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2019 (2) TMI 1721 - AT - Income TaxEducation cess disallowed u/s 40(a)(ii) - HELD THAT - We are inclined to agree with the contentions of ld. Departmental Representative that education cess is a surcharge on income tax hence not allowable as a deduction. We prefer to follow the proposition of law laid down in the case of M/s. Kalimati Investment Company Limited 2012 (5) TMI 705 - ITAT MUMBAI AND in the case of Sesa Goa Ltd versus JCIT 2013 (9) TMI 233 - ITAT PANAJI on this issue. Hence we dismiss this ground of the assessee. MAT Applicability - As appellant, being a company engaged in Non-Banking Finance Business and governed by the Reserve Bank of India Act, 1934 r.w. Prudential Norms issued thereafter, it is not maintained its books of accounts strictly in terms of Part II Part III of the Schedule VI of the Companies Act, 1956 and hence the provisions of Section 115JB is not applicable - HELD THAT - Assessee submission that, due to the mandatory directions issued by the RBI u/s 45J of the RBI Act 1934, the assessee had to make certain provisions in the accounts and consequently, the accounts cannot be said to have been drawn up under the Companies Act 1956 but should be held that the accounts was a mixture of the requirements of the Companies Act and the requirements of the RBI Act and hence the provisions of Section 115JB of the At does not apply is not tenable. The assessee prepares its accounts as required under the Companies Act 1956. While doing so, it follows, at its own discretion, the Accounting Standards prescribed by the Institute of Chartered Accountants of India, guidance notes issued by Institute of Chartered Accountants of India on various issues, Accounting Standards prescribed under the Income Tax Act 1961 and in case of Non-banking Financial Companies, it additionally follows at its discretion the requirements suggested by the RBI. These requirements, suggestions and prescriptions are not in conflict with the requirements under the Companies Act. The auditors have not, in their audit report, alleged so. There is no dispute that the Balance Sheet and Profit Loss accounts are drawn up in accordance with Part II III of Schedule VI of the Companies Act, 1956. Hence, this additional ground is dismissed as devoid of merit. Disallowance u/s 14A - contentions of the assessee company that the AO has not recorded reasons for applying Rule 8D - HELD THAT - Though the AO was wrong in holding that Rule 8D is procedural in nature, the fact is that the claim of the assessee, that it had not incurred any expenditure for earning exempt income, has been rejected by the Assessing Officer. This to our mind is sufficient satisfaction that was arrived at by the Assessing Officer that the claim of the assessee is not correct. This was prior to the Assessing Officer invoking Rule 8D of the I.T. Rules 1962. Hence this argument of the assessee is rejected. Disallowance under Section 14A r.w. Rule 8D(2)(ii) - The assessee has not furnished any calculation that it had interest free funds which can be presumed to have been invested in non-interest bearing investments. In the absence of such details been filed either before the Assessing Officer or before the ld. CIT(A) or before us, the argument of the ld. Counsel for the assessee cannot be entertained. Unless some prima facie facts and figures are brought on record, we cannot restore the issue to file of the Assessing Officer for verification and fresh adjudication as requested by the ld. Counsel for the assessee. Thus we find no infirmity in the order of the ld. CIT(A). Hence, we dismiss this ground of the assessee. Income recognition - Disallowance of provision for Non-performing assets (NPA) made in accordance with the prudential norms of the RBI in computation of income under the normal provisions of the Act - HELD THAT - Departmental Representative correctly submitted that the judgment of Southern Technologies 2010 (1) TMI 5 - SUPREME COURT covers the issue and that in the judgment of Vasisth Chay Vyapar Ltd. 2010 (11) TMI 88 - DELHI HIGH COURT , the Hon ble High Court has considered all these aspects including the decision in the case of TRO v. Custodian 2007 (8) TMI 343 - SUPREME COURT and came to our conclusion that under the real income theory, interest income on Non-Performing Assets (NPA s) need not to be recognized as income. Provision of leave encashment - HELD THAT - This issue is set aside to the file of the Assessing Officer to adjudicate the issue de novo, after considering the final judgment of Exide Industries Limited Anr. Vs. Union of India Ors. 2007 (6) TMI 175 - CALCUTTA HIGH COURT read with CIT vs. M/s Exide Industries Ltd. Anr. 2009 (5) TMI 894 - SC ORDER Addition of profit on sale of fixed assets/investments in the computation of book profits u/s 115JB - HELD THAT - This issue is admittedly covered against the assessee by the decision of the Special Bench of the Hyderabad ITAT in the case of Rain Commodities Ltd. vs. DCIT; 2010 (7) TMI 794 - ITAT HYDERABAD . Hence this ground is dismissed. MAT computation - addition of Provision made for Nonperforming Assets (NPA) in computing book profits u/s 115JB - HELD THAT - We agree with the submissions of the ld. Counsel for the assessee that the provision in question is not made for meeting liabilities. But we are of the view that the amount in question is set aside as a provision for diminution in the value of assets, hence covered by the Explanation 1(i) to section 115JB of the Act. This amendment was held as retrospective in nature. The effect of this provision is reduction in the value of the assets of the company. Hence we find no infirmity in the order of the ld. CIT(A). Disallowance u/s 14A - CIT(A) has restricted the disallowance to the dividend income earned by the assessee - HELD THAT - CIT(A) applied this proposition of law laid down in the case of Joint Investment Pvt. Ltd. vs. CIT 2015 (3) TMI 155 - DELHI HIGH COURT .Hence we find no infirmity in the order of the ld. CIT(A) on this issue. A ddition on account of disallowance u/s 14A r.w.r 8D while computing book profit u/s 115JB - HELD THAT - This issue is covered by the decision of the Special Bench of the Tribunal in the case of ACIT vs. Vireet Investment (P) Ltd. 2017 (6) TMI 1124 - ITAT DELHI . Respectfully following the same we dismiss this ground of the revenue.
Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act. 2. Disallowance of provision for Non-Performing Assets (NPA). 3. Disallowance of provision for Leave Encashment. 4. Addition of profit on sale of fixed assets/investments in computing Book Profit under Section 115JB. 5. Addition of provision for Non-Performing Assets (NPA) in computing Book Profit under Section 115JB. 6. Deductibility of education cess. 7. Maintenance of books of accounts under Part II & III of Schedule VI of the Companies Act. 8. Interest disallowance on loans given to subsidiaries. 9. Amount transferred to special reserve in computing total income. 10. Disallowance under Section 14A while computing Book Profit under Section 115JB. Issue-wise Detailed Analysis: 1. Disallowance under Section 14A: The assessee contended that the Assessing Officer (AO) did not record reasons for applying Rule 8D and claimed no expenditure was incurred for earning exempt income. The Tribunal held that the AO had sufficiently recorded satisfaction that the claim was incorrect before invoking Rule 8D. The CIT(A) restricted the disallowance to the exempt income earned, which was upheld as the assessee did not provide sufficient details to prove interest-free funds were used for investments. 2. Disallowance of provision for Non-Performing Assets (NPA): The assessee argued that provisions made in compliance with RBI norms should not be disallowed under the Income Tax Act. The Tribunal referred to the Supreme Court’s judgment in Southern Technologies and the Delhi High Court’s decision in Vasisth Chay Vyapar Ltd., concluding that the provision for NPA is not allowable as it pertains to a capital asset and not as an expenditure. 3. Disallowance of provision for Leave Encashment: This issue was set aside to the AO for fresh adjudication in light of the Supreme Court’s judgment in Exide Industries Limited. 4. Addition of profit on sale of fixed assets/investments in computing Book Profit under Section 115JB: The Tribunal noted that this issue was covered against the assessee by the Special Bench decision in Rain Commodities Ltd. and upheld the addition. 5. Addition of provision for Non-Performing Assets (NPA) in computing Book Profit under Section 115JB: The Tribunal agreed that the provision for NPA is a provision for diminution in the value of assets and is covered by Explanation 1(i) to Section 115JB, which was held to be retrospective. Thus, the addition was upheld. 6. Deductibility of education cess: The Tribunal dismissed the assessee's claim, agreeing with the Departmental Representative that education cess is a surcharge on income tax and not allowable as a deduction, following ITAT Mumbai’s decision in Kalimati Investment Company Limited and Panaji Bench’s decision in Sesa Goa Ltd. 7. Maintenance of books of accounts under Part II & III of Schedule VI of the Companies Act: The Tribunal found that the auditors had certified the accounts as per the Companies Act, and there was no indication that the accounts were not maintained as per Part II & III of Schedule VI. Thus, this additional ground was dismissed. 8. Interest disallowance on loans given to subsidiaries: The CIT(A) found that the assessee had sufficient own funds to cover the interest-free loans to subsidiaries and that the loans were given out of commercial expediency. This finding was upheld as the Department could not provide contrary evidence. 9. Amount transferred to special reserve in computing total income: This ground was dismissed as withdrawn by the assessee, and it was noted that the issue had been adjudicated against the assessee by the Delhi High Court in the assessee’s own case. 10. Disallowance under Section 14A while computing Book Profit under Section 115JB: The Tribunal followed the Special Bench decision in ACIT vs. Vireet Investment (P) Ltd., holding that disallowance under Section 14A should not be added back while computing Book Profit under Section 115JB. Thus, this ground was dismissed. Conclusion: The appeal of the assessee was allowed in part, and the appeal of the revenue was dismissed.
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