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Facts
The assessee, Gujarat State Electricity Corporation Ltd., engaged in electricity generation, filed its return of income declaring Nil income for AY 2006-07. The assessment was completed with several additions, including disallowance of extraordinary items, employees' PF contribution, and enhancement of book profit. The assessee's appeal to the CIT(A) led to substantial relief, and subsequent appeals to the Tribunal and again to the CIT(A) resulted in the present cross-appeals.
Held
The Tribunal held that the CIT(A) rightly deleted the addition pertaining to extraordinary items due to flood, cyclone, and fire, as the assessee had provided sufficient details and the AO did not provide a reasonable opportunity for clarification. However, regarding the disallowance of employees' PF contribution, the Tribunal confirmed the disallowance of Rs. 76,114/- for delayed deposits while deleting Rs. 36,55,406/- for timely deposits. For the enhancement of book profit under section 115JB, the Tribunal noted the assessee's failure to furnish evidence and directed the AO to verify the computation.
Key Issues
1. Whether the disallowance of extraordinary items was justified, considering the opportunity provided to the assessee for clarification. 2. Whether the disallowance of employees' PF contribution for delayed deposit was correct and if the CIT(A) erred in deleting part of the addition. 3. Whether the enhancement of book profit under section 115JB was justified given the assessee's failure to provide evidence for withdrawals from reserves.
Sections Cited
250, 143(3), 115JB, 142(1), 32, 32A, 72, 73, 74, 74A, 288, 139, 142, 33AC, 10, 10A, 10B, 11, 12, 80HHC, 80HHE, 80HHF, 17, 3
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “D” BENCH, AHMEDABAD
Before: DR BRR KUMARSHRI SIDDHARTHA NAUTIYAL
PER DR.BRR KUMAR, VICE PRESIDENT: These cross appeals are directed against the common order dated 22.07.2024 passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as “Ld. CIT(A)”], under section 250 of the Income-tax Act, 1961 (“the Act”) for the Assessment Year 2006-07.
The Assessee has raised the following grounds of appeal:
1. The learned CIT(A) erred in law and on facts in confirming the disallowance of Rs.76,114/- being alleged late deposit of employees’ contribution to PF without appreciating the facts of the case properly.
2. The learned CIT(A) erred in law and on facts in confirming the enhancement of book profit u/s. 115JB of the IT Act on account of disallowance of deduction of Rs.88,90,87,000/- claimed by the appellant in terms of provision of clause (i) to Explanation 1 to Sub-section (2) to section 115JB of the Act without appreciating the facts of the case properly.
3. The learned CIT (A) erred in law and on facts in issuing direction to the Assessing Officer to verify the claim of unabsorbed forward business losses and unabsorbed depreciation and instead of issuing the direction, the learned CIT(A) ought to have allow himself the brought forward loss and unabsorbed depreciation.
The appellant craves leave to add, amend or alter the grounds of appeal at the time of hearing, if need arise.
The Revenue has raised the following grounds of appeal:
i) “Whether on the facts and circumstances of case and in law, the Ld.CIT(A) is justified in deleting the Addition on account of Extraordinary items amounting to Rs.3,53,90,000/- without remanding the issues to AO for verification even though CIT(A) has powers under section 250(4) of the Income Tax Act, 1961 to do so?” ii) Whether on the facts and circumstances of case and in law, the contribution to PF without remanding the issues to AO for verification even though CIT(A) has powers under section 250(4) of the Income Tax Act, 1961 to do so? iii) The appellant craves leaves to add, modify, amend or alter any grounds of appeal at the time of, or before, the hearing of appeal.
1. 1. 4. The brief facts of the case are that the assessee is a Government of Gujarat undertaking engaged in the business of generation of electricity. For AY 2006-07, it filed its return of income declaring Nil income. The assessment was completed under section 143(3) making various additions, including:- i. Disallowance of extraordinary items - Rs. 3,53,90,000/- (loss due to flood, cyclone, fire etc.) ii. Disallowance of employees’ contribution to PF - Rs. 37,31,520/- iii. Enhancement of book profit under section 115JB - Rs. 88,90,87,000/-
5. In the first round, the Ld. CIT(A) allowed substantial relief. On appeal by the Revenue, the Tribunal vide consolidated order dated 13.03.2015 set aside certain issues to the file of the Assessing Officer for fresh verification after granting reasonable opportunity to the assessee. Pursuant thereto, the Assessing Officer passed an order giving effect dated 02.12.2016, wherein he reiterated the additions on the ground of alleged non-compliance by the assessee.
