TMI Blog2017 (6) TMI 1181X X X X Extracts X X X X X X X X Extracts X X X X ..... onetary items or on reporting an enterprise's monetary items at rates different from those at which they were initially recorded during the period, or reported in previous financial statements, should be recognized as income or expenses in the period in which they arise. The loss suffered by the company on account of exchange rate variation as on the date of balance sheet is an ascertained liability valued as per the foreign exchange rate prevailing on the date of balance sheet. Thus it is an ascertained liability allowable u/s. 37(1) of the Act. We find that this issue of the assessee is covered by the decision of Hon’ble Supreme Court in the case of Woodward Governor India Pvt. Ltd.[2007 (4) TMI 118 - DELHI HIGH COURT]. Accordingly, we are of the view that the mark to market loss i.e unrealized loss of ₹ 66,23,70,735/- is allowable. We also finf from the facts of the case that from the chart given above, it can be seen that there was realized loss on of ₹ 6,72,27,910/- which includes in the figure of ₹ 66,23, 70,735/- and thus the unrealized loss was only ₹ 59,51,42,825/-. We direct the AO accordingly. Non applicability of provision of provision u/s 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . CIT (A)-21/IT/161/2013-14 dated 04-12-2014. Assessment was framed by the ACIT-10(1), Mumbai vide his order dated 30-03-2013 for A.Y. 2010-11 u/s 143(3) of the Income Tax Act, 1961 (hereinafter the Act ). First Revenue s appeal in ITA No. 1422/Mum/2015 for the AY 2010-11 2. The first issue in this appeal of Revenue is against the order of CIT(A) deleting the disallowance made by AO on account of replacement of electricity meters. For this Revenue has raised following ground No.1: - 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the claim of ₹ 43,29,42,626/-in account of replacement of electricity meters, even though the impugned expenditure is inherently capital in character as the installation and replacement of electricity meters given to the end customers is capital expenditure and the meter deposits received against the same is shown as capital advance by the assessee. 3. Brief facts are that the AO disallowed the expenditure of ₹ 43,29,42,626/- incurred by assessee on replacement of meters by holding the same to be capital expenditure. The AO allowed the depreciation at ₹ 4,87,06,045/-. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital expenditure by the Assessing Officer. This was on the ground that this electricity meters were installed at the premises of the customers after taking deposit from the consumers and it led to an enduring benefit to it. In appeal, the CITA(A) has allowed the appeal of the respondentassessee holding that expenses incurred on replacement of electricity meters is of revenue nature while following the orders of his predecessors for the earlier Assessment Year. On further appeal by the revenue, the Tribunal held that these electricity meters have to be replaced periodically on account of obsolescence, meters burning out or becoming faulty etc. and these expenses are necessarily required to be incurred for the purposes of carrying out business operations. The expenditure is incurred for the purposes of enabling the RespondentAssessee to carry out its business more efficiently and more profitably. The replacement of meters does not increase the generation and/or distribution capacity of electricity. Moreover, as held by the Supreme Court in the matter of Empire Jute Co. Ltd. v/s. CIT (124 ITR 1), the test of enduring benefit is not a conclusive test to be applied mechanically witho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving in Para 5.2 as under: - 5.2 1 have considered the facts and circumstances of the case. This issue had come into consideration of Hon'ble ITAT in A.Y.2008-09 and CIT(A) in A.Y. 2009-10 held as under: Hon'ble ITAT in A.Y.2008-09: 11. This issue has been discussed by the Tribunal in its order cited supra from paras 14 to 18, wherein the Tribunal has decided the issue in favour of the assessee for the reasons stated therein. Since the issue before us is identical to the issue decided by the Tribunal in assessee's own case cited supra, consequently, the ground raised by the revenue is treated as dismissed. CIT(A)'s order in A.Y.2009-10 4.1. 1 have carefully considered the facts of the case. This issue was also there in appellant's own case in the earlier assessment years. In A. Y. 2007-08, my predecessor CIT(A)- I Mumbai vide order dated 27-01-2010, by following the C1T'(A) appeal order of A. Y. 2006-07, directed the AO, not to allocate the head office expenses against the Goa unit, Samalkot unit and Windmill unit and grant deduction u/s 80 IA for those units on the profits without allocating the head office expenses. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts were squarely covered by TDS provisions. 