9911796707
TMI Blog2020 (9) TMI 1010X X X X Extracts X X X X X X X X Extracts X X X X ..... authorities have to see is as to whether there is rendition of services by the AE to the assessee. This definitely puts the burden on the assessee to demonstrate that there was rendition of services by the AE to the assessee. Assessee cannot furnish evidences for day to day rendition of services, but definitely can demonstrate rendition at crucial points. Merely filing sample emails would not suffice. The assessee has to come with more strong evidences which may be in any form, including electronic forms to demonstrate that the AE has actually rendered services which are mentioned in the agreement. In the interest of justice and fair play, we restore this issue to the file of the Assessing Officer/TPO. The assessee is directed to come with strong evidences to demonstrate that the services were actually rendered by the AE. The Assessing Officer/TPO is directed to examine the issue afresh in the light of evidences that would be furnished by the assessee. This ground is, accordingly, treated as allowed for statistical purposes. Reimbursement of SAP and other expenses - assessee had incurred certain expenses in the nature of SAP maintenance charges, vehicle, telephone and food expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with effect from 1.4.1999 do not take in its purview the claim of the assessee - HELD THAT:- The term production has been interpreted to be one having much wider connotation in as much as every manufacture can be characterised as production while every production might not amount to manufacture as held by the Hon ble Apex court in the case of NC Budharaja Co. [ 1993 (9) TMI 6 - SUPREME COURT]. Hon ble Supreme Court in the case of Sesa Goa Ltd . [ 2004 (11) TMI 14 - SUPREME COURT] [earlier name of the assessee] has held that extraction and processing of iron ore amounts to production. Thus we direct the Assessing Officer to allow claim of additional depreciation. Claim of balance 50% additional depreciation disallowed - assessee had acquired and installed some of the new plant and machinery eligible for additional depreciation under section 32(1)(iia) of the Act and was put to use for a period less than 180 days during FY 2012-13 - Scope of amendment - HELD THAT:- Amendment takes effect from 1.4.2016. As this amendment is effective from 01.04.2016, therefore, it is clearly not applicable to the year under consideration. As far as the applicability of this amendment having retrospec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the nature of charity or donation. In our considered view, these expenses are not in the nature of CSR. Payments made to church, police station, summits, schools, etc cannot be considered to have been spent on CSR. Though the amendment to Section 37 of the act may be prospective, but at the same time, assessee had to justify the claim of expenditure being spent on CSR. Details mentioned hereinabove do not justify the claim of expenditure on account of commercial expediency. Considering the claim from all possible angles, we do not find any merit in such claim of expenditure - Decided against assessee. Addition of liquidated damages - HELD THAT:- When the entire basis of making a decision is that agreements were not for supply of any machinery, but of design, transfer of technology knowhow, patent etc, which are in the nature of intangible assets, but the lower authorities have completely ignored the fact that even intangible assets are capital goods and a specific rate of depreciation is provided in the Income Tax Act. In our considered opinion, and as admitted by the revenue authorities, damages were for intangible assets and intangible assets are also capital goods. Therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lves are not assets but represent a portion of the assets which the proprietor is free to utilize for business as one likes, i.e. the assets equalling the reserves that are not required to pay liabilities. Generally reserves are created at the discretion of the management as a matter of prudence, but in certain cases a statute can direct creation of special reserves. For the purpose of Section 115JB of the Act, statutory reserves are treated alike and in a similar manner as other reserves. See SREI INFRASTRUCTURE FINANCE LTD VERSUS ADDITIONAL COMMISSIONER OF INCOME TAX [ 2015 (2) TMI 545 - DELHI HIGH COURT]. Claim u/s 80 GGB denied - HELD THAT:- Claim was made before the Assessing Officer but was denied. In our considered opinion, if the assessee is eligible for claim of deduction u/s 80 GGB of the Act the same deserves to be allowed. We direct the Assessing Officer to allow the same as per provisions of the law after making necessary verification. X X X X Extracts X X X X X X X X Extracts X X X X ..... f financial treasury, marketing, human resource management and I.T. support. 8. In the agreement, it is also provided that VRPL will provide technical and commercial material to Sesa Sterlites to enable it to promote its business and /or raise funds overseas thereby acting as representative office of Sesa Sterlites in UK. 9. In the Transfer Pricing study, the foreign AE was considered as tested party and the benchmarking was done as per TNMM method. A total of 8 comparables were chosen whose return on operating costs worked out to be 7.96%. Since the operating margins of the AEs of the Appellant from the provision of business support services was 5.51% on the operating cost, therefore, the transaction was treated to be at arm's length. 10. However, the TPO denied the bench-marking done by the assessee on the following grounds: (i) failure to substantiate actual rendition of services; (ii) failure to prove benefit derived by the Appellant from the services; and (iii) failure to provide the basis for the allocation key. 11. The TPO himself allowed 20% of the total sum paid purportedly attributing such share of payment for obtaining strategic advice, considering the services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at it is incorrect to segregate management consultancy fee as a separate class of transaction and is clearly in violation of law as was laid down by Hon'ble Jurisdictional Delhi High Court in the case of Sony Ericsson Mobile Communication India Pvt. Ltd. 374 ITR 118. 15. The ld. counsel for the assessee further objected the direction for disallowance u/s 37 of the Act on protective basis as the same was never disputed by the Assessing Officer in the draft assessment order. 16. Per contra, strongly supporting the orders of the lower authorities, the ld. DR stated that the onus is upon the assessee to bring on record evidences to show any services have been rendered by VRPL to the assessee. It is the say of the ld. DR that there are no documents to show that any services have been received from AEs. It is the say of the ld. DR that segregation and bench marking of this transaction has been done by the TPO solely on the fact that this transaction is not closely linked with the business of the assessee and this very fact distinguishes the case of the assessee from the facts of case of Soni Ericcson [supra] relied upon by the ld. counsel for the assessee. The ld. DR further stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement. In the interest of justice and fair play, we restore this issue to the file of the Assessing Officer/TPO. The assessee is directed to come with strong evidences to demonstrate that the services were actually rendered by the AE. The Assessing Officer/TPO is directed to examine the issue afresh in the light of evidences that would be furnished by the assessee. This ground is, accordingly, treated as allowed for statistical purposes. 