TaxTMI 
TaxTMI 
2020 (1) TMI 203
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.... We find at the outset that the Revenue's former appeal ITA No.147/KOl/2018 suffers from 12 days' delay in filing stated to be attributable to various formalities at the departmental itself. The assessee is fair enough in not disputing all these solemn averments. We therefore condone the impugned delay of 12 days in filing of the Revenue's appeal. Its former appeal ITA No.147/Kol/2018 is taken up for adjudication on merits. 4. The Revenue's identical first substantive grievance in both of its appeals challenges correctness of the CIT(A)'s action deleting arm's length price adjustment relating to corporate guarantee involving overseas associated enterprise of Rs. 3,52,20,173/- and 6,55,73,898/- @3.75% of the amount of guarantee itself; respectively. Suffice to say, it transpires at the outset that the CIT(A) has followed various judicial precedents i.e Tega Industries Ltd. vs. DCIT (ITA 1912/Kol/2012 dated 21.09.16) & Bharti Airtel Ltd. vs. Addl. CIT (2014 64 SOT 50 (URO) that a corporate guarantee does not amount to an international transaction u/s 92B of the Act. Learned coordinate bench(s) have also taken into consideration section 92B Explanation by the Finance Act 2012 ....
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....t was the plea of the Assessee that till such time the receipt in question cannot be regarded as income even though the assessee follows mercantile system of accounting. The assessee placed reliance on the decision of the Hon'ble Calcutta High Court in the case of CIT vs Simplex Concrete Piles (India)P.Ltd. 179 ITR 8 (Cal) and several other high courts in support of its claim that the sum in question cannot be regarded as income under the normal provisions of the Act. 30. With regard to the claim of the assessee that the said sum cannot also be regarded as part of the book profits u/s 115JB of the Act. The assessee relied on the following decisions :- (i) Bangalore ITAT in the case of Syndicate Bank -vs.- ACIT (2006) 7 SOT 51 (Bang) where it has been held that the entry by way of crediting the profit and loss account in respect of zero coupon bond is of notional credit and not in respect of interest accruing during the year. Hence, even though the same has been credited to profit and loss account, it needs to be excluded while computing the book profit as per Section 115JA. If notional income has been credited to P&L account and the said income has not accrued....
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....ed to be raised. 32. As far as the question whether retention money can be regarded as income under the normal provisions of the Act is concerned, the CIT(A) was of the view that even in the mercantile system of accounting, income cannot be said to have resulted even though the entry might have been made in the books of accounts. In this regard the ITA No.100/Kol/2011& C.O.No.13/Kol/2011 532&217,533&218/Kol/2012 M/s. Mcnally Bharat Engg.Co.Ltd A.Yr.2006-07 CIT(A) placed reliance on the decision of the Hon'ble Supreme Court in the case of Shoorji Vallabhdas and Co. 46 ITR 144 (SC). 33. With regard to including the retention money in computing the book profits the CIT(A) held as follows :- "11.9 Whether the above amount needs to be excluded in computing Book Profit u/s 115JB or not, the above issue is only academic as once it is upheld that the income has not accrued to the assessee, the same cannot be brought to tax under the special provisions of Section 115JB of the Act. In a plethora of decisions it has been held that MAT cannot be levied on notional income which has not accrued to the assessee. It can be levied only on real book profits which have ....
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.... of the customer. With regard to the excluding the aforesaid receipts from the book profits u/s 115JB of the Act it was submitted by him that the provision of explanation to section 115JB of the Act clearly lays down what are the sums to be excluded and included to the profit as per profit and loss account prepared in accordance with the provisions of the Companies Act, 1956 and the retention money is one of the sums that had to be excluded from the book profits as laid down in Explanatin-1 to section 115JB(2) of the Act. 37. The ld. Counsel for the assessee while reiterating the plea of the assessee as put forth before CIT(A) further placed reliance on the decisions of the Hon'ble ITAT, Kolkata Bench in the case of DCIT vs Binani Industries Ltd. In ITA NO.144/Kol/2012 for A.Y.2009-10 order dated 02.03.2016 wherein the entire case laws on the issue has been discussed. The Tribunal finally concluded in the aforesaid decision that if the receipt is not in the nature of income then it cannot be considered as income for the purpose of book profit u/s 115JB of the Act. On the other hand if a receipt is considered as income but is exempt by virtue of any specific provi....
