VEDANTA LTD ,GURGAON vs. ACIT, CIRCLE- 26(2), NEW DELHI

PER N.K. BILLAIYA, ACCOUNTANT MEMBER,

This appeal by the assessee is directed against the order dated

28.11.2019 framed u/s 143(3) r.w.s 144C(13) of the Income tax Act,

1961 [hereinafter referred to as 'the Act' for short]

records carefully perused and with the assistance of the ld. Counsel,

we have considered the documentary evidences brought on record in

the form of Paper Book in light of Rule 18(6) of ITAT Rules and have

also perused the judicial decisions relied upon by both the sides.

the assessment order itself on the ground that it is barred by limitation

and, therefore, liable to be quashed,

identical challenge was dismissed by the co-ordinate bench in the case

of Religare Capital Markets Ltd in ITA No. 1881/DEL/2014 wherein it

has been held that final assessment order passed u/s 143(3) r.w.s.

144C(13) of the Act would not be covered under the provisions of

section 153 of the Act. Respectfully following the findings of the co-

ordinate bench, this ground is dismissed.

pricing adjustments on account of international transactions relating to

receipt of Management and consultancy services received by the

assessee amounting to Rs. 24,37,43,634/- and Rs. 1,44,69,443/-

towards Recovery of costs for SAP maintenance.

Planning and Consultancy Services from Vedanta Resources Plc. (VRPL.)

under a Management Consultancy Agreement dated 29.03.2005. The

relevant clauses of that agreement show that VRPL agreed to provide

Strategic planning and consultancy services to Sesa Sterlites [now

present appellant] and its subsidiaries in various areas of business such

that Sesa Sterlites is able to finalize and implement their plans for

growth and are able to raise necessary finances.

consultancy services, strategic advices which included a global profile,

assistance in formulating and implementing short, medium and long

term plans and strategic and assistance on all opportunities for growth

and diversification, legal advice and advice on account of financial

treasury, marketing, human resource management and I.T. support.

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.

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.

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.

attributing such share of payment for obtaining strategic advice,

considering the services rendered by the top management, with

regards to the huge diversification and the acquisition undergone by

the assessee. In doing so, the TPO rejected the application of TNMM

method by treating management consultancy fee as a separate class of

transaction from the strategic and representative office services

received by the Appellant.

the objection and upheld the action of the TPO by holding that the

assessee failed to substantiate its claim of payment of management

consultancy fees with sufficient evidences. The DRP further observed

that no sufficient evidences to support the claim of expenses incurred

on account of management consultancy fees are made available and

the expenses also fail the tests of benefit and genuineness. The DRP,

accordingly, directed the AO that the expenses incurred on account of

management and consultancy charges shall also be disallowed on

protective basis under Section 37(1) of the Act.

that the evidence / proof of services provided by VRPL were submitted

before the lower authorities. It is the say of the ld. counsel for the

assessee that the assessee has access to wide range of services and

cannot be limited to the services mentioned in the Agreement. The ld.

counsel for the assessee further stated that the services rendered by

VRPL should not be limited to paper work but should also be

considered in the light of constant interaction through the modern

communication facilities. It is the say of the ld. counsel for the

assessee that in case of intra-group services received on an on-going

basis, it is difficult for the taxpayer to provide evidence for support

received with regard to day to-day operations. The ld. counsel for the

assessee further submitted that evidences are available at critical

milestones and not at every step of the process and absence of such

evidence should not be construed to mean that the services were not

received.

the ld. counsel for the assessee strongly relied upon the decision of the

Hon'ble High Court of Delhi in the case of EKL Appliances 345 ITR 241

wherein it has been held that benefits shall be considered from the

perspective of the taxpayer. The ld. counsel for the assessee

vehemently stated that 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.

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.

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 that the TPO has not bench

marked the entire transaction at NIL and, in fact, has given relief by

allowing 20% of the expenditure.

and have carefully considered the orders of the authorities below.

Before proceeding further, it would be pertinent to look at the past

assessment history in so far as management consultancy charges is

concerned which is as under:

Assessmen Ground of disallowance Status of appeal Amount paid Allowed / t to VRPlc. Disallowed Year (Rs.) No TP 2005-06 22,48,00,000 - - adjustment on this amount No TP 2006-07 22,30,50,000 adjustment on - - this amount No TP 2007-08 22,64,28,500 adjustment on - - this amount No TP 2008-09 20,12,06,500 - - adjustment on this amount No TP 2009-10 22,95,70,000 - - adjustment on this amount No TP 2010-11 23,70,80,500 - - adjustment on this amount No TP 2011-12 22,78,81,500 - - adjustment on this amount Assessee had not provided Pending before Hon’ble sufficient evidence ITAT Delhi 2012-13 19,17,83,200 Disallowed Assessee had not provided 2013-14 21,78,04,800 Disallowed Pending before C1T(A) sufficient evidence

adjustment was made on this account and the Revenue has changed its

stand from A.Y 2012-13 onwards.

cannot judge the rendition of services by applying benefit test as laid

down by the Hon'ble High Court of Delhi in the case of EKL Appliances

[supra]. In our considered opinion, the only consideration in such

transaction is rendition of services. All that the revenue 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. At the same time, it is equally true that the assessee cannot

furnish evidences for day to day rendition of services, but definitely

can demonstrate rendition at crucial points.

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.

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.

and other expenses.

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.

explained that it incurs the maintenance cost for SAP accounting

system used by Vedanta group entities. The relevant extracts of

Agreement between Appellant and third party service provider were

furnished. The TPO was of the opinion that this transaction is akin to IT

enabled services and, therefore, the assessee should have charged a

mark-up on the cost incurred by it on behalf of the AEs. The TPO held

TNMM to be the most appropriate method and selected five companies

as final set of comparable companies and computed the Arm’s Length

Margin at 22.34% and proposed an upward adjustment of Rs.

1,44,69,443/-.

actions of TPO on the ground that the assessee has neither challenged,

nor submitted anything with respect to the final set of comparables

selected by the TPO; and has challenged the most appropriate method

and PLI.

that it is incorrect to say that the assessee never challenged the

comparables selected by the TPO. It is the say of the ld. counsel for

the assessee that in fact, the comparables selected by the TPO were

questioned before the DRP stating that they are not appropriate. The

ld. counsel for the assessee further stated that adjudication by the

DRP on this objection itself shows that the assessee has challenged the

comparables. The ld. counsel for the assessee further stated that not

only the comparables but also the methodology adopted by the TPO for

selection of comparables was also challenged.

appellant has incurred these maintenance charges as a pass through

only and did not provide any services or made any value addition which

would warrant a mark-up as in the case of provision of services. The

ld. counsel for the assessee further submitted that such transactions

are undertaken for commercial expediency and are not intended to be

undertaken with expectation of a return. The ld. counsel for the

assessee stated that the SAP maintenance charges paid by the assessee

are allocated among the group entities using the respective licenses on

a cost-to-cost basis on the basis of number of licenses taken by each

AE. The ld. counsel for the assessee pointed out that copy of invoices

raised by SAP India, on the Appellant and the corresponding

invoices/debit notes raised by the assessee on the AE were furnished

before the lower authorities.

lower authorities.

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:

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 entities using licences on cost to cost basis. In our considered

opinion, no mark up is warranted on pass through costs as these are

reimbursement of primary third party expenses initially incurred by the

assessee for which no value addition is done by the assessee and are

subsequently reimbursed by the AEs on cost to cost basis. Moreover, in

our considered view, such transactions are undertaken for commercial

expediency and are not intended to be undertaken with expectation of

return.

such expenses and recognise that no mark up is required to be earned

on such expenses. The relevant extract of OECD guidelines is as under:

“When an associated enterprise is acting only as an agent or intermediary in the provision of services, it is important in applying the cost-plus method that the return or mark-up is appropriate for the performance of an agency function rather than for the performance of the service themselves. In such a case, it may not be appropriate to- determine arm's length pricing as a mark-up on the cost of the services but rather on the cost of the agency function itself, or alternatively, depending on the type of comparable data being used, the mark-up on the cost of services should be lower than would be appropriate for the performance of the services themselves. For example, an associated enterprise may incur the costs of renting advertising space on. behalf of group members, costs

that the group members would have incurred directly hod they been independent In such a case, it may well be appropriate to pass on these costs to the group recipients without a mark-up, and to apply a mark-up only to the costs incurred by the intermediary in performing its agency function.”

pricing has been discussed. The relevant extract is as under:

“In some circumstances an MNE group may decide to outsource some services to an independent entity and to use an associated enterprise to act as an agent for the group to pay the accounts and to then allocate the charges to its associated enterprises on an objective basis. These may be called pass through costs. As an agent, its only role may be to pay the independent service provider and to then allocate the total cost of services among group members on an objective basis. In such 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.”

