Income Tax Appellate Tribunal - Chennai
Lanco Tanjore Power Co Ltd. (Formerly ... vs Department Of Income Tax on 5 August, 2013
IN THE INCOME-TAX APPELLATE TRIBUNAL
'C' BENCH, CHENNAI.
Before Shri N.S. Saini, Accountant Member &
Shri V. Durga Rao, Judicial Member
ITA No. 312/Mds/2013
Assessment Year 2008-09
The Deputy Commissioner of M/s. Lanco Tanjore Power Co. Ltd.
Income Tax, Vs. (Formerly Aban Power Company Ltd.),
Company Circle II(4), No. 25, G.N. Chetty Road, T. Nagar,
121, M.G. Road, Chennai - 34. Chennai 600 017.
[PAN : AACCA4297N]
(Appellant) (Respondent)
Appellant by : Shri N. Madhavan, JCIT
Respondent by : Shri Saroj Kumar Parida, Advocate
Date of Hearing : 05.08.2013
Date of pronouncement : 21.08.2013
ORDER
PER V. DURGA RAO, JUDICIAL MEMBER:
This appeal filed by the Revenue is directed against the order of the Commissioner of Income Tax (Appeals) III, Chennai dated 27.11.2012 relevant to the assessment 2008-09.
2. In the assessment order, the Assessing Officer has observed that the assessee has taken secured loan of `.224,44,90,718/-. It has debited interest of `.24,40,69,750/- on loans. It has also made investments in mutual funds to the extent of `.34,67,49,186/- during the previous year. The Assessing Officer has asked the assessee to explain why disallowance be 2 I.T.A. No.3 No.312/M/ 12/M/13 /M/13 not made under section 14A. The assessee replied that the borrowings shown in books are related to purchase of plant and machinery and the interest on borrowings are not related with the investments defined under section 14A, the current investments shown are made from the payments received from TNEB for the sale of electrical energy and they have no exempt income during the year as per the provisions of section 14A and as such this section has no application. However, the Assessing Officer has not accepted the submissions of the assessee and by applying section 14A r.w. Rule 8D disallowed `.89,24,289/-.
3. The assessee carried the matter in appeal before the ld. CIT(Appeals) and the ld. CIT(Appeals) deleted the addition made by the Assessing Officer.
4. On being aggrieved, the Revenue is in appeal before the Tribunal.
5. At the time of hearing, both parties have agreed that the very similar issue has been decided by the Tribunal in assessee's own case for the assessment year 2009-10 in I.T.A. No. 1322/Mds/2012 vide order dated 24.09.2012 and the Tribunal has remitted the issue back to the Assessing Officer for consideration afresh, being the facts of the present assessment year is also similar, it was prayed that the issue may be remitted back to the Assessing Officer. In view of the above submissions of both parties, we find appropriate to remit the matter back to the Assessing Officer to decide the 3 I.T.A. No.3 No.312/M/ 12/M/13 /M/13 issue in the light of Tribunal's decision in assessee's own case for the assessment year 2009-10. In the assessment year 2009-10, the Tribunal has observed as under:
"26. We have perused the orders and heard the rival submissions. As per the assessee, its investments were all in mutual funds, which were based on debts. Surplus due to appreciation NAV, on sale of such mutual fund units were offered by it as capital gains. There is no doubt that as on the end of the relevant previous year, there were no investments in the books of the assessee. Whatever investment it had made, had come down to '0' by the end of the relevant previous year. If the claim of the assessee that investments were made in debt oriented mutual funds, is correct, and if the gains arising on sale thereof had been offered to tax, then of course, in our opinion, such investments could not be treated as giving rise to tax-free income. Section 14A will have no applicability. In our opinion whether the investments were only in debt oriented mutual funds which yielded no income other than capital gains, needs to be verified and only if this is proved to be correct, application of Section 14A can be ruled out. We, therefore, set aside the orders of authorities below and remit the issue back to the file of the A.O. for consideration afresh, in accordance with law."
6. In view of the above, we set aside the order passed by the ld. CIT(Appeals) and remit the matter back to the Assessing Officer for fresh consideration in accordance with law after allowing sufficient opportunity of being heard to the assessee.
