TaxTMI 
TaxTMI 
TaxTMI 
2017 (6) TMI 1181
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....f Rs. 43,29,42,626/-in account of replacement of electricity meters, even though the impugned expenditure is inherently capital in character as the 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." 3. Brief facts are that the AO disallowed the expenditure of Rs. 43,29,42,626/- incurred by assessee on replacement of meters by holding the same to be capital expenditure. The AO allowed the depreciation at Rs. 4,87,06,045/-. The CIT(A) relying on earlier years ITAT orders for AY 2008-09 and 2009-10 deleted the disallowance by observing in Para 4.2 as under: - "4.2 1 have considered the facts and circumstances of the case. This issue had come into consideration of Hon'ble ITAT in A.Y.2008-09 and CJT(A) in A.Y. 2009-10 held as under: Hon'ble ITAT in A. Y 2008-09: 9. This issue has been discussed by the Tribunal in its order cited supra from paras 8 to 12, wherein the Tribunal has decided the issue in favour of the assessee for the reasons stated therein. Since the issue before us is identical to the issue decided by the Tribunal ....
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....ecessarily required to be incurred for the purposes of carrying out business operations. The expenditure is incurred for the purposes of enabling the RespondentAssessee to carry out its business more efficiently and more profitably. The replacement of meters does not increase the generation and/or distribution capacity of electricity. Moreover, as held by the Supreme Court in the matter of Empire Jute Co. Ltd. v/s. CIT (124 ITR 1), the test of enduring benefit is not a conclusive test to be applied mechanically without considering the facts of a given case. In the above facts, the expenses on replacement of electricity meters would be on revenue and not on capital account. (iii) The Counsel for the Respondent has not been able to point out that how the conclusion of the Tribunal in the earlier years will not be applicable to the present Assessment Year. The Counsel for the revenue has also not 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 cover....
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....acts of the case. This issue was also there in appellant's own case in the earlier assessment years. In A. Y. 2007-08, my predecessor CIT(A)- I Mumbai vide order dated 27-01-2010, by following the C1T'(A) appeal order of A. Y. 2006-07, directed the AO, not to allocate the head office expenses against the Goa unit, Samalkot unit and Windmill unit and grant deduction u/s 80 IA for those units on the profits without allocating the head office expenses. In AY 2007-08, the ITAT, Mumbai, following the ITAT decisions in A. V. 2002-03 to 2006-07, dismissed the department's ground of appeal and directed to the AO to accept the allocation of head office expenses as done by the appellant. There are some decisions 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 JTAT 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 ITA7' orders, the allocation made by AO in the year under consideration is deleted. This g....
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....hile accepting the appeal of the assessee reveals that the id. CIT(A) has followed the various decisions of the co-ordinate benches of the Tribunal to hold that the assessee was not liable to deduct TDS either under section 194-1 or section 194-I on the 'Wheeling and Transmission Charges' paid by the assessee in case of which provisions of Electricity Act, 2003 were applicable. The Id. DR could not produce any contrary decision which may justify departure from the almost well settled position of law on the above issue. Hence, respectfully following the decision of the co-ordinate Benches of the Tribunal i.e. "Maharashtra State Electricity Distribution Co. Ltd. vs. DCIT (TDS) Range-2" ITA No. 2872/Mum/2010 for AY 2009-10 and the other decisions as referred by the ld. CIT(A) in his order, the issue is accordingly decided in favour of the assessee and the appeals of the Revenue are hereby dismissed." The Hon'ble ITAT held that no tax is deductible on transmission and wheeling charges u/s. 194-I or 194-J, hence, A.Os contention that tax is deductible from wheeling charges is erroneous. The addition made by the A.O. is deleted. This ground of appeal is allowed." 12. A....
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....609,153 Preference shares 3,283,976,472 260,543,966 3,023,432,506 Accrued Premium Receivable 255,661,638 25,465,164 230,196,474 ECB (3,296,465,000) (328,265,000) 2,968,200,000 S. Creditors (5,257,423) (5,257,423) Total 566,448,621 67,227,910 256,047,601 (42,255,870) 285,428,980 Net total 323,275,511 66,23,70,735 243,173,110 Total 905,543,845 I had examined the above table. In the foreign exchange loss there are two items, one is of Revenue nature and second items is of capital in nature. The appellant in the P&L account combined the forex loss incurred in the revenue account and capital account. Roth of them are claimed as revenue loss from P&L account. On examination of the details it is clear that the appellant is eligible only for the revenue loss and not for the capital loss. The appellant's capital loss cannot be claimed as deduction in the P&L account. When we examine the details regarding revenue items, revaluation of forex creditors, revaluation of forex de....