6. Aggrieved, the assessee carried the matter again in appeal before the Ld. CIT(A), who partly allowed the appeal, leading to the present cross appeals.
Employee’s contribution to PF Ground No. 1 of assessee’s appeal & Ground No. 2 of Revenue’s appeal 7. The Ld. CIT(A) confirmed disallowance of Rs.76,114/- relating to employees’ PF contribution for certain months deposited beyond the statutory due date and deleted the balance Rs.36,55,406/-, by observing as under:-
“10.2 During the course of appellate proceedings, the appellant in para 1.1 of its written submission in support of its contention on the above issue, submitted that the major amount involved pertain to the month of June, 2005, the due date for which fell in the month of July, 2005 as per tabled below:
Month Due date Amount (Rs.) Date of Payment June, 2005 20/07/2005 36,55,406/- 22/07/2005 July, 2005 20/08/2005 24,279/- 22/08/2005 August, 2005 20/09/2005 25,312/- 22/09/2005 February, 2006 20/03/2006 26,253/- 23/03/2006 Total 37,31,520/-
It is submitted by the appellant that the same was wrongly disallowed on account of delay in payment of PF contribution. The date viz., 22/07/2005 mentioned in the Annexure to the Tax Audit Report pertains to the payment of ‘Pension Contribution’ and not the ‘PF Contribution’. For the other payments, the appellant has given reason for not remitting the amount of employees’ contribution within due dates in para 1.2 to 1.7 of written submission.
10.3 On perusal of documents submitted by appellant as annexure-VI, related to statement showing details of PF deduction & payment thereof CL 16(b) CL-21 (II) (b), for FY 2005-06, I find that employees' contribution towards PF for the month of June, 2005 was only Rs. 25,324/-, which was remitted to the government account on 14/07/2005 within due date i.e. 15/07/2005. This detail was provided to the AO vide submission dated 22/07/2016, which is already settled in above paras. Hence, the burden shifts over the AO to prove the contention of appellant wrong by establishing the fact. However, the AO has simply taken the stand of non- compliance despite the direction of Tribunal that reasonable opportunity should be given to the assessee in order to substantiate its claim Hence, I find force in the contention of the appellant in respect of contribution for the month of June, 2005 amounting to Rs. 36,55,406/-. Further, in other cases, the due date is mentioned as 15th day of succeeding month, whereas in the written submission the appellant has contended due date as 20th day of succeeding month. However, it is accepted fact that for the employees’ contribution towards PF for the month of July, 2005, August, 2005 & February, 2005, were remitted to the government account beyond due date i.e. 22nd day of succeeding month & 23rd day of succeeding month. The reason behind this delay produced by appellant, I find are not sustainable in light of the decision of Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. v Commissioner of Income Tax-I, in civil appeal no. 2833 of 2016, pronounced on 12/10/2022. 10.4 In view of the above discussion, I have arrived at the considered decision that the appellant failed to substantiate its claim regarding employees' contribution towards PF for the month of July, 2005 to September, 2005, aggregating Rs. 76,114/-. However, it has substantiated its facts in respect of contribution for the month of June, 2005 amounting to Rs. 36,55,406/- (which is mainly pension contribution, while small amount of PF contribution is deposited on 14th July). Thus, an addition of Rs. 76,114/- out of total addition Rs. 37,31,520/- is confirmed and Rs. 36,55,406/- is deleted. Ground no. 3 is partly allowed.