21. Before closing, the ld. counsel for the assessee has also challenged the segregation approach by referring to various judicial decisions of Hon'ble High Courts. We are of the considered view that this transaction is not at all a closely linked transaction and, therefore, the aggregate TNMM would not apply and the lower authorities have rightly treated this transaction as separate transaction on facts of the case. 22. The other part of this grievance relates to reimbursement of SAP and other expenses. 23. Facts on record show that the assessee had incurred certain expenses in the nature of SAP maintenance charges, vehicle, telephone and food expenses, etc. on behalf of its AEs, on a cost-to-cost basis, without charging any mark-up. 24. B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SAP India, on the Appellant and the corresponding invoices/debit notes raised by the assessee on the AE were furnished before the lower authorities. 28. Per contra, the ld. DR strongly supported the findings of the lower authorities. 29. We have carefully considered the rival contentions and have perused the orders of the authorities below. It is apparent from the facts on record that the appellant was incurring these expenses by acting as a facilitator and these reimbursements are "pass through" costs. In our understanding of the facts, such transaction cannot be compared with ITES. From the record, we find the break up of total reimbursement as under: 1. SAP maintenance charges [cost reimbursement] ₹ 5,30,26,217/- 2. Vehicle, telephone, food expenses [cost reimbursement] ₹ 1,17,43,000/- Total ₹ 6,47,69,217/- 30. Further, record shows that the assessee group has SAP accounting system used by all group entities for which the assessee incurs maintenance charges in connection with support bug fixes in SAP ERP, changes in ERP functionality. The aforesaid maintenance charges paid by the assessee to third party service providers, is allocated among group ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch a case, it may not be appropriate to determine arm's length pricing, as a mark-up on the cost of the outsourced services rather on the costs of the agency function itself and allocate the outsourced costs without mark-up." 33. Considering the nature of expenses in totality, in light of OECD guidelines, we do not find any merit in this adjustment made by the TPO. The same is directed to be deleted. 34. Next grievance relates to the disallowance made u/s 14A of the Act r.w.r. 8D of the rules. 35. Facts on record show that during the year, the appellant received dividend to the tune of ₹ 12,89,44,56,916/- which were claimed as exempt u/s 10(34) of the Act. Party-wise dividend income is as follows: Name of the Company Nature of Investment Amount of Dividend (Rs.) Investment made in FY Hindustan Zinc Ltd. Equity Investments in Subsidiary 850,37,78,361/- 2002-03 & 2003-04 Cairn India Ltd. Equity Investments in Subsidiary 438,93,00,000/- 2011-12 Sterlite Technologies Ltd. Equity Investments 12,78,555/- 2000-01 (received pursuant to demerger) Goa Shipyard Equity 1,25,414/- Before 1981 TOTAL 1289,44,56,916/- 36. The assessee, suo moto, disallowed ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic working nor any basis and suo moto disallowance of ₹ 1.94 crores is meagre as compared to the amount of exempt income. 42. We have carefully considered the rival submissions and have perused the orders of the authorities below. It is not in dispute that all the investments are coming from earlier A.Ys as is evident from the chart exhibited elsewhere. The total investments as on 31.3.2014 aggregated to ₹ 2186.66 whereas the cash generated from operations stood at ₹ 2930.39 crores which is far in excess of the investment. Therefore, it can be safely concluded that the assessee has made investments out of his own funds. Even assuming that the investments have come out of pool of funds, that is own funds and borrowed funds, then, the ratio laid down by the Hon'ble High Court of Bombay in the case of Reliance Utilities and Power Ltd 313 ITR 340 squarely apply on the facts of the case, as in that case, the Hon'ble Bombay High Court has held that if the investments are made from pool of funds, then presumption would be that investments have come out of own funds if own funds are in excess of investment. 43. It is also not in dispute that the Tribunal in ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first day and the last day of the previous year ₹ 20,00,44,93,634 + ₹ 30,19,67,88,502 = ₹ 50,20,12,82,136/- Average of the above = ₹ 25,10,06,41,068/- C. The average of total assets as appearing in the balance sheet of the assessee, on the first day of the last day of the previous year - Nil (i) an amount equal to one-half per cent of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year ₹ 25,10,06,41,068 x .005 = ₹ 12,55,03,205 Less: Administrative expenditure already disallowed ₹ 25,78,156 by the assessee ₹ 12,29,25,049 Accordingly, a sum of ₹ 12,29,25,049/- is disallowed u/s 14A read with Rule 8D as expenditure incurred for earning the exempted income and same is added to the total income. 6.. 7… 8… 9… 10… 11… 12… 13… 14. We have carefully considered the rival submissions along with the order of the authorities below. We have also gone through various case laws and the provisions of the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erted by gazette notification dated 24/3/2008 in view of the power conferred under sub-sec (2). This Rule prescribes the method for computing the expenditure incurred in relation to the income not forming part of the total income. This is an undisputed fact that in this case, the assessee has invested in debts mutual funds. The assessee computed disallowance u/s 14A(2) at ₹ 25,78,156/- and disallowed the same, while computing its total income. The working of the said disallowance claimed by the assessee is given herein above in the submissions made by the assessee. The AO was not satisfied with the correctness of the claim of the assessee especially the explanation of the assessee that no administrative expenditure incurred on earning the dividend income. Considering the magnitude of the investments and the dividend income received, the AO was of the view that the disallowance made by the assessee u/s 14A of the IT Act towards the administrative expenditure is low on comparing the magnitude of purchase and sales made by the assessee and the investments of large magnitude cannot be made without proper analysis of the market condition/stock movement etc. The revenue was of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance which has its relationship with the tax exempt income. Once the test of proximate cause, based on the relationship of the expenditure with tax exempt income is established, a disallowance would have to be effected under section 14A (page 28) 5. What merits emphasis is that the jurisdiction of the AO to determine the expenditure incurred in relation to such income which does not form part of the total income, in accordance with the prescribed method, arises if the AO is not satisfied with the correctness of the claim of the assessee in respect of the expenditure which the assessee claims to have incurred in relation to income which does not form part of the total income. Moreover, the satisfaction of the AO has to be arrived at, having regard to the accounts of the assessee. Hence, sub-sec (2) does not ipso facto enable the AO to apply the method prescribed by the rules straightaway without considering whether the claim made by the assessee in respect of the expenditure incurred in relation to income which does not form part of the total income is correct. The AO must, in the first instance, determine whether the claim of the assessee in that regard is correct an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tionship with the tax exempt. Pay back or return of investment is not such proximate cause. Hence, Sec.14A is not applicable in the present case. Thus, in the absence of such proximate cause for disallowance, Sec.14A cannot be invoked. 