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TMI Blog2019 (5) TMI 1664X X X X Extracts X X X X X X X X Extracts X X X X ..... g the computation provided for under Rule 8D - We also find that in assessee s own case for the previous year also, the Tribunal has deleted the addition made by the AO on this account. Disallowance of provisions in computing book profit u/s 115 JB - provision made for gratuity, leave encashment, post retirement medical benefits, LTC, Baggage allowance and Matching Contribution on Leave Encashment - as alleged the assessee has failed to establish these provisions to be of ascertained in nature - HELD THAT:- Issue to be answered in favour of the respondent-assessee in view of our order and judgment [ 2018 (4) TMI 47 - PUNJAB AND HARYANA HIGH COURT] Addition of depreciation on land unclassified and leasehold land while computing book profit for MAT u/s 115JB - HELD THAT:- The issue is covered in favour of the assessee and against the revenue by the decision of the Tribunal in the case of the assessee itself for assessment year 2009-10 [ 2015 (9) TMI 222 - ITAT DELHI] Deduction u/s 80-IA on other income - whether hire charges and miscellaneous income earned in the course of business are eligible for deduction u/s 80IA? - HELD THAT:- We find that the AAR in the case of National Fertili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... JB - HELD THAT:- As u/s 115JB of the Act, wealth tax is not covered under Explanation 1 of Sub-section (2)(a) of Section 115JB. Thus, it does not affect the book profit and will not be added to calculate tax liability under MAT. For this reliance was placed on the decision of Hon ble Bombay High Court in the case of CIT Vs Reliance Industries Ltd. [ 2019 (1) TMI 887 - BOMBAY HIGH COURT] wherein held made a vague attempt to bring this item in clause (c) noted above. Clause (c) would include the amount set aside for provisions made for meeting liabilities other than ascertained liabilities. For applicability of this clause, therefore, fundamental facts would have to be brought on record which in the present case, the Revenue has not done. In fact, the entire thrust of the Revenue s argument at the outset appears to be on clause (a) which refers to the income tax which according to the Revenue would also include wealth tax. This question, therefore, is not required to be entertained - Decided in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... ings relied upon by the learned counsel and the AO. This issue relating to advance against depreciation came up for consideration before the Hon'ble Supreme Court against the order of the Authority for Advance Rulings in appellant's own case for AY 2001-02. After going into background of this issue, it is observed that in the year 1997, the Central Government devised a mechanism to help power generating companies to raise funds for meeting loan repayments in time and issued tariff fixation notification under section 43A of the Electricity (Supply) Act, 1948. This notification permitted power generating companies to collect an amount in advance in the years in which the normal depreciation (90% of the original cost of the plant spread equally over the useful life of plaint) otherwise allowed to be recovered was not sufficient to meet loan repayment schedule. The amount so collected was called as "advance against depreciation". Subsequently, the Central Electricity Regulatory Commission Act, 1999 was promulgated and the power to fix tariff was delegated to Central Electricity Regulatory Commission. The tariff as notified by the Central Electricity Regulatory Commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... educted AAD component from total sale price and only balance amount net of AAD was taken into profit and loss account and book profit - AAR ruled that reduction of AAD from 'sales' was nothing but a reserve which was to be added back on basis of clause (b) of Explanation - I to section 115JB - Whether, on facts AAD was neither a reserve, nor was it carried through profit and loss account; rather it was timing difference and was income received in advance subject to adjustment in future and, therefore, clause (b) of Explanation - I to section 115JB was not applicable - Held, yes". 6.6 Though the above decision was in the context of the provisions of section 115JB of the Act, the Hon'ble Apex Court has held that the advance against depreciation is income received in advance subject to adjustment in future against depreciation. The appellant has reduced gross sales by the amount of advance against depreciation and the net sales are credited in the profit and loss account and book profit. Therefore, the amount of advance against depreciation, though resulting into correspondingly reduced sales in the Profit and Loss account, has not been permitted by the Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he issue in favour of assessee in its order for AY 2000-01, AY 2001-02, AY 2002-03, AY 2003-04, AY 2004- OS, AY 2005-06 and AY 2007-08, the addition of ₹ 107,97,42,000/- made by the AO is deleted and Ground No. 4 of appeal is Allowed." 