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TMI Blog2016 (8) TMI 556X X X X Extracts X X X X X X X X Extracts X X X X ..... for the rest of the items in the list, depreciation @ 15% may be allowed. Additions made to the book profit computed u/s 115JB of the Act on account of provision for doubtful debts - Held that:- We have observed that Income Tax Act,1961 was amended by Finance Act, 2004 w.e.f 1-4-2001 by substitution of clause (i) of Explanation1 to Section 115JB of the Act whereby the amount or amounts set aside as provision for diminution in the value of any asset is to be added back to the profit of the assessee as per Profit and Loss Account to arrive at Book Profit u/s 115JB of the Act which is clearly applicable to Provision for doubtful debt of ₹ 15,29,058/- debited to Profit and Loss Account by the assessee and the same is ordered to be added back to Profit as per Profit and Loss Account to determine book profit as per amended provision of Section 115JB of the Act. This ground of appeal raised by the assessee company is therefore dismissed. Provisions for gratuity and provision for leave encashment based on actuarial valuation conducted by the acturial is an ascertained liability which shall not be added to Profit of the assessee as per Profit and Loss Account to compute Book p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal are raised by the assessee company in ITA No. 805/Mum/2011 for the assessment year 2008-09 in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai (hereinafter called the Tribunal ) which reads as under:- 1. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) - 22, Mumbai ['CIT(A)'] erred in confirming disallowance of depreciation of ₹ 14,76,563 on the 'Management Rights' acquired by the Appellant during the year ending 31 March 2005 and capitalised as intangibles. 2. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the disallowance of proportionate depreciation amounting to ₹ 12,29,860/- on the addition of assets such as UPS, switches and cables, to the block of Computers . The learned CIT(A) ought to have accepted the claim of depreciation @ 60% on these assets as against 15%, since these are peripherals and essential part of computers. 3. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the disallowance of interest amounting to ₹ 92,83,374 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s per the financial statements and actuarial valuation reports. 3. The brief facts in this case are that the assessee company is engaged in the business of setting up and running a hospital and has expertise in management of health centres and facilities. 4. During the course of assessment proceedings, it was observed by the AO that the assessee company has claimed depreciation of ₹ 14,76,563/- on the management rights acquired by the assessee during the year ending 31st March, 2005 and capitalized as intangibles. The A.O. disallowed the same in this previous year also which claim was disallowed by the AO in the earlier years also on the same grounds that the assessee company claim of purchasing management rights of Nagpur Hospital is nothing but premium paid for management agreement, which was a non depreciable capital asset, which was confirmed by the ld. CIT(A) in the first appeal filed by the assessee company . It was submitted before the learned CIT(A) that as per terms of the agreement, the assessee company has acquired significant commercial and business rights from Dr. Bais Surgical and Medical Institute Private Limited for a period of 10 years , extendable fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssets in the form of goodwill is eligible for claim of depreciation. The relevant portion of the afore-stated Mumbai Tribunal s order dated 04-02- 2016 are reproduced below:- 4. We have considered rival contentions and gone through the order of the Tribunal dated 10-7-2015, wherein at para 10, the Tribunal has restored assessee s ground for claim of depreciation on management rights for deciding as per the order of the Tribunal in assessee s own case in the preceding year. However, there is no order of the Tribunal in assessee s own case, therefore, it amounts to mistake apparent from record. The Tribunal in its order dated 10-7-2015 at para 9 has quoted various decisions of the Hon ble High Courts and Tribunal, wherein depreciation was allowed in case of intangible assets. Accordingly, we rectify the order dated 10-7-2015 to the extent of observation made in para 10 of the order and direct the AO to allow assessee s claim of depreciation following the decisions of Hon ble High Court and Tribunal quoted in para 9 of our order, dated 10-7-2015. Before parting with the matter, it is pertinent to mention that recently the Hon ble Supreme Court in the case of Smifs Securitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Projector 26.10.2007 66,375 xiv. Modular Router 10.10.2007 78,384 xv. 6KVA UPS 31.10.2007 82,000 xvi. 6KVA UPS 26.10.2007 82,000 xvii. 6KVA UPS 30.11.2007 82,000 xviii. 6KVA UPS 10.10.2007 1,05,149 xix. 7.5 KVA UPS 25.10.2007 1,30,000 xx. Pipes Racks 10.10.2007 1,34,712 xxi. UPS System 31.10.2007 1,81,641 xxii. Cat-6 Cables 04.02.2008 3,99,636 xxiii. Cable Trays 25.10.2007 4,75,437 xxiv. Pipes Racks 25.10.2007 5, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee company is in second appeal before the Tribunal. 