TMI Blog2020 (9) TMI 1010X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee. This definitely puts the burden on the assessee to demonstrate that there was rendition of services by the AE to the assessee. Assessee cannot furnish evidences for day to day rendition of services, but definitely can demonstrate rendition at crucial points. Merely filing sample emails would not suffice. The assessee has to come with more strong evidences which may be in any form, including electronic forms to demonstrate that the AE has actually rendered services which are mentioned in the agreement. In the interest of justice and fair play, we restore this issue to the file of the Assessing Officer/TPO. The assessee is directed to come with strong evidences to demonstrate that the services were actually rendered by the AE. The Assessing Officer/TPO is directed to examine the issue afresh in the light of evidences that would be furnished by the assessee. This ground is, accordingly, treated as allowed for statistical purposes. Reimbursement of SAP and other expenses - assessee had incurred certain expenses in the nature of SAP maintenance charges, vehicle, telephone and food expenses, etc. on behalf of its AEs, on a cost-to-cost basis, without charging any mark ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n its purview the claim of the assessee - HELD THAT:- The term production has been interpreted to be one having much wider connotation in as much as every manufacture can be characterised as production while every production might not amount to manufacture as held by the Hon'ble Apex court in the case of NC Budharaja Co. [ 1993 (9) TMI 6 - SUPREME COURT]. Hon'ble Supreme Court in the case of Sesa Goa Ltd . [ 2004 (11) TMI 14 - SUPREME COURT] [earlier name of the assessee] has held that extraction and processing of iron ore amounts to production. Thus we direct the Assessing Officer to allow claim of additional depreciation. Claim of balance 50% additional depreciation disallowed - assessee had acquired and installed some of the new plant and machinery eligible for additional depreciation under section 32(1)(iia) of the Act and was put to use for a period less than 180 days during FY 2012-13 - Scope of amendment - HELD THAT:- Amendment takes effect from 1.4.2016. As this amendment is effective from 01.04.2016, therefore, it is clearly not applicable to the year under consideration. As far as the applicability of this amendment having retrospective ef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T:- These expenses are either in the nature of charity or donation. In our considered view, these expenses are not in the nature of CSR. Payments made to church, police station, summits, schools, etc cannot be considered to have been spent on CSR. Though the amendment to Section 37 of the act may be prospective, but at the same time, assessee had to justify the claim of expenditure being spent on CSR. Details mentioned hereinabove do not justify the claim of expenditure on account of commercial expediency. Considering the claim from all possible angles, we do not find any merit in such claim of expenditure - Decided against assessee. Addition of liquidated damages - HELD THAT:- When the entire basis of making a decision is that agreements were not for supply of any machinery, but of design, transfer of technology knowhow, patent etc, which are in the nature of intangible assets, but the lower authorities have completely ignored the fact that even intangible assets are capital goods and a specific rate of depreciation is provided in the Income Tax Act. In our considered opinion, and as admitted by the revenue authorities, damages were for intangible assets and intangible ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal. It is a sum owned by the business to the proprietor. Reserves themselves are not assets but represent a portion of the assets which the proprietor is free to utilize for business as one likes, i.e. the assets equalling the reserves that are not required to pay liabilities. Generally reserves are created at the discretion of the management as a matter of prudence, but in certain cases a statute can direct creation of special reserves. For the purpose of Section 115JB of the Act, statutory reserves are treated alike and in a similar manner as other reserves. See SREI INFRASTRUCTURE FINANCE LTD VERSUS ADDITIONAL COMMISSIONER OF INCOME TAX [ 2015 (2) TMI 545 - DELHI HIGH COURT]. Claim u/s 80 GGB denied - HELD THAT:- Claim was made before the Assessing Officer but was denied. In our considered opinion, if the assessee is eligible for claim of deduction u/s 80 GGB of the Act the same deserves to be allowed. We direct the Assessing Officer to allow the same as per provisions of the law after making necessary verification. - ITA No. 12/DEL/2020 - - - Dated:- 21-9-2020 - Shri N.K. Billaiya, Accountant Member, And Shri Kuldip Singh, Judicial Member For the Assessee : Shri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ementing short, medium and long term plans and strategic and assistance on all opportunities for growth and diversification, legal advice and advice on account of financial treasury, marketing, human resource management and I.T. support. 8. In the agreement, it is also provided that VRPL will provide technical and commercial material to Sesa Sterlites to enable it to promote its business and /or raise funds overseas thereby acting as representative office of Sesa Sterlites in UK. 9. In the Transfer Pricing study, the foreign AE was considered as tested party and the benchmarking was done as per TNMM method. A total of 8 comparables were chosen whose return on operating costs worked out to be 7.96%. Since the operating margins of the AEs of the Appellant from the provision of business support services was 5.51% on the operating cost, therefore, the transaction was treated to be at arm s length. 10. However, the TPO denied the bench-marking done by the assessee on the following grounds: (i) failure to substantiate actual rendition of services; (ii) failure to prove benefit derived by the Appellant from the services; and (iii) failure to provide the basis for the all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... EKL Appliances 345 ITR 241 wherein it has been held that benefits shall be considered from the perspective of the taxpayer. The ld. counsel for the assessee vehemently stated that it is incorrect to segregate management consultancy fee as a separate class of transaction and is clearly in violation of law as was laid down by Hon'ble Jurisdictional Delhi High Court in the case of Sony Ericsson Mobile Communication India Pvt. Ltd. 374 ITR 118. 15. The ld. counsel for the assessee further objected the direction for disallowance u/s 37 of the Act on protective basis as the same was never disputed by the Assessing Officer in the draft assessment order. 