2013 (10) TMI 1505 - AT - Income Tax

Harmonious construction of section 43B and section 40A(7)(b) of the Act - Deduction of contribution to gratuity fund - deduction on the basis of payment / deposit in cash - approved gratuity fund or not - HELD THAT - Kerala High Court has held that, section 40A(7), clause (b) sub-clause (i) thereof is a special provision to claim for deduction based on a provision made for payment towards an approved gratuity fund. Referring to various decisions of Supreme Court stated that there is no clear inconsistency between the two provisions. Section 40A(7) is in negative terms and section 43B is in positive terms, the effect of both provisions is that to claim deduction in respect of payment to a gratuity fund there must be actual payment and that deduction cannot be allowed on the basis of any provision. The only exception to the above rule is with regard to the provision for payment to an approved gratuity fund. It cannot be interpreted that the later provision in section 43B by introducing the non-obstante clause would abrogate the special provision with regard to the provision made for payment to an approved gratuity fund contained in section 40A(7)(b)(i). This is all the more so since no patent conflict or inconsistency can be spelt out. Both the provisions can co-exist. A harmonious construction of the aforesaid two provisions would clearly indicate that the Legislature never intended to take away the benefit conferred under clause (b) of section 40A(7) by the provisions of section 43B(b) of the Act. The A.O. is directed to allow the assessee's claim of provision for gratuity after verifying whether the provision made by the assessee is to an approved gratuity fund or not. In case the said gratuity is approved then the provision is to be allowed. In the event the said gratuity fund is not an approved one, then as per the proviso s to section 43B of the Act, deduction is to be allowed to the extent of actual payments towards gratuity up to the due date for filing the return of income u/s.139(1) Decision in the case COMMISSIONER OF INCOME-TAX VERSUS COMMON WEALTH TRUST (P.) LTD 2004 (4) TMI 51 - KERALA HIGH COURT followed. Deduction u/s 80IA - calculating the deduction - the carry forward of losses of other eligible units to be considered or not - HELD THAT - For the purpose of computation of gross total income, the losses of other units are to be taken into account. However for the purposes of calculating the deduction of an eligible unit / undertaking u/s.80-IA of the Act, the loss sustained in another unit / undertaking cannot be taken into account and it is only the profit that shall be taken into account as if it was the only source of income of that unit. Following the decision in the case of Synco Industries Ltd 2008 (3) TMI 13 - SUPREME COURT , held that, the assessee has to compute the claim of deduction of each eligible unit / undertaking, as if it is the only source of income from such eligible undertaking and without any setting off of unadjusted brought forward losses of other eligible undertakings. We find from the record that the computation of the eligible deduction u/s.80-IA of the Act by the assessee is in accordance with the procedure laid down and is therefore entitled to claim and be allowed deduction u/s.80-IA. Applicability of provisions of section 115JB of the Act - HELD THAT - the provisions of section 115JB of the Act are not applicable to the assessee which is an electric company in the business of generation of power. In this view of the matter, the additional grounds of appeal raised by the assessee on the non-applicability of the provisions of section 115JB of the Act is allowed. Decision in the case SYNDICATE BANK VERSUS THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1, UDUPI 2015 (4) TMI 727 - ITAT BANGALORE followed. In the result, the assessee's appeal is partly allowed.

Issues Involved:
1. Loss on account of foreign exchange fluctuation.
2. Disallowance under section 43B of the Act.
3. Disallowance of loss on obsolescence of assets.
4. Deduction under section 80-IA of the Act.
5. Charging of interest under section 234C of the Act.
6. Applicability of the provisions of section 115JB of the Act.
7. Non-adjudication by the CIT (Appeals) on certain grounds.

Issue-wise Detailed Analysis:

1. Loss on account of foreign exchange fluctuation:
The assessee challenged the disallowance of Rs. 38,21,630 incurred as a loss due to foreign exchange fluctuation. The assessee argued that this loss should be treated as revenue expenditure since it was related to the repayment of interest on a loan taken for setting up a diesel generating station. The Department contended that the loss should be capitalized. The tribunal found the facts unclear and remanded the issue to the Assessing Officer (A.O.) for proper examination and verification.

2. Disallowance under section 43B of the Act:
The assessee contested the partial disallowance of Rs. 3,18,05,492 out of Rs. 5,68,29,195 made under section 43B for the provision towards gratuity. The assessee argued that the provision was made to an approved gratuity fund and should be allowed under section 40A(7)(b). The Department maintained that section 43B overrides section 40A(7)(b). The tribunal, following the decision of the Hon'ble Kerala High Court in the case of Common Wealth Trust (P) Ltd., held that the provision should be allowed if it is to an approved gratuity fund. The matter was remanded to the A.O. for verification.

3. Disallowance of loss on obsolescence of assets:
The assessee challenged the disallowance of Rs. 27,000 on account of loss on obsolescence of assets. The tribunal upheld the disallowance, noting that the assessee failed to provide cogent evidence to substantiate its claim.

4. Deduction under section 80-IA of the Act:
The assessee contested the restriction of deduction under section 80-IA to Rs. 1,16,50,20,511 against the claimed Rs. 1,92,41,42,979. The tribunal held that for computing the eligible deduction, the losses of other units should not be set off against the profits of eligible units. It directed the A.O. to allow the claimed deduction of Rs. 1,92,41,42,979.

5. Charging of interest under section 234C of the Act:
The assessee argued that interest under section 234C should be calculated based on returned income and after giving MAT credit. The tribunal noted that charging of interest is consequential and mandatory, directing the A.O. to recompute the interest while giving effect to the order.

6. Applicability of the provisions of section 115JB of the Act:
The assessee argued that being an electricity company, the provisions of section 115JB are not applicable. The tribunal agreed, noting that the newly inserted Explanation 3 to section 115JB(2) clarifies that companies engaged in the generation of power are not subject to these provisions prior to 1.4.2013. The tribunal allowed the assessee's additional grounds on this issue.

7. Non-adjudication by the CIT (Appeals) on certain grounds:
The tribunal noted that the CIT (Appeals) did not adjudicate on issues related to the additions and disallowances made while computing book profits under section 115JB. Given the tribunal's decision on the non-applicability of section 115JB, this issue became academic. However, if reversed by a higher judicial forum, the matter was restored to the CIT (Appeals) for adjudication on whether provisions for gratuity, leave encashment, and pension are ascertained liabilities.

Conclusion:
The appeal was partly allowed, with the tribunal remanding certain issues for further verification and directing the A.O. to allow specific claims and recompute interest as per the tribunal's findings. The tribunal also ruled on the non-applicability of section 115JB to the assessee, an electricity company engaged in power generation.

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