M/S NHPC LTD.,,FARIDABAD vs. ADDL. CIT, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH ‘B’ : NEW DELHI) BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER and SHRI KULDIP SINGH, JUDICIAL MEMBER ITA No.466/Del./2016 (ASSESSMENT YEAR : 2011-12) Addl.CIT, Range II, vs. M/s. N.H.P.C. Ltd., Faridabad. NHPC Complex, Sector 33, Faridabad.

(PAN : AAACN0149C) ITA No.297/Del./2016 (ASSESSMENT YEAR : 2011-12) M/s. N.H.P.C. Ltd., vs. Addl.CIT, Range II, NHPC Complex, Sector 33, Faridabad. Faridabad.

(PAN : AAACN0149C) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Ved Jain, Advocate Shri Himanshu Aggarwal, CA Shri Akshit Goel, CA REVENUE BY : Ms. Nidhi Srivastava, CIT DR Ms. Ashima Neb, Senior DR Date of Hearing : 16.07.2019 Date of Order : 26.07.2019

O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : Present cross appeals filed by the assessee as well as by the

Revenue arisen out of impugned order passed by the ld. CIT (A)

2 ITA No.297/Del./2016 ITA No.466/Del./2016 are being disposed off by way of composite order to avoid

repetition of discussion.

referred to as the ‘Revenue’) by filing the present appeal sought to

set aside the impugned order dated 16.11.2015 passed by the

Commissioner of Income-tax (Appeals), Faridabad qua the

assessment year 2011-12 on the grounds inter alia that :-

“1. Whether, on the facts and in circumstances of the case and in law, the Ld.CIT(A) was right in law in deleting addition of Rs.41,34,68,339/-which was made by the Assessing Officer under section 14A of the Act by applying Rule 8D? 2. Whether, on the facts and in circumstances of the case and in law, the Ld.CIT(A) was right in law in deleting disallowance of Rs.158,19,47,693/- made by the AO in computing the book profit u/s 115JB on account of provisions made for gratuity, leave encashment, post-retirement medical benefits, LTC, Baggage allowance and Matching Contribution on Leave Encashment even though the assessee has failed to establish these provisions to be of ascertained in nature? 3. Whether, on the facts and in circumstances of the case and in law, the Ld.CIT(A) was right in law in deleting disallowance of Rs.2,84,51,640/- made by the Assessing Officer in computing the book-profit U/S 115JB in respect of depreciation claimed on land after amortization of land by the assessee even though there is no depreciation allowable on land under Companies Act and no rate of depreciation is provided in schedule XIV of Companies Act?”

‘assessee’) by filing the present appeal sought to set aside the

impugned order dated 16.11.2015 passed by the Commissioner of

Income-tax (Appeals), Faridabad qua the assessment year 2011-12

on the grounds inter alia that :-

3 ITA No.297/Del./2016 ITA No.466/Del./2016 “1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals)[CIT(A)] is bad both in the eye of law and on facts. 2(i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the action of the AO in not considering the other income of Rs.2,99,54,875/- for the purpose of computation of deduction under section 80lA of the Act. (ii) That the above said disallowance has been confirmed despite the fact that the said income represents recoveries of various expenses incurred and as such has direct nexus to the business activities of the assessee. (iii) Without prejudice to the above and in the alternative, the learned CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that in case said incomes are held not to be eligible for deduction under Section 80-IA, corresponding relief on account of expenses related to said incomes had to be given while computing income eligible for deduction. 3.(i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the addition of an amount of Rs.1,50,50,111/- made by AO on account of 'income tax on perquisite borne by the assessee in respect of accommodation provided to its employees while computing book profit under Section 115JB of the Act. (ii) That the above addition to the book profit has been confirmed ignoring the explanation and submissions made by the assessee in this regard.”

issues at hand in both the appeals are : Assessee company, a public

sector undertaking is into the business of construction of Hydro

Power Projects, generation and distribution of electricity and

consultancy services. For the year under assessment, assessee filed

a return declaring income of Rs.17,41,90,77,503/- under normal

provisions and the same was assessed at the income of

4 ITA No.297/Del./2016 ITA No.466/Del./2016 Rs.17,86,25,00,797/-. Assessee has declared book profit under

section 115JB of the Income-tax Act, 1961 (for short ‘the Act’) at

Rs.27,39,42,60,300/- in the original as well as revised return,

which was assessed at Rs.29,43,31,78,083/- u/s 143 (3) of the Act.