The Ld. CIT(A) has recorded a clear factual finding that contributions for July 2005, August 2005 and February 2006 were deposited beyond the due date under the relevant statute and relied upon the judgment of the Hon’ble Supreme Court in Checkmate Services Pvt. Ltd. v. CIT. We, therefore, find no infirmity in the finding of the Ld. CIT(A) in this regard. The issue stands squarely covered against the assessee. Ld. CIT(A) found that employees' contribution towards PF for the month of June, 2005 was only Rs. 25,324/-, but not Rs. 36,55,406/- which was remitted to the government account on 14/07/2005 within due date i.e. 15/07/2005.
In the result, Ground No.1 of the assessee and Ground No. 2 of the Revenue are dismissed.
Ground No. 2 of Assessee’s appeal:- Enhancement of Book Profit u/s 115JB -Rs. 88,90,87,000/-
This issue relates to reduction claimed under clause (i) of Explanation 1 to section 115JB(2) towards amount withdrawn from reserves. The Tribunal in the first round had specifically remanded the issue to verify whether the amount withdrawn from reserves was credited to the Profit & Loss Account and consequently included in the net profit. The relevant observation of the Tribunal is reproduced hereunder:-
“46. In our considered opinion, as per Explanation-1 below section 115JB(2) clause (i) the profit as shown in the profit & loss account for the relevant previous year has to be reduced by the amount withdrawn from any reserve or provision, if any amount is credited to the profit & loss account. We find that a reading of the assessment order shows that the AO disallowed deduction claimed for amount withdrawn from reserves on the ground that the same was not credited in the profit & loss account of the year under consideration, and therefore, not included in the net profit as per the profit & loss account of the year. The CIT(A) deleted the addition without recording any finding whether the amount was included in the net profit of the year or not. Before us, copy of the audited profit and loss account was not filed by either of the party. In the absence of the same, we are not in a position to adjudicate the issue completely. We, therefore, in the interest of justice restore this issue back to the file of AO for adjudicating the same afresh after verifying the amount withdrawn from the reserve was credited in the profit & loss account of the year, and consequently included the net profit or not. Thus, this ground of the appeal is allowed for statistical purpose.”
The Ld. CIT(A) confirmed this addition by observing as under:-
“In the set-aside proceedings, the Ld. AO has not carried out any verification on the stand of non-compliance, which has already been deliberated upon in preceding paragraphs. However, even in the present appellate proceedings, except reiterating the position that it was not necessary that the amount withdrawn from the reserves should be credited to the P&L account of the same year, no details have been submitted in respect of amount credited to the P&L account and consequently included in the net P&L, during the year under consideration, as per the directions of the Hon’ble ITAT.
11.2 Keeping the same in mind, I am constrained to confirm the addition of Rs.88,90,87,000/- made on this issue.”
The Ld. CIT(A) has categorically held that even during second appellate proceedings, the assessee failed to furnish evidence to demonstrate compliance with the Tribunal’s specific direction. The Ld. AR submitted that an amount of Rs.88.90 Crs. has already been offered for tax. The Assessing Officer may verify this. The provisions of Section 115JB are as under:-
“115JB.(1) Notwithstanding anything contained in any other provision 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, [ 2007], is less than [ ten 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 [ten per cent]]. (2) Every assessee, being a company, shall, for the purposes of this section, prepare its 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, 1956 (1 of 1956) : Provided that while preparing the annual accounts including profit and loss account,— (i ) the accounting policies; (ii ) the accounting standards adopted for preparing such accounts including profit and loss account; (iii ) the method and rates adopted for calculating the depreciation, shall be the same as have been adopted for the purpose of preparing such accounts including profit and loss account and laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956 (1 of 1956) : Provided further that where the company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956), which is different from the previous year under this Act,— (i ) the accounting policies; (ii ) the accounting standards adopted for preparing such accounts including profit and loss account; (iii ) the method and rates adopted for calculating the depreciation, shall correspond to the accounting policies, accounting standards and the method and rates for calculating the depreciation which have been adopted for preparing such accounts including profit and loss account for such financial year or part of such financial year falling within the relevant previous year. Explanation.—For the purposes of this section, "book profit" means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2), as increased by—
