TaxTMI 
TaxTMI 
2020 (1) TMI 490
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....ed order. For the sake of convenience, the grounds as well as the facts narrated in ITA No.1318/Del/2012, for assessment Year 2008-09, have been taken into consideration for deciding the above appeals en masse. 3. The Coordinate Bench of this Tribunal passed the order dated 27.02.2019, in assessee`s own case vide ITA No.1302/Del/2012 and ITA No.1318/Del/2012, for A.Y.2008-09. Aggrieved by the order of the Coordinate Bench, the assessee carried the matter in appeal before the Hon'ble High Court of Calcutta. The Hon'ble High Court of Calcutta remanded the matter back to this Tribunal, vide order No. ITAT 121 of 2019, dated 08.08.2019, directing the Tribunal as follows: " We are of the view that interest of justice would be subserved if the matter is remanded back to the Tribunal to reconsider the above issues afresh upon hearing the parties and by passing a reasoned order within six Months of communication of this order. Only that part of the order of the Tribunal dated 27th February 2019 dealing with the above questions is set aside." In this order we address the questions raised by the assessee before the Hon'ble High Court of Calcutta for A.Y.2008-09. We also adjudicate the cr....
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....n ITA No.1318/Del/12 for A.Y.08-09) [ Hon`ble High Court Question No. (vii)]. (5). Ld.CIT(A) erred in confirming the addition of provision for non-performing assets (NPA) of Rs. 13,71,00,000/- in computing the book profit under section 115JB of the Act, in terms of Explanation 1(i) to section 115JB(2) of the Income Tax Act 1961. (This covers ground No. 5 raised by the assessee in ITA No.1318/Del/12 for A.Y.08-09, Ground No. 4 raised by the assessee in ITA No.1821/Kol/16, for A.Y.11-12). [ Hon`ble High Court Question No. (viii)]. (6). Ld CIT(A) erred in not treating Education Cess as an allowable expenditure under section 37(1) of the Act. (Additional ground raised by assessee in ITA No.1318/Del/2012, for A.Y.2008-09, and Ground No.3 raised by the assessee in ITA No.1821/Kol/16 for A.Y.2011-12). [ Hon`ble High Court Question No. (v)]. (7). Assessee company prepares books of accounts as per RBI Rules. Section 115JB of the Act is not applicable to the assessee company, as it does not prepare books of accounts as per part II and part III of Schedule VI of the Companies Act,1956. (Additional ground raised by assessee in ITA No.1318/Del/2012, for A.Y.2008-09). [ Hon`ble High Cour....
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.....1 raised by the Revenue in ITA No.2003/Kol/16, for A.Y.11-12).[ Hon`ble High Court Question No. (i) and (ii)]." 7. Facts of the issue which can be stated quite shortly are as follows: In the assessment order u/s 143(3) of the Act, the AO computed the disallowance u/s14A r.w. rule 8D at Rs. 26.53 Crores. On appeal by the assessee before the first Appellate Authority, Ld. CIT(Appeals) recomputed the disallowance under rule 8D at Rs. 42.61 lacs and restricted the disallowance to Rs. 23,35,776/-, being amount of exempt dividend income earned during the year. 8 On further appeal by the assessee before this Tribunal, the Tribunal vide order dated 27-02-2019, confirmed the order of Ld. CIT(Appeals) on two contentions viz:(a) Rejected assessee's claim that no expenditure is incurred for earning exempt income is sufficient satisfaction [Para 10.5 at Pg 8 of the Tribunal order] and (b) the assessee has not furnished any calculation that it had interest free funds which can be presumed to have been invested in non-interest bearing investments [Para 11 at Pg 9 of the Tribunal order]. 9. Aggrieved by the order of this Tribunal dated 27.02.2019, the assessee carried the matter in appeal ....
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....ted him to allow the deduction under section 36(1)(iii). The order of the Commissioner (Appeals) was upheld by the Tribunal. On appeal to the High Court : " Held, dismissing the appeal, that if there were funds available both interest-free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest- free funds generated or available with the company, if the interest-free funds were sufficient to meet the investments. In this case this presumption was established considering the finding of fact both by the Commissioner (Appeals) and the Tribunal. The interest was deductible. " Besides, the principle that the disallowance u/s 14A read with rule 8D should be restricted to the amount of exempt income, has been laid down by number of High Courts which are as follows: i) CIT v. Corrtech Energy Pvt. Ltd. (2015) 325 ITR 97 (Guj.) ii) CIT v. Holcim India Pvt. Ltd. (2014) 111 DTR 158 (Del.) iii) CIT v. Shiva Motors Private Ltd. (2014) 111 DTR 153 (All.) 11. Taking note of the aforesaid dictum of law laid down by the Hon'ble High Courts and Tribunal, we note that in the assessee`s case under consideration, the assessment year invo....