10. The ld. Counsel for the assesssee company submitted that UPS, cables, electrical switches etc. are integral parts of the computer and should be considered to be peripherals which are required to run the computer and these assets are eligible for depreciation @ 60%. The ld. counsel relied on the following judicial decisions:- 1. DCIT v. Datacraft India (P) Ltd., [2010] 40 SOT 295 (Mum)(SB) 2. IBAHN India (P.) Ltd. v. DCIT, ITA No. 4932/Mum/2015 3. American Express Services India Ltd. v. DCIT, (2013) 57 SOT 22(Del-Trib). 4. GE Capital Business Process Management Services (P.) Ltd. v. ACIT, (2016) 136 ITD 239 (Del-Trib). 5. ACIT v. Global Healthline (P.) Ltd., ITA No. 3319/Del/2012 (Del- Trib.) 11. The ld. D.R., on the other hand, relied upon the order of the learned CIT(A). 12. We have considered the rival contentions and also perused the material available on record including the case laws. We have observed that the assessee company has claimed depreciation on certain assets which were acquired by the assessee company being in the nature of UPS, routers, switches and cables, projector, pipes and r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he disallowance following the preceding year s order for assessment year 2004-05 passed by learned CIT(A). 14. At the outset, the ld. Counsel for the assessee company submitted that this issue is squarely covered by the decision of the co-ordinate Bench of this Tribunal in assessee company s own case in ITA No. 2376 to 2378/Mum/2011 for the assessment years 2005-06 to 2007-08 vide orders dated 10th July, 2015. The ld. D.R. relied upon the order of the learned CIT(A). 15. We have considered the rival contentions and also perused the material available on record including the afore-stated orders of the Tribunal dated 10- 07-2015. We find that the Tribunal in assessee s own case in ITA No. 2376 to 2378/Mum/2011 for assessment years 2005-06 to 2007-08 vide orders dated 10th July, 2015 has set aside the matter back to the file of the A.O. for deciding the same afresh in accordance with law. The Tribunal in the afore- stated order observed as under:- 4. The next issue pertains to disallowance of interest paid on borrowings utilized for purpose of acquisition of 100% share capital of Kanishka Housing Development Co. Ltd. 5. It was contended by ld. AR that no disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the AO amounting to ₹ 21,52,125/- on account of interest free funds being utilized for providing interest free funds to M/s Palanpur Holdings and Investments Pvt. Ltd. In this regard, the A.O. observed that a loan of ₹ 5,80,00,000/- was given to M/s Palanpur Holdings Investments P. Ltd. on which no interest was charged by the assessee company. The assessee company submitted that the loan was given for the purpose of building a hospital in Palanpur and the funds were given out of assessee company s own funds. It was submitted that in the presence of mixed funds availability, the assessee company has option of beneficial appropriation . The A.O. was of the opinion that it was not proved by the assessee company that the said sum was given out of own funds, thus, the onus to prove any claim made by the assessee company lies on the assessee company, which the assessee company is not able to discharge. The A.O. also observed that in the preceding year, similar issue was discussed and it was held that the funds of the business were a mix of interest bearing borrowed funds as well as own funds and hence disallowance was computed on the basis of average rate of interest. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see company has stated that the assessee company had advanced an amount of ₹ 5.80 crores to M/s Palanpur Holdings Investments Pvt. Ltd. as interest free funds for setting up a Hospital in Palanpur. The contention of the assessee company is that it is for the purpose of the business. The assessee company also submitted that it has deployed the said loan of ₹ 5.8 crores out of its own funds. To support the contention, the assessee company relied upon the decision of the Hon ble Bombay High Court in the case of CIT v. Reliance Utilities and Power Limited(2009) 313 ITR 340(Bom. HC) as well as the decision of CIT v. HDFC Bank Limited in ITA no 330 of 2012 ((2014) 366 ITR 505(Bom. HC) ) and CIT v. HDFC Bank Limited(WP no. 1753 of 2016)((2016) 67 taxmann.com 42(Bom.HC). Keeping in view of the facts and circumstances of the case, We are inclined to set aside and restore the matter to the file of the A.O. for verification of the contentions of the assessee company and the AO is directed to decide the matter in the light of the decision of Hon ble Bombay High Court in the case of Reliance Utilities and Power Ltd. (supra) and HDFC Bank Ltd. (supra). This disposes of ground no. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter back to the file of AO for deciding afresh in terms of above judicial pronouncements. **** **** 27. The ground taken for A.Y. 2007-08 are common as discussed in the assessment year 2005-06. With regard to the ground taken for disallowance of interest u/s 14A amounting to ₹ 3,54,011/- , following the reasoning given hereinabove, we restore the matter back to the file of AO for deciding afresh. Respectfully following the afore-stated decision of the co-ordinate Bench of this Tribunal, we set aside and restore the issue back to the file of the A.O. for de novo determination of the issue afresh in terms of the judicial pronouncements as indicated in the afore-stated Tribunal order dated 10-07- 2015 in assessee company s own case. This disposes of ground no. 6 and 7 raised by the assessee company in the grounds of appeal filed in memo of appeal with the Tribunal.We order accordingly. 23. The next ground relates to the additions made to the book profit computed u/s 115JB of the Act on account of provision for doubtful debts of ₹ 15,29,058, provision for gratuity of ₹ 42,17,911 and provision for leave encashment of ₹ 17,53,115/-. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titution of clause (i) of Explanation1 to Section 115JB of the Act whereby the amount or amounts set aside as provision for diminution in the value of any asset is to be added back to the profit of the assessee as per Profit and Loss Account to arrive at Book Profit u/s 115JB of the Act which is clearly applicable to Provision for doubtful debt of ₹ 15,29,058/- debited to Profit and Loss Account by the assessee and the same is ordered to be added back to Profit as per Profit and Loss Account to determine book profit as per amended provision of Section 115JB of the Act. This ground of appeal raised by the assessee company is therefore dismissed. We order accordingly. We find that the Tribunal in assessee company s own case in ITA No. 2376 to 2378/Mum/2011 for the assessment years 2005-06 to 2007-08 vide orders dated 10th July, 2015 had deleted the additions so made by the A.O. with respect to the Provision for gratuity and leave encashment by treating the same as ascertained liability. The relevant portion of the Tribunal order is reproduced below:- 20. The next grievance of revenue relates to deleting disallowance of provision for leave encashment and provision for gra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on-depreciable capital asset. 2. The Appellant prays that the addition of ₹ 11,07,422/- be deleted and the AO be directed to allow depreciation on the above as claimed by the Appellant. GROUND 11: DISALLOWANCE OF DEPRECIATION UNDER SECTION 32 OF THE ACT, AT A HIGHER RATE ON ADDITIONS MADE TO FIXED ASSETS IN AY 2008-09 AMOUNTING TO ₹ 15,37,326/-: 1. On the facts and in circumstances of the case and in law, the CIT(A) erred in disallowing depreciation at a higher rate (i.e. 60%) claimed u/s. 32 of the Act amounting to ₹ 15,37,326/- on addition of various fixed assets to the block of computers , on the alleged premise that such additions were in nature of electrical switches, plant machinery, office equipment or software. 2. The Appellant prays that the aforesaid disallowance u/s. 32 of the Act amounting to ₹ 15,37,326/- be deleted. GROUND Ill: DISALLOWANCE OF DEPRECIATION UNDER SECTION 32 OF THE ACT AMOUNTING TO ₹ 5,35,427/-, AT A HIGHER RATE ON ADDITIONS MADE TO COMPUTERS IN AY 2009-10: 1. On the facts and in circumstances of the case and in law, the CIT{A) erred in upholding the action of the AO in disallowing depreciat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. The Appellant prays that the aforesaid addition of ₹ 31,02,711/- be deleted. GROUND VII: DEDUCTION FOR PROVISION FOR FBT of ₹ 82,01,157 FROM PROFIT BEFORE TAX: 1. On the facts and in circumstances of the case and in law, the CIT(A) , while computing the book profit u/s. 115JB of the Act, erred in upholding the action of the AO for not granting deduction of ₹ 82,01,157 on account of provision for fringe benefit tax ('FBT) as claimed in the Return of Income, to the Loss as per Profit Loss account of ₹ 36,13,64,742/- without appreciating the fact that the loss of ₹ 36,13,64,742/- was before claiming the said provision. 2. The Appellant prays that the learned AO be directed to grant deduction for aforesaid provision for FBT amounting to ₹ 82,01,157/- while computing the book profit u/s. 115JB. GROUND VIII: ADDITION OF PROVISION FOR WEALTH TAX FOR CALCULATION OF BOOK PROFIT UNDER SECTION 115JB OF THE ACT AMOUNTING TO ₹ 95,938/-: 1. On the facts and in circumstances of the case and in law, the CIT (A) erred in upholding the action of the AO in adding back the provision for wealth tax amounting to ₹ 95,938/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k profit u/s. 115JB of the Act. 2. The Appellant prays that the aforesaid addition of ₹ 1,73,92,958/- be deleted while computing the book profit u/s. 115JB. GROUND XIII: LEVY OF INTEREST UNDER SECTION 234B AND 234C OF THE ACT: 1. The AO erred in levying interest u/s. 234B and 234C of the Act. 2. The Appellant prays that the aforesaid addition be deleted. 28. With respect to ground No. I regarding disallowance of depreciation on management rights amounting to ₹ 11,07,422/- acquired by the assessee during the year ended 31-03-2005, the facts and circumstances of the issue are similar to the issues in assessee company s appeal no. ITA no.805/Mum/2011 for the assessment year 2008-09 which is adjudicated by us in preceding para s vide this common order, hence, our decision in ITA no. 805/Mum/2011 for the assessment year 2008-09 vide this common order shall apply mutatis mutandis to the assessee company s appeal in ITA No. 3002/Mum/2013 for the assessment year 2009-10 wherein the facts are identical . We allow this ground of appeal filed by the assessee company in the memo of appeal filed with the Tribunal. We order accordingly. 