TaxTMI 
TaxTMI 
2020 (1) TMI 490
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.... and are being disposed of by this consolidated 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 Cour....
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....Book Profits under section 115JB of the Act. (This covers ground No. 4 raised by the assessee in 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 Compan....
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.... No.1318/Del/12 for A.Y.08-09, Ground No.2 raised by the Revenue in ITA No.1302/Del/12, for A.Y.08-09, Ground No. 1 raised by the assessee in ITA No.1821/Kol/16, for A.Y.11-12, and Ground No.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 b....
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....The Commissioner (Appeals) found that the assessee had enough interest-free funds at its disposal for investment and accordingly deleted the addition of Rs. 4.40 cores made by the Assessing Officer and directed 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.) ....
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....nt of the exempt income following the principles decided on the aforesaid matters by various Hon`ble High Courts. Therefore, we restrict the disallowance to Rs. 23,35,776/-, being amount of exempt dividend income earned during the year and hence we direct the AO for both the assessment years, 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 ca....
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....t, 1949. Further, Sec. 45Q of the RBI Act provides that, provision of Ch. IIIB has an overriding effect on any other statutory enactment. 15. Ld DR for the Revenue has primarily reiterated the stand taken by the assessing officer which we have already noted in our earlier para and the same is not being repeated 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 Ho....
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.... 19. When this issue was called out for hearing, the ld. Counsel for the assessee invited our attention to the order dated 02.07.2010, passed by the Special Bench of ITAT, Hyderabad in the case of Rain Commodities Ltd 41 DTR 449 (Hyb- SB), whereby the issue has been discussed and adjudicated in favour of the Revenue. The ld. DR also submitted that the present issue is squarely covered in favour of Revenue by the 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 "....
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....y the decision of Special Bench in case of Rain Commodities (supra) and there is no change in facts and law and the ld Counsel is unable to produce any material to controvert the above said findings of the special Bench. Therefore, respectfully following the decision of Special Bench (supra) we dismiss the ground of appeal raised by the assessee. 22. Concise and summarized ground No.5 is reproduced below for ready reference: (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)]. 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 tha....
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....n in NPA takes place in two ways, namely by recoveries and by write off. However, by making a provision for NPA, there will be no reduction in NPA." On the basis of the aforesaid findings of the Apex Court, the Ld. AR argued that by creating provision for non-performing asset there was no reduction in value of asset and hence clause (i) to Explanation 1 to Sec. 115JB(2) is not applicable as held by the Hon'ble Apex Court. Further the AR also relied on the decision of Jurisdictional 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 ....
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....ose "Reserves" which have been referred to in Clause (b) of Explanation (1) to Section 1I5JB(2). It may also be appreciated that the "Reserve for Unexpired Risk" can, in any case, not be considered as any provision made for meeting liabilities, other than ascertained liabilities as referred to in Clause(c) of Explanation (1) to Section 115JB(2). On the basis of the above facts it may kindly be appreciated that there has not been any requirement to add back any sum in relation to the "Reserve for Unexpired 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)....
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....ome-tax Act."Id DR vehemently relied on the order of the Id AO. In response to this, the Id AR vehemently relied on the order of the Id CITA. 11.4. We have heard the rival submissions. We find that the Id CITA had dealt this issue very elaborately and had given proper finding that the reserve created for unexpired risk need not be added back for the purpose of computation of book profits u/s 115JB of the Act. The revenue was not able to controvert the findings of the Id CITA before us. Hence we find no infirmity 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 ....
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....o Rs. 22,36,508/- to the profit and loss account. Ld. AR of the assessee submitted that education cess is not tax and hence not disallowable u/s 40(a)(ii) of the Act. He invited our attention towards the CBDT Circular No. 91/58/66 - ITJ(19) dated 18-05-1967, wherein it has been clarified that the effect of omission of the word 'cess' from Sec. 40(a)(ii) of the Act is that only taxes paid are to be disallowed and not cess. Relevant extract of circular is as under:- "Recently a case has come to the notice of the Board where the ITO has disallowed the 'cess' 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 ef....
