TaxTMI 
TaxTMI 
2016 (10) TMI 1360
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....sessing Officer by invoking the provisions of section 14A r.w.r 8D for Rs.7,87,477/- towards expenditure incurred for maintaining tax free portfolio wherein the income derived is exempt from tax for the purpose of computing tax under section 115JB of the Act. (ii) The learned Commissioner of Income Tax (Appeals) has erred in confirming the order of the learned Assessing Officer who had disallowed Rs.1,00,00,000/- being the compensation paid for delayed commissioning of windmills. (iii) The learned Commissioner of Income Tax (Appeals) has erred in sustaining the disallowance made by the learned Assessing Officer for Rs.4,73,88,435/- being the expenses related to issuance of foreign currency convertible bonds in the financial year 2007-08 in the normal/regular computation of taxable total income without assigning proper reasons and justifications. iv) The learned Commissioner of Income Tax (Appeals) has erred in sustaining the disallowance of Rs.1,36,56,865/- made by the learned Assessing Officer being the difference in depreciation as per Companies Act and the higher depreciation claimed by the assessee as not pressed before the learned Assessing Officer."....
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.... of expenditure under the normal provisions of the Act. 8.1.1 The Ld. Assessing Officer while computing the tax as per provisions of section 115JB of the Act made additions to the book profit with respect to the disallowance made U/s.14A of the Act read with Rules-8D of the Income Tax Rules. On appeal, the Ld. CIT (A) citing the provisions of clause (f) of Explanation-1 to Section-115JB, confirmed the order of the Ld. Assessing Officer. The relevant portion of the order of the Ld. CIT (A) is reproduced herein below for reference:- "10.2 I have gone through the facts and circumstances of the case. The Assessing Officer has taxed the income U/s.115JB since the tax on book profits is more than the tax under normal computation. While doing so, she made disallowance of the amount relatable to exempt income on the basis of the amount worked out U/s.14A r.w.Rule 8D under normal computation. The provisions of clause (f) of Explanation-1 to s.115JB makes it abundantly clear that the amount of expenditure 'relatable to' any exempt income, other than s.10(38), is liable to be added back to the amount of net profit as shown in the P&L A/c. Reliance is placed on the latest dec....
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.... is reproduced herein below for reference:- "The Assessing Officer, while computing the book profits of a company under section 115J 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 Assessing Officer, thereafter, has the limited power of making increases and reductions as provided for in the Explanation to section 115J . The Assessing Officer does not have the jurisdiction to go behind the net profits shown in the profit and loss account except to the extent provided in the Explanation. The use of the words "in accordance 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 a....
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....ncerns of the assessee are loss making companies. 6.3 Before us, the learned Authorized Representative submitted that the payment due to the clients of the assessee are for compensating them because the windmills supplied by the assessee did not produce the promised output of power and therefore, it is genuine expenditure of the assessee company. 6.4 The learned Departmental Representative on the other hand argued in support of the order of the Revenue. 6.5 We have heard the rival submissions and carefully perused the materials on record. On an identical issue where the assessee had made payments to some of its clients as compensation, this Bench of the Tribunal in the assessee's own case in ITA No. 936 & 937/Mds/2015 dated 25th October, 2016 had allowed the appeal of the assessee in its favour. The gist of the relevant portion of the order is reproduced herein below for reference:- Page 15, para9.5 "We have heard the rival submissions and perused the materials on record. From the facts of the case, we find merit in the contention of the learned Authorized Representative. The amount of Rs.65.00 lakhs paid by the assessee to its client was due to the delay in commi....
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....efore, it pertains to prior period. On appeal, the learned Commissioner of Income Tax (Appeals) held that the assessee would be entitled for deduction on account of issue expenses on FCCB in the year of actual redemption/conversion of FCCBs by observing as under:- "4.3.2 I have considered the assessee's submissions carefully. The assessee received a foreign currency loan in the form of FCCBs in December 2007. These bonds have an option to convert the amount into equity on a later date or to redeem. Therefore, till such option is exercised by the investor, the FCCBs can neither be treated as share capital nor a loan. Further, as per the provisions of the Act, each assessment year is independent. Hence any expenditure incurred in a particular financial (previous) year, is to be claimed as a deduction in that year only. The present expenditure on issuance of FCCBs was incurred in the financial year 2007-08 and hence can be claimed as revenue expenditure in the A.Y.200809 only. Further the assessee has not brought on any reasons or evidences to show that there were valid reasons for not claiming the same in the A.Y.2008-09. 4.3.3 Normally in the case of any long t....
