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TMI Blog2019 (8) TMI 345X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer under section 14A of the Act by applying Rule 8D? 2. Whether, on the facts and in circumstances of the case and in law, the Ld.CIT(A) was right in law in deleting disallowance of Rs. 158,19,47,693/- made by the AO in computing the book profit u/s 115JB on account of provisions made for gratuity, leave encashment, post-retirement medical benefits, LTC, Baggage allowance and Matching Contribution on Leave Encashment even though the assessee has failed to establish these provisions to be of ascertained in nature? 3. Whether, on the facts and in circumstances of the case and in law, the Ld.CIT(A) was right in law in deleting disallowance of Rs. 2,84,51,640/- made by the Assessing Officer in computing the book-profit U/S 115JB in respect of depreciation claimed on land after amortization of land by the assessee even though there is no depreciation allowable on land under Companies Act and no rate of depreciation is provided in schedule XIV of Companies Act?" 2. Appellant, M/s. NHPC Limited (hereinafter referred to as the 'assessee') by filing the present appeal sought to set aside the impugned order dated 16.11.2015 passed by the Commissioner of Income-tax (Appeals), Fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed deduction u/s 80IA in case of four power station projects i.e. Uri Power Station Stage-I, Chamera Power Station Stage - II, Rangit Power Station & Dhuliganga Power Station. The deduction claimed from properties u/s 80IA includes other income. AO declined to include other income of Rs. 2,99,54,875/- for the purpose of computation of deduction u/s 80IA on the ground that no other income except the income from generation and distribution of power is allowable deduction u/s 80IA and thereby disallowed the same and made addition thereof. AO also made addition of Rs. 1,50,50,111/- on account of income-tax on perquisites borne by the assessee in respect of accommodation provided to its employees while computing the book profit u/s 115JB of the Act. 4. From the balance sheet, AO noticed the investment made by the assessee company in the shares and bonds and earned exempt income of dividend and interest on tax free bonds to the tune of Rs. 1,49,74,96,650/- which includes investment bearing interest amounting to Rs. 137,35,63,910/- and investment bearing dividends amounting to Rs. 12,39,32,740/-. AO, invoking the provisions contained u/s 14A read with Rule 8D, disallowed an amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f power is not eligible for deduction u/s 80IA and dismissed the ground raised by the assessee. 11. However, the ld. AR for the assessee contended that the said order passed by the ld. CIT (A) for AY 2010-11 has been set aside by the coordinate Bench of the Tribunal vide order dated 08.05.2019 in ITA No.3650/Del/2015 & 3738/Del2015 for AY 2010-11 and now the issue in controversy is fully covered. 12. On the other hand, ld. DR for the Revenue in order to repel the arguments addressed by the ld. AR for the assessee contended that income directly derived from industrial undertaking is liable u/s 80IA and relied upon the decision of Hon'ble Supreme Court in Conventional Fastners vs. CIT, Dehradun (2018) 256 taxman 61 (SC), Hon'ble Uttaranchal High Court in Conventional Fastners vs. CIT, Dehradun 88 taxmann.com 163 and coordinate Bench of the Tribunal in the case of Conventional Fastners vs. ITO in ITA No.6016/Del/2017 order dated 18.05.2018. 13. Undisputedly, assessee has claimed deduction u/s 80IA qua URI-I, Chambera-II, Dhauliganga and Rangit projects and given the project-wise income detail of such other income as under :- S. No. Particulars URI-I Chamera-II Dhauli- G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Act, 1961; the fact that the allocated interest income from corporate office Rs. 5,22,94,939 and Rs. 3,97,44,811 credited to profit and loss account of Vijaipur unit in the assessment years 1995-96 and 1996-97 is of no consequence as both interest income and interest expenditure are liable to be excluded for the purpose of deduction under section 80-I of the Act." 48. Further, the Hon'ble Delhi High Court in the case of Pr. CIT vs. Bharat Sanchar Nigam Limited reported in 388 ITR 371 explaining the meaning derived from while computing the deduction u/s 80-IA of the Act, has held as under: "8. The question arose in the context of the Assessee being asked to explain why certain specific items categorized as 'other income' and 'extraordinary item' in the Profit and Loss Account in assessment year 2004-05 should not be excluded from the profit and gains of the Assessee. According to the Revenue, these items could not be considered as profits and gains 'derived from' the eligible business for the purpose of deduction under Section 80 IA. The said six items were: (i) Extra Ordinary Items (ii) Refund from Universal