11. Briefly stated facts are that the AO disallowed the expenditure incurred by the assessee on transmission and wheeling charges amounting to ₹ 124,89,16,667/- for non-deduction of TDS. The CIT(A) allowed the claim of the assessee by following Tribunals order in assessee s own case for AYs 2007-08 to 2009-10 vide Para 6.2 as under: - 6.2 I have considered the facts and circumstances of the case. This issue had come into consideration of Hon'ble ITAT in A.Yrs. 2007-08 to 2000-10 vide ITAT Nos.2814 to 2819/M/2013 in para 6 held as under: We have considered the rival submissions of the Id. Representatives of the parties. A perusal of the above reproduced observations made by the Id. C!77A) while accepting the appeal of the assessee reveals that the id. CIT(A) has followed the various decisions of the co-ordinate benches of the Tribunal to hold that the assessee was not liable to deduct TDS either under section 194-1 or section 194-I on the 'Wheeling and Transmission Charges' paid by the assessee in case of which provisions of Electricity Act, 2003 were applicable. The Id. DR could not produce a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er: - EPC Revenue Capital Loss/Gain Realised Unrealized Realised unrealised Revaluatio n of Forex Creditors (379,843,093) (379,843,093) Revaluatio n of Forex Debtors 5,92,298,360 592,298,360 Revaluatio n of Forex Bank Balances 122,275,175 122,275,175 Revaluatio n of Forex LoansBuyers Credit 4,364,782 4,364,782 Total 339,095,224 339,095,224 General Revenue Capital Loss/Gain Realised Unrealized Realised unrealised Revaluatio n of ICD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion exchange loss incurred by the appellant for ₹ 24,31,73,110/- is not allowable. However, revenue loss incurred by the appellant for foreign exchange fluctuation of ₹ 66,23,70,735/- will be allowed as deduction, hence, out of claim of the appellant for ₹ 90,55,43,845/- only revenue foreign exchange loss of ₹ 66,23,70,735/- is allowed. This is supported by the view of Supreme Court decision in the case of Woodward Governor India Pvt. Ltd. 294 ITR 451, Reliance Industries Ltd. vs. CIT 40 Taxmann.com 431, ONGC Ltd. vs. CIT 189 Taxmann 292 (SC). In view of the above Supreme Court decisions, revenue loss of ₹ 66,23,70,735/- is allowed and ₹ 24,31,73,110/- is confirmed. This ground of appeal is partly allowed. Aggrieved, now Revenue is in appeal before us. 15. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the assessee had claimed as deduction net foreign exchange loss of 90.56 crores which included realized as well as unrealized exchange gain/loss on account of settlement or revaluation of trade debtors, creditors, foreign currency loans from banks, institutions etc. The details i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcantile system of accounting and has adopted Accounting Standard II for recognizing the realized and unrealized gain/ loss on account of foreign currency transactions. The realized or unrealized exchange gain/loss has resulted on account of either settlement or revaluation of trade debtors, creditors, foreign currency loans etc. which relate to business activity of the assessee and the gain/ loss through fluctuation in foreign exchange rate are a consequence of the business activity carried out by the assessee. As per AS 11 - The effects of changes in foreign exchange rates, exchange differences arising on the settlement of monetary items or on reporting an enterprise's monetary items at rates different from those at which they were initially recorded during the period, or reported in previous financial statements, should be recognized as income or expenses in the period in which they arise. The loss suffered by the company on account of exchange rate variation as on the date of balance sheet is an ascertained liability valued as per the foreign exchange rate prevailing on the date of balance sheet. Thus it is an ascertained liability allowable u/s. 37(1) of the Act. We find t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ier years i.e. from A. Y. 2001-02 to 2007-08 has held that the provisions of section 115 JR were not applicable in appellant's case. The FIAT held that the appellant was 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 11 and part III Schedule VI of the Companies Act were not applicable at all. There was no possibility for preparing the accounts in accordance with the pan II and pan II of schedule of the Companies Act as the provisions of section 115 iii could not be forced. The FIAT in appellants own case in earlier years held that the provisions of section 115 JR were not applicable in appellants case. Following the orders of FIAT in appellants own case in the earlier years, it is held that the provisions of section 115 JR 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.1 1SJB. Following the above order Sec.1 1SJB is not applicable in the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ept insofar as the said provisions 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 