TMI Blog2012 (9) TMI 1153X X X X Extracts X X X X X X X X Extracts X X X X ..... 267/- (b) Provision for Gratuity of ₹ 4,18,170/- (c) Provision for doubtful debts of ₹ 38,73,894/- (d) Disallowance u/s. 14A of ₹ 5,64,112/-. 3. The assessee is engaged in the business of manufacturing and trading in organic and inorganic heavy chemicals. The assessee filed its ereturn on 22-12-2006 declaring total income at ₹ 5,01,798/- and u/s.115JB of ₹ 19,95,67,375/-.The case was selected for scrutiny. Thereafter assessment was finalized u/s. 143(3) of the Act determining total income at ₹ 8,65,60,422/- and at ₹ 20,93,56,000/- u/s. 115JB after making various additions/disallowances. Ground No.1 is with respect to addition of ₹ 42,02,267/- as deemed income. 4. The A.O. observed that in earlier years the assessee had paid purchase consideration of ₹ 53,92,50,000/- to acquire 2876 equity shares of ₹ 10 each of Yerrowada Investment Pvt. Ltd. (YIPL). This amount was shown under the schedule of fixed assets as part of Building . Assessee claimed that by virtue of its holding the shares, it holds occupancy rights of the property owned by YIPL. YIPL had acquired land and had constructed about 5 lac sq. f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the co-ordinate Bench for AY 2004-05 and 2000-01 vide common order dated 29th January 2010. The Co-ordinate Bench has deleted the addition by holding as under:- 4.4 We have considered the rival submissions. We find that the provisions of section 2(22)(a) has been extracted by CIT(A) in paragraph 6.6. of his order. By reading the aforesaid definition it is clear that dividend will include under clause (a) only when it amounts to distribution by a company out of accumulated profits coupled with release of any part of the assets of the company. Therefore, to attract section 2(22)(a), the dividend can be taxed only when there is distribution out of accumulated profits by way of release of any part of the assets. In the present, case it is seen that when the assessee acquired the shares, it also acquired the occupancy right in the premises. Such rights were acquired during F.Y. relevant to assessment years 1997-98. There is no amendment to the Articles after the shares are acquired by the assessee. Thus, there is no release of assessment year assets by YIPL to the assessee who is a shareholder therein. There is also no finding that the distribution is out of accumulated profits. Wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per item (f) in Explanation (1) to Sec. 115JB(2), the amount of expenditure relatable to any income to which sec.10 apply, is required to be added to the net profit. Since he had upheld the addition u/s. 14A, he held that the disallowance made u/s.14A should also be considered for arriving at the book profits. Aggrieved by the action of CIT (A), the assessee is now in appeal before us. 12. Before us, the Ld. A. R. submitted that no disallowance u/s. 14A is called for in the case of assessee as it has not made any borrowals for making the investment in shares and bonds and further has also not incurred any expenditure to earn the dividend and interest income. It was further submitted that as on 31-3-2006 the own funds of the assessee were to the extent of ₹ 89 crores as against the aggregate investment of ₹ 1.56 crore which proves that the investments have been funded by own funds and not by using borrowed funds. He further pointed out to the investment schedule of the Balance Sheet which was placed on record to submit that no fresh investments have been made by the assessee during the year. It was further submitted that the Rule 8D is not applicable to A.Y. 2006-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance u/s. 14A can be made in the present case. We thus direct the deletion of disallowance. Thus this ground of assessee is allowed. Ground No.3 is With respect to computing book profits u/s.115JA: (a) Disallowance u/s.14A. 15. The A.O. held that in view of the provisions of section 115JB(2) the amount of expenditure relatable to income exempt u/s. 10 needs to be added to the net profit for the purpose of computing book profits. Since the A.O. has considered ₹ 5,64,112/- as expenditure incurred for earning tax free income and therefore disallowed u/s.14A, he added the same to the net profits as shown in the profit and loss account to arrive at the book profits u/s. 115JB. Aggrieved with the addition the assessee carried the matter before CIT (A). 16. CIT (A) held that as per item (f) in Explanation (1) to Sec. 115JB(2), the amount of expenditure relatable to any income to which sec. 10 apply, is required to be added to the net profit. Since the addition u/s. 14A of ₹ 5,64,112/- was confirmed by him, he held that the A.O. was justified in enhancing the book profit by the amount disallowed u/s. 14A.Aggrieved by the action of CIT (A), the assessee is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We have heard the rival contentions and perused the material on record. We find that the issue under consideration has been dealt by the co-ordinate Bench for AY 2004-05 vide order dated 29th January 2010. The Co-ordinate Bench has deleted the addition by holding as under:- 9.5. As regards the addition to book profit by an amount of deemed dividend taxed u/s. 2(22)(a), since such deemed dividend did not form the part of book profit computed as per Part-II addition III of Schedule VI to Companies Act, 1956, in view of the decision of the Supreme Court in the case of Apollo Tyres (supra) no adjustment is called for. We, therefore, delete the addition made in the book profit in respect of gratuity and deemed dividend. 15. In view of the fact that there being no change in the facts and following the decision of the co-ordinate Bench we hold that the addition of ₹ 38,20,047/- for computing the book profits is uncalled for. We therefore, delete the addition made and accordingly allow this ground of appeal of the assessee. 26. It is an undisputed fact that the facts of the case in current year are similar to that of earlier year. In view of the fact that there being no ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons for gratuity on the basis of actuarial calculation was not an unascertained liability, the adjustment to book profit is not called for. We therefore delete the addition made in this regard. 