29. With respect t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HC) . We do not find any infirmity in disallowance as made by the AO and confirmed by the learned CIT(A). We confirm and sustain the addition and dismiss the ground raised by the assessee company.We order accordingly. 32. Ground No. VI is regarding disallowance of employees contribution to PF u/s 36(1)(va) r.w.s. 2(24)(x) of the Act and taxing the employee contribution to the tune of ₹ 31,02,711/ under the head Income from other sources . The A.O. observed that the employees provident fund payment has not been paid by the assessee company within the stipulated due date under the PF Act as per explanation to Section 36(1)(va) of the Act, hence, the payments made after the due date as provided under the PF Act were treated as income of the assessee u/s 2(24)(x) of the Act and taxed under the head Income from other sources amounting to ₹ 31,02,711/-. On appeal, the ld. CIT(A) directed the A.O. to re-compute the disallowance by allowing of payment of employees contribution made to the provident fund which had been made by the assessee company within the grace period of five days allowed under the PF Act. The assessee company challenged the order of the ld. CIT(A) bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 8 of 2005 dated 29th August, 2005 issued by the CBDT in question no. 103 where it is stated by the CBDT that for the computation of book profit u/s 115JB of the Act, fringe benefit tax is an allowable deduction for computation of book profit u/s 115JB of the Act and accordingly allowed the ground raised by the assessee company before the ld. CIT(A). The ld. Counsel for the assessee company submitted that the assessee company has already reduced the FBT while computing the Book Profit u/s 115JB of the Act as per the return of income filed. He drew our attention to audited Profit and Loss Account which is placed at page 7 of paper book where loss before tax as per audited profit and loss account is ₹ 361364742/- and the assessee made adjustment of FBT which is reflected after profit before taxes in audited Profit and loss to arrive at Profit after tax and the assessee increased the loss as per profit and loss account by FBT amount of ₹ 82,01,157/- of its own in computation of income to arrive at Book Profit u/s 115JB of the Act which was stated by the assessee to be correctly done as per circular no 8 of 2005 dated 29-08-2005 issued by CBDT to arrive at Book Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble jeopardy to the assessee company. Thus, keeping in view of the afore-stated CBDT Circular, the A.O. is directed to re-compute the losses u/s 115JB of the Act whereby the FBT will be allowed to be added to the losses prior to tax as reflected in the audited Profit and loss account to increase the loss to arrive at the book profit u/s 115JB of the Act. We order accordingly. 35. The next ground is with respect to the addition of provision for wealth tax for computation of book profit u/s 115JB of the Act amounting to ₹ 95,938/-. The AO made adjustment to Profit(Loss) as per Profit and Loss account by adding the provision for wealth tax of ₹ 95,938/-to arrive at Book Profit computed u/s 115JB of the Act , which ground of appeal was dismissed by the learned CIT(A) and the action of the AO was upheld/sustained by the learned CIT(A) . The assessee filed second appeal with the Tribunal. The assessee contended that it has correctly increased the provision for wealth tax to arrive at the book profit(loss) u/s 115JB of the Act as the same is to be allowed as deduction from profit(loss) before tax. The assessee drew our attention to audited Profit and Loss Account placed at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mputation of book profit u/s 115JB of the Act amounting to ₹ 12,82,436/-. The facts and circumstances of the issue are similar to the issues in assessee company s appeal in ITA no.805/Mum/2011 for the assessment year 2008-09 which is adjudicated by us in preceding para s vide this common order, hence, our decision in ITA no. 805/Mum/2011 for the assessment year 2008-09 vide this common order shall apply mutatis mutandis to the assessee company s appeal in ITA No. 3002/Mum/2013 for the assessment year 2009-10 wherein the facts are identical . Thus, this issue raised by the assessee company in grounds of appeal is allowed in favour of the assessee company. We order accordingly. 39. Ground No. XII is regarding addition of amount computed u/s 14A amounting to ₹ 1,73,92,958/- in computing book profit u/s 115JB of the Act. This ground is consequential to ground No. IV V of this appeal, wherein we upheld the addition of ₹ 6,96,950/- made by the AO and as sustained by learned CIT(A) u/s 14A of the Act read with Rule 8D(2)(iii) of Income Tax Rules, 1962 , while the addition of ₹ 1,66,96,008/- is set aside and restored to the file of the AO for deciding afresh , ..... X X X X Extracts X X X X X X X X Extracts X X X X
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