TMI Blog2022 (10) TMI 1151X X X X Extracts X X X X X X X X Extracts X X X X ..... ITAT KOLKATA ] in the issue to exclude electricity duty and cess, we find that the same has been addressed by the Hon ble Gujarat High court in the case of CIT vs Shah Alloys Ltd. [ 2011 (11) TMI 762 - GUJARAT HIGH COURT ] which approved the view taken by the Ahmedabad Tribunal in [ 2010 (1) TMI 1175 - ITAT AHMEDABAD ] , that the price charged by the Electricity Board inclusive of the amount of Electricity Duty represented the market value even though the assessee was not required to charge electricity duty. In view of our aforesaid findings, we direct the Id AO to accordingly modify the earlier years profits also which were modified by him, in the same lines as directed for Asst Years 2008-09 and 2009-10 herein. Accordingly, the grounds raised by the assessee in this regard deserve to be allowed and that of the revenue deserve to be dismissed. Claim of compensation paid for obtaining limestone connected to mining activity - Revenue or capital receipt - HELD THAT:- As decided in assessee own case [ 2017 (9) TMI 962 - ITAT KOLKATA ] for AY 2010-11 assessee is required to pay compensation as determined by the local authority/ court to the persons whose rights are infringed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... puting disallowance u/s 14A of the Act r.w. Rule 8D(2)(iii) of the Rules. MAT Computation - whether subsidy/incentives need to be excluded from the book profit u/s 115JB? - HELD THAT:- Since the issue stands squarely covered by the Hon'ble Jurisdictional High Court in the case of Ankit Metal and Power Limited [ 2019 (7) TMI 878 - CALCUTTA HIGH COURT ] we fail to find any infirmity in the finding of ld. CIT(A) holding that the subsidy/incentive received by the assessee which have been held to be capital receipts are to be excluded from the book profit u/s 115JB of the Act. Upward adjustment made to book profit for disallowance computed u/s 14A r.w. Rule 8D of the Rules - HELD THAT:- As relying on Gokaldas Images case [ 2020 (11) TMI 345 - KARNATAKA HIGH COURT ] no infirmity in the finding of ld. CIT(A) in deleting upward adjustment made to book profit for disallowance computed u/s 14A r.w. Rule 8D of the Rules. Education cess being claimed as an expenditure u/s 37(1) - HELD THAT:- We fail to find any merit in this ground raised by the assessee, since the claim of deduction in the nature of education cess has been decided against the assessee by this Tribunal in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the outbreak of COVID-19. We therefore, find merit in the condonation application filed by the assessee and in the larger interest of justice condone the delay and admit the assessee s appeal for adjudication. 3. The assessee has raised the following grounds of appeal: Assessment Year 2011-12: 1. For that education cess included in the liability for income tax is an allowable deduction under section 37(1) of the Income Tax Act, 1961 (in short the Act ) and is not hit by section 40(a)(ii) of the Act. 2. For that the Commissioner of Income Tax (Appeals) erred in not directing the Assessing Officer to allow the deduction of actual payment made during the previous year relevant to the assessment year 2011-12 on account of leave liability, if the Hon'ble Supreme Court, in the case of CIT vs. Exide Industries Ltd., allow the appeal filed by the Department in their favour and deduction of provision made for Leave Liability is withdrawn, while remanding the matter to the Assessing Officer with a direction to await the decision of the Hon'ble Supreme Court in the case of Exide Industries Ltd. (supra) and decide the issue accordingly. 3. For that further and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is capital in nature as against revenue receipt as treated in the assessment order. 5. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) erred in holding that the amount received by the assessee for Rs.3,04,22,210/- as Interest Subsidy from the State Govt, is capital in nature as against revenue receipt as treated in the assessment order. 6. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law in deleting the addition made by A.O u/s 14A under Rule 8D without appreciating the CBDT Circular N0-5/2014. 7. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in holding that the impugned capital receipt is neither taxable under normal provisions of the Act nor under the MAT provision without considering that the accounts of the assessee company were prepared in accordance with the provisions of Companies Act and these incentives were credited to Profit Loss Account, and this claim was not made through IT Return of Revised IT Return. 8. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law by deleting upward adjustment made to Book Profit for di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he cross appeals for AY 2011-12 AY 2012-13 most of the issues raised by the Revenue are common, therefore, as agreed by both the parties, the same are taken up together and are being disposed off by this common order for the sake of convenience and brevity. 