23. In view of the fact that there being no change in the facts or any contrary decision and following the decision of the co-ordinate Bench we hold that the provision for gratuity amounting to ₹ 12,03,707/- not as unascertained liability for the purpose of calculation of book profits u/s 115JB and therefore considering the same for computing the book profits is uncalled for. We therefore, delete the addition made and accordingly allow this ground of appeal of the assessee. 33. It is an undisputed fact that the facts of the case in the preset appeal are similar to that of earlier years. In view of the fact that there being no change in the facts or any contrary decision and following the aforesaid decision of the co-ordinate Bench in assessee s own case we hold that the provision for gratuity amounting to ₹ 4,18,170/- not as unascertained liability for the purpose of calculation of book profits u/s 115JB and therefore considering the same for computing the book profits is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... generate electricity, the entire power generation is for captive consumption and therefore the assessee had treated the total units of power generated and consumed as deemed sale and had applied the rate charged by GEB for working out income in view of the provisions of Sec.80IA(8). The A.O. was of the view that assessee is not entitled to deduction u/s.80IA for the reason that the assessee has generated power for captive use only and therefore it cannot be said that assessee has earned profits. He was of the view that there is no concept of notional profit in Sec. 80IA. According to A.O. setting up of an undertaking for the generation of power for captive use does not amount to earning of profits from an industrial undertaking as contemplated u/s. 80IA. He also relied on the Madras Tribunal decision in the case of Chitinad Cement Corporation (ITA No.1026/Mad/2005). The A.O. also observed that assessee has applied the rate levied by GEB on its consumers to arrive at the profit and thus the profitability worked out to 34.57% which was quite high. He was thus of the view that provisions of Sec. 80IA(B) r.w.s. 80IA(10) is required to be invoked considering the high profitability shown ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ills vs. ACIT (103 ITD 19) are applicable to the assessee s case and CIT (A) has rightly allowed the deduction to the assessee. The assessee also relied on the decision in the case of Tamilnadu Petro Products Ltd. vs. ACIT (2011) 338 ITR 643 (Mad.). 43. We have heard the rival contentions and perused the material on record. The A.O. disallowed the claim of the assessee for deduction u/s.80IA for the reason that the deduction was available only where separate business undertaking is put up for generation/distribution of power. Since the assessee has set up the power unit mainly for captive use, the assessee was not entitled to deduction. The A.O. was further of the view that even if the assessee was eligible for deduction, the quantum of deduction was to be worked out with reference to market rate of electricity generated and not at the rate claimed. The assessee had worked out the profit on the basis of rate of power at ₹ 5.35 per unit as against that the rate of power at 2.11 per unit being considered by A.O. We find that before Hon ble Madras High Court in the case of Tamilnadu Petro Products (supra) one of the question before Hon ble High Court was whether on the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 44. CIT (A) has given a finding that the facts of the case are identical to that in the case of West Coast Paper Mills and Jindal Power Steel Ltd. (supra). The Revenue has not been in a position to controvert these facts by bringing any material to the contrary on record. In view of the aforesaid facts and respectfully following the decision of High Court and Co-ordinate Bench, we find no reason to interfere to the order of CIT (A). Thus this ground of the Revenue is dismissed. 45. In the result, appeal of the assessee is partly allowed and that of Revenue is dismissed. ITA No 1740/AHD/2010 A..Y 2007-08 (Assessee s Appeal) 46. As regards ground relating to section 14A pertaining to disallowance u/s.14A for a sum of ₹ 7,92,000/- A.O. made disallowance of expenses for income not includible in total income as per rule 8D. 47. Assessee earned dividend of ₹ 55,10,268/- and interest on tax free bonds of ₹ 5,11,106/-.A.O. was of view that since sizable funds have been blocked in investments, disallowance u/s.14A should have been made by the assessee. He relying on the decision in the case of CIT vs. Abhishek Land P. Ltd. (286 ITR 01) P H High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r hand the Ld. D.R. submitted that the amount is of penal in nature as the auditor in the tax audit report has shown the same as being expenditure by way of penalty, fine or violation of law. He thus relied on the order of A.O. 54 We have heard the rival contentions and perused the material on record. The assessee had claimed ₹ 1,53,902/- comprising of interest paid to Central Excise department (Rs.1,53,351) and interest on delayed payment of TDS (Rs.351/-) as expenses. The A.O. held the same to be of penal in nature and disallowed the expenses. As far as interest on delayed payment of TDS is concerned, it can be said to be part and parcel of the income tax itself and therefore is not allowable u/s.40(a)(ii). As far as interest on central excise of ₹ 1,53,351/- is concerned, the challan of payment indicates it to be interest . The Revenue has not been in a position to demonstrate that it is for infraction of law. In view of these facts we are of the view that the interest paid to Central Excise is allowable. Thus, this ground is partly allowed. Ground No.3 and 3(a), (b) is with respect to computing book profits u/s. 115JA. 55. A.O. while computing the book pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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