TaxTMI 
TaxTMI 
2017 (12) TMI 1121
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.... r.w. Rule 9D." 3. We heard the rival submissions and carefully considered the same along with the orders of the Tax Authorities below. We noted that similar issue relating to the deletion of disallowance made under Section 14A r.w. Rule 8D has also been taken by the Revenue by way of ground Nos. 3 & 3.1 in their appeal, which read as under: "3. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in directing the AO not to consider the interest expenses for working out the disallowance u/s 14A r.w. Rule 8D. 3.1 On the facts and in the circumstances of the case, the Ld. CIT(A) erred in directing the AO to exclude the investments made in subsidiary companies by the assessee while working out the average investment @ 0.5% as mandated by the Rule 8D of the Income Tax Rules without appreciating the fact that the assessee has earned exempt income from the investment in subsidiary companies." 4. Since this issue involved in both the appeals relate to the disallowance made under Section 14A, we therefore decided to dispose off this issue first instead of deciding the other ground taken by the Revenue in its appeal. The facts relating to the di....
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....during A.Y. 2010-11 following the decision of Garware Wall Ropes Ltd. vs. Addl. CIT 46 Taxmann.com 18 and J.M. Financial Ltd. vs. Addl. CIT in ITA No. 4521/Mum/2012 dated 26.03.2014 directed not to disallow under Rule 8D(2)(ii) and 8D(2)(iii) in respect of investment in subsidiary companies as they were made for controlling stock. It was also directed by the CIT(A) in A.Y. 2010-11 that no interest disallowance is to be made in this regard as the assessee's Reserves and Surplus are more than assessee's total investment but it was held that however, the disallowance of 0.5% of the average investment can be made for administrative expenses. The CIT(A) after considering the submissions of the assessee and following the decision in A.Y. 2010-11 held as under: - "6.4 I have considered appellant's submissions. In this case appellant had suo motto originally disallowed Rs. 39,12,93,402/- u/s.14A and later submitted submissions during the assessment proceedings reducing the disallowance U/S.14A Rs. 86,27,6207- and further another submissions was submitted that disallowance should be Rs. 50,20,000/- relying on the decision of CIT vs. Reliance Utilities and Power Ltd. 313 ITR 340....
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....ere appellant had earned exempt income and another investment appellant had not earned any exempt income. When we examine the case of Cheminvest Ltd., in this case there is only one investment in which no income is earned, but in our case in some investment there is exempt income earned in some investment no exempt income is earned. Hence, facts are distinguishable in this case, therefore, appellant's claim is dismis'sed on this issue. The appellant had raised additional ground that disallowance of interest and expenses under Rule (3D(2)(ii) and-8D(2)(iii) should not be made with respect to investment which are made in the subsidiary company of the appellant. The appellant had relied on the decision of Garware Wall Ropes Ltd. vs. Addl. CIT 46 Taxmanni.com 18, J. M Financial Ltd. vs. Addl. CIT ITA No.4521/MUM/2012 dtd. 26.03.2014. On examination of the above cases, the ITAT held that investments in subsidiary companies were investments were made for controlling stake, no disallowance can be made u/s.14A r.w. Rule 8D(2)(ii) and 8D(2)(iii). Hence, following the above decisions, the A.O. is directed not to disallow under Rule 8D(2)(ii) and 8D(2)(iii). In conclusion the....
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.... the AO to compute 0.5% of the average investments and while computing the 0.5% of the average investments in the subsidiary company directed to exclude and dismissed the additional ground taken by the assessee for excluding from calculation of 0.5% of the average investment on which there is no tax free income is earned following the order of the CIT(A) for A.Y. 2010-11. The CIT(A) also following the order for A.Y. 2010-11 directed the AO to exclude while computing 0.5% of the average investment expenditure involved in administrate expenses. 7. We noted that against the deletion of disallowance made under Section 14A the Revenue went in appeal before the Tribunal by taking the following grounds of appeal in A.Y. 2010-11: - "6. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO not to consider the interest expenses for working out the disallowance u/s. 14A r.w. Rule 8D." 6.1 On the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in directing the AO to exclude the investments made in subsidiary companies by the assessee while working out average investment @50% as mandated by the Rule....