5. For the purpose of adjudication of the issues, we will take the facts for AY 2011-12. Brief facts of the case are that the assessee is a limited company engaged in manufacturing of cement, generation and selling of power, jute goods, auto trim parts, iron and steel castings. Return of income for AY 2011-12 was filed on 30.09.2011 declaring loss of Rs. 1,95,29,34,610/-. This return was further, revised on 22.05.2012. Case selected for scrutiny through CASS followed by serving of valid notices u/s 143(2) 142(1) of the Act. Various details called for were filed by the assessee and ld. AO after considering the submissions of the assessee assessed the income at Rs. 3,17,91,06,973/- making various additions/disallowances. Book profit assessed at Rs. 4,27,46,49,075/-. 6. Aggrieved, the assessee preferred appeal before ld. CIT(A) and partly succeeded. 7. Aggrieved, now both assessee and Revenue are in appeal before this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, the Hon ble Madras High Court in CIT vs. Shri T.P. Textiles (P.) Ltd., [2017] 394 ITR 483 (Mad) [Page 1 at Pp 4-8 of Compilation of Case Laws] has agreed with the Hon ble Karnataka High Court. The issue is thus covered in favour of the assessee. We find that this Tribunal in assessee s own case for AY 2010-11 dealt with this issue and decided in assessee s favour observing as follows: 52. Aggrieved by the order of CIT(A) the assessee has raised ground no. l before the Tribunal. At the time of hearing both the parties agreed that identical issue came up for consideration in assessee s own case in ITA No.971/Kol/2012, 942/Kol/2013, 298 329/Kol/2013 for A.Y.2008-08 and 2009-10 order dated 25.8.2017. This Tribunal on the identical issue held as follows: 7.2. We have heard the rival submissions and perused the materials available on record. We find that the issue under dispute is squarely covered in favour of the assessee by the decision of this tribunal in the case of Hindustan Gum Chemicals Ltd vs DCIT in ITA Nos. 462 752/Kol/2014 for Asst Year 2008-09 vide order dated 8.3.2017 wherein it was held that: 6.3. We have heard the rival submissions. We find that the iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would necessarily mean that the balance 10 per cent, additional deduction can be availed of in the subsequent assessment year, otherwise the very purpose of insertion of clause (iia) would be defeated because it provides for 20 per cent, deduction which shall be allowed. It has been consistently held by this court, as well as the apex court, that the beneficial legislation, as in the present case, should be given liberal interpretation so as to benefit the assessee. In this case, the intention of the legislation is absolutely clear, that the assessee shall be allowed certain additional benefit, which was restricted by the proviso to only half of the same being granted in one assessment year, if certain condition was not fulfilled. But, that, in our considered view, would not restrain the assessee from claiming the balance of the benefit in the subsequent assessment year. The Tribunal, in our view, has rightly held, that additional depreciation allowed under section 32(1)(iia) of the Act is a one-time benefit to encourage industrialisation, and the provisions related it have to be construed reasonably, liberally and purposively to make the provision meaningful while granting the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the decision of this Tribunal in assessee s own case for preceding assessment year i.e. for AY 2010-11 referred above and Revenue being unable to controvert this fact by placing any other binding precedence in its favour, we fail to find any infirmity in the finding of ld. CIT(A). Thus, common ground no. 1 for AY 2011-12 AY 2012-13 raised by the Revenue is dismissed. Revenue s common Ground no. 2 for AY 2011-12 2012-13 relating to the deduction u/s 80IA of the Act in respect of thermal power plants for generating electricity: 11. We have heard rival contentions and perused the records placed before us. The second common ground raised in the Department s appeal relates to the assessee s claim for deduction under section 80IA in respect of the thermal power plants set up by it at Satna, M.P. and Chanderia, Rajasthan. The electricity generated by the two power plants was transferred to the assessee s cement manufacturing units. Further, electricity was also sold to independent third parties during the year under reference. Having regard to the provisions of sub-section (8) of section 80IA of the Act, the electricity transferred from the power plants to the cement m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id order, this Hon ble Tribunal took note of the decision of the Hon ble Calcutta High Court in CIT v. ITC Limited (2016) 236 Taxmann 612 (Calcutta) for the assessment year 2002-03 when the provisions of Indian Electricity Act, 1910 and Electricity (Supply) Act, 1948 were in force. It was noted that