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....that is A.Y.2008-09 and A.Y.2011-12 to restrict the disallowance to the extent of exempt dividend income earned during the year. Therefore, we dismiss the appeals filed by the Revenue as well as appeals filed by the assessee. 12. Concise and summarized ground No.2 is reproduced below for ready reference: (2). Ld. CIT(A) erred in confirming the disallowance of provision for Non- Performing Assets (NPA) of Rs. 13,71,00,000/- made in accordance with the prudential norms of the RBI, in the computation of total income under the normal provisions of the Act. (This covers ground No. 2 raised by the assessee in ITA No.1318/Del/12 for A.Y.08-09) [ Hon`ble High Court Question No. (iii)]. 13. We heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. Facts of the issue are that during the year under consideration, the company has made a provision of Rs. 1,371 lakhs towards provision for non performing assets (NPA) as per the Prudential Norms of the Reserve Bank of India....
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.... for the sake of brevity. We agree with the view taken by the Coordinate Bench in it's earlier order dated 27-02-2019. Thus, the issue is squarely covered against the assessee by the decision of Apex Court in Southern Technologies Ltd. (Supra). Respectfully, following the decision of Apex Court in Southern Technologies Ltd. (Supra), we dismiss the ground raised by the assessee. 16. Concise and summarized ground No.3 is reproduced below for ready reference: (3). Ld. CIT(A) erred in confirming the disallowance of provision for leave Encashment of Rs. 57,30,833/- in the computation of total income under the normal provisions of the Act. (This covers ground No. 3 raised by the assessee in ITA No.1318/Del/12 for A.Y.08- 09, Ground No. 2 raised by the assessee in ITA No.1821/Kol/16, for A.Y.11-12) 17. We have heard the rival submissions. We find that though the Hon'ble Calcutta High Court in the case of Exide Industries Ltd vs Union of India reported in 292 ITR 470 (Cal) had struck down the provisions of section 43B(f) of the Act as unconstitutional, the revenue had carried the matter further to the Hon'ble Supreme Court which initially in Special Leave to Appeal (Civil) CC 12060 / 2....
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.... above said order of the Tribunal, a copy of which is also placed before the Bench. 20. We see no reason to take any other view of the matter then the view so taken by the special bench of ITAT, Hyderabad in Rain Commodities Ltd. The findings of the Special Bench are given below: "The assessee credited its P&L A/c with an amount of Rs. 149.77 crores being the profit on sale of assets to its wholly owned subsidiary. As the said profits were not chargeable to tax u/s 47(iv), the assessee took the view that the same had also to be reduced from the "book profits" u/s 115JB. The Special Bench had to consider whether exempt income could be excluded from the computation of "book profits" u/s 115JB. HELD deciding against the assessee: (i) The AO can alter the "book profit" only in two circumstances (a) if the P&L A/c is not drawn up in accordance with Parts II & III of Schedule VI to the Companies Act or (b) If accounting policies & standards, method & rate of depreciation have been incorrectly adopted for preparation of the P & L A/c. Except for the said two cases, the AO has no power to alter the net profit shown in the P&L A/c. Under (a), the AO cannot disturb the Net Profit shown ....
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....ming the addition of provision for non-performing assets (NPA) of Rs. 13,71,00,000/- in computing the book profit under section 115JB of the Act, in terms of Explanation 1(i) to section 115JB(2) of the Income Tax Act 1961. (This covers ground No. 5 raised by the assessee in ITA No.1318/Del/12 for A.Y.08-09, Ground No. 4 raised by the assessee in ITA No.1821/Kol/16, for A.Y.11-12). [ Hon`ble High Court Question No. (viii)]. 23. We heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials available on record. We note that addition of Provision for NPA in computing Book Profit was confirmed by this Tribunal, vide ITAT order dated 27-02-2019 on the contention that provision for NPA is provision for diminution in value of assets and covered by retrospective insertion of Explanation 1(i) to Section 115JB of the I.T. Act. [Refer Para 15 at Pg 11-12 of Tribunal Order dated 27.02.2019]. Ld Counsel for the assessee submitted before us that the Assessee, in its return of income has not added ....