16. The Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. Vs DCIT (supra) therefore at page-28 has clearly laid down that there must be proximate cause based on the relationship of the expenditure that tax exempt income is established, only then a disallowance would have to be effected u/s 14A of the IT Act. Therefore, in view of the decision of the jurisdictional High Court and the decision of the Hon_ble Supreme Court, we are of the view that sec.14A cannot be applied unless there is a proximate cause for disallowance. The onus to establish that there is proximate cause based on the relationship of the expenditure with the exempt income in our opinion is on the Revenue. Thus, the application of the provisions of sec. (2) & (3) of Sec.14A and Rule 8D is not automatic in each and every case, where there is income not forming part of the total income. Sub-sec. (2) & (3) are intended to enforce and implement the provisions of sub- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d out the proximate connection of other expenses not apportioned by the assessee for the earning of the dividend income. He merely observed that the administrative expenses disallowed by the assessee is very less but how they are less and how the other expenses incurred by the assessee related to the dividend income has not been brought on record. Even the AO has not pointed out the expenses excluded by the assessee for disallowance has proximate connection with dividend income. In our opinion, the assessing officer before rejecting the disallowance computed by the assessee must give a clear cut finding having regard to the accounts of the assessee how the other expenditure claimed by the assessee out of non exempt income is related with the exempt income. No discrepancy in the claim of the assessee was pointed out. The assessing officer in our opinion in view of the jurisdictional High Court decision is bound to record satisfaction as to how the expenses claimed by the assessee have been incurred on earning dividend income were not sufficient and correct. We have already held that the onus to prove in this regard lies on the assessing officer. Although the Ld. DR had vehemently co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure and that no disallowance can be made on the basis of presumptions. In ―ACIT Vs. Eicher Ltd._, 101 TTJ (Del.) 369, that it was held that: the burden is on the AO to establish nexus of expenses incurred with the earning of exempt income, before making any disallowance u/s 14A of the Act. In ―Maruti Udyog Vs. DCIT, 92 ITD 119 (Del.), it has been held that before making any disallowance u/s 14A of the Act, the onus to establish the nexus of the same with the exempt income, is on the revenue. In ―Wimco Seedlings Limited Vs. DCIT_, 107 ITD 267 (Del.) (TM), it has been held that there can be no presumption that the assessee must have incurred expenditure to earn tax free income. Similar are the decisions in: 1. Punjab National Bank Vs. DCIT, 103 TTJ 908 (Del.); 2. Vidyut Investment Ltd., 10 SOT 284 (Del.); and 3. D.J. Mehta Vs. Income Tax Officer, 290 ITR 238 (Mum.) (AT) In view of the above, finding no error with the order of the CIT(A) on the point at issue, the same is hereby confirmed. Ground no.3 is thus rejected._ In the case of Jindal Photo Ltd. Vs. DCIT held in I.T.A.T. Delhi bench dated 23.9.2011 it was held as follows: "In the year under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rum is carried in appeal before the higher appellate forum/court, operative part thereof merges into the judgment, decision or order of the higher court after the confirmation, modification or reversal, as the case may be, and the decision of the lower court or forum has no independent existence thereafter in relation to the issue which was carried before the appellate court or forum. It was held that where the High Court comes to the conclusion that no substantial question of law arises on a particular issue, it cannot be stated that the subject matter of controversy between the parties has not been dealt with by the High Court. It was held that when the decision of the Tribunal is affirmed on the issue brought before the High Court, it is the decision of the High Court which becomes operative and which is capable of being given effect to for all intents and purposes. Keeping in view the decision of Hon'ble Gujarat High Court in the case of Nirma Industries Ltd. (supra), we have no hesitation to hold that the decision of the Hon'ble Bombay High Court in the case of Delite Enterprise Ltd. (supra) is a decision on merit which is binding precedent on us. As the issue involved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely following the decision of the jurisdictional High Court in the case of Godrej & Boyce Mfg. co. Ltd. Vs. DCIT & another 328 ITR 81 (Bom), we delete the disallowance made u/s 14A r.w. Rule 8D and accordingly, the ground taken by the assessee in this regard is allowed." 45. In light of the findings given in earlier years on identical set of facts, we direct the assessing officer to delete the disallowance of ₹ 857.04 crores made under section 14A of the Act read with Rule 8D of the Rules. This ground is, accordingly allowed. 46. Next ground relates to claim of additional depreciation of ₹ 9.79 crores. 47. Facts on record show that after the implementation of Scheme of amalgamation and arrangements passed by the Hon'ble High Court of Bombay at Goa and Hon'ble Madras High Court, the copper division, power division and aluminium division merged with the appellant. The assessee, in its return of income, claimed additional depreciation under section 32(1)(iia) of the Act in respect of new plant and machinery acquired and installed by it in all its divisions, that is, mining division, Met coke division, Pig iron division and power division. 48. While scrutinising ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lled. It is the say of the ld. counsel for the assessee that the assessee has explained the process and procedure adopted by it for such extraction and processing of iron ore and as a result of such processes the end product that is procured is distinct from the raw material. 52. It is the say of the ld. counsel for the assessee that the word 'manufacture' means to bring into existence any article or a product either by physical labour or by power. And such new products shall have commercially distinctive name, use and character and therefore, the claim should be allowed. 53. Per contra the ld. DR strongly supported the findings of the Assessing Officer and once again drew our attention to the decisions relied upon by the assessing officer. 