because of the provisions of the said legislation it was held by the Hon ble High Court that a captive power plant could sell electricity only to a generating and distribution company or to a distribution company and such sale could only be made at the tariff determined by the State Regulatory Commission. It was on such basis that the Hon ble High Court held that electricity generated and captively consumed could only be valued with reference to the price charged by a generating company to a distribution company or a generating and distribution company and that the price charged from the consumer by the distribution company was not relevant. This Hon ble Tribunal considered the provisions of the Electricity Act, 2003, which came into force on June 10, 2003, repealed the previous legislation, and was in force during the previous years relevant to the assessment years 2008-09 and 2009-10. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilation of Case Laws) that the question admitted with reference to section 80IA is only in relation to sale of electricity by the assessee to Indian Energy Exchange and Rajasthan Power Procurement Centre. We find that this Tribunal in assessee s own case for AY 2010-11 dealt with this issue and decided in assessee s favour observing as follows: 13. At the time of hearing the parties agreed that identical issue has already been decided in assessee s own case and in this regard filed a copy of the order of ITAT for A.Y.2008-09 and 2009-10 in ITA No.971/Kol/2012, 942/Kol/2013, 298/Kol/2013 and 329/Kol/2013 dated 25.8.2017. We have already seen that while deciding the issue of deduction u/s.80IA of the Act, the CIT(A) in the impugned order had followed the order of the CIT(A) in Assessee s own case on an identical issue in AY 09-10. The order of the CIT(A) for AY 09-10 was based on a decision of the Hon ble ITAT Kolkata Bench in the case of ITC Ltd., for AY 2002-03. When the appeal of the Revenue in Assessee s case for AY 09-10 was heard by the Tribunal, the revenue pointed out before the Tribunal that the very basis of allowing relief to the Assessee was the decision of the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our attention the decision of Hon ble Jurisdictional High Court in the case of ITC Ltd before us and had duly distinguished the same as not applicable to the facts of the instant case, as admittedly, the Asst Year before Hon ble Calcutta High Court in ITC Ltd was Asst Year 2002-03. The said decision in ITC Ltd for Asst Year 2002-03 was rendered by taking into account the relevant provisions of Indian Electricity Act, 1910 and Electricity (Supply) Act, 1948. These Acts were repealed and a new Electricity Act 2003 was introduced with effect from 10.6.2003. Hence for the Asst Years 2008-09 and 2009-10 (i.e. the years under appeal before us), the assessee would be governed by the provisions of Electricity Act, 2003. 5.6.1. We have already seen that the ITC s case in Hon ble Calcutta High Court, proceeded on the basis that the open market for the captive power plant was only a distribution company or a company engaged both in generation and distribution and that the rate at which electricity could be sold by the captive power plant was the one fixed by the tariff regulatory commission. However, such position has undergone sea change inasmuch as during the relevant previous years it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt was of the view that electricity could not be sold to the consumer because of specific prohibition in the erstwhile Electricity Act and as such the price to the consumer could not be taken into account. We find that that is not the position in the instant case. The Tribunal also held that the method adopted by the assessee viz. to take the average rate charged by the State Electricity Board for the previous month is quite appropriate and reasonable for determining the market value for the month of supply. The tribunal held that the annual weighted average adopted by the Id CITA would result in variations occurring during the year at different times being made applicable uniformly for the whole year and therefore the assessee s method is more appropriate as it factors in variations as and when they take place. 15. On the issue whether electricity duty and cess has to be excluded from the price while determining profits derived from the business, the Tribunal held that they are also to be considered as part of the price. The following were the relevant observations of the Tribunal: 5.6.5. Exclusion of Electricity Duty and Cess as directed bv Id CITA Now coming to the decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erms of the mining lease. Such rent/royalty paid to the State Government is debited to the profit and loss account. In terms of the mining lease and requirement of the relevant State Land Revenue law, in addition to the rent/royalty, the assessee is also required to pay compensation as determined by the local authority/court to the persons whose rights are infringed because of the mining activity. No interest in land is acquired by payment of such compensation. Compensation has to be paid in order to obtain the raw material for the assessee s business, thereby facilitating the carrying on of its business. The assessee has been following the practice of claiming the amount of compensation proportionately over the period of the mining lease in order to avoid any distortion due to claim of the entire amount of compensation in the year of payment. The ld. AO, however, sought to treat such compensation as capital expenditure. The ld. CIT(A) granted relief to the assessee following the orders of this Hon ble Tribunal in the assessee s case for the assessment years 2006-07 to 2010-11. 