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TMI Blog2021 (8) TMI 608X X X X Extracts X X X X X X X X Extracts X X X X ..... er has accepted the date of commissioning of thermal project as on 25.09.2012, the Ld. CIT(A) has accepted the said fact and proceeded to examine the claim of the assessee in respect of capitalization of interest expenditure till the date of commissioning of Thermal Project which was legally correct. CIT(A) has allowed the claim of the assessee on the well settled principle of law on this subject. Therefore, we do not find any infirmity in the order of the Ld. CIT(A) and confirm the same. These grounds of appeal of revenue are dismissed. Addition of debenture redemption reserve in computing Book profit u/s. 115JB - According to the AO Debenture Redemption Reserve was carried to reserve so it should be added back under Explanation 1(b) to sec. 115JB of the Act and thus added back this amount - HELD THAT:- As noted that the amount transferred to DRR is not in excess of the amount to be required to paid at the time of repayment of the debentures, so it cannot be treated as reserve for the purpose of Schedule VI to the Companies Act, 1956; and as discussed the amount set apart to meet a known liability as such the DRR cannot be considered as reserve to attract explanation 1(b) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T.A. No. 1390/Kol/2019 - - - Dated:- 11-8-2021 - Shri A. T. Varkey, Hon ble Judicial Member And Dr. M. L. Meena, Hon ble Accountant Member For the Appellant/Revenue : Shri Praveen Kishore, CIT For the Assessee/Cross Objector : Shri Soumen Adak, AR ORDER PER BENCH: This appeal preferred by the revenue and the cross objection preferred by the assessee are against the order of Ld. CIT(A)-5, Kolkata dated 06-03-2019 for assessment years 2013- 14. 2. The appeal of revenue is time barred by two days and revenue has filed petition for condoning the delay. After perusal of the petition and after hearing both the sides, we condone the delay and admit the appeal for hearing. 3. Ground nos. 1 and 2 of the appeal of the revenue read as under: 1. The Ld. CIT(A) has erred in facts and circumstances of the case and in deleting the capitalization of interest expenses of ₹ 6,63,00,000/- on the basis of submission of the assessee without going into the actual facts and materials of the case regarding the proportionate disallowance made by the AO. 2. The CIT(A) has erred in deleting the addition of ₹ 6,63,00,000/- on account o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be capitalized) ₹ 23729 Lakhs c) Total term loan (3500+5000+42) ₹ 8542 Lakhs therefore, amount determined for to be capitalized as below: 1842 x 8541/23729 = 663 Lakhs In view of the above discussion on amount of ₹ 663 Lakhs is disallowed and added to the total income of the assessee . 5. Aggrieved by the aforesaid action of the AO, the assessee preferred an appeal before the Ld. CIT(A), who was pleased to allow the same as under: I have considered the, submission of the appellant and perused the relevant assessment records. The AO in assessment order had disallowed interest amounting to ₹ 6,63,00,000/- on the grounds that it should be capitalized. It appears that the addition has been made on the basis of wrong appreciation of facts. The appellant had taken loan for setting of 12MW Thermal Power Plant and for a substation at J K Nagar from IDBI Bank and South Indian Bank. The interest payable prior to the projects being commissioned were capitalized and the remaining interest pertaining to the period after the asset have been put to use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed we are of the view that the assessee has rightly capitalized the interest expenditure to the tune of ₹ 2,91,95,891/- till the date of commissioning of Thermal Project in terms of Explanation 8 to Section 43(1) of the Income-tax Act, 1961 (hereinafter referred to as the Act ). The interest expenses till date the asset is put to use has to be capitalized to the cost of asset and after commencement of power production the interest (i.e. post the assets are put to use) the expenditure of ₹ 2,87,49,721/- was rightly debited to the P L Account and claimed as revenue expenditure and therefore no fault can be attributed to the action of Ld. CIT(A). The only objection pointed out by the Ld. CITDR was that the Ld. CIT(A) has believed the facts noted by the Auditor s Report and has taken the date of commissioning of Thermal Project as on 25.09.2012 without making any enquiry or calling remand report from AO. However, we do not agree with the contention of Ld. CITDR for the simple reason that we have reproduced, the AO s action on this issue and perusal of the same would reveal that the AO has noted the date of commissioning of Thermal Project as on 25.09.2012 from the same sou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while computing the book profit u/s