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TMI Blog2020 (1) TMI 203X X X X Extracts X X X X X X X X Extracts X X X X ..... efore the retention money cannot be regarded as income even for the purpose of book profits u/s.115JB of the Act though credited in the profit and loss account and have to be excluded for arriving at the book profits u/s.115JB of the Act. We hold accordingly and confirm the order of the CIT(A) in this regard. Section 14A r.w.r. 8D disallowance in relation to the exempt income in nature of dividends - Revenue s former case is that the impugned disallowance also deserves to be added for book profits computation u/s 115JB - HELD THAT:- Hon ble apex court s decision in Maxopp Investment Ltd. vs. CIT [ 2018 (3) TMI 805 - SUPREME COURT] holds that the purpose of making exempt income yielding investments is no more a guiding factor, we therefore decline the assessee s foregoing argument. The fact also remains that this tribunal s coordinate bench s decision in REI Agro Ltd. vs. DCIT [ 2013 (9) TMI 156 - ITAT KOLKATA] holds that only exempt income yielding investment have to be considered for computing the impugned disallowance. The same has nowhere been considered in either of the lower proceedings. This tribunal s yet another decision in Maruti Traders Investors vs. ACIT [ 2019 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in case nos.219/CIT(A)-22/10-11/14-15/Kol and No.15/CIT(A)-22/11-12/15-16/Kol; respectively involving proceedings u/s 144C(3)/143(3) of the Income Tax Act, 1961 (in short the Act ); respectively. Heard both the parties. Case files/records perused. 2. It emerges during the course of hearing that some of the issues raised in the instant lis are identical/interconnected. All these four cases are therefore taken up for adjudication together for the sake of convenience and brevity. 3. We find at the outset that the Revenue s former appeal ITA No.147/KOl/2018 suffers from 12 days delay in filing stated to be attributable to various formalities at the departmental itself. The assessee is fair enough in not disputing all these solemn averments. We therefore condone the impugned delay of 12 days in filing of the Revenue s appeal. Its former appeal ITA No.147/Kol/2018 is taken up for adjudication on merits. 4. The Revenue s identical first substantive grievance in both of its appeals challenges correctness of the CIT(A) s action deleting arm s length price adjustment relating to corporate guarantee involving overseas associated enterprise of &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the assessee executes turnkey contracts. Under the terms of contract a certain percentage of the value of the contract is retained by the persons for whom the assessee executes the contract. This is referred to as retention money and will be given to the assessee only on successful trial run of the final acceptance by the customer. According to the assessee therefore this is an air of suspense over the right of the assessee to the money which it had received unless and until successful trial run and final settlement is obtained. It was the plea of the Assessee that till such time the receipt in question cannot be regarded as income even though the assessee follows mercantile system of accounting. The assessee placed reliance on the decision of the Hon'ble Calcutta High Court in the case of CIT vs Simplex Concrete Piles (India)P.Ltd. 179 ITR 8 (Cal) and several other high courts in support of its claim that the sum in question cannot be regarded as income under the normal provisions of the Act. 30. With regard to the claim of the assessee that the said sum cannot also be regarded as part of the book profits u/s 115JB of the Act. The assessee relied on the following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hindrance in entertaining the additional ground. The CIT(A) placed reliance on the decision of the Hon'ble Supreme Court in the case of Jute Corporation of India 187 ITR 688 (SC) and the decision in the case of NTPC Ltd. 229 ITR 383(SC) to come to the conclusion that when facts to decide an additional ground of appeal are available on record and when it was only a question of applying the law to those facts for correctly deciding the liability to tax of an assessee in accordance with law, the additional grounds of appeal should be permitted to be raised. 32. As far as the question whether retention money can be regarded as income under the normal provisions of the Act is concerned, the CIT(A) was of the view that even in the mercantile system of accounting, income cannot be said to have resulted even though the entry might have been made in the books of accounts. In this regard the ITA No.100/Kol/2011 C.O.No.13/Kol/2011 532 217,533 218/Kol/2012 M/s. Mcnally Bharat Engg.Co.Ltd A.Yr.2006-07 CIT(A) placed reliance on the decision of the Hon'ble Supreme Court in the case of Shoorji Vallabhdas and Co. 46 ITR 144 (SC). 