TMI Blog2020 (1) TMI 490X X X X Extracts X X X X X X X X Extracts X X X X ..... resumed that the investments were made only out of own funds. Therefore, the AO is directed to delete the addition under rule 8D(2) (ii) of the Rules. Coming to Rule 8D(2) (iii) of the Rules, we note that addition may be made @ 0.50% of the dividend bearing securities as per the law laid down by the Coordinate Bench in the case of REI Agro Ltd [ 2013 (9) TMI 156 - ITAT KOLKATA] disallowance in such respect should be restricted to the amount only to the extent of the exempt income following the principles decided on the aforesaid matters by various Hon`ble High Courts. Therefore, we restrict the disallowance to ₹ 23,35,776/-, being amount of exempt dividend income earned during the year and hence we direct the AO for both the assessment years, that is A.Y.2008-09 and A.Y.2011-12 to restrict the disallowance to the extent of exempt dividend income earned during the year. Therefore, we dismiss the appeals filed by the Revenue as well as appeals filed by the assessee. Disallowance of provision for Non- Performing Assets (NPA) - HELD THAT:- We agree with the view taken by the Coordinate Bench in it s earlier order [ 2019 (2) TMI 1721 - ITAT KOLKATA] . Thus, the issue is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tual and legal position, we are of the view that provision for Non-performing assets cannot be said to be provision for diminution in value of assets to attract disallowance as per clause (i) of Explanation 1 to sec. 115JB(2) of the Act. In other words, by making a provision for NPA, there will be no reduction in NPA. Hence, clause (i) of Explanation to Sec. 115JB(2) does not apply since there is no reduction in value of asset. Accordingly, this ground of the assessee is allowed and Assessing Officer is directed to delete addition made in computing book profit u/s 115JB of the Act. These grounds of assessee are allowed. Education Cess as an allowable expenditure u/s 37(1) - HELD THAT:- We accept the submissions of the assessee concurring with the decisions of Rajasthan High Court M/S. CHAMBAL FERTILIZERS AND CHEMICALS LTD., GADEPAN, DISTT. KOTA. [ 2018 (10) TMI 589 - RAJASTHAN HIGH COURT] and binding favourable decisions of Jurisdictional Tribunal and thus we allow the claim of the education cess. The AO is directed to allow the claim of education cess in computing total income of the assessee company. MAT Applicability - whether Assessee company prepares books of accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same in the business of the subsidiaries is a allowable deduction in terms of the decision of Hon ble Apex Court in the case of S.A Builders Ltd. -vs.- CIT(Appeals) Another [ 2006 (12) TMI 82 - SUPREME COURT] . The said stand has been further affirmed by the Jurisdictional High court in the case of Dalmia Cement [ 2001 (9) TMI 48 - DELHI HIGH COURT] Bharti Televenture Ltd [ 2011 (1) TMI 326 - DELHI HIGH COURT] relying on the decision of the Apex Court. From perusal of the Balance Sheet and the Audited accounts of the company, it leaves beyond doubt, the fact that the assessee had sufficient own funds for advancing such funds to its subsidiary company. Thus, based on the above factual as well as judicial pronouncements, the AO is directed to delete the disallowance made. Addition on account of disallowance u/s 14A while computing book profit u/s 115JB - HELD THAT:- The provisions of section 115JB relating to computation of book profit are amply clear and unambiguous. These provisions do not leave any room for adjustment by the assessing officer other than those mentioned in Explanation 1 to section 115JB to the net profit reflected in the accounts of any assessee a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8-09. Aggrieved by the order of the Coordinate Bench, the assessee carried the matter in appeal before the Hon ble High Court of Calcutta. The Hon ble High Court of Calcutta remanded the matter back to this Tribunal, vide order No. ITAT 121 of 2019, dated 08.08.2019, directing the Tribunal as follows: We are of the view that interest of justice would be subserved if the matter is remanded back to the Tribunal to reconsider the above issues afresh upon hearing the parties and by passing a reasoned order within six Months of communication of this order. Only that part of the order of the Tribunal dated 27th February 2019 dealing with the above questions is set aside. In this order we address the questions raised by the assessee before the Hon ble High Court of Calcutta for A.Y.2008-09. We also adjudicate the cross appeals filed by the Assessee and Revenue for A.Y. 2011-12 on identical issues. 