TaxTMI 
TaxTMI 
2005 (9) TMI 253
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....sessment year 2000-01, the assessee filed its return of income declaring a loss of Rs. 14,93,48,345 under the normal provisions and computed book profit under section 115JA and showed tax liability of Rs. 12,33,167. The return was originally processed under section 143(1). Later, a notice under section 148 of the Income-tax Act, 1961, was served on the assessee on the ground that the assessee had claimed an amount of Rs. 20,00,35,094 as extraordinary item of expenditure. The Assessing Officer, vide his order dated 5-3-2004, disallowed the following amounts:- Amount (Rs.) (i) Disallowance of CC bills payable to APSEB due to tariff change and interest and supplementary bill raised by NTPC 20,00,35,094.00 (ii) Disallowance of claim towards additional charges and Interest to APSEB 53,09,240.00 (iii) Ad hoc Disallowance of Transportation charges 3,00,000.00 Total 20,56,44,334.00 The Assessing Officer had also recomputed the book profit at Rs. 21,07,11,783 under section 115JA of the Act. Aggrieved, the assessee carried the matter in appeal. The learned CIT(A) upheld the disallowance made by the Assessing Officer o....
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....bsequent to the balance sheet date shall have to be reflected in the financial statements and therefore the amounts payable to APSEB as per the High Court order dated 15-9-2000 were provided in the accounts for the year ended 31-3-2000 which were approved by the Board on 30-10-2000." 5. APSEB changed the category of the assessee from Category I to Category III and consequent to such change in classification, raised bills on the assessee for the period April 1988 to September 1993, which amounted to Rs. 27,44,67,534. The assessee booked the tariff expenditure based on the rate applicable to Category I for the above period of April 1988 to September 1993 amounting to Rs. 23,13,36,694. This left a gap of Rs. 4,32,35,923. The assessee challenged the change of consumer status from Category I to Category III in Andhra Pradesh High Court by filing a writ petition. Hon'ble High Court delivered its judgment on the above issue on 15-9-2000, giving partial relief to the assessee. Consequent to the judgment of the High Court, the assessee provided for the difference in liability in the accounting year 1999-2000 relevant for the assessment year 2000-01. The case of the assessee is that t....
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....s of Shri Sarangan, he submitted that the expenditure in question could not be allowed either in the assessment year 2000-01 or in the assessment year 2001-02. He stated that the expenditure in question could be allowed in the year 2002-03 for the reason that APSEB had by letter dated 21-6-2001, which is at page 217 of the assessee's paper book, granted instalments facility to the assessee. This letter he submits, was a demand notice and as the final demand notice of APSEB was raised in June 2001, the expenditure in question can be allowed only in the assessment year 2002-03. 9. On the issue as to whether the amount can be allowed in the impugned assessment year, he submitted that as on 31-3-2000, the liability in question had not crystallized. He referred to page 32 of the assessee's paper book as well as to the extraordinary item disclosed in the profit and loss account and the judgment of the Hon'ble High Court, which is at pages 223 to 285 of the assessee's paper book, at 233, and vehemently contended that the entire vires of the levy was challenged by the assessee before the High Court as violative of the Constitution. He argued that when the very levy was c....
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....year in which this revenue expenditure is allowable. The learned DR contends that this expenditure is allowable only in the assessment year 2002-03 as APSEB had finally raised demand notice in that year. The assessee con tends that this expenditure is allowable in the assessment year 2000-01. The learned counsel makes a concession stating that the assessee would not have any objection if this expenditure is allowed in the assessment year 2001-02. On a careful consideration of the facts and circumstances of the case, we are of the considered opinion that we need not go into the entire gamut of case laws relied upon by both the parties to determine the year in which the expenditure is allowable as the allow ability of the expenditure itself is not disputed by the revenue and as the assessee has made a concession in this case. 11. We first take up the revenue's case. It states that the expenditure may be allowed in the assessment year 2002-03 and bases its statement on the letter from the Chief Engineer/Comml., A.P. TRANSCO, to the assessee, dated 21-6-2001, which is at page 217 of the assessee's paper book. We have perused this letter. On a careful examination of the same,....