Assessing Officer (AO) noticed that the assessee company has

claimed deduction u/s 80IA in case of four power station projects

i.e. Uri Power Station Stage-I, Chamera Power Station Stage – II,

Rangit Power Station & Dhuliganga Power Station. The deduction

claimed from properties u/s 80IA includes other income. AO

declined to include other income of Rs.2,99,54,875/- for the

purpose of computation of deduction u/s 80IA on the ground that

no other income except the income from generation and

distribution of power is allowable deduction u/s 80IA and thereby

disallowed the same and made addition thereof. AO also made

addition of Rs.1,50,50,111/- on account of income-tax on

perquisites borne by the assessee in respect of accommodation

provided to its employees while computing the book profit u/s

115JB of the Act.

the assessee company in the shares and bonds and earned exempt

income of dividend and interest on tax free bonds to the tune of

Rs.1,49,74,96,650/- which includes investment bearing interest

5 ITA No.297/Del./2016 ITA No.466/Del./2016 amounting to Rs.137,35,63,910/- and investment bearing dividends

amounting to Rs.12,39,32,740/-. AO, invoking the provisions

contained u/s 14A read with Rule 8D, disallowed an amount of

Rs.41,34,68,399/- being the amount of expenditure incurred to earn

the dividend income and made addition thereof to the total income

of the assessee.

assessee has not considered for addition for provision for gratuity,

leave encashment, EPF matching contribution on leave

encashment, for retired employees health scheme, for leave travel

concession, for baggage allowance on superannuation and for LTC

created and remaining unpaid during the year while computing the

book profit u/s 115JB of the Act. Declining the contentions raised

by the assessee, AO made addition of Rs.1,58,19,47,693/- on the

ground that concerned provisions is not ascertained provision and

as such added to the book profit u/s 115JB of the Act. AO also

noticed that amount of Rs.2,84,51,640/- has been debited in the

books of account. AO added back the amount of Rs.2,84,51,640/-

by disallowing the same having been debited to the profit & loss

account as per the Companies Act in computing the book profit u/s

115JB in respect of depreciation claimed of amount after

amortization of land by the assessee on the ground that no

6 ITA No.297/Del./2016 ITA No.466/Del./2016 depreciation is allowable on the land under the Companies Act and

no rate of depreciation is provided in Schedule XIV of the

Companies Act.

ld. CIT (A) who has partly allowed the appeal. Feeling aggrieved,

the assessee as well as the Revenue have come up before the

Tribunal by way of filing the present cross appeals.

parties to the appeal, gone through the documents relied upon and

orders passed by the revenue authorities below in the light of the

facts and circumstances of the case.

ASSESSEE’S APPEAL (ITA NO.297/DEL/2016)

GROUND NO.1 8. Ground No.1 is general in nature and does not require any

specific adjudication.

GROUND NO.2

considering the same for the purpose of computation of deduction

u/s 80IA of the Act on the ground that only profit obtained from

7 ITA No.297/Del./2016 ITA No.466/Del./2016 generation and distribution of power and not from other income is

eligible for deduction u/s 80IA.

2010-11 upheld the order passed the AO that income derived from

sources other than generation and distribution of power is not

eligible for deduction u/s 80IA and dismissed the ground raised by

the assessee.

order passed by the ld. CIT (A) for AY 2010-11 has been set aside

by the coordinate Bench of the Tribunal vide order dated

08.05.2019 in ITA No.3650/Del/2015 & 3738/Del2015 for AY 2010-11 and now the issue in controversy is fully covered.

the arguments addressed by the ld. AR for the assessee contended

that income directly derived from industrial undertaking is liable

u/s 80IA and relied upon the decision of Hon’ble Supreme Court

in Conventional Fastners vs. CIT, Dehradun (2018) 256 taxman

61 (SC), Hon’ble Uttaranchal High Court in Conventional

Fastners vs. CIT, Dehradun 88 taxmann.com 163 and coordinate

Bench of the Tribunal in the case of Conventional Fastners vs. ITO in ITA No.6016/Del/2017 order dated 18.05.2018.

8 ITA No.297/Del./2016 ITA No.466/Del./2016

URI-I, Chambera-II, Dhauliganga and Rangit projects and given

the project-wise income detail of such other income as under :-

S. Particulars URI-I Chamera-II Dhauli- Rangit Total No. Ganga 1 Rent / Hire - - 3,545 16,500 20,045 Charges from contractors 2 Rent / Hire - - - 340 340 Charges Employees 3 Rent / Hire 1,477,599 64,212 - 149,378 1,691,189 Charges – Others 4 Other Income 13,689,631 1,191,081 3,917,023 1,657,727 20,455,462 (Balances, Expenses, Liabilities No longer required written back 5 Township 368,347 1,205,197 963,426 836,301 3,373,271 recoveries 6 Excess on - 3,959 - - 3,959 physical verification of stores-O&M- Written Back 7 Lease recovery 425,227 174,301 606,806 177,603 1,383,937 8 Electricity 315,877 555,341 601,893 499,518 1,972,629 recovery 9 Telephone - - 41,803 5,157 46,960 recovery 10 Cable charges 88,500 127,840 87,800 113,700 417,840 11 Guest house 22,912 126,019 335,464 104,848 589,243 recovery Total 16,388,093 3,447,950 6,557,760 3,561,072 29,954,875