4. Although, these appeals filed by the Assessee for Assessment Year 2008-09 (in ITA No.1318/Del/2012) and for A.Y. 2011-12 (in ITA No.1821/Kol/2016) and Appeals filed by the Revenue in Assessment Year 2008-09 ( in ITA No.1302/Del/2012) and for A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the book profit under section 115JB of the Act, in terms of Explanation 1(i) to section 115JB(2) of the Income Tax Act 1961. (This covers ground No. 5 raised by the assessee in ITA No.1318/Del/12 for A.Y.08-09, Ground No. 4 raised by the assessee in ITA No.1821/Kol/16, for A.Y.11-12). [ Hon`ble High Court Question No. (viii)]. (6). Ld CIT(A) erred in not treating Education Cess as an allowable expenditure under section 37(1) of the Act. (Additional ground raised by assessee in ITA No.1318/Del/2012, for A.Y.2008-09, and Ground No.3 raised by the assessee in ITA No.1821/Kol/16 for A.Y.2011-12). [ Hon`ble High Court Question No. (v)]. (7). Assessee company prepares books of accounts as per RBI Rules. Section 115JB of the Act is not applicable to the assessee company, as it does not prepare books of accounts as per part II and part III of Schedule VI of the Companies Act,1956. (Additional ground raised by assessee in ITA No.1318/Del/2012, for A.Y.2008-09). [ Hon`ble High Court Question No. (vi)]. (8).Amount transferred to Special Reserve in compliance with the provisions of Section 45IC of the Reserve Bank of India Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Y.11-12, and Ground No.1 raised by the Revenue in ITA No.2003/Kol/16, for A.Y.11-12).[ Hon`ble High Court Question No. (i) and (ii)]. 7. Facts of the issue which can be stated quite shortly are as follows: In the assessment order u/s 143(3) of the Act, the AO computed the disallowance u/s14A r.w. rule 8D at ₹ 26.53 Crores. On appeal by the assessee before the first Appellate Authority, Ld. CIT(Appeals) recomputed the disallowance under rule 8D at ₹ 42.61 lacs and restricted the disallowance to ₹ 23,35,776/-, being amount of exempt dividend income earned during the year. 8 On further appeal by the assessee before this Tribunal, the Tribunal vide order dated 27-02-2019, confirmed the order of Ld. CIT(Appeals) on two contentions viz:(a) Rejected assessee's claim that no expenditure is incurred for earning exempt income is sufficient satisfaction [Para 10.5 at Pg 8 of the Tribunal order] and (b) the assessee has not furnished any calculation that it had interest free funds which can be presumed to have been invested in non-interest bearing investments [Para 11 at Pg 9 of the Tribunal order]. 9. Aggrieved by the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... funds at its disposal for investment and accordingly deleted the addition of ₹ 4.40 cores made by the Assessing Officer and directed him to allow the deduction under section 36(1)(iii). The order of the Commissioner (Appeals) was upheld by the Tribunal. On appeal to the High Court : Held, dismissing the appeal, that if there were funds available both interest-free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest- free funds generated or available with the company, if the interest-free funds were sufficient to meet the investments. In this case this presumption was established considering the finding of fact both by the Commissioner (Appeals) and the Tribunal. The interest was deductible. Besides, the principle that the disallowance u/s 14A read with rule 8D should be restricted to the amount of exempt income, has been laid down by number of High Courts which are as follows: i) CIT v. Corrtech Energy Pvt. Ltd. (2015) 325 ITR 97 (Guj.) ii) CIT v. Holcim India Pvt. Ltd. (2014) 111 DTR 158 (Del.) iii) CIT v. Shiva Motors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come has been considered by number of High Courts which are as follows: i) CIT v. Corrtech Energy Pvt. Ltd. (2015) 325 ITR 97 (Guj.) ii) CIT v. Holcim India Pvt. Ltd. (2014) 111 DTR 158 (Del.) iii) CIT v. Shiva Motors Private Ltd. (2014) 111 DTR 153 (All.) Hence, the disallowance in such respect should be restricted to the amount only to the extent of the exempt income following the principles decided on the aforesaid matters by various Hon`ble High Courts. Therefore, we restrict the disallowance to ₹ 23,35,776/-, being amount of exempt dividend income earned during the year and hence we direct the AO for both the assessment years, that is A.Y.2008-09 and A.Y.2011-12 to restrict the disallowance to the extent of exempt dividend income earned during the year. Therefore, we dismiss the appeals filed by the Revenue as well as appeals filed by the assessee. 12. Concise and summarized ground No.2 is reproduced below for ready reference: (2). Ld. CIT(A) erred in confirming the disallowance of provision for Non- Performing Assets (NPA) of ₹ 13,71,00,000/- made in accordance with the prud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration. Accordingly, the issue is before us for reconsideration. 14. Before us, the ld Counsel of the assessee submitted that the assessee being a non-banking finance company is required to create provision for non-performing assets in accordance with Direction 9 of the Non-Banking Financial (Non- Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007 issued by the RBI pursuant to power conferred by Sec. 45JA(Ch. IIIB) of the RBI Act, 1949. Further, Sec. 45Q of the RBI Act provides that, provision of Ch. IIIB has an overriding effect on any other statutory enactment. 