TaxTMI 
TaxTMI 
2021 (8) TMI 608
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..... 6,63,00,000/- on the basis of submission of the assessee without going into the actual facts and materials of the case regarding the proportionate disallowance made by the AO. 2. The CIT(A) has erred in deleting the addition of Rs. 6,63,00,000/- on account of interest expenses without going into the facts that as per Auditor's note capital jobs were capitalized for: (i) 12 MW Thermal Power Plant on commissioning thereof on 25.09.2012 (ii) J. K. Nagar sub-station on completion of construction and commissioning at the close of the year. 4. The facts as noted by the AO to disallow the claim of the assessee are as under: "Interest required to be capitalized From the auditor's note it appears that during the year, following capital jobs were capitalized: (i) 12 MW Thermal Power Plant on commissioning thereof on 25.09.2012 (ii) J. K. Nagar sub-station on completion of construction and commissioning at the close of the year. From the above view it appears that the entire interest was not utilized in full for the business purpose of the assessee of the year under consideration. However, the assessee compa....
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....asis which is not as per law. There is merit in the claims of the appellant. There is no dispute regarding the fact that the appellant had incurred interest expenditure. However, the dispute is whether the amount should be capitalized or allowed as deduction u/s 36(1)(iii) of the I T Act, 1961. The A/R of the appellant in a lengthy submission had submitted that part of the interest payment have been capitalized and the balance claimed as expenditure u/s 36(1 (Vi) as provided in the Act. No fault could be found with this reasoning. Moreover, the disallowance of interest had been made on ad hoc basis on the basis of an unscientific calculation which has no legal basis. The disallowance of Rs. 6,63,00,000/- is deleted. This ground of appeal succeeds and is therefore allowed." 6. Aggrieved by the aforesaid action of the Ld. CIT(A) the revenue is in appeal before us. 7. We have heard rival submissions and gone through the facts and circumstances of the case. We note that the assessee has taken borrowed funds of Rs. 35 cr., Rs. 50 Lakhs and Rs. 41 Lakhs from IDBI Bank, South Indian Bank and Axis Bank respectively totaling Rs. 85.41 cr. As per the auditor's report the asses....
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....oceeded to examine the claim of the assessee in respect of capitalization of interest expenditure till the date of commissioning of Thermal Project which was legally correct. Therefore, we find that the Ld. CIT(A) has allowed the claim of the assessee on the well settled principle of law on this subject. Therefore, we do not find any infirmity in the order of the Ld. CIT(A) and confirm the same. These grounds of appeal of revenue are dismissed. 8. Ground no. 3 of revenue appeal reads as under: "3. In the facts and circumstances of the case, on the issue of addition of debenture redemption reserve in computing Book profit u/s. 115JB the order of the Ld. CIT(A) is erroneous. As per explanation 1 of sec. 115JB, the amount carried to any reserves, by whatever name called, is to be included in computing Book Profit. As the debenture redemption reserve is a reserve, the same should be included in the Book profit." 9. Brief facts of the case are that the AO has disallowed Rs. 3.50 cr. while computing income u/s. 115JB (MAT) of the Act. According to the AO, the Debenture Redemption Reserve (hereinafter referred to as "DRR") was carried to reserve so it should be added back u....
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....lowing the decisions of Jurisdictional ITAT in the case of SREI Equipment Finance Pvt. Ltd. vs. DCIT (supra), provisions for Debenture Redemption Reserve is not to be added back for computation of MAT. This ground of appeal succeeds and is therefore allowed." 10. Aggrieved by the aforesaid decision of the Ld. CIT(A), the revenue is in appeal before us. 11. We have heard rival submissions and gone through the facts and circumstances of the case. We note that an amount of Rs. 3,50,00,000/- was transferred by the assessee to Debenture Redemption Reserve (DRR) which was required to be paid at the time of redemption of the debentures and the assessee claimed exclusion of it while computing book profit u/s 115JB of the Act. However the AO was of the opinion that the amount carried to any 'reserve' need to be added as per Explanation 1(b) of Section 115JB of the Act and added it while computing the book profit. On appeal the Ld. CIT(A) has allowed the claim of assessee and excluded it from book profit. When we examine this issue we note that the Hon'ble Supreme Court in the case of National Rayon Corporation Vs. CIT 227 ITR 164 (SC) has held that " the basic principle is that an amo....
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....on (b) of section 115JA of the Act. Therefore, in view of the discussion (supra) we do not find any infirmity in the order passed by the Ld. CIT(A) and, therefore, we confirm the same and dismiss this ground of appeal of revenue. 12. Coming to the cross objection of the assessee is concerned the first ground of cross objection of the assessee is against the action of the Ld. CIT(A) in confirming the disallowance of claim of education cess amounting to Rs. 27,40,223/- in computing total income under normal provisions of the Act. The Ld. CIT(A) had decided this issue as under: "I have considered the submission of the appellant and perused the relevant assessment records. The A/R of the appellant has claimed deduction of Rs. 27,40,253/- on account of Education Cess. The AO in the assessment order had disallowed the claim. The A/R of the appellant had referred to the decision of the jurisdictional ITAT in the case of M/s. ITC Ltd. vs. DCIT ITA No. 685/Kol/2014 in support of his claim. The relevant portion of the order is reproduced as follows: "the assessee's additional last/substantive ground avers that it is entitled for the educations secondary higher education ....
