2019 (3) TMI 2041 - AT - Income Tax

MAT Computation - Addition of corporate tax paid at Saudi Arabia in the computation of Book Profit u/s 115JB - HELD THAT - According to the provision us/ 115JB of the Act the AO while computing the income u/s 115JB of the Act has only the power of the examining whether the books of account are certified by the authority under the companies Act and having the properly manufactured in accordance with Companies Act. AO has limited power of revenue increases and deduction and has no jurisdiction to go behind the profit and loss account accept to the profit of explanation to Section 115JB - Since the amount of AAD has been reduced and there is no debit in profit and loss account therefore the amount did not enter the stream of the income for the purpose of determining of net profit at all and therefore clause (b) of Explanation 1 is not applicable to the present case. Since no addition can be raised except this according to special provision mentioned in the provision u/s 115JB of the Act therefore the finding of the CIT(A) is not justifiable hence by relying upon the law laid down in Apollo Tyres Ltd 2002 (5) TMI 5 - SUPREME COURT and National Hydroelectric Power Corporation Ltd. 2010 (1) TMI 281 - SUPREME COURT we set aside the finding of the CIT(A) on this issue and allowed the claim of the assessee. Addition in computing book profit u/s 115JB of the Act in respect of expenditure on computer software - Since the claim of the assessee nowhere falls within the purview of the Explanation of 115JB of the Act therefore the addition is not liable to be sustainable in the eyes of law. Accordingly we set aside the finding of the CIT(A) on this issue and allowed the claim of the assessee. Non-exclusion of profit on sale of investments in computation of book profit u/s 115JB - Since this issue has been decided against the assessee while deciding the issue in question in the assessee s own case for the A.Y. 2002-03 therefore the present issue is hereby decided against the assessee and in favour of the revenue. Disallowance of Railways/insurance claims written off - We set aside the finding of the CIT(A) on this issue and restored the matter before the AO to decide the matter of controversy afresh on similar lines which has been directed by Hon ble ITAT in the assessee s own case relevant to the A.Y. 2002-03. Setting off of unabsorbed depreciation of the current previous year with long term capital gain of the current previous year instead of setting it off with long term capital loss brought forward from earlier years - The assessee wanted to set off in future but the Assessing Officer declined the claim of the assessee on account of this fact that the claim is against provision of income tax. The CIT(A) has also declined the claim of the assessee on the basis of this fact that Section 71 deals with inter head adjustment and have precedence over section 74 of the Act. Nothing seems to contrary to the law. No law in support of the claim of assessee has been produced before us therefore taking into account all the facts and circumstances we are of the view that the CIT(A) has decided the matter of controversy judiciously and correctly which is not liable to be interfere with at this appellate stage. Nature of income - treatment of interest on tax refund as income from other sources - HELD THAT -It is not related to the business of the assessee. The law relied by the Ld. Representative of the assessee speaks some other facts. The income received as interest on income tax refund is liable to be treated as income from other sources therefore in the said circumstances we are of the view that the CIT(A) has decided the matter of controversy judiciously and correctly which is not liable to be interfere with at this appellate stage. Accordingly we decide this issue in favour of the revenue against the assessee. Addition of PF and Labour Welfare fund made u/s 43B - HELD THAT - As we noticed that the assessee has paid all the relevant payment before due date for filing return of income. The CIT(A) has correctly allowed the claim of the assessee in view of the decision of Devidayal (Sales) Pvt. Ltd. 2003 (10) TMI 606 - ITAT MUMBAI and A.P.L (India) P. Ltd. 2004 (10) TMI 261 - ITAT BOMBAY-E Nature of receipt - capital investment subsidy received from Government of West Bengal - HELD THAT - CIT(A) has allowed the claim of the assessee on the basis of the decision in the case of CIT Vs. PJ Chemicals Ltd. 1994 (9) TMI 1 - SUPREME COURT and DCIT Vs. Reliance Industries Ltd. 2003 (10) TMI 255 - ITAT BOMBAY-J . At the time of argument the Ld. Representative of the assessee has also placed