15. Ld DR for the Revenue has primarily reiterated the stand taken by the assessing officer which we have already noted in our earlier para and the same is not being repeated for the sake of brevity. We agree with the view taken by the Coordinate Bench in it s earlier order dated 27-02-2019. Thus, the issue is squarely covered against the assessee by the decision of Apex Court in Southern Technologies Ltd. (Supra). Respectfully, following the decision of Apex Court in Southern Technologies Ltd. (Supra), we dismiss the ground raised b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der on the impugned issue. Hence we deem it fit and appropriate , in the interest of justice and fair play, to remand this issue to the file of the ld AO to pass orders based on the outcome of the main appeal on merits by the Hon ble Supreme Court as stated (supra). 18. Concise and summarized ground No.4 is reproduced below for ready reference: (4). Ld. CIT(A) erred in confirming the addition of profit on sale of fixed assets/investments of ₹ 81,43,970/- in computing Book Profits under section 115JB of the Act. (This covers ground No. 4 raised by the assessee in ITA No.1318/Del/12 for A.Y.08-09) [ Hon`ble High Court Question No. (vii)]. 19. When this issue was called out for hearing, the ld. Counsel for the assessee invited our attention to the order dated 02.07.2010, passed by the Special Bench of ITAT, Hyderabad in the case of Rain Commodities Ltd 41 DTR 449 (Hyb- SB), whereby the issue has been discussed and adjudicated in favour of the Revenue. The ld. DR also submitted that the present issue is squarely covered in favour of Revenue by the above said order of the Tribunal, a copy of which is also placed before the Bench. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose Co 217 CTR 479 (Ker) (capital gains exempt u/s 54E) followed}; (iv) The argument that as s. 115JB (4) provides that save as otherwise provided in this section all other provisions of the Act shall apply does not mean that the exemption provisions of s. 47(iv) can be read into s. 115JB. This only means that while the computation has to be as per s. 115JB, anything over and above that will be subject to other provisions of the Act. Frig Sales 4 SOT 376 (Mum) overruled); (v) Accordingly, in the absence of any provision for exclusion of exempted capital gain in the computation of book profit u/s 115JB, the assessee is not entitled to the exclusion claimed. 21. As the issue is squarely covered in favour of the revenue by the decision of Special Bench in case of Rain Commodities (supra) and there is no change in facts and law and the ld Counsel is unable to produce any material to controvert the above said findings of the special Bench. Therefore, respectfully following the decision of Special Bench (supra) we dismiss the ground of appeal raised by the assessee. 22. Concise and summarized ground No.5 is reproduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er contended that as per Direction 10 of the RBI prudential norms, the assessee has to specifically disclose the provision for NPA separately without netting it against the value of assets. Hence, in the absence of any reduction in the value of asset, it cannot be treated as a provision for diminution in the value of asset. Provision for non-performing asset is not provision for diminution in value of asset as there is no diminution in value of non-performing asset. The value of asset remains intact without any reduction. Provision for NPA appears separately in the liability side of the balance sheet. The Ld. AR of the assessee brought attention of this bench to the decision of Hon ble Apex Court in Southern Technologies Ltd. vs. JCIT (2010) 320 ITR 577 (SC), wherein the Hon ble Supreme Court has held that Reduction in NPA takes place in two ways, namely by recoveries and by write off. However, by making a provision for NPA, there will be no reduction in NPA. On the basis of the aforesaid findings of the Apex Court, the Ld. AR argued that by creating provision for non-performing asset there was no reduction in value of asset and hence clause (i) to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... existing Reserve for Unexpired Risk by way of crediting or debiting by the amount of difference between the Reserve created in the immediate preceding year and the Reserve required to be credited during the current accounting year. This cannot be considered as any alleged Amount carried to any Reserve debited to the Profit Loss Account, but it should be appreciated that this Reserve represents that part of Premium Income which does not relate to the current accounting period. It must be appreciated that as per the Mercantile System of accounting, it is only that Income/Expenditure which relate to the current accounting period, should find places in 'the Revenue/Profit Loss Account of the