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TMI Blog2019 (2) TMI 1721X X X X Extracts X X X X X X X X Extracts X X X X ..... consequently, the accounts cannot be said to have been drawn up under the Companies Act 1956 but should be held that the accounts was a mixture of the requirements of the Companies Act and the requirements of the RBI Act and hence the provisions of Section 115JB of the At does not apply is not tenable. The assessee prepares its accounts as required under the Companies Act 1956. While doing so, it follows, at its own discretion, the Accounting Standards prescribed by the Institute of Chartered Accountants of India, guidance notes issued by Institute of Chartered Accountants of India on various issues, Accounting Standards prescribed under the Income Tax Act 1961 and in case of Non-banking Financial Companies, it additionally follows at its discretion the requirements suggested by the RBI. These requirements, suggestions and prescriptions are not in conflict with the requirements under the Companies Act. The auditors have not, in their audit report, alleged so. There is no dispute that the Balance Sheet and Profit Loss accounts are drawn up in accordance with Part II III of Schedule VI of the Companies Act, 1956. Hence, this additional ground is dismissed as devoid of merit. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith CIT vs. M/s Exide Industries Ltd. Anr. [ 2009 (5) TMI 894 - SC ORDER] Addition of profit on sale of fixed assets/investments in the computation of book profits u/s 115JB - HELD THAT:- This issue is admittedly covered against the assessee by the decision of the Special Bench of the Hyderabad ITAT in the case of Rain Commodities Ltd. vs. DCIT; [ 2010 (7) TMI 794 - ITAT HYDERABAD] . Hence this ground is dismissed. MAT computation - addition of Provision made for Nonperforming Assets (NPA) in computing book profits u/s 115JB - HELD THAT:- We agree with the submissions of the ld. Counsel for the assessee that the provision in question is not made for meeting liabilities. But we are of the view that the amount in question is set aside as a provision for diminution in the value of assets, hence covered by the Explanation 1(i) to section 115JB of the Act. This amendment was held as retrospective in nature. The effect of this provision is reduction in the value of the assets of the company. Hence we find no infirmity in the order of the ld. CIT(A). Disallowance u/s 14A - CIT(A) has restricted the disallowance to the dividend income earned by the assessee - HELD THA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. We have heard Mr. Soumen Adak, the ld. Counsel for the assessee and Shri A.K. Nayak, the ld. Departmental Representative on behalf of the revenue. On a careful consideration on the facts and circumstances of the case, perusing the papers on record and orders of the authorities below as well as case laws cited, we hold as follows. 6.1 We first take up the assessee s appeal in ITA No.1318Del/2012, the grounds of appeal read as follows: 1. That on the facts and in the circumstances of the case, the ld. Commissioner of Income Tax(Appeals) [hereinafter referred to as Ld. CIT(Appeals) was not justified and grossly erred in restricting the disallowance u/s 14A to ₹ 23,35,176/- in the computation of total income under the normal provisions of the Act. 2. That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified and grossly erred in confirming the disallowance of provision for Non-Performing Assets (NPA) of ₹ 13,71,00,000/- made in accordance with the prudential norms of the RBL, in the computation of total income under the normal provisions of the Act. 3. That on the facts and in the circu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the judgment of the Hon ble Supreme Court in the case of National Thermal Power Co. Ltd. vs. CIT; [1998] 229 ITR 383 (SC). 6.4 The ld. Departmental Representative opposed the contentions of the assessee. He made detailed submissions which we would be dealing as and when necessary. 7. After hearing rival contentions, we hold as follows. 7.1 The issue for adjudication in Additional Ground No.(9) is whether the education cess can be disallowed u/s 40(a)(ii) of the Act. This is a legal ground and requires no investigation into facts. Hence this additional ground is admitted. 7.2 The assessee places reliance on the judgment of the Hon ble Rajasthan High Court in the case of PCIT vs. M/s Chambal Fertilizers and Chemicals Ltd. which was followed by the Kolkata Bench of the Tribunal in the case of M/s ITC Limited; ITA No.685/Kol/2014 and pleads that education cess has to be allowed as deduction while computing profits under the Act. 7.3 The ld. Departmental Representative submits as follows: 2. In this regard it is to submit that Finance Act of the relevant financial year in chapter II mentions of surcharge as part of inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of profit rather than expenditure for the purpose of business. Alternatively, it can be said that when a business runs to loss, it need not pay cess but yet that per se will not stop the business from running. Therefore, the purpose of the cess cannot be equated to the purpose of running the business. 4. It is also noteworthy to mention that ITAT Mumbai in the case of M/s. Kalimati Investment Company Limited versus ITO-2(2) in ITA numbers 2706,4508/Mum/2010 and 2552, 2553/Mum/2011(a combined order) and the Panaji bench of ITAT in the case of Sesa Goa Ltd versus JCIT in ITA 72/PNJ/2012 have decided the issue in favour of Revenue holding that education cess is not a deductible expense. 