Adjustment can not be made in the book profit u/s 115JB for the items which are not mentioned specifically in the explanation to section 115JB

Whether the adjustment can be made in the book profit u/s 115JB for the items which are not mentioned specifically in the explanation to section 115JB ?

In the impugned order, the Learned Commissioner of Income Tax(Appeals) held that there is no positive income, therefore assessee is not in a position to claim deduction under section 80- IA in this year. Further, if situation happens i.e. there is positive income for this year, ld. CIT(A) directed the Assessing Officer to discuss the issue of allow ability of deduction under section 80IA and take into account the decision of CIT Vs. Eltek SGP Ltd. before giving any conclusion. At the time of hearing, ld. Counsel of the assessee could not point out what is the infirmity in the directions given by the Learned Commissioner of Income Tax(Appeals). We, therefore, decline to interfere. Hence, ground no.1 of the assessee’s appeal is rejected.

 IN THE INCOME TAX APPELLATE TRIBUNAL : ‘B’ BENCH : AHMEDABAD

(Before Hon’ble Shri T.K. Sharma, J.M. & Hon’ble Shri N.S.Saini, A.M. )

I.T.A. No. 1777/Ahd./2009 :  Assessment Year 2006- 2007

A.C.I.T., Gnr. Circle, Gandhinagar -Vs- Gujarat State Energy Generation Ltd.

I.T.A. No. 2028/Ahd./2009 : Assessment Year 2006-2007

Gujarat State Energy Generation Ltd. –Vs- A.C.I.T., Gnr. Circle, Gandhinagar

O R D E R

Per Shri T.K. Sharma, Judicial Member :

These Cross appeals filed by the Revenue and the Assessee are against the order dated 3 1.03.2009 passed by the Learned Commissioner of Income Tax (Appeals), Gandhinagar for the assessment year 2006-2007.

2.   The various grounds raised by the Revenue are as under:

“1. The ld.CIT(A) was not justified in directing the Assessing Officer to allow the assessee depreciation as per WDV method as the assessee opted for straight line method before the due date of filing of return u/s.139(1) of the Income Tax Act, 1961 and such option was final and applicable to all subsequent assessment years.

2. In view of the fact that the assessment orders in earlier years have been confirmed by the C1 T(A), the ld. CIT(A) was not justified in directing the Assessing Officer to allow the ossessee’s claim of depreciation as per WDV Method in the A. Y.2006-07.

3. The ld.CIT(A) was not justified in deleting the addition of Rs.19,29,1 84/-, made on account of earlier year expenses.

4. The ld.CIT(A) was not justified in deleting the addition of Rs.6,00,000/- made to the book profit on account of dis allowance of interest expenses u/s. 14A of the Income tax Act.

5. The ld. CIT(A) was not justified in deleting the addition of Rs.1,30,000/-made to the book profit on account of interest on investment in Bonds.

6. The ld. CIT(A) was not justified in deleting the addition of Rs,19r29,184/-made to the book profit on account of prior period expenses.

7. On the facts and circumstances of the case the Ld. CIT(A) ought to have upheld the order of the Assessing Officer. “

3. At the outset, Shri S.N.Sooparkar, appeared on behalf of the Assessee and with regard to ground nos. 1 and 2, pointed out that in the impugned order, the Learned Commissioner of Income Tax(Appeals) has followed the decision dated 03.03.2009 of ITAT, ‘A’ Bench, Ahmedabad in assessee’s own case in ITA No.1271/A/2006 for the assessment year 2002-03. Therefore, the view taken by the Learned Commissioner of Income Tax(Appeals), which is in conformity with the decision of the Tribunal in assessee’s own case be upheld.

