TMI Blog2014 (9) TMI 1196X X X X Extracts X X X X X X X X Extracts X X X X ..... preciation cannot be added under the computation of the normal income. The order of CIT(A) is upheld and the appeals of the Revenue are dismissed. Addition in the book profit while computing Minimum Alternate Tax liability under section 115JB on account of the tariff adjustments - ascertained liability - AO made this addition to the book profit as well as normal income - CIT- deleted the addition - HELD THAT:- AO has added this amount considering the same as unascertained liability. In our considered view, this contention of the AO is not correct. In fact it is not a liability at all. It is a reduction in the sale consequent to the rate being determined by the CERC which by the calculation done by the appellant company itself was required to be done. This view of ours gets further strengthened from the fact that the CERC approved tariff rates vide order dated 29th May, 2006 and 31st May, 2006 which resulted into further reduction by ₹ 18.74 Crores. Thus it cannot be said that the adjustment made by the appellant company was not correct or not bonafide. It is not the case of the AO that the rate proposed by the appellant company was different as compared to the rate which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee company is not a depreciable asset is factually incorrect and further as held by the Supreme Court no adjustment can be made to net profit as certified by the statutory auditors. Applicability of provisions of section 234B(2)(ii) read with section 140A - as contended by the Ld. DR that the CIT(A) was not justified in allowing the adjustment of the self assessment tax before deducting the same in respect of the interest liability arising under section 234B - HELD THAT:- As decided in PATSON TRANSFORMERS LTD. VERSUS DEPUTY COMMISSIONER OF INCOME-TAX, SPECIAL RANGE-VIII [ 2005 (11) TMI 388 - ITAT AHMEDABAD] we are of the considered view that adjustment towards interest payable under section 234B is to be considered only at the time of filing return of income i.e., when payment of self-assessment under section 140A is required to be made. Before that interest under section 234B is independently required to be calculated only in accordance with the provisions provided in section 234B(i). If at the time of filing return it is found short payment after adjustment of interest out of tax paid under section 140A, further interest is required to calculate in accordance with section 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation (AAD) is reduced from sales, there is no debit in the profit and loss account. The amount did not enter the stream of income for the purposes of determination of net profit at all, , hence clause (b) of Explanation-I was not applicable. Further, reserve as contemplated by clause (b) of the Explanation-I to Section 115JB of the 1961 Act is required to be carried through the profit and loss account. At this stage it may be stated that there are broadly two types of reserves, viz, those that are routed through profit and loss account and those which are not carried via profit and loss account, for example, a Capital Reserve such as Share reserve. It is not appropriation of profits. AAD is not meant for an uncertain purpose. AAD is an amount that is under obligation, right from the inception, to get adjusted in the future, hence, cannot be designated as a reserve. AAD is nothing but an adjustment by reducing the normal depreciation includible in the future years in such a manner that at the end of useful life of the Plant (which is normally 30 years) the same would be reduced to nil. Therefore, the assessee cannot use the AAD for any other purpose (which is possible in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raight away goes to the balance sheet under the head liability not under the head reserve . The Supreme Court has categorically held that it is an amount that is under obligation right from the inception. The Supreme Court has further gone to analyse the nature of reserve . It has held that there are two types of reserves. One which is created out of profit and another which are capital reserve such as Share Premium Account. It has held that AAD is not a reserve created out of profit since AAD is not income but a liability. If the contention of the Revenue as is being argued is taken to the logical conclusion, then AAD will be income and hence part of Profit and Loss Account. The liability created will be a reserve by debit to the profit and loss account. The Supreme Court has categorically held that AAD is not a reserve . Once AAD is considered as income as is being alleged by Revenue the obvious implication will be that such income in the Balance Sheet is a reserve. It can t be that AAD is an income and then it vanishes. Income has to be carried to the Balance Sheet and such income carried to Balance Sheet will form part of the Reserve . Since AAD has been held by Supre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 94,93,951/- made by the Assessing Officer in computing the book profit u/s 115JB in respect of provision made for gratuity, leave encashment and post retirement benefits? 3. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was right in law in deleting the addition of ₹ 16,38,38,700/- made by the Assessing Officer in computing the book profit u/s 115JB in respect of provisions made for doubtful debts, doubtful claims and advances claimed by the assessee? 4. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was right in law in deleting the addition of ₹ 97,65,000/- made by the Assessing Officer in computing the book profit u/s 115JB in respect of depreciation claimed on land and amortization of land by the assessee disregarding the fact that there is not depreciation allowable on land under Companies Act and no rate of depreciation is provided in schedule XIV of Companies Act? 5. