TMI Blog2017 (12) TMI 1121X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of electricity meters - nature of expenditure - revenue or capital expenditure - Held that:- After hearing the rival submissions we noted that this Tribunal in the case of the assessee for A.Y. 2010-11 confirmed the order of the CIT(A) deleting the said disallowance as the said issue has been decided in favour of the assessee by the decision of the Hon'ble High Court in assessment years 2001-02, 2002-03, 2003-04, 2006-07, 2007-08 and 2008-09. Provisions of Section 115JB applicability to the assessee company as the Accounts of the assessee are prepared according to provisions of Electricity Supply Act - Held that:- The assessee is following the accounting policies under the Electricity Supply act and prepared its accounts in view of those very policies. Following those very policies, the accounts in accordance with part II & III of Schedule VI of the Companies Act are not applicable at all. Once there is no possibility for preparing the accounts in accordance with the part II & 11 of Schedule VI of Companies Act then the provisions of sec. 115JB cannot be forced. - ITA No.4345/Mum/2015 And ITA No.3407/Mum/2015 - - - Dated:- 20-12-2017 - Shri P K Bansal, Vice President And ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourse assessment proceedings the assessee submitted revised computation of disallowance under Section 14A at ₹ 86,27,620/-. Further, by way of another submission he reduced the disallowance under Section 14A to ₹ 50,20,000/- relying on the decision of in the case of it vs. Reliance Utilities and Power Ltd. (313 ITR 340) but the AO disallowed the sum of ₹ 39,12,93,402/- on the basis of the return filed by the assessee. The assessee went in appeal before the CIT(A). Before the CIT(A) assessee submitted that during the year the assessee received following exempt income: - Sr. No. Particulars Amount (Rs. ) Exempt u/s. 1 Interest on 6.85%iifcl tax free bonds 6,85,00,000 10 2 Dividend on shars 39,60,000 10(34) 3 Dividend on Mutual Fund units 105,45,85,293 10(35) Total 112,70,45,293 5. The assessee has w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Ltd. 313 ITR 340. 6.4(i) Now the issue has to be considered here is where appellant himself suo motto had disallowed but ''later based on the decision of the jurisdictional High Court i.e. CIT vs. Reliance Utilities and Power Ltd. 313 ITR 340 the appellant had modified the disallowance whether this is to be considered. This issue had come into consideration of Bombay High Court in the case of CIT vs. Pruthvi Brokers and Shareholders 349 ITR 336 wherein it is held that if the claim of the appellant during appellate proceeding is legal in nature then this claim has to be considered if no verification is required on these facts. In this case no further verification is required in the facts of the case, hence, this claim of the appellant is considered. 6.4(ii) Regarding disallowance u.s.14A, this issue had come into consideration of CIT(A) 2010-11 wherein in para 10.3 it is held as under: 10.3 I have considered the facts and circumstances of the case. The A.O. had disallowed ₹ 37,34,41,170/- U/S.14A. This disallowance is for the expenditure related to interest and administrative expenditure. However, when we examine appellant's own funds, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). In conclusion the A.O. is directed that no interest disallowance is to be made in this case as appellant's reserves and surplus are more than appellant's total investment. However, disallowance of 0.5% of average investment can be made for administrative expenses. In this disallowance also no disallowance can be made on the investments for the subsidiary companies. Hence, this ground of appeal is party allowed. Following the above decision of CIT(A) in earlier year, in this case share capital of the appellant is ₹ 267.47 crores, reserves surplus is ₹ 17,400 crores. Here the investment of ₹ 12,584 crores is less than the capital and the reserves, then no interest can be disallowed in view of Bombay High Court decisions in the case of CIT vs. Reliance Utilities and Power Ltd. 313 ITR 340 and CIT vs.HDFC Ltd. 330 ITR 212. However, the A.O. is directed to compute 0.5% of average investment but while computing 0.5% of average investment the investment in subsidiary company is to be excluded. 6.4(iii) Further appellant had filed additional ground in which appellant contention is that even investment on which there is no tax free income is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0% as mandated by the Rule 8D of the IT Rules without appreciating the fact that the assessee has earned exempt income from the investment in subsidiary companies. 