(a ) the amount of income-tax paid or payable, and the provision therefor; or (b ) the amounts carried to any reserves, by whatever name called [, other than a reserve specified under section 33AC]; or (c ) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or (d ) the amount by way of provision for losses of subsidiary companies; or (e ) the amount or amounts of dividends paid or proposed ; or (f ) the amount or amounts of expenditure relatable to any income to which [ section 10 (other than the provisions contained in clause (38 ) thereof) or [ section 10A or section 10B or] section 11 or section 12 apply; or] [ (g) the amount of depreciation,] [if any amount referred to in clauses (a) to (g ) is debited to the profit and loss account, and as reduced by—] [( i) the amount withdrawn from any reserve or provision (excluding a reserve created before the 1st day of April, 1997 otherwise than by way of a debit to the profit and loss account), if any such amount is credited to the profit and loss account: Provided that where this section is applicable to an assessee in any previous year, the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the 1st day of April, 1997 shall not be reduced from the book profit unless the book profit of such year has been increased by those reserves or provisions (out of which the said amount was withdrawn) under this Explanation or Explanation below the second proviso to section 115JA, as the case may be; or] (ii ) the amount of income to which any of the provisions of [ section 10 (other than the provisions contained in clause (38) thereof)] or [ section 10A or section 10B or] section 11 or section 12 apply, if any such amount is credited to the profit and loss account; or [ (iia) the amount of depreciation debited to the profit and loss account (excluding the depreciation on account of revaluation of assets); or (iib ) the amount withdrawn from revaluation reserve and credited to the profit and loss account, to the extent it does not exceed the amount of depreciation on account of revaluation of assets referred to in clause (iia ); or] [( iii) the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account. Explanation.—For the purposes of this clause,— (a) the loss shall not include depreciation; (b) the provisions of this clause shall not apply if the amount of loss brought forward or unabsorbed depreciation is nil; or]
(iv ) the amount of profits eligible for deduction under section 80HHC , computed under clause (a) or clause (b) or clause (c ) of sub-section (3) or sub- section (3A), as the case may be, of that section, and subject to the conditions specified in that section; or (v ) the amount of profits eligible for deduction under section 80HHE computed under sub-section (3) or sub-section (3A), as the case may be, of that section, and subject to the conditions specified in that section; or (vi ) the amount of profits eligible for deduction under section 80HHF computed under sub-section (3) of that section, and subject to the conditions specified in that section; or (vii) the amount of profits of sick industrial company for the assessment year commencing on and from the assessment year relevant to the previous year in which the said company has become a sick industrial company under sub-section (1) of section 17 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) and ending with the assessment year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses. Explanation.—For the purposes of this clause, "net worth" shall have the meaning assigned to it in clause (ga) of sub-section (1) of section 3 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986). (3) Nothing contained in sub-section (1) shall affect the determination of the amounts in relation to the relevant previous year to be carried forward to the subsequent year or years under the provisions of sub-section (2) of section 32 or sub- section (3) of section 32A or clause (ii) of sub-section (1) of section 72 or section 73 or section 74 or sub-section (3) of section 74A. (4) Every company to which this section applies, shall furnish a report in the prescribed form from an accountant as defined in the Explanation below sub- section (2) of section 288, certifying that the book profit has been computed in accordance with the provisions of this section along with the return of income filed under sub-section (1) of section 139 or along with the return of income furnished in response to a notice under clause (i) of sub-section (1) of section 142.
(5) Save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee, being a company, mentioned in this section.]
[(6) The provisions of this section shall not apply to the income accrued or arising on or after the 1st day of April, 2005 from any business carried on, or services rendered, by an entrepreneur or a Developer, in a Unit or Special Economic Zone, as the case may be.]
In view of the above, the Assessing Officer is directed to verify the computation given by the assessee after applying the provisions of Section 115JB of the Act. Appeal of the assessee on this ground is allowed for statistical purposes.