12.2. The identical disallowance was made in the assessment year 2006-07. Relief was granted to the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also required to pay compensation as determined by the local authority/court to the persons whose rights are infringed because of the mining activity. The Assessee claimed the compensation so paid was a revenue expenditure and allowable as a deduction while computing income from business. It was the plea of the Assessee that by incurring these expenses, no interest in land and that compensation has to be paid in order to obtain the raw material for the assessee's business, thereby facilitating the carrying on of its business. The AO however found that in earlier years such claims were disallowed treating it as capital in nature as a part of acquisition of the leasing right over and above the fees paid to Govt. The AO accordingly did not accept the claim of the assessee and disallowed the claim of the Assessee for deduction and added the sum of Rs. 23,71,340/- to the total income of the Assessee. 20. Aggrieved by the order of the AO, the Assessee preferred appeal before the CIT(A). Before CIT(A), the Assessee contended that identical disallowance was made in the assessment year 2006-07 and in first appeal, the CIT(A) by order dated July 9, 2010 deleted the addition made by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... distributed as they work, as they proceed year by year, going on with their work and the payments are in the nature of incidental expenditure to conduct the mine and the business operations. He, therefore, held that the payment of compensation to persons whose rights are infringed by the mining activity is revenue in nature. We, therefore, find no infirmity in the order of the Ld. CIT(A) on this issue and confirmed the same. Ground no. 1 of the Revenue s appeal is thus dismissed. . The facts in the years under dispute is also analogous to that in earlier years and hence respectfully following the order of this tribunal supra, we don t find any infirmity in the order of the Ld. CITA in this regard. Accordingly, the grounds raised by the revenue in this regard are dismissed. 23. Following the aforesaid decision, we uphold the order of CIT(A) and dismiss ground no.2 raised by the revenue. 12.4. Since the issues raised before us are squarely covered by the decision of this Tribunal in assessee s own case for preceding assessment year i.e. AY 2010-11 and Revenue being unable to controvert this fact by placing any other binding precedence in its favour, we fail to find any inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assistance was also of no relevance. 13.2. The ld. AO, however, took the view that the assistance was in the form of relaxation of tax and supplemented the assessee s trade receipts and profits and was a revenue receipt. On appeal, the ld. CIT(A) accepted the assessee s claim following the decisions of the Hon ble Tribunal in the assessee s own case for the assessment years 2008-09 to 2010-11. 13.3. It is submitted that the identical question fell for consideration in the assessee s own case for the assessment years 2008-09 and 2009-10 and was decided in assessee s favour by this Hon ble Tribunal by a consolidated order dated August 25, 2017 (Page 115 at Pp 122-125 of Paper Book-paragraphs 4 at 4.3) and for the assessment year 2010-11 by an order dated September 13, 2017 (Page 165 at Pp 168-171 of Paper Book-paragraphs 25 at 29-30). The Department had preferred appeal against the said order dated August 25, 2017 passed by this Hon ble Tribunal for the assessment years 2008-09 and 2009-10 before the Hon ble Calcutta High Court under section 260A of the Act being ITA No. 125/2019, GA No. 3548/2018 (Page 11 at Pp 23-24 Question 10(i) of the Compilation of Case Laws). Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ispute is squarely covered by the decision of this tribunal in assessee s own case for Asst Year 2007-08 in ITA No. 683 581 /Kol/2011 dated 8.12.2014 wherein the grounds raised by the assessee as well as by the revenue were as under: Assessee Ground No. 1 That on the facts and circumstances of the case, the learned CIT(Appeals) though holding that sales-tax incentive of Rs. 1238000 allowed by the State Govt, is the nature of capital receipt but erred indirecting the Assessing Officer (AO) for reducing the same from the cost of Fixed Assets for the purpose of computing depreciation by applying the Explanation 10 to Sec. 43(1) of I.T.Act. Revenue Ground No. 2 That Ld.CIT(A)-VI Kolkata has erred in law as well as on facts by deleting the addition made by the AO on account of Sales Tax Subsidy received by the assessee as revenue income of Rs 12,38,000/-. The decision rendered thereon by this tribunal is as under: 7. We have heard rival contentions on this issue and gone through the facts and circumstances of the case. We find that the facts are discussed in detail and which are undisputed. It is admitted that the assessee's issue of Sales Tax Incentive is capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctual cost under sec. 43(1) for the purpose allowing depreciation. It is further held that if Government subsidy is an incentive not for the specific purpose of meeting a portion of the cost of the assets, though quantified as a percentage of such cost, it does not partake the character of payment intended either directly or indirectly to meet the actual cost . By implication, the above judgment also provides that if the subsidy is intended for meeting a portion of the cost of the assets, then such subsidy should be deducted from the actual cost, for the purpose of computing depreciation. As per Hon'ble Supreme Court, law is that if the subsidy is asset-specific, such subsidy goes to reduce the actual cost. If the subsidy is to encourage setting up of the industry, it does not go to reduce the actual cost, even though the amount of subsidy was quantified on the basis of the percentage of the total investment made by the assessee. The law is already settled on the subject. Now, the only wavering is with reference to Explanation 10 provided under sec.43(l) of the Act. The said Explanation provides that where a portion of the cost of an asset acquired by the assessee has been met ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supra, we hold that the IPA received by the assessee would have to be construed as a Capital Receipt and the same need not be reduced from the cost of assets in terms of Explanation 10 to Section 43(1) of the Act. Accordingly, the grounds raised by the revenue are dismissed and grounds raised by the assessee are allowed. 30. Respectfully following the aforesaid decision, we hold that the subsidy in question is a capital receipt and not chargeable to tax. Ground no.3 raised by the revenue is dismissed. We also hold that capital receipt need not be reduced from the cost of the assets and under Explanation 10 to section 43(1) of the Act. We accordingly allow ground no.7 raised by the assessee in its appeal. 13.5. Since the issues raised before us are squarely covered by the decision of this Tribunal in assessee s own case for preceding assessment year i.e. AY 2010-11and Revenue being unable to controvert this fact by placing any other binding precedence in its favour, we fail to find any infirmity in the finding of ld. CIT(A). Thus, common ground no. 4 for AY 2011-12 AY 2012-13 raised by the Revenue is dismissed. Revenue s common Ground no. 5 for AY 2011-12 2012-13 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 010-11 decided by an order dated September 13, 2017 (Page 190 at pages 193-194 of the Paper Book paragraphs 68 at 73-74). A still later decision in the assessee s favour is that of the Hon ble Calcutta High Court in PCIT v. Ankit Metal and Power Limited, (2019) 416 ITR 591 (Cal) (Page 76 at Pp 84,86-87 of the Compilation of Case Laws). It is submitted that this ground is covered in favour of the assessee. We find that this Tribunal in assessee s own case for AY 2010-11 dealt with this issue and decided in assessee s favour observing as follows: 73. At time of hearing, it was agreed by the parties before us that identical issue arose for consideration in Assessee s own case for AY 2009-10 and in that year, the Hon ble Tribunal in ITA No. 942/Kol/2013 and ITA No.329/Kol/2013 by its order dated 25.8.2017, held that the interest subsidy in question received under the very same scheme as in the present year, was a capital receipt not chargeable to Tax. The following were the relevant: 6.2 We have heard the rival submissions and perused the materials available on record. The ld. AR drew our attention to page 77 of Supplementary Paper Book Volume III to the order dated 7.6.2007 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td., (2016) 383 ITR 217 (SC). Hence respectfully following the said decision of the Hon ble Supreme Court in Balaji Alloys supra, we hold that the interest subsidy is to be treated only as a capital receipt and accordingly the grounds raised by the assessee in this regard are allowed. 74. Respectfully following the decision of the Tribunal in Assessee s own case, we hold that the interest subsidy in question is a capital receipt not chargeable to tax. Thus, ground nos. 10 and 11 raised by the assessee are allowed. 