Income Tax Appellate Tribunal - Mumbai
Tata Petrodyne Ltd.,, vs Assessee on 19 June, 2012
आयकर अपील य अ धकरण,
धकरण मुंबई यायपीठ 'जे ' मुंबई ।
IN THE INCOME TAX APPELLATE TRIBUNAL "A " BENCH,
MUMBAI
सव ी डी.के.अ वाल, ( या.स) , एवं ी नरे कुमार ब लै या, (ले.स.)
BEFORE SHRI D.K. AGARWAL (JM) AND SHRI N.K. BILLAIYA(AM)
आयकर अपील सं./I.T.A. No. 5108/Del/2004
( नधारण वष / Assessment Year : 2001-02
M/s. TataPetrodyne Ltd., बनाम/
बनाम The ACIT, Range-16,
6A, Vandana Bldg., Vs. New Delhi
11, Tolstoy Marg,
New Delhi-110 001
थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : AAACT 0090N
(अपीलाथ /Appellant) .. ( यथ / Respondent)
अपीलाथ ओर से / Appellant by : S/Shri Dinesh Vyas/Ajit Shah
यथ क ओर से/Respondent by : Smt. Kusum Ingale
सन
ु वाई क तार ख / Date of Hearing : 19.6.2012
घोषणा क तार ख /Date of Pronouncement : 29.6.2012
आदे श / O R D E R
PER N.K. BILLAIYA, AM
The appeal is filed by the assessee against the order of Ld. CIT(A)XIX, New Delhi dt. 12.8.2004 for the assessment year 2001-02.
2. The first ground relates to the grievance against the order of Ld. CIT(A) who confirmed the disallowance of a sum of Rs. 20,06,079/- in respect of foreign exchange loss allocated to sub-sea equipment.
3. Briefly stated the facts are that for the year under consideration, the assessee has claimed sum of Rs. 20,06,079/- due to foreign exchange 2 ITA No. 5108/Del/04 fluctuation resulting in the enhancement of loan liability which was taken by the assessee company to acquire assets. The claim was made as per the provisions of Sec. 43A of the Act. The Assessing Officer was of the opinion that the increase in the liability for the payment of loan due to foreign exchange fluctuation cannot be allowed as revenue expenditure. More so, the assets were purchased in earlier year in respect of which 100% depreciation have been claimed and allowed to the assessee. The AO was of the opinion that there being no fresh addition by way of purchase of new asset the only increase/addition in the value is on the account of exchange fluctuation. Therefore on loan payment any extra liability is arisen, it cannot be added to the cost of asset because the extra expenditure would be considered on capital account of loan. This extra expenditure cannot be added to the cost of asset because this asset does not exist in Block of asset this year as it has already been written off in earlier year.
4. The matter was agitated before the Ld. CIT(A) but without any success.
5. The Ld. CIT(A) followed the appellate order for assessment year 2000-
01. Before us, the Ld. Senior Counsel submitted that similar issue travelled upto ITAT in the assessment year 2000-01 in assessee's own case in ITA No. 5569/Del/2003 wherein the Tribunal has allowed the claim of the assessee u/s. 43A of the Act.
6. The Ld. Departmental Representative relied upon the orders of lower authorities.
7. We have perused the orders of lower authorities and also carefully considered the order of Tribunal in ITA No. 5569/Del/2003. We find that on identical facts and circumstances the Tribunal has allowed the claim of the assessee u/s. 43A of the Act. Respectfully following the finding of the Tribunal, we allow assessee's claim for the year under consideration. Accordingly, Ground No. 1 is allowed.
3 ITA No. 5108/Del/048. Ground No. 2 relates to disallowance of a sum of Rs. 1,25,93,021/- in respect of foreign exchange loss allocated to development expenses.
9. Facts giving rise to this grievance show that the assessee company has claimed total expenditure of Rs. 1,46,00,000/- on account of Exchange fluctuation and revaluation out of which Rs. 1,25,93,021/- has been claimed as revenue expenses in form of Development cost u/s. 42 of the I.T. Act. The AO was of the view that the expenditure being capital in nature cannot be allowed in computing the total income for the year as loan was on capital account and accordingly rejected the claim of the assessee to allow the expenses as per provisions of Sec. 42 of the Act. The AO further was of the view that u/s. 42, deduction for Exploration and Development costs are allowed but the allowability under income tax Act is deferred till the starting of the commercial production and as the assessee has not started commercial production, the same cannot be allowed.
10. The matter was agitated before the Ld. CIT(A). The Ld. CIT(A) dismissed the claim of the assessee following the order of the immediate preceding year.