Ground No. 3 of assessee’s appeal Direction to AO to verify unabsorbed losses & depreciation 12. On the above issue, the findings of the Ld. CIT(A) are as under:-
12.1 I have perused the written submission and other materials uploaded by the appellant on this issue. At the outset, it may be mentioned that this issue was never in dispute before the Ld. CIT(A) or before the Hon’ble ITAT in the 1st round of appellate proceedings. As the same was never part of set-aside proceedings and came up for the 1st time in this second round of appeal, the issue deserves to be dismissed at the outset. However, as the issue arises out of the OGE of the Ld. AO, in the interest of justice, and keeping in mind various judicial pronouncements on allowability- of brought forward-losses and unabsorbed depreciation, AO is directed to verify the claim of unabsorbed brought forward business losses and unabsorbed depreciation of earlier years, including prior to demerger, and give credit of remaining unabsorbed business losses and unabsorbed depreciation as per the provisions of the Act.
The Ld. CIT(A) noted that this issue was not part of the first-round set-aside proceedings, however, in the interest of justice, directed the Assessing Officer to verify and allow eligible brought forward business losses and unabsorbed depreciation, including pre-demerger amounts. We, therefore, find the approach of the Ld. CIT(A) to be fair, reasonable and in accordance with law, and no prejudice is caused to the assessee. Thus, Ground No.3 of the assessee is also dismissed.
Revenue’s Appeal Ground No. 1 – Deletion of extraordinary items - Rs. 3,53,90,000/-
The Ld. CIT(A) deleted the impugned addition by observing as under:-
“I have perused the written submission and other materials uploaded by the appellant. As regards the issue of not granting relief in respect of loss due to flood, cyclone, fire etc. amounting to Rs. 3,53,90,000/-, the Hon’ble Tribunal had set aside the issue to the file of the AO to decide after allowing reasonable opportunity to the assessee of producing the details. In this regard, I find that the AO has noted in the order giving effect to the order of the Hon’ble ITAT, Ahmedabad that a notice u/s 142(1) of the Act was issued to the assessee on 11/07/2016. However, the assessee did not produce any details with reference to the above. In view of the same, the disallowance made by the AO in the original assessment order dated 26/12/2008 is not changed. 9.2 During the appellate proceedings, the appellant refuted the findings of AO and stated that the ITAT’s order was combined for two assessment years i.e. 2006-07 & 2007-08. For the AY 2007-08, the AO issued notice dated 11/07/2016, fixing date of hearing on 22/07/2016. The appellant filed detailed submission along with documents related to AY 2007-08 & 2006-07 (combined) on 22/07/2016. But the AO did not consider the above submission in giving effect to the order of Tribunal for AY 2006-07. The appellant has submitted the copy of reply dated 22/07/2016. 9.3 On a perusal of reply dated 22/07/2016 submitted before AO, I find that the appellant has furnished the requisite details before AO in order to substantiate its claim. However, it did not submit in response to notice dated 11/07/2016 for AY 2006-07. Since the Tribunal’s order for AY 2006-07 & 2007-08 is a combined order, related to same issues, and reply has been made in one A.Y., in my view, it cannot be considered as non-compliance. [Regardless the above, the Tribunal has clearly mentioned in its order that the assessee should be given reasonable opportunity of producing the details, but it is accepted fact that the AO has issued only one notice to the assessee to produce details, which cannot be considered as reasonable opportunity. Also, it is a position of well settled law that once the assessee has made his reply, the burden shifts upon the AO. In the present case, I have perused the written submission of appellant as well as reply dated 22/07/2016 of appellant assessee before AO, and find force in the contention of the appellant. Hence, the disallowance of Rs. 3,53,90,000/- in question is deleted.”
We find that the Ld. CIT(A) has rightly deleted the above disallowance after considering the submission, replay and details submitted before the revenue authorities. We, in fact, find that, as observed by the Ld. CIT(A), the submission/replies/details as sought by the Assessing Officer were very much available before the Assessing Officer with the detailed submission filed by the assessee along with documents related to AY 2007-08 & 2006-07 on 22.07.2016. Even on merits, we find no infirmity in the order of the Ld. CIT(A) on this issue. This ground of appeal of the Revenue is thus dismissed.
In the result, the appeal of the assessee is partly allowed for statistical purposes, while the appeal of the Revenue is dismissed.
Order pronounced in the Open Court on 18/12/2025 at Ahmedabad.