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TMI Blog2017 (6) TMI 249X X X X Extracts X X X X X X X X Extracts X X X X ..... oup, including the assessee, on 16/03/2011resulting in seizure of books of accounts and documents.Thereafter, a notice u/s. 153A was issued requiring the assesse to file return of income. In response to the notice it filed return on 29/01/2011 declaring income of Rs. 255.08 crores. Income u/s.115JB was disclosed at Rs. 9,76,27,90,248/-. 3.First Ground of appeal is about deleting the addition made on account of capitalization, amounting to Rs. 33.84 crores in respect of contract awarded to M/s.Gremach Infrastructure Equipments and Projects Ltd. (GIEPL). During the assessment proceedings the AO observed that the group had booked huge capital expenditure in various projects of M/s.JSW Steel Ltd., M/s. JSW Energy Ltd. and M/s.Raj West Power Ltd., that there were lot of discrepancies with regard to the contract awarded to GIEPL, that the assessee had not reversed/ written back any amount of capital work-in-progress based on the discrepancies found during the course of search and seizure proceedings.He further observed that JSW Energy Ltd.(Ratnagiri), previously a wholly owned subsidiary of the assessee had merged with it w.e.f. 01.04.2010, that it got generation of electricity from its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by assessee to GIEPL could not be considered for the purpose of business, that the claim made by the assessee had to be rejected.Finally,he made a disallowance of Rs. 33.84 lakhs in respect of the transaction entered into with GIEPL under the head capital expenses. 3.3Aggrieved by the order of the AO, the assessee is in appeal before the First Appellate Authority (FAA)and made elaborate submissions. After considering the assessment order and the submissions of the assessee,he held that JSW(E), Ratnagiri made payment to GEIPL, that the subsidiary got merged with the assessee w.e.f. 1.4.2010 as per the scheme arrangement approved by the Hon'ble Bombay High Court vide order dt.24/9/2010, that it stood dissolved without being wound up on 2/11/2010 being the date of filing of order of the Hon'ble High Court with Registrar of Companies, that survey was conducted at the business premises of the JSW(E), Ratnagiri on 16/3/2011, that JSW(E) Ratnagiri was in existence till 2/11/2010, that the AO had not alleged that the assessee had claimed any expenditure, revenue or capital on account of payment made to GEIPL during the assessment year 2008-09, that disallowance can be made only if t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess,that capital expenditure of Rs. 68.15 lakhs claimed by the assessee for the year under consideration could not be allowed. 3.Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority(FAA).Before him,it was argued that it had neither incurred not claim any expenditure for the year under consideration,that the AO was not justified in disallowing the same,that expen -diture was incurred by a subsidiary company of the assessee which amalgamated with it with effect from 01/04/2010. He referred to his order for the AY. 2008- 09 and stated that the matter pertained to capitalisation of an expenditure with regard to payment made to GEIPL by JSW Energy(Ratnagiri)Ltd.(JSWERL),that it was a subsidiary of the assessee and the amount in question was included in the capital work in progress,that JS got merged with the assessee with effect from 01/04/2010 vide an scheme of arrangement approved by honorable Bombay High Court order dated 24/09/2010 that during the search and seizure proceedings carried out in the case of assessee group certain papers were found about the contract given to GEIPL, that the AO of that company had disallowed a sum of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s on account of indirect expenses under Rule 8D(ii). 4.1.Before the FAA,in the appellate proceedings,the assessee made elaborate submissions regarding non applicability of section 14A and Rule 8D contending that no disallowance had been made as it had not earned any exempt income during the year.After considering the submissions of the assessee, the FAA held that disallowance of Rs. 9.14 crores was made by the assessee itself in the return filed by the assessee u/s. 153A,that there was no explanation as to how the expenditure-that was identified by the assessee as being incurred with reference to investment in shares-should not be disallowed.Accordingly, he directed the AO to restrict the disallowance to Rs. 9.14 crores. 4.2.Before us,the DR supported the order of the AO and the AR supported the order of the FAA.We find that the AO had not given any justification for enhancing the disallowance to Rs. 44 crores (approx.),that the FAA had restricted the disallowance to Rs. 9.14 crores only, that the assessee itself had offered the disallowance in the return filed in response to notice u/s. 153A of the Act. Considering the above, we are of the opinion that there is no need to disturb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xemption u/s 80IA of the Act. Accordingly, the CIT(A) disagreed with the Assessing Officer who had allowed the exemption u/s 80IA of the Act on a pro-rata basis with respect to the income enhanced by disallowance of administrative expenses u/s 14A r.w.r 8D(2)(iii) of the Rules. This aspect of the controversy has been agitated by the Revenue before us by way of Ground of appeal no. 2. 18. Having considered the findings of CIT(A) on this aspect, we find no reason to interfere with the same inasmuch as the same are unexceptional. The CIT (A) has factually concluded that the disallowance of administrative expenses amounting to Rs. 5,29,15,000/- u/s 14A r.w.r 8D(2)(iii) of the Rules leads to enhanced profits of the eligible business of the generation of power and, therefore, such enhanced profits have been rightly held to be eligible for benefits of section 80IA of the Act. No material has been lead by the Revenue 12 M/s JSW Energy Limited Page 12 of 20 before us which would enable us to distract from the above finding of the CIT(A), which is hereby affirmed and Revenue fails in Ground of appeal no. 2. 19. The result of the aforesaid is that whatever income was enhanced on account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the 'Book Profit' for the purposes of section 115JB of the Act. The point made out by the appellant is that if the receipts on account of sale of Carbon Credits are held to be capital receipts not chargeable to tax, it would automatically have the effect of altering the 'Book Profit' computable for the purpose of section 115JB of the Act. Since in the earlier part of this order, we have already upheld the plea of the assessee that Carbon Credit receipts are in the nature of a capital receipt not chargeable to tax following the Judgment of Hon'ble Andhra Pradesh High Court in the case of My Home Power Ltd. (supra), therefore, the plea of the assessee by way of Additional Grounds of appeal no. 1 springs up. Insofar as the admission of such an Additional Ground is concerned, we find that it involves a point of law and the same is also relevant in determining appropriate tax liability of the assessee and, therefore, following the Judgment of Hon'ble Supreme Court in the Case of National Thermal Power Corporation (supra), the same is liable to be admitted. Nevertheless, the said Ground of appeal was not hitherto raised by the assessee before the lower authorities, therefore, the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent division during the previous year relevant to the assessment year under consideration was not routed through Profit & Loss Account but it was an amount deductible while computing 'Books Profits' u/s 115JB of the Act. It is pointed out that under the Act transfer of assets/liabilities in the case of merger or demerger is a transaction of 'transfer' and liable to Capital gains tax under section 45 of the Act. So however, since section 47(vib) of the Act, exempts transfer in the scheme of demerger from the definition of 'transfer', the same is not liable to Capital gains tax. The plea set up by the assessee is that the Act recognizes transfer of shares, in the scheme of merger, as a 'transfer' but provides exemption u/s 47(vib) of the Act. 26. Before us, the Ld. Representative has placed reliance on the ratio of the Judgment of the Hon'ble Bombay High Court in the case of CIT Vs. Veekaylal Investment Co. P. Ltd. 249 ITR 597 (Bom.) to justify aforesaid the claim. The Hon'ble Bombay High Court noticed that for computing the total income under normal provisions, the Capital gains computed u/s 45 of the Act, has to be taken into account and, therefore it was held that capital gains ..... X X X X Extracts X X X X X X X X Extracts X X X X
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