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....t sense, nobody has won and nobody has lost." These observations found approval of Hon'ble Supreme Court in the case of Berger Paints India Ltd. v. CIT [2004] 266 ITR 99, at 103. The undisputed fact is that this expenditure of the assessee is a genuine business expenditure and has to be allowed while computing the profit of this concern. While so, the ratio approved by the Hon'ble Supreme Court in the case of Berger Paints India Ltd. supports our view on this issue. 13. In view of our above finding, we dismiss these grounds of the assessee for assessment year 2000-01. 14. The next issue is computation of book profit under section 115JA of the Act. The relevant grounds of appeal are grounds 3 (a), (b) and (c) which read as follows:- "3.(a) The Commissioner of Income-tax (Appeals) erred in law in sustaining the order of the Assessing Officer in disallowing Rs. 20,00,35,099 representing, (i) electricity charges of Rs. 4,32,35,924 on account of difference in tariff due to category change, (ii) interest thereon of Rs. 10,08,60,680 and (iii) additional charges and interest of Rs. 5,59,38,495 on old dues payable to APSEB, while computing the book profit under sec....
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....f the CIT(A). 16. The learned DR, on the other hand, countered the arguments of the learned counsel for the assessee by drawing the attention of the Bench to AS-5. He submitted that sub-section (2) of section 211 of the Companies Act requires the assessee to disclose true and fair profits. He pointed out that the expenditure in question is not a prior period item as it is neither an error nor an omission. He also stated that AS-4 is equally not applicable to the facts of the case as it refers to contingencies like events that occurred after the balance sheet date. He referred to clause 8 of AS-4 and submitted that events that occurred after the balance sheet date are required to be indicated by way of adjustments and liabilities and not by way of charge to profit and loss account. He thus submitted that neither AS-5 nor AS-4 is applicable and that the company is in error in drawing up its profit and loss account as it has not complied with Part II of Schedule VI of the Companies Act. On a query from the Bench as to whether the Assessing Officer had power to disturb the profits arrived at by the company under the Companies Act, he agreed that in view of the decisions referred to ....
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.... than ascertained liabilities." In our considered opinion, the liability in question cannot, by any stretch of imagination, be held as an unascertained liability. Once Hon'ble Andhra Pradesh High Court has delivered its judgment, the liability in question crystallised. As the same ascertained liability has been provided for in the books of account by the company while preparing its accounts under the Companies Act, 1956, the same cannot be a subject-matter of adjustment under Explanation to sub-section (2) of section 115JA. It is surprising that the CIT(A) has, when he ordered allowance of the expenditure relatable to supplementary bills of NTPC in regular assessment proceedings, while considering the issue under section 115JA, disallowed the claim of the assessee. Thus, as the adjustment in question does not fall within Explanation to sub-section (2) of section 115JA, we delete the disallowance and allow the ground of the assessee. I.T.A. No. 1226/Hyd./2004 18. In this appeal, the revenue challenges the direction of the CIT(A) allowing reduction of Rs. 53,09,240 being additional charges and interest payable by the assessee to the APSEB. The learned DR fairly submitted....
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....ner of Income-tax (Appeals) erred in law in sustaining the order of the Assessing Officer in disallowing surcharge and interest of Rs. 8,05,51,309 [1,64,09,795 + 6,41,41,514] payable to APSEB on old dues while computing the income under normal provisions of the Act on the ground that no liability had crystallised during the assessment year 2001-02. (b) The Commissioner of Income-tax (Appeals) ought to have seen that the appellant claimed the said deduction based on the demand notice dated 7-5-2001 (which is well before the date of finalisation of accounts for the year ended 31-3-2001) issued by APSEB for Rs. 10,20,43,506 and hence liability to pay the surcharge and interest on old dues arose during the assessment year 2001-02 only. Therefore there is no justification in holding that no liability had crystallised during the assessment year 2001-02. 4. (a) The Commissioner of Income-tax (Appeals) erred in law in sustaining the order of the Assessing Officer in disallowing depreciation of Rs. 7,60,62,291 on revaluation of assets while computing the book profit under section 115JB of the Act. (b) The Commissioner of Income-tax (Appeals) ought to have seen tha....
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....nd interest under sections 234B and 234C could be levied only on balance tax payable. (b) The Assessing Officer ought to have adjusted MAT credit first against the tax payable and adjust thereafter TDS and advance tax and levy interest under section 234B only on balance of tax payable." As admissibility of these additional grounds has not been strongly objected to by the learned DR, we admit the same. 20. We first consider ground Nos. 3(a) and 3(b) which pertain to disallowance of additional charges and interest payable to APSEB. The assessee had received a demand notice from the APSEB on 7-5-2001 raising a demand of Rs. 10.20 crores representing amount of additional charges and interest payable to APSEB. The assessee claimed the same as an adjustment below the line while arriving at the profit for the year ending on 31-3-2001. The assessee explained that the interest of Rs. 1,64,09,795 on old dues for earlier years was payable on CC Bills up to 31-3-2000 and that the same could not be accounted in the normal course of business because of difficulty in reckoning any interest due to complexity of billing by AP Transco. Similarly, the additional charges were stated not....