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....as under: - In crores Opening Closing Total investments yielding table income -(A) 8,487.02 6,263.63 All tax free investments That can yield tax free income (B) 3,660.08 3,755.94 Investments which has given tax free income during the year (included in (B) above) 1,104.61 1,104.61 Total (A)+(B) 12,147.10 10,019.57 The appellant relies upon the following decisions of the High Courts in support of their contention that if the capital and reserve is much more than the investment it is presumed that the investment has been made out of own funds and therefore disallowance of interest under section 14A of the Act cannot be made. We find force in the argument of Ld Counsel and in the given facts of the case we are of the view that the CIT(A) has rightly deleted the addition and we confirm the order of CIT(A) . This issue of revenue's appeal is dismissed." 10. During the impugned assessment year, we noted, the Revenue has come in appeal before us taking similar grounds being ground Nos. 3 & 3.1 as has been taken against the order of the CIT(A) during A.Y. 2010-11. During the assessm....
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....n ITA No. 502/Del/2012 dated 16.06.2017 in which the Special Bench has taken similar view. Thus, the ground taken by the assessee is allowed for statistical purposes. 12. Ground No. 1 in Revenue's appeal reads as under: - "1. On the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in allowing the claim of Rs. 17,79,20,026/- on account of replacement of electricity meters, even though the impugned expenditure is inherently capital in character as installation and replacement of electricity meters given to the end customers is capital expenditure and the meter deposits received against the same is shown as capital advance by the assessee." 13. The brief facts of this ground are that the AO disallowed expenditure amounting to Rs. 17,79,20,026/- incurred by the assessee on replacement of electricity meters not debited in its Profit & Loss Account. By holding that the same to be capital expenditure and AO allowed depreciation to the assessee amounting to Rs. 2,00,16,003/-. The CIT(A) relying on the order of the ITAT for assessment years 2008-09 and 2010-11 deleted the disallowance. After hearing the rival submissions we noted that this Tribunal i....
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.... been able to show that the finding of fact arrived at by the Tribunal is perverse and/or erroneous. In the above view, we see no reason to entertain Question (a). 4. So far as Questions (b) to (e) are concerned, Counsel for the parties are agreed that all the aforesaid questions are covered in favour of the respondent- assessee and against the revenue by the decision of this Court rendered on 26 June 2013 in respect of the same respondent- assessee in Income Tax Appeal No.1688 of 2009. In the above view of the matter and for the reasons mentioned in our order dated 26 June 2013 the Income Tax Appeal No.1688 of 2009, we see no reasons to entertain Questions (b) to (e) as proposed by the revenue. 5. We find that consistently this issue has been held in favour of assessee and hence respectfully following the Hon'ble High Court, we confirm the order of CIT(A) and this issue of Revenue's appeal is dismissed." Respectfully following the order of this Tribunal in assessee's own case for A.Y. 2010-11 we affirm the order of the CIT(A) and dismiss ground No. 1 taken by the Revenue. 14. Ground No. 2 taken by the Revenue reads as under: - "2. On the facts and ....
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....ecisions of Court/Tribunal holding that head office expenses are required to be allocated to 80-IA units. However, in appellant's own case, the ITAT has decided the issue in appellant's favour. The decision of ITAT in appellant's own case is binding on lower judicial authority i.e. CIT(A). Therefore, since the issue under consideration is covered in favour of appellant by the ITAT orders, the allocation made by AO in the year under consideration is deleted. This ground of appeal is, therefore, allowed." Following the above decisions of above orders the A.O. is directed to allow allocation made by the appellant for the head office expenses. The amount disallowed for allocation of head office expenses is deleted. This ground of appeal is allowed." Following the above decision of CIT(A), the allocation of head office expenses by A.O. is disallowed. This ground of appeal is allowed." 16. We noted that similar issue has arisen in A.Y. 2010-11 in ITA No. 1422/Mum/2015 in which the Tribunal confirmed the order of the CIT(A) by observing as under: - "8. Now before us, the learned Counsel for the assessee stated that this issue is covered in favour ....
