Appeal Details
Counselvise Citation
[2021] 104 COUNSELVISE.COM (IT) 5938 (ITAT-HYDERABAD)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
4 year(s) 5 month(s) 17 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
20-12-2021
Appeal Filed By
Assessee
Order Result
PartlyAllowed
Bench Allotted
DB-B
Assessment Year
2008-2009
Appeal Filed On
03-07-2017
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES “B”: HYDERABAD (THROUGH VIRTUAL CONFERENCE) BEFORE S HRI SAT BEER SING H GO DA RA, JU DIC IAL ME MBER AND SHR I L AXMI PR AS A D SAHU , AC COUN TANT MEMBE R ITA Nos. 1124, 1125, 1126 & 1127/Hyd/2017 A.Yrs.: 2007-08, 2008-09, 2011-12 & 2012-13 Andhra Pradesh Gas Power Corporation Ltd., Hyderabad. PAN – AABCA 9105C Vs. Dy. Commissioner of Income-tax, Circle – 1(1), Hyderabad. (Appellant) (Respondent) Assessee by: Shri V. Siva Kumar Revenue by: Shri Rohit Majumdar, Sr.AR Date of hearing: 30/11/2021 Date of pronouncement: 21/12/2021 O R D E R PER L.P. SAHU, A.M.: These appeals filed by the assessee are directed against CIT(A) - 1, Hyderabad’s separate orders dated 20/03/2017 for AYs 2007-08, 2008-09, 2011-12 & 2012-13. As the facts and grounds are identical in these appeals, they were clubbed and heard together and, therefore, a common order is passed for the sake of convenience. :2: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . 2. To dispose of these appeals, we take facts from AY 2007-08 being ITA No. 1124/Hyd/2017. 3. Briefly the facts of the case are that the assessee is a Public Sector Enterprise engaged in the business of generation and sale of electrical power. The assessee filed its return of income on 26.10.2007 declaring a total income of Rs. 35,07,75,370/-. The case was selected for scrutiny and notices u/s 143(2) and 142(1) were issued. The Assessing Officer (AO) observed that the assessee has received dividend income to the tune of Rs. 91,77,053/- which are exempt and not included in total taxable income. The assessee has also incurred interest expenditure of Rs. 1,14,97,210/- which is indirectly attributable to earning of such exempt income and administrative expenditure are also incurred in the form of time spent by the employees. Accordingly he wants to make disallowance U/s 14A of the Income Tax Act. 1961 and calculated the disallowance Rule 8D of the Income Tax Rules 1962 of Rs. 24,31,444/- after relying the judgements ignoring the objections of the applicability of Rule 8D of the assessee as per para No. 3.6 of his order and completed u/s.143(3) on 30.11.2009 determining the total income at Rs.35,32,06,814/- 3.1 Aggrieved by the assessment order, the appellant preferred an appeal before the CIT(A)-II, Hyderabad. The :3: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . CIT(A) after considering the submissions of the assessee, dismissed the appeal of the assessee. 6. Aggrieved by the order of CIT(A), the assessee is in appeal before the ITAT. 7. The ld. AR of the assessee filed written submissions before us, which are as under: “In this connection the appellant submits that it had capital and reserves totalling to RS.204.18 crores as at 31-03-2016 and Rs.199.37 crores as at 31-03-2017. Its investments stood at Rs.30,14,67,699/- as at 31.03.2007 against Rs.17,27,72,800/as at 31.03.2006 resulting in Net Investment of Rs.12,86,94,899/- during the year. (please see balance sheet at page 36 and schedule "F" at page 41 in paper book). It is also relevant to note that no disallowance out of interest was made in the immediately preceding assessment year, i.e., 2006-07. The Appellant further submits that it did not raise any loans during the year and in fact the assessee repaid loans of Rs.18,75,78,468/- outstanding as on 01.04.2006 during the year as could be seen from the balance sheet of the Appellant as at 31.03.2007. This fact also establishes that no borrowed funds were utilized for making investments during the year. Thus the financial position of the company as at 31.03.2007 establishes its strength financially as it does not have any borrowals as on 31.03.2007. Thus when no borrowed funds were utilized by the Appellant for making investments the Assessing Officer is not justified in disallowing Rs.12,45,843/- u/s.14A out of interest by applying rule 80 without establishing from such expenditure is related to exempt income. The appellant relies on the decision of Hon'ble Supreme :4: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . Court dated 09-09-2021 in the case of South Indian Bank Ltd., vs CIT in Civil appeal No.9606 of 2011. In this case it has been held that proportionate disallowance of interest is not warranted u/s.14A of the I.T Act for investment made in tax free bonds/securities which yield tax free dividend to the assessee when the assessee has sufficient interest-free own funds which were more than the investments made. Copy of the judgment of the judgment of the Hon'ble Supreme Court is submitted herewith.(please see pages 1 to 22 in paper book) The appellant submits that in the light of the submissions made in the preceding paragraphs the learned CI.T (A) is not justified in upholding disallowance of Rs.12,45,843/- made on account of interest by applying Sec.14A. The CI.T (A) is also not correct in upholding disallowance of the balance amount of Rs.11,85,601/- which was not the subject matter of appeal before the Hon'ble ITAT in the earlier appeal in ITA No.1367/Hyd/2011. Appellant therefore prays that the entire disallowance of Rs.24,31,444/-may kindly be directed to be deleted.” 7.1 Referring to the written submissions, he further submitted that the assessee had sufficient own funds and, therefore, the disallowance cannot be made as no borrowed funds were utilized for making investments to earn exempt income. 8. The ld. DR besides relying on the orders of revenue authorities, submitted that the assessee has huge interest payments and the assessee could not show that there was no utilization/direct connection to these investments for :5: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . tax free income. He further submitted that as there has been a dividend received from the mutual funds for the year, the assessee cannot take the stand that no outflow was made to earn this tax free income. He, therefore, submitted that the orders of the authorities below may be upheld. 9. We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. We observe that disallowance made u/s 14A has been calculated by the AY by applying rule 8D(2)(ii) and (iii), which is a prescribed formula for making disallowance was introduced in the IT Rules with effect from 24/03/2008. The impugned appeal relates for the AY 2007-08. We also observe from the order of the AO from para 3.6, that the assessee had objected to the application of rule 8D for the impugned AY 2007-08 which has been negated by the AO. During the course of arguments, the Bench specifically asked the ld. AR that applicability of rule 8D(2)(ii) and (iii) for calculation of disallowance u/s 14A from both the sides for this impugned Assessment Year i.e. 2007-08, but no satisfactory reply came from both the parties. We find that this issue has not been addressed by the CIT(A) in his order. Being a final fact finding authority, we have to see whether the AO has applied correct rules for determining the tax liability of the :6: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . assessee. After going through the relevant rules, i.e. rule 8D, we find that it has been inserted by the IT (Fifth Amendment) Rules, 2008, with effect from 24/03/2008. In the paragraph 3.6 of the assessment order, the AO has held that the applicability of rule 8D is retrospective in nature, but, this view of the AO is not tenable as decided by the Hon’ble Supreme Court of India in the case of Commissioner of Income Tax, 5 Mumbai v. Essar Teleholdings Ltd., [2018] 90 taxmann.com 2 (SC), wherein the Hon’ble Apex Court has observed as under: “Relevant Statutory Provisions 14. Rule 8D has been framed to give effect to the provisions of Section 14A sub-section (2) and (3) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"). The statutory scheme as delineated by Section 14A has to be understood before correctly appreciating the nature and purport of Rule 8D. Section 14A was first inserted by Finance Act, 2001 with retrospective effect w.e.f. 01.04.1962. Section 14A as originally inserted reads as under:- "14A. Expenditure incurred in relation to income not includible in total income. -– For the purposes of computing the total income under this Chapter, no deduction shall 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." 