TMI Blog2018 (9) TMI 1924X X X X Extracts X X X X X X X X Extracts X X X X ..... the proceedings and unnecessary litigation. - onsidering the peculiar circumstances of the case, we propose to limit the disallowance on an ad-hoc basis @ 1% of the dividend/exempt income as per the clause (f) to Explanation-1 of Sec. 115JB of the Act. MAT - computation of book profit u/s 115JB - additions on account of amount written back - the amount of interest was waived off by the Vijaya bank - Held that:- it can be safely presumed that the effect of provision created for interest expenses in the earlier years have been duly given and offer to tax under the provision of MAT. Accordingly, the assessee cannot be made liable for paying tax under the provision of MAT for the year in which it was written back. - Additions deleted. Interest liability u/s 234B and 234C - Held that:- it is clear that there was a shortfall in the payment of advance tax on account of the retrospective amendment, but there will be no interest liability u/s 234B and 234C of the Act in terms of judgment as discussed above. Thus the ground of the assessee is allowed. - ITA No.1115/Ahd/2011, 1170/Ahd/2011, 208/Ahd/2012, 419/Ahd/2012, 2473/Ahd/2012, 2556/Ahd/2012, Cross Objection No.106/Ahd/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nses rclatable to exempt income. It is submitted that the aforesaid amount includes expenses which are in no way directly or indirectly relatable to earning exempt dividend income and therefore the same cannot be included while apportioning expenses relatable to exempt income. It is submitted that it be so held now. 2.3 Without prejudice to any of the foregoing, if at all it is held that some amount out of administrative and promotion expenses are to be disallowed u/s 14A of the Act, the disallowance confirmed by CIT (A) at ₹ 25,00,000/- is highly excessive and arbitrary and the same may please be suitably reduced. 3. The learned CIT(A) erred in law and on facts in directing the A.O. that dividend income net of adjustment of expenses made for earning it, being disallowance u/s 14A of the Act, be reduced from the book profits computed u/s 115)13 of the Act. It is submitted that the appellant, has not incurred any expenses for the purpose of earning dividend income and thereby the entire dividend income is required to be reduced from book profits computed u/s 115]B of the Act. It is submitted that it be so held now. 3.1 The learned CIT(A) erred in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30,27,000.00 from the book profit calculated u/s 115JB of the IT Act. 4. The learned CIT(Appeals) has erred in law on facts in directing the AO to allow deduction of dividend income from the book profit calculated u/s.115JB of the IT Act. 5. On the facts and circumstances of the case the ''Ld.AO''.CIT(A) ought to have upheld the order of the Assessing Officer. 6. It is therefore prayed that the order of the learned CIT(Appeals) may be set aside and that of the A.O be restored to the above extent. First, we take up assessee s appeal in ITA No. 1170/Ahd/2011 for Assessment year 2007-08. The first issue raised by the assessee is that Ld. CIT(A) erred in restricting the disallowance of ₹ 25,00,000/- on an ad-hoc basis for earning exempted income. 3. Briefly stated facts are that assessee is a limited company and engaged in the financing activities. It provides finance to industries by way of the term loan, financial services and implementation of joint and associated sector projects in the state of Gujarat. Assessee during the year has earned exempted income amounting to ₹ 3,25,15,594/- which was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... II (A) X(B) /(C) ₹ 6,25,83,251 III 5% of the average value of investment on which tax free income is received or receivable. ₹ 84,81,427 IV Total ₹ 7,10,64,678 3.4 In view of the above, AO disallowed expense of ₹ 7,10,64,678/- under the provision of section 14A of the Act and added to the total income of the assessee. 4. Aggrieved assessee preferred an appeal before Ld.CIT(A). The reply of the assessee before Ld. CIT(A) is two folds as detailed under:- 4.1 Disallowance of administrative expenses 4.1.1 The assessee submitted that the AO had taken the gross value of the investment for making the disallowance as per the formula, given in Rule 8D of the Income Tax Rule. As per the assessee, the AO has failed to consider the provision made in the books of accounts in respect of non-performing asset. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t capital gains on sale of such investments. The expenditure related to it is also not allowable and is to be disallowed u/s.14A, because long term capital gains on sale of such equity is exempt. The assessee has started taking decisions about sale of such equity is also. All this requires considerable management time and expenses. Looking to and prom expenses are over ₹ 5 crores and other expenses also requires to be proportioned; I uphold a disallowance of ₹ 25,00,000/- u/s.14A of the Act. The balance addition is deleted. Being aggrieved by the order of Ld.CIT(A) both the assessee and Revenue are in appeal before us. The assessee is in appeal against the confirmation of disallowance made by the Ld.CIT(A) for ₹ 25,00,000/- on account of administrative expenses. 