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.... assessee. Since the issue before us is identical to the issue decided by the Tribunal in assessee's own case cited supra, consequently, the ground raised by the revenue is treated as dismissed." CIT(A)'s order in A.Y. 2009-10: "8.1. I have considered the facts of the case. The ITAT in appellants own case in earlier years i.e. from A.Y. 2001-02 to 2007-08 has held that the provisions of section 115JB were not applicable in appellant's case. The' ITAT held that the appellant was following the accounting policies under the electricity Supply Act and prepared its accounts in view of those very policies. Following those very policies, the accounts in accordance with part II and part III, Schedule VI of the Companies Act were not applicable at all. There was no possibility for preparing the accounts in accordance with the part II and part II of schedule-of the Companies Act as the provisions of section 115JB could not be forced. The ITAT in appellants own case in earlier years held that the provisions of section 115 JB were not applicable, in appellant's case. Following the orders of ITAT in appellants own case in the earlier years, it is held that ....
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....r the Act governing such class of company. Similar section 211(2) of the Companies Act requires every company to prepare a Profit and Loss Account to give a true and fair view of the profit or loss of the company and further requires the company to comply with the requirements of' Part H of Schedule VI of the Companies Act. Proviso to section 211(2) further exempts the company engaged in the business of generation or supply of electricity where a form of Profit and Loss Account has been specified in or under the Act governing such class of company. Section 616 of the Companies Act further provides that the provisions of the Companies Act shall apply to companies engaged generation in supply of electricity, except insofar as the said provisions are inconsistent with the provisions of Electricity Supply Act, 1948. Thus the provisions 'of Electricity Supply Act which are different from the provisions of the Companies Act prevail." As submitted that section 115 JB introduced with effect from 1.4.2001 i.e. AY 2001-02 has incorporated provisions relating to compensation of "book profit" which are different from the provisions relating to the same in section 115J or 115JA....
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....nd Loss Account so prepared in acceptance with Part 11 and 1ff of Schedule VI of the Companies Act: should again follow the same (a) the Accounting Policies) (b) the Accounting Standards and (c) the rates of depreciation, as have been adopted for the purpose of preparing such accounts including Profit and Loss Account laid before shareholders in the Annual General Meeting. The thrust of the above provisions is that the Profit and Loss Account for the purpose of section 1 15JB must be in accordance with the provisions of the Companies Act. Further the Accounting Policies, Accounting Standards and Method and Rates of Depreciation adopted in Profit and Loss Account for the purpose of section 115JB should be same as adopted in the Profit and Loss Account laid before the shareholders in the Annual General Meeting. As stated earlier, Electricity company is exempted by the Companies Act to follow the provisions of the Companies Act as regards matters which are inconsistent with the provisions of the Electricity Supply Act. Electricity Supply Act has the following provisions, which are different from the Companies Act. Under the Electricity Supply Act, depreciati....
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....est the said reserves in Trust securities. There is no similar provision in the Companies Act. In the accounts) which are presented before the shareholders in the Annual General Meeting the assessee, company has followed the above accounting policies as per the requirement of Electricity Supply Act. The above accounting policies are not in accordance with the provisions of the Companies Act. Since the Profit and Loss Account to be prepared for the purpose of section 115J)3 has to follow the same accounting policies as are followed in the accounts presented before the shareholders, the Profit and Loss Account to be prepared under the Companies Act will not be in accordance with the provisions of Schedule VI of the Companies Act. Thus if the Profit and Loss Account is prepared in accordance with the provisions of Schedule Vi of the Companies Act) the accounting policies to be followed in preparation of such Profit and Loss Account will not be same as followed in the Profit and Loss Account presented before the shareholders in the Annual General Meeting. Thus there is a breakdown of the provisions of section 1 15J.B in as much as the Profit and Loss Account cannot be prepared....