11. Before us, the Ld. Counsel for the assessee explained provisions of Sec. 42 and argued that a plain reading of the provisions of sec 42 of the Act suggest that expenses are allowed whether they are in the nature of revenue or capital. The Counsel further submitted that in the immediately preceding year, when the matter was before the ITAT in ITA No. 5569/Del/03, the Tribunal held that " undoubtedly Section 42(1)(b) entitles the assessee to deduction after the beginning of the commercial production. The case of the assessee is that it was working in consortium. However, since the necessary details could not be placed before us to show that the assessee had commenced production ". The Tribunal set aside the impugned order on this issue and restored the matter to the file of the Ld. CIT(A) for deciding it afresh after allowing a reasonable opportunity of being heard to the assessee.
4 ITA No. 5108/Del/04The Ld. Counsel contended that for the year under consideration, the AO himself , at page-1 clause (iii) of assessment order has given a categorical finding that the assessee company has started its commercial production and therefore now it has been accepted by the department that the assessee had started commercial production, the claim should be allowed as per the findings of the Tribunal in the immediately preceding assessment year.
12. The Ld. Departmental Representative relied upon the order of lower authorities.
13. We have considered the rival submissions and perused the orders of lower authorities and the order of Tribunal in ITA No. 5569/Del/03. We may agree with the submissions of the Counsel that in the immediately preceding assessment year, the Tribunal restored the matter back to the file of Ld. CIT(A) because no material was brought on record to show that the assessee had started commercial production but for the year under consideration the AO has himself given a categorical findings in relation to the commercial activities of the assessee as pointed out herein above. But we find that starting of the commercial production is not the only condition as provided under section 42(1)(b) of the Act but it is one of the conditions , as the assessee has satisfied that this condition has been fulfilled , we restore this matter back to the files of the AO with the direction to verify whether the assessee complies/fulfills other conditions as provided u/s. 42(1)(b) of the Act after giving a reasonable opportunity of being heard to the assessee. This ground of the assessee is allowed for statistical purposes.
14. Ground Nos. 2 & 3 were not pressed by the Ld. AR. Therefore, the same stand dismissed.
15. Ground No. 5 relates to the grievance against the order of Ld. CIT(A) to upheld the action of AO denying the benefit of brought forward business loss by applying the provisions of Sec. 79 of the Act.
5 ITA No. 5108/Del/0416. During the course of assessment proceedings, the AO found that the share holding of the company has been changed because of which the AO was of the opinion that the assessee is not entitled for the set off of brought forward business loss by virtue of provisions of Sec. 79 of the Act. The AO asked the assessee company to explain as to why the provisions of Sec. 79 are not applicable in this case. The assessee filed a detailed reply which is incorporated by AO in assessment order at page-11. The main claim of the assessee was that the assessee company is a deemed public company in which public are substantially interested as per provisions of Sec. 2(18)(b) of the Act and accordingly provisions of Sec. 79 are not applicable on the facts of the case. The AO was of the opinion that the change in the share holding has resulted into company becoming 100% subsidiary of M/s. Tata Power Co. Ltd. The AO was further of the opinion that the assessee company cannot be treated as a company in which public are substantially interested and accordingly he denied the set off of brought forward loss.
17. Before the Ld. CIT(A), the assessee argued that provisions of Sec. 79 of the Act provides that where a change in share holding has taken place in a previous year in the case of a company, not being a company in which the public are substantially interested, no loss incurred in any year prior to the previous year shall be carried forward and set off against the income of the previous year unless on the last day of the previous year the shares of the company carrying not less than 51% of the voting power were beneficially held by person who beneficially held shares of the company carrying not less than 51% of the voting power on the last date of the year or years in which loss was incurred. However , in the case of the assessee company more than 51% have been unconditionally allotted to Tata Power Co. Ltd. From Tata Industries Ltd, the company in which public are substantially interested therefore according to the assessee the facts of the case were covered by provisions of Sec. 2(18)(b)(B)(c) and therefore provisions of Sec. 79 will not be applicable. However, this contention of the assessee did not find favour with Ld. CIT(A) who rejected the claim of the assessee that it is a deemed 6 ITA No. 5108/Del/04 public company and therefore it false within the meaning of Sec. 2(18)(b)(B)(c). The Ld. CIT(A) further observed that since the voting power is on the last day of the year to which losses pertains and the year in which claim of carry forward and set off of losses has been made has changed more than 51%, the assessee will not be entitled for benefit of carry forward and set off of losses and confirmed the addition made by AO.
18. The Ld. Sr. Counsel pointed out that the provisions of Sec. 79 are applicable "in the case of a company not being a company in which the public are substantially interested" which means that Sec. 79 has no application in the case of a company in which the public are substantially interested. In other words, the Sr. Counsel submitted that a company which is a subsidiary of a company which is not a private company shall mean a 'public company'. Ld. Sr. Counsel relied upon the decision of Mumbai Bench in the case of Meredith Traders (P) Ltd. Vs ITO (2011) 142 TTJ (Mum) 182.