reliance upon the decision of CIT Vs. Shree Balaji Alloys 2011 (1) TMI 394 - JAMMU AND KASHMIR HIGH COURT in which such type of incentive held as capital receipt in the hands of industrial unit. No doubt the issue has been remanded in the assessee s own case for the A.Y. 2001-02 and A.Y 2002-03 2015 (10) TMI 172 - ITAT MUMBAI but there is no need to remand the case being this issue has been settled. Nature of expenses - expenditure on Jukehi Road at Kymore in computing total income under normal provision of the Act - As per CIT(A) impugned expenditure did not result in creation of any asset of enduring nature to the appellant since the ownership vests with the Government of Madhya Pradesh thus deleted addition - HELD THAT - Since the matter of controversy has duly been covered and decided in favour of the assessee in the assessee s own case and L.H. Sugar Factory and oil Mills (P) Ltd. 1980 (8) TMI 1 - SUPREME COURT therefore in the said circumstances we are of the view that the CIT(A) has decided the matter of controversy judiciously and correctly which is not liable to be interfere with at this appellate stage. Nature of receipts - Sales Tax Subsidy in computation of book profit u/s 115JB - as per CIT(A) sales tax subsidy availed by various units of the appellant constitutes capital receipt in the hands of the appellant - HELD THAT - The objectives of all the scheme specifies economic developments regional development development of backward area etc. and hence it is capital receipt and is not chargeable to tax. Accordingly we are of the view that the CIT(A) has decided the matter of controversy judiciously and correctly which is not liable to be interfere with at this appellate stage also. It also covered the MAT provision. Allowance of claim of Long Term Capital Gain in respect of sales of land at Kaza mines and Nimabur at Kaza South - FMV determination - HELD THAT - As noticed that the CIT(A) has observed that the assessee has an option to consider fair market value as on 01.04.1981 as the cost of acquisition for the purpose of computing capital gains and in view of the provision of Section 55(2)(b) of the Act. The assessee was also entitled to reduce indexed cost of improvement as per provisions of second proviso to Section 48 of the Act. Accordingly the CIT(A) has directed to assess the long term capital gain in accordance with law. No ambiguity seems apparent on record - CIT(A) has specifically directed to apply the provision mentioned in the Act. The facts are not distinguishable at this stage also. On appraisal of the above said finding we are of the view that the CIT(A) has decided the matter of controversy judiciously and correctly which is not liable to be interfere with at this appellate stage. Addition in respect of provision for bad and doubtful debts in computing book profit u/s 115JB - HELD THAT - As noticed that the CIT(A) has allowed the claim of the assessee on the basis of decision CIT Vs. Usha Martin Industries Ltd. 2006 (12) TMI 171 - ITAT CALCUTTA and CIT Vs. Echjay Forgings P. Ltd. 2001 (2) TMI 56 - BOMBAY HIGH COURT . The addition can only be raised in view of the provision u/s 115JB of the Act and in Explanation to sub section 2. The case of the assessee nowhere fall within the ambit of the said section therefore in the said circumstances the CIT(A) has rightly deleted the said addition hence allowed the claim of the assessee. The facts are not distinguishable at this stage also. No contrary law to the law relied by the assessee has been produced before us. Provision for Director s Retirement Benefit in computing Book Profit U/s 115JB - HELD THAT - As decided in assessee own case CIT(A) correctly concluded provision for director s retirement benefit cannot be considered as unascertained liability since the same has been calculated on the basis of actuarial valuation and is squarely covered by the decision of Hon ble Apex Court in the case of Bharat Earth Movers 2000 (8) TMI 4 - SUPREME COURT . Therefore provision for director s retirement is an allowable deduction in computing profits and gains of business or profession. Further in my view additions made in computing book profit u/s 115JB on the ground that the same has been added back in the computing total income under normal provisions of the Act is not tenable. Addition made in respect of VRS expenditure pertaining to earlier years Capital expenditure Deferred revenue expenditure debited to P L Account in computing Book Profit u/s 115JB is to be deleted as relying on Apollo Tyres Ltd. 2002 (5) TMI 5 - SUPREME COURT in computing book profit u/s 115JB is to be deleted. As computation of income under the normal