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....d to be written off. v) When an Electricity Company has incurred losses and unable to bear the burden of depreciation, an amount equal to the unabsorbed depreciation has to be transferred to the depreciation reserve which will be charged to profit and loss account of the year in which the profits are made and will become the additional depreciation charge of that year. vi) Under the Electricity Supply Act, the company has to capitalize certain replacement expenses like meters and provide the depreciation in the books whereas under the Companies Act, the said replacement expenses have to be written off as revenue expenditure. vii) Under the Electricity Supply Act, if the profit of the company in any year is in excess of the amount of Reasonable Return as computed under the Electricity Act, 1/3rd of such excess not exceeding 5% of the amount of Reasonable Return only is at the disposal of the company. Out of the balance excess, 50% is to be apportioned to Tariff and Dividend Control Reserve and balance 50% is to be distributed in form of proportional rebate on the amounts collected from the sale of electricity and meter rentals and to be carried forward in ....
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....1 & III of Schedule VI and if the said policy of capitalizing the replacement of meters is followed in preparing the accounts under Companies Act, the accounts will not be in accordance with Parts II & Ill of Schedule VI of the Companies Act. The Electricity company therefore cannot and will not be able to prepare the accounts under the Companies Act following the same accounting policy which is mandated by the proviso to section 115JB(2) to be followed. 24.4 The assessee further brought to our notice the case of depreciation. Rate of depreciation under the Electricity Supply Act is lower than the rates provided under the Companies Act and if the rates as provided in the accounts presented before the Annual General Meeting i.e. Electricity Act Accounts, the depreciation at the same rates in the accounts for the Companies Act will be below what is required under the Companies Act and therefore the accounts so prepared under the Companies Act will not be in accordance with Parts II & III of Schedule VI. 24.5 The assessee also referred to the requirement of Electricity Supply Act as regards the real profits and Reasonable Return, in the accounts under the Electricity....
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....nsel of the assessee supports the case by the assessee. This case was under Super Profits Tax Act. In this case e was a banking company, which went into liquidation. For ..... the Assessing Officer was of the opinion that their taxable e would attract liable to Super Profits Tax Act Under the Act the Super Profit Tax is leviable in respect of chargeable profits, which are in excess of standard deduction as specified in Third Schedule in the said Act. Standard Deduction was defined to mean an amount equal to six percent of the capital of the company or Rs. 50,000 whichever is higher. The issue arose as to whether a company in liquidation can be said to have a paid-up capital and reserves. The Supreme Court came to conclusion that after liquidation of company there can not be any share capital. Supreme Court further held that once the provisions contained in the Act for computing the capital of the company and its reserves cannot have any application, the "standard deduction is incapable of ascertainment, and the charge of Super Profits Tax under section 4 of the Act is not attracted. In this case the definition of "Standard Deduction" was to mean six percent of the capital or Rs. 50....
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....d the provisions of sec. 207, 208, 209 & 210 cannot be made applicable 'until and unless the accounts are audited and the balance sheet prepared. The ratio of this decision helps the case of the assessee because it is not possible to prepare the accounts in accordance with part II &III of Schedule VT of the Companies Act for the purpose of provisions of sec. 115JB. Therefore, in view of the ratio of this decision, in our considered view, the provisions of sec. 115JB cannot be attracted of the present case. 27. The issue in regard to doctrine of impossibility has been discussed of the Tribunal in the case of M/s Divine Holdings Pvt. Ltd 180/Mum/2000 vide order dated 26.6.2001. The Tribunal in para 8 has observed that the assessee did whatever was possible on its part. It is well-known principles "law canonized in the dictum "lex non cogit ad impossibilia". Law cannot compel you to do the impossible." Again this ratio has been considered in the case of Shri Hitewsh S Mehtam in ITA No. 2469/Mum/2002 vide order dated 7.5.2004. In the case of Growmore Leasing Investments Ltd, the Tribunal has again taken into consideration the ratio of the decision of the Tribunal in case o....