year. Hence it was submitted that in case of an Insurance Company (carrying on General Insurance Business), the creation of Reserve for Unexpired Risk cannot be considered to be similar to those Reserves which have been referred to in Clause (b) of Explanation (1) to Section 1I5JB(2). It may also be appreciated that the Reserve for Unexpired Risk can, in any case, not be considered as any provision made for meeting liabilities, other than ascertained liabilities as referred to in C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar reserve does not fall in the category of those reserves which have been specified in Explanation 1 (b) to section 115JB(2). Therefore, this reserve viz., the reserve for Unexpired Risk in the case of a General Insurance business, should not be added back for the purpose of computation of Book Profit u/s. 115JB(2) for MAT purposes. On the basis of this observation, it was held that the Id AO's action in adding back a sum of ₹ 169,45,00,000/- being reserve created for Unexpired Risk, was not in accordance with the relevant provisions of the Income-tax Act, 1961 and accordingly deleted the addition. Aggrieved, the revenue is in appeal before us on the following ground:- 4. The CIT(A) erred on the facts of the case and in law in holding the sum of ₹ 1694500000 being the reserve created for unexpired risk should be considered as reserve for computing the Book Profit under section 115JB of the Income-tax Act. Id DR vehemently relied on the order of the Id AO. In response to this, the Id AR vehemently relied on the order of the Id CITA. 11.4. We have heard the rival submissions. We find that the Id CITA had dealt this issue very elaborately and had gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials available on record. We note that this Tribunal in its earlier order dated 27-02-2019, had admitted the additional ground and decided the issue on merits. The Tribunal had disallowed Education Cess on the basis of following contentions:- a) Education cess is an additional surcharge and hence forms of income tax. b)Decision of Kalimati Investment Company Ltd. -vs.- ITO (ITA No.2706,4508/M/2010,2552,2553/M/2011) and Sesa Goa Ltd. -vs.- JCIT (ITA No. 72/PNJ/2012) are squarely applicable. Aggrieved by the order of this Tribunal, the assessee filed appeal before the Hon ble High Court which remanded back the issue to this Tribunal for fresh consideration. Accordingly, the matter is before us for renewed deliberation. The brief facts qua the issue is that during the relevant previous year, the assessee has debited education cess amounting to ₹ 22,36,508/- to the profit and loss account. Ld. AR of the assessee submitted that education cess is not tax and hence not disallowable u/s 40(a)(ii) of the Act. He invi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nate Benches of this Tribunal in the following cases held that education cess should be allowed as an expense. The relevant judgments are given below: (i) M/s ITC Limited -vs.-ACIT (ITA No. 685/Kol/2014) The assessee s additional last/ substantive ground avers that it is entitled for the educations secondary higher education cess as overhead deduction amounting to ₹ 423618317 u/s 37 of the Act. We note that hon ble Rajasthan high court s decision in DB Income Tax Appeal No. 52/Kol/2018 M/s Chambal Fertilizers Ltd. vs. DCIT decided on 31.07.2018 takes into account CBDT circular dated 18.05.1967 for holding such cess(es) to be allowable as deduction. Their lordships hold that section 40a(ii) applies only on taxes such than earn cess(es). We therefore reject the Revenue s contentions supporting the impugned disallowance. The assessee s instant substantive ground is accepted. The Assessing Officer is direction to verify all the relevant facts and allow the impugned cess (es) as deduction u/s 37 of the Act. The assessee s appeal I.T.A. No. 685/Ko/2014 is partly accepted in above terms. (ii).Peerless General Finan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT( ITA No. 685/Kol/2014 dated 27- 11-2018 hold that such a claim of education cess is very much allowable in computing total income under the provisions of the Act. 29. The Ld Departmental Representative relied on the earlier decision of ITAT dated 27- 02-2019, wherein this Tribunal had disallowed the claim on the basis of two contentions: (i) Education cess is an additional surcharge and hence forms of income tax and (ii) Decision of Kalimati Investment Company Ltd. -vs.- ITO (ITA No.2706,4508/M/2010,2552,2553/M/2011) and Sesa Goa Ltd. -vs.- JCIT (ITA No. 72/PNJ/2012) squarely applicable against the assessee. 30. We accept the submissions of the assessee concurring with the decisions of Rajasthan High Court and binding favourable decisions of Jurisdictional Tribunal and thus we allow the claim of the education cess. The AO is directed to allow the claim of education cess in computing total income of the assessee company. These grounds raised by the assessee are allowed. 