TaxTMI 
TaxTMI 
2020 (9) TMI 1010
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.... ground that it is barred by limitation and, therefore, 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....
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....xpenses incurred on account of management consultancy fees are made available and the 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....
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....00 No TP adjustment on this amount - - 2007-08 22,64,28,500 No TP adjustment on this amount - - 2008-09 20,12,06,500 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 whe....
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.... final set of comparable companies and computed the Arm's Length Margin at 22.34% and proposed an upward adjustment of Rs. 1,44,69,443/-. 25. Objections were raised before the DRP and the DRP upheld the actions 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 maintenanc....
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....support pass through characterisation of such expenses and recognise that no mark up is required to be earned on such expenses. The relevant extract of OECD guidelines is as under: "When an associated enterprise is acting only as an agent 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 ....
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....was brought to the notice of the DRP that similar issues were considered in earlier A.Ys and the disallowances were deleted by the Tribunal Panjim Bench. Though the DRP concurred with the submissions of the assessee but confirmed the disallowance stating that the Revenue is in appeal before the Hon'ble High Court of 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 ....
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.... 14A of the I. T. Act. The brief facts relating to this ground are that AO has noted that the assessee has received dividend income of Rs. 1,42,72,73,668/- exempt from tax. The AO asked the assessee to explain why the disallowance u/s 14A read with rule 8D should not be made for the expenses incurred. The assessee submitted the explanation that 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 assessin....
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....ct of the expenditure incurred by the assessee in relation to the income which does not form part of the total income under the Act. Subsequently, by Finance Act, 2002 with retrospective effect from 11/5/2001 proviso was added which states that this sec. shall not empower the AO either to re-assess or pass an order enhancing the assessment or reducing the refund already made or otherwise increasing the liability of the assessee for any assessment year beginning on or before 1/4/2001. 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 ....
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.... respect of dividend income of 34.34 crores u/s 10(33). The AO issued notices for disallowance of interest u/s 14A of the IT Act. The explanation of the assessee was that (i) 95% of the shares were bonus shares for which no cost was incurred; (ii) No investment in shares was made in the current year and no disallowance was made in earlier years and (iii) There were sufficient interest free funds available in the form of share capital, reserves etc. which were more than investment in shares. 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.....
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....at may be prescribed. In a situation where the accounts of the assessee furnish an objective basis for the AO to arrive at a satisfaction in regard to the correctness of the claim of the assessee of the expenditure which has been incurred in relation to income which does not form part of the total income, there would be no warrant for taking recourse to the method prescribed by the rules. For, it is only in the event of the AO not being so satisfied that recourse to the prescribed method is mandated by law (pages 31-32). 6. In the event that the AO is not satisfied with 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....
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....d with the exempt income, the AO would be justified in applying the provisions of sub-sec (2) & (3) of sec.14A and Rule 8D of the IT Act, 1961. The expenditure incurred u/s 14A would include direct and indirect expenditure, but relationship with exempted income must be proximate. If there is material to establish that there is direct nexus between the expenditure incurred and the income not forming part of total income then disallowance would be justified even where there is no receipt of exempted income u/s 10 in the year under consideration in view of the decision of Special Bench in the case of Cheminvest Ltd. 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 ma....
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....aimed by the Revenue for apportionment had proximate connection with the earning of the dividend income. In our opinion until and unless this is proved or established by the revenue, the assessing officer does not have any power to reject the accounts of the assessee and take the shelter of Rule 8D for computing the disallowance out of the exempt income. We are not at all convinced with the submission of the Ld. DR relying on the decision of CIT(Appeal) in respect of Explanation bb to sec. 80HHC that 10% of the receipts under the sources mentioned therein are deemed to be the expenditure. This in our opinion will strengthen the 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 ....