5. On the other hand, the Revenue is in appeal against the reduction of disallowance made by the Ld.CIT(A) from ₹ 7,10,64,678/- to ₹ 25,00,000/- only i.e. 6,85,64,678.00. The Revenue has raised the ground N. 2 of appeal as detailed under: The learned CIT(Appeals) has erred in law and on facts in restricting the disallowance u/s.14A of the Act from R.7,10,64,678/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n relation to the exempt income before the CIT(Appeals). However, the same was not considered by Hon ble CIT(Appeals) Without prejudice to the submission at ground no. 2.1 above, it is submitted that at most disallowance of ₹ 58,000 as per the computation provided by the appellant be confirmed by the CIT (Appeals) be deleted. 7. On the other hand the Ld. DR submitted that the exempted income could not be earned without incurring the expenses. Therefore the expenses incurred in relation to such income needs to be disallowed. The ld. DR in support of his claim extended his reliance on the judgment of the Hon ble Supreme Court in the case of Maxopp Investment Limited Vs. CIT reported in 402 ITR 640. 8. We have heard the rival contention and perused the materials available on record. The issue in the instant case relates to the disallowance made by the Ld.CIT(A) for ₹ 25,00,000/- on account of the expenditure incurred in relation to exempted income. It is an undisputed fact that the Ld CIT-A made the disallowance on the ad-hoc basis. There is also no ambiguity that provisions of Rule 8D are applicable from the assessment year 2008-09. In this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made as there was no one to one correlation between the own fund of the assessee and investment made in the shares. 9.1 Regarding the administrative expenses, the ld. DR submitted that the expenses incurred in relation to such income need to be disallowed. The ld. DR in support of his claim placed his reliance on the judgment of the Hon ble Supreme Court in the case of Maxopp Investment Limited Vs. CIT reported in 402 ITR 640. The ld. DR vehemently supported the order of the AO. 10. On the other hand, the Ld AR before us submitted as under: It is submitted that the entire investment are from interest free own funds and that no borrowed funds have been utilized in respect of the same. In this regard, in similar facts and circumstances in appellant s won case, the Hon ble ITAT has deleted disallowance of proportionate interest expenditure in AY 2005-06 and AY 2006-07 holding that no borrowed funds have been invested in tax free income yielding shares. (page 13-14, para 6 for AY 2005-06 and page 25-26, para 18 for AY 2006-07). During the year under consideration, in fact there is a reduction in investment and hence findings of the earlier year s ITAT or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO while working out the tax liability under the provision of section 115JB of the Act has added the amount of disallowance made u/s 14A r.w.r. 8D of the Income Tax Rule by ₹ 7,10,64,768/- only 14. Aggrieved assessee preferred an appeal before Ld CIT(A) who has confirmed the order of AO by observing as under: It has already been decided that certain part of expenses have been incurred for earning the exempt income. These expenses are not notional but part of actual expenses which have been incurred, and have been correctly apportioned. Clearly net exempt income i.e net expenses incurred on earning it is only required to be reduced. The AO is accordingly directed to reduce this amount from the book profit subject to adjustment of expenses made for earning it. Being aggrieved by the order of the Ld. CIT(A) assessee is in appeal before us. 15. The ld. AR for the assessee before us submitted as under: Dividend income of ₹ 3,25,15,594/- is exempt under section 10(34) of the Act. The appellant has contended that it has not incurred any expenses relatable to income exempt from tax. Hence the appellant has not added any amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vidence on record and considering the decision of this court in the case of Commissioner of Income Tax I vs. Gujarat State Fertilizers Chemicals Ltd. (supra), we are of the opinion that issue Nos. (iii) and (iv) required to be answered in favour of the assessee and against the revenue. In that view of the matter, we answer questions (iii) and (iv) referred to us in favour of the assessee and against the revenue. The appeal of revenue is dismissed. 17.2 We also note that in the recent judgment of Special Bench of Hon ble Delhi Tribunal in the case of ACIT vs. Vireet Investment Pvt. Ltd. reported in 82 Taxmann.com 415 held that the disallowances made u/s 14A r.w.r. 8D cannot be the subject matter of disallowances while determining the book profit u/s 115JB of the Act. The relevant portion of the said order is reproduced below: In view of above discussion, the computation under clause (f) of Explanation 1 to section 115JB(2), is to be made without resorting to the computation as contemplated under section 14A, read with rule 8D of the Income-tax Rules, 1962. 