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....elied upon by the appellant. Therefore, it has to be held that cess and surcharge are integral to tax payable and not deduction on account of payment of cess and surcharge can be allowed u/s 37 of the I TAct, 1961. After careful consideration of the submission of the appellant, perusal of assessment records and relevant CBDT's Circular, the disallowance of Rs. 27,40,253/- claimed on account of Education Cess is confirmed. This ground of appeal. fails and is therefore, not allowed. 13. Aggrieved the assessee is in appeal before us. 14. We have heard rival submissions and gone through the facts and circumstances of the case. At the outset, the Ld. AR brought to our notice that the issue is no longer res integra in the light of the decision of this Tribunal in the case of SREI Infrastructure Finance Ltd. Vs. Addl. CIT, Range-9(2), Delhi in ITA No. 1318/Del/2012, ITA No. 1302/Del/2012, ITA No. 1821/Kol/2016 and ITA No. 2003/Kol/2016 dated 31.12.20019 wherein this Tribunal while adjudicating a similar issue has held as under: "25. Concise and summarized ground No.6 is reproduced below for ready reference: (6). Ld CIT(A) erred in not treating Educatio....
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....or assessed at a proportion of or otherwise on the basis of any such profits or gains". When the matter came up before the Select Committee, it was decided to omit the word 'cess' from the clause. The effect of the omission of the word 'cess' is that only taxes paid are to be disallowed in the assessments for the years 1962-63 and onwards. The Board desire that the changed position may please be brought to the notice of all the ITOs so that further litigation on this account may be avoided " 27. The Ld. AR also relied on the judgment of Hon'ble Rajasthan High Court in the case of Chambal Fertilizers and Chemicals Ltd. vs. JCIT (ITA No. 52/2018) which after taking into account aforementioned CBDT circular held that Sec. 40(a)(ii) applies only to taxes and not to education cess. Relevant extract of the decision is reproduced for ease of reference:- "13. On the third issue in appeal no. 52/2018, in view of the circular of CBDT where word "Cess" is deleted, in our considered opinion, the tribunal has committed an error in not accepting the contention of the assessee. Apart from the Supreme Court decision referred that assessment ....
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....er dated 27.11.2018, wherein it was held that education cess is an allowable expenditure under section 37(1) of the Act. Therefore, we direct the assessing officer to verify all the relevant facts and allow education cess as deduction under section 37(1) of the Act. " (iii) Tega Industries -vs.- ACIT (ITA no. 404/Kol/2017)- "We further to notice that assessee has raised an identical additional ground in both cases seeking to claim education cess on provision for Income-tax amount of Rs. 71,65,049/- and Rs. 77,76,699 (assessment year wise); respectively as allowable in computing total income other than MAT u/s. 115JB of the Act. Hon'ble Apex Court's land mark decision National Thermal Power Corporation Ltd (NTPC) V/s. CIT (1998) 229 ITR 383 (SC) as considered by this tribunal's Special Bench order M/s. All Cargo Global Logistics Ltd V/s. DCIT (12) 137 1TD 26 (Mum.) settles the law that we an very well entertain such a legal question in order to determine the correct tax liability when all the relevant facts form part of records. We thus allow assessee's additional ground to be raised. 12. Coming to merits of the hon'ble Rajasthan high court's decision in C....
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....ssee. 16. The next ground of assessee is against the action of the Ld. CIT(A) in confirming the action of AO in non-exclusion of profit on sale of fixed assets and investments (net) amounting to Rs. 1,73,66,796/- in computation of Book Profits u/s. 115JB of the Act. 17. Brief facts are that the assessee has earned profit on sale of fixed assets and investments (net of Rs. 1,73,66,796/-) which was excluded in the book profit u/s. 115JB of the Act. The AO disallowed the same by taking note that sec. 115JB is applicable on capital profits. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who confirmed the action of the AO by relying on the decision of Veekay Lal Investment Co. Pvt. Ltd. reported in 249 ITR 597 and has held as under: "I have considered the submission of the appellant and perused the relevant assessment records. There is a cleavage of opinion as whether profits on transfer of assets should be considered while computing MAT. The A/R of the appellant had cited a number of judicial decisions which have held that the profits on sale of fixed assets credited to P/L account need to be excluded while computing the books profit u/s 115JB of the A....
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....ate to directly transfer such amount to capital reserve (see Companies Act by A. Ramaiya, page 1669, Fourteenth Edition. Such receipts are also covered by clause 2(b) of Part II of Schedule VI to the Companies Act which, inter alia states that the profit and loss account shall disclose every material feature, including credits or receipts and debits or expenses in respect of non recurring transactions or transactions of an exception nature. Lastly, even under clause 3(xli)(b) profits or losses in respect of transactions not usually undertaken by the 2dmpany or undertaken in circumstances of exceptional or non recurring nature shows clearly that capital gains should be included for the purpose of computing book profits. That capital gains would certainly be one of the various items whose information is required to be given to the shareholders under the said clause 3(xii)(b). So also, the disclosure is required to be made in respect of investment in the capital of a partnership firm if the company is a partner on the date of the balance sheet (see page 165) of the Companies Act by A. Samaiya, fourteenth edition). Similarly, profits or losses on such investments are also required to b....
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....s. 47(iv) of the Act has no application in the computation of book profit under s. 115JB of the Act. Thus from a reading of the s. 115JB as well as the analyses of various High Courts and Supreme Court decisions, the inescapable conclusion is that the book profits have to be calculated on the net profits computed as per Parts II and III of Sch. VI to the Companies Act, 1956 and as adjusted by the amounts mentioned in the Explanation. No further rebates or deductions after such adjustments, notwithstanding the fact whether any income is taxable or not under the normal provisions of the IT Act. Computation of income under the normal provisions and the book profits are two parallel computations. While normally followed method of accounting in the books may also be taken for the purpose of computing income under the IT Act, the actual computation of book profits will not affect or be governed by the computation of income under the normal provisions of the IT Act. In fact only because the Government felt that companies availing of various deductions permitted under the IT Act showed a low income for the purpose of income-tax but was able to show healthy profits as per books on the basis....