Name of the Nature of Amount of Investment Company Investment Dividend (Rs.) made in FY Hindustan Zinc Equity 850,37,78,361/- 2002-03 & 2003- Ltd. Investments in 04 Subsidiary Cairn India Ltd. Equity 438,93,00,000/- 2011-12 Investments in Subsidiary Sterlite Equity 12,78,555/- 2000-01 (received Technologies Investments pursuant to Ltd. demerger) Goa Shipyard Equity 1,25,414/- Before 1981 TOTAL 1289,44,56,916/-

the expenditure incurred in relation to the earning of such exempt

income u/s 14A of the Act.

Rules squarely applies to the facts of the case and proceeded to

compute the disallowance u/s 14A of the Act read with Rule 8D of the

Rules and proposed a disallowance of Rs. 857.04 crores.

notice of the DRP that similar issues were considered in earlier A.Ys

and the disallowances were deleted by the Tribunal Panjim Bench.

Though the DRP concurred with the submissions of the assessee but

confirmed the disallowance stating that the Revenue is in appeal

before the Hon'ble High Court of Bombay at Goa against the said

decision of the Tribunal.

the decision of the Tribunal for earlier A.Ys and pointed out that

similar disallowances were deleted by the Tribunal. It is the say of the

ld. counsel for the assessee that merely because the Revenue is in

appeal before the Goa bench of Hon'ble High Court, the DRP should not

have dismissed the objections of the assessee merely on the premise

that appeal against a binding precedent is pending before a higher

judicial forum.

investments were made in earlier A.Ys and there are no new

investments. The ld. counsel for the assessee further stated that no

satisfaction was recorded by the Assessing Officer, nor has he

demonstrated any nexus between expenditure and exempt income. It

is the say of the ld. counsel for the assessee that the shareholders

funds/own funds available with the appellant far exceeds the total

investments appearing in the financial statements of the assessee. On

these facts itself, no disallowance should be made.

assessing officer. It is the say of the ld. DR that if the assessing officer

is not satisfied with the correctness of the assessee’s claim regarding

the expenditure, he has to resort to Rule 8D of the Rules for

determination of the expenditure incurred with respect to the exempt

income for the purposes of Section 14A of the Act. It is the say of the

ld. DR that suo moto disallowance made by the assessee does not have

any scientific working nor any basis and suo moto disallowance of

Rs.1.94 crores is meagre as compared to the amount of exempt

income.

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 Rs.2186.66 whereas the cash generated from operations

stood at Rs.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.

in earlier assessment years have deleted the disallowance and this fact

has also been accepted by the DRP. Merely because the Revenue has

preferred an appeal before the higher forum would not justify any

upholding of the disallowance.

85/PNJ/2012 read as under:

“5. Ground nos. 1.1 & 1.2 in the appeal of the assessee relate to the disallowance u/s 14A of the I. T. Act. The brief facts relating to this ground are that AO has noted that the assessee has received dividend income of Rs. 1,42,72,73,668/- exempt from tax. The AO asked the assessee to explain why the disallowance u/s 14A read with rule 8D should not be made for the expenses incurred. The assessee submitted the explanation that he has not borrowed any money for purchase / investment on which dividend is received. No interest has been debited to profit and loss account. Interest and other charges appearing in the profit and loss account relate to Bank charges in connection with collection of outstation cheques. No administration expenditure was incurred on earning dividend income as investment in mutual funds was made just to park the surplus funds. The assessee has already disallowed a sum of Rs. 25,78,156/- in the computation of income. The AO did not agree

and he was of the view that the company has made substantial investment in mutual funds. Investment of such magnitude requires proper analysis of the market condition to the stock movement etc. and therefore, the assessee must have incurred substantial expenditure for earning the dividend. The assessing officer by invoking the provision of section 14A read with Rule 8D worked out the disallowance as under:

i. Amount of expenditure directly relating to income which does not form part of total income - Nil ii. In a case where the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt, an amount computed in accordance with the following formula, namely:-

[AxB]/C = A. Amount of expenditure by way of interest other than the amount of interest included in clause (i) incurred during the previous year – Nil

B. The average of value of investment, income from which does not or shall not form part of the total income appearing in the balance sheet of the assessee on the first day and the last day of the previous year Rs.20,00,44,93,634 + Rs.30,19,67,88,502 = Rs.50,20,12,82,136/- Average of the above = Rs.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

Rs.25,10,06,41,068 x .005 = Rs.12,55,03,205

Less: Administrative expenditure already disallowed Rs. 25,78,156 by the assessee Rs.12,29,25,049

Accordingly, a sum of Rs.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 IT Act in this regard. The issue involved before us relate to the disallowance made by the AO by applying the provisions of sec.14A of the IT Act read with Rule 8D of the IT Rules. Sec.14A was inserted by the Finance Act, 2001 w.e.f. 1.4.1962. Originally this sec. provides that in computing the total income of the assessee no deduction shall be allowed in respect of the expenditure incurred by the assessee in relation to the income which does not form part of the total income

under the Act. Subsequently, by Finance Act, 2002 with retrospective effect from 11/5/2001 proviso was added which states that this sec. shall not empower the AO either to re-assess or pass an order enhancing the assessment or reducing the refund already made or otherwise increasing the liability of the assessee for any assessment year beginning on or before 1/4/2001. With effect from 1/4/2007 by Finance Act, 2006 sub-sec. (2) empowers the AO to determine the amount of expenditure incurred in relation to such income which does not form part of the total income in accordance with the method as may be prescribed. Such power is to be exercised if the AO having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of the expenditure mentioned in sub- sec.(1). Before applying Rule 8D, it is apparent that the AO must be satisfied with the correctness of the claim of the assessee having regard to the accounts of the assessee. Such satisfaction is an objective satisfaction that it has to be judicious and based on the material on record. It cannot be an impression that it is much more than the gossip or hearsay, it means judgment or belief that it is a belief or a connection resulting from what one thinks on a particular question. It must be based on the reasons and ground as seems good to him and while making such satisfaction, the AO must give regard to the accounts of the assessee. He must record deficiency in the accounts with regards to the claim of the assessee. Sub-sec.(3) provides that provisions of sub-sec.(2) shall also apply where assessee claims that no expenditure had been incurred in relation to income not forming part of the total income. This is not the case of the assessee as in the case of the assessee,

assessee himself estimated the expenses relating to the exempt income and disallowed the same. Rule 8D was inserted 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 Rs.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 opinion, that the assessee has worked out the administrative expenditure and had not considered all the administrative expenditure. Both the parties before us vehemently relied on the decision of Godrej Boyce Mfg Co. Ltd. Vs DCIT 328 ITR 81 (Mum).

(i) 95% of the shares were bonus shares for which no cost was incurred;

(ii) No investment in shares was made in the current year and no disallowance was made in earlier years and

(iii) There were sufficient interest free funds available in the form of share capital, reserves etc. which were more than investment in shares. The AO was not satisfied with the explanation of the assessee and he made disallowance u/s 14A on prorata basis. The CIT(A) following his orders for earlier years, accepted the appeal of the assessee. The Tribunal following the decision of the Special Bench in the case of ITO Vs Daga Capital Management (P) Ltd 117 ITD 169 (SB) restored the matter to the file of the AO for the consideration in the light of the provisions of sub-sec.(2) & (3) of Sec.14A of the IT Act. The assessee, being aggrieved, filed appeal as well as Writ Petition challenging the constitutional validity of sub-sec. (2) & (3) and Rule D. The Hon�ble High Court gave the following findings;

The AO must, in the first instance, determine whether the claim of the assessee in that regard is correct and the determination must be made having regard to the accounts of the assessee. The satisfaction of the AO must be arrived at on an objective basis. It is only when the AO is not satisfied with the claim of the assessee, that the legislature directs him to follow the method that may be prescribed. In a situation where the accounts of the assessee furnish an objective basis for the AO to arrive at a satisfaction in regard to the correctness of the claim of the assessee of the expenditure which has been incurred in relation to income which does not form part of the total income, there would be no warrant for taking recourse to the method prescribed by the rules. For, it is only in the event of the AO not being so satisfied that recourse to the prescribed method is mandated by law (pages 31-32).

assessee in relation to income which does not form part of the total income under the Act. The AO would have to follow a reasonable method of apportioning the expenditure consistent with what the circumstances of the case would warrant and having regard to all relevant facts and circumstances�. The said decision of the jurisdictional High Court is binding on us. While deciding this case, the decision of the Hon�ble Supreme Court in the case of CIT Vs Wallfort Shares &Stock Brokers Ltd., 233 CTR (SC) 42 was referred to. In this decision, we noted that the Hon�ble Supreme Court in that case upheld the view of the Hon�ble Mumbai High Court in the case of Wallfort Shares &Stock Brokers Ltd. Vs ITO 310 ITR 421. The Hon�ble Supreme Court in this decision, at page- 31 of the order held as under; ―To attract Sec.14A there has to be proximate cause for disallowance which has its relationship 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.