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....cepted in above terms. (ii).Peerless General Finance & Investment Co. Ltd. -vs. - DCIT (ITA No. 937/Kol/2018) - "37. Additional ground raised by the assessee in ITA No.937/Kol/2018 for A.Y.201011 reads as under:"That on the facts and in the circumstances of the case, the authorities below erred in not allowing deduction U/s 37(1) of the Income Tax Act,1961, on account of Education Cesses paid by the assessee while arriving at the assessed income for the year under appeal. " 38. After giving our thoughtful consideration to the submission of the parties and perusing the judicial decisions relied upon by the Ld. AR, 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....
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....e 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 Court Question No. (vi)]. 32. We have heard both the parties and perused the material available on record. We note that in earlier order of the Tribunal dated 27-02-2019, the Tribunal did not admit the additional ground contending it to be against the facts on record. The Tribunal held that as there was no qualification or comment by the statutory auditors, the plea of the assessee that the accounts of the assessee is not prepared as per Part II of Schedule 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 ....
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....during the year under consideration of Rs. 22,00,00,0000/- be excluded in computing total income under the normal provisions of the Act. (Additional ground raised by assessee in ITA No.1318/Del/2012, for A.Y.2008- 09, Ground No.5 raised by the assessee in ITA No.1821/Kol/16 for A.Y.2011-12 ). [ Hon`ble High Court Question No. ( (iv)]. 37. We note that Ld AR for the assessee at the outset itself has fairly agreed that this issue has been adjudicated against the assessee, in the assessee's own case, by the Hon'ble Delhi High Court in ITA No.371/2012 & 372/2012. This is more specifically dealt in Para 12.3 of this order. A transfer to a specific reserve cannot be charge on profit. It is not expenditure. It is appropriation 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....
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....Reserves and Surplus stood at Rs. 36,794 lakhs and the closing balance was Rs. 52,399 lakhs. Further, the assessee earned profit after tax of Rs. 10,796 lakhs during the AY under consideration. Hence, it is amply clear that these internal accruals of the assessee far exceeded the amount of interest free loan of Rs. 481 lakhs advanced to subsidiaries. Accordingly, it is submitted that the interest free advances were not made out of interest bearing borrowed funds. However, the AO rejected the contention of the assessee and noted that since the assessee company has paid substantial interest on borrowed funds, therefore deduction of interest on borrowed funds can be allowed only if such funds are used only for the purpose of business. If the payment is not 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 ....
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....subsidiaries is a allowable deduction in terms of the decision of Hon'ble Apex Court in the case of S.A Builders Ltd. -vs.- CIT(Appeals) & Another (2006) 288 ITR 1 (SC). The said stand has been further affirmed by the Jurisdictional High court in the case of Dalmia Cement (Supra.) & Bharti Televenture Ltd (Supra.) relying on the decision of the Apex Court. Further, from perusal of the Balance Sheet and the Audited accounts of the company, it leaves beyond doubt, the fact that the assessee had sufficient own funds for advancing such funds to its subsidiary company. Thus, based on the above factual as well as judicial pronouncements, the AO is directed to delete the disallowance made. This ground is thus allowed." We have heard ld DR for the Revenue and also gone through the findings of ld CIT(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 ....
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....e on returned income. 47. Concise and summarized ground No.13 is reproduced below for ready reference: (13). Ld CIT(A) erred in admitting debentures redemption reserve as allowable expenses u/s115JB of the Act. (Ground No.3 raised by Revenue in ITA No. 2003/Kol/16, for A.Y.2011-12) 48. We have heard both the parties. We note that the ground 13 noted above is with regard to addition of amount transferred to Debenture Redemption Reserve (DRR) in computing Book Profit u/s 115JB of the Act. The assessee had not added amount transferred to DRR of Rs. 22,28,00,000/- as DRR is neither reserve nor unascertained provision to attract addition under clause (b) or clause (i) of Explanation 1 to sec. 115JB (2) of the Act. Without considering the above, Assessing Officer added DRR in computing books profits. On appeal, ld. CIT(A) deleted the disallowance on the basis of principles laid in the decision of Apex Court in National Ravon Corporation Ltd. vs. CIT (1997) 227 ITR 764 (SC). Aggrieved the revenue is in appeal before us. The ld. D.R did not produce any decision against the assessee. Whereas the assessee filed computation of DRR with the paper book showing that it is an as....