TaxTMI 
TaxTMI 
2010 (6) TMI 620
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....Court in the case of CIT v. Indian Overseas Bank [1985] 151 ITR 446 Mad.). 4. Short facts apropos are that assessee during the relevant previous year capitalized a sum of Rs. 7,05,44,088 representing loss on foreign exchange fluctuation. The foreign exchange loans on which such exchange fluctuations come about, were taken for acquiring ships and machinery. AO was of the opinion that such loss which was worked out by assessee based on the balances outstanding as on the date of balance-sheet, and which arose on account of exchange rate fluctuation could not be considered for valuing the fixed assets, since it would result in year to year fluctuation of such value. Therefore, according to him, loss arising on foreign exchange fluctuation could not be capitalized with the value of fixed capital assets on notional basis, except on payment basis or as per the proviso to s. 43A of the Act. 5. Assessee in appeal before the CIT(A) was successful. According to the learned CIT(A), Hon'ble Delhi High Court in the case of CIT v. Woodward Governor India (P.) Ltd. [2007] 294 ITR had held that amendment to s. 43A effected by Finance Act, 2002, w.e.f. 1st April, 2003 was only prospective in natur....
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....d liability based upon actuarial valuation AO was of the opinion that such claim could be allowed only on payment basis. Assessee in appeal before CIT(A) was successful. According to the learned CIT(A), it was an ascertained liability based on actuarial valuation, and decision of Hon'ble Apex Court in the case of Bharat Earth Movers v. CIT [2000] 245 ITR 428 will apply. 10. Now, before us, learned Departmental Representative strongly supported the order of the AO whereas the learned Authorised Representative relied on the order of the CIT(A). 11. We have perused the orders and heard the rival contentions. The Revenue has not disputed that assessee had made the provision for leave encashment in accordance with actuarial valuation. Revenue was also unable to produce anything to show that there could be any better method for valuing the liability on account of leave encashment than through actuarial valuation. It may be true that the assessee made such provision for the first time, in the relevant previous year but this by itself would not be a reason to make a disallowance as long as change made by the assessee was bona fide. As held by Hon'ble Apex Court in the case of Bharat Eart....
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.... submissions. Learned CIT(A) had held in favour of the assessee on a reasoning that provision made for bad and doubtful debts were, in assessee's case, actually a provision for ascertained liability. It is also true that Hon'ble Apex Court in the case of Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273 (SC) held that provision for bad debt was only a provision for diminution of the value of an asset and not a provision against any liability. Hence, in our opinion, whether such provision was made against ascertained or unascertained liability was not relevant at all. Undisputedly such provision was made to offset the diminution of value of the assets, which in the given case, is debts. Parliament in its wisdom chose to add cl. (g) to the Explanation to s.115JA whereby any amount set aside for diminution of value of any asset had to be added back to the net profit as shown in the P&L a/c, for computing the book profit for ascertaining the MAT liability. As held by Hon'ble Karnataka High Court in Mysore Breweries Ltd. (supra) retrospective insertion of cl. (g) had to be considered. Hence, we are of the opinion that provision for bad debt needed to be added back to the net profit while work....
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....reement with this contention. According to him, except for what was specified in the Explanation to sub-s. (2) of s. 115JA, AO could make no adjustment to the net profit as disclosed in the P&L a/c of the assessee which was prepared, in accordance with Parts II and III of Sch. VI to the Companies Act, 1956. 19. Now, before us, the learned Departmental Representative submitted that Explanation to s. 115JA(2) stipulated reduction of the amount of profits derived by an industrial undertaking from the business of generation or distribution of power, from the net profit shown in the P&L a/c. According to him, income or profits and gains should be understood as including losses also by virtue of the decision of Hon'ble Apex Court in the case of CIT v. Harprasad & Co. (P.) Ltd. [1975] 99 ITR 118 (SC). Learned Departmental Representative further argued that losses are nothing but negative profits and therefore, such negative profit was required to be reduced from the net profit as per the P&L a/c of the assessee, According to him, when negative profits were reduced, the result would be an addition. In his opinion, AO had taken the right view based on the decision of Hon'ble apex Court in ....
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....e Companies Act, 1956 (1 of 1956), which is different from the previous year under the Act, the method and rates for calculation of depreciation shall correspond to the method and rates which have been adopted for calculating the depreciation for such financial year or part of such financial year falling within the relevant previous year. Explanation : For the purposes of this section, 'book profit' means the net profit as shown in the P&L a/c for the relevant previous year prepared under sub-s. (2), as increased by- (a) to (f) ........... (g) the amount or amounts set aside as provision for diminution in the value of any asset, if any amount referred to in cls. (a) to (g) is debited to the P&L a/c, and as reduced by,- (i) the amount withdrawn from any reserves or provisions if any such amount is credited to the P&L a/c : Provided that where this section is applicable to an assessee in any previous year (including the relevant previous year), the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the 1st April, 1997 (but ending before the 1st day of April, 2001) shall not be reduced from the book....
