TaxTMI 
TaxTMI 
TaxTMI 
2020 (9) TMI 1010
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....erefore, liable to be quashed, 4. Without going into the merits of this contention, we find that an identical challenge was dismissed by the co-ordinate bench in the case of Religare Capital Markets Ltd in ITA No. 1881/DEL/2014 wherein it has been held that final assessment order passed u/s 143(3) r.w.s. 144C(13) of the Act would not be covered under the provisions of section 153 of the Act. Respectfully following the findings of the coordinate bench, this ground is dismissed. 5. Ground No. 2 with all its sub grounds relates to the transfer pricing adjustments on account of international transactions relating to receipt of Management and consultancy services received by the assessee amounting to Rs. 24,37,43,634/- and Rs. 1,44,69,443/- towards Recovery of costs for SAP maintenance. 6. Facts on record show that the assessee receives Strategic Planning and Consultancy Services from Vedanta Resources Plc. (VRPL.) under a Management Consultancy Agreement dated 29.03.2005. The relevant clauses of that agreement show that VRPL agreed to provide Strategic planning and consultancy services to Sesa Sterlites [now present appellant] and its subsidiaries in various areas of business such t....
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....expenses also fail the tests of benefit and genuineness. The DRP, accordingly, directed the AO that the expenses incurred on account of management and consultancy charges shall also be disallowed on protective basis under Section 37(1) of the Act. 13. Before us, the ld. counsel for the assessee vehemently stated that the evidence / proof of services provided by VRPL were submitted before the lower authorities. It is the say of the ld. counsel for the assessee that the assessee has access to wide range of services and cannot be limited to the services mentioned in the Agreement. The ld. counsel for the assessee further stated that the services rendered by VRPL should not be limited to paper work but should also be considered in the light of constant interaction through the modern communication facilities. It is the say of the ld. counsel for the assessee that in case of intra-group services received on an on-going basis, it is difficult for the taxpayer to provide evidence for support received with regard to day to-day operations. The ld. counsel for the assessee further submitted that evidences are available at critical milestones and not at every step of the process and absence o....
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....,06,500 No TP adjustment on this amount - - 2009-10 22,95,70,000 No TP adjustment on this amount - - 2010-11 23,70,80,500 No TP adjustment on this amount - - 2011-12 22,78,81,500 No TP adjustment on this amount - - 2012-13 19,17,83,200 Disallowed Assessee had not provided sufficient evidence Pending before Hon'ble ITAT Delhi 2013-14 21,78,04,800 Disallowed Assessee had not provided sufficient evidence Pending before C1T(A) 18. It can be seen from the above chart that upto A.Y 2011-12, no adjustment was made on this account and the Revenue has changed its stand from A.Y 2012-13 onwards. 19. At the very outset, we have to state that the Revenue authorities cannot judge the rendition of services by applying benefit test as laid down by the Hon'ble High Court of Delhi in the case of EKL Appliances [supra]. In our considered opinion, the only consideration in such transaction is rendition of services. All that the revenue authorities have to see is as to whether there is rendition of services by the AE to the assessee. This definitely puts the burden on the assessee to demonstrate that there was rendition of services by the AE to the assessee. At the sa....
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....ns of TPO on the ground that the assessee has neither challenged, nor submitted anything with respect to the final set of comparables selected by the TPO; and has challenged the most appropriate method and PLI. 26. Before us, the ld. counsel for the assessee vehemently stated that it is incorrect to say that the assessee never challenged the comparables selected by the TPO. It is the say of the ld. counsel for the assessee that in fact, the comparables selected by the TPO were questioned before the DRP stating that they are not appropriate. The ld. counsel for the assessee further stated that adjudication by the DRP on this objection itself shows that the assessee has challenged the comparables. The ld. counsel for the assessee further stated that not only the comparables but also the methodology adopted by the TPO for selection of comparables was also challenged. 27. The ld. counsel for the assessee continued by stating that the appellant has incurred these maintenance charges as a pass through only and did not provide any services or made any value addition which would warrant a mark-up as in the case of provision of services. The ld. counsel for the assessee further submitted ....
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....or intermediary in the provision of services, it is important in applying the cost-plus method that the return or mark-up is appropriate for the performance of an agency function rather than for the performance of the service themselves. In such a case, it may not be appropriate to- determine arm's length pricing as a mark-up on the cost of the services but rather on the cost of the agency function itself, or alternatively, depending on the type of comparable data being used, the mark-up on the cost of services should be lower than would be appropriate for the performance of the services themselves. For example, an associated enterprise may incur the costs of renting advertising space on. behalf of group members, costs that the group members would have incurred directly hod they been independent In such a case, it may well be appropriate to pass on these costs to the group recipients without a mark-up, and to apply a mark-up only to the costs incurred by the intermediary in performing its agency function." 32. Under UN TP Manual 2017, pass through costs and its arms length pricing has been discussed. The relevant extract is as under: "In some circumstances an MNE group may....
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.... Bombay at Goa against the said decision of the Tribunal. 39. Before us, the ld. counsel for the assessee drew our attention to the decision of the Tribunal for earlier A.Ys and pointed out that similar disallowances were deleted by the Tribunal. It is the say of the ld. counsel for the assessee that merely because the Revenue is in appeal before the Goa bench of Hon'ble High Court, the DRP should not have dismissed the objections of the assessee merely on the premise that appeal against a binding precedent is pending before a higher judicial forum. 40. The ld. counsel for the assessee further stated that all the investments were made in earlier A.Ys and there are no new investments. The ld. counsel for the assessee further stated that no satisfaction was recorded by the Assessing Officer, nor has he demonstrated any nexus between expenditure and exempt income. It is the say of the ld. counsel for the assessee that the shareholders funds/own funds available with the appellant far exceeds the total investments appearing in the financial statements of the assessee. On these facts itself, no disallowance should be made. 41. Per contra, the ld. DR strongly supported the findings....