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-sec. (1). Therefore, it is necessary for the AO first to ascertain whether there is proximate connection between the expenditure incurred and the income not forming part of the total income. If such proximate connection is established with the exempt income, the AO would be justified in applying the provisions of sub-sec (2) & (3) of sec.14A and Rule 8D of the IT Act, 1961. The expenditure incurred u/s 14A would include direct and indirect expenditure, but relationship with exempted income must be proximate. If there is material to establish that there is direct nexus between the expenditure incurred and the income not forming part of total income then disallowance would be justified even where there is no receipt of exempted income u/s 10 in the year under consideration in view of the decision of Special Bench in the case of Cheminvest Ltd. 124 TTJ 577 (Del)(SB).

income merely because some incidental benefit has arisen towards exempted income. Before making any disallowance u/s 14A, the AO is required to record a satisfaction, having regard to the accounts of the assessee, that claim of assessee that expenditure incurred is not related to the income forming part of the total income is incorrect. Such satisfaction must be arrived at on the objective basis. He is also required to record the reasons for arriving at such satisfaction. The assessing officer in this case, we noted is not satisfied with the correctness of the disallowance made by the assessee even though he has accepted the explanation of the assessee that no interest is incurred with regard to exempt income. He rejected the explanation of the assessee that no administrative expenditure incurred on earning dividend income considering the magnitude of the investments and dividend income received and the disallowance according to him made by the assessee u/s 14A towards administrative expenditure is very less. The assessing officer nowhere pointed 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 contended and tried to build up his case by substituting the reasons given by the CIT(Appeal) in place of the AO, but failed to bring any cogent material or evidence in this regard which may prove that the other expenses claimed by the Revenue for apportionment had proximate connection with the earning of the dividend income. In our opinion until and unless this is proved or established by the revenue, the assessing officer does not have any power to reject the accounts of the assessee and take the shelter of Rule 8D for computing the disallowance out of the exempt income. We are not at all convinced with the submission of the Ld. DR relying on the decision of CIT(Appeal) in respect of Explanation bb to sec. 80HHC that 10% of the receipts under the sources mentioned therein are deemed to be the expenditure. This in our opinion will strengthen the case of the assessee as Explanation bb to sec. 80HHC does not recognize amount of the investment made in other receipt to be the basis of computing the expenditure being incurred for the earning of that income. Similar views have been taken by Hon�ble Tribunal in the following decisions also. In the case of DCIT Vs. Jindal Photo Ltd. held in I.T.A.T. Delhi bench dated 7.1.2011 it was held as follows:

“Now as per section 14A(2) of the Act, if the AO, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of expenditure incurred in relation to income which does not form part of the assessee‘s total income under the Act, the AO shall determine the amount incurred in relation to such income, in accordance with such method as may be prescribed, i.e., under Rule 8D of the I.T. Rules. However, in the present case, the assessment order does not evince any such satisfaction of the AO regarding the correctness of the claim of the assessee. As such, Rule 8D of the Rules was not appropriately applied by the AO as correctly held by the CIT(A). It has not been done by the AO that any expenditure had been incurred by the assessee for earning its dividend income. Merely, an adhoc disallowance was made. The onus was on the AO to establish any such expenditure. This onus has not been discharged. In ―CIT Vs. Hero Cycles� (P&H) 323 ITR 518, under similar circumstances, it was held that the disallowance u/s 14A of the Act requires a clear finding of incurring of 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 consideration, it is seen that it is not incorrect when the assessee contends that no satisfaction has been recorded by the AO regarding the assessee‘s calculation being incorrect. Even so, Rule 8D of the Rules has been applied. This, in our opinion, is not correct. Such satisfaction of the Assessing Officer is a pre-requisite to invoke the provisions of Rule 8D of

the Rules. The Learned CIT(A), therefore, erred in partially approving the action of the Assessing Officer.

In the case of Avshesh Mercantile P. Ltd. Vs. DCIT in I.T.A.T. Mumbai Bench (I.T. Act No.5779/Mum/2006 & 208/Mum/2009) it was held as follows: ―

At the time of hearing, the contention raised by the learned DR in this regard is that the appeal of the Revenue on the issue having been dismissed by the Hon'ble Bombay High Court merely observing that no question arises, it cannot be treated as a decision rendered by the Hon'ble High Court on the merit of the issue which is binding on this Tribunal. We are unable to accept this contention of the learned DR. It is well settled proposition of judicial precedents that is appeal the Hon'ble High Court considers facts pertaining to the issue and gives approval to the decision of the lower forum, the decision of lower forum gets merged with the judgment and order of the High Court and it becomes binding precedent even though approval to decision of lower forum/court is summarily recorded. Similar situation had arisen for consideration before the Hon'ble Gujarat High Court in the case of Nirma Industries Ltd. 283 ITR 402 wherein the effects of summary disposal of appeal by the High Court were analysed and explained by their Lordships. It was clarified that while hearing an appeal even for deciding whether substantial question of law arises or not from the order of

the Tribunal, the High Court does not exercise either the original jurisdiction or the jurisdiction to issue writs and the only jurisdiction exercised by the High Court in the first instance decides whether or not substantial question of law arises from the order of the Tribunal, it cannot be said that the High Court does not exercise the appellate powers or that there is no decision on merit when the high court dismisses an appeal holding that no substantial question of law arises from the order of the Tribunal. It was held that whenever an order of the subordinate forum 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 in the present cases as well as all the material facts relevant thereto are similar to that of the case of Delite Enterprise (supra), we respectfully follow the said decision of the jurisdictional High Court and delete the disallowance made by the AO and confirmed by the learned CIT(A) on account of premium paid by the assessees on redemption of premium notes (OCPN) by invoking the provisions of section 14A of the Act. As regards the case laws cited by the Learned DR, it is observed that in none of these cases, the facts involved were similar to the case of the present assessees in as much as the investment made therein was not found to be capable of earning taxable as well as exempt income which was actually not earned by the assessee in the relevant period as are the facts of the present case or that of the case of Delite Enterprise (supra) decided by the Hon'ble Bombay High Court. Accordingly, we decide the common issue involved in all these appeals in favour of the assessees following the decision of jurisdictional High Court in the case of Delite Enterprises (supra) and allow the appeals of all the assessees.

case, the assessee was regularly investing in the shares. The assessee has not disallowed any expenditure with regard to the earning of the dividend income. Under these facts, the Hon’ble Tribunal held that whether to invest or not to invest is a very strategic decision and top management involve in taking the decisions. This decision relate to assessment year 2000-01 much prior to the insertion of provision of sec.14A(2) of the IT Act,1961. The decision of ACIT Vs Premium Consolidated Capital Trust 83 TTJ (Bom.) relates to assessment year 1991-92 prior to insertion of 14A(2) hence will not assist the revenue. The other decision relied on are also not applicable to the facts of the case, except the decision of jurisdictional High Court in the case of Godrej & Boyce Mfg. Co. Ltd. Vs DC IT & Another 328 ITR 81(Bom.). In view of our aforesaid discussion and respectively 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.”

facts, we direct the assessing officer to delete the disallowance of

Rs.857.04 crores made under section 14A of the Act read with Rule 8D

of the Rules. This ground is, accordingly allowed.

crores.

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.

of the opinion that the assessee is not entitled for additional

depreciation as the word ‘manufacture’ as defined in section 2(29BA)

of the Act with effect from 1.4.1999 do not take in its purview the

claim of the assessee. According to the assessing officer, to claim

additional depreciation available under section 32(1)(iia) of the Act,

the assessee should be engaged in the manufacture or production of

any article or thing. Since the assessee is in the business of mining iron

ore and selling thereof, the assessing officer was of the opinion that

the process of extraction of mining iron ore and processing the same

do not constitute ‘manufacture’ or ‘production’.

case of Gem India Manufacturing Company 249 ITR 307 wherein the

Hon'ble Supreme Court has held that raw and un-cut diamonds is

subjected to a process of cutting and polishing which yields the

polished diamond but that is not to say that polished diamond is a new

article or thing which is the result of manufacture or production.