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....ital Loss/Gain Realised Unrealised Realised Unrealised Revaluaion of ICD 221,923,781 67,227,910 154,695,871 Bank balances 106,609,153 106,609,153 Preference shares 3,283,976,472 260,543,966 3,023,432,506 ECB (3,296,465,000 ) (328,265,000) 2,968,200,000) S. Creditors (5,257,423) (5,247,423) Total 905,543,845 Net Total 256,0477,601 42,255,870 285,428,980 905,543,845 66,23,70,735 243,173,110 The AO has disallowed sum of Rs. 66,23,70,735/- on revenue account on the ground that the same is mark to market loss and therefore contingent in nature. The AO also disallowed sum of Rs. 24,31,73,110/- being capital loss. Thus the total loss disallowed is Rs. 90,55,43,845/-. Bot we find that the assessee follows mercantile system of accounting and has adopted Accounting Standard II for recognizing the realized and unrealized gain/ loss on account of foreign currency transactions. The realized or unrealized exchange gain/loss has resulted on account of either settlement or revaluation of trade debto....
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....ct instead of Companies Act hence, there is no requirement for computation of minimum alternative tax under section 115JB of the Act. The CIT(A) held in Para 11.2 as under: - "11.2 1 have considered the facts and circumstances of the case. This issue had come into consideration of 1-lon'ble ITAT in A.Y.2008-09 and CIT(A) in A.Y. 2009-10 held as under: Hon'ble ITAT in A. Y.2008-09: "11. We find that the Tribunal, in its order cited supra, in assessee's own, vide paras 37 to 40, has decided the issue in favour of the 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 AY 2009-10 "8.1. I have considered the facts of the case. The FIAT in appellants own case in earlier years i.e. from A. Y. 2001-02 to 2007-08 has held that the provisions of section 115 JR were not applicable in appellant's case. The FIAT 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....
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....y engaged in the generation or supply of electricity for which a form of Balance Sheet has been specified in or under 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 compe....
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....s of Part II and III of Schedule VI of the Companies Act. The accounts and the Profit and 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....
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....n events, and the company has to invest 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 L....
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....en 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 the account of company for the ....
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....izing 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 can not 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 Supply Act, the excess of profits is required to be transferred to....
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....fits 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. 50,000 whichever is higher Out of two limbs of the calculation, one limb being capital w....
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.... 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. 115dB cannot bc 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 of Divine Holdings Pvt ltd (supra) and has held that the assessee cannot force to do something, which is not possibl....
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....ility for preparing the accounts in accordance with the part II & 11 of Schedule VI of Companies Act then the provisions of sec. 115JB cannot be forced. Therefore, in view of the above facts and circumstances and respectfully following the above decisions of the Hon'ble Supreme Court and the decision of the Tribunal for AY 88-89, we hold that provisions of sec. 115JB are not applicable on the facts of the present case." Taking consistent view, we confirm the order of CIT(A) and hence, appeal of Revenue on this issue is dismissed. 18. The next issue in this appeal of Revenue is against the order of CIT(A) directing the AO to delete the disallowance of interest expenses for working out the disallowance expense under section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 (hereinafter the 'Rules'). For this Revenue has raised following ground No. 6 and 6.1 as under: - "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 8 D. 6.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in dire....
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....which is tax free income is received during the year. On this issue appellant had relied on the decision of Cheminvest Ltd. Special Bench. On considering the above decision, ITAT held that "if there is no exempt income earned, then no disallowance is required u/s.14A", however, in our case, there are two incomes where 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 dismissed on this issue. The appellant had raised additional ground that disallowance of interest and expenses under Rule 8D(2)(ii) and 8D(2)(iii) should not he 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 Taxmann.com 18, J. M Financial Ltd. vs. Addl. CIT ITA No.4521/MUM/2012 dtd. 26.03.2014. On examination (the above cases, the IT....
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....at 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. 22. The next issue in this appeal of Revenue is against the order of CIT(A) in making disallowance under section 115JB of the Act of expenses relatable to exempt income by invoking the provisions of section 14A o the Act read with rule 8D of the Rules. For this Revenue has raised following ground No. 7 and 7.1 as under: - "7. 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 disallowance....