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was right in law in justifying the contention of the assessee regarding applicability of provisions of Income Tax Act viz. section 234-B(2)(ii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Rangit 1668.99 Total 8653.94 ====== The assessee company filed the petition for tariff adjustment on 25.4.2005 with CERC for F/y 2004-05 as per which the tariff adjustment has been quantified at ₹ 86.54 Crore. This quantification has been made by applying a tariff rate which the assessee company has recommended to CERC. However, the CERC has to take its own decision in respect of the tariff rate. The CERC approved the tariff rates vide its order dated 29.05.2006 31.5.2006 (copy placed on the file) in respect of tariff adjustment which are different from the Tariff rates proposed by the assessee company. So, this liability is not ascertain one as it is contingent on the event of order of CERC in this regard. The CERC may have kept the tariff at the same level or have reduced by a factor which is not certain on the date of provisioning and therefore, the liability cannot be ascertained. Accordingly, as per the provisions of sec. 115JB of I.T. Act, the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to tax. It is an admitted fact that the tariff rate application submitted by the assessee has proposed rate lower than the rates in the preceding block. Consequently the appellant company was justified in recognizing income on the basis of the tariff rate as proposed by it in the application before the CERC since in any case it cannot get any tariff rate over and above the rate which it had proposed before the CERC. In this regard he invited our attention to the fact that CERC tariff rates ultimately approved were lower than the demand by the appellant company in the application and a further deduction of ₹ 18.74 Crore was allowed over and above what has been computed by the appellant company. It was further submitted that the accounts of the appellant company have been audited by the statutory auditors as well as C AG and there has been no adverse comment about the accounting of the income by these auditors. 3.5 We have heard both the parties and perused the record also. The assessee company is engaged in the generation and sale of hydro electric power. The sale of power is covered by the tariff approved by the Central Electricity Regulatory Commission. It has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leave encashment and post retirement benefits. 4.1 In this regard it has been submitted by the Ld. AR that the issue is covered by the judgment of the ITAT in assessee s own case for assessment year 2002-03 in ITA No. 1105/Del/2006. 4.2 Further the Ld. AR has placed reliance on the following judgments:- (i) Bharat Earth Movers vs. CIT (2000) 245 ITR 428 (SC) (ii) DCIT vs. Lumax Ind. Ltd. (Del-Trib) (iii) ACIT vs. Jaiprakash Hydro Power Ltd. (Chd-Trib) ITA No. 592/Chd/2012 dt. 11.6.2013 (iv) Gujarat State Fertilizer Chemical Ltd. vs. DCIT (Ahm), ITA No. 401/Ahd/2010, dt. 21.6.2013 (v) Relying on the judgment of Metal Box Company of India Ltd. (1969) 73 ITR 53 (SC) 4.3 We notice that in assessee s own case in assessment year 2002-03 in ITA No. 1105/Del/2006, the ITAT has held as under:- 24. We have heard both the parties and perused the material available on record. In this case the assessee has made provision on account of gratuity, leave encashment and post retirement medical benefit on actuarial basis. Under section 115- JB of the Act where in the case of an assessee, being a company, I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on for gratuity was not ascertained liability. Likewise in the case of Vinitech Corp. P. Ltd. (supra) Hon ble jurisdictional High Court has held that where a liability which was capable of being construed in definite terms, which had arisen in the accounting year, although its actual quantification and discharge might be deferred to a future date. Once the assessee is maintaining his accounts on mercantile system, a liability accrued though to be discharged at a future date would be a proper deduction while working out the profits and gains of business, regard being had to be accepted principles of commercial practice and accountancy. If the facts of the case are viewed in the light of the decisions referred to above, we find that the provision made by the assessee in respect of gratuity, leave encashment and post retirement medical benefit on actuarial basis cannot be said provisions for unascertained liability so as to fall in clause (c) of the Explanation to section 115-JB (2) of the Act. Accordingly the ld. CIT (Appeals) and the assessing officer erred in holding the provisions made by the assessee were on account of unascertained liability to be added back under clause (c) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the company are maintained in accordance with the requirements of the Companies Act. The Supreme Court has further held that the AO while computing the income under section 115J has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The Assessing Officer thereafter has the limited power of making increases and reductions as provided for in the Explanation to the said section (115J). The Supreme Court has further went on to hold 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 115J . It is not the case of the Revenue here that the adjustment made by the AO is under Explanation to section 115J. The contention of the Revenue here is that land is not a depreciable asset and depreciation charged in the profit and loss account which is not in accordance with the provisions of the Companies Act read with Accounting Standard 6. As stated hereinabove, the contention of the Revenue that the lan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10,56,38,588/- Total 19,48,06,327/- Interest