TaxTMI 
TaxTMI 
2019 (5) TMI 1664
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....t the company claimed advance against depreciation of Rs. 107.97 crores is not taxable both in under normal income as well as income assessed u/s 115JB of the Income Tax Act. The assessee relied on the decision of Hon'ble Supreme Court in the case of assessee itself order dated 05.01.2010 wherein it was held that advance against depreciation is not taxable u/s 115JB of the Act. It was further submitted that advance against depreciation is being added back under normal provision in the assessment framed u/s 143(3) of the Act, however, assessee is contesting the same in appeal. The Commissioner of Income Tax (Appeals) has allowed the same in appeal for the assessment years 2007-08, 2008-09 and 2009-10 and enclosed copy of orders before the Assessing Officer. 4. The Assessing Officer did not accept the arguments of the assessee on the ground that the assessee was in appeal before the Hon'ble Supreme Court against the order of Authority for Advance Rulings in respect to allowability of advance depreciation under MAT which the Hon'ble Supreme Court has decided the issue in favour of the assessee. The decision of the Hon'ble Supreme Court was not for the purpose of normal computation o....
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.... is to be adjusted in future, to that extent the revenue received/receivable is not considered as earned, but is treated as revenue received in advance. Therefore, the appellant has been consistently following the method of accounting in which the amount of extra tariff corresponding to the element of advance against depreciation and included in gross sales, is reduced from the sales and taken to the liability, side of balance sheet as 'advance against depreciation. The Hon'ble Supreme Court in the case of appellant for AY 2001-02 was concurred with the accounting treatment of this advance against depreciation and held as under: 3.4 "Section 115JB of the Income-tax Act, 1961 - Minimum alternate tax - assessment year 2001-02 - assessee was a Government Company - it was required to sell electricity to State Electricity Board(s) at tariff rates notified by CERC - Tariff consisted of depreciation, AAD, interest on loans, interest on working capital, operation and maintenance expenses and return on equity - on 26.5.1997, Government introduced a mechanism to generate additional cash flow by allowing generating companies to collect advance against future depreciation (AAD) by w....
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....ppeals) has elaborately discussed this issue in the order dated 5.4.2010 passed in appeal Nos. 177/0304, 37/04-05 and 68/06-07 for the AY 2000- 01, 2001-02 end 2003-04, respectively, observing in para 5 of the order as under; "Although the decision of the Ld. Apex Court has been given in respect of the adjustments to be made for the MAT purposes under clause (b) of Explanation 7 to Section 115JB, it is observed that the issue has been finally clinched by the Hon'ble Court, as to its nature and taxability, which would also be relevant for the computation of regular income as per the provisions of section 143(3) of the Income Tax Act, 1961. Since the AAD is a timing difference, it is not a reserve, it is not carried through P & L account and it is income received in advance subject to adjustment in future, it cannot be added/ disallowed also under the computation of normal income u/s 143(3) of the I. Tax Act, 1961. The above ratio of the Hon'ble Supreme Court, being equally inviolable and applicable in the regular assessments, the additions made by the AO in the order u/s 143(3) for these three years on account of AAD stand cancelled too." 6.7 The AO's contention th....
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.... respondent-assessee in view of our order and judgment dated 28.02.2018 in the assessee's case in ITA No.136 of 2015." 9. Therefore, the above grounds of appeal of the revenue are dismissed. 10. Ground No. 3 of the appeal of the Revenue is directed against the order of Commissioner of Income Tax (Appeals) in deleting disallowance of prior period expenses of Rs. 3,89,59,508/- made by the Assessing Officer. 11. The brief facts of the case are that the Assessing Officer disallowed the expenses of Rs. 3,89,59,508/- on the ground that Section 37(1) of the Act excludes the prior period expenses while computing the taxable income of the assessee. 12. On appeal, the Commissioner of Income Tax (Appeals) deleted the disallowance by observing as under: "7.4 I have gone through assessment order and assessee's reply reproduced by AO in the Assessment order. Assessee received advance from REC (Rural Electrification Corporation) for execution of contract work of RGGAVY. The unutilized/ surplus money was kept in short term bank deposits and earned interest of Rs. 3,89,59,508/- in AY 2010-11 and declared the same as income of the assessee. CAG objected to assessee's treatment....