54. We have considered the rival submissions and have perused the orders of the authorities below. In our considered opinion, the term 'manufacture' is understood to mean as bringing into existence a new substance and such new substance should be commercially distinctive name, use and character. Though, the term 'manufacture' has been defined under section 2(29BA) of the Act to mean a change resulting in transformation of any article or thing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. 4. According to the revenue, which is in appeal before us, the High Court erred in its conclusion as it failed to consider that extraction and processing of iron ore did not produce any new product. The definition of the word "ore" in Strouds Judicial Dictionary, Volume 3, Fifth edition, has been relied upon in this context. Reliance has also been placed upon the decision of this court in Minerals and Metals Trading Corporation of India Ltd. v. Union of India (1973) 1 SCR 997 : AIR 1972 SC 2551 and on Chapter Note II of Chapter 26 of the Central Excise Tariff Act, 1985. 4. According to the revenue, which is in appeal before us, the High Court erred in its conclusion as it failed to consider that extraction and processing of iron ore did not produce any new product. The definition of the word "ore" in Strouds Judicial Dictionary, Volume 3, Fifth edition, has been relied upon in this context. Reliance has also been placed upon the decision of this court in Minerals and Metals Trading Corporation of India Ltd. v. Union of India (1973) 1 SCR 997 : AIR 1972 SC 2551 and on Chapter Note II of Chapter 26 of the Central Excise Tariff Act, 1985. 5. Learned couns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Univmine (P) Ltd. (1993) 202 ITR 825 (Del). The revenue has not questioned any of these decisions, at least not successfully, and the position of law, therefore, was taken as settled. 6. At the outset, it may be noted that section 32A(2)(b)(iii) makes it clear that investment allowance is deductible in respect of, inter alia, a plant owned by the assessee which is wholly used for the purposes of the assessees business under section 32A(1) if the plant is installed after 31-3-1976, in an industrial undertaking for the purposes of the business of construction or manufacture or production of any article or thing, except those articles or things mentioned in the Eleventh Schedule to the Act. There is no dispute that the plant in respect of which the assessee claimed deduction was owned by it and was installed after 31-3-1976, in the assessees industrial undertaking for excavating, mining and processing mineral ore. Mineral ore is not excluded by the Eleventh Schedule. The only question is whether such business is one of manufacture or production of ore. The issue had arisen before different High Courts over a period of time. The High Courts have held that the activity amounted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the arnbit of the word "production" since ore is "a thing", which is the result of human activity or effort. It has also been held by this court in CIT v. N. C. Budharaja and Co. (1993) 204 ITR 412 (SC) that the word ,production" is much wider than the word "manufacture". It was said (page 423) : "The word production has a wider connotation than the word manufacture. While every manufacture can be charaterised as production, every production need not amount to manufacture .... The word production or produce when used in juxtaposition with the word manufacture takes in bringing into existence new goods by a process which may or may not amount to manufacture. It also takes in all the by-products, intermediate products and residual products which emerge in the course of manufacture of goods." It is, therefore, not necessary, as has been sought to be contended by learned counsel for the revenue, that the mined ore must be a commercially new product. The decisions and other authorities on the definition of the word "ore", as cited by the appellant, are irrelevant. 8. Learned counsel appearing on behalf of the assessee, correct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )(iia) of the Act and was put to use for a period less than 180 days during FY 2012-13 and, therefore, was allowed depreciation to the extent of 50% of the eligible additional depreciation. 59. In its return for the year under consideration the assessee claimed balance 50% of the additional depreciation amounting to ₹ 152.55 crores as the said depreciation was attributable to new plant and machinery used in iron ore division, power division, copper division and aluminium division. 60. While scrutinising the return of income the assessing officer was of the firm belief that the assessee is not entitled for such claim as there is no such provision for carry-over of the balance claim of additional depreciation to the next year. Though there is a reference to the amendment brought in the act vide the Finance Act of 2015, but the assessing officer was of the opinion that third proviso to section 32(1)(ii) of the Act allowing such carry-over to subsequent year is applicable prospectively and disallowed the claim of 50% of additional depreciation. 61. Objections were raised before the DRP. The DRP also concurred with the view of the assessing officer that amendment made vide Fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rein basic test for amendment being retrospective or prospective has been laid down. 69. We have carefully considered the rival submissions and the orders of the authorities below. It is not in dispute that the plant and machinery on which additional depreciation u/s 32(1)(iia) of the Act was claimed were purchased in FY 2012-13. Since the additions made were used for less than 180 days, as per provisions of law, the assessee was entitled to only 50% of total depreciation. Since the assessee was allowed only 50% of total depreciation, it claimed the balance 50% in the year under consideration. Since in the earlier ground we have held that the assessee is entitled for claim of additional depreciation, there is no dispute that the claim of additional depreciation is available to the assessee. However, the quarrel is in respect of balance of additional depreciation brought forward from the earlier year and claimed in the year under consideration. It is not in dispute that vide Finance Act 2015, this claim is available to the assessee. So the only quarrel relates to the applicability of the said section as in the amendment it has been clearly mentioned that it is applicable from asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the domain of superior courts. Therefore, considering the plain language of the section, we do not find the amendment applicable to the year under consideration. 72. In light of the aforesaid discussion, we are of the considered view that the assessee is not entitled for claim of 50% of the depreciation brought forward from earlier assessment years. 73. Next ground relates to disallowance of ₹ 21.76 crores claimed as deduction u/s 32AC of the Act. 74. As mentioned elsewhere, since the appellant is engaged in the business of manufacture/production of iron ore, aluminium, copper, pig iron and metallurgical coke and power and since the assessee has acquired and installed new assets amounting to ₹ 573 crores, it claimed deduction u/s 32AC of the Act aggregating to ₹ 2,17,61,32,015/- consisting of ₹ 13,99,23,723/- for power division and ₹ 7,76,89,482/-for iron ore division respectively. 75. This claim of the assessee was denied by the Assessing Officer solely on the ground that exploration of mines and generation of power were not manufacturing activities as envisaged u/s 32AC of the Act. The said denial was upheld by the DRP on the premise that activ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per cent of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii)." 