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....r computing total income under the normal provisions of the Act and accordingly the same is dismissed. 39. As far as the excluding the retention money from computation of book profit u/s 115JB of the Act is concerned, the provisions of Sec.115JB of the Act have to be looked at. Section 115JB of the Act as applicable for AY 2006-07 provides that notwithstanding anything contained in any other provision of the Act, where in the case of an Assessee, being a company, the income-tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April,2001, is less than seven and one half percent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of seven and one half ten per cent. The Assessee being a company the provisions of Sec.115JB of the Act were applicable. It is also not in dispute that the income tax payable on the total income as computed under the Act in respect of the previous year relevant to AY 2006-07 was less than Seven and one....
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....ld acquire the right to receive such retention money. Therefore, on the date when the bills were submitted, having regard to the nature of the contract, no enforceable liability accrued or arose and, accordingly, it could not be said that the assessee had any right to receive the entire amount on the completion of the work or on the submission of bills. The assessee had no right to claim any part of the retention money till the verification of satisfactory execution of the contract. Therefore, the Tribunal was right in holding that the retention money in respect of the jobs completed by the assessee during the relevant previous year should not be taken into account in computing the profits of the assessee for the assessment year in question. In view of the aforesaid decision of the Hon'ble High Court rendered on identical facts as that of the Assessee's case, there can be no doubt that retention money does not have any character of income. 41. When a receipt is not in the character of income, can it form part of the book profits for the purpose of Sec.115JB of the Act, is the question that arises for consideration. The ITAT Kolkata Bench in the case of Binani Indus....
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....r additions/deletions contemplated in Explanation to section 115JB of the Act. 42. The Tribunal in the aforesaid decision made a reference to the decision of the Special Bench of the ITAT in the case of Rain Commodities (supra) which in turn was based on the ratio laid down in the decision of the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. (supra) as a case in which the income in question was taxable but was exempt under a specific provision of the Act and but for the exemption, the income would be chargeable to tax and such items of income should also be included as part of the book profits. But where a receipt is not in the nature of income at all it cannot be included in book profits though it is credited in the profit and loss account. The Bench followed the decision of the Lucknow Bench in the case of L.H.Sugar Factory Ltd.(supra), where receipts on account of carbon credits which were capital receipts not chargeable to tax and hence not in the nature of income were held not included in the book profits. The Bench also referred to the decision of the Mumbai Bench of the ITAT in the case of Shivalik Venture Pvt. Ltd. (supra) which was a case where the qu....
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....he satisfaction of the customer by the Assessee. Therefore the retention money cannot be regarded as income even for the purpose of book profits u/s.115JB of the Act though credited in the profit and loss account and have to be excluded for arriving at the book profits u/s.115JB of the Act. We hold accordingly and confirm the order of the CIT(A) in this regard. In light of the aforesaid discussion, we are of the view that there is no merit in the other part of ground no.5 with regard to excluding retention money from the book profits for the purpose of Sec.115JB of the Act, and consequently the same is dismissed." 6. We adopt judicial consistency in absence of any distinction in facts and law to affirm the CIT(A)'s order under challenge in both the assessment years. The Revenue's second substantive ground in its former appeal ITA No.147/Kol/2018 fails accordingly. 7. We now deal with Revenue's third substantive ground in latter appeal seeking to revive section 14A r.w.r. 8D disallowance of Rs. 3,13,29,549/- in relation to the exempt income in nature of dividends amounting to Rs. 1,27,08,716/. The Revenue's former case is that the impugned disallowance also des....
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.... not form part of total income 1,45,83,65,000 =(1,45,83,65,000+1,45,83,65,000)/2 C = average of total assets =(19,58,84,06,000+15,87,72,44,000)/2 17,73,28,25,000 Iii Amount equal to one-half per cent of the average value of investment, income from which does not or shall not form part of the total income 72,91,525 Iv Total amount to be disallowed 3,13,70,768 Less: Amount already disallowed 41,219 Total 3,13,29,549 Therefore , the above mentioned figure amounting to Rs. 3,13,79,249/- added back to the income of the assessee " 26. During the course of the appeal/ the appellant/Ld, ARs for the appellant company furnished submissions, reproduced as under: (a) Dividend income of Rs. 1,27,08,716/- has been earned from investments in subsidiary and group companies, details of which are as follows:- Investment in Acquired in A.Y. As on 31.03.2011 Mcnally Sayaji Engineering Co. Ltd. 2009-10 & 201011 14,557 Eveready Industries India Ltd. 2003-04 2 McLeod Russel India Ltd. 2005-06 2 (b) The appellant has been receiving dividend income from the a....