19. After hearing the rival parties, let us first consider the provisions of Sec. 2(18)(b)(B)(c) of the Act which reads as under:
Section 2(18) (b)(B)(c) provides that the company is said to be a company in which public are substantially interested............
(b) if it is a company which is not a private company as defined in the Companies Act, 1956 and the conditions specified either in item (A) or in item (B) are fulfilled namely.....................
(B) Shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profit) carrying not less than 51% of the voting power have been allotted unconditionally to, or acquired unconditionally by, and were throughout the relevant previous year beneficially held by
(c)........... any company to which this clause applies or any subsidiary company of such company if the whole of the share capital of such subsidiary company has been held by the parent company or by its nominees throughout the previous year.7 ITA No. 5108/Del/04
20. In the light of the provisions of Sec. 2(18)(b)(B)(c) and the arguments submitted by parties, let us see the share holding patterns as its drew before and after the change which is as under :
31st March 2000 31st March, 2000
Name of share No. of Name of share No. of
holders holders
shares shares
I II
Share holder Share holder
Tata Industries 9,80,00,245 The Tata Power 9,80,00,36
Ltd. Co.Ltd(TPCL)
Dilip S. Pendse 50 Mr. A.J. Engineer TPCL 10
Sujit Gupta 50 Mr.A.M. Sahni TPCL 10
N.J. Driver 30 Mr.R.K.KANGA TPCL 10
S.H.Rajadhyaksha 30 Mr.B.J.Shroff TPCL 10
Sunil Wadhwa 20 Mr.B.S.Suvarna TPCL 10
Mr.S.Venkataraman TPCL 10
9,80,00,425 9,80,00,425
21. On perusal of the above chart shows that the shares of the Tata Industries Ltd. have been transferred to Tata Power Co. Ltd. It is worthwhile to note that both the companies i.e. Tata Industries Ltd. and Tata Power Co. Ltd. are companies in which public are substantially interested as both the company's shares are traded in the stock market. After considering this, we find force in the contention of the Ld. Counsel that the facts of the case are covered by provisions of Sec. 2(18)(b)(B)(c) and therefore the claim of set off of brought forward losses are not hit by provisions of Sec. 79. The reliance on the decision of Meredith Traders (P) Ltd. (supra) is well founded. The submissions of the Ld. DR who relied upon the finding of lower authorities are therefore rejected. The AO is directed to allow the claim of brought forward business losses. Ground No. 5 with all its sub grounds are therefore allowed.
8 ITA No. 5108/Del/0422. Ground No. 6 relates to the grievance against the order of Ld. CIT(A) who confirmed the order of the AO in computation of Book Profit of Rs. 16,45,76,748/- for the purpose of Sec. 115JB of the Act.
23. While examining the return of income for the year under consideration, the AO found that the assessee company has earned adjusted book profit of Rs. 16,97,49,352/- but the same has been adjusted against an amount of Rs. 31,33,74,380/- showing it as brought forward business loss or unabsorbed depreciation as per books. On further examination, the AO found that total loss is Rs. 64,31,43,990/- which includes depreciation of Rs. 51,72,604/- and an amount of Rs. 47,86,16,576/- is shown as depletion in the P&L A/c which is debited in P&L A/c as depletion of producing properties. Balance Rs. 25,97,72,266/- is shown as loss before depreciatio0n and depletion. The AO was of the opinion that by claiming the depletion with depreciation the assessee company has wiped off the book profit and has shown Nil tax liability u/s. 115JB of the Act which is not correct. The AO was also of the opinion that depletion of Producing properties cannot be treated as depreciation but can only be termed as deferred revenue expenses and deferred revenue expenses cannot be clubbed with depreciation for the purpose of Sec. 115JB and accordingly denied the claim of the assessee and went on to compute the profit u/s. 115JB of the Act at Rs. 16,45,76,748/-. The matter was taken before the Ld. CIT(A) but without any success.
24. Before us, the Ld. Senior Counsel reiterated the company's stand that book profit for the year under consideration u/s. 115JB of the Act is to be treated as Nil as computed by the assessee company. The Ld. Counsel relied upon the decision of the Hon'ble Supreme Court in the case of Apollo Tyres Vs CIT 255 ITR 273. The Ld. Counsel further relied upon the guidance Note of Accounting standard issued by Institute of Chartered Accountants of India on accounting of oil and gas producing activities. The ld. Counsel further relied upon the decision of ITAT Chennai Bench 'A' in the case of Hardy Exploration & Production (India) Inc Vs. ADIT, International Taxation in ITA 9 ITA No. 5108/Del/04 Nos. 802 & 803, 1077, 2154 & 2155 /Mad/2010. The Ld. Departmental Representative relied upon the orders of lower authorities.
