Income Tax Appellate Tribunal - Delhi
Nhpc Ltd, New Delhi vs Assessee on 17 October, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'E': NEW DELHI
BEFORE SHRI R.S.SYAL, ACCOUNTANT MEMBER
AND
SHRI R.P.YADAV, JUDICIAL MEMBER
ITA No. 1402/Del/2012 ( A.Y. 2008-09)
ITA No. 1956/Del/2009 (A.Y. 2006-07)
ACIT Vs. NHPC Ltd.
Circle -II, B-Block, Sector - 33,
CGO Complex, NH-IV NHPC Complex
Faridabad Faridabad
AAACNO149C
ITA No. 1437/Del/2009(A.Y. 2006-07)
NHPC Ltd. Vs. ACIT
NHPC Office Complex Circle - II
Sector - 33
New Delhi New Delhi
(Appellant) (Respondent)
Appellant by : Sh. Ved Jain C.A., Smt. Rano Jain, Adv
Respondent by : Sh. Gunjan Prashad CIT, DR
ORDER
PER : R.S.SYAL, A.M.
These two cross appeals - one by the assessee and other by the Revenue - for the assessment year 2006-07 and the only appeal by the Revenue for the assessment year 2008-09 involve some common issues. As such, we are ITA No. 1402/D/2012,1956/Del/2009 & 1437/Del/2009 2 proceeding to dispose them off by this consolidated order for the sake of convenience.
Assessment year 2006-07
2. The first issue in the Revenue's appeal is against the deletion of addition of Rs.51,80,00,000/- on account of Tariff adjustment u/s 115JB of the Act. Briefly stated the facts of this issue are that the assessee showed Tariff adjustment of Rs. 51.80 crore out of the sale of Rs.1713.79 crore. On being called upon to explain the reason for this action, the assessee stated that it raised power bills during the year as per tariff fixed for the period 1.4.2001 to 31.3.2004 and it was required to submit its application before CERC for revision in tariff rates after the tariff period 2004-09. The assessee filed its revised tariff application for two projects to the tune of Rs.51.80 crore. The AO held that the quantification of reduction in sales was based the on assessee's pending application before CERC and as such this was not an ascertained liability. He, therefore, added back the provision of Rs.51.80 crore to the book profit u/s 115JB of the Act. The ld. CIT(A) reversed the action of the AO by relying on his order for the immediately preceding year.
3. After considering the rival submissions and perusing the relevant material on record it is observed that similar issue was raised before the tribunal by the Revenue in its appeal for assessment year 2005-06. Vide order dated 30.9.2014, a copy of which is available on record, the Tribunal has confirmed the deletion of this addition. The ld. DR could not point out any distinguishing feature in the facts for the assessment year 2005-06 and the instant year. Respectfully following the precedent for the immediately preceding assessment year, we approve the impugned order on this issue. This ground fails.
ITA No. 1402/D/2012,1956/Del/2009 & 1437/Del/2009 34. The next issue is against the deletion of addition of Rs.100,25,510/- on account of Depreciation on land amortized u/s 115JB of the Act. The facts apropos this issue are that the assessee claimed depreciation amounting to Rs.1.30 crore as per Schedule 5 of its Balance sheet. Out of total depreciation on land amounting to Rs.1.30 crore, an amount of Rs.1.00 crore was debited to the Profit and loss account and the balance amount of Rs. 30.25 lac was added to the cost of capital work-in-progress. The AO held that no depreciation was admissible on land. While computing book profit as per section 115JB of the Act, the AO added back this amount. The ld. CIT(A) deleted this addition.
5. After considering the rival submissions and perusing the rival material on the record, it is seen that this is also a recurring issue. The Tribunal in its order for the assessment year 2004-05 deleted similar addition. A copy of this order dated 30.09.2014 in ITA No. 2449/Del/2008 is available on record. The relevant discussion has been made in para 9 of the said order upholding the view taken by the ld.CIT(A) in deleting this addition in the computation u/s 115JB of the Act. In the absence of any distinguishing feature having been brought to our notice, respectfully following the precedent, we approve the view taken by the ld. CIT(A) on this issue. This ground fails.