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....e company as on 31.03.2011 is Rs. 266.31 Crs which are much higher than the investment held on 31.03.2011 which is 156.18 Crs. If appellant has sufficient owned funds, investments would not be considered to be made out of borrowed funds, Refer: - CIT vs - Reliance Utilities & Power Ltd. (2009) ITR 340 (Bom) - The Laxmi Salt Co. Ltd. - vs - ITO in ITA No. 2434/Kol/2013 dtd. 23.09.2016 - Raniquani Co-operative Bank Ltd. - vs - DCIT in IT Appeal No.s 1983 & 1984/Kol/2014 dtd. 02.09.2016. - Damodar Valley Corporation - vs - ACIT (2016) 180 TTJ 82 (Kol-Trib) - CIT - vs - UTI Bank Ltd. in Tax Appeal No. 118 of 2013 dtd. 22.03.2013 (Guj-HC) (g) Disallowance as per Rule 8D(2)(iii) As per Rule 8D(2)(iii) an artificial figure, i.e. one-half per cent of the average investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee on the first day and the last day of the previous year is to be added. (i)While computing disallowance u/s 14A as per Rule 8D, investment made for strategic purpose needs to be excluded Strategic investment made for acquiring controlling rights and not for ....
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.... settled law that circulars issued by CBDT are binding on department and not on assessee. (i) Disallowance u/s 14A in computing Book Profit u/s 115JB 27. DECISION: 1. The findings of the Ld. AO, the written submission and case laws /judicial precedents cited by the Ld. ARs have been duly considered. The appellant has produced details of acquisition of investments from which dividends has been earned during the year under consideration. On careful perusal of the same it is evident that investment made in shares in the earlier years (FY 2002-03,2004-05 & 2008-09 & 200910), continued in the year under consideration. It is also evident that the majority of investments have been acquired by the appellant by way of corporate restructuring exercises undertaken in various years" Hence in my considered view of the situation, the question of utilisation of debt funds does not arise. The appellant was also having sufficient own funds in the concerned years to make the investments, 2. The Ld. A.O. has placed reliance on the decision of CIT -vs.- RKBK Fiscal Services Ltd reported in 358 ITR 288 Cal wherein it is stated that onus is on the assessee to give one-to-one correlatio....
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.... the Rules on presuming the average value of investment at ½% of the total value. Accordingly, disallowance as made by Ld. A.O. was deleted. 5. The A.O. while determining the profit under the provisions of MAT has also added the same amount of disallowance made u/s, 14A r.w.s 8D. The decision in the case of Integrated Coal Mining Ltd vs. DCIT in I.T.A No. 1146/Kol/2012 dated 30-11-2015 as cited by the appellant supports the appellant's contention that disallowance u/s 14A r.w.r 8D cannot be imported to Sec. 115JB as the same only mandates adding back of actual expenditure incurred for earning exempt income which the appellant has already done by disallowing Rs,41,219/- while computing its Book profits under MAT. in the said case, it was held that the disallowance made u/s 14A of the Act read with Rule 8D is only an artificial disallowance and obviously the same is not debited in the profit & loss account and the same cannot be imported into clause (f) of Explanation,(to Section 115JB of the Act. 6. In view of the aforesaid, the A.O. is directed to delete the disallowance u/s r.w.r 8D both under normal provisions and under Sec. 115JB and restrict the same to the amo....
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....venue's further contention that the impugned section 14A r.w. Rule 8D disallowance deserves to be added for book profit adjustment is declined in view of ACIT v. Vireet Investments Pvt. Ltd. (2017) 82 taxmann.com 415 (Del)(Trib)(SB). We therefore partly accept the Revenue's instant last issue and restore it back to the Assessing Officer for a fresh computation in above terms. The Revenue's latter appeal ITA No.109/Kol/2018 is allowed for statistical purposes in above terms. 10. Now comes the assessee's C.O Nos.35 & 36/Kol/2018 assessment years wise respectively. Its identical substantive grounds on both cross-objections are of provision(s) for leave encashment disallowance of Rs. 1,99,25,293/- & Rs. 3,02,25,926/-; respectively u/s 43B(f) of the Act. Both the learned lower authorities have treated the same as a contingent liability being a mere provision only. It transpires during the course of hearing the hon'ble jurisdictional high court's decision in the case of Exide Industries Ltd. vs. UOI [2007] 292 ITR 470 (Cal) had quashed the very statutory provision itself as ultra vires. Hon'ble apex court stated thereof in SLP Civil No.22889/2008 stated to be pending till d....