15. The purpose for which Section 14A was introduced was given in the explanatory memorandum issued with the Finance Bill, 2001, which read as under:— "Certain incomes are not includible while computing the total income as these are exempt under various provisions of the Act. There have been cases where deductions have been claimed in respect of such exempt income. This in :7: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . effect means that the tax incentive given by way of exemptions to certain categories of income is being used to reduce also the tax payable on the non-exempt income by debiting the expenses incurred to earn the exempt income against taxable income. This is against the basic principles of taxation whereby only the net income, i.e., gross income minus the expenditure, is taxed. On the same analogy, the exemption is also in respect of the net income. Expenses incurred can be allowed only to the extent they are relatable to the earning of taxable income. It is proposed to insert a new section 14A so as to clarify the intention of the Legislature since the inception of the Income-tax Act, 1961, that no deduction shall be made in respect of any expenditure incurred by the assessee in relation to income which does not form part of the total income under the Income-tax Act. The proposed amendment will take effect retrospectively from 1st April, 1962 and will accordingly, apply in relation to the assessment year 1962-1963 and subsequent assessment years." 16. Section 14A being retrospective in operation w.e.f. 01.04.1962, was being used by the Assessing Officers for reopening the assessments, the Central Board of Direct Taxes came with a clarification vide Circular No. 11 of 2001 dated 23.07.2001. Para 4 of the Circular stated as follows:— "The Board have considered this matter and hereby directs that the assessments where the proceedings have become final before the first day of April, 2001 should not be re-opened under section 147 of the Act to disallow expenditure incurred to earn exempt income by applying the provisions of newly inserted section 14A of the Act." 17. By Finance Act, 2002, a statutory provision was also inserted by way of proviso to Section 14A. What was clarified by the Circular have been statutorily engrafted in the proviso to the following effect:- "Provided that nothing contained in this section shall empower the assessing officer either to reassess under :8: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the Ist day of April, 2001." 18. By Finance Act, 2006, Section 14A was numbered as sub-section (1) and after sub-section (1) sub-sections (2) and (3) were inserted w.e.f. 01.04.2007 to the following effect:— "(2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. (3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act." 19. Memorandum explaining the provisions in Finance Bill, 2006 in reference to the method for allocating expenditure in relation to exempt income mentioned following:— "Under the existing provisions of the said section, it has been provided that for the purposes of computing the total income, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Income-tax Act. It is proposed to number the said section as sub-section (1) thereof and to insert a new sub-section (2) in the said section so as to provide that the Assessing Officer shall determine the amount of expenditure incurred in relation :9: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . to such income which does not form part of the total income, in accordance with such method as may be laid down by the Central Board of Direct Taxes by rules, if the Assessing Officer having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of expenditure in relation to income which does not form part of the total income. It is also proposed to provide that provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income. This amendment will take effect from 1st April, 2007 and will, accordingly, apply in relation to the assessment year 2007-08 and subsequent years." 20. After the changes made in Section 14A by the Finance Act, 2006, a Circular No.14/2006 dated 28.12.2006 was issued, in which Para 11 of the Circular gave following Explanation:— "11.1 Section 14A of the Income-tax Act, 1961, provides that for the purposes of computing the total income under Chapter-IV of the said Act, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Income-tax Act. In the existing provisions of section 14A, however, no method of computing the expenditure incurred in relation to income which does not form part of the total income has been provided for. Consequently, there is considerable dispute between the taxpayers and the Department on the method of determining such expenditure. 11.2 In view of the above, a new sub-section (2) has been inserted in section 14A so as to provide that it would be mandatory for the Assessing Officer to determine the amount of expenditure incurred in relation to such income which does not form part of the total income in :10: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . accordance with such method as may be prescribed. However, the Assessing Officer shall follow the prescribed method if, having regard to the accounts of the assessee, he is not satisfied with the correctness of the claim of the assessee in respect of expenditure in relation to income which does not form part of the total income. Provisions of sub-section (2), will also be applicable in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income. 11.3 Applicability - From assessment year 2007-08 onwards." 21. Income Tax Rules, 1962 were amended by notification dated 24.03.2008 by which Rule 8D was inserted to the following effect:— "Method for determining amount of expenditure in relation to income not includible in total income. 8D (1) Where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with – (a) the correctness of the claim of expenditure made by the assessee; or (b) the claim made by the assessee that no expenditure has been incurred in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2). (2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely :— (i) the amount of expenditure directly relating to income which does not form :11: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . part of total income; (ii) in a case where the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt, an amount computed in accordance with the following formula, namely :— A x B C Where A= amount of expenditure by way of interest other than the amount of interest included in clause (i) incurred during the previous year; B= the average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year ; C= the average of total assets as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year; (iii) an amount equal to one-half per cent of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year." 3. For the purposes of this rule, the 'total assets' shall mean, total assets as appearing in the balance sheet excluding the increase on account of revaluation of assets but including the decrease on account of revaluation of assets." 22. After setting out the legislative scheme of Section 14A and Rule 8D, now, we proceed to consider the submissions raised by learned counsel for the parties on the question in issue. Important Principles of Statutory Interpretation :12: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . 23. The legislature has plenary power of legislation within the fields assigned to them, it may legislate prospectively as well as retrospectively. It is a settled principle of statutory construction that every statute is prima facie prospective unless it is expressly or by necessary implications made to have retrospective operations. Legal Maxim "nova constitutio futuris formam imponere debet non praeteritis", i.e. 'a new law ought to regulate what is to follow, not the past', contain a principle of presumption of prospectively of a statute. 