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....w the demand had been arrived at. He submitted that events occurring after the balance sheet date can be taken into account for the purpose of arriving at true and fair profits of the assessee company, and for this proposition, he relied on the following judgments:- CIT v. Delta Plantation Ltd. [1993] 71 Taxman 329 (Cal.) CIT v. Rameshwar Prasad Kejriwal & Sons (P.) Ltd. [1994] 76 Taxman 124 (Cal.) CIT v. Champaran Sugar Co. Ltd. [1993] 200 ITR 258 (All.). 22. The learned departmental representative, on the other hand, supported the order of the CIT(A) and submitted that the demand notice itself was served on the assessee beyond the date of closure of accounts. He further submitted that the Assessing Officer had clearly stated that the assessee had not produced the bills and that the liability, if any, can be allowed only in the assessment year 2002-03, relevant to financial year 2001-02. At this stage, the learned counsel for the assessee stated that he has no objection if this expenditure is allowed during the assessment year 2002-03. The learned DR stated that the verification of the bills has to take place and then only the liability in question ca....
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....T(A) referred to AS-6 issued by the Institute of Chartered Accountants of India and rejected the claim of the assessee by holding that the depreciation of revalued assets is not an item which is allowable as a deduction in arriving at the book profit. Further aggrieved, the assessee is in appeal. 25A. The learned counsel for the assessee submitted that the Explanation to sub-section (2) of section 115JB defines book profit as net profit as shown in the profit and loss account for the relevant previous year and as increased/reduced by the various items mentioned therein. He submitted that adding back of depreciation on revaluation of assets is neither contemplated nor warranted under clauses (a) to (f) of Explanation to sub-section (2) of section 115JB. 26. The learned DR, on the other hand, vehemently contended that the procedure adopted by the assessee company for claiming this as a deduction under the Companies Act is totally wrong. He submitted that Hyderabad Bench of the Tribunal in the case of Vijay Spinning Mills Ltd v. Dy. CIT [2000] 73 ITD 344, had dealt at length with this issue and it was held therein that such a claim for depreciation on revalued portion of the ass....
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....recompute the profits under the Companies Act by adopting the alternative method suggested by the Accounting Standards. This proposition, that the Assessing Officer is permitted to re-compute the profits under the Companies Act, has not been approved by the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. The working in question should start from book profit as arrived at by the company under the Companies Act. As far as the issue as to whether the profit should be reckoned below the line or above the line, is concerned, the issue has been discussed at length by this Bench of the Tribunal in the case of NCL Industries Ltd. v. Jt. CIT [2004] 88 ITD 150, wherein it has followed the order of the Bangalore Bench of the Tribunal in the case of Sipani Automobiles Ltd v. Dy. CIT [1993] 46 ITD 280. Respectfully following the ratio laid down therein, as well as applying the judgment of the Hon'ble Supreme Court in the case of Apollo Tyres Ltd., as the adjustment in question admittedly does not fall within clauses (a) to (f) of Explanation to sub-section (2) of section 115JB, the adjustment is cancelled. The grounds of appeal taken by the assessee in this regard are allowed. ....
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....nal shares 9-3-1992 5,36,000 Bonus shares 3-12-1996 19,29,600 Rights shares 4-12-1996 29,48,000 The assessee company, during the financial year 2000-01, sold the rights shares purchased on 4-12-1996 numbering 26,80,000 to Hindustan Zinc Limited, Udaipur, for a consideration of Rs. 40 crores. The date of sale was 3-11-2000. The assessee claimed that the cost of the shares was Rs. 6,43,20,000 at a value of Rs. 24 per share. The capital gain was Rs. 33,56,80,000. After indexation, the long term capital gain was arrived at Rs. 31,43,80,590. The assessee claimed to have invested the amount of sale consideration in Konaseema EPS Oakwell Power Limited, an industrial undertaking, which is having infrastructure facility of generation of power and is also notified under section 10(23G) by Central Government. The assessee claimed that these long term capital gains are exempt under section 10(23G). 33. The Assessing Officer relied on the Memorandum explaining the provisions in the Finance Bill (No.2), 1996, 220 ITR (Statutes) 257, as well as Circular No. 772 dated 23-12-1998 explaining the provisions, and rejected the contentions of the assessee for the foll....