6. Both the parties agreed before us that the issue was covered in favour of the assessee by the order of the Hon'ble Punjab & Haryana High Court in the case of the assessee itself for assessment year 2006-07 reported in 408 ITR 237 (P&H). 7. We find that the Hon'ble Punjab & Haryana High Court was deciding the following question of law: "1. Whether, on the facts and in circumstances of the case and in law, the Hon'ble ITAT was right in law in dismissing appeal of the Revenue observing that 'in view of categorical finding of the Supreme Court we hold that the CIT(A) was correct in holding that advance against depreciation cannot be added under the computation of the normal income', whereas the Hon'ble Supreme Court in its decision dated 05-01-2010 has held that the 'advance against depreciation' is 'income received in advance', thus making the said income subject to 'Charge under Chapter-II, as bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it by provision of section 37(1) of I. Tax Act as corresponding income has already been wrongly accounted for by the assessee in AY 2009-10; the addition of ₹ 3,89,59,508/- is hereby deleted, and Ground No. 5 of the appellant is Allowed." 13. The ld. Departmental Representative relied on the order of the Assessing Officer. 14. On the other hand, the Authorized Representative relied on the order of Commissioner of Income Tax (Appeals). 15. After considering the rival submissions and perusing the orders of the lower authorities and materials available on record. We find that the ld. Departmental Representative simply relied on the order of the Assessing Officer. He could not point out any specific error in the order of the Commissioner of Income Tax (Appeals). In the circumstances, we find no good reason to interfere with the order of Commissioner of Income Tax (Appeals) which is hereby confirmed and the ground of appeal of the revenue is dismissed. 16. Ground No. 4 of the appeal of the revenue is directed against the order of Commissioner of Income Tax (Appeals) in deleting the addition of ₹ 10,53,30,844/- made by the Assessing Officer on repair of capital assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case, it would be reasonable to add back the expenditure relating to income to which Section 10 of the Act applies. Therefore, an amount of ₹ 78,70,22,900/- was added to the book profit u/s 115JB of the Act for the purpose of MAT. 24. On appeal, the Commissioner of Income Tax (Appeals) vacated the disallowance by observing as under: "5.3 I have considered submissions of learned counsel of the appellant and gone through the documents and assessment order. The appellant has challenged the addition of ₹ 78,70,22,900/- made by invoking the provisions of section 14A of the Act while computing regular income of the assessee. There is no dispute to the fact that the appellant has declared dividend income of ₹ 25.02 crores which has been claimed exempt. The said dividend income has been earned from the investment in shares of the entities as under: 1. NHDC ₹ 1002.42 crores 2. Loktak Downstream Hydro Corpn. Ltd. ₹ 44.40 crores 3. Power Trading Corporation ₹ 12.00 crores 4. Indian Overseas Bank ₹ 0.36 croes 5. National Power Exchange Ltd. ₹ 0.83 crores 6. National High Power Testing Laboratory ₹ 88.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 88) has held that the disallowance under section 14A requires a clear finding of incurring of expenditure and in absence of same, no disallowance could be made. Similarly, the Hon'ble ITAT, Bench 'G' Delhi in the case of ACIT vs. SIL Investment Ltd. (26 taxmann.com 78) has held that where Assessing Officer did not bring any evidence on record to establish that any expenditure had been incurred by assessee for earning exempt income, it was wrong on part of Assessing Officer to proceed to compute disallowance of expenses under section 14A by merely applying rule 8D(2)(iii). The legal implications of sub-section (2) and (3) of section 14A have been examined by the Hon'ble Delhi High Court in Maxcopp Investment Ltd. vs. CIT (347 ITR 272) and it has been held that the AO has to record cogent reasons to reject the claim of the assessee that no expenditure has been incurred by him for earning the exempt income. 