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....t he has not borrowed any money for purchase / investment on which dividend is received. No interest has been debited to profit and loss account. Interest and other charges appearing in the profit and loss account relate to Bank charges in connection with collection of outstation cheques. No administration expenditure was incurred on earning dividend income as investment in mutual funds was made just to park the surplus funds. The assessee has already disallowed a sum of Rs. 25,78,156/- in the computation of income. The AO did not agree and he was of the view that the company has made substantial investment in mutual funds. Investment of such magnitude requires proper analysis of the market condition to the stock movement etc. and therefore, the assessee must have incurred substantial expenditure for earning the dividend. The assessing officer by invoking the provision of section 14A read with Rule 8D worked out the disallowance as under: i. Amount of expenditure directly relating to income which does not form part of total income - Nil ii. In a case where the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to a....
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....1. With effect from 1/4/2007 by Finance Act, 2006 sub-sec. (2) empowers the AO to determine the amount of expenditure incurred in relation to such income which does not form part of the total income in accordance with the method as may be prescribed. Such power is to be exercised if the AO having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of the expenditure mentioned in sub-sec.( 1). Before applying Rule 8D, it is apparent that the AO must be satisfied with the correctness of the claim of the assessee having regard to the accounts of the assessee. Such satisfaction is an objective satisfaction that it has to be judicious and based on the material on record. It cannot be an impression that it is much more than the gossip or hearsay, it means judgment or belief that it is a belief or a connection resulting from what one thinks on a particular question. It must be based on the reasons and ground as seems good to him and while making such satisfaction, the AO must give regard to the accounts of the assessee. He must record deficiency in the accounts with regards to the claim of the assessee. Sub-sec.(3) provides....
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..... The AO was not satisfied with the explanation of the assessee and he made disallowance u/s 14A on prorata basis. The CIT(A) following his orders for earlier years, accepted the appeal of the assessee. The Tribunal following the decision of the Special Bench in the case of ITO Vs Daga Capital Management (P) Ltd 117 ITD 169 (SB) restored the matter to the file of the AO for the consideration in the light of the provisions of sub-sec.(2) & (3) of Sec.14A of the IT Act. The assessee, being aggrieved, filed appeal as well as Writ Petition challenging the constitutional validity of sub-sec. (2) & (3) and Rule D. The Hon_ble High Court gave the following findings; 1. The provisions of sec. 14A and Rule 8D are constitutionally valid. 2. The provisions of sub-sec. (2) & (3) of Sec.14A and Rule 8D are prospective and not retrospective, in nature and therefore, would apply from assessment year 2007-08. 3. The basic object of Sec.14A is to disallow the direct and indirect expenditure incurred in relation to income which does not form part of the total income (page 21). 4. The insertion of sec.14A was curative and declaratory of the intent of the Parliament. The basic principle of tax....
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....h the correctness of the claim made by the assessee, he must record reasons for his conclusion (page-79). 7. The effect of sec.14A is to widen the theory of the apportionment of expenditure (page 49). 8. The expression ‗expenditure incurred; in Sec.14A refers to expenditure on rent, taxes, salaries, interest, etc., in respect of which allowances are provided for (page-50). 9. Sub-sections (2) & (3) of Sec.14A are intended to enforce and implement the provisions of sub-sec (1) (pages 50). 10. Even in the absence of subsection (2) of sec.14A the AO would have to apportion the expenditure and to disallow the expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. The AO would have to follow a reasonable method of apportioning the expenditure consistent with what the circumstances of the case would warrant and having regard to all relevant facts and circumstances_. The said decision of the jurisdictional High Court is binding on us. While deciding this case, the decision of the Hon_ble Supreme Court in the case of CIT Vs Wallfort Shares &Stock Brokers Ltd., 233 CTR (SC) 42 was referred to. In this decision, we not....
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..... 124 TTJ 577 (Del)(SB). 17. The basic principle of taxation is to tax the net income. On the same analogy, the exemption is also to be allowed on net basis i.e. gross receipts minus related expenses. Therefore, if any expenditure is directly related to exempted income, it cannot be allowed to be set off against taxable profit. On the same analogy, in our opinion, if any expenditure is directly related to taxable income, it cannot be allowed to be set off against the exempted income merely because some incidental benefit has arisen towards exempted income. Before making any disallowance u/s 14A, the AO is required to record a satisfaction, having regard to the accounts of the assessee, that claim of assessee that expenditure incurred is not related to the income forming part of the total income is incorrect. Such satisfaction must be arrived at on the objective basis. He is also required to record the reasons for arriving at such satisfaction. The assessing officer in this case, we noted is not satisfied with the correctness of the disallowance made by the assessee even though he has accepted the explanation of the assessee that no interest is incurred with regard to exempt incom....
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....he case of the assessee as Explanation bb to sec. 80HHC does not recognize amount of the investment made in other receipt to be the basis of computing the expenditure being incurred for the earning of that income. Similar views have been taken by Hon_ble Tribunal in the following decisions also. In the case of DCIT Vs. Jindal Photo Ltd. held in I.T.A.T. Delhi bench dated 7.1.2011 it was held as follows: "Now as per section 14A(2) of the Act, if the AO, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of expenditure incurred in relation to income which does not form part of the assessee's total income under the Act, the AO shall determine the amount incurred in relation to such income, in accordance with such method as may be prescribed, i.e., under Rule 8D of the I.T. Rules. However, in the present case, the assessment order does not evince any such satisfaction of the AO regarding the correctness of the claim of the assessee. As such, Rule 8D of the Rules was not appropriately applied by the AO as correctly held by the CIT(A). It has not been done by the AO that any expenditure had been incurred by the a....