7. Learned counsel for the assessee has drawn our attention to the judgement of the Karnataka High Court dated 16.09.2014 in ITA No.08/2014 [Commissioner of Income Tax vs. The Hutti Gold Mines Co. Ltd. ] wherein the question of additional depreciation was considered and it was held as follows: "3. The material on record shows that the assessee is generating electricity through windmill as a second line of business. It is a product of the assessee company. It is covered under the words "article" or "thing", which is tradable / identifiable. In other words, the electricity falls within the definition of Sale of Goods Act, 1930, and process of generation of electricity is akin to manufacture or production of an "article" or "thing". The power generated need not necessarily be used in the production of assessee's own products namely mining and extraction of gold. The use of electricity in the manufacturing activity of the core business of the assessee is not a precondition for the grant of additional depreciation under the statute. Therefore, we do not see any merit in this appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we agree with Grover. J., on all other characteristics of electric energy except that it can be "stored_ and to the extent that electric energy can be "stored_, the observation must be held to be erroneous or by oversight. The science and technology till this day have not been able to evolve any methodology by which electric energy can be preserved or stored." 9. The Tribunal's judgment in NTPC vs. DCIT [relied upon in the orders of the CIT(A) as well as the Tribunal in the present case] followed this judgment of the Supreme Court to hold that electricity has all the necessary trappings of "articles" or "things" and the benefit of additional depreciation cannot be denied. 10. As held by the Constitution Bench, electricity is capable of abstraction, transmission, transfer, delivery, possession, consumption and use like any other movable property. Following the same logic, to deny the benefit of additional depreciation to a generating entity on the basis that electricity is not an "article" or "thing" is in our view an artificially restrictive meaning of the provision. The benefit of additional depreciation under Section 32(1)(iia) has, therefore, been rightly granted to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls were written. The ld. AR stated that senior executives of the appellant were discussing about the tracking mechanism in respect of all those receivables which could not be accounted for in the books of accounts on accrual basis due to uncertainties attached to it and which are to be duly accounted for whenever such receivables are ultimately received. The ld. counsel for the assessee pointed out that on 19.7.2019, before the DRP an affidavit of its Director was filed to the effect that the emails reflected the discussions of the senior executives of the appellant regarding tracking mechanism. 88. Referring to the Accounting Standard [AS]-9 issued by the Institute of Chartered Accountants of India, the ld. counsel for the assessee stated that this Accounting Standard provides that the revenue must be recognised on accrual basis only when there is reasonable certainty about the realisation of such income. 89. It is the say of the learned counsel for the assessee that the action of the lower authorities is clearly in contravention of the settled principles of AS-9. The ld. counsel for the assessee drew our attention to the relevant extract of emails. 90. In the alternative, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and a memoranda record is kept Tnere is an internal MIS where I gel this on a monthly basis Separately, we do send reminders on a regular basis Insurance claims receivable: Unless there is virtual certainty in receiving these, we do not take credit in the PnL. Again. We track this on monthly basis . Mostly these are LOP claims where the amount of the claim is often filed in a much high side. " Manish Dawar 30.6.2013 "DD, attached is the listing of off balance sheet receivable that we have. There is continuous focus on two large items and we review it regularly. As a process we are planning to capture this in SAP notes so that the track is not lost. " Vinod Bhandaw at 02.7.2013 " Dear Sir The details of potential receivable outside the books has been compiled and the total of such amount is ₹ 1096 crs. This can be split into the following categories Insurance claim related ₹ 254 crs Refunds from banks ₹ 160 crs Draw back related ₹ 22 crs Coal Tapering ₹ 169 crs Tariff Fixation Gridco ₹ 295 crs ₹ 196 crores towards PAT (perform, achieve and trade scheme) at VAL for energy efficiency Some of the insurance claims particularly in VAL may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r statistical purposes. 97. Next ground relates to the disallowance of rupees 50.30 lakhs claimed as Corporate Social Responsibility expenditure. 98. During the course of scrutiny assessment proceedings, the Assessing Officer noticed that the assessee has claimed an expenditure of ₹ 50,36,663/-on account of CSR. The Assessing Officer was of the opinion that expenditure so incurred does not qualify as expenditure incurred for the purpose of business in terms of section 37 of the Act. 99. Objections were raised before the DRP but the DRP confirmed the disallowance relying upon the decision of the Tribunal in the case of Hyundai Motor India Limited 62 Taxmann.com 42. The DRP was of the opinion that Explanation 2 to section 37(1) of the Act which specifically provides that expenditure incurred on CSR was not deemed to be a business expenditure. 100. Before us, the ld. counsel for the assessee vehemently stated that Section 135 of the Companies Act 2013 casts a legal obligation on the appellant company to expend towards CSR. It is the say of the ld. Counsel for the assessee that pursuant to such mandate the company has laid down CSR policy the objective of which is that the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Details mentioned hereinabove do not justify the claim of expenditure on account of commercial expediency. Considering the claim from all possible angles, we do not find any merit in such claim of expenditure. Disallowance of ₹ 50.37 lakhs stands confirmed. This ground is, accordingly, dismissed. 107. Next Ground relates to addition of ₹ 3,22,94,880/- on account of liquidated damages. 108. While scrutinising the return of income, the assessing officer found that during the year the assessee has received liquidated damages of ₹ 3,22,94,880/- and in its computation of income, the assessee claimed exclusion of the same from the taxable income on the ground that the same having been received from the suppliers of capital goods in relation to delayed supply of such capital goods. On these facts the sum was treated as capital receipts. The assessing officer was not convinced with the claim of the assessee and was of the firm belief that under section 28(iv) of the Act the said amount is chargeable as revenue receipt. The Assessing Officer further observed that the assessee had failed to submit necessary details of the parties and other documentary evidences to subst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t agreements were not for supply of any machinery, but of design, transfer of technology knowhow, patent etc, which are in the nature of intangible assets, but the lower authorities have completely ignored the fact that even intangible assets are capital goods and a specific rate of depreciation is provided in the Income Tax Act. In our considered opinion, and as admitted by the revenue authorities, damages were for intangible assets and intangible assets are also capital goods. Therefore, any liquidated damages received are capital receipts. We, accordingly, direct the Assessing Officer to delete the addition of ₹ 32,29,40,880/-. This ground is accordingly allowed. 