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..... Even so, Rule 8D of the Rules has been applied. This, in our opinion, is not correct. Such satisfaction of the Assessing Officer is a pre-requisite to invoke the provisions of Rule 8D of the Rules. The Learned CIT(A), therefore, erred in partially approving the action of the Assessing Officer. In the case of Avshesh Mercantile P. Ltd. Vs. DCIT in I.T.A.T. Mumbai Bench (I.T. Act No.5779/Mum/2006 & 208/Mum/2009) it was held as follows: ― At the time of hearing, the contention raised by the learned DR in this regard is that the appeal of the Revenue on the issue having been dismissed by the Hon'ble Bombay High Court merely observing that no question arises, 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 eve....
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....d decision of the jurisdictional High Court and delete the disallowance made by the AO and confirmed by the learned CIT(A) on account of premium paid by the assessees on redemption of premium notes (OCPN) by invoking the provisions of section 14A of the Act. As regards the case laws cited by the Learned DR, it is observed that in none of these cases, the facts involved were similar to the case of the present assessees in as much as the investment made therein was not found to be capable of earning taxable as well as exempt income which was actually not earned by the assessee in the relevant period as are the facts of the present case or that of the case of Delite Enterprise (supra) 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 ....
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....ined in section 2(29BA) of the Act with effect from 1.4.1999 do not take in its purview the claim of the assessee. According to the assessing officer, to claim additional depreciation available under section 32(1)(iia) of the Act, the assessee should be engaged in the manufacture or production of any article or thing. Since the assessee is in the business of mining iron ore and selling thereof, the assessing officer was of the opinion that the process of extraction of mining iron ore and processing the same do not constitute 'manufacture' or 'production'. 49. Referring to the decision of the Hon'ble Supreme Court in the case of Gem India Manufacturing Company 249 ITR 307 wherein the Hon'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 ....
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....as been interpreted to be one having much wider connotation in as much as every 'manufacture' can be characterised as 'production' while every 'production' might not amount to 'manufacture' as held by the Hon'ble Apex court in the case of NC Budharaja & Co. 204 ITR 412. 55. We find that the Hon'ble Supreme Court in the case of Sesa Goa Ltd 271 ITR 331 [earlier name of the assessee] has held that extraction and processing of iron ore amounts to production. Relevant findings of the Hon'ble High Court to read as under: "2. The following question raised at the instance of the revenue in an appeal before the Bombay High Court was answered in favour of the assessee : 2. The following question raised 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 extractio....
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....e have also been referred to the other provisions of the Act, which are substantially phrased in the same manner as section 32A(2)(b)(iii) of the Act, wherefrorn, according to the assessee, it will be abundantly clear that Parliament had intended to include the mining of ores within the meaning of the word "production". 5. Learned counsel for the assessee, on the other hand, has contended that the High Court had correctly relied upon earlier decisions of this court in arriving at the conclusion it did. We have also been referred to the other provisions of the Act, which are substantially phrased in the same manner as section 32A(2)(b)(iii) of the Act, wherefrorn, according to the assessee, it will be abundantly clear that Parliament had intended to include the mining 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 ....
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....1 ITR 48 (AP), the Calcutta High Court in Khalsa Brothers v. CIT (1996) 217 ITR 185 (Cal) and CIT v. Mercantile Construction Co. (1994) 74 Taxman 41 (Cal) and the Delhi High Court in CIT v. Univmine (P) Ltd. (1993) 202 ITR 825 (Del). The revenue has not questioned any of these decisions, at least not successfully, and the position of law, therefore, was taken as settled. 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 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 ....
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....age of these sections is similar to the language of section 32A(2). There is no reason for us to assume that the word "production" was used in a different sense in section 32A. 8. Learned counsel appearing on behalf of the assessee, correctly submitted that the other provisions of the Act, particularly section 33(1)(b)(B) read with Item No. 3 of the Fifth Schedule to the Act, would show that mining of ore is treated as "production". Section 35E also speaks of production in the context of mining activity. The language of these sections is similar to the language of section 32A(2). There is no reason for us to assume that the word "production" was used in a different sense in section 32A. 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. 9. We are, therefore, of the opinion that extraction and processing of iron ore amounts to "p....