6. The next grievance of the Revenue is against the deletion of addition of Rs. 27,05,83,117/- made by the Assessing Officer in computing book profit u/s 115JB in respect of Provision for gratuity, leave encashment and post retirement benefits. Briefly stated, the facts of this ground that the assessee claimed deduction towards Provision for gratuity and leave encashment etc. in the computation of 'Book profits' as per section 115JB of the Act. In support of its contention, the assessee relied on the judgment of the Hon'ble Supreme ITA No. 1402/D/2012,1956/Del/2009 & 1437/Del/2009 4 Court in the case of Bharat Earth Movers Vs. CIT (2000) 245 ITR 428 (SC) holding the liability incurred by the assessee under Leave Encashment Scheme etc. as an ascertained and not contingent liability. Not convinced with the assessee's submission, the Assessing Officer added back the amount of the provision while computing book profit u/s 115 JB of the Act. The ld. CIT(A) concurred with the submissions advanced on behalf of the assessee and restored the assessee's point of view.
7. After considering the rival submissions and perusing the relevant material on record, it is noticed that the Hon'ble Supreme Court in the aforenoted case of Bharat Earth Movers (supra) has held that the liability incurred by the assessee under the Leave Encashment Scheme determined on actuarial valuation is an ascertained liability and cannot be considered as a contingent liability. However, it is significant to note that the legislature has stepped in by inserting clause (f) to Section 43B mandating that any sum payable by the assessee as an employer in lieu of any leave at the credit of his employee cannot be allowed as deduction unless this amount is paid by the assessee on or before the due date for furnishing the return of income u/s 139(1) of the Act. In view of this legislative amendment nullifying the ratio of the decision in the case of Bharat Earth Movers (supra), the amount of such provision can be claimed as deduction only on actual payment and not on the simple creation of provision. However, when we peruse the mandate of Explanation 1 to section 115JB, it becomes clear that clause (c) talks of making addition to book profit for 'the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or'. If we consider the judgment of the Hon'ble Supreme Court holding such a provision as an ascertained liability and clause (f) of section 43B on one hand and clause (c) of Explanation 1 to section 115JB on the other, it becomes ITA No. 1402/D/2012,1956/Del/2009 & 1437/Del/2009 5 vivid that computation of income under the normal provisions debars deduction for the ascertained liability towards provision for leave encashment etc., unless the amount is actually paid before the due date. However, in the computation of book profit u/s 115JB, deduction is available for such provision of ascertained liability. The ld. DR has not drawn our attention towards any part of the provisions of section 115JB, which makes the provisions of section 43B(f) applicable to the computation of book profits. As the ground raised by the Revenue is only against the deletion of addition in the computation of book profit u/s 115JB, the impugned order needs to be upheld. It is however, made clear that if the income under the normal provisions of the Act turns out to be more than the book profit u/s 115JB and the total income is to be computed as per the normal provisions, then no deduction for such provision would be admissible unless the amount of such provision is paid before the due date u/s 139(1) of the Act.
8. The last ground of Revenue's appeal is against the deletion of addition of Rs.7.74 crore towards provision for doubtful and obsolescence in inventory in the computation of book profit u/s 115JB of the Act.
9. We have heard the rival submissions and perused the relevant material on the record. It is noticed that similar issue has been decided by the Tribunal against the assessee in its own case for the A.Y. 2004-05. The ld. AR was fair enough to accept this position. Respectfully following the precedent, we overturn the impugned order on this issue and allow the ground taken by the Revenue.
10. The only ground taken by the assessee in its appeal is against the confirmation of addition of Rs.47.88 crore on account of 'Advance against ITA No. 1402/D/2012,1956/Del/2009 & 1437/Del/2009 6 depreciation' in the computation of income under the normal provisions. The facts of this ground are that the assessee reduced the sales by claiming that the advance against depreciation to the tune of Rs. 47.88 crore, included in the sales, was not a revenue receipt. Relying on the decision rendered by the Authority for advance ruling against the assessee on this issue, the AO treated it as a revenue receipt and accordingly added the same to the total income. The ld. CIT(A) upheld the assessment order in this issue. The assessee is aggrieved against the action of the ld. CIT(A) in this regard.