16. Per contra, strongly supporting the orders of the lower authorities, the ld. DR stated that the onus is upon the assessee to bring on record evidences to show any services have been rendered by VRPL to the assessee. It is the say of the ld. DR that there are no documents to show that any services have been received from AEs. It is the say of the ld. DR that segregation and bench marking of this transaction has been done by the TPO solely on the fact that this transaction is not closely linked with the business of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that the Revenue authorities cannot judge the rendition of services by applying benefit test as laid down by the Hon'ble High Court of Delhi in the case of EKL Appliances [supra]. In our considered opinion, the only consideration in such transaction is rendition of services. All that the revenue authorities have to see is as to whether there is rendition of services by the AE to the assessee. This definitely puts the burden on the assessee to demonstrate that there was rendition of services by the AE to the assessee. At the same time, it is equally true that the assessee cannot furnish evidences for day to day rendition of services, but definitely can demonstrate rendition at crucial points. 20. We are of the considered opinion that merely filing sample emails would not suffice. The assessee has to come with more strong evidences which may be in any form, including electronic forms to demonstrate that the AE has actually rendered services which are mentioned in the agreement. In the interest of justice and fair play, we restore this issue to the file of the Assessing Officer/TPO. The assessee is directed to come with strong evidences to demonstrate that the services were a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tself shows that the assessee has challenged the comparables. The ld. counsel for the assessee further stated that not only the comparables but also the methodology adopted by the TPO for selection of comparables was also challenged. 27. The ld. counsel for the assessee continued by stating that the appellant has incurred these maintenance charges as a pass through only and did not provide any services or made any value addition which would warrant a mark-up as in the case of provision of services. The ld. counsel for the assessee further submitted that such transactions are undertaken for commercial expediency and are not intended to be undertaken with expectation of a return. The ld. counsel for the assessee stated that the SAP maintenance charges paid by the assessee are allocated among the group entities using the respective licenses on a cost-to-cost basis on the basis of number of licenses taken by each AE. The ld. counsel for the assessee pointed out that copy of invoices raised by SAP India, on the Appellant and the corresponding invoices/debit notes raised by the assessee on the AE were furnished before the lower authorities. 28. Per contra, the ld. DR strongly suppo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le data being used, the mark-up on the cost of services should be lower than would be appropriate for the performance of the services themselves. For example, an associated enterprise may incur the costs of renting advertising space on. behalf of group members, costs that the group members would have incurred directly hod they been independent In such a case, it may well be appropriate to pass on these costs to the group recipients without a mark-up, and to apply a mark-up only to the costs incurred by the intermediary in performing its agency function. 32. Under UN TP Manual 2017, pass through costs and its arms length pricing has been discussed. The relevant extract is as under: In some circumstances an MNE group may decide to outsource some services to an independent entity and to use an associated enterprise to act as an agent for the group to pay the accounts and to then allocate the charges to its associated enterprises on an objective basis. These may be called pass through costs. As an agent, its only role may be to pay the independent service provider and to then allocate the total cost of services among group members on an objective basis. In such a case, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39. Before us, the ld. counsel for the assessee drew our attention to the decision of the Tribunal for earlier A.Ys and pointed out that similar disallowances were deleted by the Tribunal. It is the say of the ld. counsel for the assessee that merely because the Revenue is in appeal before the Goa bench of Hon'ble High Court, the DRP should not have dismissed the objections of the assessee merely on the premise that appeal against a binding precedent is pending before a higher judicial forum. 40. The ld. counsel for the assessee further stated that all the investments were made in earlier A.Ys and there are no new investments. The ld. counsel for the assessee further stated that no satisfaction was recorded by the Assessing Officer, nor has he demonstrated any nexus between expenditure and exempt income. It is the say of the ld. counsel for the assessee that the shareholders funds/own funds available with the appellant far exceeds the total investments appearing in the financial statements of the assessee. On these facts itself, no disallowance should be made. 41. Per contra, the ld. DR strongly supported the findings of the assessing officer. It is the say of the ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... money for purchase / investment on which dividend is received. No interest has been debited to profit and loss account. Interest and other charges appearing in the profit and loss account relate to Bank charges in connection with collection of outstation cheques. No administration expenditure was incurred on earning dividend income as investment in mutual funds was made just to park the surplus funds. The assessee has already disallowed a sum of ₹ 25,78,156/- in the computation of income. The AO did not agree and he was of the view that the company has made substantial investment in mutual funds. Investment of such magnitude requires proper analysis of the market condition to the stock movement etc. and therefore, the assessee must have incurred substantial expenditure for earning the dividend. The assessing officer by invoking the provision of section 14A read with Rule 8D worked out the disallowance as under: i. Amount of expenditure directly relating to income which does not form part of total income - Nil ii. In a case where the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erwise increasing the liability of the assessee for any assessment year beginning on or before 1/4/2001. With effect from 1/4/2007 by Finance Act, 2006 sub-sec. (2) empowers the AO to determine the amount of expenditure incurred in relation to such income which does not form part of the total income in accordance with the method as may be prescribed. Such power is to be exercised if the AO having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of the expenditure mentioned in sub-sec.( 1). Before applying Rule 8D, it is apparent that the AO must be satisfied with the correctness of the claim of the assessee having regard to the accounts of the assessee. Such satisfaction is an objective satisfaction that it has to be judicious and based on the material on record. It cannot be an impression that it is much more than the gossip or hearsay, it means judgment or belief that it is a belief or a connection resulting from what one thinks on a particular question. It must be based on the reasons and ground as seems good to him and while making such satisfaction, the AO must give regard to the accounts of the assessee. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest free funds available in the form of share capital, reserves etc. which were more than investment in shares. The AO was not satisfied with the explanation of the assessee and he made disallowance u/s 14A on prorata basis. The CIT(A) following his orders for earlier years, accepted the appeal of the assessee. The Tribunal following the decision of the Special Bench in the case of ITO Vs Daga Capital Management (P) Ltd 117 ITD 169 (SB) restored the matter to the file of the AO for the consideration in the light of the provisions of sub-sec.