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....xpenses claimed and the capital cost of the projects and that repair expenses resulted no addition in capacity, the addition of Rs. 10,53,30,844/- is deleted and Ground No. 7 of the appeal is Allowed." 19. The ld. Departmental Representative relied on the order of the Assessing Officer. 20. On the other hand, the Authorized Representative supported the order of the Commissioner of Income Tax (Appeals). 21. After considering the rival submissions and perusing the orders of the lower authorities and materials available on record. We find that the ld. Departmental Representative simply relied on the order of the Assessing Officer. He could not point out any specific error in the order of the Commissioner of Income Tax (Appeals). In the circumstances, we find no good reason to interfere with the order of Commissioner of Income Tax (Appeals) which is hereby confirmed and the ground of appeal of the revenue is dismissed. 22. Ground Nos. 5 & 6 of the appeal are directed against the order of Commissioner of Income Tax (Appeals) in deleting addition of Rs. 78,70,22,900/- made by the Assessing Officer by invoking provisions of Section 14A of the Act. 23. The brief facts of the case....
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....e necessary details and submissions in this regard were filed by the assessee but the AO did not consider the same. The AO therefore, applied Rule 8D and worked out the disallowance aggregating to Rs. 78.70 crores, under clause (i), (ii) and (iii) of Sub-Rule (2) of Rule 8D, respectively. The fact that the investment of Rs. 772.42 crores made by the appellant in the shares of subsidiary company NHDC was out of budgetary support and equity contribution by the Govt. of India has not been disputed by the AO. The admitted fact therefore, remains that the investment of Rs. 772.42 crores was directly from interest free funds contributed by the Govt. of India. If that being so, this amount cannot go into the working of 'disallowance of interest even if Rule 80 is applied. Clause (ii) of Sub-Rule (2) of Rule 8D provides for working of disallowable interest in a case where the assessee has incurred expenditure /by way of interest during the previous year which is not directly attributable to any particular income or receipt, thus, there" is no direct interest expenditure for the investment of Rs. 772.42 crores and also no direct interest expenditure pertaining to investment of Rs. 281.8....
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....es under section 14A of the Act. We find that the AO has invoked Rule 8D without spelling out the reason for not being satisfied with the computation made by the assessee in respect to expenditure incurred for earning the exempt income. Without recording the objective satisfaction as required under sub-section (2) to section 14A that he is not satisfied with the correctness of the claim of the assessee in respect of expenditure in respect to exempt income, the AO cannot invoke Rule 8D to compute the disallowance under the said Rule. The Hon'ble jurisdictional High Court in the case of CIT vs. Taikisha Engineering India Limited reported in 370 ITR 338 (Del.) has held as under :- "Section 14A of the Act postulates and states that no deduction shall be allowed in respect of expenditure incurred by an assessee in relation to income which does not form part of the total income under the Act. Under sub Section (2) to Section 14A of the Act, the Assessing Officer is required to examine the accounts of the assessee and only when he is not satisfied with the correctness of the claim of the assessee in respect of expenditure in relation to exempt income, the Assessing Officer can determin....
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....rving as under: "10.3 I have pursued the assessment order, the submission of the appellant, orders of my predecessors, order of ITAT and order of Hon'ble High Court in the appellant's own case on these issues i.e. relating to adjustment and increase of the book profit computed under the Companies Act, by a sum of Rs. 51,74,19,109/- on account of the Provision for gratuity, leave encashment, postretirement medical benefit, LTC, baggage allowed and Matching Contribution on leave encashment etc., for the purpose of computing tax liability u/s 115JB of the Act. As discussed in para 3 of the assessment order, the AO has added the above provisions for the purpose of computing book profit u/s 115JB following the decision of Hon'ble Supreme Court in the case of Shree Sajjan Mills vs. CIT (156 ITR 585) after holding the said provisions to be only contingent and unascertained. In Shree Sajjan Mills case, the claim for deduction was set up on the ground that amount of gratuity payable to its employees!?was worked out actuarially, which was ascertained by virtue of actuarial valuation and .was deductible under section 37(1) of the Act. 10.4 The appellant has contended that th....
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.... noticed that the Hon'ble Supreme Court in the aforenoted case of Bharat Earth Movers (supra) has held that the liability incurred by the assessee under the Leave Encashment Scheme determined on actuarial valuation is an ascertained liability and cannot be considered as a contingent liability. However, it is significant to note that the legislature has stepped in by inserting clause (f) to Section 43B mandating that any sum payable by the assessee as an employer in lieu of any leave at the credit of his employee cannot be allowed as deduction unless this amount is paid by the assessee on or before the due date for furnishing the return of income u/s 139(1) of the Act. In view of this legislative amendment nullifying the ratio of the decision in the case of Bharat Earth Movers (supra), the amount of such provision can be claimed as deduction only on actual payment and not on the simple creation of provision. However, when we peruse the mandate of Explanation 1 to section 115JB, it becomes clear that clause (c) talks of making addition to book profit for 'the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or'. I....