Further, referring to the decision of the Hon'ble Supreme Court in the

case of Lucky Minerals Pvt Ltd 116 Taxman 1 wherein the Hon'ble

Supreme Court has held that mere mining of limestone and marble and

cutting the same before it was sold in the market cannot be considered

a manufacturing process or production. In the light of the aforesaid

rulings of the Hon'ble Supreme Court, the assessing officer was of the

firm belief that the words ‘manufacture’ or ‘production’ used in

section 32(iia) of the Act does not include processing of the assessee

and accordingly disallowed the claim of additional depreciation.

dismissed.

attention to the provisions of section 32(1)(iia) of the Act and pointed

out that this section lays down the twin conditions, namely plant and

machinery must be new and must be installed after 1.4.2005 and must

be engaged in the business of ‘manufacture’ or ‘production’ of any

article or thing. The ld. counsel for the assessee pointed out that the

assessee has claimed additional depreciation only with respect to new

plant and machinery acquired and installed after 31.3.2005 and hence

first condition is fulfilled. 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.

‘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.

Assessing Officer and once again drew our attention to the decisions

relied upon by the assessing officer.

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 into a new and distinct object

but the term ‘production’ has not been defined under the Act. In our

considered opinion, 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. 204 ITR 412.

Ltd 271 ITR 331 [earlier name of the assessee] has held that extraction

and processing of iron ore amounts to production. Relevant findings of

the Hon'ble High Court to read as under:

“2. The following question raised at the instance of the revenue in an appeal before the Bombay High Court was answered in favour of the assessee :

"Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in holding that the assessee is entitled to deduction of investment allowance under section 32A of the Income Tax Act, 1961, in respect of machinery used in mining activity ignoring the fact that the assessee is engaged in extraction and processing of iron ore, not amounting to manufacture or production of any article or thing ?"

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 to "production" and answered the issue in question in favour of the assessee. The High Court of Andhra Pradesh did so in CIT v. Singareni Collieries Co. Ltd. (1996) 221 ITR 48 (AP), the Calcutta High Court in Khalsa Brothers v. CIT (1996) 217 ITR 185 (Cal) and CIT v. Mercantile Construction Co. (1994) 74 Taxman 41 (Cal) and the Delhi High Court in CIT 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.

48 (AP), the Calcutta High Court in Khalsa Brothers v. CIT (1996) 217 ITR 185 (Cal) and CIT v. Mercantile Construction Co. (1994) 74 Taxman 41 (Cal) and the Delhi High Court in CIT 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.

"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.

direct the Assessing Officer to allow claim of additional depreciation.

This ground is, accordingly, allowed.

depreciation disallowed by the assessing officer amounting to

Rs.152.55 crores.

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 and, therefore, was allowed depreciation

to the extent of 50% of the eligible additional depreciation.

claimed balance 50% of the additional depreciation amounting to

Rs.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.

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.

with the view of the assessing officer that amendment made vide

Finance Act 2015 was prospective in application.

assessee stated that an amount of Rs.1.02 crores had already been

included/considered while making disallowance under section

32(1)(iia) of the Act and hence to this extent this allowance has been

made doubly.

been disallowed merely on the ground that the claim of depreciation

has been disallowed under section 32(1)(iia) of the Act and whereas

the said disallowance was only in relation to depreciation pertaining to

mining operations under iron ore division.

of 20% on the eligible plant and machinery u/s 32(1)(iia) of the Act has

been provided in addition to normal depreciation in order to

incentivise capitalisation and therefore, when additional depreciation

is restricted to 50% the same should be allowed in the subsequent year

and if the same is not allowed, then it would completely defeat the

purpose of the said section which was enacted to provide benefit on

capitalisation.

the decision of the Hon'ble Supreme Court in the case of Allied Motors

Pvt Ltd 224 ITR 667 and Alom Extrusions Ltd 319 ITR 306 wherein the

Hon'ble Supreme Court has held that beneficial provision/clarifications

should be given prospective effect.

assessing officer and reiterated that there is no such provision of carry-

over of balance claim of additional depreciation to the next year.

M/s Shree Jaya Jothi Cements in ITA No. 1932/Mds/2015, the ld. DR

stated that in that case the Tribunal has held that claim of additional

depreciation has to be given in the first year itself and there is no

provision for its postponement or carry forward. The ld. DR further

drew our attention to the Memorandum to Finance Act 2015 wherein it

has been clarified that this benefit of carry over of balance additional

depreciation to the next year was not available prior to this

amendment.

Hon'ble High Court of Delhi in the case of New Skies Satellite BV 68

Taxmann.com 8 wherein basic test for amendment being retrospective

or prospective has been laid down.

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

assessment year 2016-17.

as under:

”i. Allowance of balance 50% additional depreciation.

ii. To encourage investment in plant or machinery by the manufacturing and power sector, additional depreciation of 20% of the cost of new plant or machinery acquired and installed is allowed under the existing provisions of section 32(l)(iia) of the Income- tax Act over and above the general depreciation allowance. On the lines of allowability of general depreciation, the second proviso to section 32(l)(ii) inter alia provides that the allowance for additional depreciation would be restricted to 50% if the new plant or machinery acquired and installed by the assessee is put to use for the purposes of business or profession for a period of less than one hundred and eighty days in the previous year. Non-availability of full 100% allowance for additional depreciation for plant or machinery acquired and installed in the second half of the year may motivate the assessee to defer such investment to the next year for availing full 100% allowance for additional depreciation in the next year.

iii. To remove the discrimination in the manner of allowing additional depreciation on plant or machinery used for less than 180 days and plant or machinery used for 180 days or more, a new proviso has been inserted to section 32(l)(ii) of the Income-tax Act so as to provide that the balance 50% of the additional depreciation allowance on new plant or machinery acquired and used for less than 180 days which has not been allowed in the year of acquisition and installation of such plant or machinery, shall be allowed in the immediately succeeding previous year.

iv. Applicability: - This amendment takes effect from 1st April, 2016 and will, accordingly, apply in relation to the assessment year 2016- 17 and subsequent assessment years.”

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 retrospective

effect, we are of the view that the Tribunal being last fact finding

authority, should refrain from adjudication of retrospective or

otherwise of the applicability in the amendment. In our considered

view, this should be in 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.

that the assessee is not entitled for claim of 50% of the depreciation

brought forward from earlier assessment years.

deduction u/s 32AC of the Act.

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 Rs.573 crores, it

claimed deduction u/s 32AC of the Act aggregating to

Rs.2,17,61,32,015/- consisting of Rs.13,99,23,723/- for power division

and Rs.7,76,89,482/-for iron ore division respectively.

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 activities

pertaining to mining were not in the nature of manufacture/production

and that generation of power was not covered within the ambit of

section 32AC of the Act.

the assessee has fulfilled the conditions laid down u/s 32AC of the Act

and the only ground on which the claim has been denied is that the

activities carried on in the mining division and power division did not

tantamount to manufacture or production of any article or thing.

Referring to his submissions made for claim of depreciation u/s

32(1)(iia) of the Act, the ld. counsel for the assessee stated that for

the same reason claim u/s 32AC of the act should be allowed.

Assessing Officer and reiterated his submissions made for disallowance

under section 32(1)(iia) of the Act.

In so far as mining activities is concerned, we have considered an

identical issue at Para 56 hereinabove, wherein we have referred to

the decision of the Hon'ble Supreme Court holding that the assessee is

eligible for claim u/s 32(1)(iia) of the Act. For similar reasons, the

assessee is also eligible for allowance u/s 32AC of the Act.

of power does not amount to manufacture or production of goods, in

our considered opinion, this issue is no longer res Integra and has been

conclusively settled by the Hon'ble Apex Court in the case of

Commissioner of Sales Tax, MP Vs Madhya Pradesh Electricity Board

2SCR939 wherein it has been held that electric energy would be

covered under the definition of ‘goods’.

Sail Power Company in ITA No 1290/2018 had the occasion to consider

a similar issue. Relevant findings of the Hon'ble High Court read as

under:

“6. Section 32(1)(iia) of the Act as it stood at the relevant time, read as follows:

“32. Depreciation:

(1) In respect of depreciation of –

(2) (iia) In the case of any new machinery or plant (other than ships

and aircraft), which has been acquired and installed after the 31st day of March, 2005, by an assessee engaged in the business of manufacture or production of any article or thing, a further sum equal to twenty per cent of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii).”

“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 appeal. Accordingly, this appeal is rejected.

Although the Karnataka High Court held that it was not going into the question of Section 32(1)(iia) and the question of whether the subsequent amendment was clarificatory, the analysis of the Court is in our view also applicable to the interpretation of the said provision for the purposes of the present dispute.