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....63. The ld. counsel for the assessee further stated that the claim has been disallowed merely on the ground that the claim of depreciation has been disallowed under section 32(1)(iia) of the Act and whereas the said disallowance was only in relation to depreciation pertaining to mining operations under iron ore division. 64. It is the say of the ld. AR that additional depreciation at the rate of 20% on the eligible plant and machinery u/s 32(1)(iia) of the Act has been provided in addition to normal depreciation in order to incentivise capitalisation and therefore, when additional depreciation is restricted to 50% the same should be allowed in the subsequent year and if the same is not allowed, then it would completely defeat the purpose of the said section which was enacted to provide benefit on capitalisation. 65. In so far as applicability being prospective the ld. AR relied upon the 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 suppo....
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....nt or machinery acquired and installed is allowed under the existing provisions of section 32(l)(iia) of the Incometax Act over and above the general depreciation allowance. On the lines of allowability of general depreciation, the second proviso to section 32(l)(ii) inter alia provides that the allowance for additional depreciation would be restricted to 50% if the new plant or machinery acquired and installed by the assessee is put to use for the purposes of business or profession for a period of less than one hundred and eighty days in the previous year. Non-availability of full 100% allowance for additional depreciation for plant or machinery acquired and installed in the second half of the year may motivate the assessee to defer such investment to the next year for availing full 100% allowance for additional depreciation in the next year. iii. To remove the discrimination in the manner of allowing additional 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 allowan....
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....n u/s 32AC of the Act and the only ground on which the claim has been denied is that the activities carried on in the mining division and power division did not tantamount to manufacture or production of any article or thing. Referring to his submissions made for claim of depreciation u/s 32(1)(iia) of the Act, the ld. counsel for the assessee stated that for the same reason claim u/s 32AC of the act should be allowed. 77. Per contra, the ld. DR strongly supported the findings of the Assessing Officer and reiterated his submissions made for disallowance under section 32(1)(iia) of the Act. 78. We have given thoughtful consideration to the rival contentions. In so far as mining activities is concerned, we have considered an identical issue at Para 56 hereinabove, wherein we have referred to the decision of the Hon'ble Supreme Court holding that the assessee is eligible for claim u/s 32(1)(iia) of the Act. For similar reasons, the assessee 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 ....
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....open to be decided at proper time." Although the Karnataka High Court held that it was not going into the question of Section 32(1)(iia) and the question of whether the subsequent amendment was clarificatory, the analysis of the Court is in our view also applicable to the interpretation of the said provision for the purposes of the present dispute. 8. Similarly, it is clear that electricity has been held to be "goods" for the purposes of sales tax in the Constitution Bench judgment of the Supreme Court in State of Andhra Pradesh vs. NTPC Ltd. AIR 2002 SC 1895. The Supreme Court, in that judgment held as follows: "20. Before we deal with the constitutional aspects let us first state what electricity is, as understood in law, and what are its relevant characteristics. It is settled with the pronouncement of this Court in Commissioner of Sales Tax, Madhya Pradesh, Indore v. Madhya Pradesh Electricity Board, Jabalpur - 1969(2) SCR 939 that electricity is goods. The definition of goods as given in Article 366 (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....
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....inance Act, 2012 and assessees engaged in the generation of power have expressly been included in the ambit thereof. 12. For the above reasons, the Court is of the opinion that no substantial question of law arises. The appeal is dismissed." 81. In light of the decision of the Hon'ble Supreme Court in the case of Sesa Goa and NTPC Sail Power Co. Pvt Ltd [supra], we direct the Assessing Officer to allow the claim of deduction u/s 32AC of the Act. This ground is, accordingly, allowed. 82. The next ground relates to the addition of Rs. 1095.93 crores on account of out of books receivables. 83. Facts on record show that during the course of survey conducted under section 133A of the Act on 20.3.2014 at the business premises of the appellant, certain documents were impounded, which contained email exchanges made by the senior executives of the appellant company. 84. From a perusal of the aforementioned emails, the Assessing Officer formed a belief that receivables of Rs. 1095.93 crores have not been disclosed by the assessee in its books of account. According to the Assessing Officer, the assessee and its group concerns failed to disclose various receivables ....