11. After considering the rival submissions and perusing the relevant material on record it is observed that similar issue has been decided by the Tribunal in assessee's favour by relying on the Supreme Court judgment rendered in assessee's own case overturning the view taken by the Authority for advance ruling on the question of taxability of the advance amount of depreciation. The ld. AR, on being called upon to explain the nature of this amount, stated that the excess amount of sale received for few earlier years, also including the year in question, is liable to tax later on under CERC Scheme. In view of the orders passed by the Tribunal in assessee's own case for earlier years on this issue, we hold that the Advance against depreciation cannot be treated as a revenue receipt. However, the Assessing Officer is directed to verify that the excess amount received in earlier years, which got immuned from taxation in such earlier years, has been properly offered for taxation in the current year, if it so falls for taxation under the Scheme.
12. In the result the appeal of the Revenue is partly allowed and that of the assessee is allowed for statistical purposes.
Assessment year 2008-09 ITA No. 1402/D/2012,1956/Del/2009 & 1437/Del/2009 7
13. The first issue in this Departmental appeal is against the deletion of addition on account of 'Advance against depreciation' amounting to Rs. 57,27,25,000/-. It is observed that contrary to the view taken by the ld. CIT(A) for the assessment year 2006-07, in the current year the ld. first appellate authority proceeded to decide this issue in favour of the assessee. As the facts and circumstances of this ground are mutatis mutandis similar to those for the assessment year 2006-07, we hold that the amount of 'Advance against depreciation' cannot be charged to tax under the normal provisions of the Act. Similar to the direction given by us for the A.Y. 2006-07 above, we direct the Assessing Officer to verify that the excess amount received in earlier years, which got immuned from taxation in such earlier years, has been properly offered for taxation in the current year, if it so falls for taxation under the Scheme.
14. Next ground taken by the Revenue is against the deletion of addition of Rs. 26,84,24,189/- on account of Provision for gratuity, leave encashment, post retirement, medical benefits u/s 115JB of the Act. As the facts and circumstances of this ground are similar to those of the Revenue's appeal for the A.Y. 2006-07, following the view taken hereinabove, we hold that there is no warrant for making any such addition in the computation of book profit u/s 115JB of the Act. However, it is made clear that in the computation of total income under the normal provisions of the Act, such provision can be allowed only to the extent of payment made before the due date as per section 139(1) of the Act.
15. The next ground taken by the Revenue is against the deletion of addition on account of 'Depreciation on land amortized' for the purposes of book profit u/s 115JB of the Act.
ITA No. 1402/D/2012,1956/Del/2009 & 1437/Del/2009 816. The facts of this ground are admittedly similar to those for the assessment year 2006-07. Following the view taken hereinabove, we uphold the impugned order and dismiss this ground of appeal.
17. The next ground is against the deletion of addition of Rs.22,99,80,552/- on account of provision for loss in hedged transaction for the purposes of computation of book profit u/s 115JB of the Act and also the income under the normal provisions of the Act.
18. Briefly stated the facts of this ground are that the assessee provided for a loss of Rs. 22.99 crore on derivative exposure. On being called upon to explain as to why this provision be not added in computation of book profit and also in the normal computation of income, the assessee stated that it availed loan facilities from syndicate of overseas bankers, which were sanctioned under the automatic route of RBI's External Commercial borrowing (ECB). The assessee entered into hedging/swap agreement with Barclays Bank and Standard Chartered Bank to cover/protect from market volatility in spot exchange currency rates for payment of interest and re- payment of principal amount of loan in foreign currency. The differential amount, being the adverse impact on the company on account of total hedged amount, worked out at Rs. 22.99 crore, which was claimed as deduction. The Assessing Officer did not get convinced with the assessee's submissions in this regard and held that the same was not an ascertained liability and hence liable to be added in the computation of book profit as well as normal computation of total income. The ld. CIT(A) agreed with the assessee's contentions and granted deduction for the provision from the computation of total income under the normal provisions as well as book profit under MAT. The Revenue is aggrieved against the CIT(A)'s action in this regard.