7. The next issue in ground No. 3 relating to book profit under section 115JB of the Act.
8. Facts are in brief that the assessee has shown book profits under section 115JB as per return at `.80,38,36,779/-. The Assessing Officer made disallowance under section 14A to the tune of `.89,24,289/- and assessed 4 I.T.A. No.3 No.312/M/ 12/M/13 /M/13 book profits as `.81,27,61,068/-. The assessee has submitted that the provisions of section 14A cannot be imported into, while computing book profit under section 115JB of the Act in as much as clause (f) of Explanation to section 115JB refers to the amount debited to the profit and loss account which can be added to the book profit while computing the book profit under section 115JB of the Act. However, the Assessing Officer has not accepted the submissions of the assessee and added the amount of `. 89,24,289/- to the book profit under section 115JB.
9. On being aggrieved, the assessee carried the matter in appeal before the ld. CIT(Appeals) and it was submitted before the ld. CIT(Appeals) that the issue in this appeal is covered by the decisions of the ITAT Delhi Bench in the case of Goetze (India) Ltd. v. CIT (2009) 32 SOT 101(Del) and in the case of Quippo Telecom Infrastructure Ltd. v. ACIT in I.T.A. No. 4931/Del/2010 vide order dated 18.02.2011 and submitted that section 14A is not applicable for computation of book profit under section 115JB. The ld. CIT(Appeals), after considering the submissions of the assessee deleted the addition made by the Assessing Officer by observing as under:
"5.1 I have carefully considered the facts of the case and the submission of the ld. AR. I have also gone through the decisions relied on by the AR. The AO has made an addition of Rs.89,24,289/- on account of alleged expenditure incurred to earn exempt income while computing book profit u/s.115JB of the Act. A similar issue was considered by the Hon'ble ITAT, Delhi Bench in the case of Goetze (India) Ltd v. CIT (2009) (32 SOT 101) for AY. 2000-01. It was held by the ITAT 5 I.T.A. No.3 No.312/M/ 12/M/13 /M/13 "Under clause (f) of the Explanation to section 115JA, the amount of expenditure relatable to any income to which any of the provisions of Chapter 11/ apply has to be added to the book profit. Under the provision contained in section 14A, no deduction is to be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. Since the issue of expenditure related to dividend income, a matter falling under Chapter III, it was clear on perusal of these two provisions that they are similar in nature. Clause (f) uses the words 'expenditure relatable to any income', while section 14A uses the words 'expenditure incurred by the assessee in relation to income'. These words have the same meaning. Further, section 14A contains two more sub-sections, sub-section (2) and sub-section (3), which do not find a place in clause (f). Therefore, insofar as computation of adjusted book profit is concerned, provisions of sub-section (2) and sub-section (3) of section 14A cannot be imported into clause (f) of the Explanation to section 115JA."
The same was followed by ITAT, Delhi in the case of M/s.Quippo Telecom Infrastructure Ltd in ITA No.4931/Del/2010 for the assessment year 2007-08 while deciding the issue of addition of alleged expenditure incurred to earn exempt income while computing the book profit u/s.115JB of the Act. Further, in the instant case, as has been held above in para 4.2, no disallowance u/s 14A is made. Consequently, no adjustment u/s 115JB on this account should be made. The ratio of the above decisions are fully applicable to the facts of the appellant. Respectfully following the same, the disallowance made by the AO while computing book profit u/s115JB of the Act is deleted and this ground is allowed."
10. On being aggrieved, the Revenue carried the matter in appeal before the Tribunal.
11. At the time of hearing, the ld. Counsel for the assessee has submitted that the issue raised by the Revenue is squarely covered by the decision of the ITAT Delhi Bench in the case of Goetze (India) Ltd. v. CIT (2009) 32 6 I.T.A. No.3 No.312/M/ 12/M/13 /M/13 SOT 101(Del) and in the case of Quippo Telecom Infrastructure Ltd. v. ACIT in I.T.A. No. 4931/Del/2010 for the assessment year 2007-08.