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....ed to other entities and further Rs. 414/- crores related to Vedanta Aluminium Ltd. which are separate entities and, therefore, no addition could be made to this extent in the hands of the appellant. 91. Per contra, the ld. DR strongly supported the findings of the Assessing Officer. It is the say of the ld. DR that the assessee has not denied the genuineness of these emails and correspondence is between the responsible and senior officers of the appellant company. The ld. DR pointed out that there is no ambiguity in the words used "out of books receivables". Since the information was not available with the auditors, therefore, they had no occasion to examine the same and comment thereon. The ld. DR vehemently stated that the assessee could not furnish any supporting documents before the lower authorities. 92. We have given a thoughtful consideration to the orders of the authorities below and have carefully considered the rival submissions. It would be pertinent to extract the relevant emails with respect to receivables which could not be accounted for in the books on accrual basis which is as under: Sender Date of email Relevant extracts of email D.D. Jalan ....
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.... type of receivables which are outside the book's can be tracked on memorandum basis in SAP. " 93. A perusal of the aforesaid exchange of emails shows that these are in the nature of a discussion regarding certain premature claims. However, an itemised detail has been mentioned elsewhere. A perusal of the same suggests that some of the items are easily traceable for example insurance claim can be traced back to the damaged assets on which claim has been made and could be easily verified from the Insurance companies. Similarly, claims lodged with banks can be verified from the banks and the nature of claim can also be verified. In so far as duty drawback is concerned, the same being related to government bodies which is also easily verifiable. 94. However, we find that neither the Assessing Officer has done any exercise nor the assessee has adduced any demonstrative evidences before the lower authorities nor before us. Similar is the situation with the coal tapering claim of Rs. 169 crores, which could have been verified from South Eastern Coal Fields Limited, tariff fixation relating to Power Purchase Agreement with Grid Corporation of Orissa Limited is verifiable from....
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....ously work towards the improvement of quality of life in the communities. 101. The ld. counsel further stated that expenditure on CSR is also a commercial obligation of the company. The ld. counsel for the assessee vehemently stated that the amendments made to section 37 of the Act are w.e.f from 1.4.2015 and are applicable from A.Y 2015- 16 and therefore, the same cannot be imported for disallowance for the year under consideration. 102. Per Contra, the ld. DR strongly supported the findings of the lower authorities. 103. We have carefully considered the rival submissions and have perused the order of the authorities below. At the very outside, the Tribunal in the case of National Small Industries Corporation Limited 175 ITD 601 has held that amendments made to section 37 of the Act vide Finance Act [No. 2] 2014 are prospective in nature and hence would not be applicable to the period prior to the said amendment which is the case of the assessee. 104. Having said that, let us look into the details of the expenditure incurred on CSR by the applicant : PARTICULARS AMOUNT 1. Goa Swimming Association, Margao 200000 2. Carmel Boys Curtorim, Cu....
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....s to substantiate that liquidity damages were connected with supply of capital goods. 109. Objections were raised before the DRP and some fresh evidences were filed which were sent to the assessee by the DRP. In his remand report, the Assessing Officer examined the copies of agreement with M/s China Aluminium International Trading Company Limited and M/s Guiyang Aluminium Magnesium Design and Research Institute, though copies of the agreements in respect of other persons were not furnished. 110. On examining the two agreements in this remand report, the Assessing Officer mentioned that the agreements were not for supply of any capital goods but transfer of technology, supply of design, engineering manufacture, installation of machinery and erection and commissioning of the plant which are intangible assets. Also agreements related to transfer of technology know-how, patent et cetera for the production process of aluminium smelting which are tangible assets and not plant and machinery. On the basis of these facts the Assessing Officer distinguished the decision of the Hon'ble Supreme Court in the case of Saurashtra Cement Ltd 25 ITR 422. 111. On the basis of the remand ....