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....ng loan then the same will be allowed as deduction spread over evenly for the period of loan extended because it is an expenditure related to the financial charge. However, if the amount is incurred for raising capital, then the same will not be allowed as deduction by virtue of the decision of the Hon'ble Apex Court in the case of Brooke Bond India Ltd. Vs. CIT reported in 225 ITR 798 (SC). Therefore, we hereby remit back the matter to the file of the learned Assessing Officer for fresh consideration in the light of our observations made herein above. Ground No.4: Disallowance of Rs.1,36,56,865/- being difference in depreciation as per Companies Act: 8.1 It appears that the assessee had claimed higher depreciation than what is prescribed by the Companies Act while computing book profit for the purpose of tax under section 115JB of the Act, the difference of which being Rs.1,36,56,865/-, though the facts are not clearly emerging out of the order of the learned Assessing Officer or the learned Commissioner of Income Tax (Appeals). Since the facts are not clear, we remit back this issue to the file of the learned Assessing Officer for de novo consideration. We also direct the l....
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....on of the assessee directed the learned Assessing Officer to delete the addition by stating as under:- "4.4.2 have considered the assessee's submissions carefully. As explained by the assessee, the company has a windmill project at Chitradurga (Karnataka). In this project there are 6 windmills supplied by Suzlon, where the supplier had assured power generation of 42 lakh units per windmill per year. However, the actual production was only 33.14 lakh units per windmill per annum. The actual generation of wind energy was short by 16%. Hence, the company wrote off Rs.9,33,92,555/-, in its books, by way of impairment loss, being the value of the windmills proportionate to such under performance. 4.4.3 For the purpose of section 115JB of the Act, the assessee is required to prepare the P&L account as per the provisions of Parts II and III of Schedule VI to the Companies Act, 1956. Thereafter, the book profit for the purpose of section 115JB is to be determined by adopting the net profit as shown in the said P&L account and as increased by the items contained in clauses (a) to (i) of the explanation-I of section 115JB; and as reduced by items contained in clauses (i....
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....nt referred 10 in clauses (a) to (i) is debited. to tile profit and loss account, and as reduced by,- (i) the amount withdrawn from any reserve or provision (excluding a reserve created before the IS1 day of April, 1997 otherwise than by way of a debit to the profit and loss account), if any such amount is credited to the profit and loss account: Provided that where this section is applicable 10 an assessee in any previous year, the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the lst day of April, 1997 shall not be reducedfrom the book profit unless the book profit of such year has been increased by those reserves or provisions (out of which the said amount was withdrawn) under this Explanation or Explanation below the second proviso to section 115JA, as the case may be; or] (ii) the amount of income to which any of the provisions of section 10 (other than the provisions contained in clause (38) thereof) or section 1 J or section 12 apply, if any such amount is credited to the profit and loss account; or (iia) the amount of depreciation debited....
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.... we are concerned with clause (i) which refers to the "provision for diminution in the value of any asset" which can be added back to the net profit, only if clause (i) stands attracted. The Clause (i) deals with amount(s) set aside as "provision for diminution in the value of any asset". The claim would, therefore, fall within the ambit of clause (i), only if the amount has been set aside as "provision". In the present case, it is not by way of "provision". It was an "actual write off" in the books of account. Any amount which has actually been written off in the books of account and debited to P&L account cannot be termed as a 'provision'. The present claim of "impairment losses", which has actually been debited in the P&L account, is an actual charge on the assets, and hence will not amount to 'provision for diminution in value of assets'. Therefore, since the assessee's "impairment losses" debited in the P&L account, is not in the form of "provision", but an actual write off in the books, the same will not fall under the ambit of clause (i) of the Explanation-I to section 115JB. 4.4.6 Therefore, clause (i) of the Explanation-l to section 115JB is no....