by Hon’ble Delhi High Court in the case of Pr. CIT vs. Bharat

Sanchar Nigam Ltd. 388 ITR 371 wherein meaning of word

“derived from” while computing deduction u/s 80IA of the Act has

been explained.

9 ITA No.297/Del./2016 ITA No.466/Del./2016 Coordinate Bench of the Tribunal in assessee’s own case for 15.

AY 2010-11 (supra) decided the identical issue in favour of the

assessee by returning following findings :-

“47. We find that the AAR in the case of National Fertilizers Limited 193 CTR 498(AAR) held that the expenses incurred to earn these other incomes should be excluded from the debit side of the profit and loss account for computing the deduction u/s 80-I of the Act. The relevant extract of the judgment is as below: “(2)question No. 2 in AAR/532/2001 that the expenses of Rs.2,76,03,364 and Rs.12,12,74,426 (it is stated that the correct figure is Rs.11,02,56,561) allocated by marketing office and corporate office and interest expenditure of Rs.71,65,99,045 allocated by the corporate office and on question No. 2 in AAR/533/2001 that expenses of Rs.2,56,44,186 and of Rs.12,94,59,292 allocated by corporate office and marketing office and interest expenditure of Rs.8,49,30,952 allocated by corporate office should be excluded from the debit side of the profit and loss account of the industrial undertaking for the purpose of deduction under section 80-I of the Income-tax Act, 1961; the fact that the allocated interest income from corporate office Rs.5,22,94,939 and Rs.3,97,44,811 credited to profit and loss account of Vijaipur unit in the assessment years 1995-96 and 1996-97 is of no consequence as both interest income and interest expenditure are liable to be excluded for the purpose of deduction under section 80-I of the Act.” 48. Further, the Hon’ble Delhi High Court in the case of Pr. CIT vs. Bharat Sanchar Nigam Limited reported in 388 ITR 371 explaining the meaning derived from while computing the deduction u/s 80-IA of the Act, has held as under: “8. The question arose in the context of the Assessee being asked to explain why certain specific items categorized as 'other income' and 'extraordinary item' in the Profit and Loss Account in assessment year 2004-05 should not be excluded from the profit and gains of the Assessee. According to the Revenue, these items could not be considered as profits and gains 'derived from' the eligible business for the purpose of deduction under Section 80 IA. The said six items were: (i) Extra Ordinary Items (ii) Refund from Universal Service Fund (iii) Interest from others (iv) Liquidated Damages (v) Excess provision written back

10 ITA No.297/Del./2016 ITA No.466/Del./2016

(vi) Others including sale of directories, publications, form, waster paper, etc.

“13.11 Thus, we find that the legislature being alive to providing tax deductions to business enterprises and undertakings, it wanted to curtail the time line during which deduction can be claimed and also addressing the extent upto which it can be claimed has consciously carved out an exception to specified undertakings/enterprises whose needs and priorities differ has taken care to expand the time line for claiming deductions. It has consciously enabled those undertakings/enterprise 'who fall under subsection (2A) to claim 100% deduction of profits and gains of eligible business for the first five years and upto 30% for the remaining five years in the ten consecutive assessment years out of the fifteen years starting from the time the enterprise started its operation. The legislature having ousted applicability of sub-section (1) and (2) in the opening sentence brought in for the purposes of time line sub-section (2) into play but made no efforts whatsoever to put the assessee under sub-section (2A) to meet the stringent requirements that the profits so contemplated were to be “derived from”. The requirements of the first degree

11 ITA No.297/Del./2016 ITA No.466/Del./2016

nexus of the profits from the eligible business has not been brought into play.”

