TMI Blog2019 (5) TMI 1664X X X X Extracts X X X X X X X X Extracts X X X X ..... e for the previous year also, the Tribunal has deleted the addition made by the AO on this account. Disallowance of provisions in computing book profit u/s 115 JB - provision made for gratuity, leave encashment, post retirement medical benefits, LTC, Baggage allowance and Matching Contribution on Leave Encashment - as alleged the assessee has failed to establish these provisions to be of ascertained in nature - HELD THAT:- Issue to be answered in favour of the respondent-assessee in view of our order and judgment [ 2018 (4) TMI 47 - PUNJAB AND HARYANA HIGH COURT] Addition of depreciation on land unclassified and leasehold land while computing book profit for MAT u/s 115JB - HELD THAT:- The issue is covered in favour of the assessee and against the revenue by the decision of the Tribunal in the case of the assessee itself for assessment year 2009-10 [ 2015 (9) TMI 222 - ITAT DELHI] Deduction u/s 80-IA on other income - whether hire charges and miscellaneous income earned in the course of business are eligible for deduction u/s 80IA? - HELD THAT:- We find that the AAR in the case of National Fertilizers Limited [ 2004 (10) TMI 588 - AUTHORITY FOR ADVANCE RULINGS, NEW ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act, wealth tax is not covered under Explanation 1 of Sub-section (2)(a) of Section 115JB. Thus, it does not affect the book profit and will not be added to calculate tax liability under MAT. For this reliance was placed on the decision of Hon ble Bombay High Court in the case of CIT Vs Reliance Industries Ltd. [ 2019 (1) TMI 887 - BOMBAY HIGH COURT] wherein held made a vague attempt to bring this item in clause (c) noted above. Clause (c) would include the amount set aside for provisions made for meeting liabilities other than ascertained liabilities. For applicability of this clause, therefore, fundamental facts would have to be brought on record which in the present case, the Revenue has not done. In fact, the entire thrust of the Revenue's argument at the outset appears to be on clause (a) which refers to the income tax which according to the Revenue would also include wealth tax. This question, therefore, is not required to be entertained - Decided in favour of assessee. - ITA No. 3650, 3738/Del/2015 - - - Dated:- 8-5-2019 - Sh. Bhavnesh Saini, Judicial Member And Sh. N. S. Saini, Accountant Member Assessee by: Sh. Ved Jain, Adv. Sh. Himanshu Aggar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned counsel for the appellant an gone through the documents and evidences placed on record as well as the judicial rulings relied upon by the learned counsel and the AO. This issue relating to advance against depreciation came up for consideration before the Hon'ble Supreme Court against the order of the Authority for Advance Rulings in appellant's own case for AY 2001-02. After going into background of this issue, it is observed that in the year 1997, the Central Government devised a mechanism to help power generating companies to raise funds for meeting loan repayments in time and issued tariff fixation notification under section 43A of the Electricity (Supply) Act, 1948. This notification permitted power generating companies to collect an amount in advance in the years in which the normal depreciation (90% of the original cost of the plant spread equally over the useful life of plaint) otherwise allowed to be recovered was not sufficient to meet loan repayment schedule. The amount so collected was called as advance against depreciation . Subsequently, the Central Electricity Regulatory Commission Act, 1999 was promulgated and the power to fix tariff was delegated to Cen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tariff, in turn, lowering tariff - For relevant assessment year, assessee, while computing its book profit, deducted AAD component from total sale price and only balance amount net of AAD was taken into profit and loss account and book profit - AAR ruled that reduction of AAD from 'sales' was nothing but a reserve which was to be added back on basis of clause (b) of Explanation - I to section 115JB - Whether, on facts AAD was neither a reserve, nor was it carried through profit and loss account; rather it was timing difference and was income received in advance subject to adjustment in future and, therefore, clause (b) of Explanation - I to section 115JB was not applicable - Held, yes . 6.6 Though the above decision was in the context of the provisions of section 115JB of the Act, the Hon'ble Apex Court has held that the advance against depreciation is income received in advance subject to adjustment in future against depreciation. The appellant has reduced gross sales by the amount of advance against depreciation and the net sales are credited in the profit and loss account and book profit. Therefore, the amount of advance against depreciation, though result ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dvance subject to adjustment in future against the claim of depreciation. It has also been noted ITAT have decided the issue in favour of assessee in its order for AY 2000-01, AY 2001-02, AY 2002-03, AY 2003-04, AY 2004- OS, AY 2005-06 and AY 2007-08, the addition of ₹ 107,97,42,000/- made by the AO is deleted and Ground No. 4 of appeal is Allowed. 