24. Justice G.P. Singh in "Principles of Statutory Interpretation" (14th Edition, in Chapter 6) while dealing with operation of fiscal statute elaborates the principles of statutory interpretation in the following words: "Fiscal legislation imposing liability is generally governed by the normal presumption that it is not retrospective and it is a cardinal principle of the tax law that the law to be applied is that in force in the assessment year unless otherwise provided expressly or by necessary implication. The above rule applies to the charging section and other substantive provisions such as a provision imposing penalty and does not apply to machinery or procedural provisions of a taxing Act which are generally retrospective and apply even to pending proceedings. But a procedural provision, as far as possible, will not be so construed as to affect finality of tax assessment or to open up liability which had become barred. Assessment creates a vested right and an assessee cannot be subjected to reassessment unless a provision to that effect inserted by amendment is either is either expressly or by necessary implication retrospective. A provision which in terms is retrospective and has the effect of opening up liability which had become barred by lapse of time, will be subject to the rule of strict construction. In the absence of a clear implication such a legislation will not be given a greater retrospectivity than is expressly mentioned; nor will it be construed to authorize the Income-tax Authorities to commence proceedings which, before the new Act came into force, had by the expiry of :13: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . the period then provided become barred. But unambiguous language must be given effect to, even if it results in reopening of assessments which had become final after expiry of the period earlier provided for reopening them. There is no fixed formula for the expression of legislative intent to give retrospectivity to a taxation enactment .................." 25. A three-Judge Bench of this court in Govind Das v. ITO [1976] 1 SCC 906 noticing the settled rules of interpretation laid down following in paragraph 11: '11. Now it is a well settled rule of interpretation hallowed by time and sanctified by judicial decisions that, unless the terms of a statute expressly so provide or necessarily require it, retrospective operation should not be given to a statute so as to take away or impair an existing right or create a new obligation or impose a new liability otherwise than as regards matters of procedure. The general rule as stated by Halsbury in Vol. 36 of the Laws of England (3rd Edn.) and reiterated in several decisions of this Court as well as English courts is that "all statutes other than those which are merely declaratory or which relate only to matters of procedure or of evidence are prima facie prospective" and retrospective operation should not be given to a statute so as to affect, alter or destroy an existing right or create a new liability or obligation unless that effect cannot be avoided without doing violence to the language of the enactment. If the enactment is expressed in language which is fairly capable of either interpretation, it ought to be construed as prospective only. If we apply this principle of interpretation, it is clear that sub-section (6) of Section 171 applies only to a situation where the assessment of a Hindu undivided family is completed under Section 143 or Section 144 of the new Act. It can have no application where the assessment of a Hindu undivided family is completed under the corresponding provisions of the old Act. Such a case would be governed :14: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . by Section 25-A of the old Act which does not impose any personal liability on the members in case of partial partition and to construe sub-section (6) of Section 171 as applicable in such a case with consequential effect of casting of the members personal liability which did not exist under Section 25-A, would be to give retrospective operation to sub-section (6) of Section 171 which is not warranted either by the express language of that provision or by necessary implication. Sub-section (6) of Section 171 can be given full effect by interpreting it as applicable only in a case where the assessment of a Hinduundivided family is made under Section 143 or Section 144 of the new Act. We cannot, therefore, consistently with the rule of interpretation which denies retrospective operation to a statute which has the effect of creating or imposing a new obligation or liability, construe sub-section (6) of Section 171 as embracing a case where assessment of a Hindu undivided family is made under the provisions of the old Act. Here in the present case, the assessments of the Hindu undivided family for Assessment Years 1950-51 to 1956-57 were completed in accordance with the provisions of the old Act which included Section 25-A and the Income Tax Officer was, therefore, not entitled to avail of the provision enacted in sub-section (6) read with sub-section (7) of Section 171 of the new Act for the purpose of recovering the tax or any part thereof personally from any members of the joint family including the petitioners.' 26. A Constitution Bench of this court speaking through one of us, Dr. Justice A.K.Sikri, in the case of CIT v. Vatika Township (P.) Ltd.[2014] 367 ITR 466/49 taxmann.com 249 (SC), while considering as to whether Proviso inserted in Section 113 of Income Tax Act w.e.f. 01.06.2002 is prospective or clarificatory /retrospective noticed the general principles concerning retrospectivity. Following was laid down by the Constitution Bench in Paras 28, 29 and 33: '28. Of the various rules guiding how legislation has to be interpreted, one established rule is that unless a contrary :15: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . intention appears, a legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in view the law of today and in force and not tomorrow's backward adjustment of it. Our belief in the nature of the law is founded on the bedrock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset. This principle of law is known as lex prospicit non respicit: law looks forward not backward. As was observed in Phillips v. Eyre6, a retrospective legislation is contrary to the general principle that legislation by which the conduct of mankind is to be regulated when introduced for the first time to deal with future acts ought not to change the character of past transactions carried on upon the faith of the then existing law. 29. The obvious basis of the principle against retrospectivity is the principle of "fairness", which must be the basis of every legal rule as was observed in L'Office Cherifien des Phosphates v. 7 Yamashita-Shinnihon Steamship Co. Ltd. Thus, legislations which modified accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation is for purpose of supplying an obvious omission in a former legislation or to explain a former legislation. We need not note the cornucopia of case law available on the subject because aforesaid legal position clearly emerges from the various decisions and this legal position was conceded by the counsel for the parties. In any case, we shall refer to few judgments containing this dicta, a little later. 33. A Constitution Bench of this Court in Keshavlal Jethalal Shah v. Mohanlal Bhagwandas, while considering :16: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . the nature of amendment to Section 29(2) of the Bombay Rents, Hotel and Lodging House Rates Control Act as amended by Gujarat Act 18 of 1965, observed as follows: (AIR p. 1339, para 8) "8. ... The amending clause does not seek to explain any pre-existing legislation which was ambiguous or defective. The power of the High Court to entertain a petition for exercising revisional jurisdiction was before the amendment derived from Section 115 of the Code of Civil Procedure, and the legislature has by the amending Act not attempted to explain the meaning of that provision. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act."' 27. A two-Judge Bench, speaking through one of us, Dr. Justice A. K. Sikri in Jayam & Co. v. Asstt. CIT [2016] 15 SCC 125, again reiterated the broad legal principles while testing a retrospective statute in Paragraphs 14 and 18 which is to the following effect: "14. With this, let us advert to the issue on retrospectivity. No doubt, when it comes to fiscal legislation, the legislature has power to make the provision retrospectively. In R.C. Tobacco (P) Ltd. v. Union of India, this Court stated broad legal principles while testing a retrospective statute, in the following manner: (SCC pp. 737-38 & 740, paras 21-22 & 28) "(i) A law cannot be held to be unreasonable merely because it operates retrospectively; (ii) The unreasonability must lie in some other additional factors; (iii) The retrospective operation of a fiscal statute would have to be found to be unduly oppressive and confiscatory before it can be held to be unreasonable as to violate constitutional norms; (iv) Where taxing statute is plainly discriminatory or provides no procedural machinery for assessment and :17: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . levy of tax or that is confiscatory, courts will be justified in striking down the impugned statute as unconstitutional; (v) The other factors being period of retrospectivity and degree of unforeseen or unforeseeable financial burden imposed for the past period; (vi) Length of time is not by itself decisive to affect retrospectivity." (Jayam and Co. case 1 , SCC Online Mad para 85) 18. The entire gamut of retrospective operation of fiscal statutes was revisited by this Court in a Constitution Bench judgment in CIT v. Vatika Township (P) Ltd. in the following manner: (SCC p. 24, paras 33-35) "33. A Constitution Bench of this Court in Keshavlal Jethalal Shah v. Mohanlal Bhagwandas, while considering the nature of amendment to Section 29(2) of the Bombay Rents, Hotel and Lodging House Rates Control Act as amended by Gujarat Act 18 of 1965, observed as follows: (AIR p. 1339, para 8) '8. ... The amending clause does not seek to explain any pre-existing legislation which was ambiguous or defective. The power of the High Court to entertain a petition for exercising revisional jurisdiction was before the amendment derived from Section 115 of the Code of Civil Procedure, and the legislature has by the amending Act not attempted to explain the meaning of that provision. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act.' 34. It would also be pertinent to mention that assessment creates a vested right and an assessee cannot be subjected to reassessment unless a provision to that effect inserted by amendment is either expressly or by necessary implication retrospective. (See CED v. M.A. Merchant.) 35. We would also like to reproduce hereunder the :18: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . following observations made by this Court in Govind Das v. ITO, while holding Section 171(6) of the Income Tax Act to be prospective and inapplicable for any assessment year prior to 1-4-1962, the date on which the Income Tax Act came into force: (SCC p. 914, para 11) '11. Now it is a well-settled rule of interpretation hallowed by time and sanctified by judicial decisions that, unless the terms of a statute expressly so provide or necessarily require it, retrospective operation should not be given to a statute so as to take away or impair an existing right or create a new obligation or impose a new liability otherwise than as regards matters of procedure. The general rule as stated by Halsbury in Vol. 36 of the Laws of England (3rd Edn.) and reiterated in several decisions of this Court as well as English courts is that "all statutes other than those which are merely declaratory or which relate only to matters of procedure or of evidence are prima facie prospective and retrospective operation should not be given to a statute so as to affect, alter or destroy an existing right or create a new liability or obligation unless that effect cannot be avoided without doing violence to the language of the enactment. If the enactment is expressed in language which is fairly capable of either interpretation, it ought to be construed as prospective only."'" 28. The sub-section (2) and sub-section (3) were inserted in Section 14A by Finance Act, 2006. The memorandum explaining the provision in Finance Bill, 2006, in reference to the methods for allocating expenditure in relation to exempt income as extracted above clearly mentions that amendments brought by Finance Bill, 2006 will take effect from 01.04.2007. The last paragraph of memorandum was to the following effect: "this amendment will take effect from 01.04.2007 and will accordingly, apply in relation to the assessment year 2007-08 and subsequent years" :19: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . 29. The Constitution Bench of this court in the Vatika Township Pvt. Ltd., (Supra), has taken into consideration the notes of clause appended to the Finance Bill to decipher the nature of the legislative scheme. In paragraph 42.1, Constitution Bench stated as follows: "42.1. "Notes on Clauses" appended to the Finance Bill, 2002 while proposing insertion of proviso categorically states that "this amendment will take effect from 1-6-2002". These become ** epigraphic words, when seen in contradistinction to other amendments specifically stating those to be clarificatory or retrospective depicting clear intention of the legislature. It can be seen from the same Notes that a few other amendments in the Income Tax Act were made by the same Finance Act specifically making those amendments retrospective. For example, Clause 40 seeks to amend Section 92-F. Clause (iii-a) of Section 92-F is amended "so as to clarify that the activities mentioned in the said clause include the carrying out of any work in pursuance of a contract" (emphasis supplied). This amendment takes effect retrospectively from 1-4-2002. Various other amendments also take place retrospectively. The Notes on Clauses show that the legislature is fully aware of three concepts: (i) prospective amendment with effect from a fixed date; (ii) retrospective amendment with effect from a fixed anterior date; and (iii) clarificatory amendments which are retrospective in nature." 30. It is also relevant to know as to how the statutory provisions of Section 14A sub-section (2) and sub-section (3), Rule 8D was understood by the Income Tax department itself. After insertion of sub-section (2) and sub-section (3) in Section 14A by Finance Bill, 2006, circular dated 28.12.2006 was issued by the department wherein paragraph 11.3, following was stated: :20: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . "11.3. Applicability- from assessment year 2007-2008 onwards." 31. The methodology for determining amount of the expenditure in addition to income not includable in total income was for the first time prescribed by Rule 8D as was envisaged in Section 14A sub-section (2) and sub-section (3). It is also relevant to notice that Constitution Bench in Vatika Township (P.) Ltd., (supra) has also referred to and relied the CBDT circular to find out the understanding of the Central Board of Direct Tax itself in context of Provision which was in issue in the above case. 32. Explanatory memorandum issued with the Finance Bill, 2006 and the CBDT circular dated 28.12.2006, thus, clearly indicates that department understood that sub-section (2) and sub-section (3) was to be implemented with effect from assessment year 2007-2008. The Rule 8D prescribing the method was brought into statute book with effect from 24.03.2008 to implement sub-section (2) and sub-section (3) with effect from assessment year 2007-2008, is clear indicator of the fact that a new method for computing the expenditure was brought in by the rules which was to be utilized for computing expenditure for the Assessment Year 2007-2008 and onwards. 33. When Section 14A was inserted by Finance Act, 2001, it was with retrospective effect with effect from 01.04.1962 where as Finance Act, 2006, by which sub-section (2) and sub-section (3) to Section 14A were inserted, it was with effect from 01.04.2006 which was mentioned in clause 1(2) of Finance Act, 2006 which was to the following effect: "1(2). Save as otherwise provided in this Act, Sections 2 to 57 shall be deemed to have come into force on the 1st day of April, 2006." Rule 8D which was inserted by notification dated 24.03.2008. Rule 1 sub-rule (2) provides as under: "1. (1) These rules may be called the Income-tax (Fifth Amendment) Rules, 2008. :21: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . (2). They shall come into force from date of their publication in the Official Gazette." It is, however, well settled that the mere date of enforcement of statutory provisions does not conclude that the statute is prospective in nature. The nature and content of statute have to be looked into to find out the legislative scheme and the nature, effect and consequence of the statute. 34. The submissions which have been much pressed by the counsel for revenue is that the Section 14A of the Act being clarificatory in nature having retrospective operation, Rule 8D, which is a machinery provisions have also to be held to be retrospective to make machinery provisions workable. 