TMI Blog2016 (10) TMI 1360X X X X Extracts X X X X X X X X Extracts X X X X ..... e loss making concerns. The apprehension of the Revenue is that the assessee had promised such payments to its clients who are its sister concerns in order to shift its profit to those companies which are loss making companies. Therefore in order to ascertain the genuineness of the promised payment, we hereby remit the matter back to the file of the learned Assessing Officer who shall verify the parameters considered by the assessee while paying compensation to its client M/s. Indonet Global Ltd., for the assessment year 2006-07 [ 2016 (10) TMI 1358 - ITAT CHENNAI] and if the same falls in parity in the case of the assessee for the relevant assessment year, then allow the claim of deduction though the compensation has been shown only as payable, otherwise pass appropriate orders as per law merit. Disallowance being the expenses related to issue of FCCB - foreign currency convertible bonds issue expenses - as submitted that the expenditure is allowable under section 37 of the Act because these expenses related to obtaining loan - HELD THAT:- From the facts of the case, we find that the entire expense is incurred by the assessee during the previous year 2006-07 relevant to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit loss account and crediting to asset account. This is mandatory as per Accounting Standard-28, which every company has to follow while preparing its statement of affairs. As held by the learned Commissioner of Income Tax (Appeals) there is no whisper in the provisions of section 115JB of the Act for adding back the impairment loss to the profit loss account of the assessee while computing book profit tax under section 115JB of the Act. Therefore, we do not find it necessary to interfere with the orders of the learned Commissioner of Income Tax (Appeals) on this issue. - Decided against revenue. - I.T.A. No. 938/Mds/2015, 1825/Mds/2015 - - - Dated:- 27-10-2016 - SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER For the Assessee : Mr. S.Sridhar, Advocate For the Revenue : Mr. Supriyo Pal, JCIT ORDER Per A. Mohan Alankamony, AM:- These are appeals filed by the assessee and the Revenue respectively aggrieved by the order of the learned Commissioner of Income Tax (Appeals)-6, Chennai dated 23.01.2015 in ITA No.235/CIT(A)-6/2014-15 passed under section 143(3) r.w.s. 250(6) of the Act. Since both these appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act wherein the learned Assessing Officer made several additions which was substantially confirmed by the learned Commissioner of Income Tax (Appeals) who had also given certain relief to the assessee. Aggrieved by the order of the learned Commissioner of Income Tax (Appeals), the assessee and Revenue are both in appeal before us. Ground No.1 : Disallowance under section 14A r.w.r 8D for Rs.7,87,477/- towards expenditure incurred for earning exempt income while computing tax under section 115JB of the Act: 5.1 At the outset, the learned Authorized Representative submitted that this issue is covered by the decision of the Chennai Bench of the Tribunal in the case of M/s. Beach Minerals Company Pvt.Ltd., Vs. ACIT in ITA Nos.2110 2188/Mds/2014 dated 06.08.2015. The learned Departmental Representative could not controvert to the submissions of the learned Authorized Representative. 5.2 After hearing both the sides, we find merit in the submissions of the learned Authorized Representative because the Chennai Bench of the Tribunal in the case cited supra has held that while computing the book profit of the company under section 115JB of the Act which is a section with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shown in the profit and loss account for the relevant previous year prepared under sub-section(2), as increased by (a) To (e) ---------------------------------------------------- (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; (g) To (j) ----------------------------------------------------- From the above it is apparent that the aforesaid provision of the Act does not refer to any disallowance made U/s.14A of the Act while arriving at the Book Profit for the purpose of Section115JB(2) of the Act. Further Section 14A of the Act is a provision with fiction disallowing the deemed expenditure attributable to exempt income viz., dividend income U/s. 10 of the Act and Section 115JB of the Act is also a provision with fiction for payment of tax in respect of deemed income. Therefore while computing the profit for the purpose of Section 115JB of the Act another provision with fiction cannot be superimposed. Hence the question of increasing the Book Profit due to the disallowance U/s.14A of the Act will not arise. However, in the instant case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s allowed in its favour. 5.3 Therefore, following the aforesaid decision of the Chennai Bench of the Tribunal, we hereby hold that in the case of the assessee provisions of section 14A cannot be invoked for the purpose of computing tax under section 115JB of the Act. Thus, this ground raised by the assessee is held in its favour. Ground No.2: Disallowance of Rs.1,00,00,000/- being the compensation paid for delayed commissioning of windmills. 6.1 The assessee had claimed Rs.1.00 crore as compensation payable to its client s M/s. Bewind Power Pvt. Ltd., - Rs.50.00 Lakhs and M/s.Ravello Advertising Pvt. Ltd.,- Rs.50.00 lakhs due to shortage in generation of power by the machines supplied to them and guaranteed by the assessee. The learned Assessing Officer disallowed the same considering it to be bogus payment because of the following reasons:- i) The assessee has not produced any agreement in support of its claim. ii) The assessee has not produced any evidence for having made such payments. 