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2016 (10) TMI 709 - ITAT KOLKATA

2016 (10) TMI 709 - ITAT KOLKATA - TMI - Disallowance on account of expenditure u/s. 14A - Held that:- Own funds of the assessee are sufficiently in excess of both the borrowings and investments, borrowings are proved to be for a specific purpose and there is no possibility of investing them for generating the exempted income, investments that are generating the exempted income were made prior to the relevant previous years, and above all the legal requirement of the AO recording the reasons for .....

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ons of Electricity Act, 2003. Under West Bengal Electricity Regulatory Commission (Terms and Conditions of Traffic) Regulations, 2007 issued pursuant to Electricity Act, 2003, Assessee is under an obligation to prepare its accounts as per the said regulations and not under Part II and III of Schedule VI of the Companies for computing Book Profit. As a matter of fact, a coordinate Bench of this Tribunal in the assessee’s own case for the AY 2007-08 [2016 (8) TMI 855 - ITAT KOLKATA] considered thi .....

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IT reported in (2010 (11) TMI 127 - Kerala High Court) and Maharashtra State Electricity Board Vs. JCIT reported in (2001 (8) TMI 310 - ITAT MUMBAI ) decided that the provisions of section 115JB of the Act are not applicable to the assessee company. - Decided in favour of assessee - I.T.A. No.1656/Kol/2013, I.T.A No. 891/Kol/2013 - Dated:- 10-8-2016 - Shri M. Balaganesh, AM And Shri K. Narasimha Chary, JM For the Appellant : Shri Sumen Adak, FCA For the Respondent : Shri Sallong Yaden, Addl. CIT .....

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. Since the appellant is one and the same in both the appeals, and also the questions of fact and law facts giving rise to these two appeals are same, we feel it convenient to dispose of these appeals by way of this common order. I.T.A. No.1656/Kol/2013 2. Brief facts of the case are that, the assessee is a Public Limited company engaged in the business of generation of power and energy. In respect of the AY 2008-09, the assessee company filed the return of income on 30.9.2008 declaring income o .....

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22,67,189/- under section 115 JB of the Act. 3. Against the said order of AO the assessee preferred appeal before the CIT(A), who by way of impugned order dated 21.02.2013 sustained to some extent the additions made by AO, inter alia, disallowing the expenditure u/s. 14A read with rule 8D of the I. T. Rules the claim for ₹ 12,53,776/-, and calculation of the tax liability of the assessee under section 115JB of the Act, adding ₹ 13,63,105/- debited by the assessee as diminution in val .....

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referred to as Ld. CIT (Appeals)] was not justified and grossly erred in confirming the disallowance u/ s 14A of the Act r.w. Rule 8D of Income Tax Rules, 1962 at Rs. ₹ 9,70,627/- in spite of the fact that no such expenditure was incurred for earning the exempt income. 1.1 That on the facts and in the circumstances of the case, and without prejudice to Ground 1.0 taken here-in-above, Ld. CIT (Appeals) was not justified and grossly erred in considering entire interest debited to Profit & .....

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s) was not justified and grossly erred in confirming the disallowance of an amount of ₹ 4,234/ - claimed as advances written off in computing total income under normal provisions of the Act. 4.0 That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified & erred in confirming that provisions of Sec. 115JB of the Act are applicable on the appellant without considering the fact that, the appellant, being a electricity generating company, is exempt from .....

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that the amount debited to the Profit & Loss A/ c represents actual write off in the value of investments. 6.0 That on the facts and in the circumstances of the case, and without prejudice to Ground 3.0 above, the Ld. CIT(Appeals) was not justified and grossly erred in confirming the addition of provision for payment on retirement of workers amounting to ₹ 9,66,000/- in computing Book profit u/s 115JB, without appreciating the fact that the provision was created on the basis of actuari .....

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filed before it, without considering that fact that, the additional grounds were merely questions of law on the facts available on record and essential in order to correctly assess the tax liability of an appellant. I.T.A No. 891/Kol/2013 5. For the AY 2009-10, the assessee company filed its return of income on 29.9.2009 declaring income of ₹ 23,98,647/- under section 115 JB of the Act. Subsequently they revised the same twice on 19.10.2010 and 31.03.2011 showing the NIL income under norma .....