5.5 It is however, observed from the assessment order that the AO has not assigned any reason while finding the submissions of the appellant as unsatisfactory. The identical issue was also involved in the case of appellant for A.Y. 2008-09 and as per the detaile ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... instance must examine the disallowance made by the assessee or the claim of the assessee that no expenditure was incurred to earn the exempt income. If and only if the Assessing Officer is not satisfied on this count after making reference to the accounts, that he is entitled to adopt the method as prescribed i.e. Rule 8D of the Rules. Thus, Rule 8D is not attracted and applicable to all assessee who have exempt income and it is not compulsory and necessary that an assessee must voluntarily compute disallowance as per Rule 8D of the Rules. Where the disallowance or "nil" disallowance made by the assessee is found to be unsatisfactory on examination of accounts, the assessing officer is entitled and authorised to compute the deduction under Rule 8D of the Rules. This precondition and stipulation as noticed below is also mandated in sub Rule (1) to Rule 8D of the Rules." After going through the other cases also, relied upon by the ld. AR, we find that the AO has not recorded the satisfaction envisaged by the statute before invoking the computation provided for under Rule 8D, which 15 ITA No.424/Del./2013 vitiates the impugned order. We also find that in assessee's own case for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on; the liabilities were 'ascertained' and the Profit & loss account was prepared in accordance part II and III of Schedule VI of the Companies Act. Therefore, the book profit declared as per the Profit and Loss account should have not been disturbed in view of decision of Hon'ble Apex court in the case of Apollo Tyres Ltd. Vs. CIT (255 ITR 273). The reliance has also been placed on the decision of Hon'ble Supreme Court in the case of Bharat Earth Movers Limited vs. CIT (112 Taxman 61) and the decision of Hon'ble Mumbai High Court in the case of CIT vs. Echjay Forging Pvt. Ltd. (116 Taxman 322) in support of contention that when the liabilities were determined on the basis of actuarial calculations, the same represented ascertain liabilities. In this regard, the order of my predecessor dated 29.10.2012 for appeal No. 446/11-12 relevant to issue has been reproduced below: "The identical issue was also involved in the case of appellant for A.Y. 2008-09 and as per the detailed discussion vide para 6.1 of my order dated 02.01.2012 in appeal No. 276/2010-11 after considering the provisions of law, legal position on this issue emanating from relied upon judici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Explanation 1 to section 115JB on the other, it becomes ITA No. 1402/D/2012,1956/Del/2009 & 1437/Del/2009 5 vivid that computation of income under the normal provisions debars deduction for the ascertained liability towards provision for leave encashment etc., unless the amount is actually paid before the due date. However, in the computation of book profit u/s 115JB, deduction is available for such provision of ascertained liability. The Id. DR has not drawn our attention towards any part of the provisions of section 115JB, which makes the provisions of section 43B(f) applicable to the computation of book profits. As the ground raised by the Revenue is only against the deletion of addition in the computation of book profit u/s 115JB, the impugned order needs to be upheld. It is however, made clear that if the income under the normal provisions of the Act turns out to be more than the book profit u/s 115JB and the total income is to be computed as per the normal provisions, then no deduction for such provision would be admissible unless the amount of such provision is paid before the due date u/s 139(1) of the Act." 10.7 Thus following the order of my predecessor and the Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the balance sheet as depreciation on land unclassified and leasehold land. Out of the total depreciation on land of ₹ 4,85,86,995/-, an amount of ₹ 2,50,00,425/- has been debited to profit and loss account and balance amount of ₹ 2,35,86,570/- has been added to the cost of capital work-in-progress. He observed that the depreciation on land is not allowable as per Companies Act and therefore, he made addition of ₹ 2,50,00,425/- to the income of the assessee. 36. On appeal, the Commissioner of Income Tax (Appeals) deleted the disallowance by observing as under: "11.4 I have carefully considered the submissions of the Ld. ARs', and perused the order of assessment and counter-comments alongwith the ITAT order and do not find any substance in the order of the AO. The Ld. ARs have sufficiently explained their position regarding amortization of land amounting to ₹ 6.12 crores during the FY 2003-04 relevant to the AY 2004-05. 