(2) (3) of Sec.14A of the IT Act. The assessee, being aggrieved, filed appeal as well as Writ Petition challenging the constitutional validity of sub-sec. (2) (3) and Rule D. The Hon_ble High Court gave the following findings; 1. The provisions of sec. 14A and Rule 8D are constitutionally valid. 2. The provisions of sub-sec. (2) (3) of Sec.14A and Rule 8D are prospective and not retrospective, in nature and therefore, would apply from assessment year 2007-08. 3. The basic object of Sec.14A is to disallow the direct and indirect expenditure incurred in relation to income which does not form part of the total income (page 21). 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recourse to the prescribed method is mandated by law (pages 31-32). 6. In the event that the AO is not satisfied with the correctness of the claim made by the assessee, he must record reasons for his conclusion (page-79). 7. The effect of sec.14A is to widen the theory of the apportionment of expenditure (page 49). 8. The expression ‗expenditure incurred; in Sec.14A refers to expenditure on rent, taxes, salaries, interest, etc., in respect of which allowances are provided for (page-50). 9. Sub-sections (2) (3) of Sec.14A are intended to enforce and implement the provisions of sub-sec (1) (pages 50). 10. Even in the absence of subsection (2) of sec.14A the AO would have to apportion the expenditure and to disallow the expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. The AO would have to follow a reasonable method of apportioning the expenditure consistent with what the circumstances of the case would warrant and having regard to all relevant facts and circumstances_. The said decision of the jurisdictional High Court is binding on us. While deciding this case, the decision of the Hon_ble Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exempted income u/s 10 in the year under consideration in view of the decision of Special Bench in the case of Cheminvest Ltd. 124 TTJ 577 (Del)(SB). 17. The basic principle of taxation is to tax the net income. On the same analogy, the exemption is also to be allowed on net basis i.e. gross receipts minus related expenses. Therefore, if any expenditure is directly related to exempted income, it cannot be allowed to be set off against taxable profit. On the same analogy, in our opinion, if any expenditure is directly related to taxable income, it cannot be allowed to be set off against the exempted income merely because some incidental benefit has arisen towards exempted income. Before making any disallowance u/s 14A, the AO is required to record a satisfaction, having regard to the accounts of the assessee, that claim of assessee that expenditure incurred is not related to the income forming part of the total income is incorrect. Such satisfaction must be arrived at on the objective basis. He is also required to record the reasons for arriving at such satisfaction. The assessing officer in this case, we noted is not satisfied with the correctness of the disallowance made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10% of the receipts under the sources mentioned therein are deemed to be the expenditure. This in our opinion will strengthen the case of the assessee as Explanation bb to sec. 80HHC does not recognize amount of the investment made in other receipt to be the basis of computing the expenditure being incurred for the earning of that income. Similar views have been taken by Hon_ble Tribunal in the following decisions also. In the case of DCIT Vs. Jindal Photo Ltd. held in I.T.A.T. Delhi bench dated 7.1.2011 it was held as follows: Now as per section 14A(2) of the Act, if the AO, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of expenditure incurred in relation to income which does not form part of the assessee s total income under the Act, the AO shall determine the amount incurred in relation to such income, in accordance with such method as may be prescribed, i.e., under Rule 8D of the I.T. Rules. However, in the present case, the assessment order does not evince any such satisfaction of the AO regarding the correctness of the claim of the assessee. As such, Rule 8D of the Rules was not appropriately a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appeal of the Revenue on the issue having been dismissed by the Hon'ble Bombay High Court merely observing that no question arises, it cannot be treated as a decision rendered by the Hon'ble High Court on the merit of the issue which is binding on this Tribunal. We are unable to accept this contention of the learned DR. It is well settled proposition of judicial precedents that is appeal the Hon'ble High Court considers facts pertaining to the issue and gives approval to the decision of the lower forum, the decision of lower forum gets merged with the judgment and order of the High Court and it becomes binding precedent even though approval to decision of lower forum/court is summarily recorded. Similar situation had arisen for consideration before the Hon'ble Gujarat High Court in the case of Nirma Industries Ltd. 283 ITR 402 wherein the effects of summary disposal of appeal by the High Court were analysed and explained by their Lordships. It was clarified that while hearing an appeal even for deciding whether substantial question of law arises or not from the order of the Tribunal, the High Court does not exercise either the original jurisdiction or the jurisdi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not earned by the assessee in the relevant period as are the facts of the present case or that of the case of Delite Enterprise (supra) decided by the Hon'ble Bombay High Court. Accordingly, we decide the common issue involved in all these appeals in favour of the assessees following the decision of jurisdictional High Court in the case of Delite Enterprises (supra) and allow the appeals of all the assessees. 18. We have also gone through the decision relied upon by the learned DR also. The decision of ACIT Vs CITICORP Finance (Ind.) Ltd., 108 ITD 457 (Bom.) is no more relevant, in view of the decision of the Hon_ble Mumbai High Court in the case of Godrej Boyce Mfg Co. Ltd. (Supra). The decision of SPIC Vs DCIT 93 TTJ (Chennai) 161 is not applicable to the facts of the case. As in that case, the assessee was regularly investing in the shares. The assessee has not disallowed any expenditure with regard to the earning of the dividend income. Under these facts, the Hon ble Tribunal held that whether to invest or not to invest is a very strategic decision and top management involve in taking the decisions. This decision relate to assessment year 2000-01 much prior to the inser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction . 49. Referring to the decision of the Hon'ble Supreme Court in the case of Gem India Manufacturing Company 249 ITR 307 wherein the Hon'ble Supreme Court has held that raw and un-cut diamonds is subjected to a process of cutting and polishing which yields the polished diamond but that is not to say that polished diamond is a new article or thing which is the result of manufacture or production. Further, referring to the decision of the Hon'ble Supreme Court in the case of Lucky Minerals Pvt Ltd 116 Taxman 1 wherein the Hon'ble Supreme Court has held that mere mining of limestone and marble and cutting the same before it was sold in the market cannot be considered a manufacturing process or production. In the light of the aforesaid rulings of the Hon'ble Supreme Court, the assessing officer was of the firm belief that the words manufacture or production used in section 32(iia) of the Act does not include processing of the assessee and accordingly disallowed the claim of additional depreciation. 