“20. Before we deal with the constitutional aspects let us first state what electricity is, as understood in law, and what are its relevant characteristics. It is settled with the pronouncement of this Court in Commissioner of Sales Tax, Madhya Pradesh, Indore v. Madhya Pradesh Electricity Board, Jabalpur – 1969(2) SCR 939 that electricity is goods. The definition of goods as given in Article 366 (12) of the Constitution was considered by this Court and it was held that the definition in terms is very wide according to which “goods” means all kinds of moveable property. The term “moveable property” when considered with reference to “goods” as defined for the purpose of sales-tax cannot be taken in a narrow sense and merely because electrical energy is not tangible or cannot be moved or touched like, for instance, a piece of wood or a book it cannot cease to be moveable property when it has all the attributes of such property. It is capable of abstraction, consumption and use which if done dishonestly is punishable under Section 39 of the Indian Electricity Act, 1910. If there can be sale

and purchase of electrical energy like any other moveable object, this Court held that there was no difficulty in holding that electric energy was intended to be covered by the definition of “goods”. However, A.N.Grover, J., speaking for three-Judge Bench of this Court went on to observe that electric energy “can be transmitted, transferred, delivered, stored, possessed etc. in the same way as any other moveable property”. In this observation 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.”

of Sesa Goa and NTPC Sail Power Co. Pvt Ltd [supra], we direct the

Assessing Officer to allow the claim of deduction u/s 32AC of the Act.

This ground is, accordingly, allowed.

account of out of books receivables.

under section 133A of the Act on 20.3.2014 at the business premises of

the appellant, certain documents were impounded, which contained

email exchanges made by the senior executives of the appellant

company.

Officer formed a belief that receivables of Rs.1095.93 crores have not

been disclosed by the assessee in its books of account. According to

the Assessing Officer, the assessee and its group concerns failed to

disclose various receivables in its books of accounts, which were not in

the knowledge of the independent auditor as no qualification has been

made by the independent auditor in the Annual Reports of the assessee

and its group companies. The alleged out of books receivables can be

itemised as under:

Insurance claims Rs. 254 crores

Refund from banks Rs. 160 crores

Drawback related Rs. 22 crores

Coal tapering Rs. 169 crores

Tariff fixation Gridco Rs. 295 crores

PAT [Perform achieve and trade scheme] Rs. 196 crores

Total Rs. 1096 crores

as business income of the assessee.

addition made by the Assessing Officer on account of alleged out of

books receivables.

that the entire addition has been made on the basis of certain emails

selectively without taking into account the complete email trails

showing the context in which the emails 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.

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.

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.

out of the alleged Rs.1096 crores of receivables outside of books,

Rs.261/- crores was related to other entities and further Rs.414/-

crores related to Vedanta Aluminium Ltd. which are separate entities

and, therefore, no addition could be made to this extent in the hands

of the appellant.

Assessing Officer. It is the say of the ld. DR that the assessee has not

denied the genuineness of these emails and correspondence is between

the responsible and senior officers of the appellant company. The ld.

DR pointed out that there is no ambiguity in the words used “out of

books receivables”. Since the information was not available with the

auditors, therefore, they had no occasion to examine the same and

comment thereon. The ld. DR vehemently stated that the assessee

could not furnish any supporting documents before the lower

authorities.

authorities below and have carefully considered the rival submissions.

It would be pertinent to extract the relevant emails with respect to

receivables which could not be accounted for in the books on accrual

basis which is as under:

Date of Sender email Relevant extracts of email “ There are at times some receivable which are not accounted for in books on accrual basis and D.D. 21.06.2013 these are accounted for as and when these ae Jalan received like nil inventory, insurance claim, claims from Bank on account of higher Bank charges, interest of float money etc. and other claims. How do we keep track of these receivables? I am sure there would be some Memorandum Account. Does this gets regularly reviewed in some Forum. Can you forward a list of such receivable as on 31s' May alongwith a note on process. ” “ Navin DDJ 25.06.2013 Regarding receivables of any kind which do not Agarwal appear in out books. Have we received statements from all our businesses outlining such receivables and the mechanism to track and control this?

"Dear Sir, 22.6.2013 Amitabh Gupta We essentially have two types of receivables that are out of books: Interest on WPP receivables: There is uncertainty as to their recoverability’ from State Electricity Boards However --e have a robust process wherein interest debit notes are raised on a monthly basis 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. ” 30.6.2013 “DD, attached is the listing of off balance sheet Manish receivable that we have. There is continuous focus on two large items and we review it Dawar regularly. As a process we are planning to capture this in SAP notes so that the track is not lost. ”

“ Vinod 02.7.2013 Dear Sir Bhandaw The details of potential receivable outside the books has been compiled and the total of such at amount is Rs. 1096 crs. This can be split into the following categories Insurance claim related Rs. 254 crs Refunds from banks Rs. 160 crs Draw back related Rs. 22 crs Coal Tapering Rs. 169 crs Tariff Fixation Gridco Rs. 295 crs Rs. 196 crores towards PAT (perform, achieve and trade scheme) at VAL for energy efficiency Some of the insurance claims particularly in VAL may be infated and the progress on PA T scheme from the ministry of power is slow Entity wise split in summary form is attached herewith. Such type of receivables which are outside the book's can be tracked on memorandum basis in SAP. ”

are in the nature of a discussion regarding certain premature claims.

However, an itemised detail has been mentioned elsewhere. A perusal

of the same suggests that some of the items are easily traceable for

example insurance claim can be traced back to the damaged assets on

which claim has been made and could be easily verified from the

Insurance companies. Similarly, claims lodged with banks can be

verified from the banks and the nature of claim can also be verified.

In so far as duty drawback is concerned, the same being related to

government bodies which is also easily verifiable.

exercise nor the assessee has adduced any demonstrative evidences

before the lower authorities nor before us. Similar is the situation with

the coal tapering claim of Rs. 169 crores, which could have been

verified from South Eastern Coal Fields Limited, tariff fixation relating

to Power Purchase Agreement with Grid Corporation of Orissa Limited

is verifiable from the GRIDCO. Similarly, the Perform Achieve Trade for

energy efficiency is also verifiable from the government.

any verification nor the assessee has brought any evidence on record.

The entire addition has been made only on the basis of emails without

proper verification. On such half-baked facts, it is not possible for us

to decide the quarrel. Therefore, we deem it fit to restore the entire

quarrel to the file of the Assessing Officer. The Assessing Officer s

directed to make verification of the claim from the respective bodies

as mentioned here in above, and the assessee is directed to furnish

necessary evidences in respect of such claims.

pertained to other group entities, which are distinct entities, cannot

be brushed aside lightly. We, accordingly, direct the Assessing Officer

to consider only those receivables which pertain to the appellant

company. With these directions, this ground is treated as allowed for

statistical purposes.

claimed as Corporate Social Responsibility expenditure.

Assessing Officer noticed that the assessee has claimed an expenditure

of Rs. 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.

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.

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 company is

committed to conduct its business in a socially responsible, ethical and

environmental friendly manner and to continuously work towards the

improvement of quality of life in the communities.

commercial obligation of the company. The ld. counsel for the

assessee vehemently stated that the amendments made to section 37

of the Act are w.e.f from 1.4.2015 and are applicable from A.Y 2015-

16 and therefore, the same cannot be imported for disallowance for

the year under consideration.

lower authorities.

perused the order of the authorities below. At the very outside, the

Tribunal in the case of National Small Industries Corporation Limited

175 ITD 601 has held that amendments made to section 37 of the Act

vide Finance Act [No. 2] 2014 are prospective in nature and hence

would not be applicable to the period prior to the said amendment

which is the case of the assessee.

incurred on CSR by the applicant :

PARTICULARS AMOUNT

Total 5036663

expenses are either 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.

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. Disallowance of Rs. 50.37 lakhs

stands confirmed. This ground is, accordingly, dismissed.

of liquidated damages.

found that during the year the assessee has received liquidated

damages of Rs.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 substantiate that liquidity

damages were connected with supply of capital goods.

were filed which were sent to the assessee by the DRP. In his remand

report, the Assessing Officer examined the copies of agreement with

M/s China Aluminium International Trading Company Limited and M/s

Guiyang Aluminium Magnesium Design and Research Institute, though

copies of the agreements in respect of other persons were not

furnished.

Assessing Officer mentioned that the agreements were not for supply

of any capital goods but transfer of technology, supply of design,

engineering manufacture, installation of machinery and erection and

commissioning of the plant which are intangible assets. Also

agreements related to transfer of technology know-how, patent et

cetera for the production process of aluminium smelting which are

tangible assets and not plant and machinery. On the basis of these

facts the Assessing Officer distinguished the decision of the Hon'ble

Supreme Court in the case of Saurashtra Cement Ltd 25 ITR 422.

by the DRP.

stated that the assessee has furnished the agreements on sample basis

covering more than 75% of the liquidated damages. It is the say of the

ld. counsel for the assessee that if the Assessing Officer had insisted

for furnishing all the agreements, the assessee would have furnished

the same. The ld counsel further stated that neither the Assessing

Officer nor the DRP have disputed that the liquidated damages are the

outcome of the contracts furnished by the assessee. It is the say of the

ld counsel for the assessee that since liquidated damages were on

account of capital goods, the same should be treated as capital

receipt.

the lower authorities and pointed out that the decision of the Hon'ble

Supreme Court in the case of Saurashtra Cement [supra] is clearly

distinguishable on facts of the case as in that case, damages were

received for delay in supply of machinery which is the capital asset.