25. We have gone through the orders of lower authorities. The only point in dispute is that whether the assessee can claim depletion of producing properties as depreciation. We find that in the Notes to computation, "Depletion of Producing Properties", have been explained by the assessee as under:
"In Books of account exploration and development costs incurred upto the date of commercial production have been capitalized under the head 'Producing Properties' and a proportion of the same is being charged to P&L account under the head 'Depletion of Producing Properties' However total expenditure incurred for the above had already been charged to revenue for the purpose of Income tax Computation . Therefore expenses debited to P&L account under the head 'Depletion of Producing properties' have been added back for income tax computation and the actual expenditure incurred in the current year on development costs have been charged as expense."
26. As per the provisions of Sec. 115JB of the Act, the assessee company required to tax on the Book Profit after taking credit of brought forward business loss or unabsorbed depreciation whichever is less as per books of account. Further as per the provisions of said section every assessee being a company has to prepare profit and loss account for the relevant previous year in accordance with the provisions of Part II and III of Schedule VI to the Companies Act, 1956. We find that depreciation have not been defined under the Income Tax Act therefore we take guidance from the Notes of Accounting standard issued by Institute of Chartered Accountants of India which is the highest accounting body of the country created by an Act of Parliament. According to Para 3.1 of AS-6 (Revised) on "Depreciation Accounting", issued by ICAI, depreciation is defined as under:
"Depreciation is a measure of the wearing out, consumption or other loss of value of a depreciable asset arising from use, effluxion of time or obsolescence through technology and market changes. Depreciation is allocated so as to charge a fair proportion of the depreciable amount in each accounting period during the expected 10 ITA No. 5108/Del/04 useful life of the asset. Depreciation includes amortization of assets whose useful life is predetermined.
27. According to Para 4 of Guidance Note on 'Accounting for Oil and Gas Producing Activities' issued by ICAI, Depreciation is defined as under:
"Depreciation is a measure of the wearing out, consumption or other loss of value of a depreciable asset arising from use, effluxion of time or obsolescence through technology and market changes. Depreciation is allocated so as to charge a fair proportion of the depreciable amount in each accounting period during the expected useful life of the asset. Depreciation includes amortization of assets whose useful life is predetermined. Depreciation also includes 'depletion' of natural resources through the process of extraction or use."
28. As per Guidance Note of the ICAI, depreciation also includes depletion of natural resources through the process of extraction or use. The ITAT Chennai Bench had an occasion to deal in a similar issue in the case of Hardy Exploration & Production (India) Inc (supra) wherein the Tribunal has held that depletion claimed by assessee was, in fact, depreciation and was liable to be treated as such. After considering the finding of the Tribunal and the guidance note issued by ICAI, we are of the considered view that the assessee is entitled to claim depletion alongwith depreciation for calculating the Book Profit u/s. 115JB of the Act. The AO is accordingly directed to recomputed the Book Profit u/s. 115 JB of the Act after allowing the claim of depletion in producing properties as claimed by the assessee. Ground No. 6 with all its sub grounds are therefore allowed.
29. Ground No. 7 of the appeal filed by the assessee in respect of levy of interest u/s. 234A, 234B and 234D of the I.T. Act, is consequential and does not require any specific adjudication.
11 ITA No. 5108/Del/0430. Ground No. 8 & 9 are general in nature and does not require any specific adjudication.
31. In the result, the appeal of the assesse is partly allowed.
प रणामतः नधा रती क अपील आं शक वीकृत क जाती है ।
Order pronounced in the open court on 29.6.2012 .
आदे श क धोषणा खलु े यायालय म दनांकः 29.6.2012 को क गई ।
Sd/- Sd/-
( D.K. AGARWAL) ( N.K. BILLAIYA )
या यक सद य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER
मुंबई Mumbai; दनांक Dated 29.6.2012
Rj व. न.स./ Sr. PS
आदे श क त ल प अ े षत/Copy
षत of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. आयकर आयु (अपील) / The CIT(A)-
4. आयकर आयु / CIT
5. वभागीय त न ध, आयकर अपील य अ धकरण, मुंबई / DR,
ITAT, Mumbai
6. गाड फाईल / Guard file.
आदे शानुसार/
ार BY ORDER,
स या पत त //True Copy//
उप/सहायक
उप सहायक पंजीकार
(Dy./Asstt. Registrar)
आयकर अपील य अ धकरण,
धकरण मुंबई / ITAT, Mumbai