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....ctional ITAT in DCIT -vs.- National Insurance Co. Ltd. [2016] 72 taxmann.com 116 (Kolkata - Trib.). In the said case, the ITAT held that "Reserve for Unexpired Risk" created in accordance with the relevant provisions of the Insurance Act, 1938 being statutory in nature is not required to be added in MAT computation. Relevant extract of the decision is reproduced as under:- "11. Addition towards Reserve created for Unexpired risk u/s 115JB of the Act The brief facts of this issue is that while computing the Book Profit u/s. 115JB of the Act for the purpose of MAT, the Id AO considered a sum of Rs. 169,45,00,000/- being the Reserve for Unexpired Risk created as per the requirement of law, as allegedly required to be added back. The Id AO added back the aforesaid sum of Rs. 169,45,00,000/- in computing the Book profit. The assessee submitted that as per the Insurance Act, 1938, in case of an Insurance Company carrying on General Insurance business, Premium is recognised as income over the contract period or the period of risk, whichever is appropriate. Premium received in advance which represents Premium Income not relating to that particular accounting period in which the said Pre....
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....nexpired Risk" while computing "Book Profit" u/s115JB(2) for the Assessment Year 2008-09. Accordingly, the assessee submitted that the "Reserve for Unexpired Risks" not being of the nature as specified in clause (b) of Explanation 1 to section 115JB(2), the action of the Id AO in making an addition of such Reserve should be held as unjustified. Hence, the assessee submitted that the Id AO may kindly be directed to delete the addition of Rs.l69,45,00,000/-made by him in computing the Book profit u/s 115JB of the Act. 11.1 The Id CIT(A) observed that the provisions contained in Rule 6E of the Income-tax Rules, 1962 has also been considered. Section 115JB(2)- Explanation (l)(b) requires increasing "the amounts carried to any reserve, by whatever name called, other than a reserve specified u/s 33AC" if such amount is debited to the Profit & Loss Account. It is held that the Reserve for Unexpired Risk has not been debited in the Profit & Loss account at any point of time, therefore Explanation 1 to sub-section 2 of section 115JB is not applicable in the peculiar facts of the general insurance business carried out by the assessee. In the assessee's case, firstly the concerned res....
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....rmity in the order passed by the Id CITA in this regard. Accordingly, the Ground No. 4 raised by the revenue for Asst Year 2008-09 is dismissed." 24. The Ld. AR also relied on the decision of Hon'ble Delhi High Court in CIT - vs.- MGF India Ltd. (2018) Taxmann.com 405 (Del) which allowed Provision for NPA in computing book profits. Ld. Departmental Representative relied on the CIT(A)'s order and earlier order of ITAT dated 27-02-2019 which we have already discussed in our earlier paras and the same is not being repeated for the sake of brevity. We note that provision for NPA is made as per Direction 9 of RBI prudential norms and disclosed separately as liabilities in the balance sheet as per Direction 10 of the said prudential norms. The Non- Performing Assets, against which the provision is made remains intact without any reduction. Based on the above factual and legal position, we are of the view that provision for Non-performing assets cannot be said to be provision for diminution in value of assets to attract disallowance as per clause (i) of Explanation 1 to sec. 115JB(2) of the Act. In other words, by making a provision for NPA, there will be no reduction in NPA. Hence, cl....
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....; paid by the assessee on the ground that there has been no material change in the provisions of s. 10(4) of the old Act and s. 40(a)(ii) of the new Act. The view of the ITO is not correct. Clause 40(a) (ii) of the IT Bill, 1961 as introduced in the Parliament stood as under: "(ii) any sum paid on account of any cess, rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of or otherwise on the basis of any such profits or gains". When the matter came up before the Select Committee, it was decided to omit the word 'cess' from the clause. The effect of the omission of the word 'cess' is that only taxes paid are to be disallowed in the assessments for the years 1962-63 and onwards. The Board desire that the changed position may please be brought to the notice of all the ITOs so that further litigation on this account may be avoided " 27. The Ld. AR also relied on the judgment of Hon'ble Rajasthan High Court in the case of Chambal Fertilizers and Chemicals Ltd. vs. JCIT (ITA No. 52/2018) which after taking into account aforementioned CBDT circular held that Sec. 40(a)(ii) applies only to taxes and not to education cess....
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.... we find that the issue involved in the present ground of appeal is no longer res integra. The education cess being not 'income tax' is allowable as deduction under section 37 (1) of the Act. For this, we rely on the judgment of the coordinate Bench of IT AT Kolkata in the case of ITC Limited, ITA No.685/Kol/2014, order dated 27.11.2018, wherein it was held that education cess is an allowable expenditure under section 37(1) of the Act. Therefore, we direct the assessing officer to verify all the relevant facts and allow education cess as deduction under section 37(1) of the Act. " (iii) Tega Industries -vs.- ACIT (ITA no. 404/Kol/2017)- "We further to notice that assessee has raised an identical additional ground in both cases seeking to claim education cess on provision for Income-tax amount of Rs. 71,65,049/- and Rs. 77,76,699 (assessment year wise); respectively as allowable in computing total income other than MAT u/s. 115JB of the Act. Hon'ble Apex Court's land mark decision National Thermal Power Corporation Ltd (NTPC) V/s. CIT (1998) 229 ITR 383 (SC) as considered by this tribunal's Special Bench order M/s. All Cargo Global Logistics Ltd V/s. DCIT (12) 137 1TD 26 (Mum.....