115. Next Ground relates to denial of brought forward losses. 116. In its return of income, the assessee has claimed set off of brought forward business losses and unabsorbed depreciation from its income during the year under consideration. The claim was denied by the Assessing Officer on the ground that in earlier assessment years, additions/disallowances have been made which have been confirmed by the DRP. The DRP confirmed the findings of the Assessing Officer holding that the claim could only be admissible o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anation did not find any favour with the Assessing Officer. 126. The Assessing Officer re-computed the book profit as under: Particulars Amount (Rs) Profit after tax (as per the P&L A/c) 1076,08,75,131 Add - Provision for impairment of assets 66,84,27,589 Add - Disallowance of expenses incurred in relation to exempt income (u/s 14A) 857,04,00,000 Add - Receivables out of Books 1095.93,00,00 Add - Provision for Bad and Doubtful debts 247,01,13,831 Add - Donation 15,50,36,663 3358,41,53,214 Less - Reversal of Provision for taxes pertaining to past years credited to P&L NIL Less - Deferred tax income credited to P&L 392,65,08,623 Less - Exempt dividend income u/s 10(34) earned during the 1289,44,37,49 Less - Debenture Redemption Reserve NI2L Book Profits u/s 115JB 1676,32,07,09 127. Objections were raised before the DRP but the DRP confirmed the computation of book profit by the Assessing Officer as mentioned hereinabove. 128. Before us, the ld. counsel for the assessee vehemently stated that the provisions of MAT are a separate code in itself and the powers of the Assessing Officer therein are extremely limited. 129. Strong reliance was placed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in accordance with the Companies Act. The Assessing Officer, thereafter, has the limited power of making increases and reductions as provided for in the Explanation to section 115J. The Assessing Officer does not have the jurisdiction to go behind the net profits shown in the profit and loss account except to the extent provided in the Explanation. The use of the words "in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act" in section 115J was made for the limited purpose of empowering the Assessing Officer to rely upon the authentic statement of accounts of the company. While so looking into the accounts of the company, the Assessing Officer has to accept the authenticity of the accounts with reference to the provisions of the Companies Act, which obligate the company to maintain its accounts in a manner provided by that Act and the same to be scrutinized and certified by statutory auditors and approved by the company in general meeting and thereafter to be filed before the Registrar of Companies who has a statutory obligation also to examine and be satisfied that the accounts of the company are maintained in accordance with the req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as defined in the Explanation, the total income of the company, chargeable to tax, shall be deemed to be an amount equal to thirty per cent of such book profit. The whole purpose of Section 115J of the Act, therefore, was to take care of the phenomenon of prosperous `zero tax' Companies not paying taxes though they continued to earn profits and declare dividends. Therefore, a Minimum Alternate Tax was sought to be imposed on `zero tax' Companies. Section 115J of the Act imposes tax on a deemed income. Section 115J of the Act is a special provision relating only to certain Companies. The said section does not make any distinction between public and private limited companies. In our view, Section 115J of the Act legislatively only incorporates provisions of Parts II and III of Schedule VI to 1956 Act. Such incorporation is by a deeming fiction. Hence, we need to read Section 115J(1A) of the Act in the strict sense. If we so read, it is clear that, by legislative incorporation, only Parts II and III of Schedule VI to 1956 Act have been incorporated legislatively into Section 115J of the Act. Therefore, the question of applicability of Parts II and III of Schedule VI to 1956 A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of this 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 day of April, 2012, is less than eighteen and one-half per cent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of eighteen and one-half per cent. Following proviso shall be inserted in sub-section (1) of section 115JB by the Taxation Laws (Amendment) Act, w.e.f. 1-4-2020: Provided that for the previous year relevant to the assessment year commencing on or after the 1st day of April, 2020, the provisions of this sub-section shall have effect as if for the words "eighteen and one-half per cent", occurring at both the places, the words "fifteen per cent" had been substituted. (2) Every assessee,- (a) being a company, other than a company referred to in clause (b), shall, for the purposes of this section, prepare its statement of profit and loss for the relevant previous year in ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure relatable to any income to which section 10 (other than the provisions contained in clause (38) thereof) or section 11 or section 12 apply; or (fa) the amount or amounts of expenditure relatable to income, being share of the assessee in the income of an association of persons or body of individuals, on which no income-tax is payable in accordance with the provisions of section 86; or (fb) the amount or amounts of expenditure relatable to income accruing or arising to an assessee, being a foreign company, from,- (A) the capital gains arising on transactions in securities; or (B) the interest, royalty or fees for technical services chargeable to tax at the rate or rates specified in Chapter XII, if the income-tax payable thereon in accordance with the provisions of this Act, other than the provisions of this Chapter, is at a rate less than the rate specified in sub-section (1); or (fc) the amount representing notional loss on transfer of a capital asset, being share of a special purpose vehicle, to a business trust in exchange of units allotted by the trust referred to in clause (xvii) of section 47 or the amount representing notional loss resulting from any c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. However, no adjustment of this provision was made while computing book profits u/s 115 JB of the Act 142. The Assessing Officer added the full amount of provision as debited by the assessee while computing the book profit on the premise that the same was in the nature of an unascertained liability and further held that the said provision had to be added back to the book profit in terms of clause (c) as well as clause (i) of Explanation 1 of Section 115JB of the Act. 143. The DRP has only made adjustment referring to clause (c) of Explanation 1 of Section 115 JB of the Act and not clause (i) which means that the DRP has concurred with the view of the assessee that clause (i) of the said section was not applicable to the instant case. We have to consider the adjustment in the light of clause (c) of Explanation 1 of Section 115 JB of the Act which provides for addition of amount other than ascertained liability. In our understanding of the facts, provision for bad and doubtful debts are made against trade receivables and these provisions are not created against any liability/payable of the appellant. 