l15JB being the amount transferred to Debenture Redemption Reserve. The facts relating to this addition are that the assessing officer noted that the assessee has made a provision for Debenture Redemption Reserve for ₹ 16,30,00,000/- The assessing officer added the same for computing the book profit u/s 115JB of the Act. When the matter went before the CIT(A), the CIT(A) confirmed the disallowance relying on the decision of D Bench of the Kolkata Bench of the tribunal in ITA No.1317/Kol/2006 dated 11.12.2009 for assessment year 2009-10. We heard the rival submission and carefully considered the same we noted that the assessee has created this provision for meeting a specific liability arising at the time of Redemption of Debentures. The amount so transferred therefore cannot be regarded to be the reserve or provision made for meeting the liabilities other than ascertains liabilities. Our aforesaid view is duly supported by the decision of Mumbai High Court in the case of CIT vs Raymond Ltd, 21 Taxmann.com (Mum). No contrary decision taken by any other High Court was brought to our knowledge by the Ld. D.R. The decision of Rayon Corporatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l such debentures are redeemed, (2) The amounts credited to the debentures redemption reserve shall not be utilized by the company except for the purposes aforesaid. 4.2. From the perusal of above, it is clear that if a company issues debentures, it is statutorily required to create a Debenture Redemption Reserve for the purpose of redemption of debentures. Therefore, transfer to Debenture Redemption reserve is statutory in nature. And it is noted that the amount transferred to DRR is not in excess of the amount to be required to paid at the time of repayment of the debentures, so it cannot be treated as reserve for the purpose of Schedule VI to the Companies Act, 1956; and as discussed the amount set apart to meet a known liability as such the DRR cannot be considered as reserve to attract explanation 1(b) of section 115JB of the Act. Moreover, we note that the Ld. CIT(A) has allowed the claim by referring to the decision of this Tribunal in SREI Equipment Finance Ltd. Vs. DCIT, ITA No. 424/Kol/2011 wherein the Tribunal has relied on the ratio of the decision laid by the Hon ble Bombay High court in the case of CIT Vs. Raymond Ltd. (2012) 71 DTR 265 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able and imposition is sanctioned by Parliament. Under no circumstances, cess can be considered business expenditure and is more of a contribution for national development. In this regard, referenced is made to Circular 3 of 2018 issued by CBDT which lays down the monetary limits for filing of second appeal to the ITAT. The Circular reads as follows: 4. For this purpose, tax effect means the difference between the tax on the total income assessed and the tax that would have been chargeable had such total income been reduced by the amount of income in respect of the issues against which appeal is intended to be filed (hereinafter referred to as 'disputed issues'). Further, 'tax effect' shall be tax including applicable surcharge and cess. However, the tax will not include any interest thereon, except where chargeability of interest itself is in dispute. In case the chargeability of interest is the issue under dispute, the amount of interest shall be the tax effect. In cases where returned loss is reduced or assessed as income, the tax effect would include notional tax on disputed additions. In .case of penalty orders, the tax effect will mean quantum of penalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2011) and Sesa Goa Ltd. -vs.- JCIT (ITA No. 72/PNJ/2012) are squarely applicable. Aggrieved by the order of this Tribunal, the assessee filed appeal before the Hon ble High Court which remanded back the issue to this Tribunal for fresh consideration. Accordingly, the matter is before us for renewed deliberation. The brief facts qua the issue is that during the relevant previous year, the assessee has debited education cess amounting to ₹ 22,36,508/- to the profit and loss account. Ld. AR of the assessee submitted that education cess is not tax and hence not disallowable u/s 40(a)(ii) of the Act. He invited our attention towards the CBDT Circular No. 91/58/66 - ITJ(19) dated 18-05-1967, wherein it has been clarified that the effect of omission of the word cess from Sec. 40(a)(ii) of the Act is that only taxes paid are to be disallowed and not cess. Relevant extract of circular is as under:- Recently a case has come to the notice of the Board where the ITO has disallowed the cess' paid by the assessee on the ground that there has been no material change in the provisions of s. 10(4) of the old Act and s. 40(a)(ii) of the new Act. The view of the ITO is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction. Their lordships hold that section 40a(ii) applies