Service Fund (iii) Inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess for the first five years and upto 30% for the remaining five years in the ten consecutive assessment years out of the fifteen years starting from the time the enterprise started its operation. The legislature having ousted applicability of sub-section (1) and (2) in the opening sentence brought in for the purposes of time line sub-section (2) into play but made no efforts whatsoever to put the assessee under sub-section (2A) to meet the stringent requirements that the profits so contemplated were to be "derived from". The requirements of the first degree nexus of the profits from the eligible business has not been brought into play." 11. As a result, the orders of both the AO and the CIT (A) to the extent they deny the Assessee, which in this case is in the business of providing telecommunication services, deduction in respect of the above items in terms of Section 80IA(2A) are unsustainable in law and have rightly been reversed by the IT AT." 49. Further, the Hon'ble Gujarat High Court in the case of Nirma Industries Ltd. Vs DCIT (2006) 283 ITR 402 has held as under: "27. Insofar as question No. 2 is concerned, according to the Tribunal s. 80-I of the Act uses the phr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts found itself involved in disputes with the State Government with regard to the payments due under the contracts and upon reference to arbitrators, the award included the principal sum as well as the interest for delay in payment of the principal sum. The assessee claimed that the interest was of the same nature as other trading receipts, but it was held by the Tribunal that the same was 'Income from other sources'. The apex Court laid down: "The assessee is a contractor. His business is to enter into contracts. In the course of the execution of these contracts, he has also to face disputes with the State Government and he has also to reckon with delays in payment of amounts that are due to him. If the amounts are not paid at the proper time and interest is awarded or paid for such delay, such interest is only an accretion to the assessee's receipts from the contracts. It is obviously attributable and incidental to the business carried on by him. It would not be correct, as the Tribunal has held, to say that this interest is totally de hors the contract business carried on by the assessee. It is well settled that interest can be assessed under the head 'Income from o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R for the assessee contended that this issue is also covered in assessee's own case passed by the Tribunal in AY 2010-11 (supra), which fact has not been controverted by the ld. DR for the Revenue. 19. Coordinate Bench of the Tribunal in assessee's own case for AY 2010-11 (supra) has decided the issue by returning following findings :- "60. We find that the Tribunal in the case of Rashtriya Chemicals & Fertilizers Ltd. Vs CIT (supra) has held as under: "Para 8.........We further find that taxes borne by the assessee on non-monetary perquisites provided to employees forms part of Employee Benefit cost and akin to Fringe Benefit Tax since they are certainly not below the line items since the same are expressively disallowed 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HDC Rs. 1002.42 crores 2 Loktak Downstream Hydro Corpn. Ltd. Rs. 44.40 crores 3 Power Trading Corporation Rs. 12.00 crores 4 Indian Overseas Bank Rs. 0.36 crores 5 National Power Exchange Ltd. Rs. 2.19 crores 6 National High Power Testing Laboratory Rs. 2.62 crores Rs. 1063.99 crores 23. Ld. CIT (A) examined the issue at length and deleted the addition by returning following findings :- "10. Perusal of the submissions made by the appellant show that the NHDC is a subsidiary company of the assessee in which investment has been made as per the sanction order of Govt. of India, Ministry of Power, vide DO No. 22/3/2000 / 28.3.2002 and order No. 34/1/2003/DO/NHPC dated 29.5.2003, out of budgetary support and equity capital invested by the Govt. to the extent of Rs. 772.42 crores. The balance investment of Rs. 312.42 crores has been made in the shares of subsidiary company out of funds raised from the issue of '0' series bonds. The Investment in Loktak Downstream Hydro Corpn Ltd., National High Power Testing Laboratory, PTC, Indian Overseas Bank and National Power Exchange has been stated to be out of internal accruals. The n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finding the submissions of the appellant as unsatisfactory. The identical issue was also involved in the case of appellant for A.Y. 2008-09 and AY 2010- 11 and as per the detailed discussion vide para 6.4 of order dated 2.1.2012 in appeal No. 276/2010-1 after considering the provisions of law and legal position emerging from relied upon judicial rulings, this issue has been decided in favour of the appellant by CIT(Appeals)., Following the order of my predecessor in A.Y. 2009-10 and my own order for AY 2010-11 which is squarely applicable this year also the addition of Rs. 41,34,68,339/- made by the AO by invoking section 14A of the Act is directed to be deleted. The Ground No.3 of appeal is allowed." 