17.3 The ratio laid down by the Hon ble Tribunal is squarely applicable to the facts of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct to workout/ determine the disallowance. Therefore in the given facts circumstances, we feel that ad-hoc disallowance will serve the justice to the Revenue and assessee. Therefore to put the dispute to rest in given facts circumstances, we direct for the ad-hoc disallowance to avoid the multiplicity of the proceedings and unnecessary litigation. 17.8 We also feel to bring this fact on record that we have restored other cases involving identical issues to the file of AO for making the disallowance as per the clause (f) to Explanation-1 of Sec. 115JB of the Act independently. But now we are of the view that as there is no mechanism provided under the clause (f) to Explanation-1 of Sec. 115JB of the Act to make the disallowance independently, therefore there would be unnecessarily further litigation if the matter is sent back to the file of AO. 17.9 Thus, considering the peculiar circumstances of the case, we propose to limit the disallowance on an ad-hoc basis @ 1% of the dividend/exempt income as per the clause (f) to Explanation-1 of Sec. 115JB of the Act. Thus the ground of appeal of the assessee is partly allowed. 18. The third issue raised by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s material only with respect to section 43B. In the absence it would have been deductibile expense even under normal provisions of income tax act. Assessee s claims fails on all accounts, it is neither being contingent liability nor a provision made but an actual claim debited to the profit and loss account. (iv) The Hon ble Supreme Court in the case of Apollo Tyres 255 ITR 273, had held that no adjustments to the book profits as per the audited accounts are permissible, beyond what is specifically mandated in section 115JA/JB. No remission of an expense, correctly credited to the profit and loss account by the assessee as its income; forming part of its profit as per audited account can be allowed as deduction later on. The AO s decision on this account is fully justified and is upheld. The assessee s plea to this extent raised in the ground is rejected. 20.1 Aggrieved by the order of Ld. CIT(A) assessee is in appeal before us. The Ld. AR before us submitted as under : During AY 2007-08 appellant has credited to profit Loss Account of ₹ 13,72,02,294/- which represents reversal of interest payable to Vijaya Bank which was provided d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of the clause (i) of explanation to 115JB of the Act which reads as under: 79[Special provision for payment of tax by certain companies. 80 115JB. (1) XXXXXXXXXXXXXXXXXXXXXXXXXXXXX (2) XXXXXXXXXXXXXXXXXXXXXXXXXX Explanation 86[1].-XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX if any amount referred to in clauses (a) to (i) is debited to the profit and loss account or if any amount referred to in clause (j) is not credited to the profit and loss account, and as reduced by,-]]] 94[(i) the amount withdrawn from any reserve or provision (excluding a reserve created before the 1st day of April, 1997 otherwise than by way of a debit to the profit and loss account), if any such amount is credited to the profit and loss account: Provided that where this section is applicable to an assessee in any previous year, the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the 1st day of April, 1997 shall not be reduced from the book profit unless the book profit of such year has been increased by those reserves or provisions (out of which the said amount w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income under normal provisions was more. In that situation it is to be presumed that the provision was added back to the book profit of that year. Even by means of Explanation ( g)introduced to section 115JA by the Finance (No. 2) Act, 2009, with retrospective effect from April 1, 1998 the provision for bad and doubtful debts would be deemed to have been added back in computing the book profit in that year and so the amount, now credited to the profit and loss account, is to be reduced by virtue of the provision of section 115TB. In view of this there is justification in the assessee's contention in claiming the provision as deduction in the computation of book profit in this year. On the fact that the assessee had been disallowed in that year under the normal computation and by virtue of the amendment now brought with retrospective effect from April 1, 1998, the provision for bad debt is deemed to have been added back in that year withdrawal and crediting into the profit and loss account now results in double taxation. Consequently, the assessee is correct in excluding the amount while computing the income under section 115JB. Accordingly the ground is