TaxTMI 
TaxTMI 
2022 (9) TMI 1139
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....5, which was subsequently revised on 29.03.2017, whereby the income of Rs.198,66,72,850/- was declared, which was also subsequently revised by declaring total income of Rs.124,45,91,360/-. 3.1 The case of the Assessee was selected for scrutiny under CASS. During the assessment proceedings, it was noticed by the Assessing Officer that as per computation of total income, the Assessee has claimed exemption of dividend income of Rs.1,35,92,571/- and also suo moto disallowed an amount of Rs.45,98,740/-, on which the Assessee was asked to justify the same. The Assessee was further asked as to why disallowance u/s. 14A read with Rule 8D of the Income Tax Rules, 1962 (for short "the Rules"), should not be made, as done in the earlier year. 3.2 The Assessee vide reply/letter dated 24.12.2018 submitted that during the relevant previous year, the Assessee company had received dividend income amounting to Rs.1,35,92,571/- from certain investments, which was claimed as exempt under section 10(34) of the Act and out of the total expenses incurred during the year, the Assessee by filing its return of income for the year under consideration, suo-moto disallowed , inter alia, a sum of Rs.45,9....
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....108, which was followed by Hon'ble High Court in the case of Pr. CIT vs. Caraf Builders & Constructions Pvt. Ltd., 261 Taxman 47, wherein the Hon'ble High Court laid down the principle to the effects " only those investments which have actually yielded exempt income during the relevant year should be considered for the purpose of computing disallowance under Rule 8D(2) of the Rules" and the order passed by the then ld. Commissioner (appeals) in Assessee's own case for the assessment year 2013-14, wherein similar disallowance u/s. 14A read with Rule 8D was deleted, directed the Assessing Officer to recompute the disallowance u/r. 8D(ii) and 8D(iii) of the Rules by considering only those investments which yielded exempt income. 4.1 With regard to the finance charges, the ld. Commissioner was not agreeable with the contention of the ld. AR that as per definition of interest u/s. 2(28A) of the Act, interest means interest payable in any manner in respect of any money borrowed and includes any service fees or other charges in respect of the money borrowed. The ld. Commissioner finally opined that interest cost includes finance charges, therefore, the Assessing Officer has correctly c....
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....l business operations) are not required to be considered at all while computing disallowance under section 14A read with Rule 8D of the Rules. As per definition of interest u/s. 2(28A) of the Act, interest means interest payable in any manner in respect of any moneys borrowed for debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilized. In the instant case, the finance charges being merely in the nature of regular bank charges and not in respect of any money borrowed or debt incurred cannot be construed as interest expense. The Assessee in the Chart of issues/Synopsis , alternatively claimed that disallowance, if at all, cannot exceed exempt income earned during the relevant assessment year in view of the jurisdictional High Court judgment in the case of Joint Investments Pvt. Ltd. vs. CIT, 372 ITR 694 and in the case of CIT vs. Caraf Builders & Constructions (P) Ltd. (supra). 6.1 On the contrary the ld. DR vehemently supported the impugned order. 6.2 We have given thoughtful consideration to....
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....en for the avowed objective of development and industrialization of the State, the incentives received were, in the nature of promoters' contribution. Accordingly, as per the treatment given in AS-12, such incentives received by the Assessee, were treated as part of capital reserve as part of the promoters' contribution. Therefore, on the basis of aforesaid accounting standard dealing with the accounting of Government Grants, the Assessee has credited the incentives of Rs.61,31,52,621/- to its capital reserves as these were in the nature of promoters' contribution and to be treated as shareholders' funds. Further, subsidy of Rs.59,29,94,203/- which was received for acquisition of specific fixed assets has been treated as deferred income to be recognized in the profit and loss account over the period and in the proportion in which depreciation on related assets is charged (as disclosed in schedule-2 "Reserves & Surplus "to the audited financial statements). It was further claimed by the Assessee that the subsidy received in the case of the Assessee clearly qualify under the category of "grant in the nature of promoters' contribution" and therefore, in accordance with the applicab....
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....eparation of books of account under the companies Act is doubtful and therefore, accounting in such cases cannot be considered as per Companies Act. Hon'ble Bombay High Court in case of Veekaylal Investment Co. P. Ltd. [TS-12-HC-2001(BOM)-0] held that direct transfer of an item to capital reserve account will not be in accordance with the requirement of the Companies Act and therefore, the Assessing Officer has the power to compute the book profit as per the Companies Act. 7.2.1The Assessing Officer further, by relying on various judgments as mentioned in the assessment order, came to the flowing conclusion: "That the taxability of income u/s. 115JA is a deeming provision and supersedes the normal manner of computation of income. As per section 115JB, every Assessee is required to prepare its profit and loss as per part II of Schedule VI to the Companies Act. In preparing the profit and loss account, all kind of profits are to be taken in the profit and loss account as it would reflect the position of actual profit & loss of a company. Even as per the requirement of Parts II and III of Schedule-VI of the Companies Act, 1956, under which profit & loss account has to be m....
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....increased by - a) That amount of income tax paid or payable, and the provision therefor; or b) The amount 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 11 or section 12 apply; or]." Explanation 1 of section 115JB of the Act provides for specific additions/deductions which can be made to arrive at book profit chargeable to tax as MAT income. A plain reading of para (b) of the above Explanation 1 to section 115JB explains clearly that any reserve, other than a reserve specified u/s. 33AC (meant for shipping business), is to be taken into consideration for the purpose of computation of book profit and book profit is to be increased by the amount of such reserve. As the Assessee has incorporated the mega power project subsidy directly to th....
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.... the balance sheet. The subsidy cannot be considered as an exceptional item in nature and therefore, the authorities below rightly added the same u/s. 115JB of the Act." 11. Heard the parties and perused the material available on record qua issue in hand. The Assessee during the relevant previous year received Rs. 52,14,31,163/- being the capital subsidy from the Government of Maharashtra and Rs. 91721508/- being sales-tax benefits granted by Administration of Dadar& Nagar Haweli, and by treating the said receipts as "capital in nature", directly credited to its capital reserves in the audited financial statements for the year under consideration, without incorporating in profit and loss account of the Assessee. 11.1 The Assessee before the Assessing Officer claimed that the Assessee had received incentives to encourage creation of employment trade, industrial infrastructure and plans regional development etc. in the State, which were in public interest. Since the incentives were given for the avowed objective of the development and industrialization of the State, therefore the incentives received were in the nature of promoter's contributions. Accordingly, as per the treatme....
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....ee treated the Subsidies/Incentives referred to above as "capital in nature" and directly incorporated to its reserves, without incorporating in its profit and loss account and inter-alia claimed that such subsidies received were credited to the capital reserves in accordance with the applicable accounting principles/standards as the accounts of the Assessee are correct being duly audited. 11.5 We observe that the Hon'ble Apex Court in the case of Commissioner of Income, Kolkata Vs. British Paints India Ltd. 1991 AIR 1338 analysed the provisions of Section 145 of the Act and held "that even if the accounts are correct and complete to the satisfaction of the officer and the income has been computed in accordance with the method regularly employed by the Assessee, what is to be determined by the officer is a question of fact i.e. whether or not income chargeable under the Act can properly be deduced from the books of account and he must decide the question with reference to the relevant material and in accordance with the correct principles." We observe that both the authorities below without going into the treatment adopted by the Assessee, and without determining/testing the pur....