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....uld only be admissible once assessment of earlier A.Y is finalised. 117. Before us, the ld. counsel for the assessee stated that there is no dispute that in earlier A.Ys are under appeal but at least the Assessing Officer should have given claim of set off as per assessed income/losses. 118. The ld. DR simply relied upon the findings of the DRP. 119. In our considered opinion, even if the earlier assessment orders are in appeal, the assessee is still entitled for claim of set off as per assessed figures of previous A.Ys. We, accordingly, direct the Assessing Officer to allow set off as per assessed figures of the previous A.Ys. This ground is allowed for statistical purposes. 120. The next ground relates to the applicability of provisions of Minimum Alternate Tax [MAT] 121. Facts on record show that for the year under consideration, the assessee had recorded net profit of Rs. 1076,08,75,131/- in its books of accounts. As against the same, the assessee had declared book loss of Rs. 2623,16,31,045/- in terms of section 115JB of the Act. In support, the assessee has also filed report of the Chartered Accountant in Form 29B. The computation of net profit, book profit and ce....
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....8. Before us, the ld. counsel for the assessee vehemently stated that the provisions of MAT are a separate code in itself and the powers of the Assessing Officer therein are extremely limited. 129. Strong reliance was placed on the decision of the Hon'ble Supreme Court in the case of Apollo Tyres Ltd 255 ITR 273. It is the say of the ld. counsel for the assessee that once the accounts of the company are examined and certified as complying with mandatory requirements of the Companies Act by the statutory auditors, the company in its AGM and ROC, the Assessing Officer cannot tinker with and make adjustments to the same for the purposes of computing book profits. 130. Per contra the ld. DR strongly supported the findings of the lower authorities. 131. It is the say of the ld. DR that the Hon'ble Supreme Court in the case of Dynamic Orthopaedics Pvt. Ltd. 190 taxman 288 has differed from the judgement delivered in the case of Malayala Manorama 169 Taxman 471 and referred the matter to a larger bench of the court. It is the say of the ld. DR that the issue of scrutiny of profit and loss account, prepared by the company is still open and in that view of the matter, the Assessing....
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.... 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." 134. Referring to the decision in the case of Dynamic Orthopaedics Ltd [supra] by the ld. DR, we find that in that case the quarrel was in respect of claim of depreciation. In that case, the assessee claimed depreciation in its profit and loss account as per rates specified in Rule 5 of IT Rules whereas while completing the assessment of income, the Assessing Officer re-computed book profit after allowing depreciation as per Schedule 14 of the Companies Act. As the rates of depreciation specified in Schedule 14 of the Companies Act were lower than the rates specified in the IT Rules, a quarrel erupted between the assessee and the revenue. When the matter travelled up to the Hon'ble High Court of Kerala the Hon'ble High Court was to answer whether ....
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....lear that, by legislative incorporation, only Parts II and III of Schedule VI to 1956 Act have been incorporated legislatively into Section 115J of the Act. Therefore, the question of applicability of Parts II and III of Schedule VI to 1956 Act does not arise. If a Company is a MAT Company, then be it a private limited company or a public limited company, for the purposes of Section 115J of the Act, the assessee-Company has to prepare its profit and loss account in accordance with Parts II and III of Schedule VI to 1956 Act alone. If, with respect, the judgement of this Court in Malayala Manorama Company .Limited [supra] is to be accepted, then the very purpose of enacting Section 115J of the Act would stand defeated, particularly when the said section does not make any distinction between public and private limited companies. It needs to be reiterated that, once a Company falls within the ambit of it being a MAT Company, Section 115J of the Act applies and, under that section, such an assessee-Company was required to prepare its profit and loss account only in terms of Parts II and III of Schedule VI to 1956 Act. The reason being that rates of depreciation in Rule 5 of the Income ....
