2016 (8) TMI 855 - AT - Income Tax

Electricity company wins appeal on disallowance under section 14A, Book Profits not affected

The Tribunal dismissed the disallowance under section 14A as not pressed, allowed the additional grounds rejection appeal, ruled that section 115JB does ... Admission of additional grounds at appellate stage - Applicability of section 115JB (minimum alternate tax) to entities governed by special Acts - Explanation 3 to section 115JB - scope and retrospective/non-retrospective effect - Primacy of special enactment over Companies Act in case of inconsistency - Doctrine of impossibility (lex non cogit ad impossibilia) - Disallowance under section 14A and its interaction with book profit computationAdmission of additional grounds at appellate stage - Question of law raised for the first time on appeal - Admissibility of additional grounds filed before the Commissioner (Appeals) on January 10, 2013 - HELD THAT: - The Tribunal held that the additional ground raised by the assessee was a question of law which did not require any fresh investigation of facts. Following the Supreme Court precedent cited by the Tribunal, issues of law not requiring factual inquiry may be entertained for the first time at the appellate stage. The Commissioner (Appeals)'s refusal to admit the additional ground for want of reasons was therefore not justified. [Paras 3]The additional ground is admitted; ground No. 2 is allowed.Applicability of section 115JB (minimum alternate tax) to entities governed by special Acts - Explanation 3 to section 115JB - scope and retrospective/non-retrospective effect - Primacy of special enactment over Companies Act in case of inconsistency - Doctrine of impossibility (lex non cogit ad impossibilia) - Whether section 115JB applies to the assessee (an electricity entity) for assessment year 2007-08 - HELD THAT: - The Tribunal examined the statutory scheme including section 115JB(2), Explanation 3 thereto (inserted by the Finance Act, 2012), and section 616/211 of the Companies Act to conclude that where accounts are required to be prepared under a special Act (here the Electricity Act and the WBERC regulations) and such accounts are not in accordance with Parts II and III of Schedule VI, the computation machinery under section 115JB cannot be pressed into service. The Tribunal noted that Explanation 3 (Finance Act, 2012) clarified the scope of section 115JB and that the legislative change bringing such entities within the ambit of section 115JB was effective only from 1 April 2013 (assessment year 2013-14 onwards). Relying on binding and co-ordinate decisions and the doctrine that law will not compel the impossible, the Tribunal held that for AY 2007-08 the assessee was not obliged to prepare accounts under Parts II and III of Schedule VI and consequently section 115JB was not applicable. [Paras 4]Section 115JB is not applicable to the assessee for assessment year 2007-08; ground No. 3 is allowed.Disallowance under section 14A and its interaction with book profit computation - Applicability of section 115JB (minimum alternate tax) to entities governed by special Acts - Whether the disallowance under section 14A should be added to book profits for computation under section 115JB - HELD THAT: - The Tribunal disposed of this issue as consequential to the finding on applicability of section 115JB. Having held that section 115JB does not apply to the assessee for the assessment year under appeal, any question of adding back the section 14A disallowance to book profit for the purposes of section 115JB does not arise and need not be adjudicated on merits. [Paras 5]Ground No. 4 is allowed as the question does not arise in view of non-applicability of section 115JB.Final Conclusion: The appeal is partly allowed: the additional ground filed on appeal is admitted; section 115JB does not apply to the assessee for AY 2007-08 (accounts being governed by the Electricity Act/WBERC regulations), and consequently the issue of adding back the section 14A disallowance to book profits under section 115JB does not arise. Issues Involved:1. Disallowance under section 14A of the Income-tax Act.2. Rejection of additional grounds by the Commissioner of Income-tax (Appeals).3. Applicability of section 115JB of the Income-tax Act to an electricity company.4. Addition of disallowance under section 14A to book profits computed under section 115JB.Detailed Analysis:1. Disallowance under section 14A of the Income-tax Act:During the hearing, the learned authorized representative for the appellant stated that due to the smallness of the amount involved, ground No. 1 on the issue of disallowance under section 14A of the Act is not being pressed. Consequently, ground No. 1 was dismissed as not pressed.2. Rejection of additional grounds by the Commissioner of Income-tax (Appeals):The appellant raised additional grounds before the Commissioner of Income-tax (Appeals) on January 10, 2013, arguing that the provisions of section 115JB of the Act could not be applied to the assessee-company as it prepared its accounts under the Electricity Act, 2003, and not under the Companies Act, 1956. The Commissioner of Income-tax (Appeals) rejected these additional grounds on the basis that the issue was not raised before the Assessing Officer and the assessee had offered income to tax under section 115JB. However, the Tribunal found that the additional ground raised was a legal issue not requiring fresh investigation of facts and cited the Supreme Court's ruling in National Thermal Power Co. Ltd. v. CIT, which allows legal issues to be raised at the appellate stage. Therefore, the Tribunal held that the dismissal of the additional ground was not justified and allowed ground No. 2.3. Applicability of section 115JB of the Income-tax Act to an electricity company:The Tribunal examined whether section 115JB, which requires companies to prepare their profit and loss accounts as per Parts II and III of Schedule VI to the Companies Act, 1956, applies to the assessee, an electricity company governed by the Electricity Act, 2003. The Tribunal noted that section 211 and section 616 of the Companies Act, 1956, provide that the provisions of the Electricity Act override those of the Companies Act in case of inconsistencies. The Tribunal cited several judicial precedents, including Kerala State Electricity Board v. Deputy CIT and Maharashtra State Electricity Board v. Joint CIT, which held that electricity companies are not required to prepare accounts as per the Companies Act and thus are not subject to section 115JB. The Tribunal concluded that the provisions of section 115JB do not apply to the assessee as it is not a company within the meaning of the Companies Act, 1956.4. Addition of disallowance under section 14A to book profits computed under section 115JB:Since the Tribunal held that section 115JB is not applicable to the assessee-company, the issue of adding back the disallowance under section 14A to book profits does not arise. Consequently, ground No. 4 raised by the assessee was allowed.Conclusion:In conclusion, the Tribunal dismissed ground No. 1 as not pressed, allowed ground No. 2 regarding the rejection of additional grounds, held that section 115JB is not applicable to the assessee-company, and thus, the issue of adding disallowance under section 14A to book profits did not arise. The appeal of the assessee was partly allowed. The order was pronounced on May 4, 2016.