6. Both the parties agreed before us that the issue was covered in favour of the assessee by the order of the Hon ble Punjab Haryana High Court in the case of the assessee itself for assessment year 2006-07 reported in 408 ITR 237 (P H). 7. We find that the Hon ble Punjab Haryana High Court was deciding the following question of law: 1. Whether, on the facts and in circumstances of the case and in law, the Hon'ble ITAT was right in law in dismissing appeal of the Revenue observing that 'in view of categorical finding of the Supreme Court we hold that the CIT(A) was correct in holding that advance against depreciation cannot be added under the computation of the normal income', whereas the Hon'ble Supreme Court in its decision dated 05-01-2010 has held that the 'advance against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee that interest income of ₹ 3,89,59,508/- which in fact belonged to REC wrongly considered during AY 2009-10. Such treatment by the assessee is not hit by provision of section 37(1) of I. Tax Act as corresponding income has already been wrongly accounted for by the assessee in AY 2009-10; the addition of ₹ 3,89,59,508/- is hereby deleted, and Ground No. 5 of the appellant is Allowed. 13. The ld. Departmental Representative relied on the order of the Assessing Officer. 14. On the other hand, the Authorized Representative relied on the order of Commissioner of Income Tax (Appeals). 15. After considering the rival submissions and perusing the orders of the lower authorities and materials available on record. We find that the ld. Departmental Representative simply relied on the order of the Assessing Officer. He could not point out any specific error in the order of the Commissioner of Income Tax (Appeals). In the circumstances, we find no good reason to interfere with the order of Commissioner of Income Tax (Appeals) which is hereby confirmed and the ground of appeal of the revenue is dismissed. 16. Ground No. 4 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade the impugned addition applying the provisions of Rule 8D of the Income Tax Rules rejecting the assessee s claim that no expenditure has been incurred by the assessee to earn exempt income. The Assessing Officer observed that after having considered the facts of the case, it would be reasonable to add back the expenditure relating to income to which Section 10 of the Act applies. Therefore, an amount of ₹ 78,70,22,900/- was added to the book profit u/s 115JB of the Act for the purpose of MAT. 24. On appeal, the Commissioner of Income Tax (Appeals) vacated the disallowance by observing as under: 5.3 I have considered submissions of learned counsel of the appellant and gone through the documents and assessment order. The appellant has challenged the addition of ₹ 78,70,22,900/- made by invoking the provisions of section 14A of the Act while computing regular income of the assessee. There is no dispute to the fact that the appellant has declared dividend income of ₹ 25.02 crores which has been claimed exempt. The said dividend income has been earned from the investment in shares of the entities as under: 1. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia. If that being so, this amount cannot go into the working of 'disallowance of interest even if Rule 80 is applied. Clause (ii) of Sub-Rule (2) of Rule 8D provides for working of disallowable interest in a case where the assessee has incurred expenditure /by way of interest during the previous year which is not directly attributable to any particular income or receipt, thus, there is no direct interest expenditure for the investment of ₹ 772.42 crores and also no direct interest expenditure pertaining to investment of ₹ 281.80 crores involved as such amount represent redumption proceeds of SEB Power Bonds/Loan Term Advances (Tax Free). The Hon'ble ITAT, Bench F' Delhi in the case of Priya Exhibitors Pvt. Vs. ACIT (27 taxmann.com 88) has held that the disallowance under section 14A requires a clear finding of incurring of expenditure and in absence of same, no disallowance could be made. Similarly, the Hon'ble ITAT, Bench 'G' Delhi in the case of ACIT vs. SIL Investment Ltd. (26 taxmann.com 78) has held that where Assessing Officer did not bring any evidence on record to establish that any expenditure had been incurred by assessee for earning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Engineering India Limited reported in 370 ITR 338 (Del.) has held as under :- Section 14A of the Act postulates and states that no deduction shall be allowed in respect of expenditure incurred by an assessee in relation to income which does not form part of the total income under the Act. Under sub Section (2) to Section 14A of the Act, the Assessing Officer is required