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....uted under sub-s. (3) of that section. (3) Nothing contained in sub-s. (1) shall affect the determination of the amounts in relation to the relevant previous year to be carried forward to the subsequent year or years under the provisions of sub-s. (2) of s. 32 or sub-s. (3) of s. 32A or cl. (ii) of sub-s. (1) of s. 72 or s. 73 or s. 74 or sub-s. (3) of s. 74A. (4) Save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee, being a company, mentioned in this section." What can be clearly observed from the above Explanation is that increase to the net profit are items specified in cls. (a) to (g) and all such items have to be debited to the P&L a/c. As against these, reduction to the net profit is specified in cls. (i) to (ix), and there is no stipulation whatever that such items are necessarily to be credited to the P&L a/c, except the items mentioned at cls. (i) and (ii). Clauses (i) and (ii) specify two types of income which are to be reduced if they are credited to the P&L a/c but thereafter from cls. (iii) to (ix) there is no condition that the amounts mentioned therein should be credited to the P&L a/c. Whether the amounts whic....
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.... by the legislature in cl. (iv) of Explanation (supra). On the other hand, if we look at the decision of the Hon'ble apex Court in Apollo Tyres Ltd. (supra) it is clear that the AO while computing the income for the purpose of applying MAT has only a limited power of making increase and reduction as provided in the Explanation and nothing more. In other words, the AO does not have any jurisdiction to go beyond the net profit shown in the P&L a/c, the except to the extent provided in the Explanation. Further, we also find that assessee had never claimed any loss as such, but on the other hand, receipts and expenses were separately shown and AO had himself computed a loss and made the addition. We are therefore, of the opinion that the AO had made a wrong application of the Explanation. He misinterpreted cl. (iv) thereof, by making an addition, relying on that clause which specifically provided for reduction. The decision of the Hyderabad Bench of the Tribunal dt. 5th April, 2009 in Andhra Pradesh State Electricity Board (supra) relied on by the AO was in relation to exercise of jurisdiction under s. 263 by the CIT where the AO had completed the assessment without charging MAT under ....
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....eversed in this regard. 25. Per contra, learned Authorised Representative vehemently supported the order of the learned CIT(A). 26. We have perused the orders and heard the rival submissions. It is not disputed that the provision was for wealth-tax. The Tribunal in its order dt. 29th June, 2007 referred supra has held at para 10 as under : "10. After considering the rival submissions, we find that recently Hon'ble Supreme Court in the case of CIT v. Oriental Fire & General Insurance Co. Ltd. [2007] 210 CTR (SC) 162 : [2007] 291 ITR 370 (SC) held that every provision made in balance sheet need not be in the nature of expenditure. In any case, cl. (a) of Explanation to s. 115JA provides that amount of income-tax paid or payable is required to be added back and we are of the view that such amount would include other direct taxes also including wealth-tax. Therefore, we confirm the order of the learned CIT(A)." Nothing was brought before us by the learned Authorised Representative to take a different view. Hence, we are of the opinion that the provision for wealth would come within the ambit of cl. (a) of Explanation to 115JA of the Act. We set aside the order of the CIT(A) in this....
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....1 to s. 32 of the Act which came into effect on 1st April, 1988, was of the opinion that even if assessee was not owner of the land, expenditure incurred by it for construction of a silo therein would result in an enduring benefits. According to him, the structure constructed by assessee was a capital asset. In this view of the matter, he disallowed the claim as revenue expenditure. AO relied on the decision of the Kerala High Court in the case of CIT v. Parthas Trust [2001] 249 1TR 120 (Ker) while coming to this conclusion. 30. Before the CIT(A), argument of the assessee was that as per cl. (2) of its memorandum of understanding with TNEB for the installation of fly ash collection system, the equipment installed became the property of TNEB and assessee had no right over the equipment installed. Assessee brought to the attention of the CIT(A) the salient features of the MoU as per which the assessee had to pay service charges for the fly ash system. Further, argument of assessee was that fly ash system installed by all allotted companies in the premises of Mettur thermal plant, became property of the TNEB, and assessee had no right whatsoever over any equipments installed by it. I....
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....it had come to the assessee. Especially so, when the equipment became the property of another company. No doubt, Hon'ble apex Court in the case of Mysore Minerals Ltd. (supra) and in other cases relied on by the Revenue, has clearly laid down that test of enduring benefit is one of the criteria to be considered when deciding the nature of expenses, as to whether it was capital or revenue. To say that this is the sole criteria which is to be adopted is not correct, to our opinion, the CIT(A) had correctly relied on the decision of the apex Court in the case of Madras Auto Service (P.) Ltd. (supra) where their lordships held that when an asset was created but it belonged to somebody else, even if it resulted in any enduring benefit, it should be still looked upon as a revenue expenditure. Explanation 1 to s. 32 was considered by the jurisdictional High Court in the case of TVS Lean Logistics Ltd. (supra) wherein their Lordships held that when an assessee had constructed a building on a leasehold land, it could not be considered that there was any acquisition of capital asset. We find that the CIT(A) was justified in holding that the expenditure would be revenue in nature. No interfer....