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Income Tax Appellate Tribunal, “A” BENCH: KOLKATA
Before: Shri A. T. Varkey, JM & Dr. A. L. Saini, AM]
This appeal preferred by the revenue is against the order of Ld. CIT(A) – 16, Kolkata dated 06.01.2017 for AY 2013-14.
Ground nos. 1 and 2 of the revenue are against the action of Ld. CIT(A) holding the provisions of sec. 115JB of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) are not applicable to the assessee Corporation.
At the time of hearing Ld. DR submitted that in the return of income filed, the assessee had declared the income as per provisions of sec. 115JB of the Act. According to him, neither in the return of income filed nor by way of filing revised return, the assessee had denied its liability of being assessed on its book profit u/s. 115JB of the Act. The Ld. DR, therefore, submitted that when the assessee did not make any claim denying its liability of being assessed on book profit by filing return or revised return, it was not open
Damodar Valley Corporation, AY 2013-14 for the Ld. CIT(A) to entertain a new claim and allow the same in the appellate proceeding. The Ld. DR further submitted that as per gazette notification No. 1249 dated 12.11.2012 issued by Govt. of India, the assessee corporation had prepared its annual financial accounts as per revised Schedule VI and, therefore, also the provision of sec. 115JB of the Act were squarely applicable. The Ld. DR also drew our attention to sec. 2(17) and sec. 2(26) of the Act, according to which, the status of the assessee for tax purpose was a “Company” and in that view of the matter, he submitted that provisions of section 115JB of the Act were applicable to the assessee. The Ld. DR, therefore, strongly urged that the Ld. CIT(A)’s order should be reversed and the order of the AO be restored. Per contra, the Ld. AR supported the order of the Ld. CIT(A) and brought to our notice that the issue of applicability of sec. 115JB of the Act to the assessee corporation was considered and decided by the coordinate bench of this Tribunal in assessee’s own case for AY 2008-09 and 2009-10 in its decision dated 13.01.2016 in and ITA No. 451/Kol/2013. He further argued at length to bring to our attention to salient feature of the Damodar Valley Corporation Act, 1948 (in short “1948 Act”) which proves beyond doubt that assessee was not a company within the meaning of Companies Act, 1956 and therefore, even in terms of sub-section (2B) sec. 115JB of the Act is applicable in the relevant year, the deeming provisions of sec. 115JB of the Act will not apply to the assessee’s case so as to bring the case within the mischief of Minimum Alternate Tax (MAT).
We have heard rival submissions and gone through the facts and circumstances of the case. After considering the submissions of both the parties we note that the assessee corporation was incorporated through the Act of Parliament legislated in 1948. The assessee corporation was constituted with three participating government namely, Union government, State Govt. of Bihar (now Govt. of Jharkhand) and State Govt. of West Bengal. The three participating governments contributed the capital. We note that the accounts of the assessee are maintained inconformity with the provisions of 1948 Act. We find from the copy of the Annual Report of the assessee that audit was not conducted by Chartered Accountant as required under the Companies Act, 1956, but was carried out by Damodar Valley Corporation, AY 2013-14 the Principal Director of Commercial Audit and Ex-officio Principal Audit, Part-1, Kolkata. We also note that while certifying the annual accounts, the auditor has stated that the Balance Sheet and the Statement of Profit & Loss have been drawn up in the format approved by the Govt. of India under section 47 of the DVC Act, 1948 and Damodar Valley Corporation Rules, 1948. We, therefore, find that the accounts were prepared inconformity with the provisions of the DVC Act, 1948 and annual financial statement were prepared in the form prescribed under the said Act even though the format approved by the Government of India u/s. 47 of the DVC Act, 1948 was on the lines of Schedule VI of the Companies Act, 1956.