to examine the accounts of the assessee and only when he is not satisfied with the correctness of the claim of the assessee in respect of expenditure in relation to exempt income, the Assessing Officer can determine the amount of expenditure which should be disallowed in accordance with such method as prescribed, i.e. Rule 8D of the Rules (quoted and elucidated below). Therefore, the Assessing Officer at the first instance must examine the disallowance made by the assessee or the claim of the assessee that no expenditure was incurred to earn the exempt income. If and only if the Assessing Officer is not satisfied on this count after making reference to the accounts, that he is entitled to adopt the method as prescribed i.e. Rule 8D of the Rules. Thus, Rule 8D is not attracted and applicable to all assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iability u/s 115JB of the Act. As discussed in para 3 of the assessment order, the AO has added the above provisions for the purpose of computing book profit u/s 115JB following the decision of Hon'ble Supreme Court in the case of Shree Sajjan Mills vs. CIT (156 ITR 585) after holding the said provisions to be only contingent and unascertained. In Shree Sajjan Mills case, the claim for deduction was set up on the ground that amount of gratuity payable to its employees!?was worked out actuarially, which was ascertained by virtue of actuarial valuation and .was deductible under section 37(1) of the Act. 10.4 The appellant has contended that the these provisions were created in accordance with accounting principles and standards; the valuation of liability was based on compilation of various details and by adopting actuarial valuation; the liabilities were 'ascertained' and the Profit loss account was prepared in accordance part II and III of Schedule VI of the Companies Act. Therefore, the book profit declared as per the Profit and Loss account should have not been disturbed in view of decision of Hon'ble Apex court in the case of Apollo Tyres Ltd. Vs. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of his employee cannot be allowed as deduction unless this amount is paid by the assessee on or before the due date for furnishing the return of income u/s 139(1) of the Act. In view of this legislative amendment nullifying the ratio of the decision in the case of Bharat Earth Movers (supra), the amount of such provision can be claimed as deduction only on actual payment and not on the simple creation of provision. However, when we peruse the mandate of Explanation 1 to section 115JB, it becomes clear that clause (c) talks of making addition to book profit for 'the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or'. If we consider the judgment of the Hon'ble Supreme Court holding such a provision as an ascertained liability and clause (f) of section 43B on one hand and clause (c) of Explanation 1 to section 115JB on the other, it becomes ITA No. 1402/D/2012,1956/Del/2009 1437/Del/2009 5 vivid that computation of income under the normal provisions debars deduction for the ascertained liability towards provision for leave encashment etc., unless the amount is actually paid before the due date. However, in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. 32. The Hon ble High Court held as under: 3. It is agreed that question Nos.1, 2, 5, 6 and 7 are liable to be answered in favour of the respondent-assessee in view of our order and judgment dated 28.02.2018 in the assessee's case in ITA No.136 of 2015. 33. Respectfully following the same, we dismiss the ground of appeal of the revenue. 34. Ground No. 8 of the appeal is that the Commissioner of Income Tax (Appeals) erred in deleting the addition of ₹ 2,50,00,425/- made by the Assessing Officer while computing book profit for MAT u/s 115JB of the Act. 35. The brief facts of the case are that the Assessing Officer observed that the assessee has claimed an amount of ₹ 4,85,86,995/- as per schedule 5 of the balance sheet as depreciation on land unclassified and leasehold land. He observed that the assessee has claimed an amount of ₹ 4,85,86,995/- in the balance sheet as depreciation on land unclassified and leasehold land. Out of the total depreciation on land of ₹ 4,85,86,995/-, an amount of ₹ 2,50,00,425/- has been debited to profit and loss account and balance amount of ₹ 2,35,86,570/- has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the detailed discussion vide para 6.2 of my order dated 02.01.2012 in appeal No.276/2010-11, this issue has been decided in favour of the appellant. Since the issue is already covered by the decision for earlier year, the addition of ₹ 1,80,79,857 /- made by the AO for the purpose of computing book profit u/s 115JB of the Act is directed to be deleted. The ground No.3 of appeal is allowed. 12. At the outset itself, the ld. AR for the assessee submitted that this issue is covered in favour of the assessee in assessee s own case in ITA No.2449/Del/2008 for Assessment Year 2004-05 order dated 30.09.2014 of the Tribunal and took our attention to page 6, para 7 of the order. He also submitted that the ITAT, relying on the aforesaid order dated 30.09.2014 (supra), has decided this issue in favour of the assessee in assessee s own case in assessment years 2007-08 and 2008-09. 