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2023 (7) TMI 1141 - AT - Income TaxDisallowance of provision for leave encashment - HELD THAT - This issue is covered against the assessee by the judgment of Exide Industries Limited Anr. 2020 (4) TMI 792 - SUPREME COURT . Respectfully following the judgment of the Hon ble Supreme Court, we reject the Ground No. 1 raised by the assessee. Disallowance of claim of Education Cess - HELD THAT - We find that this issue is covered against the assessee by virtue of amendment with retrospective effect made by the Finance Act, 2022, whereby the Cess has been held to be part of income-tax and not allowable deduction in computing total income. Therefore, this ground of appeal is dismissed. Exclusion of special reserve in computation of total income under the normal provisions of the Act - HELD THAT - Merely because the assessee is required to transfer the profits to special reserve or there are certain restrictions for using the said profits that itself is not enough to hold that the same is not the income of the assessee. That special reserve belongs to the assessee only and is reserved for utilization in certain eventualities for the safety and benefit of assessee and its customers as per the RBI guidelines. This fund is in the type of savings that belongs to the assessee itself. Therefore, it cannot be said that transfer of certain profits to reserve fund will not fall in the definition of income of the assessee. As relying on Srei Infrastructure Finance Limited . 2015 (2) TMI 545 - DELHI HIGH COURT we dismiss this ground raised by the assessee. MAT computation - The above special reserve should not be taken for computation of income in the book profit under section 115JB as decided in Srei Infrastructure Finance Limited. 2015 (2) TMI 545 - DELHI HIGH COURT Decided against assessee. Short-term capital gain on the receipt from transfer of voting rights - CIT-A deleted the addition - HELD THAT - AO taxed the said amount as short term capital gains. CIT(Appeals) deleted the addition made by the ld. Assessing Officer holding that since the cost of acquisition of the said rights could not be determined, therefore, the computation machinery will fail. He in this respect relied upon the decision of the Hon ble Supreme Court in the case of CIT vs.- B.C. Srinivasa Setty 1981 (2) TMI 1 - SUPREME COURT D.R. could not point out any distinguishable fact on law for interference in the aforesaid order of the ld. CIT(Appeals), the said is accordingly upheld. Receipt from transfer of rights to purchase the sale shares at a future date treated as Short Term Capital Gain - CIT-A deleted the addition - HELD THAT - Since the assessee had only entered into an agreement for selling its right to purchase the sale shares of M/s. Potin Pangin Highway, a joint venture of assessee and ECI and the actual transaction had taken place in the assessment year 2021-22 and no transfer of shares took place in the assessment year under consideration and further the amount has been offered for taxation when the transfer was complete in the A.Y. 2021-22. Therefore, we do not find any infirmity in the order of ld. CIT(Appeals) on this issue also. This ground is hereby dismissed. Receipt from assignment of rights - AO treated the said receipt as short-term capital gain - CIT(Appeals) deleted the addition holding that there was no mechanism to determine the cost of acquisition of assignment of right to subscribe to 14.5% shares in the joint venture company as relying on B.C. Srinivasa Setty 1981 (2) TMI 1 - SUPREME COURT - HELD THAT - D.R. could not point out any distinguishable facts on law to interfere in the order of ld. CIT(Appeals) and the same is accordingly upheld. This ground of Revenue is hereby dismissed. Disallowance u/s 14A - HELD THAT - The issue is squarely covered by the decision of Reliance Industries Limited 2019 (1) TMI 757 - SUPREME COURT wherein as upheld the proposition made by the various High Courts that if the assessee is possessed of own/interest-free funds sufficient to make the investment, then, under the circumstances, presumption will be that the investments have been made by the assessee out of own funds/interest-free funds available to it. D.R. has not disputed the fact that own/interest-free funds of the assessee were more than the investments made. No infirmity in the order of ld. CIT(Appeals) on this issue and the same is upheld. Ground raised by the Revenue is dismissed. Disallowance u/s 36(1)(iii) - AO computed the notional interest at the rate of 10% on the average investments in SPVs and held that the same cannot be allowed under section 36(1)(iii), on the contention that these investments were not for generating any income nor was there any certainty that they would generate any income in near future and thus were not for the purpose of business - CIT-A deleted disallowance observing that the assessee was having sufficient own funds to make investment and further that investments in SPV (Special Purpose Vehicle) have been made during the course of business - HELD THAT - . Considering the nature of business of the assessee and the purpose of forming the SPV to secure infrastructure, contracts etc., we do not find any infirmity in the order of ld. CIT(Appeals) in holding that the said expenditure/investment was made for the business purposes. This ground of Revenue s appeal is, therefore, dismissed. Deduction u/s 36(1)(viii) - HELD THAT - CIT(Appeals) correctly relied upon the decision of National Thermal Power Co. Limited. 1996 (12) TMI 7 - SUPREME COURT and Pruthvi Brokers Shareholders 2012 (7) TMI 158 - BOMBAY HIGH COURT as observed that the assessee is entitled to raise additional grounds not merely in terms of legal submissions before the authorities but is also entitled to raise additional claim not made in the return filed by it. That the appellant authority have jurisdiction to take not merely that additional grounds, which become available on account of change of circumstances or law, but that additional grounds which were available when the return was filed. Decided against revenue. MAT computation - deletion of contingent provision against standard assets in the computation of book profit u/s 115JB - HELD THAT - We are not satisfied with the above finding of the ld. CIT(Appeals). Since clause (i) to Explanation 1 of Section 115JB provides for addition of amount set aside as provision made for meeting liability and other ascertained liabilities is not applicable and further though the RBI has directed for creation of contingent provision on standard assets in accordance with the prudential norms of RBI, however, that itself cannot be said to be ascertained liability of the assessee. No justification on the part of ld. CIT(Appeals) in deleting the impugned disallowance made by AO while computing the book profit under section 115JB of the Income Tax Act. The order of the ld. CIT(Appeals) on this issue is set aside and this ground of Revenue is allowed.