144. The Hon'ble Supreme Court in the case of HCL Comnet Systems an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilities; or (d), (e) & (f) xxx xxxxxx; if any amount referred to in clauses (a) to (f) is debited to the profit and loss account, and as reduced by, - (i) to (viii) xxx xxxxxx (3) and (4) xxx xxxxxx" From the above, it is evident that Section 115JA of the 1961 Act which refers to "deemed income relating to certain companies" has an overriding effect upon other provisions of the Income-tax Act. It is applicable only in the case of a company. As per Section 115JA, the AO has to first compute the total income of the assessee as per the provisions of the Income-tax Act. Thereafter, he has to compute 30% of the book profit. Then he has to compare the total income as computed as per the provisions of the Incometax Act with 30% of book profit computed as per Section 115JA. If 30% of the book profit is more than the total income, then 30% of the book profit shall be deemed to be the "total income" of the assessee for such previous year. As per sub-section (2), the assessee has to prepare the `profit and loss account' for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act. The Explanation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above, it is evident that the AO has to accept the authenticity of the accounts maintained in accordance with the provisions of Part II and Part III of Schedule VI to the Companies Act, which are certified by the Auditors and pressed by the company in the general meeting. The AO has only the power of examining whether the books of accounts are duly certified by the authorities under the Companies Act and whether such books have been properly maintained in accordance with the Companies Act. The AO does not have the jurisdiction to go beyond the net profit shown in the profit and loss account except to the extent provided in the Explanation. Thereafter, the AO has to make adjustment permissible under the Explanation given in Section 115JA of the 1961 Act. It may be noted, that the adjustments required to be made to the net profit disclosed in the profit and loss account for the purposes of Section 349 of the Companies Act are quite different from the adjustment required to be made under the Explanation to Section 115JA of the 1961 Act. For the purposes of Section 115JA, the AO can increase the net profit determined as per the profit and loss account prepared as per Parts II and III ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons, there is no merit in this civil appeal and accordingly the same is dismissed with no order as to costs." 145. Even if the adjustments made by the Assessing Officer are considered in the light of clause(i) of Explanation 1 of Section 115JB of the Act, a perusal of the same shows that the trigger point for invoking this clause are: a) amount should be set aside as 'provision', b) It should be in the nature of diminution in the value of asset 146. In so far as condition (b) is concerned, it is not in dispute that the same is satisfied in the present case in as much as amount of ₹ 247.01crores stood reduced from the amount of debtors/trade receivables which tantamount to the diminution in the value of an asset. However, the real test to qualify as provision is that the amount set aside must be in the nature of provision. We find that while debiting the statement of Profit and Loss, the assessee has deducted/written off the same from its trade receivables in the balance sheet which means that no liability was created corresponding to the amount of the provision charged. In our considered opinion, such a reduction from debtor/trade receivables amount to actual write off an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit and loss account per se would not constitute actual write off. The Apex Court accepted the said legal position. However, it was clarified that besides debiting the profit and loss account and creating a provision for bad and doubtful debt, the assessee correspondingly/simultaneously obliterated the said provision from its accounts by reducing the corresponding amount from loans and advances/debtors on the assets side of the balance sheet and consequently, at the end of the year, the figure in the loans and advances or the debtors on the assets side of the balance sheet was shown as net of the provision for the impugned bad debt. Then the said amount representing bad debt or doubtful debt cannot be added in order to compute book profit. Therefore, after the Explanation the assessee is now required not only to debit the profit and loss account but simultaneously also reduce the loans and advances or the debtors from the assets side of the balance sheet to the extent of the corresponding amount so that, at the end of the year, the amount of loans and advances/debtors is shown as net of the provisions for the impugned bad debt. Therefore, in the first place if the bad debt or do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tute a write off of an actual debt. On the other hand, if and assessee debits provision for doubtful debt to the Profit and Loss account and makes a corresponding credit to the current liabilities and provisions on the liabilities side of the balance sheet, then it would constitute a provision for doubtful debt and in such a case after 1.4.1989, the assessee could claim no deduction under section 36(1) (vii) of the Act. 19. This principle was further clarified in case of Vijaya Bank (supra) by observing that in case on hand, the assessee besides debiting the profit and loss account and creating a provision for bad and doubtful debt, had simultaneously obliterated the said provision from its accounts by reducing the corresponding amount from loans and advances/debtors on the asset side of the balance sheet and consequently, at the end of the year, the figure of loans and advances or the debtors on the asset side of the balance sheet was shown as net of the provision for the bad debt. Thereafter, the Supreme Court rejecting the Revenue's contention that for the bank to take benefit of section 36(1)(vii), must close the account of the debtors, decided the question in favour of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld by the Supreme Court in case of HCL Comnet Systems and Services Ltd. (supra), the then existing clause (c) did not cover a case where the assessee made a provision for bad or doubtful debt. Withinsertion of clause (I) to the explanation with retrospective effect any amount or amounts set aside for provision for diminution in the value of the asset made by the assessee, would be added back for computation of book profit under section 115JBof the Act. However, if this was not a mere provision made by the assessee by merely debiting the Profit and Loss Account and crediting the provision for bad and doubtful debt, but by simultaneously obliterating such provision from its accounts by reducing the corresponding amount from the loans and advances on the asset side of the balance sheet and consequently, at the end of the year showing the loans and advances on the asset aside of the balance sheet as net of the provision for bad debt, it would amount to a write off and such actual write off would not be hit by clause (I) of the explanation to section 115JB. The judgment in case of Deepak Nitrite Limited (supra) fell in the former category whereas from the brief discussion available in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d when there is a rise in the value of the investment, or if the reasons for the reduction no longer exist. 