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TMI Blog2019 (12) TMI 819X X X X Extracts X X X X X X X X Extracts X X X X ..... h A.Y.2006-07. 3. Disallowance u/s.14A of the Act:- Ground No.1(a) and 1(b) of assessee appeal & Ground No.2 of the revenue appeal 3.1. We have heard the rival submissions. We find that the ld. AR at the time of hearing stated that ground No.1 raised by the assessee is not pressed. The same is reckoned as statement made from the Bar and accordingly, the ground Nos.1(a) and 1(b) raised by the assessee are dismissed as not pressed. 3.2. With regard to ground No.2 of revenue appeal, we find that assessee had declared exempt income of Rs. 55,59,84,589/-. The assessee did not disallow any expenses incurred for the purpose of earning such exempt income u/s 14A of the Act. We find that during the course of assessment proceedings, the assessee had given workings for disallowance u/s 14A of the Act, on without prejudice basis, before the ld. AO by considering certain operation and administrative expenses and worked out the disallowance at Rs. 59,06,284/- in the same formula as was suggested in assessee's own case for A.Y.2001-02. We find that the ld. AO disregarded the said workings and proceeded to make disallowance under second and third limb of rule 8D(2) of the rules and arrived at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c) of assessee appeal for A.Y.2006-07 4.1. We have heard rival submissions and perused the materials available on record. We find that for the A.Y.2006-07, the assessee has claimed deduction u/s.80IA of the Act in respect of the following undertakings:- Undertaking Jojobera 67.5MW Unit 1 Jajobera 120MW Unit 2 150 MW Bhira Pumped Storage Unit (BPSU) 180 MW Trombay Unit 7 Combined Cycle Power Point (CCPP) Bhivpuri 24 MW Unit 9 Bhivpuri 24 MW Unit 10 Bhivpuri 24 MW Unit 11 Khopoli 24 MW Unit 9 4.2. The ld. AO observed that deduction u/s.80IA of the Act could be allowed only on the income of the particular units and accordingly the brought forward depreciation of the respective units (i.e. eligible undertakings) should be reduced while computing the deduction u/s.80IA of the Act. The ld. AO observed that in respect of Jojo Bera unit, the assessee was having unabsorbed depreciation which was sought to be set off by the ld. AO while calculating the claim of deduction u/s.80IA of the Act. We find that in respect of Jojo Bera unit, the A.Y.2006-07 (i.e. year under appeal) is the first year of claim and hence it becomes the Initial Assessment Year, in terms of Section 80IA(5) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inate the high interest liability of the assessee. The ld. AO while completing the assessment for A.Y.2004-05 held that the premium paid on prepayment of debentures could not be allowable in full in A.Y. 2004-05 but the same would be allowed as deduction over the future balance life of the debentures. Accordingly, the ld. AO allowed the sum of Rs. 4,74,82,120/- towards premium on prepayment of debentures (i.e. apportioned portion) as deduction in A.Y.2006-07 i.e. year under appeal. This was calculated at 70.08% of Rs. 6,77,54,167/-. We find that the ld. AO had adopted 70.08% as applicable to undertakings in respect of which Section 80IA deduction is not claimed and Rs. 6,77,54,167/- represented the pro-rated amount applicable for A.Y.2006-07. We find that the assessee had not apportioned the portion of premium paid on prepayment of debentures towards eligible undertaking eligible for deduction u/s.80IA of the Act in A.Y.2004-05. But the ld. AO sought to apportion the same towards the eligible undertaking and sought to reduce the claim of deduction u/s.80IA of the Act to that extent. 5.2. The action taken by the ld. AO in A.Yrs 2004-05 and 2005-06 on the subject mentioned issue un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation and the employees had to be stationed in the said remote locality and in view of the fact that the employees had to stay with family, the assessee took up the moral responsibility of making some contributions to the schools in that said locality so that the children of the employees of the assessee could study. So this is more of staff welfare measure contributed by the assessee. The ld. AO had applied the provisions of Section 40A(9) of the Act and disallowed the sum of Rs. 38,85,333/-. We find that this issue has been considered by the Hon'ble Jurisdictional High Court in the case of PCIT vs State Bank of India reported in 109 Taxmann.com 11 dated 18/06/2019 wherein it was held as under:- 4. Question No.ii relates to the revenue's objection to the assessee's claim of deduction of expenditure of Rs. 50 lakhs towards contribution to a fund created for the health care of the retired employees. The revenue argues that such fund not being one recognized under Section 36(1)(iv) or (v), claim of expenditure was hit by the provisions of Section 40A(9) of the Income Tax Act, 1961 ("the Act" for short). 5. The Tribunal while accepting such claim of the assessee observed that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f such decisions, we may notice that the explanatory notes on the provisions contained in the Finance Act, 1984, in the context of insertion of subsection (9) to Section 40A of the Act records as under:- "(ix) Imposition of restrictions on contributions by employers to non-statutory funds. 