50. Objections were raised before the DRP but the same were dismissed. 51. Before us, the learned counsel for the assessee drew our attention to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing question raised at the instance of the revenue in an appeal before the Bombay High Court was answered in favour of the assessee : 2. The following question raised at the instance of the revenue in an appeal before the Bombay High Court was answered in favour of the assessee : Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in holding that the assessee is entitled to deduction of investment allowance under section 32A of the Income Tax Act, 1961, in respect of machinery used in mining activity ignoring the fact that the assessee is engaged in extraction and processing of iron ore, not amounting to manufacture or production of any article or thing ? 3. The High Court, while dismissing the appeal preferred by the revenue, held that extraction and processing of iron ore did not amount to manufacture . However, it came to the conclusion that extraction of iron ore and the various processes would involve production within the meaning of section 32A(2)(b)(iii) of the Income Tax Act, 1961 (hereinafter referred to as, the Act ), entitling the assessee to investment allowance under the said provision. 3. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rased in the same manner as section 32A(2)(b)(iii) of the Act, wherefrorn, according to the assessee, it will be abundantly clear that Parliament had intended to include the mining of ores within the meaning of the word production . 6. At the outset, it may be noted that section 32A(2)(b)(iii) makes it clear that investment allowance is deductible in respect of, inter alia, a plant owned by the assessee which is wholly used for the purposes of the assessees business under section 32A(1) if the plant is installed after 31-3-1976, in an industrial undertaking for the purposes of the business of construction or manufacture or production of any article or thing, except those articles or things mentioned in the Eleventh Schedule to the Act. There is no dispute that the plant in respect of which the assessee claimed deduction was owned by it and was installed after 31-3-1976, in the assessees industrial undertaking for excavating, mining and processing mineral ore. Mineral ore is not excluded by the Eleventh Schedule. The only question is whether such business is one of manufacture or production of ore. The issue had arisen before different High Courts over a period of time. The H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... albeit, in connection with the Bihar Sales Tax Act, 1947. The definition was adopted from the meaning ascribed to the word in the Oxford English Dictionary as meaning amongst other things that which is produced; a thing that results from any action, process or effort, a product; a product of human activity or effort . From the wide definition of the word production , it has to follow that mining activity for the purpose of production of mineral ores would come within the arnbit of the word production since ore is a thing , which is the result of human activity or effort. It has also been held by this court in CIT v. N. C. Budharaja and Co. (1993) 204 ITR 412 (SC) that the word ,production is much wider than the word manufacture . It was said (page 423) : 7. The reasoning given by the High Court, in the decisions noted by us earlier, is, in our opinion, unimpeachable. This court had, as early as in 1961, in Chrestian Mica Industries Ltd. v. State of Bihar (1961) 12 STC 150, defined the word production , albeit, in connection with the Bihar Sales Tax Act, 1947. The definition was adopted from the meaning ascribed to the word in the Oxford English Dictionary as meaning am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... different sense in section 32A. 9. We are, therefore, of the opinion that extraction and processing of iron ore amounts to production within the meaning of the word in section 32A(2)(b)(iii) of the Act and, consequently, the assessee is entitled to the benefit of section 32A(1) of the Act. The question whether the High Court was correct in holding that the activity did not amount to manufacture is left open. 9. We are, therefore, of the opinion that extraction and processing of iron ore amounts to production within the meaning of the word in section 32A(2)(b)(iii) of the Act and, consequently, the assessee is entitled to the benefit of section 32A(1) of the Act. The question whether the High Court was correct in holding that the activity did not amount to manufacture is left open. The civil appeal is, accordingly, dismissed but without any order as to costs. 56. In light of the binding decision of the Hon'ble Supreme Court we direct the Assessing Officer to allow claim of additional depreciation. This ground is, accordingly, allowed. 57. The next grievance relates to claim of balance 50% additional depreciation disallowed by the assessing officer amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if the same is not allowed, then it would completely defeat the purpose of the said section which was enacted to provide benefit on capitalisation. 65. In so far as applicability being prospective the ld. AR relied upon the decision of the Hon'ble Supreme Court in the case of Allied Motors Pvt Ltd 224 ITR 667 and Alom Extrusions Ltd 319 ITR 306 wherein the Hon'ble Supreme Court has held that beneficial provision/clarifications should be given prospective effect. 66. Per contra the ld. DR strongly supported the findings of the assessing officer and reiterated that there is no such provision of carryover of balance claim of additional depreciation to the next year. 67. Referring to the decision of the coordinate bench in the case of M/s Shree Jaya Jothi Cements in ITA No. 1932/Mds/2015, the ld. DR stated that in that case the Tribunal has held that claim of additional depreciation has to be given in the first year itself and there is no provision for its postponement or carry forward. The ld. DR further drew our attention to the Memorandum to Finance Act 2015 wherein it has been clarified that this benefit of carry over of balance additional depreciation to the next ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d half of the year may motivate the assessee to defer such investment to the next year for availing full 100% allowance for additional depreciation in the next year. iii. To remove the discrimination in the manner of allowing additional depreciation on plant or machinery used for less than 180 days and plant or machinery used for 180 days or more, a new proviso has been inserted to section 32(l)(ii) of the Income-tax Act so as to provide that the balance 50% of the additional depreciation allowance on new plant or machinery acquired and used for less than 180 days which has not been allowed in the year of acquisition and installation of such plant or machinery, shall be allowed in the immediately succeeding previous year. iv. Applicability: - This amendment takes effect from 1st April, 2016 and will, accordingly, apply in relation to the assessment year 2016-17 and subsequent assessment years. 