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....Whether, on the facts and in circumstances of the case and in law, the Hon'ble ITAT was right in law in deleting disallowance of Rs. 27,05,83,117/- made by the AO in computing book profit u/s 115 JB on a/c of provisions provision made for gratuity, leave encashment, post retirement medical benefits, LTC, Baggage allowance and Matching Contribution on Leave Encashment even when the assessee has failed to establish these provisions to be of ascertained in nature." 32. The Hon'ble High Court held as under: "3. It is agreed that question Nos.1, 2, 5, 6 and 7 are liable to be answered in favour of the respondent-assessee in view of our order and judgment dated 28.02.2018 in the assessee's case in ITA No.136 of 2015." 33. Respectfully following the same, we dismiss the ground of appeal of the revenue. 34. Ground No. 8 of the appeal is that the Commissioner of Income Tax (Appeals) erred in deleting the addition of Rs. 2,50,00,425/- made by the Assessing Officer while computing book profit for MAT u/s 115JB of the Act. 35. The brief facts of the case are that the Assessing Officer observed that the assessee has claimed an amount of Rs. 4,85,86,995/- as per schedule 5 of ....
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....and has been made as per accounting standard 10 of ICAI and amortization of land unclassified as per Accounting Standard 6 of ICAI and in view of CAG, which has been done to meet the requirement of companies Act and amortization of land is permitted u/s 115JB. The identical issue was also involved in the case of appellant for A.Y.2008-09 and as per the detailed discussion vide para 6.2 of my order dated 02.01.2012 in appeal No.276/2010-11, this issue has been decided in favour of the appellant. Since the issue is already covered by the decision for earlier year, the addition of Rs. 1,80,79,857 /- made by the AO for the purpose of computing book profit u/s 115JB of the Act is directed to be deleted. The ground No.3 of appeal is allowed." 12. At the outset itself, the ld. AR for the assessee submitted that this issue is covered in favour of the assessee in assessee's own case in ITA No.2449/Del/2008 for Assessment Year 2004-05 order dated 30.09.2014 of the Tribunal and took our attention to page 6, para 7 of the order. He also submitted that the ITAT, relying on the aforesaid order dated 30.09.2014 (supra), has decided this issue in favour of the assessee in assessee's own case in....
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....tion. Assessee has already filed project-wise Auditors certificates duly certifying eligible deduction u/s 80-IA of Income Tax Act. Interest on Employees Advances, The amount recovered towards interest on loans granted to employees as per employment conditions and have been paid out of borrowed funds. Late Payment Surcharge: This is basically in the nature of late payment made by State Electricity Boards and pertains to sale of electricity. Profit on Sale of Assets: The amount has been reduced while calculating claim of 80-IA. Liabilities/ provisions not required written back: This is basically in the nature of liabilities / provisions which are no longer required and have been written hack i.e. reversal of expenditure booked in earlier years. Others Income: Includes rent/hire charges, other income, township recovery, lease recovery, electricity recovery, telephone recovery, staff car recovery, cable charges, guest house recovery etc and all these incomes are in relation to generating activity of the power station. Foreign Currency Fluctuation Account: Based on actual payment of foreign currency, amounts become recoverable from beneficiaries (customers) and ....
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....o business activities of the project. In this regard, its pertinent to point out that the appellant has shown substantial income from Rent and it's evident that earning of Rent is not the Business activity of the appellant. Similarly the same logic holds true for the other means of income shown by the appellant. Thus I hold that the AO has rightly denied the rebate u/s 80IA under these heads. Therefore, addition of Rs. 4,46,54,883/- is upheld and Ground No. 6,of the appellant is Dismissed." 44. Before us, it was submitted by the Authorized Representative of the assessee that in the case of CIT Vs Cochin Refineries ltd. (1983) 43 CTR 103, it was held that hire charges and miscellaneous income earned in the course of business are eligible for deduction u/s 80IA of the Act. Therefore, the disallowance made should be deleted. 45. On the other hand, the ld. Departmental Representative supported the orders of the authorities below. 46. We find that the Assessing Officer made the impugned disallowance Rs. 4,46,54,883/- holding that assessee is eligible for deduction u/s 80-IA only on profit earned from generation & distribution of power and not from other income. The details of ....