We also note that the assessee corporation never distributed its profit by way of dividend with the participating Governments. On perusal of the provisions of section 115JB of the Act as were in force in the relevant year, it is noted that provisions of sub- section (2B) of section 115JB of the Act clearly clarified that the said section is applicable to every assessee being a company to which proviso to sub-section (2) of section 211 of Companies Act, 1956 is applicable. We, however, find that assessee corporation though assessed in the status of a company was not a company within the meaning of Companies Act, 1956 and, therefore, the proviso to sec. 211(2) of the Companies Act, 1956 was not applicable. As a consequence, we find merit in the submission of the Ld. AR that the deeming provision of section 115JB of the Act as were in force during the relevant year were not applicable to the assessee corporation. Taking note of this factual position, this Tribunal in assessee’s own case for AYs 2008-09 and 2009-10 held as follows:
“3.6. The Notes to Clauses to Finance Act, 2012 on the subject of Minimum Alternate Tax (MAT) is reproduced below:- i. Under the existing provisions of section 115JB of the Act, a company is liable to pay MAT of eighteen and one half per cent of its book profit in case of tax on its total income computed under the provisions of the Act is less than MAT liability. Book profit for this purpose is computed by making certain adjustments to the profit disclosed in the profit and loss account prepared by the company in accordance with the Schedule VI of the Companies Act, 1956. As per section 115JB, every company is required to prepare its accounts as per Schedule VI of the Companies Act, 1956. However, as per the provisions of the Companies Act, 1956, certain companies e.g. insurance, banking or electricity
Damodar Valley Corporation, AY 2013-14 company are allowed to prepare their profit and loss account in accordance with the provisions specified in their regulatory Acts. In order to align the provisions of Income-tax Act with the Companies Act, 1956, it is proposed to amend section 115JB to provide that the companies which are not required under section 211 of the Companies Act to prepare their profit and loss account in accordance with the Schedule VI of the Companies Act, 1956, profit and loss account prepared in accordance with the provisions of their regulatory Acts shall be taken as a basis for computing the book profit under section 115JB. ii. It is noted that in certain cases, the amount standing in the revaluation reserve is taken directly to general reserve on disposal of a revalued asset. Thus, the gains attributable to revaluation of the asset is not subject to MAT liability. It is, therefore, proposed to amend section 115JB to provide that the book profit for the purpose of section 115JB shall be increased by the amount standing in the revaluation reserve relating to the revalued asset which has been retired or disposed, if the same is not credited to the profit and loss account. iii. It is also proposed to omit the reference of Part III of the Schedule VI of the Companies Act, 1956 from section 115JB in view of omission of Part III in the revised Schedule VI under the Companies Act 1956. These amendments will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013- 14 and subsequent assessment years.” 3.7. In view of the above, we hold that in view of the legislative change brought about by the introduction of Explanation 3 in section 115JB of the Act by the Finance Act, 2012 , the assessee’s contention in fact stands more fortified. The Explanation 3 to section 115JB makes it evidently clear that section 115JB is applicable only to entities registered and recognized to be companies under the Companies Act, 1956. Since the assessee is not a company within the meaning of Companies Act, 1956 , section 211(2) and proviso thereon is not applicable and & 451/Kol/2013-A-AM M/s. Damodar Valley Corporation 13 therefore consequently we hold that the provisions of section 115JB of the Act are also not applicable. 3.16. In view of the aforesaid provisions of the Act, our findings given thereon with respect to the facts and various judicial precedents relied upon hereinabove and further in view of the fact that no contrary decisions being brought to our knowledge on the same issue, we accordingly hold that – the assessee is a statutory corporation not registered under the Companies Act, 1956 and hence the provisions of section 115JB of the act are not applicable to the assessee corporation ; – the amendment brought in section 115JB of the Act read with Explanation 3 thereon by the Finance Act 2012 is applicable only with effect from Asst Year 2013-14 onwards in line with the Notes to Clauses of Finance Act 2012 ; and – a statutory claim could be made by way of a letter before an appellate authority even without filing a revised return if the facts with regard to the same are already available on record before the lower authorities and they remain undisputed.
Damodar Valley Corporation, AY 2013-14 Accordingly the ground nos. 1 to 4 raised by the assessee in / Kol / 2011 for the Asst Year 2008-09 and ground nos. 1 to 5 raised by the assessee in ITA No. 451 / Kol / 2013 for the Asst Year 2009-10 are allowed.”