8. The assessee has also came in appeal before the Tribunal by taking the following ground of appeal: - 2. The learned CIT(A) erred in considering all investments (excluding investment in subsidiaries) capable of earning tax free income whether they have yielded tax free income or not for computation of disallowance u/s. 14A r.w. R.8D. Your appellant submits that only those investments (excluding investment in subsidiaries) which had actually yielded tax free income during the year ought to have been considered while working out disallowance u/s 14A r.w. R. 8D. 9. The Tribunal disposed off the grounds of appeal taken by the Revenue by observing in ITA No. 1422/Mum/2014 vide order dated 02.06.2017 as under: - 2.1 We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the assessee had worked out the disallowance u/s 14A of the Act at ₹ 37,34,41,170/- in its revised return of income. The disallowance u/s14A was reduced to ₹ 37,34,41,17 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce in the argument of Ld Counsel and in the given facts of the case we are of the view that the CIT(A) has rightly deleted the addition and we confirm the order of CIT(A) . This issue of revenue s appeal is dismissed. 10. During the impugned assessment year, we noted, the Revenue has come in appeal before us taking similar grounds being ground Nos. 3 3.1 as has been taken against the order of the CIT(A) during A.Y. 2010-11. During the assessment year the Tribunal has given a finding that the assessee has much more interest free funds as compared to the investment made by the assessee. For the impugned assessment year the CIT(A) has given a clear finding that the share capital and reserve surplus of the assessee are much more than the investment made by the assessee and the CIT(A) has deleted the disallowance following the decisions of the Hon'ble Bombay High Court in the case of CIT vs. Reliance Utilities and Power Ltd. 313 ITR 340 and CIT vs. HDFC Ltd. 330 ITR 212. We, therefore, respectfully following the decision of this Tribunal in assessee s own case in ITA Nos. 1422 1480/Mum/2015 for A.Y. 2010-11 dismiss the ground Nos. 3 and 3.1 taken by Revenue. 11. Now c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed expenditure amounting to ₹ 17,79,20,026/- incurred by the assessee on replacement of electricity meters not debited in its Profit Loss Account. By holding that the same to be capital expenditure and AO allowed depreciation to the assessee amounting to ₹ 2,00,16,003/-. The CIT(A) relying on the order of the ITAT for assessment years 2008-09 and 2010-11 deleted the disallowance. After hearing the rival submissions we noted that this Tribunal in the case of the assessee for A.Y. 2010-11 confirmed the order of the CIT(A) deleting the said disallowance as the said issue has been decided in favour of the assessee by the decision of the Hon'ble High Court in assessment years 2001-02, 2002-03, 2003-04, 2006-07, 2007-08 and 2008-09 by holding as under: - 4. At the outset, the learned Counsel for the assessee stated that this issue is covered by High Court judgement in assessee s own case for AYs 2001-02, 2002-03, 2003-04, 2006-07, 2007-08 and 2008-09. He particularly referred to Bombay High Court order in Income Tax Appeal No. 277 of 2009 dated 01-07-2013 wherein Hon ble High Court held as under: - ( ii) In any view of the matter, the expenditure incurr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntly this issue has been held in favour of assessee and hence respectfully following the Hon ble High Court, we confirm the order of CIT(A) and this issue of Revenue s appeal is dismissed. Respectfully following the order of this Tribunal in assessee s own case for A.Y. 2010-11 we affirm the order of the CIT(A) and dismiss ground No. 1 taken by the Revenue. 14. Ground No. 2 taken by the Revenue reads as under: - 2. On the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in deleting the proportionate apportionment of Head Office Expenses and allocation of ₹ 8,60,62,142/- to Goa Unit, ₹ 11,08,59,778/- to Samalkot Unit and ₹ 28,01,080/- to Windmill Unit Respectively of the assessee company, while computing the profits of eligible business for deduction u/s 80IA,by the AO. 15. The brief facts of this ground are that the AO apportioned head office expenses for Goa Unit ₹ 8,60,62,142/-, Samalkot Unit ₹ 11,08,59,778/- and to Windmill Unit ₹ 28,01,080/- and reduced the amount of eligible profit for allowing deduction to the assessee under Section 80IA. The CIT(A) allowed the claim of the assessee by followi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is deleted. This ground of appeal is allowed. Following the above decision of CIT(A), the allocation of head office expenses by A.O. is disallowed. This ground of appeal is allowed. 16. We noted that similar issue has arisen in A.Y. 2010-11 in ITA No. 1422/Mum/2015 in which the Tribunal confirmed the order of the CIT(A) by observing as under: - 8. Now before us, the learned Counsel for the assessee stated that this issue is covered in favour of assessee by assessee s own case of Hon ble High Court decision for AYs 2006-07 and 2007-08 and he particularly referred to Income Tax Appeal No. 2180 of 2011 order dated 17-04-2014, wherein, this issue is dealt with at Para 5 which reads as under: - 5. Insofar as the question (c) in relation to Head Office Expenses is concerned, the findings of fact by the ITAT for the prior Assessment Years have been referred to and if at all any reference is needed, paragraphs 17 and 18 of the ITAT's order are complete answers. Therefore, the factual findings do not raise any substantial question of law in relation to this claim as well. . 