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, any

liquidated damages received are capital receipts. We, accordingly,

direct the Assessing Officer to delete the addition of Rs.

32,29,40,880/-. This ground is accordingly allowed.

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 once assessment of

earlier A.Y is finalised.

dispute that in earlier A.Ys are under appeal but at least the Assessing

Officer should have given claim of set off as per assessed

income/losses.

are in appeal, the assessee is still entitled for claim of set off as per

assessed figures of previous A.Ys. We, accordingly, direct the Assessing

Officer to allow set off as per assessed figures of the previous A.Ys.

This ground is allowed for statistical purposes.

Minimum Alternate Tax [MAT]

assessee had recorded net profit of Rs. 1076,08,75,131/- in its books of

accounts. As against the same, the assessee had declared book loss of

Rs. 2623,16,31,045/- in terms of section 115JB of the Act. In support,

the assessee has also filed report of the Chartered Accountant in Form

29B. The computation of net profit, book profit and certificate of the

CA are placed in the paper book.

u/s 115JB of the Act :

Particulars Amount

1076,08,75,131 Net Profit As Profit & Loss Account

Add:- Provision for Taxes Deferred (1782,09,52,034) (2106,44,11,367) (392,65,08,623) Tax Provision Expenses in 1 relation to exempted income 1,46,21,701 Impairment of Assets 66,84,27,589 (1030,35,36,236 )

Less:- Debenture Redemption Reserve -Dividends (u/s 10) i 3,03,36,57,317 I ! 1289,44,37,492 1592,80,94,809 j (2623,16,31,045 Book Profit )

assessee was asked to furnish detailed justification of computation u/s

115 JB of the Act, especially in respect of deductions claimed on

account of deferred tax, exempt income and withdrawal from

reserves. The assessee was also asked to explain as to why the

provision for doubtful debts, expenditure disallowed u/s 36(1)(iii) of

the Act and forex fluctuation loss should not be added back while

computing book profit u/s 115JB of the Act.

computation u/s 115JB of the Act.

find any favour with the Assessing Officer.

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 857,04,00,000 relation to exempt income (u/s 14A) 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 NIL pertaining to past years credited to P&L Less — Deferred tax income credited to P&L 392,65,08,623 Less - Exempt dividend income u/s 10(34) 1289,44,37,49 earned during the 2 Less - Debenture Redemption Reserve NIL

Book Profits u/s 115JB 1676,32,07,09

the computation of book profit by the Assessing Officer as mentioned

hereinabove.

that the provisions of MAT are a separate code in itself and the powers

of the Assessing Officer therein are extremely limited.

Supreme Court in the case of Apollo Tyres Ltd 255 ITR 273. It is the say

of the ld. counsel for the assessee that once the accounts of the

company are examined and certified as complying with mandatory

requirements of the Companies Act by the statutory auditors, the

company in its AGM and ROC, the Assessing Officer cannot tinker with

and make adjustments to the same for the purposes of computing book

profits.

authorities.

case of Dynamic Orthopaedics Pvt. Ltd. 190 taxman 288 has differed

from the judgement delivered in the case of Malayala Manorama 169

Taxman 471 and referred the matter to a larger bench of the court. It

is the say of the ld. DR that the issue of scrutiny of profit and loss

account, prepared by the company is still open and in that view of the

matter, the Assessing Officer can re-scrutinise the account and

satisfied himself that these accounts are prepared as per the provisions

of the Companies Act.

assessee is not prepared as per the provisions of the Companies Act,

2013, the Assessing Officer can change the book profit declared by the

assessee. It is the say of the ld. DR that the book profit should always

be prepared by applying the provisions of the Companies Act and as

per the Companies Act accounting standards have been prescribed to

prepare the financial statement. The company has to adhere to these

accounting standards to arrive upon book profit and such book profit

has to be increased or reduced by making further addition or reduction

to the book profit to arrive upon the book profit as defined u/s 115 JB

of the Act. Therefore, there is no error in the computation of book

profit by the Assessing Officer and the same deserves to be confirmed.

decision of the Hon’ble Supreme Court in the case of Apollo Tyres

[supra]. The relevant findings read as under:

"The Assessing Officer, while computing the book profits of a company under Section 115-J of the Income-tax Act, 1961, has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained 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 requirements of the Companies Act. Sub-section (1A) of Section 115J does not empower the Assessing Officer to embark upon a fresh enquiry in regard to the entries made in the books of account of the company."

[supra] by the ld. DR, we find that in that case the quarrel was in

respect of claim of depreciation. In that case, the assessee claimed

depreciation in its profit and loss account as per rates specified in Rule

5 of IT Rules whereas while completing the assessment of income, the

Assessing Officer re-computed book profit after allowing depreciation

as per Schedule 14 of the Companies Act. As the rates of depreciation

specified in Schedule 14 of the Companies Act were lower than the

rates specified in the IT Rules, a quarrel erupted between the assessee

and the revenue. When the matter travelled up to the Hon’ble High

Court of Kerala the Hon’ble High Court was to answer whether the

CITA was right in directing the AO to allow claim of depreciation made

by the Assessing Officer as per the IT Rules for the purposes of

computing book profit. The Hon’ble High Court allowed the appeal

holding that the Assessing Officer was right in recomputing book profit

after allowing depreciation as per Schedule 14 to the Companies Act.

decision was reversed by the Hon’ble Supreme Court. This issue was

reconsidered by the Hon’ble Supreme Court in the case of Dynamic

Orthopaedics [supra] and the Hon’ble Supreme Court observed that “In

our view, with respect to judgement of this Court in Malayalam

Manorama [supra] needs reconsideration for the following reasons:

“In our view, with respect, the judgement of this Court in Malayala Manorama Company Limited vs. Commissioner of Income Tax, reported in [2008] 300 I.T.R.251. needs re-consideration for the following reasons: Chapter XII-B of the Act containing "Special provisions relating to certain Companies" was introduced in the Income Tax Act, 1961, by the Finance Act, 1987, with effect from 1st April, 1988. In fact, Section 115J replaced Section 80VVA of the Act. Section 115J [as it stood at the relevant time], inter alia, provided that where the total income of a company, as computed under the Act in respect of any accounting year, was less than thirty per cent of its book profit, 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 Act does not arise. If a Company is a MAT Company, then be it a private limited company or a public limited company, for the purposes of Section 115J of the Act, the assessee-Company has to prepare its profit and loss account in accordance with Parts II and III of Schedule VI to 1956 Act alone. If, with respect, the judgement of this Court in Malayala Manorama Company .Limited [supra] is to be accepted, then the very purpose of enacting Section 115J of the Act would stand defeated, particularly when the said section does not make any distinction between public and private limited companies. It needs to be reiterated that, once a Company falls within the ambit of it being a MAT Company, Section 115J of the Act applies and, under that section, such an assessee-Company was required to prepare its profit and loss account only in terms of Parts II and III of Schedule VI to 1956 Act. The reason being that rates of depreciation in Rule 5 of the Income Tax Rules, 1962, are different from the rates specified in Schedule XIV of 1956 Act. In fact, by the Companies (Amendment) Act, 1988, the linkage between the two has been expressly de-linked. Hence, what is incorporated in Section 115J is only Schedule VI and not Section 205 or Section 350 or Section

Limited vs. Commissioner of Income Tax, reported in [2008] 300 I.T.R.251.”

the assessee, as in this case, the depreciation was charged as per I.T.

Rules whereas u/s 115JB of the Act, the book profit has to be

computed as per Profit and Loss Account prepared as per Companies

Act. Since the accounts were not prepared as per the Companies Act,

the Hon'ble Court ruled in favour of the revenue. Whereas, in the case

in hand, the statement of accounts have been drawn as per Companies

Act itself. Therefore, the ratio laid down by the Hon'ble Supreme

Court in the case of Apollo Tyres [supra] squarely applies.