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....es, it cannot be treated as a decision rendered by the Hon'ble High Court on the merit of the issue which is binding on this Tribunal. We are unable to accept this contention of the learned DR. It is well settled proposition of judicial precedents that is appeal the Hon'ble High Court considers facts pertaining to the issue and gives approval to the decision of the lower forum, the decision of lower forum gets merged with the judgment and order of the High Court and it becomes binding precedent even though approval to decision of lower forum/court is summarily recorded. Similar situation had arisen for consideration before the Hon'ble Gujarat High Court in the case of Nirma Industries Ltd. 283 ITR 402 wherein the effects of summary disposal of appeal by the High Court were analysed and explained by their Lordships. It was clarified that while hearing an appeal even for deciding whether substantial question of law arises or not from the order of the Tribunal, the High Court does not exercise either the original jurisdiction or the jurisdiction to issue writs and the only jurisdiction exercised by the High Court in the first instance decides whether or not substantial que....
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....) decided by the Hon'ble Bombay High Court. Accordingly, we decide the common issue involved in all these appeals in favour of the assessees following the decision of jurisdictional High Court in the case of Delite Enterprises (supra) and allow the appeals of all the assessees. 18. We have also gone through the decision relied upon by the learned DR also. The decision of ACIT Vs CITICORP Finance (Ind.) Ltd., 108 ITD 457 (Bom.) is no more relevant, in view of the decision of the Hon_ble Mumbai High Court in the case of Godrej Boyce Mfg Co. Ltd. (Supra). The decision of SPIC Vs DCIT 93 TTJ (Chennai) 161 is not applicable to the facts of the case. As in that case, the assessee was regularly investing in the shares. The assessee has not disallowed any expenditure with regard to the earning of the dividend income. Under these facts, the Hon'ble Tribunal held that whether to invest or not to invest is a very strategic decision and top management involve in taking the decisions. This decision relate to assessment year 2000-01 much prior to the insertion of provision of sec.14A(2) of the IT Act,1961. The decision of ACIT Vs Premium Consolidated Capital Trust 83 TTJ (Bom.) relates to ....
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....;ble Supreme Court has held that raw and un-cut diamonds is subjected to a process of cutting and polishing which yields the polished diamond but that is not to say that polished diamond is a new article or thing which is the result of manufacture or production. Further, referring to the decision of the Hon'ble Supreme Court in the case of Lucky Minerals Pvt Ltd 116 Taxman 1 wherein the Hon'ble Supreme Court has held that mere mining of limestone and marble and cutting the same before it was sold in the market cannot be considered a manufacturing process or production. In the light of the aforesaid rulings of the Hon'ble Supreme Court, the assessing officer was of the firm belief that the words 'manufacture' or 'production' used in section 32(iia) of the Act does not include processing of the assessee and accordingly disallowed the claim of additional depreciation. 50. Objections were raised before the DRP but the same were dismissed. 51. Before us, the learned counsel for the assessee drew our attention to the provisions of section 32(1)(iia) of the Act and pointed out that this section lays down the twin conditions, namely plant and machinery must be new and must b....
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....d at the instance of the revenue in an appeal before the Bombay High Court was answered in favour of the assessee : "Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in holding that the assessee is entitled to deduction of investment allowance under section 32A of the Income Tax Act, 1961, in respect of machinery used in mining activity ignoring the fact that the assessee is engaged in extraction and processing of iron ore, not amounting to manufacture or production of any article or thing ?" 3. The High Court, while dismissing the appeal preferred by the revenue, held that extraction and processing of iron ore did not amount to "manufacture". However, it came to the conclusion that extraction of iron ore and the various processes would involve "production" within the meaning of section 32A(2)(b)(iii) of the Income Tax Act, 1961 (hereinafter referred to as, "the Act"), entitling the assessee to investment allowance under the said provision. 3. The High Court, while dismissing the appeal preferred by the revenue, held that extraction and processing of iron ore did not amount to "manufacture". However, it came to the co....
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....ing of ores within the meaning of the word "production". 6. At the outset, it may be noted that section 32A(2)(b)(iii) makes it clear that investment allowance is deductible in respect of, inter alia, a plant owned by the assessee which is wholly used for the purposes of the assessees business under section 32A(1) if the plant is installed after 31-3-1976, in an industrial undertaking for the purposes of the business of construction or manufacture or production of any article or thing, except those articles or things mentioned in the Eleventh Schedule to the Act. There is no dispute that the plant in respect of which the assessee claimed deduction was owned by it and was installed after 31-3-1976, in the assessees industrial undertaking for excavating, mining and processing mineral ore. Mineral ore is not excluded by the Eleventh Schedule. The only question is whether such business is one of manufacture or production of ore. The issue had arisen before different High Courts over a period of time. The High Courts have held that the activity amounted to "production" and answered the issue in question in favour of the assessee. The High Court of Andhra Pradesh did so in CIT v. Sin....