6.2 On appeal, the learned Commissioner of Income Tax (Appeals) confirmed the order of the learned Assessing Officer who had made the following further observations:- i) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hension of the Revenue is that the assessee had promised such payments to its clients who are its sister concerns in order to shift its profit to those companies which are loss making companies. Therefore in order to ascertain the genuineness of the promised payment, we hereby remit the matter back to the file of the learned Assessing Officer who shall verify the parameters considered by the assessee while paying compensation to its client M/s. Indonet Global Ltd., for the assessment year 2006-07 (para 9.5 of the order in ITA No.936 937/Mds/2015, 1823 1824/Mds/2015 vide order dated 25.10.2016) and if the same falls in parity in the case of the assessee for the relevant assessment year, then allow the claim of deduction though the compensation has been shown only as payable, otherwise pass appropriate orders as per law merit. Ground No.3: Disallowance of Rs.4,73,88,435/- being the expenses related to issue of FCCB. 7.1 The assessee had claimed an amount of Rs.4,73,88,434/- towards foreign currency convertible bonds issue expenses. It was explained by the assessee that the assessee had incurred expenditure of US $ 12,00,011/- for raising US bonds were 13 million $. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claiming the issue expenses of the FCCBs in the present F.Y.2010-11 (A.Y.2011-12). On the other hand, since the assessee has neither claimed these expenses in the year of incurrence, nor opted for claiming them on proportionate basis during the operation of the bonds, the only course (option) left to the assessee is to claim the same at the time of redemption / conversion of the FCCBs, being the third option. Therefore the issue expenses of FCCBs cannot be allowed as a deduction in the current A. Y .2011-12, under consideration. The action of the Assessing Officer in disallowing the issue expenses of FCCBs is justified and confirmed. 4.3.4 However, the issue expenses of FCCBs can be allowed as an allowable deduction, in the year(s) in which the FCCBs are finally redeemed or converted. Similarly, if there is a part redemption or conversion in any year, the allowance can be on proportionate basis. Therefore, it is held that the assessee is entitled for the deduction on account of the issue expenses of FCCBs in the year of actual redemption/ conversion of FCCBs. 7.2 We have heard the rival submissions and perused the materials on record. From the facts of the case, we find that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned that the assessee company had expected to generate 42 lakhs units per machine per year. However actual generation could be obtained only around 35 lakhs units per machine per year. Therefore, the company had decided to write off Rs.9,33,92,555/- as impairment losses and computed the book profit accordingly for the purpose of section 115JB of the Act. However, the learned Assessing Officer disallowed the same by observing as under:- Now as per the provisions of section 115JB: Expl 1 : For the purpose of this section, book profit means net profit as shown in profit loss account for the relevant previous year as increased by .. i) The amount or amounts set aside as provision for diminution in value of any asset, the said provisions for impairment is added to the book profit and assessed accordingly. 9.2 Before the learned Commissioner of Income Tax (Appeals) it was explained by the assessee that impairment losses stated in AS 28 is not what is included under clause (a) to (i) of Explanation 1 to 115JB of the Act and hence cannot be disallowed while computing the book profit for the purpose of tax under section 115JB of the Act. The assessee had further explain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny, shall for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 (I of 1956) : Provided .. . Provided further . Explanation I.-For the purposes of this section, hook 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) the amount of income-tax paid or payable, and the provision therefor; 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 10 which section (other than the provisions contained in clause (38) thereof) or section 11 or section 12 apply; or (g) the amount of depreciation, (h) the amount of deferred lax and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mes equal to or exceeds the accumulated losses. Explanation-For the purposes of this clause, net worth shall have the meaning assigned to it in clause (ga) of sub-section (I) of section 3 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986); or (viii) the amount of deferred Lax, if any such amount is credited to the profit and loss account. 4.4.4 Thus, the Explanation-l to section 115JB defines the words 'book profit' which mean 'net profit' as shown in the profit and loss account for the relevant previous year. Such book profit has to be increased by clauses (a) to (i) of the Explanation-l to said section if they are debited to the profit and loss account and from such profit. Similarly, the sums mentioned in clauses (i) to (viii) of the Explanation-l to section 115JB are to be reduced. The figure arrived at after the above exercise is the book profit of the assessee for the relevant previous year, for the purpose of section 115JB. 4.4.5 Thus, the Explanation-l to section 115JB has provided nine clauses, i.e., clauses (a) to (i) which if debited to the profit and loss account can be added back to the net profit for computing the bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing reasons:- i) Section 2(11) (3A) of the Companies Act provides that the profit and loss account and balance sheet of the company shall comply with the accounting standards. ii) Accounting Standard-28 states that an asset is said to be impaired when carrying amount of the asset is more than the recoverable amount. It further states that such impairment loss on the asset is to be accounted and the asset should be shown in the balance sheet at its cost less depreciation less impairment loss. Precisely the impairment loss has to be written off in the books of accounts by debiting to profit loss account and crediting to asset account. This is mandatory as per Accounting Standard-28, which every company has to follow while preparing its statement of affairs. iii) As held by the learned Commissioner of Income Tax (Appeals) there is no whisper in the provisions of section 115JB of the Act for adding back the impairment loss to the profit loss account of the assessee while computing book profit tax under section 115JB of the Act. 9.4 Therefore, we do not find it necessary to interfere with the orders of the learned Commissioner of Income Tax (Appeals) on this issue. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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