adopte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pted in the Profit and Loss Account laid 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit and Loss Account is prepared in 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... puted under the Electricity Act, 1/3rd 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 assesse being a company to prepare its profit and loss account in accordance with the provisions of Parts II III of Schedule VI to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the accounts for the Companies Act 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther held that once the provisions 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 provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nized in the dictum lex non cogit ad 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 promp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance expense under section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 (hereinafter the Rules ). For this Revenue has raised following ground No. 6 and 6.1 as under: - 6. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO not to consider the interest expenses for working out the disallowance u/s. 14A r. w. Rule 8 D. 6.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to exclude the investments made in subsidiary companies by the assessee while working out the average investment @ 0.5% 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. 19. Briefly stated facts are that the AO disallowed the expenses relatable to exempt income at ₹ 11,12,48,067/- by taking the investment on which tax free income has been earned, received during the year by assessee at ₹ 172,25,35,189/- which reads as under: - Sl No. Particulars Amount Exempt u/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t had earned exempt income and another investment appellant had not earned any exempt income. When we examine the case of Cheminvest Ltd., in this case there is only one investment in which no income is earned, but in our case in some investment there is exempt income earned in some investment no exempt income is earned. Hence, facts are distinguishable in this case, therefore, appellant's claim is dismissed on this issue. The appellant had raised additional ground that disallowance of interest and expenses under Rule 8D(2)(ii) and 8D(2)(iii) should not he made with respect to investment which are made in the subsidiary company of the appellant. The appellant had relied on the decision of Garware Wall Ropes Ltd. vs. Addl. CIT 46 Taxmann.com 18, J. M Financial Ltd. vs. Addl. CIT ITA No.4521/MUM/2012 dtd. 26.03.2014. On examination (the above cases, the ITAT held that investments in subsidiary companies were investments were made for controlling stake, no disallowance can be made under section I4A r.w. Rule RD(2)(ii) and 8D(2)(iii). Hence, following the ab' decisions, the A.O. is directed not to disallow under Rule 8D(2)(ii) a 8D(2)(iii) In conclusion the A.O. is d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... All tax free investments That can yield tax free income (B) 3,660.08 3,755.94 Investments which has given tax free income during the year (included in (B) above) 1,104.61 1,104.61 Total (A)+(B) 12,147.10 10,019.57 The appellant relies upon the following decisions of the High Courts in support of their contention that if the capital and reserve is much more than the investment it is presumed that the investment has been made out of own funds and therefore disallowance of interest under section 14A of the Act cannot be made. We find force 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. 22. The next issue in this appeal of Revenue is against the order of CIT(A) in making disallowance under section 115JB of the Act of expenses relatable to exempt income by invoking the provisions of section 14A o the Act read with rule 8D of the Rules. For this Revenue has raise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 1: - 1. The learned Commissioner of Income Tax (Appeals) [hereinafter referred to as CIT(A)] erred in confirming the disallowance of expenditure incurred on prospecting of methane gas blocks treating the same as capital expenditure. Your appellant submits that the said expenditure is not capital expenditure but revenue expenditure incurred in the regular course of the business and the same ought to be allowed as claimed. 26. At the outset, the learned Counsel for the assessee stated that he has got instruction from the assessee not to press this ground and hence, the same is dismissed as not pressed. 27. The next issue in this appeal of assessee s appeal is against the disallowance of exempt income which is not yielded tax from income. For this assessee has raised following ground No.2 as under: - 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 insubsidiaries) which had actually yielded t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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