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.... things that which is produced; a thing that results from any action, process or effort, a product; a product of human activity or effort". From the wide definition of the word "production", it has to follow that mining activity for the purpose of production of mineral ores would come within the arnbit of the word "production" since ore is "a thing", which is the result of human activity or effort. It has also been held by this court in CIT v. N. C. Budharaja and Co. (1993) 204 ITR 412 (SC) that the word ,production" is much wider than the word "manufacture". It was said (page 423) : 7. The reasoning given by the High Court, in the decisions noted by us earlier, is, in our opinion, unimpeachable. This court had, as early as in 1961, in Chrestian Mica Industries Ltd. v. State of Bihar (1961) 12 STC 150, defined the word "production", albeit, in connection with the Bihar Sales Tax Act, 1947. The definition was adopted from the meaning ascribed to the word in the Oxford English Dictionary as meaning "amongst other things that which is produced; a thing that results from any action, process or effort, a product; a product of human activity or effort". From the wide definition of the ....
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....b)(iii) of the Act and, consequently, the assessee is entitled to the benefit of section 32A(1) of the Act. The question whether the High Court was correct in holding that the activity did not amount to "manufacture" is left open. 9. We are, therefore, of the opinion that extraction and processing of iron ore amounts to "production" within the meaning of the word in section 32A(2)(b)(iii) of the Act and, consequently, the assessee is entitled to the benefit of section 32A(1) of the Act. The question whether the High Court was correct in holding that the activity did not amount to "manufacture" is left open. The civil appeal is, accordingly, dismissed but without any order as to costs." 56. In light of the binding decision of the Hon'ble Supreme Court we direct the Assessing Officer to allow claim of additional depreciation. This ground is, accordingly, allowed. 57. The next grievance relates to claim of balance 50% additional depreciation disallowed by the assessing officer amounting to Rs. 152.55 crores. 58. Facts show that the assessee had acquired and installed some of the new plant and machinery eligible for additional depreciation under section 32(1)(iia) of the Ac....
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....he decision of the Hon'ble Supreme Court in the case of Allied Motors Pvt Ltd 224 ITR 667 and Alom Extrusions Ltd 319 ITR 306 wherein the Hon'ble Supreme Court has held that beneficial provision/clarifications should be given prospective effect. 66. Per contra the ld. DR strongly supported the findings of the assessing officer and reiterated that there is no such provision of carryover of balance claim of additional depreciation to the next year. 67. Referring to the decision of the coordinate bench in the case of M/s Shree Jaya Jothi Cements in ITA No. 1932/Mds/2015, the ld. DR stated that in that case the Tribunal has held that claim of additional depreciation has to be given in the first year itself and there is no provision for its postponement or carry forward. The ld. DR further drew our attention to the Memorandum to Finance Act 2015 wherein it has been clarified that this benefit of carry over of balance additional depreciation to the next year was not available prior to this amendment. 68. The ld. DR further drew our attention to the decision of the Hon'ble High Court of Delhi in the case of New Skies Satellite BV 68 Taxmann.com 8 wherein basic test for amen....
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....l depreciation on plant or machinery used for less than 180 days and plant or machinery used for 180 days or more, a new proviso has been inserted to section 32(l)(ii) of the Income-tax Act so as to provide that the balance 50% of the additional depreciation allowance on new plant or machinery acquired and used for less than 180 days which has not been allowed in the year of acquisition and installation of such plant or machinery, shall be allowed in the immediately succeeding previous year. iv. Applicability: - This amendment takes effect from 1st April, 2016 and will, accordingly, apply in relation to the assessment year 2016-17 and subsequent assessment years." 71. A simple perusal of the above shows that this amendment takes effect from 1.4.2016. As this amendment is effective from 01.04.2016, therefore, it is clearly not applicable to the year under consideration. As far as the applicability of this amendment having retrospective effect, we are of the view that the Tribunal being last fact finding authority, should refrain from adjudication of retrospective or otherwise of the applicability in the amendment. In our considered view, this should be in the domain of superior ....
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....ee is also eligible for allowance u/s 32AC of the Act. 79. In so far as the disallowance made on the ground that generation of power does not amount to manufacture or production of goods, in our considered opinion, this issue is no longer res Integra and has been conclusively settled by the Hon'ble Apex Court in the case of Commissioner of Sales Tax, MP Vs Madhya Pradesh Electricity Board 2SCR939 wherein it has been held that electric energy would be covered under the definition of 'goods'. 80. The Hon'ble Jurisdictional High Court of Delhi in the case of NTPC Sail Power Company in ITA No 1290/2018 had the occasion to consider a similar issue. Relevant findings of the Hon'ble High Court read as under: "6. Section 32(1)(iia) of the Act as it stood at the relevant time, read as follows: "32. Depreciation: (1) In respect of depreciation of - (2) (iia) In the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31st day of March, 2005, by an assessee engaged in the business of manufacture or production of any article or thing, a further sum equal to twenty per cent of the actual cost of such machiner....
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....66 (12) of the Constitution was considered by this Court and it was held that the definition in terms is very wide according to which "goods" means all kinds of moveable property. The term "moveable property" when considered with reference to "goods" as defined for the purpose of sales-tax cannot be taken in a narrow sense and merely because electrical energy is not tangible or cannot be moved or touched like, for instance, a piece of wood or a book it cannot cease to be moveable property when it has all the attributes of such property. It is capable of abstraction, consumption and use which if done dishonestly is punishable under Section 39 of the Indian Electricity Act, 1910. If there can be sale and purchase of electrical energy like any other moveable object, this Court held that there was no difficulty in holding that electric energy was intended to be covered by the definition of "goods". However, A.N.Grover, J., speaking for three-Judge Bench of this Court went on to observe that electric energy "can be transmitted, transferred, delivered, stored, possessed etc. in the same way as any other moveable property". In this observation we agree with Grover. J., on all other char....