provision of the Act has nothing to do with computation of book profit u/s 115JB of the Act in which specifically adjustment has been given in Explanation to Section 115JB(2) of the Act. No doubt the addition which nowhere fall within the provision of Section 115JB of the Act and Explanation (2) of the Act is not required to be added to the income of Assessee therefore in the said circumstances the same is not required to be added while computing the book profit u/s 115JB of the Act. Since the matter of controversy has been adjudicated by the CIT(A) judiciously and correctly therefore the finding of the CIT(A) is not liable to be interfere with at this appellate stage deciding in favour of the assessee. Addition made in respect of revenue generated from trial run production in computing of book profit u/s 115JB is to be deleted as relying on Bipin Chandra Magan Lal case 1960 (11) TMI 13 - SUPREME COURT wherein it has been held that there is a distinguishable relationship between the assessable income and the profits of business concern in a commercial sense. Treatment in the accounts in respect of revenue generated during construction period is in accordance with the Guidance note on Expenditure incurred during the construction period which is issued by the Institute of Chartered Accountant of India which is an authoritative body in the matter of laying down the accounting standard. That being so addition made by the AO on the ground that the same has been added back in computing income under normal provisions of the Act and the said amount should have been credited in the profit and loss account is neither justified nor tenable. MAT computation u/s 115JB - Foreign exchange gain and capital subsidy received towards purchase of assets have been adjusted against the cost of the fixed assets in view of the provisions of Section 43A and Explanation 10 to Section 43(1) respectively. Therefore the same cannot be added back in computing the book profit. Further State Capital Investment Subsidy received from WBIDC constitute capital receipt in the hands of the appellant hence non taxable as discussed while deciding the issue above. Hence the same is not added back in computing book profit u/s 115JB of the Act. So far as the refund of sales tax is concerned the same has been added to the profit and loss account and accordingly the deduction was given. The interest income in connection with deposit with ARV Society and in sum Deposited with MSEB has been disallowed being income of the assessee. The claim of the assessee was partly allowed. Provision of Wealth Tax in computing book profit u/s 115JB is to be allowed in view of the decision of Echjay Forgings (P) Ltd. 2001 (2) TMI 56 - BOMBAY HIGH COURT and JCIT Vs. Usha Martin Industries Ltd. 2006 (12) TMI 171 - ITAT CALCUTTA Provision for additional gratuity in computing book profit u/s 115JB is to be allowed. Allowance of claim of exclusion of write back of excess provision made in earlier years in computing book profit u/s 115JB - Mineral Right Tax and Cess on Coal and Limestone written back in the assessment year was created prior to 01.04.1997 therefore falls under the provision of clause (i) of Explanation to Section 115JB(2) of the Act. So far as the provision for employees incentive is concerned the same is not required to be deducted in computing book profit u/s 115JB(2) of the Act. Accordingly the deduction was partly allowed. The CIT(A) has also relied upon the case cited as Hitkari Fibres Ltd.in allowing claim 2003 (5) TMI 196 - ITAT BOMBAY-H Write back of share premium account is an allowable deduction in view of clause (i) of Explanation to Section 115JB(2). Provision for contingencies in computation of book profit u/s 115JB issue is covered against the assessee due to insertion of clause (i) to Explanation 1 to Section 115JB vide Finance No. 2 Act 2009 w..e.f 01.04.2001 and also in accordance with law settled in the assessee s own case. Allowance of claim additional gratuity on provisional basis under normal provisions confirmed. Addition in respect of provision for Director s Retirement Benefit - If a business liability had definitely arisen in the accounting year and was capable of being estimated with reasonable certainty the deduction should be allowed although the liability may have to be quantified and discharged at a future date. Following the principle laid down by the Apex court Bharat Earth Movers 2000 (8) TMI 4 - SUPREME COURT and the decision of the Tribunal delivered for the AY.1990-91 we decide ground against the AO. Appeal filed by the revenue and the appeal filed by the assessee is hereby ordered to be partly allowed.

