TaxTMI 
TaxTMI 
2017 (12) TMI 1121
X X X X Extracts X X X X
X X X X Extracts X X X X
....s 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 disallowance made under Section 14A r.w. Rule 8D are that the assesse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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. 6.4(i) Now the issue has to be considered here is where appellant himself suo motto had disallowed but '&#....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nvest 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 A.O. is directed that no interest disallowance is to be made in this case as appellant's reserves and surplus are more than appellant's ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 8D of the IT Rules without appreciating the fact that the assessee has earned exempt income from the investment in subsidiary companies." 8. The assessee has also came in appeal befo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s 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 assessment year the Tribunal has given a finding that the assessee has much more interest free funds as compared to the investment made by the assessee. For the impugned assessment year the CIT(A) has given a clear finding that the share capital and reserve & surplus of the assessee are much m....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 in the case of the assessee for A.Y. 2010-11 confirmed the order of the CIT(A) deleting the said disallowance as the said issue has been decided in favour of the assessee by the decision of the Hon'ble High Court in assessment years 2001-02, 2002-03, 2003-04, 2006-07, 2007-08 and 2008-09 by holding as u....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssessee 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 in the circumstances of the case and in law the Ld. CIT(A) erred in deleting the proportionate apportionment of Head Office Expenses and allocation of Rs. 8,60,62,142/- to Goa Unit, Rs. 11,08,59,778/- to Samalkot Unit and Rs. 28,01,080/- to Windmill Unit Respectively of the assessee company, while computing the profits of eligible business for de....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ant 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 of assessee by assessee's own case of Hon'ble High Court decision for AYs 2006-07 and 2007-08 and he particularly referred to Income Tax Appeal No. 2180 of 2011 order dated 17-04-2014, wherein, this issue is dealt with at Para 5 which reads as under: - "5. Insofar as the question (c) in relation to Head Office Expenses is concerned, the findings of fact by the ITAT for the prior Assessment Years....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ant'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 the provisions of section 115 JB were not applicable in the case of the appellant. This ground of .appeal is therefore allowed." Following the above order appellant's compiling accounts under Regulatory Act instead of Companies Act as required for the computation u/s 115JB. Following the above order Sec. 115JB is not applicable in the appellant's case. The computation of book profit of appellant is deleted. This ground of appeal is allowed." ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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. Section 115J requires every company to prepare its Profit and Loss Account in accordance with the provisions of Part II and III of Schedule VI of the Companies Act, 1956. "Book profit" is, defined to mean the net profit as shown in the Profit and Loss Account prepared in accordance with the provisions of Part II and III of Schedule VI of the Companies Act, 1956. Section 115JA also requires every company to prepare its Profit and Loss Account in accordance with the provisions of Part II a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ions 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, depreciation on addition to fixed assets can be provided only from the subsequent year of addition and not in the year of addition whereas under the Companies Act, the depreciation is to be provided in the year of addition and even in the part of the year. Rate of depreciation, under Electricity Supply Act is lower than the rate of depreciation under the Companies Act. Electricity Supply Act permits only straight line method of depreciation whereas Companies Act permits both Straight Line Method and Written Down Value Method. Under th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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 in accordance with the provisions of the Companies Act following the same accounting policies as followed in the Electricity Accounts presented before the shareholders." Further, reliance was placed on the decision of the Supreme Court in the case.......Liquidator, Palai Central Bank ltd. in 150 ITR 539. It was further submitted in their own case for AY 1988- 89, the Tribunal has held that the provisions of sec. 115J are not applicable. 24. After taking into consideration the order of the Assessing Officer, ld CIT(A) and the submissions of the id DR and the Id counsel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ue 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 the account of company for the distribution to the consumers. Tariff and Dividend Control Reserve 'is available to the company when the clear 'profits as computed under the Electricity Supply Act is less than the Reasonable Return in any subsequent year. There is no similar provision in the Companies Act. viii) Under the Electricity Supply Act, the company has to create various reserves out of the retained earning contingency reserves which can be utilised on the happening of certain events and the company has to vest the said reserves in Trust securities. There is similar provision in the Companies Act. Section 115JB r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s 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 Supply Act, the excess of profits is required to be transferred to Tariff and Dividend Control Reserve and also to be distributed to the consumers. This treatment is not in consonance with the accounting policy which is permitted under the Companies Act as the company is required to disclose the entire profit earned irrespective of the, same being more or less than Reasonable Return, Part IT of Schedule VI requires the profit and loss account shall be so made out as clearly to accounting policy of transferring the excess profits to be under the Electricity Supply Act cannot be followed under the Companies Act and if followed the accounts will not be in accordance Part....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 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. 50,000 whichever is higher Out of two limbs of the calculation, one limb being capital was not capable of ascertainment. Supreme Court held that when one limb is not capable of ascertainment the whole provision fails, in other words there is "breakdown" of the whole provision and the provision cannot he applied. 25.1. While deciding so, the Hon'ble Supreme Court has taken into consideration its own decision in the case of CIT vs B C Srinivasa Setty in 128 JTR 294 wherein Supreme Court had pointed out that under the scheme of the Income Tax Act charge of tax will not get attracted unless the case or transaction falls under the governance of the relevant computation provisions. The S....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 of Divine Holdings Pvt ltd (supra) and has held that the assessee cannot force to do something, which is not possible for it. In view of the' above facts and circumstances, it can be easily held that a person cannot be forced to do something impossible. The law does not compel a man to do that which he cannot possible perform. The law creates a duty or charge, and the party is disable to perform it, without any default in him, and has no remedy over, there the law will in general excuse him arid though impossibility of performance is in general no excuse for not performing an obligation which a party has expressly undertaken by contract yet when the obligations one implied by law, impossibility of performance is ....