We also find merit in the Ld. AR’s submission that keeping in mind the fact that the assessee other than the corporate assessees escaped the obligation to pay tax on the profits earned from business because of the incentive provided under the Act, the legislature introduced provisions of alternate minimum tax by enacting section 115JC of the Act applicable from AY 2013-14. The assessees other than companies who earned profits from carrying on business but because of the profit post deductions allowed under the Act did not pay any taxes, then in such case, section 115JC of the Act in post obligation to pay alternate minimum tax as per the mandate provided in that section. As per the specific provisions of section 115JC of the Act, however, the assessee did not have any alternate minimum tax liability. We, therefore, find that the ratio laid down by the coordinate bench of this Tribunal continued to be applicable to the assessee in the year under consideration as well because the assessee corporation was not a company within the meaning of Companies Act, 1956 and in this view of the matter in terms of section 115JB(2)(b) of the Act, the provisions of section 115JB of the Act imposing tax liability on the book profit were not applicable. We accordingly, uphold the order of the Ld. CIT(A). Ground nos. 1 and 2 of the appeals of revenue are dismissed.
Ground nos. 3 to 5 of the revenue’s appeal relate to the action of the Ld. CIT(A) in deleting the disallowance of Rs.36,86,72,174/- made u/s. 14A of the Act read with Rule 8D of the Income-tax Rules, 1962.
Briefly stated facts of the case are that assessee derived exempt income in the form of interest from CPF investment, interest from tax free RBI Bond and dividend of shares of Power Trading Corporation and Bokaro Power Supply Corporation Ltd. In the return filed, the assessee had suo moto offered disallowance of Rs.14,99,502/- u/s. 14A of the Act towards monitoring of CPF investments. The AO, however, required the assessee to explain as to why disallowance should not be made as per provision of Rule 8D of the Rules. The AO, however, by referring to the decision of the Hon’ble Calcutta High Court
Damodar Valley Corporation, AY 2013-14 in the case of Dhanuka & Sons Vs. CIT (339 ITR 319) rejected the assessee’s contention and computed the disallowance inconformity with Rule 8D of the I T. Rules, 1962. Accordingly, the AO disallowed Rs.31,49,02,210/- out of interest paid under Rule 8D(2)(ii) of the Rules and Rs.5,52,69,466/- under Rule 8D(2)(iii) of the Rules. After deducting the suo moto disallowance of Rs.14,99,502/- the additional disallowance made was Rs.36,86,72,174/- which was deleted in appeal by Ld. CIT(A). Aggrieved, the revenue is before us.
We have heard rival submissions and gone through the facts and circumstances of the case. We note that the Ld. DR strongly relied on the findings of the AO. Per contra, the Ld. AR brought to our attention that investment which had yielded tax free income were also held by the assessee in AYs. 2008-09 and 2009-10 as well. In this matter also the AO made disallowance u/s. 14A out of interest and administrative expenses inconformity with Rule 8D which was deleted by this Tribunal vide its order dated 31.01.2016 for both the assessment years (supra). He, therefore, submitted that the investments which had yielded the tax free interest and dividend were also held in the AYs. 2008-09 and 2009-10 and since the factual matrix during the year under consideration remained unchanged, the order of the Ld. CIT(A) deserves to be upheld. After considering the submissions of the parties, we find that the Ld. CIT(A) has considered the facts of the assessee’s case as prevailing in the relevant assessment year 2008-09 and 2009-10 and the facts discussed by this Tribunal in assessee’s case for AYs. 2008-09 and 2009-10, which the Ld. CIT(A) has recorded in his following findings:
“5. I have carefully considered the submissions of the A/R and AO's findings in the impugned order. I have also examined the relevant investment schedule of the assessee and the appellate order passed by the ITAT in the appellant's own case for the A.Ys. 2008-09 & 2009-10 wherein this issue was adjudicated in assessee's favour. The basic facts are in narrow compass and not in dispute. For the A.Y. 2013-14 the average cost of investment was Rs.1105.39 Crores which principally comprised of tax-free bonds of RBI and investment in shares of Companies. From the appellate order passed by the ITAT for the A.Y. 2008-09 & 2009-10 it was noted that the composition of investment in the relevant years as also in the year under consideration was same and identical. In the A.Ys. 2008-09 & 2009-10 