35. It is to be noted that Section 14A was inserted by Finance Act, 2001 and the provisions were fully workable without their being any mechanism provided for computing the expenditure. Although Section 14A was made effective from 01.04.1962 but Proviso was immediately inserted by Finance Act, 2002, providing that Section 14A shall not empower assessing officer either to reassess under Section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessees under Section 154, for any assessment year beginning on or before 01.04.2001. Thus, all concluded transactions prior to 01.04.2001 were made final and not allowed to be re-opened. 36. The memorandum of explanation explaining the provisions of Finance Act, 2006 has clearly mentioned that Section 14 sub-section (2) and sub-section (3) shall be effective with effect from the assessment year 2006-07 alone which is another indicator that provision was intended to operate prospectively. 37. Learned counsel for the appellant have placed heavy reliance on a three-Judge Bench Judgment of this Court in Sharvan Kumar Swarup & Sons (supra). This Court in the above case had to interpret Rule 1-BB, inserted in Wealth Tax, 1957 w.e.f. 01.04.1979. For Assessment Years 1977-78 and 1978-79 assessment order was passed on 08.02.1983 by :22: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . which time Rule 1 BB had been introduced in the Rule. The assessee contended that properties to be valued applying the Rule 1-BB. The claim was rejected and Assessing Officer had valued the immovable property independently of Rule 1-BB. 38. Appeal preferred by assessee was allowed. Appeal by the Revenue before the Income Tax Appellate Tribunal was also dismissed. High Court also answered the question against the Revenue, which was taken in appeal before this Court. This Court, after noticing the various principles of "statutory interpretation" held that "procedural law" generally speaking is applicable to pending cases. Interpreting Rule 1-BB following was held in paras 23 and 25: '"23. We may now turn to the scope and content of Rule 1-BB. The said rule merely provides a choice amongst well-known and well-settled modes of valuation. Even in the absence of Rule 1-BB it would not have have been objectionable, nor would there be any legal impediment, to adopt the mode of valuation embodied in Rule 1-BB, namely, the method of capitalisation of income on a number of years' purchase value. The rule was intended to impart uniformity in valuations and to avoid vagaries and disparities resulting from application of different modes of valuation in different cases where the nature of the property is similar." 25. On a consideration of the matter we are persuaded to the view that Rule 1-BB is essentially a rule of evidence as to the choice of one of the well accepted methods of valuation in respect of certain kinds of properties with a view to achieving uniformity in valuation and avoiding disparate valuations resulting from application of different methods of valuation respecting properties of a similar nature and character. The view taken by the High Courts, in our opinion, cannot be said to be erroneous.' 39. This Court in the above case held that Rule 1-BB shall be applicable even prior to the enforcement of the rule holding that the said rule merely provides a choice amongst well-known and well-settled modes of valuation. It was held :23: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . that even in the absence of Rule 1-BB, it would not have been objectionable to adopt the mode of valuation embodied in Rule 1-BB, namely, the mode of capitalisation of income on a number of years purchased value. The said judgment is, clearly, distinguishable in context of issue which has arisen before us. In the present case, methodology as provided under Rule 8D was neither a well-known nor well-settled mode of computation. The new mode of computation was brought in place by Rule 8D. No Assessing Officer, even in his imagination could have applied the methodology, which was brought in place by Rule 8B. Thus, retrospective operation of Rule 8B cannot be accepted on the strength of law laid down by this Court in the above case. 40. The next judgment relied by the Revenue is Gold Coin Health Food (P.) Ltd. (supra). In the above case, this Court considered the amendments made by the Finance Act, 2002 to Section 271(1)(c)(iii) of the Act. This Court held that the Parliament clarified the position by changing the expression "any" by "if any", which was not a substantive amendment creating penalty for the first time. The amendment as specifically noted in the notes of "Clauses" was clarificatory in nature. In para 5 following was laid down: '5. It is pointed out that prior to the amendment, Section 271(1)(c)(iii) read as follows: "271.(1)(c)(iii) in the cases referred to in clause (c), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed twice, the amount of the income in respect of which the particulars have been concealed or inaccurate particulars have been furnished." It was submitted that bare reading of the provision made the position clear that it was not necessary that income tax must be payable by the assessee as sine qua non for imposition of penalty. The word "any" made the position clear that the penalty was in addition to any tax which may be paid by the assessee. :24: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . Therefore, even if no tax was payable, the penalty was leviable. It is in that context submitted that even prior to the amendment it could not be read to mean that if no tax was payable by the assessee because of filing a return disclosing loss, the assessee is not liable to pay penalty even if the assessee concealed and/or furnished inaccurate particulars. Because some High Courts took the contradictory view, Parliament clarified the position by changing the expression "any' by "if any". This was not a substantive amendment which created a penalty for the first time. The amendment by the Finance Act as specifically noted in the Notes on Clauses makes the position clear that the amendment was clarificatory in nature and would apply to all assessments even prior to Assessment Year 2003-04.' 41. The three-Judge Bench also referred to Departmental Circular dated 24.07.1976, which was found relevant for interpreting for finding out the nature of the amended provision. The three-Judge Bench, further held in Para 16 to the following effect: "16. The law is well settled that the applicable provision would be the law as it existed on the date of the filing of the return. It is of relevance to note that when any loss is returned in any return it need not necessarily be the loss of the previous year concerned. It may also include carried-forward loss which is required to be set up against future income under Section 72 of the Act. Therefore, the applicable law on the date of filing of the return cannot be confined only to the losses of the previous accounting years." The three-Judge Bench, after noticing the earlier cases and principles of the statutory interpretation recorded following conclusion in para 21: "21. Above being the position, the inevitable conclusion is that Explanation 4 to Section 271(1)(c) is clarificatory and not substantive. The view expressed to the contrary in Virtual case, (2007) 9 SCC 665 is not correct." :25: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . The above case is also clearly distinguishable and not applicable in the facts of the present case. It was held that amendments were clarificatory in nature, hence shall operate retrospectively. 42. The Revenue has also relied on the judgment of this Court in CIT v. Calcutta Knitwears[2014] 362 ITR 673/223 Taxman 115/43 taxmann.com 446 (SC). The above judgment has been relied by the Revenue for the preposition that it is the duty of the Court, while interpreting machinery provisions of a taxing statute to give effect to its manifest purpose. In para 34 following was laid down: "34. It is the duty of the court while interpreting the machinery provisions of a taxing statute to give effect to its manifest purpose. Wherever the intention to impose liability is clear, the courts ought not be hesitant in espousing a commonsense interpretation to the machinery provisions so that the charge does not fail. The machinery provisions must, no doubt, be so construed as would effectuate the object and purpose of the statute and not defeat the same (Whitney v. IRC, 1926 AC 37 (HL), CIT v. Mahaliram Ramjidas, (1940) 8 ITR 442, Indian United Mills Ltd. v. Commr. of Excess Profits Tax, (1955) 27 ITR 20(SC), and Gursahai Saigal v. CIT,(1963) 48 ITR 1(SC); CWT v. Sharvan Kumar Swarup & Sons, (1994) 6 SCC 623; CIT v. National Taj Traders, (1980) 1 SCC 370; Associated Cement Co. Ltd. v. CTO, (1981) 4 SCC 578. Francis Bennion in Bennion on Statutory Interpretation, 5th Edn., Lexis Nexis in support of the aforesaid proposition put forth as an illustration that since charge made by the legislator in procedural provisions is excepted to be for the general benefit of litigants and others, it is presumed that it applies to pending as well as future proceedings." 