only on taxes such than earn cess(es). We therefore reject the Revenue s contentions supporting the impugned disallowance. The assessee s instant substantive ground is accepted. The Assessing Officer is direction to verify all the relevant facts and allow the impugned cess (es) as deduction u/s 37 of the Act. The assessee s appeal I.T.A. No. 685/Ko/2014 is partly accepted in above terms. (ii) Peerless General Finance Investment Co. Ltd. -vs. - DCIT (ITA No. 937/Kol/2018) 37. Additional ground raised by the assessee in ITA No.937/Kol/2018 for A.Y.201011 reads as under: That on the facts and in the circumstances of the case, the authorities below erred in not allowing deduction U/s 37(1) of the Income Tax Act,1961, on account of Education Cesses paid by the assessee while arriving at the assessed income for the year under appeal. 38. After giving our thoughtful consideration to the submission of the parties and perusing the judicial decisions relied upon by the Ld. AR, we find that the issue involved in the present ground of appeal is no longer res integra. The education cess being not income tax is all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... low the claim of the education cess. The AO is directed to allow the claim of education cess in computing total income of the assessee company. These grounds raised by the assessee are allowed. 15. From a perusal of the aforesaid order of the co-ordinate bench of this Tribunal, we note that the Tribunal has allowed the deduction of the education cess by relying on the decision of the Hon ble Rajasthan High court in the case of Chamble Fertilizers Chemicals Ltd. (supra) wherein it was held that Section 40(a)(ii) applies only to taxes and not to education cess and while deciding so the Hon ble High Court has taken note of the decision of the Hon ble Apex Court wherein it was held that cess is not tax. Following the order of High Court, this Tribunal in the case of M/s. ITC Ltd. Vs. ACIT (ITA No.685/Kol/2014), Peerless General Finance Investment Co. Ltd. Vs. DCIT (ITA No.937/Kol/2018) and Tega Industries Vs. ACIT (ITA No. 1047/Kol/2017 has decided this issue in favour of the assessee. Thus, we are of the opinion that the issue raised by the assessee is no longer res integra. The education cess is not income tax, so is an allowable deduction u/s. 37(1) of the Act. Therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1961 is less than 30% of its book profits then fictionally, it will be deemed that its total income chargeable to tax would be an amount equal to 30% of such book profits. Hence, in such a case, the total income of the assessee is first required to be computed under the Income Tax Act, 1961 and if the total income so computed is less than 30% of the book profits then the profit and loss account shall have to be prepared in accordance with Part-Il and Part-Ill of Schedule-VI of the Companies Act. The important thing to be noted is that while calculating the total income under the Income Tax Act, 1961, the assessee is required to take into account income by way of capital gains under section 45 of the Income Tax Act, 1961. In the circumstances, one fails to understand as to how in computing the book profits under the Companies Act. The assessee company cannot consider capital gains for the purposes of computing book profits under section 115J of the Act. Further, under clause 2 of Part II of Schedule VI to the Companies Act where a company receives the amount on account of surrender of lease hold rights, the company is bound to disclose in the profit and loss account the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO by relying on the decision of the Hon ble Bombay High court in Veekay Lal Investment Co. Pvt. Ltd. (supra). The Ld. CIT(A) held that profits on transfer of assets should be considered while considering MAT and, therefore, he upheld the action of the AO wherein he had added profit on sale of assets and investments amounting to ₹ 1,73,66,796/-. In this context we also note that the Special bench of Hyderabad ITAT in the case of Rain Commodities ltd. Vs. DCIT (2010) 131 TTJ 514 has taken a similar view in favour of the revenue and held as under: Considering the totality of the facts and circumstances of the case as discussed above and in view of the above reasons, we upheld the order of learned CIT in holding that the long-term capital gain is to be included in the net profit prepared under the Companies Act and the same is not deductible from the net profit for the purpose of computing book profit under s. 115JB of the Act. We further hold that merely because the long-term capital gain is exempt under s. 47(iv) of the Act under the normal provision of the Act, it is not correct to say that it is also to be reduced from the net profit for the purpose of computin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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