13. We have heard rival submissions and perused the material on record. The Tribunal in the order for assessment year 2002-03 (supra) has considered an identical issue and had decided the matter in favour of the assessee. The aforesaid order of the Tribunal was followed in subsequent ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt conditions and have been paid out of borrowed funds. Late Payment Surcharge: This is basically in the nature of late payment made by State Electricity Boards and pertains to sale of electricity. Profit on Sale of Assets: The amount has been reduced while calculating claim of 80-IA. Liabilities/ provisions not required written back: This is basically in the nature of liabilities / provisions which are no longer required and have been written hack i.e. reversal of expenditure booked in earlier years. Others Income: Includes rent/hire charges, other income, township recovery, lease recovery, electricity recovery, telephone recovery, staff car recovery, cable charges, guest house recovery etc and all these incomes are in relation to generating activity of the power station. Foreign Currency Fluctuation Account: Based on actual payment of foreign currency, amounts become recoverable from beneficiaries (customers) and are credited to sales. On other hand, actual amount paid is reduced from sale. In view of above, profit and loss account of the assessee company is not affected. To nullify this impact, a contra entry has been passed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning of Rent is not the Business activity of the appellant. Similarly the same logic holds true for the other means of income shown by the appellant. Thus I hold that the AO has rightly denied the rebate u/s 80IA under these heads. Therefore, addition of ₹ 4,46,54,883/- is upheld and Ground No. 6,of the appellant is Dismissed. 44. Before us, it was submitted by the Authorized Representative of the assessee that in the case of CIT Vs Cochin Refineries ltd. (1983) 43 CTR 103, it was held that hire charges and miscellaneous income earned in the course of business are eligible for deduction u/s 80IA of the Act. Therefore, the disallowance made should be deleted. 45. On the other hand, the ld. Departmental Representative supported the orders of the authorities below. 46. We find that the Assessing Officer made the impugned disallowance ₹ 4,46,54,883/- holding that assessee is eligible for deduction u/s 80-IA only on profit earned from generation distribution of power and not from other income. The details of such amounts are as follows: S. No Particulars Uri-I Power Station ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of National Fertilizers Limited 193 CTR 498(AAR) held that the expenses incurred to earn these other incomes should be excluded from the debit side of the profit and loss account for computing the deduction u/s 80-I of the Act. The relevant extract of the judgment is as below: (2)question No. 2 in AAR/532/2001 that the expenses of ₹ 2,76,03,364 and ₹ 12,12,74,426 (it is stated that the correct figure is ₹ 11,02,56,561) allocated by marketing office and corporate office and interest expenditure of ₹ 71,65,99,045 allocated by the corporate office and on question No. 2 in AAR/533/2001 that expenses of ₹ 2,56,44,186 and of ₹ 12,94,59,292 allocated by corporate office and marketing office and interest expenditure of ₹ 8,49,30,952 allocated by corporate office should be excluded from the debit side of the profit and loss account of the industrial undertaking for the purpose of deduction under section 80-I of the Income-tax Act, 1961; the fact that the allocated interest income from corporate office ₹ 5,22,94,939 and ₹ 3,97,44,811 credited to profit and loss account of Vijaipur unit in the assessment years 1995-96 and 199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s available for deduction are profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) whereas in Section 80-IA (2A) what is available for deduction is hundred percent of the profits and gains of the eligible business . The following conclusion reached by the ITAT in para 13.11 of the impugned order correctly encapsulates the legal position as far as the interpretation of Section 801A (2A) is concerned. 13.11 Thus, we find that the legislature being alive to providing tax deductions to business enterprises and undertakings, it wanted to curtail the time line during which deduction can be claimed and also addressing the extent upto which it can be claimed has consciously carved out an exception to specified undertakings/enterprises whose needs and priorities differ has taken care to expand the time line for claiming deductions. It has consciously enabled those undertakings/enterprise 'who fall under subsection (2A) to claim 100% deduction of profits and gains of eligible business for the first five years and upto 30% for the remaining five years in the ten consecutive assessment years out of the fifteen years sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time of computing deduction under s. 80-I of the Act. Therefore, on this limited count alone, the order of the Tribunal suffers from a basic fallacy resulting in an error in law and on facts. The Tribunal instead of recording findings on facts proceeded to discuss law. This litigation could have been avoided if the parties had invited attention to basic facts. 