31. Concise and summarized ground No.7 is reproduced below for ready reference: (7). Assessee company prepares books of accounts as pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 218/Mum/05) were also referred. 34. On the other hand, Ld. DR relied on the earlier order of this Tribunal, in assessee`s own case dated 27-02-2019, wherein the said claim had been dismissed. 35. Having heard both the parties, we are of the view that there is merit in the earlier order of this Tribunal in assessee`s case, dated 27-02-2019. Even though the assessee has prepared its accounts following the RBI guidelines and the accounts so prepared is strictly not in accordance with provisions of Part II Part III of Schedule VI of the Companies Act, 1956, yet it cannot be said that provisions of Sec 115JB would not be applicable to the assessee company. The assessee company has incorporated under the Companies Act and prepared its accounts in accordance with provisions of Part II Part III of Schedule VI of the Companies Act, 1956. Since there is no such observations by the Auditors also in their Audit Report, we do not agree with ld AR for the assessee and therefore, we confirm the earlier order passed by this Tribunal dated 27-02-2019. Accordingly, this ground of the assessee is dismissed as devoid of merit. 36 Concise and summariz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Assessee Company. (Ground No.1 raised by Revenue in ITA No. 1302/Del/12 for A.Y.2008-09). 42. Brief facts qua the issue are that the during the assessment year under consideration, from the details filed by the assessee it was noticed by AO that the assessee has given ₹ 481 lakhs as interest free loans to its subsidiaries. In the course of the assessment proceedings the assessee was asked to submit as to why proportionate interest relatable to extending interest free loan to sister concerned should not be disallowed as it has borrowed substantial funds for which substantial amount of interest had been paid. In response, the assessee, Vide letter dated 24.02.2010, has furnished written submissions, which is reproduced below : 1 During the previous year relevant to the assessment year under consideration, the assessee had given interest free loan to its subsidiaries amounting to ₹ 481 lakhs. In this regard, your goodself has asked us to submit as to why notional interest on the said loan should not be disallowed as the assessee borrowed substantial funds for which substantial amount of interest had been paid during th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AR of the assessee relied, inter-alia, on the principles laid down by the decision of Mon ble Apex Court in the case of Munjal Sales Corporation -vs- CIT and Anr. (2008) 298 ITR 298 (SC) wherein the Hon ble Apex Court has held that since the opening balance of own funds as on 01-04-94 was ₹ 1.91 crores whereas the loan given to the sister concern was a small amount of ₹ 5 lacs, the profits earned by the assessee during the relevant year were sufficient to cover the impugned loan of ₹ 5 lacs and hence is entitled to claim deduction u/s 36(l)(iii). 4.13 I have perused the facts stated in the assessment order as well as those submitted by the assessee written and oral; I am in agreement with the assessee that the facts of the assessee is squarely covered by the decision of the Apex court in the case of Munjal Sales (supra). The assessee had owned funds of ₹ 65,808 lacs as on 31 -03-2008 and during the year profit of ₹ 10,796 lacs (PAT) has been earned which is sufficient to finance the interest free loan of ₹ 481 lacs to the sister concerns. Thus, applying the principle as laid down by the Hon ble Apex Court, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. The items which are to be added to the net profit have been listed out in Explanation 1 to that section. The learned AO should adhere to that list and cannot travel beyond these items. Since there is no mention of Section 14A in the said Explanation 1 to Section 115JB, the same cannot be added to re-determine the quantum of Book Profit . The provisions of section 115JB relating to computation of book profit are amply clear and unambiguous. These provisions do not leave any room for adjustment by the assessing officer other than those mentioned in Explanation 1 to section 115JB to the net profit reflected in the accounts of any assessee and adjustment by way of disallowance u/s 14A is not included in the said explanation. This issue is also covered by the judgment of the Special Bench of Tribunal in the case of ACIT Vs. Vireet Investments (P) Ltd, in ITA No.502/Del/2012. Therefore, such upward revision in the sum of ₹ 26,53,10,000/-to the book-profit by making disallowance section 14A read with rule 8D is not permitted that being so, we decline to interfere with the order of Id. CIT (A) deleting the aforesaid addition. His order on this issue is, therefore, upheld and t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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