14.2. Since the issues raised before us are squarely covered by the decision of this Tribunal in assessee s own case for preceding assessment year i.e. AY 2010-11and Revenue being unable to controvert this fact by placing any other binding precedence in its favour, we fail to find any infirmity in the finding of ld. CIT(A). Thus, common ground no. 5 for AY 2011-12 AY 2012-13 raised by the Revenue is dismissed. Revenue s common Ground no. 6 for AY 2011-12 2012-13 relating to the disallowance u/s 14A of the Act read with Rule 8D of the Rules: 15. We have heard rival contentions and perused the records placed before us. The sixth common ground of the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in companies. The only activity in relation to such dividend income is deposit of the warrants received in the bank account. 15.3. Further it is submitted that during the relevant previous year, there was no change in the share investments of the assessee. In respect of its share investments, the assessee received 7 dividend warrants for an aggregate sum of Rs. 1,17,21,334 /- which were deposited in the assessee s bank account for the purpose of encashment. The rest of the dividend income of Rs. 11,67,12,929/- was from investment in schemes of mutual funds providing for declaration of dividend. Out of the said amount, a sum of Rs.10,29,03,619/- was reinvested in units without physically receiving the warrants. Only 11 warrants for an aggregate sum of Rs. 1,38,09,310/- were physically received and had to be deposited in the bank. Break-up as on March 31, 2011 and March 31, 2010 of the assessee s investments which yielded dividend during the year and those which did not yield or were incapable of yielding dividend is tabulated under: (Rs. in lakh) Particulars As at 31.3.11 As at 31.3.10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unts), who were engaged in multiple activities and were required to spend only a part of their time in managing/maintenance of the assessee s investment portfolio, and the entire remuneration of Shri M. K. Sharma, Asst. Manager (Accounts). The assessee also included in the said statement the other expenses incurred by it for managing/maintenance of its investment portfolio such as bank charges, telephone charges, stationery and printing charges and conveyance and other expenses. 15.6. It is also submitted by the assessee that almost the entire expenditure incurred by the assessee is in connection with its business of manufacturing diversified goods. Only the surplus business funds of the assessee are invested by it in safe and liquid investments, which activity is looked after by the aforesaid three officers of the assessee to the extent specified in the assessee s statement of expenditure. The assessee s share investments are non-moving. The expenditure of Rs. 6,40,792/- incurred in connection with management/maintenance of the assessee s investment portfolio was correctly tabulated by it in the statement submitted to ld. AO. The said statement includes not only the concerned e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ule 8D(2)(iii). In Maxopp Investment Ltd. vs. CIT, [2018] 402 ITR 640 (SC) [Page 110 at Pages 134, 136-137 of the Compilation of Case Laws], the Hon ble Supreme Court was pleased to hold as follows: Keeping this objective behind Section14A of the Act in mind, the said provision has to be interpreted, particularly, the word 'in relation to the income' that does not form part of total income. Considered in this hue, the principle of apportionment of expenses comes into play as that is the principle which is engrained in Section 14A of the Act. This is so held in Walfort Share Stock Brokers (P.) Ltd., relevant passage whereof is already reproduced above, for the sake of continuity of discussion, we would like to quote the following few lines therefrom. The next phrase is, in relation to income which does not form part of total income under the Act . It means that if an income does not form part of total income, then the related expenditure is outside the ambit of the applicability of section 14A. ** ** ** The theory of apportionment of expenditure between taxable and non-taxable has, in principle, been now widened under section 14A. 35. The Delhi High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee suo motu disallowance under section 14A was not correct and it will be in those cases where the assessee in his return has himself apportioned but the assessing officer was not accepting the said apportionment. In any event, the assessing officer will have to record its satisfaction to the said effect. [emphasis added] 15.9. It is further submitted that even in a case where ld. AO is not satisfied with the correctness of the assessee s apportionment, it is not mandatory for ld. AO to invoke the method of calculation in rule 8D and he is free to make the disallowance on any reasonable basis. It would not therefore be correct to say that once ld. AO rejects the mode of computation of disallowance under section 14A of the Act as made by the assessee, he has no other option but to resort to rule 8D of the Rules. Reference in this behalf is invited to an unreported judgment dated July 19, 2018 of the Hon ble Calcutta High Court in the case of PCIT vs. Britania Industries Ltd. [ITAT No.45/2017, GA No.420/2017], where the following view taken by this Hon ble Tribunal was approved: ...Even in a case where the AO rejects the claim of the assessee that no expenses were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances, the disallowance offered by the assessee under section 14A of Rs. 6,40,792/- has to be accepted and no further disallowance can be made under the said provision. 