12. On the other hand, the ld. DR has supported the order passed by the Assessing Officer.
13. We have heard both sides, perused the material on record and gone through the orders of authorities below. The case of the Revenue is that whether addition to the book profit shall be made on account of alleged expenditure incurred to earn exempt income while computing the income under section 115JB of the Act. In the case of Goetze (India) Ltd. v. CIT (supra), the Delhi Bench of ITAT has observed as under:
4.6 We have considered the facts of the case and rival submissions.
We may at the outset consider the provisions contained in c1. (f) of the Expln. to s. 115JA and sub-s. (1) of s. 14A of the Act. Under the aforesaid c1. (f), the amount of expenditure relatable to any income to which any of the provisions of Chapter III applies has to be added to the book profit. Under the provision contained in s. 14A, no deduction is to be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. Since we are dealing with the issue of expenditure relating to dividend income, a matter falling under Chapter III, it becomes clear on perusal of these two provisions that they are similar in nature. Clause (f) uses the words "expenditure relatable to any income", while s. 14A uses the words "expenditure incurred by the assessee in relation to income". These words have the same meaning. We may also add here that S. 14A contains two more sub-sections, sub-s. (2) and sub-s. (3), which do not find a place in the cl. (f). Therefore, insofar as computation of adjusted book profit is concerned, provisions of sub-s. (2) and sub-s. (3) of s. 14A cannot be imported into c1.(f). 7 I.T.A. No.3
No.312/M/ 12/M/13 /M/13 4.7 We may also deal with the arguments of the rival parties which, according to us, have no bearing in deciding this issue. One of the arguments of the learned counsel was that the expenditure disallowed by the learned CIT(A) was more than the dividend income. We find that this argument is inconsequential for the reason that expenditure incurred in earning an income may at times be more than the income itself, say, in case of an industrial company in the first year of its operation when large amount of depreciation is claimed for deduction or when large amount of advertisement expenditure is incurred, such cases may result into loss, which can also happen in the case of dividend income where expenditure by way of interest on borrowed capital for investment and other expenses may exceed the dividend income. One of the arguments of the learned Departmental Representative was that the disallowance worked out on the basis of the order of the Special Bench of the Tribunal in the case of aforesaid Daga Capital Management (P) Ltd. (supra) will be more than the disallowance made by the learned CIT. The order in the case of Daga Capital Management (P) Ltd. (supra) heavily relied on the rules framed under sub-s. (2) of s. 14A, which is not applicable while interpreting cl.
(f) of the Explanation."
14. In the case of Quippo Telecom Infrastructure Ltd. v. ACIT (supra), the Tribunal has observed that no addition to the book profit shall be made on account of alleged expenditure incurred to earn exempt income while computing the income under section 115JB of the Act. Therefore, we, respectfully following the decision of the Coordinate Bench of Delhi ITAT in the case of Goetze (India) Ltd. v. CIT (supra) and Quippo Telecom Infrastructure Ltd. v. ACIT (supra), we dismiss the ground raised by the Revenue.
15. The next issue relates to provisions for operation and maintenance to the tune of `.1,70,41,715/-.
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16. Facts are in brief that the assessee had entered into two agreements with M/s GE Inc. USA for long-term operations and maintenance of its plant and supply of spares for preventive maintenance and unplanned break down. The amount payable under the agreements have been debited to the profit and loss account based on actual factored hire hours of gas turbine on the basis of average factored hour cost including customs duty applicable at the prevailing rate. The Assessing Officer, after perusing the agreement, has observed that the payments due towards maintenance and supply of spare parts are clearly determinable without there being any need for a provision. He further observed that the assessee has failed to furnish any satisfactory explanation as to why it has made provision for operation and maintenance and whether such provisions are made for what period of time and so on. In the absence of satisfactory explanation that the expenditure was debited on the basis of actual and that the provisions made was in relation to operation and maintenance with reference to factors which could be ascertained with reasonable accuracy and he held that the provisions made by the assessee are to be treated as adhoc and excessive in nature. They were also without reference to the actual and held that the provision made by the assessee is inadmissible and added to the total income.