allowed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. The appellant had made provision for NPA of ₹ 30,87, 00,640/- which as per the amended provisions was required to be added back to the profit and loss account. The appellant voluntarily offered the same to tax during course of assessment proceedings. Hence the book profit has been arrived after considering the retrospective amendment to Section 115JB of the Act. Interest under section 234B and 234C has arisen purely due to the addition of provision for NPA of ₹ 30.87 Crores made consequent to the retrospective amendment. In absence of retrospective amendment referred above, no advance tax would have been payable by the appellant. The appellant couldn t be expected to pay advance tax based upon the total income computed having regard to a retrospective amendment made several months after it filed its return of income. Accordingly, the levy of interest u/s.234B and 234C is not justified in the facts of the case. Reliance is placed on the following decisions Decision of Hon ble ITAT Chandigarh on case of Hindson International Vs. Income Tax Officer [2010] 33 TTJ 83 (CHD) Decision of Hon ble Kolkatta High Court in the case of Emam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 006-07. The assessee claims that it has offered/ disallowed the said interest expenses under the provision of section 43B of the Act under the relevant year. Thus such amount of interest expenses has suffered the taxes in the earlier years. Therefore the same should be allowed as deduction while determining the total income of the assessee under normal computation of income. 31.1 However, the AO disagreed with the submission of the assessee and made disallowance of the deduction claim by it for ₹ 13,72,02,294/- only. 32. Aggrieved assessee preferred an appeal before Ld.CIT(A). The assessee before the Ld.CIT(A) submitted that it has already offered the impugned amount of interest expenses written back to tax by virtue of the provisions of section 43B of the Act. 32.1 The Ld.CIT(A) called for the remand report from the AO on the submission filed by the assessee. The AO in his remand report has not admitted the claim of the assessee by observing that there was no detail available justifying that the interest was payable to Vijaya Bank. The assessee in response to the remand report filed letter from C.A. certifying that the impugned interest expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axable income in the year in which it was written back. Therefore, the addition made by the assessing officer cannot be sustained and is deleted. 32.3 Being aggrieved by the order of Ld.CIT(A) Revenue is in appeal before us. 33. The ld. DR before us vehemently supported the order of the AO. 34. On the contrary, the ld. AR for the assessee before us submitted as under: The amount of ₹ 13,72,02,294/- is a part of ₹ 3207.53 lacs which has been written back to profit and loss account as remission of interest. The amount of ₹ 13,72,02,294/- pertains to interest waived by Vijaya Bank Ltd. and no longer payable by the company and hence credited to profit and loss account. The amount of interest payable to Vijaya Bank has been disallowed by the assessee in all respective assessment years from A.Y. 2002-03 to A.Y. 2006-07 u/s.43B(e) of the Act. The assessee has claimed exclusion of interest waived during the year under the premise that the amount when charged to profit and loss account was offered to tax by disallowing the same u/s 43B (e) of the Act. Hence in the year of written back of such provision for interest the amount has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de the addition of the fringe benefit tax of ₹ 30,27,000.00. 39.1 However Ld.CIT(A) deleted the same by observing as under: The AO disallowed Fringe benefit tax of ₹ 30,27000/- claimed as expenses when it is explicitly allowable as per CBDT circular no.8/2005 dated 29/08/2005. In answer to FAQ no.103, CBDT has answered that Accordingly, the FBT is an allowable deduction in the computation of book profit under section 115JB of the Act. The expense is clearly a business expense and only for the purpose of computation of income under the head income from business profession this has been made not allowable, by a specific provision. This is allowable deduction while working the book profit, which has been correctly done by the assessing. The disallowance by the directed to be deleted. 