4. Shri K. Madhusudan, Sr. D.R., appearing for the Revenue, could not controvert the aforesaid submissions made by the ld. Counsel of the assessee .5. Having heard both the sides, we have carefully gone through the orders of the authorities below. It is pertinent to note that in the impugned order, the Learned Commissioner of Income Tax(Appeals) has followed the decision dated 03.03.2009 of ITAT, ‘A’ Bench, Ahmedabad in assessee’s own case (supra). As per para 17.1 at page 12, the ITAT observed as under:

“From the aforesaid ruling of Hon ‘ble Supreme Court, it can be held that where the assessee in required to exercise an option before a particular date and thus such option is exercised in the original return, yet if the assessee files a valid revised return, the option cannot he said to have been exercised and he will have right to change his option by filing afresh and revised return before the assessment is made for that year, In view of this, it can be held that the option exercised by the assessee in respect of claim on depreciation on SLM method gets substituted by the option of claim of depreciation as per WDV method. Accordingly, the Assessing Officer is directed to allow the depreciation on the basis of revised claim made m the revised return.”

5.1 Following the decision of the ITAT in assessee’s own case (supra) for the assessment year 2002-03, the Learned Commissioner of Income Tax(Appeals) has directed the Assessing Officer to recomputed the depreciation, as per WDV method. Since the view taken by the Learned Commissioner of Income Tax(Appeals) is in conformity with the decision of the Tribunal in assessee’s own case for the assessment year 2002-03 (supra), we are inclined to uphold the order of the Learned Commissioner of Income Tax(Appeals). Thus, ground nos. 1 and 2 of the Revenue’s appeal are rejected.

6. The facts relating to controversy involved in ground no.3 is that in the impugned order vide para 6.3 at page 8, the Learned Commissioner of Income Tax(Appeals) held that following prior period expenses should be allowed.

Sr. No.	Date	Amount (Rs.)	Particulars	Justification
	07/07/2005	1,40,430	Purchase                of                Spare parts	This is the amount  of purchase   of  spares for air‑compressor, some material for which was  received on 14/10/2005, though the bills for the same were received before 3 1/12/2004. Since the material received was in the year under consideration, the liability to pay also crystallized in the year and  therefore  the same is deductible.
	22/08/2005	17,558	Amount paid        to Contractor	This is the amount we paid to Mr. U.P Singh which was in respect of some work done by them for which the disputes were settled on 22-08-05 and hence claimed as expenses for Asst. year 2006-07.
4.	21/12/2005	3,83,379	Purchase of Gas from GSPCL.	This is the amount payable to Gujarat State     Petrochemical Co. Ltd. in respect of fuel used by Compressor and for high value of N.C.V. for the period 1-06-2003 to 15-06- 2003 for which the settlement took place for the year under consideration        and        hence claimed accordingly
5.	3 1/03/2006	84,126	Service recovered HDFC Bank tax by by debit       to our account.	This is the amount of service tax deducted by bank in our account in respect of the past services for which they had forgotten to collect service tax from us, in any case, this amount being deductible u/s.43B on payment made, the same has to be allowed from the profit for the year under consideration being the year of payment.

7. At the time of hearing before us, the ld. D.R. pointed out that the assessee is maintaining its account on mercantile basis. Therefore, the aforesaid four items were rightly disallowed by the Assessing Officer as prior period expenses and ld. CIT(A) is not justified in deleting the said dis allowances.

8. On the other hand, Shri K. Madhusudan, Sr.D.R, appearing for the Revenue, pointed out that amount mentioned against purchase of spare parts, amount paid to contractors and purchase of gas from GSPCL were crystallized in the previous year, relevant to the assessment year under appeal. Therefore, the Learned Commissioner of Income Tax(Appeals) is legally and factually correct in allowing the same. With regard to service tax amounting to Rs.84,126/-, the Counsel of the assessee pointed out that this is the amount of service tax deducted by the bank, in respect of past services. This amount is deductible under section 43B on payment made and the same has to be allowed from the profit for the year under consideration, being the payment made in previous year relevant to the assessment year under appeal.9. After hearing both the sides, we have carefully gone through the orders of the authorities below. It is pertinent to note that in para 6.2 of the impugned order against each and every item, justification for allowance of prior period expenses is mentioned. The Learned Commissioner of Income Tax(Appeals), after appreciating the facts that item nos.1,2 and 4 were crystallized in the previous year, relevant to the assessment year under appeal, held that these are allowable. With regard to item no.5 i.e., services tax recovered amounting to Rs.84,126/-, the Learned Commissioner of Income Tax(Appeals), in the impugned order, accepted the plea of the assessee that the same is deductible under section 43B of the I.T. Act. The view taken by the Learned Commissioner of Income Tax(Appeals) is legally and factually correct. We, therefore, decline to interfere. Hence, ground no.3 of the Revenue’s appeal is rejected.