"27. Insofar as question No. 2 is concerned, according to the Tribunal s. 80-I of the Act uses the phrase 'derived from’ and hence the interest received by the assessee from its trade debtors cannot be taken into consideration for the purpose of computing profits derived from an industrial undertaking. The Tribunal has failed to appreciate that it is not the case of the AO that the interest income is not assessable under the head 'Profits and gains of business’. It is only while computing relief under s. 80-I of the Act that the Revenue changes its stand. When one reads the opening portion of s. 80-I of the Act it is clear that words used are: "gross total income of an assessee includes any profits and gains derived from an industrial undertaking". Once this is the position then, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to the prescribed percentage is to be allowed. That, in fact, the gross total income of the assessee included profits and gains from such business, and this is apparent on a plain glance at the computation in the assessment order. Both in relation to Vatva Unit and Mandali Unit the computation commences by taking profit as per statement of income filed along with return of income. Therefore, the same item of receipt cannot be treated differently: once while computing the gross total income, and secondly at the time of computing deduction under s. 80-I of the Act. Therefore, on this limited count alone, the order of the Tribunal suffers from a basic fallacy resulting in an error in law and on facts. The Tribunal instead of recording findings on facts proceeded to discuss law. This litigation could have been avoided if the parties had invited attention to basic facts.

12 ITA No.297/Del./2016 ITA No.466/Del./2016 interest is erroneous in law in the case of CIT vs. Govinda Choudhury & Sons (supra) the apex Court was called upon to decide as to the nature of interest received by the assessee therein. In the case before the apex Court the assessee who was executing Government contracts found itself involved in disputes with the State Government with regard to the payments due under the contracts and upon reference to arbitrators, the award included the principal sum as well as the interest for delay in payment of the principal sum. The assessee claimed that the interest was of the same nature as other trading receipts, but it was held by the Tribunal that the same was 'Income from other sources’. The apex Court laid down: "The assessee is a contractor. His business is to enter into contracts. In the course of the execution of these contracts, he has also to face disputes with the State Government and he has also to reckon with delays in payment of amounts that are due to him. If the amounts are not paid at the proper time and interest is awarded or paid for such delay, such interest is only an accretion to the assessee’s receipts from the contracts. It is obviously attributable and incidental to the business carried on by him. It would not be correct, as the Tribunal has held, to say that this interest is totally de hors the contract business carried on by the assessee. It is well settled that interest can be assessed under the head 'Income from other sources’ only if it cannot be brought within one or the other of the specific heads of charge. We find it difficult to comprehend how the interest receipts by the assessee can be treated as receipts which flow to him de hors the business which is carried on by him. In our view, the interest payable to him certainly partakes of the same character as the receipts for the payment of which he was otherwise entitled under the contract and which payment has been delayed as a result of certain disputes between the parties. It cannot be separated from the other amounts granted to the assessee under the awards and treated as 'Income from other sources’". 50. In view of the above quoted decisions, we are of the considered view that the disallowance made of Rs.4,46,54,883/- while computing the deduction allowable u/s 80-IA of the Act is not justified. Hence, we set aside the orders of the lower authorities and direct the Assessing Officer to recompute the deduction allowable to the assessee u/s 80-IA of the Act without excluding Rs.4,46,54,883/-. Thus, this ground of appeal of the assessee is allowed.”

the Tribunal on the issue in controversy discussed above, the

13 ITA No.297/Del./2016 ITA No.466/Del./2016 arguments addressed by the ld. DR and the case laws relied upon

are not applicable to the facts and circumstances of the case, thus

we are of the considered view that making disallowance by the AO

and confirmed by the ld. CIT (A) to the tune of Rs.2,99,54,875/-

while computing the deduction allowable u/s 80IA is not

sustainable and all the items of income qua which deduction has

been sought by the assessee u/s 80IA are allowable deduction and

order passed by the AO and ld. CIT (A) is not sustainable. So, the

order passed by the lower authorities is set side directing the AO to

recompute the deduction allowable to the assessee u/s 80IA

without excluding amount of Rs.2,99,54,875/- disallowed by the

AO. Consequently, ground no.2 is determined in favour of the

assessee.

GROUND NO.3 17. AO noticed that the assessee has added back the Income-tax

of perquisites of accommodation of Rs.1,50,50111/- in normal

provisions, however income-tax on perquisites on accommodation

is not added in computing the book profit u/s 115JB of the Act.

Ld. CIT (A) again by following his own order passed for AY 2010-

11 confirmed the addition.

covered in assessee’s own case passed by the Tribunal in AY

14 ITA No.297/Del./2016 ITA No.466/Del./2016 2010-11 (supra), which fact has not been controverted by the ld.

DR for the Revenue.