11.5 Since the contention of the appellant has been accepted by the Hon'ble ITAT in AY 2004-05, 200506 & 2007-08 and the issue, being a covered one, is being decided in favour of appellant, the addition of ₹ 2,50, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal in the order for assessment year 2002-03 (supra) has considered an identical issue and had decided the matter in favour of the assessee. The aforesaid order of the Tribunal was followed in subsequent assessment years 200506, 2007-08 and 2008-09. Since identical issue has been considered by the Tribunal and the issue raised before us is identical to the issue covered by the coordinate Bench of the Tribunal in assessee's own case for assessment year 2002-03 (supra) and other years, respectfully following the same, we confirm the order of the ld. CIT (A) on this issue." 38. Therefore, this ground of appeal of the revenue is dismissed. 39. Now we take up the assessee's appeal. 40. Ground No. 1 of the appeal of the assessee is general in nature and hence does not require any separate adjudication by us. 41. In ground no. 2 of the appeal of the assessee, the grievance of the assessee is that the Commissioner of Income Tax (Appeals) erred in confirming the order of the Assessing Officer disallowing deduction of ₹ 4,46,54,883/- u/s 80IA of the Act. 42. The Assessing Officer has observed as under: "11. From the perusal of computation of income, it is noticed that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount of the assessee company is not affected. To nullify this impact, a contra entry has been passed in accounts as per opinion given by Expert Advisory Committee of Institute of Chartered Accountants of India. The foreign currency fluctuation adjustment (debit) appeals in the schedule 15 'Gen, Admin and other expenses' and foreign currency fluctuation adjustment (credit) appears in schedule 14 other income. In view of above, the above incomes are not liable to be excluded from the deductions claimed u/s 80IA. As other income is directly /exclusively related to the concerned power stations, therefore, claim made are as per the applicable provisions." The above reply of the AR has been taken on record and considered. I have also gone through the entire material available on the record and the case is also discussed with the AR of the assessee. After discussion, it is concluded that an assessee is eligible for such deduction u/s 80-IA is only from profit obtained from generation & distribution of power and Not from other income. Further, the nature of each and every other income credited in profit & loss account is considered and thus, some incomes found to be correctly taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amera-ll Power Station (Amount in Rs.) Rangit (Amount in Rs.) Total (Amount in Rs.) 1 RENT/HIRE CHARGES FROM CONTRACTORS - 1,81,718 - 1,81,718 2 RENT/HIRE CHARGES- OTHERS 3,92,088 - 1,54,496 5,46,584 3 OTHER INCOME (BALANCES, EXPENSES, LIABILITIES NO LONGER REQUIRED WRITTEN BACK) 2,03,85,742 94,03,816 94,37,700 3,92,27,258 4 TOWNSHIP RECOVERIES 4,73,737 13,78,490 7,80,005 26,32,232 5 LEASE RECOVERY 75,102 1,40,005 - 2,15,107 6 ELECTRICITY RECOVERY 3,32,344 4,08,662 4,98,879 12,39,885 7 TELEPHONE RECOVERY - 1,331 1,331 8 STAFF CAR RECOVERY - 12,242 12,242 9 CABLE CHARGES 88,850 1,34,410 1,17,250 3,40,510 10 GUEST HOUSE RECOVERY 35,282 1,12,598 1,10,136 2,58,016 Total 2,17,83,145 1,17,59,699 1,11,12,039 4,46,54,883 47. We find that the AAR in the case of National Fertilizers Limited 193 CTR 498(AAR) held that the expenses incurred to earn these other incomes should be excluded from the debit side of the profit and loss account for computing the deduction u/s 80-I of the Act. The relevant extract of the judgment is as below: "(2)question No. 2 in AAR/532/2001 that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Interest from Others, did not form part of the profit derived from eligible business. However, the Assessee"s plea regarding the other three items as being derived from the business was accepted by the CIT (A). 10. The Assessee filed appeals and the Revenue filed cross-appeals before the ITAT. The ITAT in the impugned orders concluded that with sub-section (2A) beginning with a non-obstante clause, the legislative intention of making available to an undertaking, providing telecommunication services, the benefit of deduction of 100% of the profits and gains "of the eligible business" was explicit. Indeed, the legislature appears to have made a conscious departure in adopting for sub-section (2A) a wording different from that appearing in sub section (1). Under Section 801A (1), what is available for deduction are profits and gains "derived by an undertaking or an enterprise from any business referred to in sub-section (4)" whereas in Section 80-IA (2A) what is available for deduction is "hundred percent of the profits and gains of the eligible business". The following conclusion reached by the ITAT in para 13.11 of the impugned order correctly encapsulates the legal position as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ords used