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.... "fifteen per cent" had been substituted. (2) Every assessee,- (a) being a company, other than a company referred to in clause (b), shall, for the purposes of this section, prepare its statement of profit and loss for the relevant previous year in accordance with the provisions of Schedule III to the Companies Act, 2013 (18 of 2013); or (b) being a company, to which the second proviso to sub-section (1) of section 129 of the Companies Act, 2013 (18 of 2013) is applicable, shall, for the purposes of this section, prepare its statement of profit and loss for the relevant previous year in accordance with the provisions of the Act governing such company: Provided that while preparing the annual accounts including statement of profit and loss,- (i) the accounting policies; (ii) the accounting standards adopted for preparing such accounts including statement of profit and loss; (iii) the method and rates adopted for calculating the depreciation, shall be the same as have been adopted for the purpose of preparing such accounts including statement of profit and loss and laid before the company at its annual general meeting in a....
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....rovisions of this Act, other than the provisions of this Chapter, is at a rate less than the rate specified in sub-section (1); or (fc) the amount representing notional loss on transfer of a capital asset, being share of a special purpose vehicle, to a business trust in exchange of units allotted by the trust referred to in clause (xvii) of section 47 or the amount representing notional loss resulting from any change in carrying amount of said units or the amount of loss on transfer of units referred to in clause (xvii) of section 47; or (fd) the amount or amounts of expenditure relatable to income by way of royalty in respect of patent chargeable to tax under section 115BBF; or (g) the amount of depreciation, (h) the amount of deferred tax and the provision therefor, (i) the amount or amounts set aside as provision for diminution in the value of any asset, (j) the amount standing in revaluation reserve relating to revalued asset on the retirement or disposal of such asset, (k) the amount of gain on transfer of units referred to in clause (xvii) of section 47 computed by taking into account the cost of the shares exchan....
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....ause (i) of the said section was not applicable to the instant case. We have to consider the adjustment in the light of clause (c) of Explanation 1 of Section 115 JB of the Act which provides for addition of amount other than ascertained liability. In our understanding of the facts, provision for bad and doubtful debts are made against trade receivables and these provisions are not created against any liability/payable of the appellant. 144. The Hon'ble Supreme Court in the case of HCL Comnet Systems and Services Ltd 305 ITR 409, after considering the decision of the Hon'ble Supreme Court in the case of Apollo Tyres [supra] has held as under: "At the outset, we quote hereinbelow Section 115JA read with clause (c) of the Explanation which defines the expression "book profit" as under: "Chapter XII-B Special provisions relating to certain companies Deemed income relating to certain companies 115JA. (1) Notwithstanding anything contained in any other provisions of this Act, where in the case of an assessee, being a company, the total income, as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1s....
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....te 30% of the book profit. Then he has to compare the total income as computed as per the provisions of the Incometax Act with 30% of book profit computed as per Section 115JA. If 30% of the book profit is more than the total income, then 30% of the book profit shall be deemed to be the "total income" of the assessee for such previous year. As per sub-section (2), the assessee has to prepare the `profit and loss account' for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act. The Explanation defines the words "book profit" which means "net profit" as shown in the profit and loss account for the relevant previous year. Such book profit has to be increased by Item Nos.(a) to (f) of the said Explanation if they are debited to the profit and loss account and from such profit Item Nos.(i) to (ix) of the Explanation are to be reduced. The figure arrived at after the above exercise is the book profit of the assessee for the relevant previous years. This Court has examined the powers of the AO while computing the book profits for the purposes of Section 115J in the case of Apollo Tyres Ltd. v. Commissio....
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....ided in the Explanation. Thereafter, the AO has to make adjustment permissible under the Explanation given in Section 115JA of the 1961 Act. It may be noted, that the adjustments required to be made to the net profit disclosed in the profit and loss account for the purposes of Section 349 of the Companies Act are quite different from the adjustment required to be made under the Explanation to Section 115JA of the 1961 Act. For the purposes of Section 115JA, the AO can increase the net profit determined as per the profit and loss account prepared as per Parts II and III of Schedule VI to the Companies Act only to the extent permissible under the Explanation thereto. As stated above, the said Explanation has provided six items, i.e., Item Nos.(a) to (f) which if debited to the profit and loss account can be added back to the net profit for computing the book profit. In this case, we are concerned with Item No. (c) which refers to the provision for bad and doubtful debt. The provision for bad and doubtful debt can be added back to the net profit only if Item (c) stands attracted. Item (c) deals with amount(s) set aside as provision made for meeting liabiliti....