AY 2010-11 (supra) has decided the issue by returning following

findings :-

“60. We find that the Tribunal in the case of Rashtriya Chemicals & Fertilizers Ltd. Vs CIT (supra) has held as under: “Para 8………We further find that taxes borne by the assessee on non-monetary perquisites provided to employees forms part of Employee Benefit cost and akin to Fringe Benefit Tax since they are certainly not below the line items since the same are expressively disallowed u/s 40(a)(v) and the same do not constitute Income Tax for the assessee in terms of Explanation- 2. This view of ours is duly fortified by the judgment of Tribunal rendered in ITO v Vintage Distillers Ltd. [2010] 130 TTJ 79 (Delhi) where the Tribunal has taken the view that the term 'tax' was much wider term than the term 'Income Tax' since the former, as per amended definition of 'tax' as provided in Section 2(43) included not only Income Tax but also Super Tax & Fringe Benefit Tax. Therefore, without there being any corresponding amendment in the definition of Income Tax as provided in Explanation-2 to Section 115JB, Fringe Benefit Tax was not required to be added back while arriving at Book Profits u/s. 115JB. Similar view has been expressed in another judgment of Tribunal titled as Reliance Industries Ltd. v. ACIT [IT Appeal No. 5769 (M) of 2013, dated 16-9-2015] where the Tribunal took a view that Wealth Tax' did not form part of Income Tax and therefore, could not be added back to arrive at Book Profits since the adjustment thereof was not envisaged by the statutory provisions. Therefore, we are of the opinion that the adjustment of impugned item as suggested by Ld. CIT was not legally tenable in law which leads us to inevitable conclusion that the omission to carry out the said adjustment did not result into any loss of revenue" 61. We find that the issue is squarely covered in favour of the assessee by the above quoted decision of the Tribunal. No contrary decision was cited before us by the ld. Departmental Representative during the course of hearing. We, therefore, respectfully following the above quoted decision of the Mumbai Bench of the Tribunal delete the addition of Rs.95,02,478/- and allow this ground of appeal of the assessee.”

15 ITA No.297/Del./2016 ITA No.466/Del./2016

of the Tribunal, we are of the considered view that Income-tax paid

or payable or provision thereof could not be added back to arrive at

the peak profit as the adjustment thereof was not supported by the

statutory provisions. In view of the matter, addition made by the

AO and confirmed by the ld. CIT (A) is not sustainable in the eyes

of law, hence ordered to be deleted. Ground No.3 is determined in

favour of the assessee.

REVENUE’S APPEAL

Rule 8D made addition of Rs.41,34,68,339/- on account of

disallowance of amount of expenditure to earn the dividend

income. The ld. CIT (A) has deleted the addition. The Revenue

has come up before the Tribunal challenging the addition made by

the AO u/s 14A of the Act.

Rs.12.40 crores from the investment in shares and claimed the

same as exempt income. The details of investment in shares is as

under :-

16 ITA No.297/Del./2016 ITA No.466/Del./2016

1 NHDC Rs.1002.42 crores 2 Loktak Downstream Hydro Rs.44.40 crores Corpn. Ltd. 3 Power Trading Corporation Rs.12.00 crores 4 Indian Overseas Bank Rs.0.36 crores 5 National Power Exchange Ltd. Rs.2.19 crores 6 National High Power Testing Rs.2.62 crores Laboratory Rs.1063.99 crores

addition by returning following findings :-

“10. Perusal of the submissions made by the appellant show that the NHDC is a subsidiary company of the assessee in which investment has been made as per the sanction order of Govt. of India, Ministry of Power, vide DO No. 22/3/2000 / 28.3.2002 and order No. 34/1/2003/DO/NHPC dated 29.5.2003, out of budgetary support and equity capital invested by the Govt. to the extent of Rs.772.42 crores. The balance investment of Rs. 312.42 crores has been made in the shares of subsidiary company out of funds raised from the issue of '0' series bonds. The Investment in Loktak Downstream Hydro Corpn Ltd., National High Power Testing Laboratory, PTC, Indian Overseas Bank and National Power Exchange has been stated to be out of internal accruals. The necessary details and submissions in this regard were filed by the assessee but the AO did not consider the same. The AO therefore, applied Rule 80 and worked out the disallowance, under clause (i), (ii) and (iii) of Sub-Rule (2), of Rule 8D, respectively. The fact that the investment of Rs.772.42 crores made by the appellant in the shares of subsidiary company NHDC was out of budgetary support and equity contribution by the Govt. of India has not been disputed by the AO. The admitted fact therefore, remains that the investment of Rs. 772.42 crores was directly from interest free funds contributed by the Govt. of India. If that being so, this amount cannot go into the working of disallowance of interest even if Rule 8D is applied. Clause (ii) of sub-Rule (2) of Rule 8D provides for working of disallowable interest 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. Thus, there is no direct interest expenditure for the investment of Rs. 772.42 crores and also no direct interest expenditure pertaining to investment of Rs.281.80 crores involved as such amount represent redemption proceeds of SEB Power Bonds/Loan Term Advances (Tax Free). The Hon'ble ITAT, Bench "F Delhi in the case of Priya Exhibitors Pvt. Vs. ACIT (27 taxrnann.com 88) has held that the disallowance under section 14A requires a clear finding