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.... Sanchar Nigam Limited reported in 388 ITR 371 explaining the meaning derived from while computing the deduction u/s 80-IA of the Act, has held as under: "8. The question arose in the context of the Assessee being asked to explain why certain specific items categorized as 'other income' and 'extraordinary item' in the Profit and Loss Account in assessment year 2004-05 should not be excluded from the profit and gains of the Assessee. According to the Revenue, these items could not be considered as profits and gains 'derived from' the eligible business for the purpose of deduction under Section 80 I A. The said six items were: (i) Extra Ordinary Items (ii) Refund from Universal Service Fund (iii) Interest from others (iv) Liquidated Damages (v) Excess provision written back (vi) Others including sale of directories, publications, form, waster paper, etc. 9. The AO held that the six items of income could not be said to be derived from the business of the Assessee and added the income therefrom to the returned income of the Assessee. In the appeal by the Assessee, the Commissioner of Income Tax (Appeals) ["CIT (A)"] agreed with the AO tha....
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....equirements that the profits so contemplated were to be "derived from". The requirements of the first degree nexus of the profits from the eligible business has not been brought into play." 11. As a result, the orders of both the AO and the CIT (A) to the extent they deny the Assessee, which in this case is in the business of providing telecommunication services, deduction in respect of the above items in terms of Section 80IA(2A) are unsustainable in law and have rightly been reversed by the IT AT." 49. Further, the Hon'ble Gujarat High Court in the case of Nirma Industries Ltd. Vs DCIT (2006) 283 ITR 402 has held as under: "27. Insofar as question No. 2 is concerned, according to the Tribunal s. 80-I of the Act uses the phrase 'derived from' and hence the interest received by the assessee from its trade debtors cannot be taken into consideration for the purpose of computing profits derived from an industrial undertaking. The Tribunal has failed to appreciate that it is not the case of the AO that the interest income is not assessable under the head 'Profits and gains of business'. It is only while computing relief under s. 80-I of the Act that the Revenue changes ....
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...."The assessee is a contractor. His business is to enter into contracts. In the course of the execution of these contracts, he has also to face disputes with the State Government and he has also to reckon with delays in payment of amounts that are due to him. If the amounts are not paid at the proper time and interest is awarded or paid for such delay, such interest is only an accretion to the assessee's receipts from the contracts. It is obviously attributable and incidental to the business carried on by him. It would not be correct, as the Tribunal has held, to say that this interest is totally de hors the contract business carried on by the assessee. It is well settled that interest can be assessed under the head 'Income from other sources' only if it cannot be brought within one or the other of the specific heads of charge. We find it difficult to comprehend how the interest receipts by the assessee can be treated as receipts which flow to him de hors the business which is carried on by him. In our view, the interest payable to him certainly partakes of the same character as the receipts for the payment of which he was otherwise entitled under the contract and which payment ....
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....inent to note that Section 115JB of the Act, tax paid on non-monetary perquisite was not covered under explanation (1) of sub-section (2)(a) of Section 115JB of the Act. Therefore, it does not affect the book profit and will not be added to calculate tax liability under MAT. Reliance was placed on the decision of Mumbai Bench of the Tribunal in the case of Rashtriya Chemicals & Fertilizers Ltd. Vs CIT (2018) 91 taxmann.com 104. Therefore, it was prayed that following the above decision, the addition made should be deleted. 55. The ld. Departmental Representative relied on the orders of the lower authorities. 56. We have heard the rival submissions and perused the orders of lower authorities and materials available on record. In the instant case, the assessee claimed deduction of income tax paid on income computed u/s 17(2) of the Act on accommodation provided to the employees of the company as the same was borne by the assessee. The Assessing Officer relying on Explanation (1) of Sub-section (2)(a) of Section 115JB of the Act held that income tax paid or payable or provision thereof is to be added to calculate the adjusted book profit u/s 115JB of the Act. 57. On appeal, the ....
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....e quoted decision of the Mumbai Bench of the Tribunal delete the addition of Rs. 95,02,478/- and allow this ground of appeal of the assessee. 62. Ground No. 4 of the appeal of the assessee is directed against the order of Commissioner of Income Tax (Appeals) in confirming the addition of Rs. 69,11,134/- made by the Assessing Officer on account of wealth tax liability while computing the book profit u/s 115JB of the Act. 63. The Assessing Officer observed that the assessee has claimed deduction of Rs. 69,11,134/- on account of wealth tax liability while computing the book profit u/s 115JB of the Act. The Assessing Officer observed that deduction of wealth tax in computing book profit u/s 115JB of the Act is not acceptable and justified. Explanation 1 of Sub-section (2)(a) of Section 115JB of the Act provides that the net profit will be increased by income tax paid or payable and the provisions therefore and it also exclude wealth tax for addition which means it also exclude for deduction of wealth tax. Therefore, he added Rs. 69,11,134/- on account of wealth tax deducted while arriving at the book profit u/s 115JB of the Act. 64. On appeal, the Commissioner of Income Tax (Appe....