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he CIT(A), who by way of impugned order dated 28.03.2013 sustained to some extent the order of AO, inter alia, disallowing u/s. 14A of the Act read with rule 8D of the I. T. Rules the claim for ₹ 15,18,912/- deduction towards expenditure, calculation of the tax liability of the assessee under section 115JB of the Act, adding ₹ 39,19,000/- claim of the assessee of leave encashment, ₹ 15,18,912/- disallowing expenditure and also levied interest under section 234-B on the addition .....

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exempt income. 1.1 That on the facts and in the circumstances of the case, and without prejudice to Ground 1.0 taken here-in-above, Ld. CIT (Appeals) was not justified and grossly erred in considering entire interest debited to Profit & Loss account while computing disallowance u/s 14A r.w. Rule 8D, without considering the fact that the borrowings were made for specific purposes. 1.2 That on the facts and in the circumstances of the case, and without prejudice to Ground 1.0 & 1.1 taken h .....

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allowance u/s 14A r.w. Rule 8D, more than the average of the carry in investment as appearing in the balance sheet of the appellant. 2.0 That on the facts and circumstances of the case, the Ld. CIT(Appeals) was not justified & erred in confirming the disallowance of leave encashment claimed on provision basis in computing total income under normal provisions of the Act. 3.0 That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified & erred in confirmin .....

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ssly erred in confirming the addition of expenditure incurred in relation to earning exempt income in computing Book Profits u/s 115JB without appreciating the fact that no such expenditure was debited in the Profit & Loss A/c in the relevant assessment year. 5.0 That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified rather grossly erred in confirming imposition of interest of u/s 234B. 8. At the time of hearing Ld. Counsel for the assessee did not pre .....

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Act. It is the argument of learned AR that the authorities below are not justified in disallowing under section 14A of the Act r/w 8D of the Rules the expenditure claimed by the assessee as deduction holding it as expenditure incurred for earning exempt income, that the authorities below ignored the fact that the provisions under section 115JB are not at all applicable to the assessee company since it is a Power generating company bound by the West Bengal Electricity Regulatory Commission (Term .....

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n the order of assessment as well as that of the first appellate authority. 10. It is, therefore, evident that the entire dispute in both the appeals revolves around the disallowance of expenditure u/s 14A r/w Rule 8D, applicability of 115JB of the Act to the Assessee Company and adding certain amounts like diminution in value of investment, provision for payment to the retired workers, Leave encashment provision and deduction claimed u/s. 14A r/w R 8D basing on section 115JB of the Act and levy .....

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see company income in respect of the AY 2008-09 and 2009-10? 4. Are the authorities below justified in disallowing the claim of Leave encashment to a tune of ₹ 39,19,000/- in respect of AY 2009-10? 5. Are the authorities below justified in adding ₹ 13,63,105/- debited by the assessee as diminution in value of investments in the P&L Account with corresponding reduction in investments in the balance sheet, while computing book profit u/s 115JB of the Act in respect of AY 2008-09? 6 .....

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e relates to ground nos. 1.0 to 1.3 in ITA No. 891/Kol/2013 and ground nos. 1.0 and 1.1 in ITA No.1656/Kol/2013. 12. Argument of the learned AR on merits is three fold on this issue. Firstly, he submitted that the borrowings were made for a specific purpose of earning taxable income, as such, it cannot be said that the amount borrowed could have been invested to earn exempt income for applying Rule 8D of the Rules. To substantiate his submission, learned AR placed before us the documents relatin .....

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se can be disallowed under section 14A of the Act. 13. Secondly, he submitted that sufficient own funds to the tune of ₹ 84.04 Cr as on 31.3.2007 ₹ 84.3 Cr as on 31.3.2008 and Cr. 91.37 as on 31.3.2009 were available with assessee whereas the investments generating the exempt income corresponding to such period are ₹ 19.5 Cr, ₹ 1.80 Cr. and R. 1.78 Cr respectively. Basing on this, he argued that when the own funds of the assessee are in excess of the investments made in t .....

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TJ 73, Hindustan Paper Corporation Ltd vs. DCIT (2012) ITA No. 47/Kol/2012. He also placed reliance on a decision reported in MAXOPP INVESTMENT LTD. & ORS. vs. CIT (2012) 247 CTR 0162 (Del) for the principle that even prior to the introduction of sub-ss. (2) and (3), Section 14A would require the AO to first reject the claim of the assessee with regard to the extent of such expenditure, such rejection must be for disclosed cogent reasons and it is only then that the question of determination .....