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.... Assessing Officer, the assessee and its group concerns failed to disclose various receivables in its books of accounts, which were not in the knowledge of the independent auditor as no qualification has been made by the independent auditor in the Annual Reports of the assessee and its group companies. The alleged out of books receivables can be itemised as under: Insurance claims Rs. 254 crores Refund from banks Rs. 160 crores Drawback related Rs. 22 crores Coal tapering Rs. 169 crores Tariff fixation Gridco Rs. 295 crores PAT [Perform achieve and trade scheme] Rs. 196 crores Total Rs. 1096 crores 85. The Assessing Officer, accordingly, treated the aforesaid amount as business income of the assessee. 86. Objections were raised before the DRP, but the DRP upheld the addition made by the Assessing Officer on account of alleged out of books receivables. 87. Before us, the ld. counsel for the assessee vehemently stated that the entire addition has been made on the basis of certain emails selectively without taking into account the complete email trails showing the context in which the emails were written. The ld. AR stated that senior executives of the appellant were ....
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....Relevant extracts of email D.D. Jalan 21.06.2013 " There are at times some receivable which are not accounted for in books on accrual basis and these are accounted for as and when these ae received like nil inventory, insurance claim, claims from Bank on account of higher Bank charges, interest of float money etc. and other claims. How do we keep track of these receivables? I am sure there would be some Memorandum Account. Does this gets regularly reviewed in some Forum. Can you forward a list of such receivable as on 31s' May alongwith a note on process. " Navin Agarwal 25.06.2013 " DDJ Regarding receivables of any kind which do not appear in out books. Have we received statements from all our businesses outlining such receivables and the mechanism to track and control this? Amitabh Gupta 22.6.2013 "Dear Sir, We essentially have two types of receivables that are out of books: Interest on WPP receivables: There is uncertainty as to their recoverability' from State Electricity Boards However --e have a robust process wherein interest debit notes are raised on a monthly basis and a memoranda record is kept Tnere is an internal MIS where I gel this on a monthly basis Sepa....
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....le from the GRIDCO. Similarly, the Perform Achieve Trade for energy efficiency is also verifiable from the government. 95. As mentioned elsewhere neither the Assessing Officer has done any verification nor the assessee has brought any evidence on record. The entire addition has been made only on the basis of emails without proper verification. On such half-baked facts, it is not possible for us to decide the quarrel. Therefore, we deem it fit to restore the entire quarrel to the file of the Assessing Officer. The Assessing Officer s directed to make verification of the claim from the respective bodies as mentioned here in above, and the assessee is directed to furnish necessary evidences in respect of such claims. 96. Before closing, the claim of the assessee that certain amounts pertained to other group entities, which are distinct entities, cannot be brushed aside lightly. We, accordingly, direct the Assessing Officer to consider only those receivables which pertain to the appellant company. With these directions, this ground is treated as allowed for statistical purposes. 97. Next ground relates to the disallowance of rupees 50.30 lakhs claimed as Corporate Social Responsibi....
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....h School, Sankhali 15000 4. Goa Salesian Society, ODXEL 10000 5. Everest Expedition, 2013 50000 6. Hampi Utsav, Chitradurga 50000 7. No smoking signage 40163 8. Our Lady of Immaculate Conception of Panjim Church 15000 9. Police station, Sanquelim 2000 10. Police Station, Bicholim 3000 11. Shri Bhanu Talim Sansthan, Miraj 50000 12. Teri Summit, 2014 350000 13. Spandan Foundation 50000 14. Magic Bus India Foundation 500000 15. Sahachari Foundation 2,00000 16. Shiv Ganga Project 2500000 17. Swargheeya Sanji Bhai Rupji Bhai Memorial Trust 1000000 Total 5036663 105. A plain reading of the aforementioned detail show that these expenses are either in the nature of charity or donation. In our considered view, these expenses are not in the nature of CSR. Payments made to church, police station, summits, schools, etc cannot be considered to have been spent on CSR. 106. Though the amendment to Section 37 of the act may be prospective, but at the same time, assessee had to justify the claim of expenditure being spent on CSR. Details mentioned hereinabove do not justify the claim of expenditure on account of commercial expediency. Consider....
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....rnished the agreements on sample basis covering more than 75% of the liquidated damages. It is the say of the ld. counsel for the assessee that if the Assessing Officer had insisted for furnishing all the agreements, the assessee would have furnished the same. The ld counsel further stated that neither the Assessing Officer nor the DRP have disputed that the liquidated damages are the outcome of the contracts furnished by the assessee. It is the say of the ld counsel for the assessee that since liquidated damages were on account of capital goods, the same should be treated as capital receipt. 113. On the other hand, the ld. DR strongly supported the findings of the lower authorities and pointed out that the decision of the Hon'ble Supreme Court in the case of Saurashtra Cement [supra] is clearly distinguishable on facts of the case as in that case, damages were received for delay in supply of machinery which is the capital asset. 114. We have carefully considered the orders of the authorities below. When the entire basis of making a decision is that agreements were not for supply of any machinery, but of design, transfer of technology knowhow, patent etc, which are in the na....
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.... Amount Net Profit As Profit & Loss Account 1076,08,75,131 Add:- Provision for Taxes Deferred Tax Provision Expenses in relation to exempted income Impairment of Assets (1782,09,52,034) (392,65,08,623) 1,46,21,701 66,84,27,589 (2106,44,11,367) (1030,35,36,236) Less:- Debenture Redemption Reserve -Dividends (u/s 10) 3,03,36,57,317 1289,44,37,492 1592,80,94,809 j Book Profit (2623,16,31,045) 123. During the course of scrutiny assessment proceedings, the assessee was asked to furnish detailed justification of computation u/s 115 JB of the Act, especially in respect of deductions claimed on account of deferred tax, exempt income and withdrawal from reserves. The assessee was also asked to explain as to why the provision for doubtful debts, expenditure disallowed u/s 36(1)(iii) of the Act and forex fluctuation loss should not be added back while computing book profit u/s 115JB of the Act. 124. The assessee filed detailed submissions in support of its computation u/s 115JB of the Act. 125. The written submissions of the assessee and explanation did not find any favour with the Assessing Officer. 126. The Assessi....