also the assessee had offered 20% of the gross salary paid to employees of Provident Fund Section as expenditure incurred in relation to income exempt u/s 10(25) of the Act. In respect of income which the assessee earned in the form of interest on tax-free bonds and dividend on shares the AO however invoked provisions of Rule 8D and made the disallowance out of interest Damodar Valley Corporation, AY 2013-14 paid and administrative expenses on the ground that it was not possible to hold that the assessee had not incurred these expenses in relation-to earning of such tax-free income. In the course of appellate proceedings, the appellant had argued on the same lines as in the foregoing paragraph extracted above. After examining the assessee's submissions and the assessee's audited accounts for the year ended 31st March 2008 the ITAT found that no material was available to substantiate AO's charge that the loan funds were utilised for acquiring tax-free bonds or investments in shares of Companies jointly promoted by the assessee for strategic business purposes. After examining the assessee's Balance-sheet the Tribunal noted that the assessee had sufficient own funds to the extent of Rs.16270,34,38,S28/ - whereas investment of the assessee in tax-free bonds & shares was only to the extent of Rs.1466.15 crores. On these facts therefore the ITAT held that provisions of Rule 80(2)(ii) could not be invoked in the assessee's case. Accordingly the disallowance made under Rule 80(2)(ii) was held to be un unsustainable.
6. In the A.Y. 2013-14, composition of investment continued to remain same as in A.Y. 2008- 09. I also find that in its order the ITAT had taken note of the fact that in the assessment order for A.Y. 2010-11 the AO himself had accepted the assessee's basis of offering disallowance u/s 14A and no resort was made to Rule 80 in that year. In the circumstances, I find that the factual matrix of the assessee's case in A.Y. 2013-14 was similar to A.Ys. 2008- 09 & 2009-10 when the disallowance under Rule 80(2)(ii) was deleted by the ITAT. It is further noted that as compared with the average investment of Rs.I466.15 crores held in A.Y. 2008-09 the investment in A.Y. 2013-14 was substantially lower at Rs.1105.39 crores. In the above facts and circumstances of the case therefore I have no hesitation in holding that the ratio laid down by the ITAT Kolkata in the assessee's own case continued to be applicable in A.Y. 2013-14 as well since the AO himself was not able to bring on record any evidence to prove the nexus between use of borrowed funds being & acquisition of new investments.
7. As regards administrative expenses disallowed under Rule 8D(2)(iii) I find that the AO did not bring on record any material or evidence to co-relate any specific expense which the assessee can be said to have incurred for the purpose of earning interest on tax-free bonds & dividend. On the other hand the assessee pointed out that the interest on tax-free bonds was paid directly to the assessee's Bank A/c by RBI on six monthly basis and no expenses were incurred on collection of such interest. The interest was received only on 2 occasions in a year and interest was credited without incurring bank or collection charges. Similarly the dividend was earned only once in a year from Bokaro Power Supply Co. Ltd & Power Trading Corporation and such dividend was also received through ECS by credit to assessee's Bank A/c. Keeping in mind the number of transactions involved in receiving tax- free income I find force in the A/R's submissions that there was no necessity for the assessee to incur expenses of Rs.5,52,69,466/- on earning or making of tax-free income particularly when only the investments brought forward from the earlier years had produced the tax-free income during the relevant year. I further note on the identical facts which prevailed in A.Y. 2008-09 to 2010-11 no disallowance as per Rule 80(2) was sustained. In the circumstances respectfully following the decision of the ITAT Kolkata in the assessee's own case the AO is directed to delete the disallowances of Rs.36,86,72,174/- as made in the impugned order. Ground Nos. 1 to 4 are allowed.”
At the time of hearing, the Ld. DR was unable to controvert the factual finding recorded by the Ld. CIT(A) . We also find that the issue at hand was decided in assessee’s favour in assessee’s own case for AY 2008-09 and respectfully following the appellate
Damodar Valley Corporation, AY 2013-14 order passed by this Tribunal, we confirm the order of Ld. CIT(A) and dismiss the appeal of the revenue.
In the result, the appeal of revenue is dismissed.
Order is pronounced in the open court on 21st August, 2018