43. There cannot be any dispute to the preposition that machinery provision of of taxing statute has to give effect to its manifest purposes. But the applicability of the machinery provision whether it is prospective or retrospective depends :26: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . on the content and nature of the Statutory Scheme. In the above case, the Court was not considering the question of prospectivity or retrospectivity of the machinery provision, hence the above case also does not help the appellant in the present case. 44. The Constitution Bench in Vatika Township (P.) Ltd. (supra) after noticing the principle of Statutory Interpretation, as noted above, has laid down the following in paras 36, 37 and 39: "36. In CIT v. Scindia Steam Navigation Co. Ltd., AIR 1961 SC 1633, this Court held that as the liability to pay tax is computed according to the law in force at the beginning of the assessment year i.e. the first day of April, any change in law affecting tax liability after that date though made during the currency of the assessment year, unless specifically made retrospective, does not apply to the assessment for that year. Answer to the reference 37. When we examine the insertion of proviso in Section 113 of the Act, keeping in view the aforesaid principles, our irresistible conclusion is that the intention of the legislature was to make it prospective in nature. This proviso cannot be treated as declaratory/statutory or curative in nature." Reasons in support "39. The first and foremost poser is as to whether it was possible to make the block assessment with the addition of levy of surcharge, in the absence of proviso to Section 113? In Suresh N. Gupta itself, it was acknowledged and admitted that the position prior to the amendment of Section 113 of the Act whereby the proviso was added, whether surcharge was payable in respect of block assessment or not, was totally ambiguous and unclear. The Court pointed out that some assessing officers had taken the view that no surcharge is leviable. Others were :27: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . at a loss to apply a particular rate of surcharge as they were not clear as to which Finance Act, prescribing such rates, was applicable. It is a matter of common knowledge and is also pointed out that the surcharge varies from year to year. However, the assessing officers were indeterminative about the date with reference to which rates provided for in the Finance Act were to be made applicable. They had four dates before them viz.:(Suresh N. Gupta case, (2008) 4 SCC 362, SCC p. 379, para 35) (i) Whether surcharge was leviable with reference to the rates provided for in the Finance Act of the year in which the search was initiated; or (ii) the year in which the search was concluded; or (iii) the year in which the block assessment proceedings under Section 158-BC of the Act were initiated; or (iv) the year in which block assessment order was passed." 45. As noted above, that Rule 8D has again been amended by Income Tax (Fourteenth Amendment) Rules, 2016 w.e.f. 02.06.2016, by which Rule 8D sub-rule (2) has been substituted by a new provision which is to the following effect: [(2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely:— (i) the amount of expenditure directly relating to income which does not form part of total income; and (ii) an amount equal to one per cent of the annual average of the monthly averages of the opening and closing balances of the value of investment, income from which does not or shall not form part of total income: Provided that the amount referred to in clause (i) and clause (ii) shall not exceed the total expenditure claimed by the assessee.] 46. The method for determining the amount of expenditure :28: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . brought in force w.e.f. 24.03.2008 has been given a go-bye and a new method has been brought into force w.e.f. 02.06.2016, by interpreting the Rule 8D retrospective, there will be a conflict in applicability of 5th & 14th Amendment Rules which clearly indicates that the Rule has a prospective operation, which has been prospectively changed by adopting another methodology. 47. One of the submissions raised by the learned counsel for the assessee also needs to be noticed. Learned counsel for the assessee submits that it is well-settled that subordinate legislation ordinarily is not retrospective unless there are clear indication to the same. Reliance has been placed on judgment of this Court in Shiv Karampal Sahu (supra). In para 17 following has been stated: "17. Ordinarily, a subordinate legislation should not be construed to be retrospective in operation. The Circular Letter dated 7-5-2003 was given a prospective effect. The father of the respondent died on 19-5-2000. There is nothing to show that even Circular dated 9-8-2000 had been given retrospective effect. In any view of the matter, as the State of Jharkhand in the Circular Letter dated 7-5-2003 adopted the earlier circular letters issued by the State of Bihar only in respect of cases where death had occurred after 15-10-2000 i.e. the date from which the State of Jharkhand came into being, the High Court, in our opinion, committed a serious error in giving retrospective effect thereto indirectly which it could not do directly. Reasons assigned by the High Court, for the reasons aforementioned, are unacceptable." There is no indication in Rule 8D to the effect that Rule 8D intended to apply retrospectively. 48. Applying the principles of statutory interpretation for interpreting retrospectivity of a fiscal statute and looking into the nature and purpose of sub-section (2) and sub-section (3) of Section 14A as well as purpose and intent of Rule 8D coupled with the explanatory notes in the Finance Bill, 2006 and the departmental understanding as reflected :29: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . by Circular dated 28.12.2006, we are of the considered opinion that Rule 8D was intended to operate prospectively. 49. It is relevant to note that impugned judgment in this appeal relies on earlier judgment of Bombay High Court in Godrej and Boyce Manufacturing Co. Ltd. (supra) where the Division Bench of the Bombay High court after elaborately considering the principles to determine the prospectivity or retrospectivity of the amendment has concluded that Rule 8D is prospective in nature. Against the aforesaid judgment of the Bombay High court dated 12.08.2010 an appeal was filed in this court which has been decided by vide its judgment reported in Godrej and Boyce Mfg Co. Ltd. (supra). This Court, while deciding the above appeal repelled the challenge raised by the assessee regarding vires of Section 14A. In para 36 of the judgment, this Court noticed that with regard to retrospectivity of provisions Revenue had filed appeal, hence the said question was not gone into the aforesaid appeal. In the above case, this Court specifically left the question of retrospectivity to be decided in other appeals filed by the Revenue. We thus have proceeded to decide the question of retrospectivity of Rule 8D in these appeals. 50. In view of our opinion as expressed above, dismissal of the appeal by the Bombay High Court is fully sustainable. As held above, the Rule 8D is prospective in operation and could not have been applied to any assessment year prior to Assessment Year 2008-09.” 