71. A simple perusal of the above shows that this amendment takes effect from 1.4.2016. As this amendment is effective from 01.04.2016, therefore, it is clearly not applicable to the year under consideration. As far as the applicability of this amendment having retrospective effe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o far as mining activities is concerned, we have considered an identical issue at Para 56 hereinabove, wherein we have referred to the decision of the Hon'ble Supreme Court holding that the assessee is eligible for claim u/s 32(1)(iia) of the Act. For similar reasons, the assessee is also eligible for allowance u/s 32AC of the Act. 79. In so far as the disallowance made on the ground that generation of power does not amount to manufacture or production of goods, in our considered opinion, this issue is no longer res Integra and has been conclusively settled by the Hon'ble Apex Court in the case of Commissioner of Sales Tax, MP Vs Madhya Pradesh Electricity Board 2SCR939 wherein it has been held that electric energy would be covered under the definition of goods . 80. The Hon'ble Jurisdictional High Court of Delhi in the case of NTPC Sail Power Company in ITA No 1290/2018 had the occasion to consider a similar issue. Relevant findings of the Hon'ble High Court read as under: 6. Section 32(1)(iia) of the Act as it stood at the relevant time, read as follows: 32. Depreciation: (1) In respect of depreciation of (2) (iia) In the case of any new ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nderstood in law, and what are its relevant characteristics. It is settled with the pronouncement of this Court in Commissioner of Sales Tax, Madhya Pradesh, Indore v. Madhya Pradesh Electricity Board, Jabalpur 1969(2) SCR 939 that electricity is goods. The definition of goods as given in Article 366 (12) of the Constitution was considered by this Court and it was held that the definition in terms is very wide according to which goods means all kinds of moveable property. The term moveable property when considered with reference to goods as defined for the purpose of sales-tax cannot be taken in a narrow sense and merely because electrical energy is not tangible or cannot be moved or touched like, for instance, a piece of wood or a book it cannot cease to be moveable property when it has all the attributes of such property. It is capable of abstraction, consumption and use which if done dishonestly is punishable under Section 39 of the Indian Electricity Act, 1910. If there can be sale and purchase of electrical energy like any other moveable object, this Court held that there was no difficulty in holding that electric energy was intended to be covered by the definition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in documents were impounded, which contained email exchanges made by the senior executives of the appellant company. 84. From a perusal of the aforementioned emails, the Assessing Officer formed a belief that receivables of ₹ 1095.93 crores have not been disclosed by the assessee in its books of account. According to the Assessing Officer, the assessee and its group concerns failed to disclose various receivables in its books of accounts, which were not in the knowledge of the independent auditor as no qualification has been made by the independent auditor in the Annual Reports of the assessee and its group companies. The alleged out of books receivables can be itemised as under: Insurance claims ₹ 254 crores Refund from banks ₹ 160 crores Drawback related ₹ 22 crores Coal tapering ₹ 169 crores Tariff fixation Gridco ₹ 295 crores PAT [Perform achieve and trade scheme] ₹ 196 crores Total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t there is no ambiguity in the words used out of books receivables . Since the information was not available with the auditors, therefore, they had no occasion to examine the same and comment thereon. The ld. DR vehemently stated that the assessee could not furnish any supporting documents before the lower authorities. 92. We have given a thoughtful consideration to the orders of the authorities below and have carefully considered the rival submissions. It would be pertinent to extract the relevant emails with respect to receivables which could not be accounted for in the books on accrual basis which is as under: Sender Date of email Relevant extracts of email D.D. Jalan 21.06.2013 There are at times some receivable which are not accounted for in books on accrual basis and these are accounted for as and when these ae received like nil inventory, insurance claim, claims from Bank on account of higher Bank charges, interest of float money etc. and other claims. How do we keep track of these receivables? I am sure there would be some Memorandum Account. Does this gets regula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ussion regarding certain premature claims. However, an itemised detail has been mentioned elsewhere. A perusal of the same suggests that some of the items are easily traceable for example insurance claim can be traced back to the damaged assets on which claim has been made and could be easily verified from the Insurance companies. Similarly, claims lodged with banks can be verified from the banks and the nature of claim can also be verified. In so far as duty drawback is concerned, the same being related to government bodies which is also easily verifiable. 94. However, we find that neither the Assessing Officer has done any exercise nor the assessee has adduced any demonstrative evidences before the lower authorities nor before us. Similar is the situation with the coal tapering claim of ₹ 169 crores, which could have been verified from South Eastern Coal Fields Limited, tariff fixation relating to Power Purchase Agreement with Grid Corporation of Orissa Limited is verifiable from the GRIDCO. Similarly, the Perform Achieve Trade for energy efficiency is also verifiable from the government. 95. As mentioned elsewhere neither the Assessing Officer has done any verific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. counsel for the assessee vehemently stated that the amendments made to section 37 of the Act are w.e.f from 1.4.2015 and are applicable from A.Y 2015- 16 and therefore, the same cannot be imported for disallowance for the year under consideration. 102. Per Contra, the ld. DR strongly supported the findings of the lower authorities. 103. We have carefully considered the rival submissions and have perused the order of the authorities below. At the very outside, the Tribunal in the case of National Small Industries Corporation Limited 175 ITD 601 has held that amendments made to section 37 of the Act vide Finance Act [No. 2] 2014 are prospective in nature and hence would not be applicable to the period prior to the said amendment which is the case of the assessee. 104. Having said that, let us look into the details of the expenditure incurred on CSR by the applicant : PARTICULARS AMOUNT 1. Goa Swimming Association, Margao 200000 2. Carmel Boys Curtorim, Curtorim 15000 3. Progres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idated damages of ₹ 3,22,94,880/- and in its computation of income, the assessee claimed exclusion of the same from the taxable income on the ground that the same having been received from the suppliers of capital goods in relation to delayed supply of such capital goods. On these facts the sum was treated as capital receipts. The assessing officer was not convinced with the claim of the assessee and was of the firm belief that under section 28(iv) of the Act the said amount is chargeable as revenue receipt. The Assessing Officer further observed that the assessee had failed to submit necessary details of the parties and other documentary evidences to substantiate that liquidity damages were connected with supply of capital goods. 