TMI Blog2018 (4) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction - Held that:- In the present case, the loss suffered by the assessee on account of the exchange difference as on the date of the balance sheet is an item of expenditure under Section 37(1) - Decided in favour of assessee. Addition u/s 14A - addition in respect of indirect expenses incurred on administrative and other heads relating to the income to which section 10 applies - Held that:- The assessee s business assets were about ₹ 26,930 crores of which ₹ 1014 crores were invested in its wholly owned subsidiaries. It is from the investment in its subsidiaries that the assessee earned ₹ 36.06 crores by way of dividend. However, it is important to note that the assessee had, free funds of its own of a sum of ₹ 17,275 crores available to it. As against the investment of ₹ 1014 crores which yielded dividend of ₹ 36.06 crores, the assessee had available to it ₹ 17,275 crores. As Mr. Ved Jain, the learned counsel appearing on behalf of the assessee, rightly submitted, the presumption is that the assessee used its own funds while making the investment of ₹ 1014 crores in the subsidiaries. There is nothing to rebut this presu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... XIV of Companies Act? 4. Whether, on the facts and in circumstances of the case and in law, the Hon ble ITAT was right in law in applying ratio of decision in case of M/s Apollo Tyres 255 ITR 273 (SC) when the computation of book profit was not as per Companies Act and wrongly claimed depreciation on land not allowable in Companies Act? 5. Whether, on the facts and in circumstances of the case and in law, the Hon ble ITAT was right in law in deleting disallowance of ₹ 24,84,24,189/- made by the AO in computing book profit u/s 115JB on a/c of provisions made for gratuity, leave encashment, post retirement medical benefits, LTC, Baggage allowance and Matching Contribution on Leave Encashment even when the assessee has failed to establish these provisions to be of ascertained in nature? 6. Whether, on the facts and in circumstances of the case and in law, the Hon ble ITAT was right in law in deleting addition of ₹ 22,99,80,552/- made by the Assessing Officer in computing the bookprofit u/s 115JB as well as in normal income in respect of provisions for loss in hedging transaction which were not an ascertained liability? 7. Whether, on the facts a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany. It was taken for use from the State Government. The State Government did not transfer the title of the land to the assessee. The land was only taken for relief and rehabilitation of the evacuees. The people had evacuated the land on account of the submergence of the land on account of the construction put up by the assessee. The cost incurred by the assessee in this regard was amortized for the useful life of the project. The land was presumably acquired by the State Government but at the instance of the assessee in order to enable the assessee to implement its projects. 8. The assessee s policy decision regarding the project, the use of the land for rehabilitating the evacuees and the amortization had been approved by the auditors of the company and by the Comptroller and Auditor General. The assessee s accounts were audited by the statutory auditors and also by the Comptroller and Auditor General and were approved by the company at its AGM and filed with the Registrar of Companies. The Tribunal rejected the contention on behalf of the revenue that land is not a depreciable asset and depreciation charged in the profit and loss account is not in accordance with the provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits as shown in its own account. For the said purpose, Section 115-J makes the income reflected in the companies' books of accounts as the deemed income for the purpose of assessing the tax. If we examine the said provision in the above background, we notice that the use of the words in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act was made for the limited purpose of empowering the assessing authority to rely upon the authentic statement of accounts of the company. While so looking into the accounts of the company, an Assessing Officer under the IT Act has to accept the authenticity of the accounts with reference to the provisions of the Companies Act which obligates the company to maintain its account in a manner provided by the Companies Act and the same to be scrutinised and certified by statutory auditors and will have to be approved by the company in its General Meeting and thereafter to be filed before the Registrar of Companies who has a statutory obligation also to examine and satisfy that the accounts of the company are maintained in accordance with the requirements of the Companies Act. In spite of all these procedures c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anation to the said section. To put it differently, the Assessing Officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to Section 115-J. The judgment of the Supreme Court is a complete answer in favour of the assessee and against the appellant in respect of question Nos.3 and 4. It is not the appellant s case that the assessee s books of account were not certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The Assessing Officer could not, therefore, have gone behind the same and come to a different conclusion. 10. Accordingly, question Nos.3 and 4 are answered in favour of the assessee and against the appellant. 11. Re: Question 5 : As we mentioned earlier, question 5 is answered in favour of the assessee and against the appellant in view of the judgment of this court dated 06.07.2010 in the assessee s case, namely, ITA No.385 of 2009 . 12. Re: Question 6 : The facts are admitted. In February, 2004, the assessee availed a loan of 5347 million Japanese Yen (JPY)(equivalent to USD 50 mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... change or whether the same could only be allowed in the year of repayment of such loans? . .. . . .. .. .. .. . .. .. . .. .. . .. .. . 13. As stated above, one of the main arguments advanced by the learned Additional Solicitor General on behalf of the Department before us was that the word expenditure in Section 37(1) connotes what is paid out and that which has gone irretrievably. In this connection, heavy reliance was placed on the judgment of this Court in Indian Molasses Co . [AIR 1959 SC 1049 : (1959) 37 ITR 66] Relying on the said judgment, it was sought to be argued that the increase in liability at any point of time prior to the date of payment cannot be said to have gone irretrievably as it can always come back. In Indian Molasses Co. case [AIR 1959 SC 1049 : (1959) 37 ITR 66] , the Supreme Court was considering the meaning of the expression expenditure incurred while dealing with the question as to whether there was a distinction between the actual liability in praesenti and a liability de futuro. The word expenditure is not defined in the 1961 Act. The word expenditure is, therefore, required to be understood in the context in which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in deciding the question as to whether the word expenditure in Section 37(1) includes the word loss one has to read Section 37(1) with Section 28, Section 29 and Section 145(1). One more principle needs to be kept in mind. Accounts regularly maintained in the course of business are to be taken as correct unless there are strong and sufficient reasons to indicate that they are unreliable. One more aspect needs to be highlighted. Under Section 28(i), one needs to decide the profits and gains of any business which is carried on by the assessee during the previous year. Therefore, one has to take into account stock-in-trade for determination of profits. The 1961 Act makes no provision with regard to valuation of stock. But the ordinary principle of commercial accounting requires that in the P L account the value of the stock-in-trade at the beginning and at the end of the year should be entered at cost or market price, whichever is the lower. This is how business profits arising during the year need to be computed. This is one more reason for reading Section 37(1) with Section 145. For valuing the closing stock at the end of a particular year, the value prevailing on the last date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he present case. The Tribunal, accordingly, rightly deleted the addition. 15. Question 6 is, therefore, answered in favour of the assessee/respondent. 16. Re: Questions 7 8: On the basis of the assessee s balance-sheet, the Assessing Officer noticed that there were dividend bearing investments and the assessee earned dividend during the year on such investments; that the assessee earned exempt income of about ₹ 36 crores and that, therefore, the expenses on account of such income were liable to be disallowed as per the provisions of section 14A. The assessee was also asked to file a computation as per rule 8D. The Assessing Officer computed the disallowance as per rule 8D in the sum of ₹ 5.07 crores. It was further observed that by applying rule 8D the quantum of disallowance came to ₹ 24.90 crores as against which the assessee had itself made a disallowance of ₹ 17.89 crores and that accordingly a further disallowance of ₹ 7.01 crores (Rs.24.90-Rs.17.89 crores) was made under section 14A. The Assessing Officer noticed that the assessee while adding an amount of ₹ 17.89 crores had only accounted for the direct expenditure and not f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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