39.2 Being aggrieved by the order of the Ld. CIT(A) Revenue is in appeal before us. 40. At the outset, we find that the CBDT in its circular no.8/2005 dated 29/08/2005 has held that the FBT is an allowable deduction in the calculation of book profit under the provision of section 115JB of the Act. Therefore, we do not find any reason to interfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nfirming disallowance of ₹ 71,00,603/ on account of proportionate administrative expenditure related to exempt income inspite of the fact that the A.O. had not: recorded satisfaction that disallowance of ₹ 1,00,000/- made by the appellant at the time of filing of return of income was incorrect. It is submitted that it be so held now. 2.2 The learned CIT(A) erred in law and on facts in rejecting the disallowance of administrative expenditure related to exempt income of ₹ 1,00,000/- made by appellant in its return of income on the ground that no basis for working of disallowance made was provided by the appellant and the estimate was ad hoc. It is submitted that it be so held now. 2.3 While computing disallowance under section 14A as per Rule 8D, the learned CIT(A) erred in not considering the average investment at net of Provision for NPA. In the facts circumstances of the case the same have to be considered net of provision. It is submitted thai it be so held now. 3. The learned CIT(A) erred in making addition by way of the disallowance of ₹ 71,00,603/ made under section 14A r.w.r. 8D to the book profit while computing deemed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total ₹ 8,51,69,489/- 6.3 The AO in view of the above-made disallowance of ₹ 8,50,69,489/- (₹ 85169489 - amount already disallowed ₹ 1,00,000/-) under the provision of section 14A r.w.r. Rule 8D of the income tax Rule and added to the total income of the assessee. 47. Aggrieved assessee preferred an appeal to Ld.CIT(A). The assessee before the Ld. CIT(A) submitted that there was no borrowed fund invested in the impugned investment. Therefore there should not be any disallowance on account of interest expenses. 47.1 The assessee also submitted that the AO had taken the gross value of investments without considering the provision made for NPA in respect of such investment while making the disallowance under section Rule 8D of Income Tax Rule. 47.2 The assessee also submitted that the income earned from the investment in Gujarat Venture Capital Fund is not free from tax. Therefore the same should not be considered while working out disallowance under Rule 8D of the Income Tax Rule. 47.3 The assessee also submitted that it had offered the long- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and require considerable energy and time to be spent on managing them. Under the Rule 8D, it is only mentioned average value of investments and it is not mentioned that such investment should be considered after deducting provision for NPA. However, the investment in Gujarat venture Capital Fund is not yielding tax free income but in facts any income from it is taxable; and therefore the same should not have been considered while working out average value of investment on which tax free income is receivable. Therefore, correct amount to be worked out by way of disallowance for the purpose of Rule 8D comes to ₹ 72,00,630/- as mentioned in succeeding para 5.2.3.. 5.2.3 As regards other expenses, since the assessment under consideration is A.Y. 2008-09, Rule 8D would be applicable , which was not the case for A.Y. 2007-08 and therefore the disallowance of other expenses is required to be made on the basis of the formula specified in Rule 8D, which amounts to ₹ 72,00,630/- after the appellant's estimate has been held to be correctly rejected (refer para 5.2.2) as under: Proportionate indirect expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of share capital during the year under consideration is itself ₹ 256.98 crores as against investment of ₹ 103 crores which evidently shows that the company had made investments outs of it own funds. The investment have reduced during the year under consideration from ₹ 117.69 crores to 103 crores. Hence, the appellant has sold investment during the year under consideration. The manner of investments is a business decision and should not be questioned in absence of any material to the contrary. The ''Ld.AO had made the disallowance without establishing that indirect expenditure was in fact incurred by the appellant which warranted proportionate disallowance. CIT(A) has erred in confirming the action of the AO. Moreover, no satisfaction has been recorded by ''Ld.AO regarding the incorrectness of disallowance made by the appellant in the statement of computation of total income of ₹ 100,000/- (which is the requirement of computation of total income of ₹ 100,000/- (which is the requirement for computing disallowance under section 14A as prescribed under rule 8D) and has resorted to the computation mechanism provided in Rule 8D r.w section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. Rule 8D(2)(iii) 71,00,630.00 50.3 Regarding the deletion of interest expenses, we at the outset note that the own fund of assessee exceeds the investment as shown in the balance sheet as on 31/03/2008. In the identical facts circumstances in the own case of the assessee, we have already deleted the addition made by the AO in ITA no.1115/Ahd/2011 vide paragraph no. 11 of this order. 50.4 Regarding the deletion of administrative expenses for ₹ 4,29664.00, we have already restored this issue to the file of AO for fresh adjudication as per the provision of law and direction given in ITA No. 208/Ahd/2012 an appeal filed by the assessee vide paragraph no. 51 of this order. 