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....ule VI of the Companies Act, 1956 is factually incorrect. Before us, the Ld. AR contended that the assessee had duly prepared it accounts in accordance with Companies Act along with RBI guidelines wherever applicable. Section 616 of the Companies Act permits the assessee to follow provisions of RBI Act. Accordingly, no qualification or comment of the auditors was warranted. Considering the submissions of the Ld. AR, we are of the view that this issue is purely legal and hence admitted and decided on merits of the case. 33. On merits, the Ld. AR contended that the assessee being a Non- banking finance company, governed by the provisions of RBI Act, is not preparing its profit and loss account strictly as per Part II and Part III of Schedule VI of Companies Act, 1956 and hence provisions of Sec. 115JB are not applicable to the assessee. To substantiate its claim, the assessee submitted a table of deviations between the accounts of the assessee and accounts as per companies Act and accounting standard. The same is reproduced below:- Ld. AR further relied on the decision of Hon'ble Bangalore ITAT in ITO -vs.- Atria Hydel Power Ltd. (ITA No. 534 to 536/Bang/2018) wherein it was held ....
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....opriation of profit. Respectfully following the Judgment of the Hon'ble Delhi High Court in ITA No.371/2012 & 372/2012, in assessee`s own case, we dismiss the ground raised by the assessee. 39. Concise and summarized ground No.9 is reproduced below for ready reference: (9). The ld CIT(A) erred in deleting the addition of Rs. 22,00,00,000/- made by the AO on account of the amount transferred to special reserve, ( out of statutory compulsion in accordance with section 45-IC of RBI Act) while computing book profit u/s 115JB of the Act. (Ground No.3 raised by Revenue in ITA No. 1302/Del/12 for A.Y.2008-09). [ Hon`ble High Court Question No. (ix)]. 40. We note that this Tribunal in its earlier order dated 27.02.2019 had disallowed the ground relying on the decision of Delhi High Court in assessee's own case for A.Y 2006-07 & 2007-08 (ITA No. 372/Del/2012). In the absence of any other judgment pointed out by the A.R in favour of the assessee, we agree with the view of the earlier bench and accordingly the ground is decided in favour of the revenue. Thus ground raised by the Revenue is allowed. 41. Concise and summarized ground No.10 is reproduced below for ready reference: (10).Ld....
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.... for the purpose of business it puts extra burden on the company by way of excess avoidable interest expenditure. In view of the above discussion, the proportionate interest @ 12% (average cost of borrowings for the assessee) was worked out by AO to the tune Rs. 57,72,000/- and was disallowed, being attributable to diversion of business funds for non-business purposes. 43. On appeal, the ld. CIT(A) deleted the addition made by AO observing the following: 4.2 The AR of the assessee submitted that it had sufficient internal funds in the form of Reserve & Surplus to fund the interest free loans. The assessee also submitted audited accounts as at 31st March 2008, wherein opening & closing balance of Reserves and Surplus stood at Rs. 36,794 lacs and Rs. 52,399 lacs respectively. Further, the assessee submitted that it had earned profit after tax of Rs. 10,796 lacs for the assessment year under consideration as per its Profit & loss account which were sufficient to finance interest free loan of Rs. 481 lacs to the sister concerns. Thus, it was stated that the interest free loans were made out of the internally generated funds and not from the interest bearing borrowed funds. In this c....
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....IT(A). The conclusions/findings arrived at by the CIT(A) are correct and admit no interference by us. We, approve and confirm the order of the CIT(A). 44. Concise and summarized ground No.11 is reproduced below for ready reference: (11). Ld CIT(A) erred in deleting the addition of Rs. 26,53,10,000/- made by AO on account of disallowance u/s 14A, while computing book profit u/s 115JB of the I.T. Act. (Ground No.4 raised by Revenue in ITA No. 1302/Del/12 for A.Y.2008-09, Ground No.3 raised by Revenue in ITA No.2003/Kol/16, for A.Y.2011-12 ). 45. We heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials available on record. We note that the provisions relating to adjustments by way of increase and decrease to the net profit shown by the assessee in Profit & Loss Account, are very explicit in section 115JB of the Act. The items which are to be added to the net profit have been listed out in Explanation 1 to that section. The learned AO should adhere to that list and cannot trave....