28. Neither the approach nor the reasons advanced by the Tribunal deserve acceptance. It is an incorrect proposition to state that interest paid by the debtors for late payment of the sale proceeds would not form part of the eligible income for the purpose of computing relief under s. 80-I of the Act. The reliance on the general meaning of the term interest as well as drawing distinction between the source of sale proceeds and the source of interest is erroneous in law in the case of CIT vs. Govinda Choudhury Sons (supra) the apex Court was called upon to decide as to the nature of interest received by the assessee therein. In the case before the apex Court the assessee who was executing Government contracts found itself involved in disputes with the State Government with regard to the payments due under the cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- made by the Assessing Officer on account of income tax on perquisite borne by the assessee in respect of accommodation provided to its employees while computing book profit u/s 115JB of the Act. 52. The brief facts of the case are that the Assessing Officer observed that the assessee has claimed deduction of₹ 95,02,478/- u/s 115JB of the Act being amount of tax paid by the assessee in the capacity of employer towards nonmonetary perquisite. The Assessing Officer observed that as per Clause (a) of Explanation (1) of Sub-section (2) of Section 115JB of the Act book profit is to be increased by the amount of income tax paid or payable and the provision therefore. He held that from this, it is clear that income tax paid or payable or provision thereof is to be added to compute the book profit u/s 115JB of the Act. Accordingly, he added ₹ 95,02,478/- to the book profit computed u/s 115JB of the act. 53. On appeal, the Commissioner of Income Tax (Appeals) confirmed the action of the Assessing Officer. 54. Before us, it was argued that perquisite on account of leased accommodation provided in NHPC residential colony was calculated u/s 17(2) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 40(a)(v) and the same do not constitute Income Tax for the assessee in terms of Explanation-2. This view of ours is duly fortified by the judgment of Tribunal rendered in ITO v Vintage Distillers Ltd. [2010] 130 TTJ 79 (Delhi) where the Tribunal has taken the view that the term 'tax' was much wider term than the term 'Income Tax' since the former, as per amended definition of 'tax' as provided in Section 2(43) included not only Income Tax but also Super Tax Fringe Benefit Tax. Therefore, without there being any corresponding amendment in the definition of Income Tax as provided in Explanation-2 to Section 115JB, Fringe Benefit Tax was not required to be added back while arriving at Book Profits u/s. 115JB. Similar view has been expressed in another judgment of Tribunal titled as Reliance Industries Ltd. v. ACIT [IT Appeal No. 5769 (M) of 2013, dated 16-9-2015] where the Tribunal took a view that Wealth Tax' did not form part of Income Tax and therefore, could not be added back to arrive at Book Profits since the adjustment thereof was not envisaged by the statutory provisions. Therefore, we are of the opinion that the adjustment of impugned item as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of Mumbai Bench of the Tribunal in the case of Rashtriya Chemicals Fertilizers Ltd. Vs CIT (2018) 91 taxmann.com 104. 66. The ld. Departmental Representative relied on the orders of the lower authorities. 67. We find that the issue is no more res integra. The Hon ble Bombay High Court in the case of CIT Vs Reliance Industries Ltd. (supra) has held as under: Para 4....In plain terms, clause (a) as noted above refers to amount of income tax paid or payable or the provision made therefor. The legislature has advisedly not included wealth tax in this clause. By no interpretative process, the wealth tax can be included in clause (a). The Revenue, further made a vague attempt to bring this item in clause (c) noted above. Clause (c) would include the amount set aside for provisions made for meeting liabilities other than ascertained liabilities. For applicability of this clause, therefore, fundamental facts would have to be brought on record which in the present case, the Revenue has not done. In fact, the entire thrust of the Revenue's argument at the outset appears to be on clause (a) which refers to the income tax which according to the Revenue wo ..... 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