the facts and circumstances of the case and in law, the CIT (Appeals) erred in upholding the action of the A.O in disallowing a sum of ₹ 5,88,30,184/- being the provision for non-performing assets while computing income under MAT thereby invoking clause (c) of Explanation to Section 115JA(2) . Ground No.3 On the facts and circumstances of the case and in law, the CIT (Appeals) erred in upholding the action of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Free Income earned by them and only net income be allowed as deduction. After considering the submissions of the assessee, AO applied provisions of Sec. 14(A) and he finally concluded as under: It is noticed that the tax free income component arose out of certain investments in shares, securities and bonds. The total investment made as on 31-03-1999 was approx. ₹ 10,43,40,82,000/-. It is obvious that the business activity of making such investments would have incurred expenditure on salary, telecommunications and other establishment expenditure. Therefore, a part of the expenses would be allocated for this purpose. The total operating expenses are ₹ 56,48,13,000/- out of which 2% works out to ₹ 1,12,96,260/- which is being allocated towards earning of the tax free income and would be therefore disallowed as business expenditure. Therefore, the total expenses of interest and operating expenses amount to ₹ 18,09,53,825/- (Rs. 16,96,57,565/- + ₹ 1,12,96,260/-) is disallowed. Since the disallowance against tax free interest and dividend is more than tax free income the deduction under Section 10(15)(iv)(h) for tax free interest and u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reating 2% as expenses relatable to earning the exempt income on the ground that the tax free income arose out of certain investments and the total investment made as on 31-03-1999 was approximately 1,43,40,82,000/-. On this issue of disallowance, the appellant has not made any submissions except its denial of having made investments without incurring any expenditure of above nature. As the appellant has failed to substantiate its denial with any corroborative evidences and prima facie, the huge investment made for earning exempt income, establishment expenditures having incurred cannot be ruled out. Therefore, the disallowance made by the assessing officer on this account also is upheld . 4. Before us, Authorised Representative (AR) submitted that no part of interest was disallowable, that in the year under consideration, Rule 8D was not applicable, that disallowance made/confirmed by the AO/CIT(A) were not as per the provisions of law, that both the authorities did not consider the data relevant for the issue. He relied upon the cases of Reliance Utilities and Power Ltd., (313 ITR 340), HDFC Bank Ltd.,, (ITA No. 4529/M/2005) Reliance Capital Ltd., (ITA No. 3303/M/2003) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose behind the introduction of section 115JA of the Income-tax Act, 1961, was to tax zero tax companies . A number of companies with huge profits were avoiding payment of tax by adjusting their profits against various allowances which are permitted under the Income-tax Act. To circumvent this strategy, section 115JA was inserted. The simple method adopted by section 115JA is to find out whether the total income of a company after all the deductions and allowances was less than 30 per cent. of its book profit. In such a situation, the total income chargeable to tax is deemed to be 30 per cent. of such book profit. Secondly, the use of the words in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act in section 115JA of the Act, is made for a limited purpose of empowering the AO to rely upon the authentic statement of accounts of the company. While so looking into the accounts of the company, he has to accept the authenticity of the accounts with reference to the provisions of the Companies Act which obligates the company to maintain its accounts in a manner provided by that Act and the accounts to be scrutinised and certified by the statutory a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Section 115 JB do not apply to the assessee company, the reasons recorded for re-opening the assessment are clearly wrong and insufficient. We are urged to quash the reassessment proceedings on this short ground. Learned Departmental Representative, on the other hand, vehemently relies upon the orders of the authorities below and submits that there is no specific exclusion clause for the banking companies, and in the absence of such a clause, it is not open to us to infer the same. The submissions of the learned counsel, according to the departmental representative, are clearly contrary to the legislative intent and plain wordings of the statute. The plea of the assessee is indeed well taken, and it meets out approval. The provisions of Section 115 JB can only come into play when the assessee is required to prepare its profit and loss account in accordance with the provisions of Part II and III of Schedule VI to the Companies Act. The starting point of computation of minimum alternate tax under section 115 JB is the result shown by such a profit and loss account. In the case of banking companies, however, the provisions of Schedule VI are not applicable in view of exe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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