16.1 Sums contributed by an employer to a recognised provident fund, an approved superannuation fund and an approved gratuity fund are deducted in computing his taxable profits. Expenditure actually incurred on the welfare of employees is also allowed as deduction. Instances have come to notice where certain employers have created irrevocable trusts, obstensibly for the welfare of employees, and transferred to such trusts substantial amounts by way of contribution. Some of these trusts have been set up as discretionary trusts with absolute discretion to the trustees to utilize the trust property in such manner as they may think fit for the benefit of the employees without any scheme or safeguards for the proper disbursement of these funds. Investment of trust funds has also been left to the complete discretion of the trustees. Such trusts are, therefore, intended to be used as a vehicle for tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any restriction or condition for expanding such funds which had possibility of misdirecting or misuse of such funds after the employer claimed benefit of deduction thereof. In plain terms, this provision was not meant to hit genuine expenditure by an employer for the welfare and the benefit of the employees. 9. In case of Commissioner of Income Tax Vs. Bharat Petroleum Corporation Limited1 , Division Bench of this Court considered a similar issue when the assessee had claim deduction of contribution towards staff sports and welfare expenses. The revenue opposed the claim on the ground that the same was hit by section 40A(9) of the Act. The High Court allowed the assessee's appeal making following observations :- "For the aforestated assessment year 1985- 86, the Assessing Officer disallowed Rs. 2,60,283 under section 40A(9) paid by the assessee for staff welfare activities. The assessee claimed that the entire amount was for staff welfare activity. That, the said amount was a grant for staff welfare activity and that the entire amount was for the benefit of the employees and, therefore, the assessee claimed deduction as business expenditure under section 28. However, the Depar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts in either setting up or providing grant-in-aid made to Kendriya Vidyalaya Schools where the students of the assessee-Indian Oil Corporation would receive education. This Court referred to a judgment of Kerala High Court in case of P. Balakrishnan, Commissioner of IncomeTax Vs. Travancore Cochin Chemicals Ltd.1 and of the decision of this Court in case of Bharat Petroleum Corporation Limited (supra) held that the Tribunal had correctly allowed the assessee's claim of expenditure. In view of this discussion, this question is not entertained." 6.2. Respectfully following the aforesaid decision, we hold that the assessee is entitled for deduction in the sum of Rs. 38,85,333/- in respect of payments made to schools in which children of the employees of the assessee are studying, among others. Accordingly, ground Nos.4(a) and 4(b) raised by the assessee are allowed. 7. Disallowance of Expenses of shelved project of Rs. 14,90,22,943 and feasibility study - Rs. 6,57,294/- Ground No.1 for A.Y.2006-07 in revenue appeal 7.1. We find that this issue is covered in favour of the assessee in its own case by the orders of this Tribunal from A.Yrs. 1999-2000 to A.Yrs. 2003-04. We find that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the addition / disallowance. The ld. AO had observed that in earlier year, the assessee had earned some gain out of this transaction and the same had not been offered to tax as it is notional in nature. We are unable to persuade ourselves to accept to the contentions of the ld. AO that assessee had made certain foreign exchange fluctuation gain in the earlier year which was not offered to tax by the assessee on a totally different footing, whereas the subject mentioned issue in dispute being liability of discount on issue of Euro notes, which has got absolutely nothing to do with the foreign exchange gain which arose in earlier years. Hence, we hold that the ld. AO had grossly erred in disallowing the said sum of Rs. 18,88,103/- towards discount on issue of Euro notes. We find that the action of the assessee is exactly in line with the ratio laid down by the Hon'ble Supreme Court in the case of Madras Industrial Investment Corporation reported in 225 ITR 802. Accordingly, ground No.3 raised by the revenue is dismissed. 9. Disallowance u/s.40a(ia) of the Act - Rs. 9.15 Crores. Ground No.4 of the revenue appeal for A.Y.2006-07 9.1. We have heard rival submissions. The ld. AO h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act in the instant case. Secondly, the figures taken by the ld. AO are totally incorrect. Hence, by all force, the disallowance u/s.40(a)(ia) of the Act deserves to be deleted which has been rightly done by the ld. CIT(A) on which action, we do not find any infirmity. Accordingly, the ground No.4 raised by the revenue is dismissed. 