17 ITA No.297/Del./2016 ITA No.466/Del./2016 of incurring of expenditure and in absence of same, no disallwoacne could be made. Similarly, the Hon’ble ITAT, Bench ‘G' Delhi in the case of ACIT vs. SIL Investment Ltd. (26 taxmann.com 78) has held that where Assessing Officer did not bring any evidence on record to establish that any expenditure had been incurred by assessee for earning exempt income, it was wrong on part of Assessing Officer to proceed to compute disallowance of expenses under section 14A by merely applying rule 8D(2){iii). The legal implications of sub-section (2) and (3) of section 14A have been examined by the Hon'ble Delhi High Court in Maxcopp Investment Ltd. vs. CIT (347 ITR 272) and it has been held that the AO has to record cogent reasons to reject the claim of the assessee that no expenditure has been incurred by him for earning the exempt income. 11. It is however, observed from the assessment order that the AO has not assigned any reason while finding the submissions of the appellant as unsatisfactory. The identical issue was also involved in the case of appellant for A.Y. 2008-09 and AY 2010- 11 and as per the detailed discussion vide para 6.4 of order dated 2.1.2012 in appeal No. 276/2010-1 after considering the provisions of law and legal position emerging from relied upon judicial rulings, this issue has been decided in favour of the appellant by CIT(Appeals)., Following the order of my predecessor in A.Y. 2009-10 and my own order for AY 2010-11 which is squarely applicable this year also the addition of Rs.41,34,68,339/- made by the AO by invoking section 14A of the Act is directed to be deleted. The Ground No.3 of appeal is allowed.”

contended that the identical issue has been decided by the

coordinate Bench of the Tribunal in AYs 2009-10 & 2010-11 in

ITA Nos.424/Del./2013 and 3650/Del/2015 & 3738/Del/2015

respectively in assessee’s own case and further contended inter alia

that the AO has invoked the provisions of section 14A without

recording his dissatisfaction qua the claim of the assessee that no

expenditure has been incurred to earn the dividend income; that the

18 ITA No.297/Del./2016 ITA No.466/Del./2016 entire investment has been made by the assessee out of its own

funds and as such, no disallowance is sustainable. However, on

the other hand, to repel the arguments addressed by the ld. AR for

the assessee, ld. DR for the Revenue relied upon the order passed

by the AO.

Tribunal in assessee’s own case in AY 2009-10 (supra) and has

been decided in favour of the assessee by returning following

findings :-

“17. We have heard both the parties and perused the records. We find that the assessee has earned exempt income to the tune of Rs.51,75,50,800/- and has suo motu disallowed Rs.13.78 crores under section 14A of the Act. We find that the AO has invoked Rule 8D without spelling out the reason for not being satisfied with the computation made by the assessee in respect to expenditure incurred for earning the exempt income. Without recording the objective satisfaction as required under sub-section (2) to section 14A that he is not satisfied with the correctness of the claim of the assessee in respect of expenditure in respect to exempt income, the AO cannot invoke Rule 8D to compute the disallowance under the said Rule. The Hon’ble jurisdictional High Court in the case of CIT vs. Taikisha Engineering India Limited reported in 370 ITR 338 (Del.) has held as under :- “Section 14A of the Act postulates and states that no deduction shall be allowed in respect of expenditure incurred by an assessee in relation to income which does not form part of the total income under the Act. Under sub Section (2) to Section 14A of the Act, the Assessing Officer is required to examine the accounts of the assessee and only when he is not satisfied with the correctness of the claim of the assessee in respect of expenditure in relation to exempt income, the Assessing Officer can determine the amount of expenditure which should be disallowed in accordance with such method as prescribed, i.e. Rule 8D of the Rules (quoted and elucidated below). Therefore, the Assessing Officer at the first instance must examine the disallowance made by the