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....d from the amount of debtors/trade receivables which tantamount to the diminution in the value of an asset. However, the real test to qualify as provision is that the amount set aside must be in the nature of provision. We find that while debiting the statement of Profit and Loss, the assessee has deducted/written off the same from its trade receivables in the balance sheet which means that no liability was created corresponding to the amount of the provision charged. In our considered opinion, such a reduction from debtor/trade receivables amount to actual write off and once it is actually written off, it loses the character of a 'provision'. 147. The Hon'ble High Court of Karnataka in the case of Yokogawa India Ltd 204 Taxman.com 305 has held that while computing book profits u/s 115JB of the Act, provision made for bad and doubtful debts cannot be added back in accordance with Explanation (c) to section 115JB of the Act as the same is not an ascertained liability. Relevant findings of the Hon'ble High Court read as under: "In the instant case, the debt is an amount receivable by the assessee and not any liability payable by the assessee and, therefore, any provision ....
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....f the provision for the impugned bad debt. Then the said amount representing bad debt or doubtful debt cannot be added in order to compute book profit. Therefore, after the Explanation the assessee is now required not only to debit the profit and loss account 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 section 115JA or 115JB is not at all attracted. In that context even if amendment which is made retrospective the benefit given by the Tribunal and the appellate Commissioner to the assessee is in no way affected. In that view of the matter, there is not merit in this appeal. [Para 8]. The parties to bear their own costs." 148. It would be pertinent to refer to the decision of the Hon'ble High Court of Gujarat in the case of Torrent India 4....
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.... the assessee besides debiting the profit and loss account and creating a provision for bad and doubtful debt, had simultaneously obliterated the said provision from its accounts by reducing the corresponding amount from loans and advances/debtors on the asset side of the balance sheet and consequently, at the end of the year, the figure of loans and advances or the debtors on the asset side of the balance sheet was shown as net of the provision for the bad debt. Thereafter, the Supreme Court rejecting the Revenue's contention that for the bank to take benefit of section 36(1)(vii), must close the account of the debtors, decided the question in favour of the assessee. 20. Above decisions of Supreme Court in cases of Southern Technologies Ltd.(supra) and Vijaya Bank (supra) thus bring out a clear distinction between a case where the assessee may make a provision for doubtful debt and a case where the assessee after creating such a provision for bad and doubtful debt by debiting in Profit and Loss account also simultaneously removes such provision from its account by reducing the corresponding amount from the loans and advances on the asset aside of the balance sheet. Th....
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....ot a mere provision made by the assessee by merely debiting the Profit and Loss Account and crediting the provision for bad and doubtful debt, but by simultaneously obliterating such provision from its accounts by reducing the corresponding amount from the loans and advances on the asset side of the balance sheet and consequently, at the end of the year showing the loans and advances on the asset aside of the balance sheet as net of the provision for bad debt, it would amount to a write off and such actual write off would not be hit by clause (I) of the explanation to section 115JB. The judgment in case of Deepak Nitrite Limited (supra) fell in the former category whereas from the brief discussion available in the judgment it appears that case of Indian Petrochemicals Corporation Ltd. (supra), fell in the later category." 13. Thus, what the court has held in the above decision, is that if the provision for diminution in value of investment is not a mere provision made by the assessee by merely debiting the profit and loss account and crediting the provision for bad and doubtful debt, but by simultaneously obliterating such provision from its account by reducing the corresp....
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.... (b) The amounts included in profit and loss statement for: (i) interest, dividends (showing separately dividends from subsidiary companies), and rentals on investments showing separately such income from long term and current investments. Gross income should be stated, the amount of income tax deducted at source being included under Advance Taxes Paid; (ii) Profits and losses on disposal of current investments and changes in the carrying amount of such investments; (iii) Profits and losses on disposal of long term investments and changes in the carrying amount of such investments; (c) significant restrictions on the right of ownership, realisibility of investments or the remittance of income and proceeds of disposal; (d) the aggregate amount of quoted and unquoted investments, giving the aggregate market value of quoted investments; (e) other disclosures as specifically required by the relevant statute governing the enterprise." 17. Paragraphs 31 and 32 fall under the heading "Carrying Amount of Investments"in the third part of Accounting Standard 13 viz. Main Principles. Paragraph 32 thereof, which is re....