109. Objections were raised before the DRP and some fresh evidences were filed which were sent to the assessee by the DRP. In his remand report, the Assessing Officer examined the copies of agreement with M/s China Aluminium International Trading Company Limited and M/s Guiyang Aluminium Magnesium Design and Research Institute, though copies of the agreements in respect of other persons were not furnished. 110. On examining the two agreements ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es received are capital receipts. We, accordingly, direct the Assessing Officer to delete the addition of ₹ 32,29,40,880/-. This ground is accordingly allowed. 115. Next Ground relates to denial of brought forward losses. 116. In its return of income, the assessee has claimed set off of brought forward business losses and unabsorbed depreciation from its income during the year under consideration. The claim was denied by the Assessing Officer on the ground that in earlier assessment years, additions/disallowances have been made which have been confirmed by the DRP. The DRP confirmed the findings of the Assessing Officer holding that the claim could only be admissible once assessment of earlier A.Y is finalised. 117. Before us, the ld. counsel for the assessee stated that there is no dispute that in earlier A.Ys are under appeal but at least the Assessing Officer should have given claim of set off as per assessed income/losses. 118. The ld. DR simply relied upon the findings of the DRP. 119. In our considered opinion, even if the earlier assessment orders are in appeal, the assessee is still entitled for claim of set off as per assessed figures of previous A.Ys. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer re-computed the book profit as under: Particulars Amount (Rs) Profit after tax (as per the P L A/c) 1076,08,75,131 Add - Provision for impairment of assets 66,84,27,589 Add - Disallowance of expenses incurred in relation to exempt income (u/s 14A) 857,04,00,000 Add - Receivables out of Books 1095.93,00,00 Add - Provision for Bad and Doubtful debts 247,01,13,831 Add - Donation 15,50,36,663 3358,41,53,214 Less - Reversal of Provision for taxes pertaining to past years credited to P L NIL Less - Deferred tax income credited to P L 392,65,08,623 Less - Exempt dividend income u/s 10(34) earned during the 1289,44,37,49 Less - Debenture Redemption Reserve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computation of book profit by the Assessing Officer and the same deserves to be confirmed. 133. At the very outset it would be appropriate to consider the decision of the Hon ble Supreme Court in the case of Apollo Tyres [supra]. The relevant findings read as under: The Assessing Officer, while computing the book profits of a company under Section 115-J of the Income-tax Act, 1961, 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 provided for in the Explanation to section 115J. The Assessing Officer does not have the jurisdiction to go behind the net profits shown in the profit and loss account except to the extent provided in the Explanation. The use of the words in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act in section 115J was made for the limited purpose of empowering the Assessing Officer to rely upon the authentic statement of accounts of the company. While so looking into the accounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I.T.R.251. needs re-consideration for the following reasons: Chapter XII-B of the Act containing Special provisions relating to certain Companies was introduced in the Income Tax Act, 1961, by the Finance Act, 1987, with effect from 1st April, 1988. In fact, Section 115J replaced Section 80VVA of the Act. Section 115J [as it stood at the relevant time], inter alia, provided that where the total income of a company, as computed under the Act in respect of any accounting year, was less than thirty per cent of its book profit, as defined in the Explanation, the total income of the company, chargeable to tax, shall be deemed to be an amount equal to thirty per cent of such book profit. The whole purpose of Section 115J of the Act, therefore, was to take care of the phenomenon of prosperous `zero tax' Companies not paying taxes though they continued to earn profits and declare dividends. Therefore, a Minimum Alternate Tax was sought to be imposed on `zero tax' Companies. Section 115J of the Act imposes tax on a deemed income. Section 115J of the Act is a special provision relating only to certain Companies. The said section does not make any distinction between public and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anies Act. Since the accounts were not prepared as per the Companies Act, the Hon'ble Court ruled in favour of the revenue. Whereas, in the case in hand, the statement of accounts have been drawn as per Companies Act itself. Therefore, the ratio laid down by the Hon'ble Supreme Court in the case of Apollo Tyres [supra] squarely applies. 137. The relevant provisions of section 115 JB read as under: Special provision for payment of tax by certain companies. 115JB. (1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a company, the income-tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 2012, is less than eighteen and one-half per cent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of eighteen and one-half per cent. Following proviso shall be inserted in sub-section (1) of section 115JB by the Taxation Laws (Amendment) Act, w.e. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss for the relevant previous year prepared under sub-section (2), as increased by- (a) the amount of income-tax paid or payable, and the provision therefore; or (b) the amounts carried to any reserves, by whatever name called, other than a reserve specified under section 33AC; or (c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or (d) the amount by way of provision for losses of subsidiary companies; or (e) the amount or amounts of dividends paid or proposed ; or (f) the amount or amounts of expenditure relatable to any income to which section 10 (other than the provisions contained in clause (38) thereof) or section 11 or section 12 apply; or (fa) the amount or amounts of expenditure relatable to income, being share of the assessee in the income of an association of persons or body of individuals, on which no income-tax is payable in accordance with the provisions of section 86; or (fb) the amount or amounts of expenditure relatable to income accruing or arising to an assessee, being a foreign company, from,- (A) the capital gains arising on transactions in secur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given hereinabove, no adjustment is required on this count II. ADDITION ON ACCOUNT OF ALLEGED OUT OF BOOK RECEIVABLES 140. This issue has been restored to the file of the Assessing Officer for fresh adjudication as per the directions given in para No. 93. Therefore, this issue needs no consideration at this stage III. ADDITION ON ACCOUNT OF PROVISION FOR