33. With regard to including the rete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e legal question arising out of facts already available on record can be entertained by CIT(A) in the form of an additional ground. We therefore reject the arguments of the ld. DR. 36. The ld. DR submitted that the assessee was following the mercantile system of accounting and therefore had to account for all receipts on accrual basis and cannot seek to exclude the retention money on the ground that the assessee's is titled over the retention money remains in suspense till the conclusion of all the terms of contract to the satisfaction of the customer. With regard to the excluding the aforesaid receipts from the book profits u/s 115JB of the Act it was submitted by him that the provision of explanation to section 115JB of the Act clearly lays down what are the sums to be excluded and included to the profit as per profit and loss account prepared in accordance with the provisions of the Companies Act, 1956 and the retention money is one of the sums that had to be excluded from the book profits as laid down in Explanatin-1 to section 115JB(2) of the Act. 37. The ld. Counsel for the assessee while reiterating the plea of the assessee as put forth before CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntract. Therefore, the Tribunal was right in holding that the retention money in respect of the jobs completed by the assessee during the relevant previous year should not be taken into account in computing the profits of the assessee for the assessment year in question. In view of the aforesaid decision of the Hon'ble Calcutta High Court rendered on identical facts as that of the Assessee's case, we are of the view that there is no merit in one part of Gr.No.5 raised by the Revenue viz., that retention money has to be considered as income for computing total income under the normal provisions of the Act and accordingly the same is dismissed. 39. As far as the excluding the retention money from computation of book profit u/s 115JB of the Act is concerned, the provisions of Sec.115JB of the Act have to be looked at. Section 115JB of the Act as applicable for AY 2006-07 provides that notwithstanding anything contained in any other provision of the Act, where in the case of an Assessee, being a company, the income-tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Hon'ble Calcutta High Court in case of CIT Vs. Simplex Concrete (Piles) India Pvt. Ltd. [179 ITR 8]. In the aforesaid decision the Hon'ble Calcutta High Court on identical facts held that having regard to the terms and conditions of the contract, it could not be held that either 10 per cent. or 5 per cent., as the case may be, being retention money, became legally due to the assessee on the completion of the work. Only after the assessee fulfilled the obligations under the contract, the retention money would be released and the assessee would acquire the right to receive such retention money. Therefore, on the date when the bills were submitted, having regard to the nature of the contract, no enforceable liability accrued or arose and, accordingly, it could not be said that the assessee had any right to receive the entire amount on the completion of the work or on the submission of bills. The assessee had no right to claim any part of the retention money till the verification of satisfactory execution of the contract. Therefore, the Tribunal was right in holding that the retention money in respect of the jobs completed by the assessee during the relevant previous year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cordance with Part II and III of ITA No.100/Kol/2011 C.O.No.13/Kol/2011 532 217,533 218/Kol/2012 M/s. Mcnally Bharat Engg.Co.Ltd A.Yr.2006-07 Schedule VI of Companies Act 1956, included notes on accounts thereon and accordingly in order to determine real profit of Assessee, adjustment need to be made to disclosures made in notes on accounts forming part of profit and loss account of Assessee. Profits arrived after such adjustment, should be considered for purpose of computation of book profits u/s 115JB of the Act and thereafter, AO had to make adjustments for additions/deletions contemplated in Explanation to section 115JB of the Act. 42. The Tribunal in the aforesaid decision made a reference to the decision of the Special Bench of the ITAT in the case of Rain Commodities (supra) which in turn was based on the ratio laid down in the decision of the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. (supra) as a case in which the income in question was taxable but was exempt under a specific provision of the Act and but for the exemption, the income would be chargeable to tax and such items of income should also be included as part of the book profits. But wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpted category of income. If the said logic is extended further, an item of receipt which does not fall under the definition of income at all and hence falls outside the purview of the computation provisions of Income tax Act, cannot also be included in book profit u/s 115JB of the Act. Hence, we find merit in the submissions made by the assessee on this legal point. 43. The admitted factual and legal position in the present case is that retention money is not in the nature of income till such time the contractual obligations are fully performed to the satisfaction of the customer by the Assessee. Therefore the retention money cannot be regarded as income even for the purpose of book profits u/s.115JB of the Act though credited in the profit and loss account and have to be excluded for arriving at the book profits u/s.115JB of the Act. We hold accordingly and confirm the order of the CIT(A) in this regard. In light of the aforesaid discussion, we are of the view that there is no merit in the other part of ground no.5 with regard to excluding retention money from the book profits for the purpose of Sec.115JB of the Act, and consequently the same is dismissed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s deployed with