10. Direction of ld. CIT(A) to ld. AO to decide the issue as per the report of ITO International Transaction in respect of TDS on payment to foreign parties:- Ground No.5 of revenue appeal for A.Y.2006-07 10.1. We have heard the rival submissions and perused the materials available on record. We find that the ld. AO had observed that assessee had paid an amount of Rs. 5.03 Crores to various parties out of India without deduction of tax at source claiming the same as exempt in DTAA between India and the respective Country where the payment is made. He further observed that the payments made include for various parties including professional charges, due diligence study, assistance in due diligence work, annual maintenance charges etc., He identified the list of parties as tabulated below and proceeded to disallow a sum of Rs. 3,13,01,840/- u/s.40(a)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge-2, Mumbai had held that tax need not be deducted in respect of payments made to certain parties. We find that the ld. AO cannot have any grievance on this direction as admittedly the ld. AO had been merely directed to follow the order passed by ITO International Transaction, TDS Range-2, Mumbai. It is also pertinent to note that the ld. AO had passed an order dated 13/05/2013 giving effect to the order of the ld. CIT(A) wherein he had merely followed the directions of ITO International Transaction, TDS Range-2, Mumbai and granted some relief to the assessee u/s.40(a)(i) of the Act. We find that assessee had not preferred further appeal to this Tribunal against the findings of International Transaction, TDS Range-2, Mumbai. Hence, we do not find any merit in the ground No.5 raised by the revenue and hence, the same is dismissed. 11. In the result, the appeal of the assessee for A.Y.2006-07 is allowed and appeal of the revenue for A.Y.2006-07 is dismissed. ITA No.3453/Mum/2012 (Assessee Appeal) (A.Y.2007-08) 12. The ground No.1 raised by the assessee is similar to ground No.1 raised for A.Y.2006-07 and hence, the decision rendered thereon would apply with equal force for A.Yrs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regularly followed by the appellant items of expenditure / income of earlier years are debited / credited to separate accounts and disclosed as "Net adjustments in respect of previous years" in the profit and loss account. These items include normal under / over accruals and items which, although they relate to an earlier year, materialised or crystallised during the year or which arose on account of an event during the year. It may be clarified that though for the year under reference, the net adjustments result in a debit amount which has been claimed as a deduction, in years where the net adjustments result in a credit amount, the same has also been offered for tax. In fact, there are credit items during the year under reference pertaining to prior years. This method has been consistently followed over the years and has been accepted at the assessment stage itself. Such adjustments are inevitable in a mercantile system of accounting. Hence, it is submitted that such expenses / income be treated as expenses I income of the year in which they ore incurred. In fact upto A.Y. 1996-97, such expenses / income were being treated as expenses / income of the year in which they were i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal income of Rs. 100.76 crores the Respondentassessee claimed an expenditure of Rs. 92.81 lacs as prior period expenses. The Assessing Officer disallowed the expenditure relating to prior period on the ground that as the respondent followed mercantile system of accounting expenditure relatable to an earlier year cannot be allowed as deduction in the assessment year under consideration. Thus an amount of Rs. 92.81 lacs was added to the income of the Respondent-assessee. b) In appeal, the CIT(A) held that the method of accounting consistently followed since many years by the respondent was that expenses were claimed as a liability as and when the bills were received even though the work was done in earlier year and not in the assessment year under consideration. The liability to make payment for work and services received in an earlier year was crystallized only in current assessment year when the bills were received by the respondent assesses from the person who did the work and/or rendered services. The CIT(A) also noted that the Assessing Officer had taxed income attributable to work rendered in the earlier years in the year under consideration depending upon the time when the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.3 raised by the revenue is dismissed. 21. The ground No.6 raised by the revenue for A.Y.2007-08 is as under:- "6. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in directing the AO to rectify the mistakes after verification inspite of the fact that ld. CIT(A) not specifically giving finding about the mistake related to double disallowance." 21.1. We have heard rival submissions. We find that this issue arises with regard to reduction of a sum of Rs. 2,44,86,356/- being the amount of premium on prepayment of debentures attributable to the eligible undertaking according to the ld. AO, which was reduced by the ld. AO while computing the deduction u/s.80IA of the Act while framing the assessment. We find that the ld. CIT(A) had rightly observed that there is double disallowance of Rs. 2,44,86,356/- pursuant to the said action of the ld. AO in view of the fact that the ld. AO had granted deduction towards premium on prepayment of debentures of Rs. 4,32,67,811/- only while framing assessment and had further reduced this sum of Rs. 2,44,86,356/- from the claim of deduction u/s.80IA of the Act. We find that the ld. CIT(A) had directed the ld. AO ..... X X X X Extracts X X X X X X X X Extracts X X X X
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