BAD AND DOUBTFUL DEBTS 141. Facts show that the assessee has debited an amount of ₹ 247.01 crores in the P L account under the head Provision for Doubtful Trade Receivables/Advances and had also added back the same in the computation of total income under the normal provisions of the Act. However, no adjustment of this provision was made while computing book profits u/s 115 JB of the Act 142. The Assessing Officer added the full amount of provision as debited by the assessee while computing the book profit on the premise that the same was in the nature of an unascertained liability and further held that the said provision had to be added back to the book profit in terms of clause (c) as well as clause (i) of Explanation 1 of Section 115JB of the Act. 143. The DRP has only made adjustment referrin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 1956), which is different from the previous year under the Act, the method and rates for calculation of depreciation shall correspond to the method and rates which have been adopted for calculating the depreciation for such financial year or part of such financial year falling within the relevant previous year. Explanation.-For the purposes of this section, book profit means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub- section (2), as increased by- (a) (b) xxx xxxxxx (c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or (d), (e) (f) xxx xxxxxx; if any amount referred to in clauses (a) to (f) is debited to the profit and loss account, and as reduced by, - (i) to (viii) xxx xxxxxx (3) and (4) xxx xxxxxx From the above, it is evident that Section 115JA of the 1961 Act which refers to deemed income relating to certain companies has an overriding effect upon other provisions of the Income-tax Act. It is applicable only in the case of a company. As per Section 115JA, the AO has to first compute the total income of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obligate the company to maintain its accounts in a manner provided by that Act and the same to be scrutinized and certified by statutory auditors and approved by the company in general meeting and thereafter to be filed before the Registrar of Companies who has a statutory obligation also to examine and be satisfied that the accounts of the company are maintained in accordance with the requirements of the Companies Act. Sub-section (1A) of Section 115J does not empower the Assessing Officer to embark upon a fresh enquiry in regard to the entries made in the books of account of the company. From the above, it is evident that the AO has to accept the authenticity of the accounts maintained in accordance with the provisions of Part II and Part III of Schedule VI to the Companies Act, which are certified by the Auditors and pressed by the company in the general meeting. The AO has only the power of examining whether the books of accounts are duly certified by the authorities under the Companies Act and whether such books have been properly maintained in accordance with the Companies Act. The AO does not have the jurisdiction to go beyond the net profit shown in the profit and l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be fastened upon the assessee. In the present case, the debt is the amount receivable by the assessee and not any liability payable by the assessee and, therefore, any provision made towards irrecoverability of the debt cannot be said to be a provision for liability. Therefore, in our view Item (c) of the Explanation is not attracted to the facts of the present case. In the circumstances, the AO was not justified in adding back the provision for doubtful debts of ₹ 92,15,187/- under clause (c) of the Explanation to Section 115JA of the 1961 Act. For the aforestated reasons, there is no merit in this civil appeal and accordingly the same is dismissed with no order as to costs. 145. Even if the adjustments made by the Assessing Officer are considered in the light of clause(i) of Explanation 1 of Section 115JB of the Act, a perusal of the same shows that the trigger point for invoking this clause are: a) amount should be set aside as provision , b) It should be in the nature of diminution in the value of asset 146. In so far as condition (b) is concerned, it is not in dispute that the same is satisfied in the present case in as much as amount of ₹ 247.01cror ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where the Apex Court had an occasion to consider this Explanation . It accepted the argument on behalf of the revenue to the effect that the Explanation makes it very clear that there is a dichotomy between actual write off on the one hand and provision for bad and doubtful debt on the other. A mere debit to the profit and loss account would constitute a bad and doubtful debt, but it would not constitute actual write off and that was the very reason why the Explanation stood inserted. Prior to the Finance Act, 2001 many assessees used to take the benefit of deduction under section to the profit and loss account per se would not constitute actual write off. The Apex Court accepted the said legal position. However, it was clarified that besides debiting the profit and loss account and creating a provision for bad and doubtful debt, the assessee correspondingly/simultaneously obliterated the said provision from its accounts by reducing the corresponding amount from loans and advances/debtors on the assets side of the balance sheet and consequently, at the end of the year, the figure in the loans and advances or the debtors on the assets side of the balance sheet was shown as net ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 85 crores which is provision for diminution in value of assets, required to be added to the book profit while computing the net profit under section115JB of the Act. 12. In this regard it may be germane to refer to the decision of this court in the case Commissioner of Income Tax v. Vodafone Essar Gujarat Limited (supra), whereinthe court has held thus:- 18. It can thus be seen that in case of Southern Technologies Ltd. (supra), the Supreme Court explained that if an assessee debits an amount of doubtful debt to the Profit and Loss account and credits the asset account like sundry debtor's account, it would constitute a write off of an actual debt. On the other hand, if and assessee debits provision for doubtful debt to the Profit and Loss account and makes a corresponding credit to the current liabilities and provisions on the liabilities side of the balance sheet, then it would constitute a provision for doubtful debt and in such a case after 1.4.1989, the assessee could claim no deduction under section 36(1) (vii) of the Act. 19. This principle was further clarified in case of Vijaya Bank (supra) by observing that in case on hand, the assessee besides debiting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... end of the year, the amount of loans and advances/debtors is shown as net of the provisions for the impugned bad debt. Therefore, in the first place if the bad debt or doubtful debt is reduced from the loans and advances or the debtors from the assets side of the balance sheet the Explanation to s. 115JA or JB is not at all attracted. 22. In case of Kirloskar Systems Ltd. (supra), the Karnataka High Court adoptedthe same principle. 