19 ITA No.297/Del./2016 ITA No.466/Del./2016 assessee or the claim of the assessee that no expenditure was incurred to earn the exempt income. If and only if the Assessing Officer is not satisfied on this count after making reference to the accounts, that he is entitled to adopt the method as prescribed i.e. Rule 8D of the Rules. Thus, Rule 8D is not attracted and applicable to all assessee who have exempt income and it is not compulsory and necessary that an assessee must voluntarily compute disallowance as per Rule 8D of the Rules. Where the disallowance or “nil” disallowance made by the assessee is found to be unsatisfactory on examination of accounts, the assessing officer is entitled and authorised to compute the deduction under Rule 8D of the Rules. This pre-condition and stipulation as noticed below is also mandated in sub Rule (1) to Rule 8D of the Rules.” After going through the other cases also, relied upon by the ld. AR, we find that the AO has not recorded the satisfaction envisaged by the statute before invoking the computation provided for under Rule 8D, which vitiates the impugned order. We also find that in assessee’s own case for the previous year also, the Tribunal has deleted the addition made by the AO on this account. Therefore, we uphold the order of the CIT (A) on this issue. This ground of revenue’s appeal is dismissed.” 26. So, following the decision rendered by the coordinate Bench

of the Tribunal in identical set of facts, we are of the considered

view that when assessee has not made investment out of the

interest bearing funds rather made entire investment out of its own

funds and out of interest free funds provided by the Government of

India and has suo motu disallowed a sum of Rs.41,34,68,339/- u/s

14A of the Act, AO without recording any valid satisfaction as to

how the working made by the assessee is not correct invoked the

provisions contained u/s 14A mechanically, no further

disallowance can be made in mechanical manner. So, we are of the

20 ITA No.297/Del./2016 ITA No.466/Del./2016 considered view that ld. CIT (A) has rightly deleted the addition

and there is no scope for interference into the same. Consequently,

Ground No.1 is determined against the Revenue.

GROUND NO.2 27. Ld. CIT (A) deleted the disallowance of Rs.1,58,19,47,693/-

made by the AO while computing book profit u/s 115JB on

account of provisions made for gratuity, leave encashment, post-

retirement medical benefits, LTC, baggage allowance and

matching contribution on leave encashment.

contended that ld. CIT (A) erred in deleting the addition despite the

fact that the assessee has failed to establish that these provisions

are ascertained in nature and relied upon the order passed by the

AO.

the arguments addressed by the ld. DR for the Revenue contended

that the issue in controversy raised vide this ground is covered by

the order of Hon’ble Punjab & Haryana High Court in assessee’s

own case for AY 2002-03 in ITA No.385 of 2009 order dated 06.07.2010, copy of order is available at pages 190 to 193 of the

paper book. For the subsequent years, this issue has been decided

21 ITA No.297/Del./2016 ITA No.466/Del./2016 in favour of the assessee by the coordinate Bench of the Tribunal

vide order available at pages 195 to 251 of the paper book.

case for AY 2002-03 (supra) decided the identical issue in favour

of the assessee by returning following findings :-

“6. We have given our thoughtful consideration to the submission of the learned counsel for the appellant and do not find any merit in the same. 7. Section 115 JB of the Act was inserted by the Finance Act, 2000 with effect from Ist April, 2001. Under the provisions of this Section, where an assessee is a company, it is required to pay at least 7½% of its book profits as income tax. However, where the tax liability of the company under regular provisions is more than this amount, the company shall pay income tax according to the regular scheme. “Book profits” has been defined by the Explanation added to this Section whereunder it provides that net profit as shown in the profit and loss account for the relevant previous year prepared in accordance with the provisions of Part II and III of Schedule VI to the Companies Act, 1956 shall be increased by amounts specified in Clauses (a) to (g), if any amount referred therein is debited to the profit and loss account and reduced by the amount mentioned in clauses (i) to (viii) therein. 8. Clause (c) of the Explanation reads thus:- “the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities.” 9. According to the assessee, it had made provisions for gratuity, leave encashment and post retirement medical benefit on actuarial valuation. It is not disputed that the assessee- respondent is following mercantile system of accounting. The claim of the assessee is that these provisions have been made on actuarial valuation and cannot be added for determining book profits under Section 115 JB of the Act as it is business liability in praesenti which has arisen during the accounting year and it is only the quantification and discharge of which is to take place at a future date.

22 ITA No.297/Del./2016 ITA No.466/Del./2016

“If a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied the liability is not a contingent one. The liability is in praesenti though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain.”

“The ratio decidendi of the above cases is squarely applicable to the facts of the present case. It is not disputed that the warranty clause is part of the sale document and imposes a liability upon the assessee to discharge its obligations under that clause for the period of warranty. It is a liability which is capable of being construed in definite terms which has arisen in the accounting year. May be its actual quantification and discharge is deferred to a future date. Once an assessee is maintaining his accounts on the mercantile system, a liability accrued, though to be discharged at a future date, would be a proper deduction while working out the profits and gains of his business, regard being had to the accepted principles of commercial practice and accountancy.”