on balance Amount of ₹ 10,56,38,588/- remained unpaid during the period December, 2006 to December, 2007 i.e. for 13 months Calculation of interest u/s 234B is enclosed Copy of case law of M/s Patson Transformers Ltd. vs. Deputy Commissioner of Income-tax, Special Range VIII (2006) 6 SOT 673 (Ahd) is also enclosed in support of our claim. From the above your goodself will kindly conclude that interest U/s 234B has been excess charged by ₹ 32,06,801/- (₹ 4,02,65,082/- - 3,70,58,281/-). It is further submitted that in the similar facts, it has been held in the case of M/s Patson Transformers Ltd. vs. DCIT (2006) 6 SOT 673 (AHB) the adjustment towards interest payable under section 234B(21) is to be considered only at the time of filing return of income, i.e. when payment of self-assessment tax under section 140A is required to be made. Before that, interest under section 234B is independently required to be calculated only in accordance with the provisions provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble under any provision of this Act for any delay in furnishing the return or any default or delay in payment of advance tax, before furnishing the return and the return shall be accompanied by proof of payment of such tax and interest. Explanation.-Where the amount paid by the assessee under this sub-section falls short of the aggregate of the tax and interest as aforesaid, the amount so paid shall first be adjusted towards the interest payable as aforesaid and the balance, if any, shall be adjusted towards the tax payable. 234B. Interest for defaults in payment of advance tax.-(1) Subject to the other provisions of this section, where, in any financial year, an assessee who is liable to pay advance tax under section 208 has failed to pay such tax, or where the advance tax paid by such assessee under the provisions of section 210 is less than ninety per cent of the assessed tax, the assessee shall be liable to pay simple interest at the rate of one and one-fourth per cent for every month or part of a month comprised in the period from the 1st day of April next following such financial year to the date of determination of total income under sub-section (1) of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of income and for delay or default in payment of advance tax, mandatory interest is now payable under the provisions of new sections 234A to 234C inserted by the Amending Act, 1987. Further, under the new scheme of assessment also being introduced by the Amending Act, 1987 (refer para 5.2 of these Explanatory Notes), if the tax and interest due on the basis of returned income have been correctly paid, the return will be accepted as such and no further action in this behalf will be necessary. For proper implementation of the new scheme of assessment, it is necessary that the assessees should also pay interest due under the provisions of the new sections 234A to 234C along with the self-assessment tax before filing the return of income. The Amending Act, 1987, has, therefore, amended sub-section (1) of section 140A to make it mandatory for a person to pay before furnishing the return, tax together with interest payable under any provisions of the Act for delay in furnishing the return or any default or delay in payment of advance tax. Proof of payment of such tax and interest is to be attached with the return. Further, an Explanation has been inserted in the said sub-section (1) to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 4,03,240 12. Now we shall examine section 140A, which is to be taken into consideration while filing the return. In accordance with section 140A, an assessee is required to pay tax under section 140A where any tax is payable on the basis of any return required to be furnished (section 139 or section 142 or as the case may be, section 158BC) after taking into account the amount of tax, if any, already paid under any provision of this Act. Thus, at the time of filing return the tax payable under section 140A is due and required to calculate tax payable on the basis of the return to be furnished as under :- Section 139 or (with effect from 27-9-1991) section 142 or section 148 or (with effect from 1-6-1999) section 158BC. After taking into account the amount of tax, if any, already paid under any provision of this Act. In the case under consideration return is filed on 30-12-1992. According to the return of income, the calculation of tax payable under section 140A comes to ₹ 33,39,956 of which details is reproduced in para Nos. 5 and 5.1. The assessee deposited following ad hoc amount before filing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s independently required to be calculated only in accordance with the provisions provided in section 234B(i). If at the time of filing return it is found short payment after adjustment of interest out of tax paid under section 140A, further interest is required to calculate in accordance with section 234B(2)(ii), on balance amount which is assessed tax minus advance tax and ad hoc payment. 15. Thus, we find that approach of revenue for calculation of interest under section 234B is not correct, therefore, the orders of lower authorities are set-aside and the claim of the assessee is allowed. The Assessing Officer is directed to calculate interest under section 234B as per above discussion. 7.5 After hearing both sides, we hold that the judgment of ITAT is applicable to the facts of the assessee s case, therefore, respectfully following the same, we dismiss this ground of revenue s appeal. 8. Ground No.6 in revenue s appeal is general in nature and the same is dismissed. 9. In ITA No. 3681/Del/2008, the only ground raised by the revenue is as under:- On the facts and circumstances of the case, the Ld. CIT(A) has erred on facts and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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