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....anies Act, 2013, the Assessing Officer can change the book profit declared by the assessee. It is the say of the ld. DR that the book profit should always be prepared by applying the provisions of the Companies Act and as per the Companies Act accounting standards have been prescribed to prepare the financial statement. The company has to adhere to these accounting standards to arrive upon book profit and such book profit has to be increased or reduced by making further addition or reduction to the book profit to arrive upon the book profit as defined u/s 115 JB of the Act. Therefore, there is no error in the computation of book profit by the Assessing Officer and the same deserves to be confirmed. 133. At the very outset it would be appropriate to consider the decision of the Hon'ble Supreme Court in the case of Apollo Tyres [supra]. The relevant findings read as under: "The Assessing Officer, while computing the book profits of a company under Section 115-J of the Income-tax Act, 1961, has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The....
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....ing depreciation as per Schedule 14 to the Companies Act. 135. The quarrel travelled upto the Hon'ble Supreme Court and the decision was reversed by the Hon'ble Supreme Court. This issue was reconsidered by the Hon'ble Supreme Court in the case of Dynamic Orthopaedics [supra] and the Hon'ble Supreme Court observed that "In our view, with respect to judgement of this Court in Malayalam Manorama [supra] needs reconsideration for the following reasons: "In our view, with respect, the judgement of this Court in Malayala Manorama Company Limited vs. Commissioner of Income Tax, reported in [2008] 300 I.T.R.251. needs re-consideration for the following reasons: Chapter XII-B of the Act containing "Special provisions relating to certain Companies" was introduced in the Income Tax Act, 1961, by the Finance Act, 1987, with effect from 1st April, 1988. In fact, Section 115J replaced Section 80VVA of the Act. Section 115J [as it stood at the relevant time], inter alia, provided that where the total income of a company, as computed under the Act in respect of any accounting year, was less than thirty per cent of its book profit, as defined in the Explanation, the total income of the compan....
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....5. This was the view of the Kerala High Court in the case of Commissioner of Income Tax vs. Malayala Manorama Company Limited, reported in [2002] 253 I.T.R. 378 (Kerala), which has been wrongly reversed by this Court in the case of Malayala Manorama Company Limited vs. Commissioner of Income Tax, reported in [2008] 300 I.T.R.251." 136. In our considered opinion, in fact, this decision goes in favour of the assessee, as in this case, the depreciation was charged as per I.T. Rules whereas u/s 115JB of the Act, the book profit has to be computed as per Profit and Loss Account prepared as per Companies Act. Since the accounts were not prepared as per the Companies Act, the Hon'ble Court ruled in favour of the revenue. Whereas, in the case in hand, the statement of accounts have been drawn as per Companies Act itself. Therefore, the ratio laid down by the Hon'ble Supreme Court in the case of Apollo Tyres [supra] squarely applies. 137. The relevant provisions of section 115 JB read as under: "Special provision for payment of tax by certain companies. 115JB. (1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a c....
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....tement of profit and loss; (iii) the method and rates adopted for calculating the depreciation, shall correspond to the accounting policies, accounting standards and the method and rates for calculating the depreciation which have been adopted for preparing such accounts including statement of profit and loss for such financial year or part of such financial year falling within the relevant previous year. Explanation 1.-For the purposes of this section, "book profit" means the profit as shown in the statement of profit and loss for the relevant previous year prepared under sub-section (2), as increased by- (a) the amount of income-tax paid or payable, and the provision therefore; or (b) the amounts carried to any reserves, by whatever name called, other than a reserve specified under section 33AC; or (c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or (d) the amount by way of provision for losses of subsidiary companies; or (e) the amount or amounts of dividends paid or proposed ; or (f) the amount or amounts of expenditure relatable to any income to which section 10 (other than the provisions cont....
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....e considered view that the disallowance made as per provisions of I.T. Act, would not justify in exporting the disallowance for the computation of book profit u/s 115JB of the Act. We will now address to the items considered in the computation of book profit. I. DISALLOWANCE U/S 14A of the Act ON ACCOUNT OF EXPENSES INCURRED IN RESPECT OF EXEMPT INCOME 139. We have deleted the disallowance made u/s 14A of the Act vide para No. 42. In view of our findings given hereinabove, no adjustment is required on this count II. ADDITION ON ACCOUNT OF ALLEGED OUT OF BOOK RECEIVABLES 140. This issue has been restored to the file of the Assessing Officer for fresh adjudication as per the directions given in para No. 93. Therefore, this issue needs no consideration at this stage III. ADDITION ON ACCOUNT OF PROVISION FOR BAD AND DOUBTFUL DEBTS 141. Facts show that the assessee has debited an amount of Rs. 247.01 crores in the P&L account under the head "Provision for Doubtful Trade Receivables/Advances and had also added back the same in the computation of total income under the normal provisions of the Act. However, no adjustment of this provision was made while computing book profits u....
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....preciation shall be calculated on the same method and rates which have been adopted for calculating the depreciation for the purpose of preparing the profit and loss account laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956 (1 of 1956): Provided further that where a company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956), which is different from the previous year under the Act, the method and rates for calculation of depreciation shall correspond to the method and rates which have been adopted for calculating the depreciation for such financial year or part of such financial year falling within the relevant previous year. Explanation.-For the purposes of this section, "book profit" means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub- section (2), as increased by- (a) & (b) xxx xxxxxx (c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or (d), (e) & (f) xxx xxxxxx; if any amount referred to in clauses (a) to (f) is debited to the profit ....