15.11. Ld. Counsel for the assessee took an alternate plea submitting that assuming for the sake of argument that section 14A(2)/rule 8D(2)(iii) can be invoked, the finding of the ld. CIT(A) to the extent he held that only the investments which yielded dividend income should be considered for disallowance under section 14A read with rule 8D(2)(iii) cannot be faulted. Of course, in view of the judgment of the Hon ble Supreme Court in Maxopp s case (supra), investments in subsidiary companies would have to be considered if they yielded dividend income. To this extent finding of the ld. CIT(A) is contrary to law. It is necessary to add that the amendments made to section 14A by the Finance Act, 2022 have no relevance in the instant case. The said amendments will apply only where it is undisputed that expenditure has been incurred but the assessee does not want it disallowed on the ground that no exempt income was earned. That is not the controversy in the instant case. In the instant case, the dispute is whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived by the assessee alone excluding the dividends that were reinvested) and also prayed for exclusion of investments made in subsidiaries as they are apparently strategic investments. We find that the ld. AO had given a finding in the assessment order as to why the workings of disallowance u/s 14A of the Act need to be rejected. Hence it cannot be said that the ld. AO had mechanically applied Rule 8D(2) of the Rules for making disallowance u/s 14A of the Act. It was argued by the Id AR that 69.07% of the assessee's investments (including in non-equity oriented mutual funds growth schemes) did not provide for payment of any dividend Upon redemption/disposal of such investments, the assessee would be liable to capital gains tax and income from such investments is not exempt under the provisions of the Act. He argued that even in respect of the assessee's investments in other schemes of mutual funds providing for payment of dividend, the assessee is liable for capital gains tax upon disposal/redemption of the units since such schemes are also not equity oriented. We find that the ld. A R also made an alternative argument that only dividend bearing investments should be rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment year 2008-09. This aspect has been considered by the Tribunal in detail and it has observed as under: 6.3. We have carefully considered the submissions and perused the records. We find that Ld. Commissioner of Income Tax (Appeals) has given a finding that only interest of Rs 2,96,731/- was paid on funds utilized for making investments on which exempted income was receivable. Further. Ld. Commissioner of Income Tax (Appeals) has observed that in respect of investment of Rs 6,07,75.000/- made in subsidiary companies as per documents produced before him, they are attributable to commercial expediency, because as per submission made by the assessee, it had to form Special Purpose Vehicle (SPV) in order to obtain contracts from the NHAI and the SPVs so formed engaged the assessee company as contract to execute the works awarded to them (i.e. SPVs) by the NHAI. In its profit and loss account for the year, the assessee has shown the turnover from execution of these contracts and therefore no expense and interest attributable to the investments made by the appellant in the PSVs can be disallowed u/s 14A r.w. Rule 8D because it cannot be termed as expense/interest incurred for e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther subsidy/incentives need to be excluded from the book profit u/s 115JB of the Act: 16. The seventh common ground of the Department s appeal is against the decision of the ld. CIT(A) directing the ld. AO to exclude the subsidy/incentive from book profit under section 115JB of the Act. The ld. AO rejected the assessee s claim to exclude the following incentives in computing Book Profit u/s 115JB of the Act: Particulars Amount (in Rs.) Interest Subsidy received from Govt. of Rajasthan under Rajasthan Investment Promotion Scheme, 2003 Rs. 3,04,22,210 Incentive from Govt. of West Bengal in the form of Industrial Promotion Allowance Rs. 16,94,84,638 Total Rs. 19,99,06,848 The ld. AO held that the accounts were prepared in accordance with the provisions of Companies Act and these incentives were credited to Profit Loss Account. Besides, the claim was not made through IT Return or Revised IT return and therefore fresh claim raised during the course of