23 ITA No.297/Del./2016 ITA No.466/Del./2016 be treated to be contingent one. It was also observed that the provision made by the assessee in respect of gratuity, leave encashment and post retirement medical benefit on actuarial basis cannot be said to be provisions of unascertained liabilities so as to fall under clause (c) of the Explanation to Section 115JB (2) of the Act.”

Haryana High Court in assessee’s own case for AY 2002-03

(supra) and subsequent decisions rendered by the Tribunal for AYs

2004-05 to 2010-11, we are of the considered view that the ld. CIT

(A) has rightly held that provision for gratuity, leave encashment,

post-retirement medical benefits, LTC, baggage allowance and

matching contribution on leave encashment had been estimated on

actuarial basis and was liability which was credited in present

though it is to be discharged on future date, so it cannot be held to

be a provision for unascertained liability so as to fall under clause

(c) of Explanation 115JB (2) of the Act. We find no scope to

interfere into the findings returned by the ld. CIT (A), thus ground

no.2 is determined against the Revenue.

GROUND NO.3

CIT (A) qua disallowance of Rs.2,84,51,640/- made by the AO in

computing the book profit u/s 115JB in respect of depreciation

24 ITA No.297/Del./2016 ITA No.466/Del./2016 claimed on land after amortization of land by the assessee on the

ground that no depreciation is allowable under Companies Act and

nor any rate of depreciation is provided under Schedule XIV of the

Companies Act.

contended that when there is no provision to allow such

depreciation under the Companies Act nor any depreciation rate is

provided under Schedule XIV of the Companies Act, deletion

made by the ld. CIT (A) is not sustainable and relied on the order

of the AO.

arguments addressed by the ld. DR for the Revenue contended that

the issue in controversy raised by Ground No.3 is covered in view

of the order passed by the coordinate Bench of the Tribunal in

assessee’s own case for AY 2004-05, available at pages 194 to 202

of the paper book, which order has further been followed by the

Tribunal in AYs 2005-06 to 2010-11.

Tribunal for AY 2004-05 (supra) shows that the issue in

controversy has been decided in favour of the assessee by returning

following findings :-

25 ITA No.297/Del./2016 ITA No.466/Del./2016 “7. We have heard both the parties. From the facts we notice, as pointed out by the Ld. AR that this land is not a land which is owned by the assessee company. This is a land taken for use from the State government without transferring the title for relief and rehabilitation for land evacuees because of submerges and where construction of such alternative facility is a condition for setting up a project. The cost so incurred by the assessee company is amortized over useful life of the project. The above policies have been approved by the auditors of the company as well as the C&AG. The accounts of the assessee company are subject to audit not only by the statutory auditors but also by the C&AG also. Further the accounts so prepared has been approved and adopted by the company in the Annual General Meeting and filed with the Registrar of Companies. 8. The Supreme Court in the case of Apollo Tyres Ltd. (Supra) has held that the AO under the Income-tax Act has to accept the authenticity of the accounts with reference to the provisions of the Companies Act which obligates the company to maintain its account in a manner provided by the Companies Act and the same to be scrutinised and certified by the statutory auditors and will have to be approved by the company in its general meeting and thereafter to be filed before the Registrar of Companies who has a statutory obligation also to examine and satisfy that the accounts of the company are maintained in accordance with the requirements of the Companies Act. The Supreme Court has further held that the AO while computing the income under section 115J 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 the said section (115J). The Supreme Court has further went on to hold “To put it differently, the Assessing Officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to section 115J”.

26 ITA No.297/Del./2016 ITA No.466/Del./2016 10. Accordingly we uphold the order of CIT(A) deleting this addition and this ground of appeal of the Revenue is rejected.

of the Tribunal in assessee’s own case for AY 2004-05, we are of

the considered view that in view of the law laid down by Hon’ble

Supreme Court in Apollo Tyres Ltd. vs. CIT 255 ITR 273 (SC) followed by coordinate Bench of the Tribunal for AY 2004-05, AO

has no jurisdiction to go behind the net profit shown in the P&L

account except to the extent provided in Explanation to section

115J. So, the contention raised by the Revenue that the amount is

not a depreciable asset is not tenable and the ld. CIT (A) has

rightly deleted the addition. So, we find no scope to interfere in the

findings returned by the ld. CIT (A), hence Ground No.3 is

determined against the Revenue.

the appeal filed by the Revenue is dismissed. Order pronounced in open court on this 26th day of July, 2019.

Sd/- sd/- (R.K. PANDA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated the 26th day of July, 2019 TS

27 ITA No.297/Del./2016 ITA No.466/Del./2016