are: "gross total income of an assessee includes any profits and gains derived from an industrial undertaking". Once this is the position then, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to the prescribed percentage is to be allowed. That, in fact, the gross total income of the assessee included profits and gains from such business, and this is apparent on a plain glance at the computation in the assessment order. Both in relation to Vatva Unit and Mandali Unit the computation commences by taking profit as per statement of income filed along with return of income. Therefore, the same item of receipt cannot be treated differently: once while computing the gross total income, and secondly at the time of computing deduction under s. 80-I of the Act. Therefore, on this limited count alone, the order of the Tribunal suffers from a basic fallacy resulting in an error in law and on facts. The Tribunal instead of recording findings on facts proceeded to discuss law. This litigation could have been avoided if the parties had invited attention to basic facts. 28. Neither the approach nor the reasons advance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t cannot be separated from the other amounts granted to the assessee under the awards and treated as 'Income from other sources'". 50. In view of the above quoted decisions, we are of the considered view that the disallowance made of ₹ 4,46,54,883/- while computing the deduction allowable u/s 80-IA of the Act is not justified. Hence, we set aside the orders of the lower authorities and direct the Assessing Officer to recompute the deduction allowable to the assessee u/s 80-IA of the Act without excluding ₹ 4,46,54,883/-. Thus, this ground of appeal of the assessee is allowed. 51. Ground No. 3 of the appeal of the assessee is directed against the order of Commissioner of Income Tax (Appeals) confirming addition of ₹ 95,02,478/- made by the Assessing Officer on account of income tax on perquisite borne by the assessee in respect of accommodation provided to its employees while computing book profit u/s 115JB of the Act. 52. The brief facts of the case are that the Assessing Officer observed that the assessee has claimed deduction of₹ 95,02,478/- u/s 115JB of the Act being amount of tax paid by the assessee in the capacity of employer towards non ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the action of the Assessing Officer. 58. The assessee before us has placed reliance on the decision of Mumbai Bench of the Tribunal in the case of Rashtriya Chemicals & Fertilizers Ltd. Vs CIT (supra). 59. The ld. Departmental Representative supported the orders of the lower authorities. 60. We find that the Tribunal in the case of Rashtriya Chemicals & Fertilizers Ltd. Vs CIT (supra) has held as under: "Para 8………We further find that taxes borne by the assessee on non-monetary perquisites provided to employees forms part of Employee Benefit cost and akin to Fringe Benefit Tax since they are certainly not below the line items since the same are expressively disallowed u/s 40(a)(v) and the same do not constitute Income Tax for the assessee in terms of Explanation-2. This view of ours is duly fortified by the judgment of Tribunal rendered in ITO v Vintage Distillers Ltd. [2010] 130 TTJ 79 (Delhi) where the Tribunal has taken the view that the term 'tax' was much wider term than the term 'Income Tax' since the former, as per amended definition of 'tax' as provided in Section 2(43) included not only Income Tax but also Super Tax & F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmed the action of the Assessing Officer. 65. Before us, the Authorized Representative of the assessee argued and submitted that while calculating book profit u/s 115JB, the assessee claimed deduction of provision of wealth tax liability of ₹ 69,11,134/-. It was submitted that u/s 115JB of the Act, wealth tax is not covered under Explanation 1 of Sub-section (2)(a) of Section 115JB of the Act. Thus, it does not affect the book profit and will not be added to calculate tax liability under MAT. For this reliance was placed on the decision of Hon'ble Bombay High Court in the case of CIT Vs Reliance Industries Ltd. (2019) 102 taxmann.com 142 and on the decision of Mumbai Bench of the Tribunal in the case of Rashtriya Chemicals & Fertilizers Ltd. Vs CIT (2018) 91 taxmann.com 104. 66. The ld. Departmental Representative relied on the orders of the lower authorities. 67. We find that the issue is no more res integra. The Hon'ble Bombay High Court in the case of CIT Vs Reliance Industries Ltd. (supra) has held as under: "Para 4....In plain terms, clause (a) as noted above refers to amount of income tax paid or payable or the provision made therefor. The legislature has advis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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