9. Respectfully, following the Hon ble High Court, we confirm the order of CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Companies Act were not applicable at all. There was no possibility for preparing the accounts in accordance with the part II and part II of schedule-of the Companies Act as the provisions of section 115JB could not be forced. The ITAT in appellants own case in earlier years held that the provisions of section 115 JB were not applicable, in appellant's case. Following the orders of ITAT in appellants own case in the earlier years, it is held that the provisions of section 115 JB were not applicable in the case of the appellant. This ground of .appeal is therefore allowed. Following the above order appellant's compiling accounts under Regulatory Act instead of Companies Act as required for the computation u/s 115JB. Following the above order Sec. 115JB is not applicable in the appellant's case. The computation of book profit of appellant is deleted. This ground of appeal is allowed. As appellant is not following Companies. Act for office accounting purpose, it is following Electricity Supply Act, hence boom profit u/s. 115JB is not applicable. This ground of appeal is allotted. 19. As agreed by both the parties, similar issue has arisen during A.Y. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions are inconsistent with the provisions of Electricity Supply Act, 1948. Thus the provisions 'of Electricity Supply Act which are different from the provisions of the Companies Act prevail. As submitted that section 115 JB introduced with effect from 1.4.2001 i.e. AY 2001-02 has incorporated provisions relating to compensation of book profit which are different from the provisions relating to the same in section 115J or 115JA. Section 115J requires every company to prepare its Profit and Loss Account in accordance with the provisions of Part II and III of Schedule VI of the Companies Act, 1956. Book profit is, defined to mean the net profit as shown in the Profit and Loss Account prepared in accordance with the provisions of Part II and III of Schedule VI of the Companies Act, 1956. Section 115JA also requires every company to prepare its Profit and Loss Account in accordance with the provisions of Part II and III of Schedule VI of the Companies Act, 1956. However a proviso is added to specify that while preparing the Profit and Loss Account the depreciation should be calculated on the same method and rates which have been adopted for calculating the deprecia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid before the shareholders in the Annual General Meeting. As stated earlier, Electricity company is exempted by the Companies Act to follow the provisions of the Companies Act as regards matters which are inconsistent with the provisions of the Electricity Supply Act. Electricity Supply Act has the following provisions, which are different from the Companies Act. Under the Electricity Supply Act, depreciation on addition to fixed assets can be provided only from the subsequent year of addition and not in the year of addition whereas under the Companies Act, the depreciation is to be provided in the year of addition and even in the part of the year. Rate of depreciation, under Electricity Supply Act is lower than the rate of depreciation under the Companies Act. Electricity Supply Act permits only straight line method of depreciation whereas Companies Act permits both Straight Line Method and Written Down Value Method. Under the Electricity Supply Act, depreciation is restricted to 90% of the cost of the assets whereas under the Companies Act entire asset value is allowed to be written off. When an electricity Company has incurred losses and unab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordance with the provisions of Schedule Vi of the Companies Act) the accounting policies to be followed in preparation of such Profit and Loss Account will not be same as followed in the Profit and Loss Account presented before the shareholders in the Annual General Meeting. Thus there is a breakdown of the provisions of section 1 15J.B in as much as the Profit and Loss Account cannot be prepared in accordance with the provisions of the Companies Act following the same accounting policies as followed in the Electricity Accounts presented before the shareholders. Further, reliance was placed on the decision of the Supreme Court in the case .Liquidator, Palai Central Bank ltd. in 150 ITR 539. It was further submitted in their own case for AY 1988- 89, the Tribunal has held that the provisions of sec. 115J are not applicable. 24. After taking into consideration the order of the Assessing Officer, ld CIT(A) and the submissions of the id DR and the Id counsel of the assessee, we find that the assessee deserves to succeed on this issue. 