2013 (8) TMI 937 - AT - Income Tax

MAT - addition to the book profit shall be made on account of alleged expenditure incurred to earn exempt income while computing the income under section 115JB - Held that - No addition to the book profit shall be made on account of alleged expenditure incurred to earn exempt income while computing the income under section 115JB Provisions for operation and maintenance - Held that - As decided in assessee s own case for the assessment year 2009-10 without doubt the amounts whether claimed as provision or outstanding if worked out strictly in accordance with agreements has to be allowed. This is because assessee is legally bound to pay to M/s GE Inc. USA the amounts due to it as per the agreements. Actual date of payment is irrelevant. Though assessee has argued that the provisioning done by it was in accordance with such agreements the table extracted above does not substantiate such contention. We are therefore of the opinion that the matter requires re-visit by the A.O. We set aside the orders of authorities below and remit the issue back to Assessing Officer for verifying the provisioning done by assessee vis- -vis the agreements entered with M/s GE Inc. USA. If it is strictly in accordance with agreements the amount shown as provision has to be allowed. Amounts in excess of what is payable as per the agreements can be disallowed. Thus we set aside the orders of authorities below on this aspect and remit the issue back to the file of A.O. for consideration afresh in accordance with law.

Summary

Issues Involved:
1. Disallowance under Section 14A.
2. Computation of book profit under Section 115JB.
3. Provision for operation and maintenance expenses.

Detailed Analysis:

1. Disallowance under Section 14A:

In the assessment order, the Assessing Officer (AO) noted that the assessee had taken a secured loan of Rs. 224,44,90,718 and debited interest of Rs. 24,40,69,750 on loans. The assessee also made investments in mutual funds amounting to Rs. 34,67,49,186 during the previous year. The AO questioned why disallowance should not be made under Section 14A. The assessee argued that the borrowings were related to the purchase of plant and machinery, and the interest on borrowings was not related to the investments defined under Section 14A. The investments were made from payments received from TNEB for the sale of electrical energy, and there was no exempt income during the year, making Section 14A inapplicable. The AO, however, did not accept this and disallowed Rs. 89,24,289 by applying Section 14A read with Rule 8D.

The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], who deleted the addition made by the AO. The Revenue then appealed to the Tribunal. Both parties agreed that a similar issue had been decided by the Tribunal in the assessee's own case for the assessment year 2009-10, where the matter was remitted back to the AO for fresh consideration. The Tribunal found it appropriate to remit the matter back to the AO for fresh consideration in light of its previous decision, which required verification of whether the investments were in debt-oriented mutual funds yielding no income other than capital gains, thus making Section 14A inapplicable.

2. Computation of Book Profit under Section 115JB:

The assessee showed book profits under Section 115JB at Rs. 80,38,36,779 as per the return. The AO made a disallowance under Section 14A amounting to Rs. 89,24,289 and assessed the book profits at Rs. 81,27,61,068. The assessee contended that Section 14A provisions could not be imported while computing book profit under Section 115JB, as clause (f) of the Explanation to Section 115JB refers to the amount debited to the profit and loss account, which can be added to the book profit. The AO did not accept this and added Rs. 89,24,289 to the book profit under Section 115JB.

The CIT(A) deleted the addition made by the AO, referencing decisions by the ITAT Delhi Bench in the cases of Goetze (India) Ltd. v. CIT and Quippo Telecom Infrastructure Ltd. v. ACIT, which held that Section 14A is not applicable for computing book profit under Section 115JB. The Revenue appealed to the Tribunal, but the Tribunal, following the decisions of the Delhi ITAT, dismissed the Revenue's ground, confirming that no addition to the book profit should be made on account of alleged expenditure incurred to earn exempt income while computing the income under Section 115JB.

3. Provision for Operation and Maintenance Expenses:

The assessee had agreements with M/s GE Inc. USA for long-term operations and maintenance of its plant and supply of spares. The amount payable under these agreements was debited to the profit and loss account based on actual factored hire hours of the gas turbine. The AO observed that the payments were determinable without needing a provision and that the assessee failed to provide satisfactory explanations for the provisions made. The AO treated the provisions as adhoc and excessive, adding them to the total income.

The CIT(A) deleted the addition made by the AO. The Revenue appealed to the Tribunal, and both parties agreed that a similar issue had been remitted back to the AO for fresh consideration in the assessment year 2009-10. The Tribunal noted that the provision should be strictly in accordance with the agreements with M/s GE Inc. USA. If the provisioning was in line with the agreements, it should be allowed; otherwise, any excess should be disallowed. The Tribunal set aside the CIT(A)'s order and remitted the matter back to the AO for fresh consideration, allowing sufficient opportunity for the assessee to be heard.

Conclusion:

The Tribunal remitted the issues concerning disallowance under Section 14A and provision for operation and maintenance expenses back to the AO for fresh consideration. It dismissed the Revenue's appeal regarding the computation of book profit under Section 115JB, following precedents set by the ITAT Delhi Bench. The appeal of the Revenue was partly allowed for statistical purposes.