50.5 Respectfully following the same we do not want to disturb the findings of Ld. CIT(A). Hence the ground appeal of the Revenue is dismissed. Adjudication of assessee ground of appeal: 51. Now coming to the disallowance under Rule 8D(2)(iii) of the Income Tax Rule, we note that the Rule 8D has been made applicable from the year under consideration. The assessee has not provided t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tistical purposes. 52. The second issue raised by the assessee in the ground no. 3 is that Ld.CIT(A) erred in making the addition of ₹ 71,00,603/- disallowed under the provision of section 14A r.w.r. 8D while calculating book profit under the provision of MAT. 53. At the outset we note that the identical issue raised by the assessee in ITA 1170/Ahd/2011 has already been adjudicated by us vide Para no. 17 of this order. Respectfully following the same, we direct the AO to calculate book profit after making the disallowance as directed herein above. Thus the ground of appeal of the assessee is partly allowed. 54. The third issue raised by the assessee in this appeal in the ground no. 4 is that Ld. CIT(A) erred in making the addition of ₹ 15,46,64,446/- being the provision for diminution in the value of investment written back while calculating profit u/s.115JB of the Act. 55. The assessee during has written back the provision created on account of the diminution in the value of investments for ₹ 15,46,64,446.00. The assessee created such provision in the assessment year 2006-07 and claimed that the same was disallowed in the n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can not result in income when such provision is written back. Therefore, this ground of appeal of the appellant is allowed. Under MAT computation of Income 4.2.2 As regards ground No.2.2, the A.R. of the appellant has raised a legal contention that since due to retrospective amendment in law w.e.f. A.Y. 2001-02, the book profit of the earlier A.Y. 2006-07 is required to be rectified by making addition to that year's book profit and the same has to be excluded while computing book profit u/s 115JB in the year under consideration being the year of write back in view of clause (i) of Explanation to section 115JB. I find from the paper book at page No.59 to 61 that the appellant has preferred rectification application for A.Y. 2006-07, which appears to be pending before A.O. The A.O. is directed to adjudicate the said rectification application and thereafter if the same is found to be correct and the amount is considered as liable to addition in the A.Y, 2006-07; then in that case he is directed to reduce the book profit of the year under consideration following clause(i) of Explanation to section 115JB. With this direction, ground no.2.2 is disposed of. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e reduced while computing book profit in accordance with clause (i) of Explanation 1 to Section 115JB as reproduced above. Therefore, the book profit for A.Y. 2006-07 must be considered to have been increased by ₹ 82.70 crores being provision for NPA (including the above amount of ₹ 15.46 crores) for A.Y. 2006-07 and therefore the condition as specified by proviso to clause (i) as reproduced above is also fulfilled. The appellant has also vide rectification application for A.Y. 2006-07 dated 19/08/2010 (and subsequent reminder dated 22/12/2010 io dispose off the rectification application dated 19/08/2010) has requested the A.O. to add the provision tor NPA of ₹ 82.70 Crores (including provision for diminution in value of investment of Rs, 15.46 Crores) to the book profit for A.Y. 2006-07 in view of the retrospective amendment brought to Explanation 1 to Section 115JB by Finance (No. 2) Act, 2009 as per which provision for diminution in value of an asset is required to be added back while computing book profit. It is submitted that this action on the part of the appellant should be considered to have fulfilled the condition envisaged by prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the same we note that there was a loss under MAT computation for ₹ 84,72,03,737.00. Accordingly, we are of the view that the assessee not liable to pay tax under MAT even after making the addition of the provisions made in the AY for ₹ 15,46,64,446.00. Thus it is implied that the assessee has offered the provision created in the AY 2006-07 for the diminution in the value of assets to tax under MAT provision. In holding so we find support and guidance from the order of Mumbai Tribunal in the case of Kochi Refinery Ltd. Vs. DCIT reported in 4 ITR (Trib) 95. The relevant extract of the order is reproduced below: 33. We have considered the arguments of learned counsel and the learned Departmental representative. It is an admitted fact that the provision for bad and doubtful debts was made in the financial year relevant to the assessment year 199899 and the same amount was added back in the regular computation. By virtue of law, it is the duty of the Assessing Officer to compute the normal total income and also the book profit under section 