17. In appeal, the ld. CIT(Appeals) deleted the addition made by the Assessing Officer.
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18. On being aggrieved, the Revenue is in appeal before the Tribunal.
19. At the time of hearing, both parties have submitted that in similar set of facts in the assessment year 2009-10 in I.T.A. No. 1322/Mds/2012 vide order dated 24.09.2012 and the Tribunal has remitted the issue back to the Assessing Officer for afresh consideration and therefore, the same may be followed.
20. We have heard both sides, perused the materials on record and have gone through the orders of authorities below. We have also perused the order of the Tribunal for the assessment year 2009-10, wherein the Tribunal has held as under:
"17. We have perused the orders and heard the rival submissions. It is not disputed that assessee was having two contracts with M/s GE Inc. USA. One was for long term maintenance of its main plant, second was for supply of spare parts for preventive maintenance and break down. As per the A.O., the provision made by the assessee for clearing the liability as per these agreements, was purely on an ad hoc basis and not based on any scientific work out. The A.O. in paras 7.6 and 7.7 of his order has clearly given why he considered the provision to be ad hoc. These paras are reproduced hereunder:-
"7.6 Under these circumstances, provisions made by the assessee has to be treated as adhoc and excessive in nature without reference to the actuals. The said inference is furthered strengthened by a data presented in the following table:
Particulars Opening Current year Current year Closing
Balance provision payments Balance
Escalation payable 47,09,987 7474322.64 Nil 12184309.64
Incentive payable 1,49,92,486 9281486.19 2452730.00 21821242.19
Adder Provision (10768436) 35693144.88 Nil 24924708.88
Adder LTSA duty provision 35616842 19312695.50 Nil 54929537.50
Adder duty paid (39117657) Nil 9582766.00 (48700423.00)
LTMA MOB Advance (3503399) 334359.00 Nil (3169040.00)
LTMA/LTSA Qtrly Provisions 65252 32526710.80 32595670.00 (3707.20)
Total 1995075.00 104622719.00 44631166.00 61986.628
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/M/13
7.7 The assessee has also given break up for provisions made for the relevant
previous years which is extracted as under:
LTMA and LTSA provision vs. payment status for the various financial years from 2006-07 to 2010-11 Financial Opening Provision Amount Closing year Balance made utilised balance 2006-07 20690619 33068186 Nil 53758805 2007-08 53758805 48400870 85118500 17041175 2008-09 17041175 104622719 59677266 61986628 2009-10 61986628 80660363 77639698 65007293 2010-11 65007293 84313843 131969974 17351162 As against this, claim of the assessee is that provisions were made exactly in accordance with agreements, based on actual factored fire hours of gas turbine and average factored cost. Without doubt, the amounts whether claimed as provision or outstanding, if worked out strictly in accordance with agreements, has to be allowed. This is because assessee is legally bound to pay to M/s GE Inc. USA the amounts due to it as per the agreements. Actual date of payment is irrelevant. Though assessee has argued that the provisioning done by it was in accordance with such agreements, the table extracted above, does not substantiate such contention. We are, therefore, of the opinion that the matter requires re-visit by the A.O. We set aside the orders of authorities below and remit the issue back to Assessing Officer for verifying the provisioning done by assessee vis-à-vis the agreements entered with M/s GE Inc. USA. If it is strictly in accordance with agreements, the amount shown as provision has to be allowed. Amounts in excess of what is payable as per the agreements, can be disallowed.
18. In the result, we set aside the orders of authorities below on this aspect and remit the issue back to the file of A.O. for consideration afresh, in accordance with law."
21. In view of the above, we set aside the order passed by the ld. CIT(Appeals) and remit the matter back to the Assessing Officer for fresh consideration in accordance with law after allowing sufficient opportunity of being heard to the assessee.
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22. In the result, the appeal of the Revenue is partly allowed for statistical purpose.
Order pronounced on Wednesday, the 21st of August, 2013 at Chennai.
Sd/- Sd/- (N.S. SAINI) (V. DURGA RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER Chennai, Dated, the 21.08.2013 Vm/- To: The assessee/A.O./CIT(A)/CIT/D.R.