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....ccordance with the provisions of Parts II and III of Schedule VI to the Companies Act" in section 115J was made for the limited purpose of empowering the Assessing Officer to rely upon the authentic statement of accounts of the company. While so looking into the accounts of the company, the Assessing Officer has to accept the authenticity of the accounts with reference to the provisions of the Companies Act, which obligate the company to maintain its accounts in a manner provided by that Act and the same to be scrutinized and certified by statutory auditors and approved by the company in general meeting and thereafter to be filed before the Registrar of Companies who has a statutory obligation also to examine and be satisfied that the accounts of the company are maintained in accordance with the requirements of the Companies Act. Sub-section (1A) of Section 115J does not empower the Assessing Officer to embark upon a fresh enquiry in regard to the entries made in the books of account of the company." From the above, it is evident that the AO has to accept the authenticity of the accounts maintained in accordance with the provisions of Part II and Part III of Schedule VI to the ....
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....ve from others. In the present case "debt" under consideration is "debt receivable" by the assessee. The provision for bad and doubtful debt, therefore, is made to cover up the probable diminution in the value of asset, i.e., debt which is an amount receivable by the assessee. Therefore, such a provision cannot be said to be a provision for liability, because even if a debt is not recoverable no liability could be fastened upon the assessee. In the present case, the debt is the amount receivable by the assessee and not any liability payable by the assessee and, therefore, any provision made towards irrecoverability of the debt cannot be said to be a provision for liability. Therefore, in our view Item (c) of the Explanation is not attracted to the facts of the present case. In the circumstances, the AO was not justified in adding back the provision for doubtful debts of Rs. 92,15,187/- under clause (c) of the Explanation to Section 115JA of the 1961 Act. For the aforestated reasons, there is no merit in this civil appeal and accordingly the same is dismissed with no order as to costs." 145. Even if the adjustments made by the Assessing Officer are considered in the light of clau....
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....sessee. Realising the fatality of the said argument, it is contended now that item (\) cannot amount to satisfaction as provision for diminishing in the value of assets is substituted, if case of the assessee falls under item (c). In meeting the aforesaid case, the assessee brought on record the judgment of the Apex Court in the case of Vijaya Bank v. C1T [2010] 323 ITR 166 / 190 Taxman 257 where the Apex Court had an occasion to consider this Explanation . It accepted the argument on behalf of the revenue to the effect that the Explanation makes it very clear that there is a dichotomy between actual write off on the one hand and provision for bad and doubtful debt on the other. A mere debit to the profit and loss account would constitute a bad and doubtful debt, but it would not constitute actual write off and that was the very reason why the Explanation stood inserted. Prior to the Finance Act, 2001 many assessees used to take the benefit of deduction under section to the profit and loss account per se would not constitute actual write off. The Apex Court accepted the said legal position. However, it was clarified that besides debiting the profit and loss account and creating a....
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.... for the relevant previous year prepared under sub-section (2) as increased by the factors enumerated thereunder. Clause (i) thereof reads as under:- "(i) the amount or amounts set aside as provision for diminution in the value of any asset;" 11. What is required to be examined is whether in the facts of the present case, the amount of Rs. 13.85 crores which is provision for diminution in value of assets, required to be added to the book profit while computing the net profit under section115JB of the Act. 12. In this regard it may be germane to refer to the decision of this court in the case Commissioner of Income Tax v. Vodafone Essar Gujarat Limited (supra), whereinthe court has held thus:- "18. It can thus be seen that in case of Southern Technologies Ltd. (supra), the Supreme Court explained that if an assessee debits an amount of doubtful debt to the Profit and Loss account and credits the asset account like sundry debtor's account, it would constitute a write off of an actual debt. On the other hand, if and assessee debits provision for doubtful debt to the Profit and Loss account and makes a corresponding credit to the current liabilities and provisions on the li....
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....he same would amount to a write off. It was concluded as under: "...Therefore, after the Explanation the assessee is now required not only to debit the P&L A/c but simultaneously also reduce the loans and advances or the debtors from the assets side of the balance sheet to the extent of the corresponding amount so that, at the end of the year, the amount of loans and advances/debtors is shown as net of the provisions for the impugned bad debt. Therefore, in the first place if the bad debt or doubtful debt is reduced from the loans and advances or the debtors from the assets side of the balance sheet the Explanation to s. 115JA or JB is not at all attracted." 22. In case of Kirloskar Systems Ltd. (supra), the Karnataka High Court adoptedthe same principle. 23. By way of culmination of above judicial pronouncements and statutory provisions, the situation that arises is that prior to the introduction of clause(I) to the explanation to section 115JB, as held by the Supreme Court in case of HCL Comnet Systems and Services Ltd. (supra), the then existing clause (c) did not cover a case where the assessee made a provision for bad or doubtful debt. Withinsertion of clause (I) to ....
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....r the Explanation Part of Accounting Standard 13, paragraphs 14 to 19 fall under the heading "Carrying Amount of Investments". Paragraphs 14 to 16 thereunder deal with current investments, whereas paragraphs 17 to 19 deal with long-term investments. Paragraph 17, inter alia, says that long term investments are usually carried at cost. However, when there is a decline, other than temporary, in the value of a long term investment, the carrying amount is reduced to recognise the decline. Paragraph 18says that long-term investments are usually of individual importance to the investing enterprise. The carrying amount of long-term investments is, therefore, determined on an individual investment basis. Paragraph 19 says that where there is a decline, other than temporary, in the carrying amounts of long term investments, the resultant deduction in the carrying amount is charged to the profit and loss statement. The reduction in the carrying amount is reversed when there is a rise in the value of the investment, or if the reasons for the reduction no longer exist. 16. Paragraph 25 of the Explanation part of Accounting Standard 13 deals with "Disclosure" and provides thus: "25.....