23. By way of culmination of above judicial pronouncements and statutory provisions, the situation that arises is that prior to the introduction of clause(I) to the explanation to section 115JB, as held by the Supreme Court in case of HCL Comnet Systems and Services Ltd. (supra), the then existing clause (c) did not cover a case where the assessee made a provision for bad or doubtful debt. Withinsertion of clause (I) to the explanation with retrospective effect any amount or amounts set aside for provision for diminution in the value of the asset made by the assessee, would be added back for computation of book profit under section 115JBof the Act. However, if this was not a mere provision made by the assessee by merely debiting the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents are usually carried at cost. However, when there is a decline, other than temporary, in the value of a long term investment, the carrying amount is reduced to recognise the decline. Paragraph 18says that long-term investments are usually of individual importance to the investing enterprise. The carrying amount of long-term investments is, therefore, determined on an individual investment basis. Paragraph 19 says that where there is a decline, other than temporary, in the carrying amounts of long term investments, the resultant deduction in the carrying amount is charged to the profit and loss statement. The reduction in the carrying amount is reversed when there is a rise in the value of the investment, or if the reasons for the reduction no longer exist. 16. Paragraph 25 of the Explanation part of Accounting Standard 13 deals with Disclosure and provides thus: 25. The following disclosures in financial statements in relation to investments are appropriate: (a) The accounting policies for the determination of carrying amount of investments; (b) The amounts included in profit and loss statement for: (i) interest, dividends (showing separately di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is ₹ 69,46,73,244/- minus ₹ 55,61,73,244/- which comes to ₹ 13,85,00,000/. 21. A perusal of the details of Provision for Diminution in the Value of Investments as on 31 March, 2003 (page 60 of the paper book) shows that the total provision required as on 31 March, 2003 is ₹ 839,621,779/-; provision available ason 31 March, 2002 is ₹ 701,121,779/-; and the provision for the year ended 31March, 2003 is ₹ 138,500,000/-. 22. Schedule IV of the Schedule annexed to and forming part of the accounts (page31 of the paper book), shows that the total investment as at 31 March, 2003 is ₹ 5,742,306,638/-. Deducting the amount of provision for diminution in value of investments viz. 839,621,779/- the total investment as at 31 March 2003 comes to ₹ 4,902,684,859/-. It may be noted that the provision for diminution in value of investment as at 31 March, 2002 is ₹ 701,121,779/- and the provision in diminution of value of investments as at 31 March 2003 is ₹ 839,621,779/-. The difference between the provision for diminution of value of investment as at 31 March2002 and 31 March 2003 is ₹ 13,85,00,000/-. This amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debentures etc. are written off and why out of ₹ 83,96,21,779/- only ₹ 13,85,00,000/- is considered. The learned counsel for the appellant has reiterated the above reasoning adopted by the Commissioner (Appeals). 25. In the opinion of this court, the above findings recorded by the Commissioner (Appeals) that no details have been produced, is contrary to the record of the case, in as much as, in the balance sheet which forms part of the paper book, the details of diminution in the value of investment are clearly set out in the statement at page 57of the paper book. The Tribunal, in the impugned order, has after perusing the statement referred to hereinabove which formed part of the paper book, has found that the assessee has duly followed the netting principle in terms of the decision of this court in the case of Commissioner of Income Tax v. Vodafone Essar Gujarat Limited (supra). Thus, the Commissioner (Appeals) has proceeded on incorrect factual findings, whereas the Tribunal has properly appreciated the material on record while holding that the assessee has duly followed the netting principle propounded in the full bench decision of this court in Vodafone Essar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge amount of income tax, the assessee reversed the unutilised provision for taxes in this year which were made/charged by the amalgamating entities prior to amalgamation, and, therefore, prayed for adjustment on this count. 155. Per contra, the ld. DR strongly relied upon the findings of the Assessing Officer and stated that the provisions of section 115JB read with explanation thereon, clearly shows that adjustment made by the Assessing Officer is correct. 156. In our considered opinion, the issue raised by the ld. counsel needs to be considered thoroughly. The break-up of figure of ₹ 1782.09 is as under: Particulars Amount Provision for current tax of prior years reversed in F.Y 2013-14 1755,08,78,269 Provision for interest u/s 234C of the Act of prior years reversed in F.Y 2013-14 ₹ 27,00,73,765/- Total tax provision in FY 2013-14 considered in MAT computation ₹ 17,82,09,52,034/- 157. Further break up of ₹ 1755.08 crores mentioned hereinabove is as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Sterlite Engery Ltd. in (F) 1.90 Reversal of Provision for Tax created by (G) 18.37 Amount of Current Tax Expense (H) = (C)+(E) +(F)+( 1,755.08 158. A bare perusal of the afore-stated charts show that the figure of ₹ 1782.09 crores pertain to reversal of unutilised provision for taxes in the current year. In our considered view, these factual figures need verification. We, therefore, deem it fit to restore this issue to the file of the Assessing Officer. The Assessing Officer is directed to verify the correctness of figures mentioned in charts hereinabove and decide the issue afresh. VI REDUCTION CLAIM ON ACCOUNT OF DEBENTURES REDEMPTION RESERVE AND SURPLUS 159. Facts on record show that and amount of ₹ 303.36 was transferred to the Reserve and Surplus Account by the assessee. The Assessing Officer was of the opinion that this amount is appropriation of profit and not a provision for ascertained liability as the same was not debited to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be recognized in the accounts. A provision, therefore, is somewhat between accrual and the contingent liability. 25. The argument in respect of Section 45-IC of the Reserve Bank of India Act, 1934 and diversion of income at source is misconceived. The decisions of different courts including the Supreme Court and the Delhi High Court in the case of Molasses Storage Fund are inapplicable. Diversion of income at source by way of overriding title as a principle is applicable when under a statutory or contractual obligation or under the provisions of Memorandum and Articles of Association, the earning is divested and the assessed has no title over a particular receipt. When such charge exists, the amount or income so charged must be excluded from income of the assessed as income never reaches his hands and in fact belongs to a third person. Thus, the income stands diverted at source. Diversion of income at source implies that income or the amount mentioned therein belongs to a third party and was not income of the assessed. Similar question arose before the Supreme Court in Associated Power Co. Ltd Vs. CIT (1996) 218 ITR 195. The Supreme Court, therefore, concluded that the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X
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