24.1 We noted that the assessee s main contention is that the company has prepared its account in accordance with the provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd of such excess not exceeding 5% of the amount of Reasonable Return only is at the disposal of the company. Out of the balance excess, 50% is to be apportioned to Tariff and Dividend Control Reserve and balance 50% is to be distributed in form of proportional rebate on the amounts collected from the sale of electricity and meter rentals and to be carried forward in the account of company for the distribution to the consumers. Tariff and Dividend Control Reserve 'is available to the company when the clear 'profits as computed under the Electricity Supply Act is less than the Reasonable Return in any subsequent year. There is no similar provision in the Companies Act. viii) Under the Electricity Supply Act, the company has to create various reserves out of the retained earning contingency reserves which can be utilised on the happening of certain events and the company has to vest the said reserves in Trust securities. There is similar provision in the Companies Act. Section 115JB requires every assessee being a company to prepare its profit and loss account in accordance with the provisions of Parts II III of Schedule VI to the Companies Act. While preparing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will be below what is required under the Companies Act and therefore the accounts so prepared under the Companies Act will not be in accordance with Parts II III of Schedule VI. 24.5 The assessee also referred to the requirement of Electricity Supply Act as regards the real profits and Reasonable Return, in the accounts under the Electricity Supply Act, the excess of profits is required to be transferred to Tariff and Dividend Control Reserve and also to be distributed to the consumers. This treatment is not in consonance with the accounting policy which is permitted under the Companies Act as the company is required to disclose the entire profit earned irrespective of the, same being more or less than Reasonable Return, Part IT of Schedule VI requires the profit and loss account shall be so made out as clearly to accounting policy of transferring the excess profits to be under the Electricity Supply Act cannot be followed under the Companies Act and if followed the accounts will not be in accordance Parts II III of Schedule VI. 24.6 It was, therefore, submitted that an electricity company can not prepare the accounts under Part II III of Schedule VI of the Compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contained in the Act for computing the capital of the company and its reserves cannot have any application, the standard deduction is incapable of ascertainment, and the charge of Super Profits Tax under section 4 of the Act is not attracted. In this case the definition of Standard Deduction was to mean six percent of the capital or ₹ 50,000 whichever is higher Out of two limbs of the calculation, one limb being capital was not capable of ascertainment. Supreme Court held that when one limb is not capable of ascertainment the whole provision fails, in other words there is breakdown of the whole provision and the provision cannot he applied. 25.1. While deciding so, the Hon'ble Supreme Court has taken into consideration its own decision in the case of CIT vs B C Srinivasa Setty in 128 JTR 294 wherein Supreme Court had pointed out that under the scheme of the Income Tax Act charge of tax will not get attracted unless the case or transaction falls under the governance of the relevant computation provisions. The Supreme Court in B.C. Srinivasa Setty's case as observed as under:- The character of the computation provisions in each case bears a relation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d impossibilia . Law cannot compel you to do the impossible. Again this ratio has been considered in the case of Shri Hitewsh S Mehtam in ITA No. 2469/Mum/2002 vide order dated 7.5.2004. In the case of Growmore Leasing Investments Ltd, the Tribunal has again taken into consideration the ratio of the decision of the Tribunal in case of Divine Holdings Pvt ltd (supra) and has held that the assessee cannot force to do something, which is not possible for it. In view of the' above facts and circumstances, it can be easily held that a person cannot be forced to do something impossible. The law does not compel a man to do that which he cannot possible perform. The law creates a duty or charge, and the party is disable to perform it, without any default in him, and has no remedy over, there the law will in general excuse him arid though impossibility of performance is in general no excuse for not performing an obligation which a party has expressly undertaken by contract yet when the obligations one implied by law, impossibility of performance is a good excuse. Thus in a case in which consignees of a cargo were prevented from unloading a ship promptly by reason of a dock strike, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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