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f 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 ½% 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) 16. We have carefully gone through the submissions of both the side, perused the materia .....

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ter dated 30-9-2008 issued by IDBI, letter dated 2.3.2005 issued by oriental Bank, letter dated 27.9.2007 issued by Yes Bank clearly show that the loans were advanced or overdraft facility was extended for the purpose of meeting working capital of the assessee. All these documents support the contention of the Assessee that the borrowings were made with a specific purpose and not utilized to be invested to generate exempt income. 17. We have also gone through the Balance sheets of the Assessee C .....

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pectively. In this factual scenario, we find that the decision reported in CIT vs. HDFC Bank Ltd. (2014) 366 ITR 0505 (Bom) applies on all fours. In that decision it was held that when assessee's capital, profit reserves, surplus and current account deposits were higher than the investment in tax-free securities, it would have to be presumed that investment made by the Assessee would be out of the interest-free funds available with Assessee, and the additions made by the AO under Section 14A .....

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asons for resorting to Section 14A r/w 8D in this matter are conspicuously absent. Viewing from any angle, we are convinced that there is no justification for the authorities below to sustain the disallowance made u/s. 14A of the Act in AYs 2008-09 and 2009-10. 19. For these reasons, while answering this issue in the negative, we hold that the authorities below are not justified in disallowing the claim of the assessee for deduction of expenditure of an amount of ₹ 14,08,874/- in respect o .....

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und nos. 1.0 and 1.1 in ITA No.1656/Kol/2013 are allowed in favour of assessee. Issue No 2 and 3. 21. Issue no. 2 relates to the additional ground in ITA No.1656/K/2013. Issue no. 3 relates to ground no. 3 in ITA No.891/K/2013 and ground no. 4 in ITA No.1656/K/2013. 22. It is the submission of the learned AR that the assessee submitted before the learned CIT(A) that the provisions of Sec 115 JB of the Act have no application to the Assessee Company since being a Power Generating Company they are .....

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le of law vide decisions in National Thermal Power Co. Ltd. Vs. CIT (1998) 229 ITR 383 SC and Jute Corporation Of India Ltd vs. CIT [1991] 187 ITR 688 (SC) that when a new ground which does not require any further investigation of facts and purely legal in nature, is raised it may be admitted. Rejection of the grounds based on law is not in compliance with the principle laid down in Jute Corporation of India Ltd vs. CIT [1991] 187 ITR 688 (SC). The Ld. CIT(A) should have entertained the grounds .....

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is under an obligation to prepare its accounts as per the said regulations and not under Part II and III of Schedule VI of the Companies for computing Book Profit. In view of the statutory stipulation to maintain its accounts as per the West Bengal Electricity Regulatory Commission (Terms and Conditions of Traffic) Regulations, 2007 issued pursuant to Electricity Act, 2003 and not under Part II and III of Schedule VI of the Companies, the assessee pleads that the provisions of section 115JB of .....

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emorandum explaining the provisions in the Finance Bill, 1996, under the caption Rationalisation and Simplification , hyden rules, decisions of various High Courts and Tribunal viz. Kerala State Electricity Board Vs. DCIT reported in (2010) 329 ITR 91 (Ker), Maharashtra State Electricity Board Vs. JCIT reported in (2002) 82 ITD 422 (Mum trib.), State Bank of Hyderabad Vs. DCIT reported in (2013) 33 taxmann.com 312 (Hyd. Trib.) vide order dated 7.9.2012, ICICI Lombard General Insurance Co. Ltd. V .....

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additional ground in ITA No.1656/K/2013 and ground no. 3 in ITA No.891/K/2013 and ground no. 4 in ITA No.1656/K/2013 are allowed in favour of assessee. Issue No 4: 25. This issue relates to ground no.2 in ITA No.891/K/2013. 26. The assessee claimed deduction towards provision for leave encashment in the return of income to the tune of ₹ 39,19,000/- which was disallowed by the Learned AO by invoking the provisions of section 43B(f) of the Act. 27. We have heard the both the sides. From the .....

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