2019 (5) TMI 2001 - AT - Income Tax

MAT - Computing the book profits u/s 115JB - deductibility of the amount set apart as Debenture Redemption Reserve - HELD THAT - On record including the decision of the co-ordinate bench of the Tribunal in assessee s own case 2017 (6) TMI 1391 - ITAT MUMBAI we observe that the identical issue has been decided in favour of the assessee as in the case of JSW Energy 2013 (7) TMI 192 - ITAT MUMBAI , the Tribunal was considering the deductibility of the amount set apart as Debenture Redemption Reserve for the purposes of computing the book profits u/s 115JB of the Act. After detailed discussion, it has been held that adjustment of the amount of Debenture Redemption Reserve made while computing the book profits u/s 115JB of the Act is permissible and is within the purview of the law. The decision of CIT(A) is in consonance with the aforesaid legal position and even before us, no contrary decision has been brought out by the Revenue and as a consequence, we hereby affirm the decision of CIT(A) on this aspect. Thus, the Revenue fails in its appeal. Addition u/s 68 - non-establish identity, creditworthiness of the lender and genuineness of the transaction - HELD THAT - We observe that CIT(A) has called for a remand report from the AO in the appellate proceedings and during the remand proceedings the AO issued notice u/s 133(6) to the loan parties and were duly replied by these parties by submitting all the necessary evidences and Ld. CIT(A) on the basis of the remand report came to the conclusion that genuineness of the loan from M/s. JCPL has already been accepted in the reassessment proceedings in 2010-11 and there is no justification for treating the loan of Rs.25 lakhs from M/s. JCPL as unexplained in A.Y. 2012-13 the year under consideration and thus deleted the addition. Consequently the interest expenditure was also held to be allowable under section 36(1)(iii) of the Act. We are in agreement with the conclusion drawn by the Ld. CIT(A) as we do not find any infirmity or anomaly in the same and accordingly raised by the Revenue are dismissed.

Summary

Issues involved:
1. Interpretation of debentures redemption reserve under section 115JB of the Act.
2. Addition under section 68 for unexplained loans and genuineness of transactions.
3. Allowability of interest expenditure on loans under section 36(1)(iii) of the Act.

Issue 1: Interpretation of debentures redemption reserve under section 115JB of the Act

The appeal by the Revenue challenged the order of the CIT(A) regarding the debentures redemption reserve (DRR) of Rs. 30,00,00,000 set apart by the assessee, contending that it should be considered a reserve within the meaning of Explanation 1(b) to section 115JB of the Act. The AO added back this amount to the income of the assessee, stating it was not a specified reserve. The CIT(A) allowed the appeal based on the decision of the Bombay High Court in CIT vs. Raymond Ltd, holding that the reserve was permissible. The Tribunal upheld this decision, citing precedents and affirming the allowance of the debentures redemption reserve in computing book profits under section 115JB of the Act.

Issue 2: Addition under section 68 for unexplained loans and genuineness of transactions

The second ground of appeal raised by the Revenue concerned the deletion of an addition of Rs. 25,00,000 under section 68 of the Act due to the failure of the assessee to establish the identity, creditworthiness of the lender, and genuineness of the transaction. The AO added this amount to the income of the assessee as unproved and unexplained. However, the CIT(A) called for a remand report, where it was revealed that the loan parties provided necessary evidence, and the genuineness of the loan from one party had been accepted in previous proceedings. Consequently, the CIT(A) deleted the addition and allowed the interest expenditure of Rs. 24,29,082 under section 36(1)(iii) of the Act. The Tribunal concurred with the CIT(A)'s decision, finding no anomalies, and dismissed the grounds raised by the Revenue.

In conclusion, the Tribunal upheld the decisions of the CIT(A) on both issues, emphasizing the legal precedents and the evidence provided in the remand report. The appeal by the Revenue was dismissed, and the orders were pronounced in open court on 31.05.2019.