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 not apply to the electricity company, and therefore, the issue of adding disallowance under section 14A to book profits was irrelevant. The appeal was partly allowed, with the order pronounced on May 4, 2016.

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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.

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