ITA No. 1402/D/2012,1956/Del/2009 & 1437/Del/2009 919. After considering the rival submissions and perusing the relevant material on record, it is seen from the impugned order that the loan was taken as a general purpose loan "and not for purpose of acquisition of any asset". This finding returned by the ld. CIT(A) remained uncontroverted by the ld. DR. As the loan was taken not for acquisition of any capital asset but on revenue account, the loss suffered on hedging for payment of interest and re- payment of principal amount of loan in foreign currency is deductible as an ascertained liability in view of the analogy from the judgment of the Hon'ble Supreme Court in the case of CIT Vs. Woodward Governer India Pvt. Ltd. (2009) 312 ITR 254 (SC). In this view of the matter, such amount, being a provision for an ascertained liability, is deductible in the computation of income, both under the normal provisions and also u/s 115JB of the Act. We, therefore, approve the view taken by the ld. CIT(A) on this score. This ground fails.
20. The next ground is against deletion of disallowance of Rs.7.01 crore u/s 14A of the Act in the computation of income under the normal provisions and also under the MAT provisions. Briefly, stated the facts of this ground are that the assessee made Investments in certain securities yielding exempt income. This Investment, as per the Assessing Officer, stood at Rs. 1014.78 crores as at the end of the year, from which the assessee received exempt dividend income of Rs.36.06 crore. The Assessing Officer computed disallowance u/s 14A by applying rule 8D. Such computation of disallowance as per rule 8D came to Rs. 24.90 crore. Since, the assessee had voluntarily made disallowance of Rs. 17.89 crore on this score, the Assessing Officer made, further disallowance of Rs. 7.01 crore under the normal provisions and also under section 115JB of the Act. The ld. CIT(A) deleted the disallowance.
ITA No. 1402/D/2012,1956/Del/2009 & 1437/Del/2009 1021. After considering the rival submissions and perusing the relevant material on record it can be seen from the assessee's balance sheet as on 31.03.2008 that the amount of Share capital with Reserves and surplus stands at Rs. 17,275.83 crore. As against this, the Assessing officer has himself determined the amount invested in securities yielding exempt income at Rs. 1014.78 crore. Thus, it can be seen that the amount of Share-holders funds is far in excess of the amount of Investment yielding exempt income. Recently, the Hon'ble Bombay High Court in CIT Vs. HDFC Bank Ltd. (2014) 366 ITR 505 (Bom) has held that no disallowance of interest can be made u/s 14A if the assessee's own capital is more than the investments fetching exempt income. Similar view has been taken by the Hon'ble Gujarat High Court in CIT Vs. Suzlon Energy Ltd. (2013) 354 ITR 630 (Guj). In view of these precedents, it becomes ostensible that there can be no question of disallowance of interest u/s 14A in this case because the amount of Share- holders fund is much higher than the amount of Investments yielding exempt income. If we peruse the computation of disallowance made by the Assessing Officer under Rule 8D, it can be seen that the disallowance on account of interest expense is to the tune of Rs.19.65 crore. If such disallowance is deleted, the remaining amount of disallowance comes to Rs.5.25 crores. It is discernible that the assessee itself voluntarily made disallowance of Rs. 17.89 crore u/s 14A. As the remaining amount disallowable as per rule 8D is less than the amount suo motu disallowed by the assessee, there is no need for making any further disallowance. The view taken by the ld. CIT(A) in deleting the addition u/s 14A to the extent of Rs.7.01 crore under the normal provision as well as Book Profit u/s 115 JB, is ergo upheld. These two grounds, therefore, stand dismissed.
ITA No. 1402/D/2012,1956/Del/2009 & 1437/Del/2009 1122. In the result, the appeal of the Revenue is partly allowed for statistical purposes.
Order pronounced in the open court on 17.10.2014
Sd/- Sd/-
(R.P.YADAV) (R.S.SYAL)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 17.10.2014
B.Rukhaiyar
Copy to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT, New Delhi.
By Order
DEPUTY REGISTRAR *