9.1 Respectfully following the above judgement of the Hon’ble Supreme Court of India in the case of Commissioner of Income Tax, 5 Mumbai v. Essar Teleholdings Ltd.,(supra), we are of the view that the lower authorities were not justified in making disallowance u/s 14A by applying rule 8D because the said rule for computation was not in force for the assessment year 2007-08. The said rule was :30: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . prospective in nature, hence, the calculation made under Rule 8D is not sustainable. However, the Section 14A was inserted in the Income Tax Act by the Finance Act. 2001 w.e.f. 01.04.1962. Therefore, the disallowance cannot be denied for earning exempt income. The assessee has received exempt income which is not to be included in the computation of total income as per the provisions of the Income Tax Act as it is in receipt of Rs. 91,77,053/- by way of dividend income. For earning this dividend income some indirect/administrative expenditure must have been incurred by the assessee, in view of this, in our considered opinion, it would be reasonable to make lumpsum disallowance of 3% of total exempt income received. Thus, the disallowance made U/s 14A is restricted to Rs. 2,75,312/- and assessee gets relief of Rs. 21,56,132/- is confirmed. In the result appeal of the assessee in ITA No. 1124/Hyd/2017 for AY 2007-08 is partly allowed in above terms. 10. As regards ground NO. 2(a,b & c) for the AY 2008-09 in ITA No. 1125/Hyd/2017, the ld. AR submitted that the assessee had sufficient own funds and no borrowed funds were utilized for making investment to earn exempt income and in this connection, he placed written synopsis, which is placed on record. On the other hand, the ld. DR relied on the orders of revenue authorities and submitted that the :31: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . CIT(A) is justified in confirming the addition made by the AO on this count. Considering the submissions from both the sides and paper book filed by the assessee and in particular, in respect of financial statements and on perusal of balance sheet for the FY ending 31/03/2008, we find that there are reserves & surplus of Rs. 199.24 crores and in corresponding AY, the same were Rs. 199.38 crores. The reserves and surplus have been decreased by Rs. 14 lakhs. All the reserves and surpluses were exhausted in the previous year ended 31/03/2007. There is a cash in the bank as per schedule “H” for F/Y ended 31/03/2008 of Rs. 89.66 crores, out of which Rs. 70.66 crores were kept for margin money with lien marks, which cannot be utilized but the same has been liquidated in the subsequent year ending 31/03/2008. The liquidity available is Rs. 19.00 crores, which the assessee has not invested in shares/mutual funds. There is an increase in fixed assets of Rs. 5.00 crores and the assessee has suffered loss. As per Schedule “C” under the head secured loans, there is a net increase in working capital loan by Rs. 28.56 crores from Andhra Bank and huge increase in current year investments of Rs. 39.00 crores and liquidated earlier investments of Rs. 5.06 crores. In the F/Y 2007-08, there was a opening cash balance was Rs. 89.66 crores and closing balance as on 31/03/2008 is Rs. 45.24 crores. The assessee has taken working capital loan of Rs. 28.56 crores after pledging new and old :32: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . investments/ securities. Therefore, it shows that the investments were made earlier out of own funds and thereafter, the assessee has taken loan. After analysing the financial statements as above, it is clear that for making fresh investments, the assessee has not used the borrowed funds. Therefore, the addition under rule 8D(2)(ii) is not sustainable and is hereby deleted. 10.1 As regards the addition under third limb of rule under rule 8D(2)(iii), the AO has calculated disallowance of Rs. 23,55,935/- after considering the entire average value of investments. The disallowance should be made under rule 8D(2)(iii) only on those investments on which the assessee has received exempt income. Neither the assessee nor the revenue has identified these investments. Therefore, this issue is remitted back to the AO for calculating the disallowance under rule 8D(2)(iii) only on those investments on which the assessee has received exempt income. 10.2 Similar issues have been raised in AY 2011-12 as ground No. 3(a,b & c) and 2012-13 as ground No. 3(a,b & c), therefore, following the conclusions drawn in AY 2008-09, we direct the AO to delete the addition made under rule 8D(2)(ii) and we remit the addition made under rule 8D(2)(iii) to the file of the AO. 11. As regards ground No. 2 raised by the assessee in AYs 2011-12 and 2012-13 that the CIT(A) is not justified in :33: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . sustaining the disallowance of interest payable on water-cess, the facts as taken from AY 2011-12 are that during the course of the assessment proceedings, the Assessing Officer noticed that the assessee had made a provision for interest on water cess at Rs.36,72,384/-. He further noticed that there was dispute between the assessee and the AP Pollution Board with regard to water cess. The assessee filed writ petition against the demand raised by the AP Pollution Board. Even though the assessee did not accept the liability of the water cess, the assessee created provision for interest payable on water cess. The AO observed that since the assessee is in dispute of the principal amount, claim of interest did not arise. Since the amount had not been paid and principal amount was disallowed u/s.43B by the assessee itself, the provisions of Section 43B are attracted for the interest also. Therefore, the Assessing Officer disallowed the claim of provisions for interest on water cess of Rs.36,72,384/-. 12. Before the CIT(A), the assessee submitted that the provision for interest is allowable as the appellant is following mercantile system of accounting. The appellant had accounted for interest on water cess on accrual basis. Therefore, the appellant submitted that the provisions of Section 43B are not applicable to interest. :34: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . 13. After considering the submissions of the assessee, the CIT(A) confirmed the disallowance by observing that when the principal amount itself is disputed and the assessee itself disallowed it u/s 43B, the question of estimating the interest on such disputed liability and providing for the same in the books of account with the imaginary interest calculated by the assessee is far fetched and cannot be allowed to be debited to P&L Account. 14. Before us, the assessee filed written synopsis, in which, it is stated that the assessee follows mercantile system of accounting. It accounted for interest on water cess on accrual basis. The liability to pay cess was as per demand raised by the AP Pollution Control Board. Claim for deduction of interest on water cess is allowable in computation of income and is not prohibited u/s 40(a) of the Act which mentions specific items not deductible. It was therefore prayed for deletion of the disallowance of Rs. 36,72,384/- sustained by the CIT(A). 15. The ld. DR, on the other hand, besides relying on the orders of revenue authorities, submitted that as observed by the CIT(A) that when the principal amount itself is disputed and the assessee itself disallowed the same u/s 43B, estimating the interest on such disputed liability cannot be allowed. He submitted that it is immaterial :35: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . whether the assessee is maintaining mercantile system of accounting or not and the provision was unascertainable and the principal amount on which interest is in dispute. 16. We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. The assessee has claimed interest on water cess as a provision in its books of account and the assessee itself has not accepted the demand raised by the AP pollution control board and the assessee is on writ petition filed against the order of AP pollution control board for raising the demand. Since it was a provision only in the books of account and not the actual payments, once the assessee has itself disputed the actual liability, then, interest on such water cess provision cannot be allowed. It is not a certain liability and the result is depending upon the outcome of the Courts. Therefore, the CIT(A) justified in confirming the addition made by the AO on this issue. The contention of the assessee raised u/s 40(a) is not applicable in this case. We make it clear that the assessee is free to claim as and when the amount is paid actually. Thus, this ground raised in AY 2011-12 and 2012-13 is dismissed. 