115JA in that year and then compare and decide to invoke the normal provisions of the Act or special provisions of book pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Amount Rs. Amount Rs. 1. BUSINESS INCOME: Net profit as per Profit and Loss Account 1,39,640,216 Add: Disallowances/Items treated separately: Depreciation 3,853,921 Unpaid Leave Salary 1,291,978 Unpaid Interest on Bank Line of Credit 24,609,375 Preliminary Expenditure written off 3,985,000 VRS Expenditure 6,912,699 Fringe Benefit Tax 442,160 Donations - Investments written off 1,342,000 Prior Period Expenses 979,496 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 10(38) on account of payment of Security transaction Tax on the same. 2 The learned CIT(Appeals) has erred in law and on facts in restricting the disallowance made u/s 14A of the I T Act from ₹ 8,50,69,489/- to ₹ 71,00,630/- by holding that no disallowance to be made in connection with the interest expenses although assessee has incurred interest expenses of ₹ 12,13,25,930/- during the year and also directing that investments in Gujarat Venture Capital Fund to be reduced for working out the disallowance. 3 The teamed CIT(Appeals) has erred in law and on facts in directing the AO to modify addition to book profit of disallowance made u/s 14A of the Act from ₹ 8,51,69,489/-to ₹ 72,00,630/- after restricting the addition to that extent. 4 The learned ClT(Appeals) has erred in law and on facts in directing the AO to allow deduction of Fringe Benefit Tax of ₹ 3.13.655/- and Security Transaction Tax of ₹ 38,031/- from the book profit calculated u/s 115JB of the IT Act. 5 On the facts and circumstances of the case the Ld.CIT(A) ought to have upheld the order of the Assessing Officer. 6 It is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore we are of the view that no addition on account of Security Transaction Tax can be made in calculating book profit u/s 115JB of the Act. In view of above we do not find any reason to interfere in the findings of Ld.CIT(A). Hence the ground of appeal of the Revenue is dismissed. 72. In the result, the appeal of the Revenue is dismissed. 73. Now coming to the ITA No.2473/Ahd/2012 appeal by the assessee and ITA No.2556/Ahd/2012 appeal by the Revenue for A.Y 2009-10. 73.1 First we take up the appeal filed by the assessee in ITA No. 2473/Ahd/2012. 73.1.1 Assessee has raised the following grounds of appeal: Your Appellant being dissatisfied with the order passed by the Learned Commissioner of Income Tax (Appeals) - Gandhinagar presents this appeal against the same on the following amongst other grounds of appeal which are without prejudice to each other: 1. The order passed by the Commissioner of Income Tax (Appeals) is erroneous and requires to be modified. It is submitted that it be so held now. 2. The learned CIT(A) erred on facts and in law in confirming disallowance of ₹ 76,95,549/- under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it be so held now. 3 The learned CIT(A) erred in making addition by way of the disallowance of ₹ 76,95,549/- made under section 14A r.w.r. 8D to the book profit while computing deemed total income u/s 115JB of the Act. It is submitted that it be so held now. 4 The learned CIT(A) erred on facts and in law in not directing the A.O. to reduce the book profit u/s 115JB by ₹ 10,05,64,8047- being provision for diminution in value of investment written back in view of clause (i) to Explanation 1 to Section 115JB but instead subject to the AO adjudicating the rectification application for AY 2006-07 and if the same was found to be correct then reduce the book profit following clause (i) of Explanation 1 to Section 115JB. It is submitted that in the facts and circumstances of the case the learned CIT(Appeals) should have granted such deduction in terms of clause (i) of explanation 1 to Section 115JB without making it subject to the AO passing necessary rectification order for AY 2006-07. It is submitted that it be so held now. Your appellant prays for leave to add, to alter and/ or to amend all or any of the grounds before the final hearing of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the disallowance of administrative expenses under rule 8D(2)(iii), has already been adjudicated by us in the ground of appeal no.1 raised by the Assessee pertaining to assessment year 2008-09 in ITA 208/Ahd/2012. The issue was decided partly in favor of the assessee for statistical purposes by us vide Para No.51 of this order. 74.2 Therefore respectfully following the same we allow the ground of appeal of the assessee in part in terms of the direction as stated above. Regarding the disallowance of interest expenses ₹ 12,39,069.00 74.3 At the outset we note that the owned fund of the assessee exceeds the investment. Thus there cannot be any disallowance on account of interest expenses. We have already adjudicated the issue in favor of assessee in the ground of appeal no. 2 raised by the Revenue pertaining to the assessment year 2007-08 in ITA 1115/Ahd/2011 vide Para No.11 of this order. 