“Special provision for payment of tax by certain companies. 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, 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 accordance with the provisions of Schedule III to the Companies Act, 2013 (18 of 2013); or (b) being a company, to which the second proviso to sub-section (1) of section 129 of the Companies Act, 2013 (18 of 2013) is applicable, shall, for the purposes of this section, prepare its statement of profit and loss for the relevant previous year in accordance with the provisions of the Act governing such company: Provided that while preparing the annual accounts including statement of profit and loss,— (i) the accounting policies; (ii) the accounting standards adopted for preparing such accounts including statement of profit and loss;

(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 statement of profit and loss and laid before the company at its annual general meeting in accordance with the provisions of section 129 of the Companies Act, 2013 (18 of 2013) : Provided further that where the company has adopted or adopts the financial year under the Companies Act, 2013 (18 of 2013), which is different from the previous year under this Act,— (i) the accounting policies; (ii) the accounting standards adopted for preparing such accounts including statement of profit and loss; (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 statement of profit and loss for such financial year or part of such financial year falling within the relevant previous year. Explanation 1.—For the purposes of this section, "book profit" means the profit as shown in the statement of profit and loss 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 therefore; 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 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 change in carrying amount of said units or the

amount of loss on transfer of units referred to in clause (xvii) of section 47; or (fd) the amount or amounts of expenditure relatable to income by way of royalty in respect of patent chargeable to tax under section 115BBF; or (g) the amount of depreciation, (h) the amount of deferred tax and the provision therefor, (i) the amount or amounts set aside as provision for diminution in the value of any asset, (j) the amount standing in revaluation reserve relating to revalued asset on the retirement or disposal of such asset, (k) the amount of gain on transfer of units referred to in clause (xvii) of section 47 computed by taking into account the cost of the shares exchanged with units referred to in the said clause or the carrying amount of the shares at the time of exchange where such shares are carried at a value other than the cost through statement of profit and loss, as the case may be; if any amount referred to in clauses (a) to (i) is debited to the statement of profit and loss or if any amount referred to in clause (j) is not credited to the statement of profit and loss.

and the decisions of the Hon’ble Supreme Court, we are of the

considered view that the disallowance made as per provisions of I.T.

Act, would not justify in exporting the disallowance for the

computation of book profit u/s 115JB of the Act. We will now address

to the items considered in the computation of book profit.

I. DISALLOWANCE U/S 14A of the Act ON ACCOUNT OF EXPENSES INCURRED IN RESPECT OF EXEMPT INCOME

para No. 42. In view of our findings given hereinabove, no adjustment

is required on this count

II. ADDITION ON ACCOUNT OF ALLEGED OUT OF BOOK RECEIVABLES

for fresh adjudication as per the directions given in para No. 93.

Therefore, this issue needs no consideration at this stage

III. ADDITION ON ACCOUNT OF PROVISION FOR BAD AND DOUBTFUL DEBTS

crores in the P&L account under the head “Provision for Doubtful

Trade Receivables/Advances and had also added back the same in the

computation of total income under the normal provisions of the Act.

However, no adjustment of this provision was made while computing

book profits u/s 115 JB of the Act

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.

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.

and Services Ltd 305 ITR 409, after considering the decision of the

Hon’ble Supreme Court in the case of Apollo Tyres [supra] has held as

under:

“At the outset, we quote hereinbelow Section 115JA read with clause (c) of the Explanation which defines the expression "book profit" as under:

"Chapter XII-B Special provisions relating to certain companies Deemed income relating to certain companies 115JA. (1) Notwithstanding anything contained in any other provisions of this Act, where in the case of an assessee, being a company, 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, 1997 (hereafter in this section referred to as the relevant previous year) is less than thirty per cent of its book profit, the total income of such assessee chargeable to tax for the relevant previous year shall be deemed to be an amount equal to thirty per cent of such book profit.

(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 profit and loss account, the depreciation shall be calculated on the same method and rates which have been adopted for calculating the depreciation for the purpose of preparing the profit and loss account 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 a company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956), which is different from the previous year under the Act, the method and rates for calculation of depreciation shall correspond to the method and rates which have been adopted for calculating the depreciation 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) & (b) xxx xxxxxx

(c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; 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 Income- tax 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 defines the words "book profit" which means "net profit" as shown in the profit and loss account for the relevant previous year. Such book profit has to be increased by Item Nos.(a) to (f) of the said Explanation if they are debited to the profit and loss account and from such profit Item Nos.(i) to (ix) of the Explanation are to be reduced. The figure arrived at after the above exercise is the book profit of the assessee for the relevant previous years.

This Court has examined the powers of the AO while computing the book profits for the purposes of Section 115J in the case of Apollo Tyres Ltd. v. Commissioner of Income- tax - [2002] 255 ITR 273 (SC) which reads as under:

"The Assessing Officer, while computing the book profits of a company under Section 115-J of the Income-tax Act, 1961, has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained 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

requirements of the Companies Act. Sub-section (1A) of Section 115J does not empower the Assessing Officer to embark upon a fresh enquiry in regard to the entries made in the books of account of the company."

From the 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 of Schedule VI to the Companies Act only to the extent permissible under the Explanation thereto.

As stated above, the said Explanation has provided six items, i.e., Item Nos.(a) to (f) which if debited to the profit and loss account

can be added back to the net profit for computing the book profit. In this case, we are concerned with Item No.

(c) which refers to the provision for bad and doubtful debt. The provision for bad and doubtful debt can be added back to the net profit only if Item (c) stands attracted. Item (c) deals with amount(s) set aside as provision made for meeting liabilities, other than ascertained liabilities. The assessee's case would, therefore, fall within the ambit of Item (c) only if the amount is set aside as provision; the provision is made for meeting a liability; and the provision should be for other than ascertained liability, i.e., it should be for an unascertained liability. In other words, all the ingredients should be satisfied to attract Item (c) of the Explanation to Section 115JA. In our view, Item (c) is not attracted. There are two types of "debt". A debt payable by the assessee is different from a debt receivable by the assessee. A debt is payable by the assessee where the assessee has to pay the amount to others whereas the debt receivable by the assessee is an amount which the assessee has to receive from others. In the present case "debt" under consideration is "debt receivable" by the assessee. The provision for bad and doubtful debt, therefore, is made to cover up the probable diminution in the value of asset, i.e., debt which is an amount receivable by the assessee. Therefore, such a provision cannot be said to be a provision for liability, because even if a debt is not recoverable no liability could be fastened upon the assessee. In the present case, the debt is the amount receivable by the assessee and not any liability payable by the assessee and, therefore, any provision made towards

irrecoverability of the debt cannot be said to be a provision for liability. Therefore, in our view Item (c) of the Explanation is not attracted to the facts of the present case. In the circumstances, the AO was not justified in adding back the provision for doubtful debts of Rs.92,15,187/- under clause (c) of the Explanation to Section 115JA of the 1961 Act.

For the aforestated reasons, there is no merit in this civil appeal and accordingly the same is dismissed with no order as to costs.”

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

the same is satisfied in the present case in as much as amount of Rs.

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 and once it is actually written off, it loses the character of a

‘provision’.

India Ltd 204 Taxman.com 305 has held that while computing book

profits u/s 115JB of the Act, provision made for bad and doubtful debts

cannot be added back in accordance with Explanation (c) to section

115JB of the Act as the same is not an ascertained liability. Relevant

findings of the Hon’ble High Court read as under:

“In the instant case, the debt is an amount receivable by the assessee and not any liability payable by the assessee and, therefore, any provision made towards irrecoverability of the debt cannot be said to be a provision for liability. Therefore, item (c ) of the Explanation is not attracted to the facts of the case. Item (c) in section J15JA and 115JB(1) are identical. In order to attract the Explanation the debt which is doubtful or bad should satisfy the requirement contemplated in item (c ) of the Explanation. It is the amount or amounts

set aside as provisions made for meeting the liability other than the ascertained liabilities. In the instant case also the bad and doubtful debt for which a provision is made which is in the nature of diminution in the value of any asset would not fall within item (c) o/Explanation (I). It is in that context the appellate Commissioner as well as the Tribunal has granted relief to the assessee. Realising the fatality of the said argument, it is contended now that item (\) cannot amount to satisfaction as provision for diminishing in the value of assets is substituted, if case of the assessee falls under item (c). In meeting the aforesaid case, the assessee brought on record the judgment of the Apex Court in the case of Vijaya Bank v. C1T [2010] 323 ITR 166 / 190 Taxman 257 where the Apex Court had an occasion to consider this Explanation . It accepted the argument on behalf of the revenue to the effect that the Explanation makes it very clear that there is a dichotomy between actual write off on the one hand and provision for bad and doubtful debt on the other. A mere debit to the profit and loss account would constitute a bad and doubtful debt, but it would not constitute actual write off and that was the very reason why the Explanation stood inserted. Prior to the Finance Act, 2001 many assessees used to take the benefit of deduction under section to the profit 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 doubtful debt is reduced from the loans and advances or the debtors from the assets side of the balance sheet the Explanation to section 115JA or 115JB is not at all attracted. In that context even if amendment which is made retrospective the benefit given by the Tribunal and the appellate Commissioner to the assessee is in no way affected. In that view of the matter, there is not merit in this appeal. [Para 8]. The parties to bear their own costs.”