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.... the provision for diminution of value of investment as at 31 March2002 and 31 March 2003 is Rs. 13,85,00,000/-. This amount of Rs. 13,85,00,000/-which is the provision for diminution in value of investment for the year under consideration, is duly reflected in the Profit and Loss account. Thus, the entry is routed through profit and loss account. 23. In terms of the accounting standards, in view of the decline in the value of the provisions created in the current year (as shown at page 57 of the paper book) the carrying amount of such investments has been reduced and in case of provisions where there was a rise in the value, the provisions are written back and the net amount of provision has been debited to the profit and loss account. Thus, insofar as the provision for diminution of value of investment to the extent of Rs. 13.85 crores is concerned, the same has actually been reduced from the asset side of the balance sheet and, therefore, is in the nature of a write off. Under the circumstances, the amount of Rs. 13.85 crore though bearing the nomenclature of provision for diminution of value of investment, having been actually written off, cannot be added to t....
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....assessee has duly followed the netting principle propounded in the full bench decision of this court in Vodafone Essar Gujarat (supra). 26. In the light of the above discussion, no infirmity can be found in the view adopted by the Tribunal so as to warrant interference. The question, therefore, is answered in the affirmative, that is, in favour of the assessee and against the revenue. It is hereby held that the Income Tax Appellate Tribunal was justified in deleting the disallowance of provision for diminution in value of investment of Rs. 13,85,00,000/-while computing book profit under section 115JB of the Income Tax Act, 1961. The appeal, therefore, fails and is, accordingly, dismissed." 150. In the light of the aforementioned decision of the Hon'ble High Court [supra] we are of the opinion that no adjustment need to be made on this count and the Assessing Officer is directed to delete the same. 4. ADDITION ON ACCOUNT OF CSR AND DONATION 151. Though we have upheld the disallowance of CSR expenditure vide para 106 we are of the considered view that the ratio laid down by the Hon'ble Supreme Court in the case of Apollo Tyres [supra] squarely appl....
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.... Amounts considered for arriving at reversal Details of Provision for Tax created in the standalone Financial Statements (Pre-merger) Sterlite Industries (India) Ltd. - 449.31 292.04 Sterlite Energy Limited - - 54.68 Sesa Goa Limited 963.00 719.00 10.92 Total (A) 963.00 1,168.31 357.64 2,488.95 Details of Provision for Tax reversed in the revised Financial Statements of Sesa Sterlite Ltd. (Post-merger) Tax Payable under Normal Provisions qua 743.32 - - Tax Payable under MAT Provisions (ii) 823.12 109.32 - Tax payable [Higher of (i) and (ii) above] (B) 823.12 109.32 - MAT credit entitlement [(ii) - (C) 79.80 109.32 - 189.12 Amount of Provision for tax to be reversed (D) = (A)-(B) 139.88 1,058.99 357.64 1,556.51 Less: Provision retained in the books (10.82) Net Reversal of Provision for Tax (E) 1,54....
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....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 infrastructure [supra] squarely apply. The relevant findings of the Hon'ble High Court read as under: "24. The term "provision" differs from "liability" because liability is certain and definite amount whereas a provision is an amount which is estimated (See Note 3 of Schedule III of the Companies Act, 2013, with reference to the term "current liabilities"). Reserves fall on the other end/side for they are associated with equity. Transfer of such reserves is appropriation of retained earnings rather than expenses. Contingent liability, however, is not a provision or liability. It is less certain than a provision as the possible obligation has not yet been confirmed and the assessed does not have control whether or when it will be confirmed or the amount cannot be measured with sufficient reliability. The potential obligation is so uncertain that it should not be recognized in the accounts. A provision, therefore, is somewhat between accrual and the contingent liability. 25. The argument ....