Issues Involved:
1. Disallowance of provision for leave encashment. 2. Disallowance of claim of Education Cess. 3. Exclusion of special reserve in computation of total income under normal provisions. 4. Addition of special reserve in computing Book Profits under section 115JB. 5. Deletion of receipts from transfer of voting rights. 6. Deletion of receipts from transfer of rights to acquire sale shares. 7. Deletion of receipt from assignment of rights. 8. Deletion of disallowance under section 14A. 9. Deletion of disallowance under section 36(1)(iii). 10. Deletion of disallowance of modified claim of deduction under section 36(1)(viii). 11. Deletion of addition of contingent provision against standard assets in computation of book profit under section 115JB. Summary: 1. Disallowance of provision for leave encashment: The issue of disallowance of provision for leave encashment amounting to Rs. 37,73,360/- was dismissed, as it was squarely covered against the assessee by the Hon'ble Supreme Court judgment in Union of India & Ors. vs. Exide Industries Limited & Anr. 2. Disallowance of claim of Education Cess: The claim of Education Cess amounting to Rs. 86,70,456/- was disallowed due to the retrospective amendment by the Finance Act, 2022, which held that Cess is part of income-tax and not an allowable deduction. 3. Exclusion of special reserve in computation of total income under normal provisions: The assessee's claim that the amount transferred to the special reserve under section 45IC of the RBI Act should not be included in the computation of income was dismissed. The Tribunal followed the decision of the Hon'ble Delhi High Court in Srei Infrastructure Finance Limited vs. Additional Commissioner of Income Tax. 4. Addition of special reserve in computing Book Profits under section 115JB: The issue was also decided against the assessee, following the Hon'ble Delhi High Court's decision that the amount transferred to the special reserve should be added during the computation of book profit under section 115JB. 5. Deletion of receipts from transfer of voting rights: The Revenue's appeal regarding the deletion of receipts from the transfer of voting rights amounting to Rs. 20,00,00,000/- was dismissed. The CIT(A)'s decision was upheld as the cost of acquisition could not be determined, following the Supreme Court's decision in CIT vs. B.C. Srinivasa Setty. 6. Deletion of receipts from transfer of rights to acquire sale shares: The deletion of the addition made by the Assessing Officer on the receipt from the transfer of rights to purchase 'sale shares' was upheld. The actual transaction took place in the assessment year 2021-22, and the amount was offered for taxation in that year. 7. Deletion of receipt from assignment of rights: The deletion of the addition made by the Assessing Officer on the receipt from the assignment of rights amounting to Rs. 15,00,00,000/- was upheld. The CIT(A) relied on the Supreme Court's decision in CIT vs. B.C. Srinivasa Setty. 8. Deletion of disallowance under section 14A: The CIT(A)'s order restricting the disallowance under section 14A to Rs. 21.47 lacs on account of administrative expenses was upheld. The Tribunal followed the decision of the Hon'ble Supreme Court in Reliance Industries Limited, which held that if the assessee has sufficient own funds, the presumption is that investments were made from those funds. 9. Deletion of disallowance under section 36(1)(iii): The deletion of disallowance of Rs. 48,83,800/- under section 36(1)(iii) was upheld. The Tribunal agreed that the investments in SPVs were made during the course of business and not with the intention of making investments. 10. Deletion of disallowance of modified claim of deduction under section 36(1)(viii): The CIT(A)'s decision allowing the modified claim of deduction under section 36(1)(viii) was upheld, following the Supreme Court's decision in National Thermal Power Co. Limited vs. CIT and the Bombay High Court's decision in CIT vs. Pruthvi Brokers & Shareholders. 11. Deletion of addition of contingent provision against standard assets in computation of book profit under section 115JB: The deletion of the addition of contingent provision against standard assets amounting to Rs. 1,61,00,000/- was set aside. The Tribunal found that such contingent provisions cannot be treated as ascertained liabilities. Conclusion: The assessee's appeal was dismissed, and the Revenue's appeal was partly allowed. The order was pronounced in the open Court on 22nd May, 2023.
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