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....nserted by the Income-tax (Second Amendment) Act, 1998, with effect from 1-4-1999, and argued that in the light of the Explanation, the assessee is entitled to exemption of the long term capital gain even on investments made prior to 1-6-1998. He vehemently contended that there is no stipulation whatsoever in the Explanation that the investment should have been made between 1-4-1998 and 1-6-1998 as contended by the revenue. He argued that on a plain reading of the Explanation, no such interpretation can be given and that there is no merit whatsoever in the revenue's stand that only investments made between 1-4-1998 and 1-6-1998 are covered by this Explanation. On the contrary, he submitted, as the infrastructure facility had to generate power on the first day of April 1993, the investment in question could be made any time after the first day of April 1993 and such investment when sold, long term capital gain derived therefrom would be eligible for exemption under Explanation 2 to section 10(23G). He took this Bench through section 10(23G) as it existed prior to 1998 and submitted that though clause (c)(iii) of Explanation 1 to section 10(23G) was not existing at the time of pu....
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....will continue to govern the investments made prior to 1-6-1998. The rules and forms in this regard have since been notified, vide Notification No. S. O. 897(E), dated 12-10-1998." He filed extracts from the book on Law of Income-tax Volume 7(1), Fifth edition, by the learned authors Chaturvedi and Pithisaria, at page 327, under heading "Lacuna in the 1998 substituted section 10(23G) removed", and submitted that Explanation 2 to section 10(23G) inserted by the Income-tax (Second Amendment) Act, 1998, clarifies that the exemption available under section 10(23G) is only in respect of investments made between 1-4-1998 and 31-5-1998 and shall continue to be governed by the provisions of section 10(23G) as it stood between 1-4-1998 and 31-3-1999. He further referred to page 3617 of the same book, paragraph 33.1, and submitted that under section 80-IA of the Act, exemptions were provided to undertakings which began to generate power during the period beginning on the 1-4-1993, and ending on the 31-3-1998. He argued that, logically, the exemption under section 10(23G) would start from 1-4-1998 only. He further referred to the following extract from the Memorandum explaining provisions i....
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.... read as a whole and words and phrases from judgments should not be made dicta and sought to be put to use. He distinguished the judgments relied upon by the learned counsel for the assessee. 37. Joining the issue, the learned counsel for the assessee submitted that when a plain reading of Explanation 2 leaves no room for ambiguity, the question of using external aids such as circulars of the Board and Finance Minister's speech for interpretation of a statute simply does not arise. He once again took this Bench through Explanation 2 to section 10(23G) and submitted that there is nothing in the Explanation to show that the exemption is restricted for investments which are made only after 1-4-1998 but before 1-6-1998. Even otherwise, he submitted, the exemption was sought to be given for a "long term capital gain". He argued that if an exemption for long term capital gain is contemplated for the assessment year 1999-2000, then it necessarily means that the investment should have been made prior to 1-4-1998, as the asset in question should have been held for more than 12 months, for resulting in a long term capital gain. According to the learned counsel, any other interpretatio....
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....e:- I. Finance (No.2) Act, 1996, introduced section 10(23G) which reads as follows: "(23G) any income by way of dividends, interest or long-term capital gains of an infrastructure capital fund or an infrastructure capital company from investments made by way of shares or long-term finance in any enterprise carrying on the business of developing, maintaining and operating any infrastructure facility, which fulfils the conditions specified in sub-section (4A) of section 80-IA. Explanation.-For the purposes of this clause,- (a) 'infrastructure capital company' means such company as has made investments by way of acquiring shares or providing long-term finance to an enterprise carrying on the business of developing, maintaining and operating infrastructure facility; (b) 'infrastructure capital fund' means such fund operating under a trust deed, registered under the provisions of the Registration Act, 1908 (16 of 1908), established to raise monies by the trustees for investment by way of acquiring shares or providing long-term finance to an enterprise carrying on the business of developing, maintaining and operating infrastruc....