reference to the payment of interest claimed as expenses in the Profit Loss Account. The detailed calculation/working of the disallowance u/s 14A r.w.r 8D of the Act is as under: Sl. No. Particulars Amount (Rs.) Amount (Rs.) i. Expenses directly relatable to exempt income 41,219 ii. Expenses by way of interest which is not directly relatable to any particular income (AXB/C) Where A = amount of expenditure by way of interest = 29,22,84,000 29,22,84,000 B = average value of investment, income from which does or shall not form part of total income 1,45,83,65,000 =(1,45,83,65,000+1,45,83,65,000)/2 C = average of total assets =(19,58,84,06,000+15,87,72,4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re acquired by way of corporate restructuring exercise and the balance were acquired out of the appellants own funds. Hence disallowance u/s 14A is not called for. The said view finds support from decision in the case of Hindustan Motors Limited -vs.- DCIT in ITA No. 171/Kol/2012 dtd. 20-11-2015. Further, in earlier years, the department has accepted that investment has not been made from borrowed funds and there is no disallowance u/s 14A in those Years. (d) Sec. 14A seeks to disallow only the expenditure incurred in relation to earning exempt income. Therefore, any expenditure which has not been incurred in relation to earning exempt income shall not be disallowed under this section. Refer decision of Hon'ble Jurisdictional Tribunal in Candlewood Holdings Pvt. Ltd. -vs.- DCIT (ITA No. 1572/Kol/ 2011 dated 13.04.2012). Submissions without Prejudice (e) Disallowance as per Rule 8D(2)(i) As per Rule 8D(2)(i) the amount of expenditure directly relating to the income which does not form part of the total income is required to be added, Appellant has already offered to tax an amount of ₹ 41,219/- and without controverting the workings o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - Interglobe Enterprise Ltd. vs DCIT (2014) 40 CCH 22 (Del) - EIH Associated Hotels Ltd. - vs DCIT in ITA No. 1503/Mds/2012 dtd. 17.07.2013). (ii)While computing disallowance u/s 14A as per Rule 8D, investment in which no dividend has been earned needs to be excluded. The above view finds support from the following decisions:- - Cheminvest Ltd. vs CIT (2015) 378 ITR 33 (Del). - All Bank Finance Ltd -vs.- JCIT in ITA No. 465/Kol/2013 A.Y. 2009-10 dtd. 13.01.2016 (iii)If the AO does not agree with the claim of the assessee having regard to the books of accounts of the assessee, then it is not mandatory for him to resort to Rule 8D to quantify the disallowance u/s 14A of the Act. The above view finds support from the decision in the case of Allahabad Bank vs ACIT in ITA No. 1199/Kol/2012 dtd. 01.06.2016 (iv) Disallowance u/s 14A r.w.r. 8D cannot exceed exempt income The above view is supported by decisions in the case of :- - Joint Investments Pvt. Ltd. vs CIT (2015) 372 ITR 694 (Delhi) - DCIT vs M/s. Neerai Consultants in ITA No. 316/Kol/2014 dtd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Valley Corporation vs. ACIT reported in 2016 180 TTJ 82 Kol it has been held by the Hon'ble ITAT that the assessee has got sufficient own funds to make investments and the Ld. AO had not brought any nexus between the borrowed funds vis-a-vis the investments made by the assessee, and that without doing the same, the Ld AO cannot directly presume that the investments were made out of borrowed funds. In the present case also, the appellants share capital and reserves for the year under consideration is ₹ 266.31 Crs and the investments is Rs, 156.18 Crs. In this emergent scenario, as long as investments are less than the interest free funds, presumption is required to be taken that the investments are from interest free funds. 4. The appellant has suo-motto offered to tax an amount of ₹ 41,219/- with regard to the dividend earned, the expenses constitutes salaries of the employees dedicated to the investment activity and miscellaneous expenses incurred. The Ld. AO examining the claim of the appellant regarding expenditure incurred in earning the exempt income, has not been able to show how the disallowance made by the appellant suffers from error. The books ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igures of ₹ 2,40,37,724/- ₹ 72,91,525/-; respectively. We proceed to notice that there is no dispute about the assessee s direct expenses. Coming to proportionate disallowance interest, it has already come on record in assessee s interest free funds is ₹ 266.31 crores as against investment of ₹ 156.18 crores. The CIT(A) has quoted a catena of case laws (supra) that the necessary presumption in such a case is that of deployment of interest free funds in exempt income yielding investments. We thus affirm the above lower appellate discussion qua this second limb of impugned proportionate interest disallowance as well. Lastly comes the third head of administrative expenditure disallowance. The assessee s case as per its argument extracted hereinabove is that it had made impugned investment as a strategic move only. Hon ble apex court s decision in Maxopp Investment Ltd. vs. CIT (2018) 402 ITR 640 (SC) holds that the purpose of making exempt income yielding investments is no more a guiding factor, we therefore decline the assessee s foregoing argument. The fact also remains that this tribunal s coordinate bench s decision in REI Agro Ltd. vs. DCIT 144 ITD 141 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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