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2016 (10) TMI 709 - AT - Income TaxDisallowance on account of expenditure u/s. 14A - Held that - Own funds of the assessee are sufficiently in excess of both the borrowings and investments, borrowings are proved to be for a specific purpose and there is no possibility of investing them for generating the exempted income, investments that are generating the exempted income were made prior to the relevant previous years, and above all the legal requirement of the AO recording the reasons for resorting to Section 14A r/w 8D in this matter are conspicuously absent. Viewing from any angle, we are convinced that there is no justification for the authorities below to sustain the disallowance made u/s. 14A of the Act in AYs 2008-09 and 2009-10. - Decided in favour of assessee MAT Applicability u/s 115JB - Held that - There is no dispute that the assessee is a Public Limited company engaged in the business of generation/distribution of power and energy and is governed by the provisions of Electricity Act, 2003. Under West Bengal Electricity Regulatory Commission (Terms and Conditions of Traffic) Regulations, 2007 issued pursuant to Electricity Act, 2003, Assessee is under an obligation to prepare its accounts as per the said regulations and not under Part II and III of Schedule VI of the Companies for computing Book Profit. As a matter of fact, a coordinate Bench of this Tribunal in the assessee s own case for the AY 2007-08 2016 (8) TMI 855 - ITAT KOLKATA considered this issue in extenso and hold that the provisions of Section 115JB have no application to the assessee company. In the said case, this Tribunal, after going through the basic intention behind the introduction of Sec. 115JB of the Act, Department Circular No. 762 dated 18.02.1998, Memorandum explaining the provisions in the Finance Bill, 1996, under the caption Rationalisation and Simplification , hyden rules, decisions of various High Courts and Tribunal viz. Kerala State Electricity Board Vs. DCIT reported in (2010 (11) TMI 127 - Kerala High Court) and Maharashtra State Electricity Board Vs. JCIT reported in (2001 (8) TMI 310 - ITAT MUMBAI ) decided that the provisions of section 115JB of the Act are not applicable to the assessee company. - Decided in favour of assessee
Issues Involved:
1. Disallowance of expenditure under section 14A read with Rule 8D. 2. Non-admission of additional grounds by CIT(A). 3. Applicability of section 115JB to the assessee company. 4. Disallowance of leave encashment provision. 5. Addition of diminution in value of investments. 6. Addition of provision for payment on retirement of workers. 7. Disallowance of expenditure in computing book profits under section 115JB. 8. Imposition of interest under section 234B. Issue-wise Detailed Analysis: Issue 1: Disallowance of Expenditure under Section 14A read with Rule 8D The Tribunal analyzed whether the authorities were justified in disallowing the claim for deduction of expenditure by invoking section 14A read with Rule 8D for AY 2008-09 and 2009-10. The assessee argued that the borrowings were made for specific purposes and not for earning exempt income. The Tribunal reviewed the loan documents and found that the borrowings were indeed for specific purposes such as construction and working capital. Additionally, the Tribunal noted that the assessee had sufficient own funds exceeding the investments generating exempt income. The Tribunal also emphasized the necessity of the AO recording reasons for applying section 14A read with Rule 8D, which was absent in this case. Consequently, the Tribunal held that the authorities were not justified in disallowing the expenditure under section 14A read with Rule 8D and allowed the assessee’s appeal on this ground. Issue 2: Non-Admission of Additional Grounds by CIT(A) The Tribunal addressed the CIT(A)’s refusal to admit additional grounds regarding the applicability of section 115JB. Citing the principles established in NTPC Ltd. vs. CIT and Jute Corporation of India Ltd vs. CIT, the Tribunal stated that new grounds of a purely legal nature should be admitted. The Tribunal found that the CIT(A) should have entertained the grounds based on the applicability of section 115JB, thus ruling in favor of the assessee. Issue 3: Applicability of Section 115JB to the Assessee Company The Tribunal considered whether section 115JB applied to the assessee, a power generating company governed by the Electricity Act, 2003, and not required to maintain accounts under Part II and III of Schedule VI of the Companies Act. Referring to a previous Tribunal decision in the assessee’s case for AY 2007-08, the Tribunal reiterated that section 115JB did not apply to the assessee. The Tribunal ruled in favor of the assessee, holding that section 115JB was not applicable. Issue 4: Disallowance of Leave Encashment Provision The Tribunal reviewed the disallowance of the leave encashment provision of ?39,19,000 by the AO under section 43B(f). The Tribunal noted that the Hon’ble Supreme Court had stayed the Calcutta High Court’s judgment in Exide Industries Ltd. vs. Union of India, which had allowed such deductions. The Tribunal remitted the matter back to the AO for fresh adjudication pending the Supreme Court’s decision, thus allowing the assessee’s appeal for statistical purposes. Issue 5: Addition of Diminution in Value of Investments Given the Tribunal’s ruling on the applicability of section 115JB, the issue of adding ?13,63,105 as diminution in the value of investments while computing book profit became superfluous. The Tribunal did not require further adjudication on this issue and ruled in favor of the assessee. Issue 6: Addition of Provision for Payment on Retirement of Workers Similarly, the Tribunal found that the addition of ?9,66,000 for payment on retirement of workers while computing book profit under section 115JB was also superfluous due to the ruling on the applicability of section 115JB. The Tribunal ruled in favor of the assessee. Issue 7: Disallowance of Expenditure in Computing Book Profits under Section 115JB The Tribunal did not need to adjudicate this issue separately due to its findings on the applicability of section 115JB. The Tribunal ruled in favor of the assessee. Issue 8: Imposition of Interest under Section 234B The Tribunal found that the imposition of interest under section 234B on additions was superfluous given its ruling on the applicability of section 115JB. The Tribunal ruled in favor of the assessee. Conclusion: The Tribunal allowed the assessee’s appeal in ITA No. 1656/K/2013 and partly allowed the appeal in ITA No. 891/K/2013 for statistical purposes. The Tribunal ruled in favor of the assessee on most issues, particularly emphasizing the non-applicability of section 115JB to the assessee company and the improper disallowance of expenditure under section 14A read with Rule 8D.
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