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2021 (8) TMI 608 - AT - Income TaxCapitalization of interest expenses - Asset put to use - HELD THAT - The interest expenses till date the asset is put to use has to be capitalized to the cost of asset and after commencement of power production the interest (i.e. post the assets are put to use) the expenditure was rightly debited to the P L Account and claimed as revenue expenditure and therefore no fault can be attributed to the action of Ld. CIT(A). The only objection pointed out by the Ld. CITDR that the Ld. CIT(A) has believed the facts noted by the Auditor s Report and has taken the date of commissioning of Thermal Project as on 25.09.2012 without making any enquiry or calling remand report from AO is not agreeable for the simple reason that we have reproduced, the AO s action on this issue and perusal of the same would reveal that the AO has noted the date of commissioning of Thermal Project as on 25.09.2012 from the same source i.e. Auditor s Report and has not disputed this fact and in fact has accepted it. When the AO in the assessment order has accepted the date of commissioning of thermal project as on 25.09.2012, the Ld. CIT(A) has accepted the said fact and proceeded to examine the claim of the assessee in respect of capitalization of interest expenditure till the date of commissioning of Thermal Project which was legally correct. CIT(A) has allowed the claim of the assessee on the well settled principle of law on this subject. Therefore, we do not find any infirmity in the order of the Ld. CIT(A) and confirm the same. These grounds of appeal of revenue are dismissed. Addition of debenture redemption reserve in computing Book profit u/s. 115JB - According to the AO Debenture Redemption Reserve was carried to reserve so it should be added back under Explanation 1(b) to sec. 115JB of the Act and thus added back this amount - HELD THAT - As noted that the amount transferred to DRR is not in excess of the amount to be required to paid at the time of repayment of the debentures, so it cannot be treated as reserve for the purpose of Schedule VI to the Companies Act, 1956; and as discussed the amount set apart to meet a known liability as such the DRR cannot be considered as reserve to attract explanation 1(b) of section 115JB of the Act. Moreover, we note that the Ld. CIT(A) has allowed the claim by referring to the decision of this Tribunal in SREI Equipment Finance Ltd. 2019 (2) TMI 1721 - ITAT KOLKATA wherein the Tribunal has relied on the ratio of the decision laid by the Hon ble Bombay High court in the case of CIT Vs. Raymond Ltd. 2012 (4) TMI 128 - BOMBAY HIGH COURT wherein it has been held that mere fact that the debenture redemption reserve is labeled as a reserve will not render it as a reserve and an amount which is retained by way of providing a known liability is not a reserve within the meaning of explanation (b) of section 115JA of the Act. Therefore, in view of the discussion (supra) we do not find any infirmity in the order passed by the Ld. CIT(A) and, therefore, we confirm the same and dismiss this ground of appeal of revenue. Claim of deduction towards the education cess in computing total income under normal provisions of the Act - HELD THAT - The issue is no longer res integra in the light of the decision of this Tribunal in the case of SREI Infrastructure Finance Ltd. 2014 (9) TMI 1240 - ITAT KOLKATA wherein held Section 40(a)(ii) applies only to taxes and not to education cess - . Thus, we are of the opinion that the issue raised by the assessee is no longer res integra. The education cess is not income tax, so is an allowable deduction u/s. 37(1) of the Act. Therefore, we allow this ground of appeal of the assessee and direct the AO to allow the claim of the deduction of the education cess while computing the total income of the assessee. Non-exclusion of profit on sale of fixed assets and investments (net) in computation of Book Profits u/s. 115JB of the Act - CIT(A) held that profits on transfer of assets should be considered while considering MAT and, therefore, he upheld the action of the AO wherein he had added profit on sale of assets and investments - HELD THAT - In the light of the aforesaid decision of the Special bench of this Tribunal in Rain Commodities Ltd. 2010 (7) TMI 794 - ITAT HYDERABAD this issue is no longer res-integra and therefore we are of the opinion that the Ld. CIT(A) rightly upheld the action of AO on this issue, which does not require any interference from our part, so we confirm his action and dismiss this ground of assessee.
Issues Involved:
1. Condonation of Delay 2. Deletion of Capitalization of Interest Expenses 3. Addition of Debenture Redemption Reserve in Computing Book Profit under Section 115JB 4. Disallowance of Claim of Education Cess 5. Non-Exclusion of Profit on Sale of Fixed Assets and Investments in Computation of Book Profits under Section 115JB Detailed Analysis: 1. Condonation of Delay: The revenue's appeal was time-barred by two days. After reviewing the petition and hearing both sides, the delay was condoned, and the appeal was admitted for hearing. 2. Deletion of Capitalization of Interest Expenses: The revenue contended that the CIT(A) erred in deleting the capitalization of interest expenses amounting to ?6,63,00,000. The AO had disallowed the interest expenses on the grounds that the borrowed funds were utilized for capital purposes and should be capitalized. The CIT(A) allowed the assessee's appeal, stating that the interest incurred post-commissioning of the Thermal Power Plant was correctly claimed as a deduction under Section 36(1)(iii) of the Income Tax Act, 1961. The Tribunal upheld the CIT(A)'s decision, noting that the AO's disallowance was based on an unscientific calculation and that the interest expenses were rightly capitalized until the commissioning of the Thermal Project and claimed as revenue expenditure thereafter. 3. Addition of Debenture Redemption Reserve in Computing Book Profit under Section 115JB: The AO added ?3.50 crores to the book profit under Section 115JB, considering the Debenture Redemption Reserve as a reserve. The CIT(A) deleted the addition, citing the Jurisdictional ITAT's decision in SREI Equipment Finance Pvt. Ltd. vs. DCIT, which held that the Debenture Redemption Reserve is a provision for meeting a specific liability and should not be added back for computing MAT. The Tribunal upheld the CIT(A)'s decision, affirming that the Debenture Redemption Reserve is not a reserve for the purpose of Explanation 1(b) to Section 115JB. 4. Disallowance of Claim of Education Cess: The assessee's claim for deduction of education cess amounting to ?27,40,223 was disallowed by the AO and upheld by the CIT(A), who relied on CBDT Circular 3 of 2018, which includes cess in the definition of tax. However, the Tribunal allowed the assessee's claim, referencing the decision of the Hon'ble Rajasthan High Court in Chambal Fertilizers and Chemicals Ltd. vs. JCIT, which held that education cess is not a tax and is allowable as a deduction under Section 37(1) of the Income Tax Act. 5. Non-Exclusion of Profit on Sale of Fixed Assets and Investments in Computation of Book Profits under Section 115JB: The AO included ?1,73,66,796 as profit on the sale of fixed assets and investments in the computation of book profits under Section 115JB. The CIT(A) upheld this inclusion, referencing the decision of the Hon'ble Bombay High Court in Veekay Lal Investment Co. Pvt. Ltd., which held that capital gains should be included in the computation of book profits. The Tribunal confirmed the CIT(A)'s decision, also citing the Special Bench of Hyderabad ITAT in Rain Commodities Ltd. vs. DCIT, which supported the inclusion of capital gains in book profits under Section 115JB. Conclusion: The Tribunal dismissed the revenue's appeal and partly allowed the assessee's cross-objection. The decisions of the CIT(A) regarding the deletion of capitalization of interest expenses and the exclusion of the Debenture Redemption Reserve from book profits were upheld. The Tribunal also allowed the deduction of education cess while confirming the inclusion of profit on the sale of fixed assets and investments in the computation of book profits under Section 115JB.
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