Summary

Issues Involved:
1. Addition of interest received on deposits in the computation of Book Profit u/s 115JB.
2. Addition of corporate tax paid in Saudi Arabia in computing Book Profit u/s 115JB.
3. Addition of Deferred Tax Liability in computing Book Profit u/s 115JB.
4. Addition of Dividend Distribution Tax in computing Book Profit u/s 115JB.
5. Exclusion of provision for employees incentive written back in computing Book Profit u/s 115JB.
6. Addition of expenditure on computer software in computing Book Profit u/s 115JB.
7. Non-exclusion of profit on sale of investments in computing Book Profit u/s 115JB.
8. Invoking provisions of Section 115JB.
9. Disallowance of Railways/Insurance claims written off.
10. Setting off unabsorbed depreciation with long term capital gain instead of long term capital loss.
11. Setting off unabsorbed depreciation with short term capital gain instead of allowing deduction under chapter VIA.
12. Treatment of interest on income tax refund as Income from other sources.
13. Disallowance of dividend charged to the Profit and Loss Account.
14. Deletion of addition made u/s 43B for delay in payment of PF and Labour Welfare Fund.
15. Deletion of disallowance of capital investment subsidy received from the Government of West Bengal.
16. Deletion of addition of Corporate Tax paid at Saudi Arabia.
17. Deletion of addition of expenditure on Jukehi Road.
18. Deletion of addition of Sales Tax Subsidy in computing Book Profit u/s 115JB.
19. Allowance of Long Term Capital Gain in respect of sales of land.
20. Deletion of addition in respect of provision for bad and doubtful debts in computing Book Profit u/s 115JB.
21. Deletion of addition in respect of provision for Director’s Retirement Benefit in computing Book Profit u/s 115JB.
22. Deletion of addition of VRS expenditure pertaining to earlier years in computing Book Profit u/s 115JB.
23. Deletion of addition of Capital expenditure debited to P&L Account in computing Book Profit u/s 115JB.
24. Deletion of addition in respect of deferred revenue expenditure of earlier years in computing Book Profit u/s 115JB.
25. Deletion of addition of revenue generated from trial run production in computing Book Profit u/s 115JB.
26. Deletion of addition in respect of provision for Wealth Tax in computing Book Profit u/s 115JB.
27. Allowance of provision for additional gratuity in computing Book Profit u/s 115JB.
28. Allowance of exclusion of write back of excess provision made in earlier years in computing Book Profit u/s 115JB.
29. Deletion of addition in respect of amount withdrawn from share premium account in computing Book Profit u/s 115JB.
30. Deletion of addition of profit on sale of fixed assets in computing Book Profit u/s 115JB.
31. Allowance of provision for contingencies in computing Book Profit u/s 115JB.
32. Deletion of interest levied u/s 234D.
33. Allowance of additional gratuity under normal provisions.
34. Deletion of addition in respect of provision for Director’s Retirement Benefit under normal provisions.
35. Interest levied u/s 234B.

Issue-wise Detailed Analysis:

Issue No. 1:
This issue was not pressed by the assessee, hence decided in favor of the revenue.

Issue No. 2:
The assessee challenged the addition of corporate tax paid in Saudi Arabia in computing Book Profit u/s 115JB. The Tribunal noted that the corporate tax paid in Saudi Arabia was not covered under any adjustment specified in Explanation to Section 115JB(2). The Tribunal relied on the Supreme Court decisions in Apollo Tyres Ltd. Vs. CIT and National Hydroelectric Power Corporation Ltd. Vs. CIT, concluding that the CIT(A)'s finding was not justifiable. The Tribunal set aside the CIT(A)'s finding and allowed the assessee's claim.

Issues Nos. 3, 4, & 5:
These issues were not pressed by the assessee, hence decided in favor of the revenue.

Issue No. 6:
The assessee challenged the addition of expenditure on computer software in computing Book Profit u/s 115JB. The Tribunal found that the claim did not fall within the purview of the Explanation to Section 115JB and relied on the same cases as Issue No. 2. The Tribunal set aside the CIT(A)'s finding and allowed the assessee's claim.

Issue No. 7:
The assessee challenged the non-exclusion of profit on sale of investments in computing Book Profit u/s 115JB. The Tribunal noted that this issue had been decided against the assessee in their own case for A.Y. 2002-03. Therefore, the issue was decided against the assessee.

Issue No. 8:
This issue was not pressed by the assessee, hence decided in favor of the revenue.

Issue No. 9:
The assessee challenged the disallowance of Railways/insurance claims written off. The Tribunal restored the issue to the AO to decide afresh, following the directions given in the assessee's case for A.Y. 2002-03. The issue was decided in favor of the assessee.

Issue No. 10:
The assessee challenged the setting off of unabsorbed depreciation with long term capital gain instead of long term capital loss. The Tribunal found that the CIT(A) had decided the matter correctly, as Section 71 had precedence over Section 74. The issue was decided in favor of the revenue.

Issue No. 11:
This issue was not pressed by the assessee, hence decided in favor of the revenue.

Issue No. 12:
The assessee challenged the treatment of interest on tax refund as income from other sources. The Tribunal found that the interest received on income tax refund was not related to the business of the assessee and should be treated as income from other sources. The issue was decided in favor of the revenue.

Issue No. 13:
This issue was not pressed by the assessee, hence decided in favor of the revenue.

Issue No. 14:
The revenue challenged the deletion of addition made u/s 43B for delay in payment of PF and Labour Welfare Fund. The Tribunal found that the payments were made before the due date for filing the return and the issue was covered in favor of the assessee by ITAT decisions. The issue was decided in favor of the assessee.