10. With regard to controversy involved in ground nos.4,5 and 6, before the Learned Commissioner of Income Tax(Appeals), it was contended by the ld. Counsel for the assessee that while computing the book profit under section 1 15JB, as held by the Hon’ble Supreme Court in the case of Apollo Tyres reported in 255 ITR 273, the additions made (a) on account of dis allowance u/s.14A – Rs.6,00,000/-, (b) interest on investment in bonds – Rs.1,30,000/- and (c) prior period expenses – Rs.19,29,184/- are beyond the scope of Explanation to section 115JB. Without prejudice to this, it was also contended that interest on investment in bonds amounting to Rs. 1,30,000/- stood already included in the book profit as computed in profit & loss a/c. and hence could not have been computed in the book profit. After considering both the sides, in the impugned order, the Learned Commissioner of Income Tax(Appeals) took the view that dis allowance under section 14A and addition of Rs.1,30,000/- to the book profit cannot be made for the detailed reasons given in para 7.2, which reads as under:

“7.2 The matter has been considered. The decision of Hon’ble Supreme Court in the case of Apolly Tyres (supra) is quite unambiguous. Only such items which are specifically mentioned in the Explanation to section 115JB need to be excluded or included, as the case be, and nothing more can be brought in. All the three items listed above do not feature in the Explanation. Otherwise, the dis allowance u/s.14A would be material in computation of the normal process of income while the second item interest on investment in bonds stands already included in the book profit. As far as the prior period expenses are concerned, there is no such mention in the explanation. The assessment order on the other hand is silent as to under which category it is being included for the matter to be further analyzed. Therefore, as the matter stands, none of the three items can be added for computation of book profit.”

11. At the time of hearing before us, the ld. D.R. could not pointed out how the view taken by the Learned Commissioner of Income Tax(Appeals) is not acceptable. We are, therefore, inclined to uphold the order of the Learned Commissioner of Income Tax(Appeals). Thus, ground nos. 4, 5 and 6 of the Revenue’s appeal are rejected.

12. Now we take up the assessee’s appeal. The various grounds raised by the assessee in its appeal are as under:

“i) That the ld. CIT(A) erred in directing A. O. to discuss the issue of allowability of deduction u/s.80IA and to consider the decision of CIT Vs. Eltek SGP Ltd. may kindly be deleted and appellant may be granted deduction u/s.80IA. The other income should be considered as business income while calculating deduction u/s.80IA.

ii) That the ld. CIT(A) erred in directing A. O. to re-compute the disallowance of Rs.6,00,000/- u/s.14A as per provisions of Rule 8D may kindly be deleted. Further, the disallowance u/s.14A as re-computed by the ld. Assessing Officer as per the directions of CIT(A) may kindly be deleted.

(iii) That the ld. CIT(A) erred in upholding the decision of the ld. A. O. regarding disallowance of prior period expenses Rs.12,43,335/- (Interest on public deposit Rs.9,28,335/- and paid to PWC for carbon credit assignment Rs.3,15,000/-) be deleted.

(iv) That the ld. CIT(A) erred in confirming the levy of interest under section 234B and recovery of interest under section 244A.”

13. With regard to ground no.1 of the assessee’s appeal, we have heard both the sides. In the impugned order, the Learned Commissioner of Income Tax(Appeals) held that there is no positive income, therefore assessee is not in a position to claim deduction under section 80- IA in this year. Further, if situation happens i.e. there is positive income for this year, ld. CIT(A) directed the Assessing Officer to discuss the issue of allow ability of deduction under section 80IA and take into account the decision of CIT Vs. Eltek SGP Ltd. before giving any conclusion. At the time of hearing, ld. Counsel of the assessee could not point out what is the infirmity in the directions given by the Learned Commissioner of Income Tax(Appeals). We, therefore, decline to interfere. Hence, ground no.1 of the assessee’s appeal is rejected.