74.4 Therefore respectfully following the same the ground of appeal of the assessee is allowed. 75. The next issue raised by the assessee in the ground no. 3 is that Ld.CIT(A) erred in making the addition of ₹ 76,95,549/- disallowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee pertaining to the assessment year 2008-09 in ITA 208/Ahd/12 has been adjudicated in favor of assessee vide Para No. 60 of this order. Therefore, respectfully following the same, we do not find any reason to interfere in the findings of Ld. CIT(A). Hence the ground of appeal of Revenue is dismissed. 84. The third issue raised by Revenue in the ground no. 2, 3 and 4 is that Ld.CIT(A) erred in restricting disallowances made by the AO for ₹ 7,05,34,961/- to ₹ 77,95,549/- . 85. At the outset, we note that the impugned ground of appeal has already been adjudicated along with the ground of appeal raised by the assessee in ground no.2 3 ITA No. 419/Ahd/2012 vide Para No. 69 of this order. Therefore respectfully following the same we dismiss the ground of appeal raised by Revenue. 86. Next issue raised by the Revenue in this appeal is that Ld.CIT(A) erred in deleting the addition made on account of fringe benefit tax and security transaction tax amounting to ₹ 3,01,590/- and ₹ 72,131/- respectively while computing book profit u/s.115JB of the Act. 87. At the outset, we note that the issue of fringe benefit tax and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es is applicable to computation of total income under chapter IV whereas the book profit is being calculated under chapter XII-B of the Act, which is an independent code in itself. It is submitted that it be so held now. 2. In the event that income from Sales Tax Deferral Scheme of Government of Gujarat of ₹ 4.49 crores is held to be taxable during the year under consideration for which department is in appeal vide Ground no. 2, a direction should be given to the learned AO to exclude the same from the total income of the appellant in AY 2004-05 so as to avoid double taxation of the same income in the hands of the appellant. It is submitted that it be so held now. The Cross objector prays for leave to add, alter and/or amend all or any of the grounds before final hearing of the Cross objection. 90. The first issue raised by the assessee in its CO in its ground No. 1 1.1 is that Ld.CIT(A) has erred in confirming the disallowance of administrative expenses for ₹ 62,76,481/- under clause (iii) of Rule 8D r.w.s 14A of the Act. 91. At the outset, we note that the issue of the disallowance of administrative expenses under rule 8D(2)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... twice. 3. The learned CIT(Appeals) has erred in law and on facts in allowing the assessee to reduce ₹ 24,64,63,1407- on account of NPA provisions written back, while computing the book profits u/s.115JB. 4. The learned CIT(Appeals) has erred in law and on facts in directing the AO to give the benefit for prior period adjustment of ₹ 4,82,975/- while computing income u/s.115JB. 5. On the facts and circumstances of the case the Ld.CIT(A) ought to have upheld the order of the Assessing Officer. It is therefore prayed that the order of the learned CIT(Appeals) may be set aside and that of the A.O. be restored to the above extent. 98. The First issue raised by Revenue in this appeal is that the Ld.CIT(A) erred in deleting the addition for ₹ 24,64,63,140/- being provision for diminution in the value of the investment. 99. At the outset, we note that the identical issue in the ground no. 1 of appeal of the Revenue pertaining to the assessment year 2008-09 in ITA 419/Ahd/12 has been adjudicated in favor of assessee vide Para No. 67 of this order. Therefore, respectfully following the same, we do not find any re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... JB. Under the provisions of section 115JB, book profit has to be the profit disclosed as per P L account prepared in accordance with the provisions of Part II and III of Schedule-6 of the Companies Act, 1956 and laid before the company in its AGMs and to the said profit, only adjustments as specified in Explanation-1 to section 115JB could be made. There is no dispute that claim on account of prior period expenses had been debited in the P L Account prepared under the Companies Act and laid before AGM. There is no provision for any adjustment on account of prior period expenses in Explanation-1 to Section 115JB(2). Therefore, any addition on account of disallowance of prior period expenses while computing book profit is not permitted in view of the judgment of Hon'ble Supreme Court in the case of Apollo Tyres Ltd. (supra). We, therefore, set aside the order of CIT(A) and delete the addition made. 107. Therefore we are of the view that no addition on account of prior period adjustment can be made in calculating book profit u/s 115JB of the Act. In view of the above we do not find any reason to interfere in the findings of Ld.CIT(A). Hence the ground of appeal of the R ..... X X X X Extracts X X X X X X X X Extracts X X X X
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