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....ok) shows that provision created in the year is of Rs. 69,46,73,244/- Provision written back on account of rise in value as per paragraph 33 of Accounting Standard. 13 is Rs. 55,61,73,244/-. The net amount of provision debited to Profit and Loss is Rs. 69,46,73,244/- minus Rs. 55,61,73,244/- which comes to Rs. 13,85,00,000/. 21. A perusal of the details of "Provision for Diminution in the Value of Investments" as on 31 March, 2003 (page 60 of the paper book) shows that the total provision required as on 31 March, 2003 is Rs. 839,621,779/-; provision available ason 31 March, 2002 is Rs. 701,121,779/-; and the provision for the year ended 31March, 2003 is Rs. 138,500,000/-. 22. Schedule IV of the Schedule annexed to and forming part of the accounts (page31 of the paper book), shows that the total investment as at 31 March, 2003 is Rs. 5,742,306,638/-. Deducting the amount of provision for diminution in value of investments viz. 839,621,779/- the total investment as at 31 March 2003 comes to Rs. 4,902,684,859/-. It may be noted that the provision for diminution in value of investment as at 31 March, 2002 is Rs. 701,121,779/- and the provision in diminution of value of investment....
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....0/- was debited in audited profit and loss account as "provision for diminution in value of investments." There are no details which type of shares, securities, debentures etc. are written off and why out of Rs. 83,96,21,779/- only Rs. 13,85,00,000/- is considered. The learned counsel for the appellant has reiterated the above reasoning adopted by the Commissioner (Appeals). 25. In the opinion of this court, the above findings recorded by the Commissioner (Appeals) that no details have been produced, is contrary to the record of the case, in as much as, in the balance sheet which forms part of the paper book, the details of diminution in the value of investment are clearly set out in the statement at page 57of the paper book. The Tribunal, in the impugned order, has after perusing the statement referred to hereinabove which formed part of the paper book, has found that the assessee has duly followed the netting principle in terms of the decision of this court in the case of Commissioner of Income Tax v. Vodafone Essar Gujarat Limited (supra). Thus, the Commissioner (Appeals) has proceeded on incorrect factual findings, whereas the Tribunal has properly appreciated the material on....
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.... was not required to be paid. In these circumstances the ld. counsel stated that since there was no liability to pay huge amount of income tax, the assessee reversed the unutilised provision for taxes in this year which were made/charged by the amalgamating entities prior to amalgamation, and, therefore, prayed for adjustment on this count. 155. Per contra, the ld. DR strongly relied upon the findings of the Assessing Officer and stated that the provisions of section 115JB read with explanation thereon, clearly shows that adjustment made by the Assessing Officer is correct. 156. In our considered opinion, the issue raised by the ld. counsel needs to be considered thoroughly. The break-up of figure of Rs. 1782.09 is as under: Particulars Amount Provision for current tax of prior years reversed in F.Y 2013-14 1755,08,78,269 Provision for interest u/s 234C of the Act of prior years reversed in F.Y 2013-14 Rs. 27,00,73,765/- Total tax provision in FY 2013-14 considered in MAT computation Rs. 17,82,09,52,034/- 157. Further break up of Rs. 1755.08 crores mentioned hereinabove is as under: Particulars AY 11-12 AY 12-13 AY 13-14 Amounts considered for arrivi....
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....referred to the agreements, samples of which are placed in the paper book. It is the say of the ld. counsel for the assessee that in accordance with the mandatory provisions of section 117C of the Companies Act 1956, the assessee is mandatorily required to transfer adequate amounts to the reserve called Debenture Redemption Reserve [DRR] from the profits every year till redemption of the said debentures and, therefore, the DRR is a provision which is in the nature of an ascertained liability. Reliance was placed on the decision in the case of Raymond Ltd [SC] 209 Taxmann.com 65 and National Rayon Corporation Ltd 227 ITR 764. 161. Per Contra the ld. DR stated that this issue has been decided in favour of the revenue and against the assessee by the Hon'ble Jurisdictional High Court of Delhi in the case of SREI Infrastructure Finance Limited 281 CTR 532. 162. We have carefully considered the orders of the authorities below. In our considered view, the ratio laid down by the Hon'ble Supreme Court in the case of Apollo tyres do not apply on this provision. In our humble opinion, the decision of the Hon'ble Jurisdictional High Court of Delhi in the case of SREI infrastruct....
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....verted at source by overriding title. The Reserve Bank of India Act, 1934 can permit appropriation in respect of the said reserve. The assessee can also ask for specific directions from the Central Government subject to proviso to subsection (3) of the said Section. 32. As noticed above, "provision" and "reserves" are different accounting terms. A provision created to meet a known liability is a charge against the profit. Hence, it is debited to the Profit and Loss account and reduces the profit. Provisions should be created, even if there is insufficient profit. Provision is not, therefore, invested. On the other hand, "reserve" is only appropriation of profit and, therefore, it is not debited to the Profit and Loss account. The purpose of reserve is to strengthen the financial position and to meet unforeseen liabilities which may arise in future. The reserves are created out of adequate profits. However, once reserve is created, it reduces divisible profit. This is the amount of profit which is retained for use in business when difficulty arises. Reserves can be invested. The said investments can be even outside the business and in such cases the reserve is called the reserve....