24. The ld. AR for the assessee challenging the impugned order contended that the identical issue has been decided by the coordinate Bench of the Tribunal in AYs 2009-10 & 2010-11 in ITA Nos.424/Del./2013 and 3650/Del/2015 & 3738/Del/2015 respectively in assessee's own case and further contended inter alia that the AO has invoked the provisions of section 14A without recording his dissatisfaction qua the claim of the assessee that no expenditure has been incurred to earn the divide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rule 8D of the Rules. Thus, Rule 8D is not attracted and applicable to all assessee who have exempt income and it is not compulsory and necessary that an assessee must voluntarily compute disallowance as per Rule 8D of the Rules. Where the disallowance or "nil" disallowance made by the assessee is found to be unsatisfactory on examination of accounts, the assessing officer is entitled and authorised to compute the deduction under Rule 8D of the Rules. This pre-condition and stipulation as noticed below is also mandated in sub Rule (1) to Rule 8D of the Rules." After going through the other cases also, relied upon by the ld. AR, we find that the AO has not recorded the satisfaction envisaged by the statute before invoking the computation provided for under Rule 8D, which vitiates the impugned order. We also find that in assessee's own case for the previous year also, the Tribunal has deleted the addition made by the AO on this account. Therefore, we uphold the order of the CIT (A) on this issue. This ground of revenue's appeal is dismissed." 26. So, following the decision rendered by the coordinate Bench of the Tribunal in identical set of facts, we are of the considered view t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax. However, where the tax liability of the company under regular provisions is more than this amount, the company shall pay income tax according to the regular scheme. "Book profits" has been defined by the Explanation added to this Section whereunder it provides that net profit as shown in the profit and loss account for the relevant previous year prepared in accordance with the provisions of Part II and III of Schedule VI to the Companies Act, 1956 shall be increased by amounts specified in Clauses (a) to (g), if any amount referred therein is debited to the profit and loss account and reduced by the amount mentioned in clauses (i) to (viii) therein. 8. Clause (c) of the Explanation reads thus:- "the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities." 9. According to the assessee, it had made provisions for gratuity, leave encashment and post retirement medical benefit on actuarial valuation. It is not disputed that the assessee-respondent is following mercantile system of accounting. The claim of the assessee is that these provisions have been made on actuarial valuation and cannot be added for determining book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en estimated on actuarial basis and was a liability which was created in praesenti though it was to be discharged at a future date. It was further recorded that the provisions which were created in respect of gratuity, leave encashment and post retirement medical benefit on actuarial basis had been estimated with reasonable certainty and, therefore, such an estimate cannot be treated to be contingent one. It was also observed that the provision made by the assessee in respect of gratuity, leave encashment and post retirement medical benefit on actuarial basis cannot be said to be provisions of unascertained liabilities so as to fall under clause (c) of the Explanation to Section 115JB (2) of the Act." 31. Following the decision rendered by Hon'ble Punjab & Haryana High Court in assessee's own case for AY 2002-03 (supra) and subsequent decisions rendered by the Tribunal for AYs 2004-05 to 2010-11, we are of the considered view that the ld. CIT (A) has rightly held that provision for gratuity, leave encashment, post-retirement medical benefits, LTC, baggage allowance and matching contribution on leave encashment had been estimated on actuarial basis and was liability which was cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Further the accounts so prepared has been approved and adopted by the company in the Annual General Meeting and filed with the Registrar of Companies. 8. The Supreme Court in the case of Apollo Tyres Ltd. (Supra) has held that the AO under the Income-tax 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 the 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. 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 p ..... 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