16. Paragraph 25 of the Explanation part of Accounting Standard 13 deals with "Disclosure" and provides thus: "25. The following disclosures in financial statements in relation to investments are appropriate: (a) The accounting policies for the determination of carrying amount of investments; (b) The amounts included in profit and loss statement for: (i) interest, dividends (showing separately dividends from subsidiary companies), and rentals on investments showing separately such income from long term and current investments. Gross income should be stated, the amount of income tax deducted at source being included under Advance Taxes Paid; (ii) Profits and losses on disposal of current investments and changes in the carrying amount of such investments; (iii) Profits and losses on disposal of long term investments and changes in the carrying amount of such investments; (c) significant restrictions on the right of ownership, realisibility of investments or the remittance of income and proceeds of disposal; (d) the aggregate amount of quoted and unquoted inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts viz. 839,621,779/- the total investment as at 31 March 2003 comes to ₹ 4,902,684,859/-. It may be noted that the provision for diminution in value of investment as at 31 March, 2002 is ₹ 701,121,779/- and the provision in diminution of value of investments as at 31 March 2003 is ₹ 839,621,779/-. The difference between the provision for diminution of value of investment as at 31 March2002 and 31 March 2003 is ₹ 13,85,00,000/-. This amount of ₹ 13,85,00,000/-which is the provision for diminution in value of investment for the year under consideration, is duly reflected in the Profit and Loss account. Thus, the entry is routed through profit and loss account. 23. In terms of the accounting standards, in view of the decline in the value of the provisions created in the current year (as shown at page 57 of the paper book) the carrying amount of such investments has been reduced and in case of provisions where there was a rise in the value, the provisions are written back and the net amount of provision has been debited to the profit and loss account. Thus, insofar as the provision for diminution of value of investment to the extent of ₹ 13.85 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee has duly followed the netting principle in terms of the decision of this court in the case of Commissioner of Income Tax v. Vodafone Essar Gujarat Limited (supra). Thus, the Commissioner (Appeals) has proceeded on incorrect factual findings, whereas the Tribunal has properly appreciated the material on record while holding that the assessee has duly followed the netting principle propounded in the full bench decision of this court in Vodafone Essar Gujarat (supra). 26. In the light of the above discussion, no infirmity can be found in the view adopted by the Tribunal so as to warrant interference. The question, therefore, is answered in the affirmative, that is, in favour of the assessee and against the revenue. It is hereby held that the Income Tax Appellate Tribunal was justified in deleting the disallowance of provision for diminution in value of investment of ₹ 13,85,00,000/-while computing book profit under section 115JB of the Income Tax Act, 1961. The appeal, therefore, fails and is, accordingly, dismissed." 150. In the light of the aforementioned decision of the Hon'ble High Court [supra] we are of the opinion that no adjustment need to be made on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act of prior years reversed in F.Y 2013-14 ₹ 27,00,73,765/- Total tax provision in FY 2013-14 considered in MAT computation ₹ 17,82,09,52,034/- 157. Further break up of ₹ 1755.08 crores mentioned hereinabove is as under: Particulars AY 11-12 AY 12-13 AY 13-14 Amounts considered for arriving at reversal Details of Provision for Tax created in the standalone Financial Statements (Pre-merger) Sterlite Industries (India) Ltd. - 449.31 292.04 Sterlite Energy Limited - - 54.68 Sesa Goa Limited 963.00 719.00 10.92 Total (A) 963.00 1,168.31 357.64 2,488.95 Details of Provision for Tax reversed in the revised Financial Statements of Sesa Sterlite Ltd. (Post-merger) Tax Payable under Normal Provisions qua 743.32 - - Tax Payable under MAT Provisions (ii) 823.12 109.32 - Tax payable [Higher of (i) and (ii) above] (B) 823.12 109.32 - MAT credit entitlement [(ii) - (C) 79.80 109.32 - 189.12 Amount of Provision for tax to be reversed (D) = (A)-(B) 139.88 1,058.99 357.64 1,556.51 Less: Provision retained in the books (10.82) Net Reversal of Provision for Tax (E) 1,545.69 M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In our humble opinion, the decision of the Hon'ble Jurisdictional High Court of Delhi in the case of SREI infrastructure [supra] squarely apply. The relevant findings of the Hon'ble High Court read as under: "24. The term "provision" differs from "liability" because liability is certain and definite amount whereas a provision is an amount which is estimated (See Note 3 of Schedule III of the Companies Act, 2013, with reference to the term "current liabilities"). Reserves fall on the other end/side for they are associated with equity. Transfer of such reserves is appropriation of retained earnings rather than expenses. Contingent liability, however, is not a provision or liability. It is less certain than a provision as the possible obligation has not yet been confirmed and the assessed does not have control whether or when it will be confirmed or the amount cannot be measured with sufficient reliability. The potential obligation is so uncertain that it should not be recognized in the accounts. A provision, therefore, is somewhat between accrual and the contingent liability. 25. The argument in respect of Section 45-IC of the Reserve Bank of India Act, 1934 and divers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be invested. The said investments can be even outside the business and in such cases the reserve is called the reserve fund. Reserves are shown on the liability side of the balance sheet and are generally treated as belonging to the proprietor just as capital. It is a sum owned by the business to the proprietor. Reserves themselves are not assets but represent a portion of the assets which the proprietor is free to utilize for business as one likes, i.e. the assets equalling the reserves that are not required to pay liabilities. Generally reserves are created at the discretion of the management as a matter of prudence, but in certain cases a statute can direct creation of special reserves. For the purpose of Section 115JB of the Act, statutory reserves are treated alike and in a similar manner as other reserves 35. In view of the aforesaid reasoning, the two substantial questions of law mentioned in paragraph 7 above have to be answered against the appellant-assessee and in favour of the respondent-Revenue. To this extent, the appeal is dismissed. As the substantial question of law relating to rate of depreciation has been answered in favour of the appellant-assessee, we are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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