14. The facts relating to controversy involved in ground no.2 are that in the assessment order, the Assessing Officer, in line with the earlier year’s treatment, disallowed Rs.6 lakhs, being notional interest @12% on investment of Rs.50 lakhs made by the assessee in the quality shares. On appeal, in the impugned order, the Learned Commissioner of Income Tax(Appeals), following the Tribunal’s decision in assessee’ s own case for the assessment year 2002-03, directed the Assessing Officer to re-compute the dis-allowance, as per the provisions of Rule 8D of I.T. Rules of 1962. Aggrieved, the assessee is in appeal.

15. At the time of hearing, the ld. Counsel of the assessee, relying on the latest judgement of Hon’ble Bombay High Court in the case of Godrej Boyce Manufacturing Co. Ltd. –vs- DCIT reported in 328 ITR 81, contended that Rule 8D is not retrospective and applies from the assessment year 2008-09. For earlier years, dis allowance has to be worked out on “reasonable basis” under section 14A(1). On this basis, he contended that the matter be restored to the file of Assessing Officer with the direction that he should re-work out the dis allowance, keeping in view the ratio of judgment of Hon’ble Bombay High Court in the case of Godrej Boyce Manufacturing Co. Ltd. (supra) and other decisions available at the time of giving appeal effect.

16. Shri K.Madhusudan, Sr.D.R., appearing on behalf of the Revenue, could not controvert the aforesaid submissions of the ld. Counsel of the assessee.17. We have carefully gone through the orders of the authorities below. It is pertinent to note that in the impugned order, the Learned Commissioner of Income Tax(Appeals) directed the Assessing Officer to re-work out the dis allowance, as per Rule 8D, following the decision of Tribunal in assessee’s own case for the assessment year 2002-03. The Hon’ble Bombay High Court, in the case of Godrej Boyce Manufacturing Co. Ltd. –vs- DCIT reported in 328 ITR 81, held that Rule 8D is not retrospective and applies from the assessment year 2008-09. For earlier year, dis allowance has to be worked out on reasonable basis under section 14A(1). We accordingly set aside the order of the Learned Commissioner of Income Tax(Appeals) on this issue and restore the matter back to the file of the Assessing Officer with the direction that he will re-work out the dis allowance under section 14A, keeping in view the ratio of judgement of Hon’ble Bombay High Court in the case of Godrej Boyce Manufacturing Co. Ltd. (supra). The Assessing Officer is at liberty to consider any other decision on this issue available at the time of hearing appeal effect.

18. The facts relating to the controversy involved in ground no.3 are that in the assessment order, the Assessing Officer disallowed prior period expenses amounting to Rs.19,29,184/-. In the impugned order, vide para 6.3, the Learned Commissioner of Income Tax(Appeals) confirmed the dis allowance of following prior period expenses.

(1) Rs.20,276/- being wealth tax payment and hence not allowable as per section 40(a)(iia).

(2) Rs.9,28,335/- being interest payable on public deposit. This amount was short provided by the appellant in the year in which be accrued. Hence cannot be claimed to have crystallized during this year, and can be charged against this year’s income.

(3) Rs.3,15,000/- being write off of the payment made to P.W.C. in connection with Carbon Credit assignment. Clearly, the assessee has changed the nature of expenses during this year, from capital or pre-operative to revenue. Hence the same would not fall in the category of liability having been crystallized during this year.

19. At the time of hearing before us, the Counsel of the assessee could not demonstrate how the aforesaid expenses are allowable in the previous year, relevant to the assessment year under appeal. It is pertinent to note that wealth tax of Rs.20,276/- is not allowable, keeping in view the provisions contained in section 40(a)(iia) of the Income-Tax Act. The other two items i.e. Rs.9,28,335/- and Rs.3,15,000/- were not crystallized in the previous year, relevant to the assessment year under appeal. We, therefore, inclined to uphold the order of the Learned Commissioner of Income Tax(Appeals) on this issue. Hence, ground no.3 of the assessee’s appeal is rejected.

20. With regard to the ground raised by the assessee relating to levy of interest under section 234B, it is mandatory. However, the Assessing Officer will allow consequential relief in levying of interest under this section. Finally, with regard to recovery of interest under section 244A, no specific argument was raised before us. We, therefore, decline to interfere.