5. In view of this, it is humbly prayed that the fresh claim of the assessee vide this additional ground may not be acceeded to. 7.4 After hearing rival contentions, we are inclined to agree with the contentions of ld. Departmental Representative that education cess is a surcharge on income tax hence not allowable as a deduction. We prefer to follow the proposition of law laid down by the ITAT Mumbai in the case of M/s. Kalimati Investment Company Limited (supra) and I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndards prescribed by the Institute of Chartered Accountants of India, guidance notes issued by Institute of Chartered Accountants of India on various issues, Accounting Standards prescribed under the Income Tax Act 1961 and in case of Non-banking Financial Companies, it additionally follows at its discretion the requirements suggested by the RBI. These requirements, suggestions and prescriptions are not in conflict with the requirements under the Companies Act. The auditors have not, in their audit report, alleged so. There is no dispute that the Balance Sheet and Profit Loss accounts are drawn up in accordance with Part II III of Schedule VI of the Companies Act, 1956. Hence, this additional ground is dismissed as devoid of merit. 9. Additional Ground No.7 is dismissed as withdrawn. Even otherwise this issue has been adjudicated against the assessee, in the assessee s own case, by the judgment of Hon ble Delhi High Court in ITA No.371/2012 372/2012. This is more specifically dealt in Para 12.3 of this order. A transfer to a specific reserve cannot be charge on profit. It is not expenditure. It is appropriation of profit. 10. We first take up Ground No.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cycles Ltd. (supra) and submitted that the Assessing Officer had rightly considered the issue. 10.4 After hearing rival submissions, we hold as follows. 10.5 The Assessing Officer has noted that the assessee has earned dividend income of ₹ 23,35,176/- and claimed the same as exempt. The assessee also claimed that no expenditure was incurred by it for earning this exempt income. The Assessing Officer raised a query and the assessee replied vide letter dated 24.02.2010. This explanation was considered by the Assessing Officer and rejected. Though the Assessing Officer was wrong in holding that Rule 8D is procedural in nature, the fact is that the claim of the assessee, that it had not incurred any expenditure for earning exempt income, has been rejected by the Assessing Officer. This to our mind is sufficient satisfaction that was arrived at by the Assessing Officer that the claim of the assessee is not correct. This was prior to the Assessing Officer invoking Rule 8D of the I.T. Rules 1962. Hence this argument of the assessee is rejected. 11. Coming to the second issue of disallowance under Section 14A r.w. Rule 8D(2)(ii), we find that before th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e jurisdictional ITAT order in the case of Liluah Co-op. Bank Ltd. vs. ACIT; ITA No.2294/Kol/2010 and the judgment of the Delhi High Court in the case of M/S CIT vs. Vasisth Chay Vyapar Ltd.; ITA No.552 of 2005 and others was relied upon and it was submitted that in case where a provision has been made for overdue interest on Nonperforming Assets (NPAs) as per the directions of section 45Q of RBI Act, it was held that the same was an allowable deduction. 12.2 On the other hand, the ld. Departmental Representative submitted that the judgment of Southern Technologies (supra) covers the issue and that in the judgment of Vasisth Chay Vyapar Ltd. (supra), the Hon ble High Court has considered all these aspects including the decision in the case of TRO v. Custodian (supra) and came to our conclusion that under the real income theory, interest income on Non-Performing Assets (NPA s) need not to be recognized as income. 12.3 We fully agree in the submissions of the ld. Departmental Representative. In the case of Southern Technologies (supra) what was considered in the provision made against a capital asset i.e. Non-Performing Asset and whereas in the case of Vasisth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not an ascertained liability. 15.1 We agree with the submissions of the ld. Counsel for the assessee that the provision in question is not made for meeting liabilities. But we are of the view that the amount in question is set aside as a provision for diminution in the value of assets, hence covered by the Explanation 1(i) to section 115JB of the Act. This amendment was held as retrospective in nature. The effect of this provision is reduction in the value of the assets of the company. Hence we find no infirmity in the order of the ld. CIT(A). 15.2 In the result, the ground of the assessee is dismissed. 16. Ground No.6 is general in nature. 17. We now take up the revenue s appeal in ITA No.1302/Del/2012. 18. Ground No.1 is against the deletion of disallowance of ₹ 57,72,000/-. This interest was held as, pertaining to interest free loan given to subsidiaries, this was disallowed by the Assessing Officer. 18.1 The ld. CIT(A) has adjudicated this issue as Ground No.2 at Para 4.13 Page 7, he held as follows: 4.13 I have perused the facts stated in the assessment order as well as those submitted by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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