Court of Gujarat in the case of Torrent India 423 ITR 455 wherein the

Hon’ble High Court was seized with the following substantial question

of law:

“Whether on the facts and in the circumstances of the case the ITAT was justified in deleting the disallowance of provision for diminution in value of investment of Rs.13.85 crores while computing book profit u/s 115 JB of the Act?”

“9. The sole question that arises for consideration in this appeal is whether the provision for diminution in the value of investment of Rs. 13.85 crore made by the assessee is required to be added while computing the book profit under section 115JBof the Act.

“(i) the amount or amounts set aside as provision for diminution in the value of any asset;”

“18. It can thus be seen that in case of Southern Technologies Ltd. (supra), the Supreme Court explained that if an assessee debits an amount of doubtful debt to the Profit and Loss account and credits the asset account like sundry debtor's account, it would constitute 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.

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 the assessee.

Loss account would constitute a bad and doubtful debt but it would not constitute actual write off.

However, if simultaneously such amount is obliterated from the accounts by reducing corresponding loans and advances on the asset side, the same would amount to a write off. It was concluded as under:

“…Therefore, after the Explanation the assessee is now required not only to debit the P&L A/c 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 doubtful debt is reduced from the loans and advances or the debtors from the assets side of the balance sheet the Explanation to s. 115JA or JB is not at all attracted.”

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 the judgment it appears that case of Indian Petrochemicals Corporation Ltd. (supra), fell in the later category.”

to a write off and such actual write off would not be hit by clause (i) ofthe Explanation to sub-section (2) of section 115JB of the Act.

However, when there is a decline, other than temporary, in the value of a long term investment, the carrying amount is reduced to recognise the decline. Paragraph 18says that long-term investments are usually of individual importance to the investing enterprise. The carrying amount of long-term investments is, therefore, determined on an individual investment basis. Paragraph 19 says

that where there is a decline, other than temporary, in the carrying amounts of long term investments, the resultant deduction in the carrying amount is charged to the profit and loss statement. The reduction in the carrying amount is reversed when there is a rise in the value of the investment, or if the reasons for the reduction no longer exist.

“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 investments, giving the aggregate market value of quoted investments;

(e) other disclosures as specifically required by the relevant statute governing the enterprise.”

“33. Any reduction in the carrying amount and any reversals of such reductions should be charged or credited to the profit and loss statement.”

13 is Rs. 55,61,73,244/-. The net amount of provision debited to Profit and Loss is Rs.69,46,73,244/- minus Rs. 55,61,73,244/- which comes to Rs. 13,85,00,000/.

having been actually written off, cannot be added to the book profit under section 115JB(2)(i) of the Act.

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 Rs. 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.”

Court [supra] we are of the opinion that no adjustment need to be

made on this count and the Assessing Officer is directed to delete the

same.

para 106 we are of the considered view that the ratio laid down by the

Hon’ble Supreme Court in the case of Apollo Tyres [supra] squarely

apply and therefore no adjustment needs to be made on this count.

The Assessing Officer is directed to delete the adjustment.

V REDUCTION CLAIM ON ACCOUNT OF PROVISION FOR TAXES

of Section 115JB of the Act, the Assessing Officer reduced the amount

of Rs.1782.09 crores from the net profit. The said reduction was made

on account of provision for tax credit that was reversed by the

assessee in the instant year.

the appellant company had undergone a series of mergers over the

past with various entities and some of amalgamating entities had

positive net worth and were paying huge amounts of income tax every

year and, therefore, these entities were setting aside amounts to the

provision for taxes.

companies with the appellant company, the losses of loss-making

entities were offset with profit of profit-making entities. Since after

the offsets, the profits were reduced considerably and total income of

amalgamated entity, that is, the appellant resulted in loss, the income

tax was not required to be paid. In these circumstances the ld. counsel

stated that since there was no liability to pay huge amount of income

tax, the assessee reversed the unutilised provision for taxes in this

year which were made/charged by the amalgamating entities prior to

amalgamation, and, therefore, prayed for adjustment on this count.

Assessing Officer and stated that the provisions of section 115JB read

with explanation thereon, clearly shows that adjustment made by the

Assessing Officer is correct.

needs to be considered thoroughly. The break-up of figure of

Rs.1782.09 is as under:

Particulars Amount Provision for current tax of prior 1755,08,78,269 years reversed in F.Y 2013-14 Provision for interest u/s 234C of Rs. 27,00,73,765/- the Act of prior years reversed in F.Y 2013-14 Total tax provision in FY 2013-14 Rs. 17,82,09,52,034/- considered in MAT computation

as under:

Amounts considered for Particulars AY 11-12 AY 12-13 AY 13-14 arriving at reversal

Details of Provision for Tax created in the standalone Financial Statements (Pre-merger) Sterlite Industries 292.04 - 449.31 (India) Ltd. Sterlite Energy Limited 54.68 - - Sesa Goa Limited 963.00 719.00 10.92 2,488.95 Total (A) 963.00 1,168.31 357.64

Details of Provision for Tax reversed in the revised Financial Statements of Sesa Sterlite Ltd. (Post-merger) Tax Payable under 743.32 - - Normal Provisions qua Tax Payable under MAT 823.12 109.32 - Provisions (ii) Tax payable [Higher of - (B) 823.12 109.32 (i) and (ii) above] MAT credit (C) 79.80 109.32 - 189.12 entitlement [(ii) -

Amount of Provision for (D) = 139.88 1,058.99 357.64 1,556.51 tax to be reversed (A)-(B) Less: Provision retained (10.82) in the books Net Reversal of Provision (E) 1,545.69 for Tax MAT credit reversed by (F) 1.90 Sterlite Engery Ltd. in Reversal of Provision (G) 18.37 for Tax created by (H) = Amount of Current Tax (C)+(E) Expense 1,755.08 +(F)+(

Rs.1782.09 crores pertain to reversal of unutilised provision for taxes

in the current year. In our considered view, these factual figures need

verification. We, therefore, deem it fit to restore this issue to the file

of the Assessing Officer. The Assessing Officer is directed to verify the

correctness of figures mentioned in charts hereinabove and decide the

issue afresh.

VI REDUCTION CLAIM ON ACCOUNT OF DEBENTURES REDEMPTION RESERVE AND SURPLUS

transferred to the Reserve and Surplus Account by the assessee. The

Assessing Officer was of the opinion that this amount is appropriation

of profit and not a provision for ascertained liability as the same was

not debited to the Profit and Loss Account.

assessee has been setting apart these amounts to Debentures Reserve

Account for meeting the future known liabilities of the ld. counsel for

the assessee towards the debentures issued by it. The ld. counsel for

the assessee referred to the agreements, samples of which are placed

in the paper book. It is the say of the ld. counsel for the assessee that

in accordance with the mandatory provisions of section 117C of the

Companies Act 1956, the assessee is mandatorily required to transfer

adequate amounts to the reserve called Debenture Redemption

Reserve [DRR] from the profits every year till redemption of the said

debentures and, therefore, the DRR is a provision which is in the

nature of an ascertained liability. Reliance was placed on the decision

in the case of Raymond Ltd [SC] 209 Taxmann.com 65 and National

Rayon Corporation Ltd 227 ITR 764.

favour of the revenue and against the assessee by the Hon'ble

Jurisdictional High Court of Delhi in the case of SREI Infrastructure

Finance Limited 281 CTR 532.

In our considered view, the ratio laid down by the Hon'ble Supreme

Court in the case of Apollo tyres do not apply on this provision. 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.

The Supreme Court, therefore, concluded that the amount credited to the contingencies reserve was not diverted by reason of overriding obligation or title and, it being a taxable receipt/earning, it must be taken into account.

The reserve, which is required to be created under Section 45-IC, is out of the profits earned by a non-banking financial institution. It is not an amount diverted at source by overriding title. The Reserve Bank of India Act, 1934 can permit appropriation in respect of the said reserve. The assessee can also ask for specific directions from the Central Government subject to proviso to sub- section (3) of the said Section.

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

to political party but added back the same amount while filing the

return of income. In the return the assessee could not have claimed

deduction u/s 80 GGB of the Act as total returned income was loss.

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.

allowed in part for statistical purposes.

The order is pronounced in the open court on 21.09.2020.

Sd/- Sd/-

[KULDIP SINGH] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated: 21st SEPTEMBER, 2020

VL/