TMI Blog2022 (3) TMI 538X X X X Extracts X X X X X X X X Extracts X X X X ..... pportionment of profits resting on disintegration of ultimate profits realized by the assessee by sale of the final product by the assessee has to be applied. The interpretation placed on the expression business used in Section 2(b) of the Act and holds that the Assessee here is entitled to reduce from its book profits, the profits derived from its CPPs, in determining the MAT payable for the purpose of Section 115JA of the Act. Question (i) is therefore answered in favour of the Assessee and against the Department by holding that the AO, the CIT(A) as well as the ITAT erred in law in not allowing the claim of the Assessee as deduction under Section 115JA(2)(iv) of the Act relating to power profits . Disallowing entire claim for leave encashment and post retirement medical benefit which has been determined as an accrued liability and computed on the basis of actuarial valuation - AO has treated the liability on the above ground as a contingent liability and added it to the book profits. This has been upheld by the CIT(A) and ITAT - HELD THAT:- The Court is of the view that the reasoning of the Supreme Court in HCL Comnet Systems Services Ltd. [ 2008 (9) TMI 18 - SUPRE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its accounts are maintained on accrual basis. 4. The Profit and Loss Account (P L Account) of the Assessee is drawn up in accordance with the provisions contained in Parts II and III of Schedule VI to the Companies Act. After the accounts are scrutinized and certified by the statutory auditors as well as by the Comptroller and Auditor General of India (C AG), it is approved by the Appellant in its general meeting and thereafter filed with the Registrar of Companies as required under the Companies Act, 1956. 5. It is not in dispute that for the AY in question, the Appellant was liable to pay Minimum Alternative Tax (MAT Tax) under Section 115JA of the Income Tax Act, 1961 (Act) based on its book profits . In other words, for the AY in question on account of brought forward depreciation and investment allowance, the taxable income of the Assessee was Nil and, therefore, this attracted the MAT Tax under Section 115JA of the Act. 6. The Appellants generates power in its Captive Power Plant (CPP) at Angul. The power so generated is internally consumed in its Smelter Plant at Angul for production of Aluminium. Surplus power is sold by the Assessee to Grid Corporation of Ori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the words derived by used in Clause (iv) cannot have a wide import so as to include any income which can in some manner be attributed to the business. The profit derived by the eligible business has to mean profit and gains includible in the computation of total income chargeable to tax. It was held that it will be difficult to hold that the appellant has derived profit from internal consumption of power. 12. The ITAT has adopted the above reasoning in toto and observed that Section 115JA(2)(iv) of the Act does not mean that a person can sell to himself. 13. The relevant portion of Section 115JA(2)(iv) of the Act reads as under: 115JA. Deemed income relating to certain companies.- (1) Notwithstanding anything contained in any other provisions of this Act, where in the case of an assessee, being a company, 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, 1997 (hereafter in this section referred to as the relevant previous year) is less than thirty per cent. of its book profit, the total income of such assessee chargeable to tax for the relevant previo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... drawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the 1st day of April, 1997 [but ending before the 1st day of April, 2001] shall not be reduced from the book profit unless the book profit of such year has been increased by those reserves or provisions (out of which the said amount was withdrawn) under this Explanation; or (ii) the amount of income to which any of the provisions of Chapter III applies, if any such amount is credited to the profit and loss account; or (iii) the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account. Explanation .-For the purposes of this clause,- (a) the loss shall not include depreciation; (b) the provisions of this clause shall not apply if the amount of loss brought forward or unabsorbed depreciation is nil; or] (iv) the amount of profits derived by an industrial undertaking from the business of generation or generation and distribution of power; or xxx 14. In almost similar circumstances, the Delhi High Court in M/s. DCM Sriram Consolidated Ltd., (supra) considered the question whether an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Division Bench of this Court in Orissa Cement (supra) it is quite evident that assessee's CPPs can as a matter of principle derive profits which is in point of fact embedded in the ultimate profit earned on the sale of the final product. 16. On the issue whether the Assessee could be denied the power profit as computed by it on the ground that power generation was not its main line of business, the Delhi High Court held that the term business which prefixes generation of power in Clause (iv) of the Explanation to Section 115JA is not limited to one which is prosecuted only by engaging with an outside third party. The meaning of the word business' as defined in Section 2(b) of the Act includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. The definition of business', which is inclusive, clearly brings within its ambit the activity undertaken by the assessee, which is, captive generation of power for its own purposes. The approach of the CIT(A) and, consequently the Tribunal, both in law and on facts cannot be faulted with. We are of the opinion that the Assessing Officer clearly erred in holdin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned liability. 21. Mr. T. K. Satpathy, on the other hand, referred to Clause (c) of the Explanation below Section 115JA(2) of the Act and submitted that ascertained liabilities i.e. only the amount actually paid will be eligible for deduction from the profits on which MAT has to be paid. He accordingly submitted that the AO was justified in allowing only such amount that was actually paid on this score in the previous year and not the entire amount as claimed by the Assessee. 22. Having considered the above submissions, the Court is of the view that the reasoning of the Supreme Court in HCL Comnet Systems Services Ltd. (supra) should prevail. The Supreme Court there was considering, for the purposes of Section 115JA (common explanation (c)), whether the provisions for bad and doubtful debts as claimed by the Assessee should be treated as ascertained or unascertained liability. In that context, it was observed as under: As stated above, the said Explanation has provided six items, i.e., Item Nos.(a) to (f) which if debited to the profit and loss account can be added back to the net profit for computing the book profit. In this case, we are concerned with Item No. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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