assessment proceedings was not accepted in view of decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resident includes all income from whatever source derived which (emphasis added) The total income consists of all items of income as defined in clause (24) of section 2 of the Act. 16.2. What can be taxed u/s 115JB of the Act is the total income which is income as defined in section 2(24) of the Act chargeable under section 4 and computed in the manner laid down in section 115JB. What is not income within the meaning of section 2(24) is outside the purview of the Act; cannot form subject matter of the charge of tax under section 4; cannot form part of total income and cannot be subjected to tax either under the normal computation provisions or under section 115JB of the Act. The absence of provision in section 115JB of the Act for exclusion of such capital receipt credited to the profit and loss account cannot result in its taxation. 16.3. It is submitted by ld. Counsel for the assessee that this issue is now squarely covered in favour of the assessee by the judgment of the Hon ble Calcutta High Court in PCIT vs. Ankit Metal Power Ltd., [2019] 416 ITR 591 (Cal) [Page 76 of the Compilation of Case Laws]. The said decision also deals with the aspect relatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entertain a claim for deduction otherwise than by a revised return, and did not impinge on the power of the Appellate Tribunal under Section 254 of the Income Tax Act, 1961. The Hon'ble Supreme Court in the said decision held as follows: .In the circumstances of the case, we dismiss the Civil Appeal. However, we make it clear that the issue in this case is limited to the power of the Assessing Authority and does not impinge on the power of the Income Tax Appellate Tribunal under Section 254 of the Income Tax Act, 1961. This judgment was followed by our Court in the case of Britannia Industries Ltd. (supra) holding that Tribunal has the power to entertain the claim of deduction not claimed before the Assessing Officer by filing revised return. Respectfully following the aforesaid decision as well as the view already taken by us in this case that the aforesaid subsidies are capital receipt and not an 'income' and not liable to Tax Tribunal in exercise of its power under Section 254 of the Income Tax Act justified this claim though no revised return under Section 139 (5) of the Act was filed before the Assessing Officer. We answer both the question Nos. 1 and 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidered for book profit for calculation of book profit under Section 115JB of the I.T. Act, 1961? DECISION OF THE HON BLE COURT We admit the question no.2 for adjudication in this appeal. By consent of the parties, the appeal is treated as ready for hearing and taken up as such. We find computation of the amount of expenditure relatable to exempted income of the assessee must be made since the assessee has not claimed such expenditure to be Nil. Such computation must be made by applying clause (f) of Explanation 1 under section 115JB of the Act. We remand the matter for such computation to be made by the learned Tribunal. We accept the submission of Mr. Khaitan, learned Senior Advocate that the provision of section 115JB in the matter of computation is a complete code in itself and resort need not and cannot be made to section 14A of the Act. (emphasis added) 17.2. The same view was taken by the Hon ble Karnataka High Court in CIT v. Gokal Das Images Private Limited, (2020) 429 ITR 526 (Karn) paragraph 10 at page 533 of the Reports (Page 156 at page 163 of the Compilation of the Case Laws). Relevant portion of the decision of the Karnataka High Court in Gok ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s. Kanoria Chemicals Industries Ltd. vs. ACIT in ITA No. 2184/Kol/2018 dated 26.10.2021 and also in light of the retrospective amendment made by the Finance Act, 2022 inserting Explanation 3 to Section 40 of the Act as per which education cess cannot be claimed as expenditure. Therefore, common ground no. 1 raised by the assessee for AY 2011-12 AY 2012-13 are dismissed. 22. The 2nd 3rd common grounds raised by the assessee relate to deduction of provision made for leave encashment and the allowability of the deduction u/s 43B(f) of the Act. 22.1. The assessee had claimed deduction on account of provision made for leave encashment relying upon the decision of the Hon ble Calcutta High Court in Exide Industries Limited v. Union of India, (2007) 292 ITR 470 (Cal) whereby clause (f) of Section 43B of the Act was held unconstitutional. Ld. AO disallowed the claim by observing that the matter was sub judice before the Hon ble Supreme Court. On appeal, ld. CIT(A) directed ld. AO to allow deduction in respect of the provision only if the Hon ble Supreme Court upheld the decision of the Hon ble Calcutta High Court by rectifying the assessment once the judgment was rendered by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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