Issue No. 15:
The revenue challenged the deletion of disallowance of capital investment subsidy received from the Government of West Bengal. The Tribunal found that the subsidy was a capital receipt, supported by various case laws, and decided the issue in favor of the assessee.

Issue No. 16:
The revenue challenged the deletion of addition of Corporate Tax paid at Saudi Arabia. The Tribunal's finding in Issue No. 2 was applicable here, and the issue was decided in favor of the assessee.

Issue No. 17:
The revenue challenged the deletion of addition of expenditure on Jukehi Road. The Tribunal found that the expenditure did not create an asset of enduring nature and was covered by the Supreme Court's decision in the assessee's own case. The issue was decided in favor of the assessee.

Issue No. 18:
The revenue challenged the deletion of Sales Tax Subsidy in computing Book Profit u/s 115JB. The Tribunal found that the subsidy was a capital receipt, supported by various case laws, and decided the issue in favor of the assessee.

Issue No. 19:
The revenue challenged the allowance of Long Term Capital Gain in respect of sales of land. The Tribunal found that the CIT(A) had directed to assess the long term capital gain in accordance with law, and the issue was decided in favor of the assessee.

Issue No. 20:
The revenue challenged the deletion of addition in respect of provision for bad and doubtful debts in computing Book Profit u/s 115JB. The Tribunal found that the provision did not fall within the ambit of Section 115JB and decided the issue in favor of the assessee.

Issue No. 21:
The revenue challenged the deletion of addition in respect of provision for Director’s Retirement Benefit in computing Book Profit u/s 115JB. The Tribunal found that the provision was calculated on the basis of actuarial valuation and was covered by the Supreme Court's decision in Bharat Earth Movers. The issue was decided in favor of the assessee.

Issue No. 22:
The revenue challenged the deletion of addition of VRS expenditure pertaining to earlier years in computing Book Profit u/s 115JB. The Tribunal found that the issue was covered in favor of the assessee by the Supreme Court's decision in Apollo Tyres Ltd. The issue was decided in favor of the assessee.

Issue No. 23:
The revenue challenged the deletion of addition of Capital expenditure debited to P&L Account in computing Book Profit u/s 115JB. The Tribunal found that the issue was covered in favor of the assessee by the Supreme Court's decision in Apollo Tyres Ltd. The issue was decided in favor of the assessee.

Issue No. 24:
The revenue challenged the deletion of addition in respect of deferred revenue expenditure of earlier years in computing Book Profit u/s 115JB. The Tribunal found that the issue was covered in favor of the assessee by the Supreme Court's decision in Apollo Tyres Ltd. The issue was decided in favor of the assessee.

Issue No. 25:
The revenue challenged the deletion of addition of revenue generated from trial run production in computing Book Profit u/s 115JB. The Tribunal found that the issue was covered in favor of the assessee by the Supreme Court's decision in Bipin Chandra Magan Lal. The issue was decided in favor of the assessee.

Issue No. 26:
The revenue challenged the deletion of addition in respect of provision for Wealth Tax in computing Book Profit u/s 115JB. The Tribunal found that the issue was covered in favor of the assessee by the Bombay High Court's decision in Echjyay Forgings Ltd. The issue was decided in favor of the assessee.

Issue No. 27:
The revenue challenged the allowance of provision for additional gratuity in computing Book Profit u/s 115JB. The Tribunal found that the issue was covered in favor of the assessee by the ITAT's decision in the assessee's own case. The issue was decided in favor of the assessee.

Issue No. 28:
The revenue challenged the allowance of exclusion of write back of excess provision made in earlier years in computing Book Profit u/s 115JB. The Tribunal found that the exclusion was justified for Mineral Right Tax and Cess on Coal and Limestone but not for employees' incentive. The issue was partly allowed in favor of the assessee.

Issue No. 29:
The revenue challenged the deletion of addition in respect of amount withdrawn from share premium account in computing Book Profit u/s 115JB. The Tribunal found that the issue was covered in favor of the assessee by the ITAT's decision in the assessee's own case. The issue was decided in favor of the assessee.

Issue No. 30:
The revenue challenged the deletion of addition of profit on sale of fixed assets in computing Book Profit u/s 115JB. The Tribunal found that the issue was decided against the assessee in their own case for A.Y. 2002-03. The issue was decided in favor of the revenue.

Issue No. 31:
The revenue challenged the allowance of provision for contingencies in computing Book Profit u/s 115JB. The Tribunal found that the issue was covered against the assessee due to the insertion of clause (i) to Explanation 1 to Section 115JB. The issue was decided