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....cility; (b) 'infrastructure capital fund' means such fund operating under a trust deed, registered under the provisions of the Registration Act, 1908 (16 of 1908) established to raise monies by the trustees for investment by way of acquiring shares or providing long-term finance to an enterprise wholly engaged in the business of developing, maintaining and operating infrastructure facility. (c) 'infrastructure facility' means: (i) a road, highway, bridge, airport, port, rail system, a water supply project, irrigation project, sanitation and sewerage system or any other public facility of a similar nature as may be notified by the Board in this behalf in the Official Gazette and which fulfils the conditions specified in sub-section (4A) of section 80-IA; (ii) a project for generation or generation and distribution of electricity or any other form of power where such project starts generating power on or after 1-4-1993; (iii) a project for providing telecommunication services on or after 1-4-1995; (iv) a project for housing which fulfils the conditions specified in sub-section (4F) of section 80-IA; (d) &#....
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....9;If a doubt is felt as to what the common law is on some particular subject, and an Act is passed to explain and declare the common law, such an Act is called a declaratory Act'. 41. G.P. Singh on Principles of Statutory Interpretation quoting Craies stated thus: 'For modem purposes a declaratory Act may be defined as an Act to remove doubts existing as to the common law, or the meaning or effect of any statute. Such Acts are usually held to be retrospective. The usual reason for passing a declaratory Act is to set aside what Parliament deems to have been a judicial error, whether in the statement of the common law or in the interpretation of statutes. Usually, if not invariably, such an Act contains a preamble, and also the word "declared" as well as the word "enacted". But the use of the words "it is declared" it is not conclusive that the Act is declaratory for these words may, at times, be used to introduce new rules of law and the Act in the latter case will only be amending the law and will not necessarily be retrospective. In determining, therefore, the nature of the Act, regard must be had to the substance rather than to the form. If a ne....
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.... Note to provisions relating to Direct Taxes, paragraph 10.3, it is clear that this Explanation is a declaratory statute inserted to supply an obvious omission and to clear doubts. The new Act, i.e. "Explanation 2"; is to explain an earlier Act and thus would be without object unless constructed retrospectively. The law applicable to investments made prior to 1-6-1998 is declared to remove doubts. Thus, we are of the opinion that the Explanation is declaratory or explanatory and has to be construed as retrospective as it is retroactive in nature. 41. The second issue is the argument of the revenue that the investment should have been made between the first day of April, 1998 and the first day of June, 1998 for being eligible for the deduction. A plain reading of Explanation 2, as introduced by Finance Act, 1999, does not permit such an interpretation. All that it says is that the investment should be made before the first day of June, 1998. Hon'ble Delhi High Court in the case of CIT v. Nestle India Ltd. 2005-TIOL-58-HC-DEL-IT, held in paragraph 10 as follows:- "10. It is settled canon of interpretation of law that wherever a provision uses plain and simple language....
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....-6-1998". 42. The reliance placed by the revenue on the speech of Hon'ble Finance Minister as well as the word in Board's circular does not come to the rescue of the revenue as it is well settled that these cannot override the provisions of the Act. Hon'ble Supreme Court in the case of Kerala Finance Corpn. v. CIT [1994] 210 ITR 129, held (as per head note) as follows:- "A circular of the Central Board of Direct Taxes under section 119 of the Income-tax Act, 1961, cannot override or detract from the Act, inasmuch as what section 119 has empowered is to issue orders, instructions or directions for the 'proper administration' of the Act or for such other purposes specified in sub-section (2) of the section. Such an order, instruction or direction cannot override the provisions of the Act; that would be destructive of all the known principles of law as that would really amount to giving power to a delegated authority to even amend the provision of law enacted by Parliament." 42A. Even going by the speech of the Hon'ble Finance Minister or by the Board's circular, we do not find at any place a mention that the investment in question for the pu....
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.... facility' means- (i) and (ii) (iii) a project for generation or generation and distribution of electricity or any other form of power where such project starts generating power on or after 1-4-1993;" 45. The following facts and issues have not been disputed by the revenue- (a) That the gain in question is a long-term capital gain. (b) That the company, Andhra Pradesh Gas Power Corporation Ltd., is an infrastructure facility within the meaning of sub-clause (iii) of clause (b) of Explanation to section 10(23G), as Central Government had notified that undertaking as an infrastructure facility and as it had started generation of power after 1-4-1993. (c) That the company falls within the definition of "infrastructure capital company" envisaged in section 10(23G). With these undisputed facts, we examine the issue of exemption of the long-term capital gain. 46. As section 10(23G) as it existed immediately before amendment by Finance (No.2) Act, 1998, clearly states that any income by way of long-term capital gain of an infrastructure capital fund is exempt under section 10(23G), we have no hesitation whatsoever in holding ....