TaxTMI 
TaxTMI 
2016 (10) TMI 709
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....a Public Limited company engaged in the business of generation of power and energy. In respect of the AY 2008-09, the assessee company filed the return of income on 30.9.2008 declaring income of Rs. 2,99,89,226/- under section 115 JB of the Act. Subsequently, the assessee revised the same on 17.9.2009 showing income of Rs. 2,88,46,900/- under section 115 JB of the Act as book profit. Again they revised it on 30.3.2010 showing income of Rs. 2,85,99,729/- under section 115 JB of the Act as book profit. The AO by way of order dated 29.12.2010 assessed the income of the assessee at Rs. 3,30,41,943/- and after set off of at NIL income and on book profit income of Rs. 4,22,67,189/- under section 115 JB of the Act. 3. Against the said order of AO the assessee preferred appeal before the CIT(A), who by way of impugned order dated 21.02.2013 sustained to some extent the additions made by AO, inter alia, disallowing the expenditure u/s. 14A read with rule 8D of the I. T. Rules the claim for Rs. 12,53,776/-, and calculation of the tax liability of the assessee under section 115JB of the Act, adding Rs. 13,63,105/- debited by the assessee as diminution in value of investments in the P&L Accou....
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....ook profit u/ s 115JB, without appreciating the fact that the amount debited to the Profit & Loss A/ c represents actual write off in the value of investments. 6.0 That on the facts and in the circumstances of the case, and without prejudice to Ground 3.0 above, the Ld. CIT(Appeals) was not justified and grossly erred in confirming the addition of provision for payment on retirement of workers amounting to Rs. 9,66,000/- in computing Book profit u/s 115JB, without appreciating the fact that the provision was created on the basis of actuarial valuation report and hence is not an unascertained liability. 7.0 That on the facts and in the circumstances of the case, Ld. CIT(Appeals) was not justified and grossly erred in confirming the levy of interest u/ s 234B after 01-04-2009 on the incremental amount of tax which arose due to retrospective amendment in Sec. 115JB of the Act. Additional ground 1. That on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified & erred in not admitting additional grounds filed before it, without considering that fact that, the additional grounds were merely questions of law on the facts available on record and essen....
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....ed in considering entire investment while computing disallowance u/s 14A r.w. Rule 8D instead on only those investments have generated and/or are capable of generating exempt income. 1.3 That on the facts and in the circumstances of the case, and without prejudice to Ground 1.0, 1.1 & 1.2 taken here-in-above, Ld. CIT (Appeals) was not justified and grossly erred in increasing the average value of investments while computing disallowance u/s 14A r.w. Rule 8D, more than the average of the carry in investment as appearing in the balance sheet of the appellant. 2.0 That on the facts and circumstances of the case, the Ld. CIT(Appeals) was not justified & erred in confirming the disallowance of leave encashment claimed on provision basis in computing total income under normal provisions of the Act. 3.0 That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified & erred in confirming that provisions of Sec. 115JB of the Act are applicable on the appellant without considering the fact that, the appellant, being a electricity generating company, is exempt from maintaining its books of accounts in terms of Sec 211(1) of the Companies Act, 1956 read....
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....round the disallowance of expenditure u/s 14A r/w Rule 8D, applicability of 115JB of the Act to the Assessee Company and adding certain amounts like diminution in value of investment, provision for payment to the retired workers, Leave encashment provision and deduction claimed u/s. 14A r/w R 8D basing on section 115JB of the Act and levying interest u/s 234B of the Act. Basing on the above facts and contentions, the following issues arise for our consideration:- 1. Whether the authorities below are justified in disallowing the claim for deduction of expenditure by invoking the provisions under section 14A r/w 8D in respect of the AY 2008-09 and 2009-10? 2. Is the CIT (Appeal) justified in not admitting additional grounds filed before him in respect of AY 2008-09? 3. Are the provisions under section 115JB applicable to the assessee company income in respect of the AY 2008-09 and 2009-10? 4. Are the authorities below justified in disallowing the claim of Leave encashment to a tune of Rs. 39,19,000/- in respect of AY 2009-10? 5. Are the authorities below justified in adding Rs. 13,63,105/- debited by the assessee as diminution in value of investments in the P&L Account ....
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....s sine qua non, and the absence of such recording of satisfaction vitiates the application of Rule 8D. For this purpose, he relied on decisions of coordinate Benches of Tribunal in M/s Balarampur Chini Mills Ltd vs. DCIT (2011) 140 TTJ 73, Hindustan Paper Corporation Ltd vs. DCIT (2012) ITA No. 47/Kol/2012. He also placed reliance on a decision reported in MAXOPP INVESTMENT LTD. & ORS. vs. CIT (2012) 247 CTR 0162 (Del) for the principle that even prior to the introduction of sub-ss. (2) and (3), Section 14A would require the AO to first reject the claim of the assessee with regard to the extent of such expenditure, such rejection must be for disclosed cogent reasons and it is only then that the question of determination of such expenditure by the AO would arise. 15. Further reliance is placed on a decision in the case of CIT Vs. ASHISH JHUNJHUNWALA G.A. No. 2990 of 2013, wherein the Hon'ble Jurisdictional High Court of Calcutta confirmed the following observations of this Tribunal in ITA No 1809/Kol/2012: "While rejecting the claim of the assessee with regard to expenditure or no expenditure, as the case may be, in relation to exempted income, the AO has to indicate cogent reaso....
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....ut of the interest-free funds available with Assessee, and the additions made by the AO under Section 14A of the Act by disallowing the expenditure, have to be deleted. 18. From the above discussion, we conclude that own funds of the assessee are sufficiently in excess of both the borrowings and investments, borrowings are proved to be for a specific purpose and there is no possibility of investing them for generating the exempted income, investments that are generating the exempted income were made prior to the relevant previous years, and above all the legal requirement of the AO recording the reasons for resorting to Section 14A r/w 8D in this matter are conspicuously absent. Viewing from any angle, we are convinced that there is no justification for the authorities below to sustain the disallowance made u/s. 14A of the Act in AYs 2008-09 and 2009-10. 19. For these reasons, while answering this issue in the negative, we hold that the authorities below are not justified in disallowing the claim of the assessee for deduction of expenditure of an amount of Rs. 14,08,874/- in respect of the AY 2008-09, and Rs. 10,39,339/- in respect of the AY 2009-10 by applying section 14A r/w 8D....
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....essee is under an obligation to prepare its accounts as per the said regulations and not under Part II and III of Schedule VI of the Companies for computing Book Profit. In view of the statutory stipulation to maintain its accounts as per the West Bengal Electricity Regulatory Commission (Terms and Conditions of Traffic) Regulations, 2007 issued pursuant to Electricity Act, 2003 and not under Part II and III of Schedule VI of the Companies, the assessee pleads that the provisions of section 115JB of the Act have no application to them. As a matter of fact, a coordinate Bench of this Tribunal in the assessee's own case for the AY 2007-08 in DPSC Ltd, Kolkata vs. DCIT Circle-VI, Kolkata ITA 890/Kol/2013 considered this issue in extenso and hold that the provisions of Section 115JB have no application to the assessee company. In the said case, this Tribunal, after going through the basic intention behind the introduction of Sec. 115JB of the Act, Department Circular No. 762 dated 18.02.1998, Memorandum explaining the provisions in the Finance Bill, 1996, under the caption "Rationalisation and Simplification", hyden rules, decisions of various High Courts and Tribunal viz. Kerala State....