17. As regards ground No. 4 in AY 2011-12 relating to disallowance of provision for leave encashment of Rs. 44,29,058/- the facts are that during the course of the :36: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . assessment proceedings, the Assessing officer noticed that the assessee claimed provision for leave encashment amounting to Rs.1,07,91,233/-. The same was not disallowed u/s,43B in the statement of computation of total income submitted by the assessee. The Assessing officer asked the assessee as to why the same should not be disallowed. The assessee vide its reply dated 08.01.2014 stated that, during the year, it had debited only Rs,44,29,058/- to Profit and Loss account and Rs.66,16,126/- represents opening balance in provision far leave encashment account as on 01.04.2010, hence, Rs.44,29,058/- to be considered for the disallowance u/s.43B. Therefore, the Assessing Officer relying on the judgment of Hon'ble Calcutta High Court in the case of Exide Industries and Another Vs. Union of India &. others [292 ITR 470] disallowed Rs.44,29,058/- towards provision of leave encashment. 18. Before the CIT(A), the appellant submitted that while computing the income for the AY 2011-12, it did not add back Rs.44,29,058/- of leave encashment payable to the employees as per the Leave Encashment scheme on the basis of leave available to the credit of the employees for the year ended 31.03.2011. It was submitted that the Assessing Officer was not justified in disallowing the leave encashment of Rs.44,29,058/- by relying on the Hon'ble :37: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . Calcutta High 'Court in the case of Exide Industries and Another Vs. Union of India & Others [292 ITR 470]. Wherein the Hon'ble Calcutta High Court after considering the decision of the Hon'ble Supreme Court in the case of Bharat Earth Movers vs. CIT [245 ITR 428] held that the Legislature must disclose the reasons consistent with the provisions of the constitution and laws of the land and not for the sole object of nullifying and therefore Section 43B(f) was struck down holding it to be arbitrary, unconscionable. Therefore, the Assessing Officer was not justified in disallowing leave encashment of Rs.44,29,058/- u/s.43B. 19. The CIT(A) relying on the decision of Hon'ble Tribunal Hyderabad Bench in the case of M/s. Batronics India ltd Vs. ACIT in ITA No.2188 & 2189/Hyd/2011 confirmed the addition made by the Assessing Officer. 20. Before us, the ld. AR of the assessee defends assessee’s claim for deduction of provision for leave encashment on the ground that it is in accordance with the law at the relevant time. 21. The, ld. DR, on the other hand, relied on the orders of revenue authorities. 22. We have considered the rival submissions and :38: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . perused the material on record as well as gone through the orders of revenue authorities. The CIT(A) dealt this issue at para Nos. 8.1 to 8.3 in his order wherein he upheld the decision of the AO relying upon the decision of the coordinate bench of this Tribunal in the case of M/s Batroncis India Ltd. Vs. ACIT (supra). The Hon’ble Supreme Court in the case of Union of India Vs. Exide Industries Ltd., [2020] 116 taxmann.com 378 (SC) has held that merely a provision of leave encashment is made in the books of account is not allowable expenditure as per section 43B. However, the assessee may claim on the basis of actual payment. The relevant observations of the Hon’ble Supreme Court in the said case are extracted below for the sake of clarity: 40. Notably, this regulatory measure is in sync with other deductions specified in Section 43B, which are also present and accrued liabilities. To wit, the liability in lieu of tax, duty, cess, bonus, commission etc. also arise in the present as per the mercantile system, but assessees used to defer payment thereof despite claiming deductions there against under the guise of mercantile system of accounting. Resultantly, irrespective of the category of liability, such deductions were regulated by law under the aegis of Section 43B, keeping in mind the peculiar exigencies of fiscal affairs and underlying concerns of public revenue. A priori, merely because a certain liability has been declared to be a present liability by the Court as per the prevailing enactment, it does not follow that legislature is denuded of its power to correct the mischief with prospective effect, including to create a new liability, exempt an existing liability, create a deduction or subject an existing deduction to new regulatory measures. Strictly speaking, the Court cannot venture into hypothetical spheres while adjudging constitutionality of a duly enacted provision and unfounded limitations cannot be read into the process of judicial review. A priori, the plea that clause (f) has been enacted with the sole purpose to defeat the judgment of this Court is misconceived. 41. ... :39: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . 42. In view of the clear legal position explicated above, this appeal deserves to be allowed. Accordingly, the impugned judgment of the Division Bench of the High Court is reversed and clause (f) in Section 43B of the 1961 Act is held to be constitutionally valid and operative for all purposes. No order as to costs. Pending interlocutory applications, if any, shall stand disposed of.” Respectfully following the above judgment, we uphold the order of the CIT(A) and we dismiss the ground raised by the assessee on this issue. 23. As regards ground No. 5 in AY 2011-12 with regard to disallowance of Rs. 1,33,19,962/- on account of bad debts, during the course of the assessment proceedings, the Assessing Officer noticed that were bad debts written off relating to a Public Sector undertaking (PSU). The Assessing Officer contended that debts of a government company cannot be treated as bad debts as long as it runs on going concern concept or till it does not wind up its business activities or till it is not legally bound to do so. Therefore, the amount of bad debts written off shown against the names of PSUs like BHEL, CPDCAPL, MIDHANI, etc., is not considered. Therefore, the Assessing Officer disallowed towards bad debts claimed against the PSUs. 24. Before the CIT(A), the appellant submitted that the even Government / PSUs companies also dispute their dues and do not pay their dues. Hence the parties who have to :40: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . receive the amounts from them have no alternative except to write them off. As per Section 36(1)(vii), any debt written off in the books of account of an assessee is allowable as deduction. The appellant relied on the decision of the Supreme Court in the case of TRF Ltd Vs. CIT [298 ITR 78], wherein it is held that once a debt is written off, the same is allowable as deduction. The appellant submitted the copies of accounts of the debtors whose balances are written off to establish that amounts to the extent written off in their accounts were actually written off in its books of account. The appellant submitted that the Assessing Officer is not justified in disallowing bad debts written off of Rs.1,35,63,536/-. Balance of Rs.6,87,019/- written off represents advances given to Bharat Heavy Electricals Ltd against supply of spares required in the operations of the appellant's power plants. The said amounts were given as advance long back and in spite of repeated reminders, this part was not responding. Hence, the said amount was written off. The appellant further submitted that since these advances were given during the course of business for meeting revenue expenditure, the same is allowable as deduction. The assessee also relied on various cases, which were extracted by the CIT(A) in his order at page 14. 25. After considering the submissions of the assessee, the :41: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . CIT(A) restricted the disallowance to Rs. 1,33,19,962/- comprising of bad debts written of Rs. 1,26,32,943/- and trade advances written off of Rs. 6,87,019/- by allowing an amount of Rs. 9,30,593/-. 26. Before us, the assessee filed written submissions, which are as under: The appellant submits that taking of legal steps for recovery of receivables and confirmations for write off of receivables are not necessary for allowing write off of bad debts after the amendments made in Sec.36(l)(vii) weft 1-4-1989. The assessee relies on the decision of Hon'ble Supreme Court in the case of TARFF Ltd. Vs CIT 313 ITR 397 SC wherein it has been held that debts written off as bad debts are allowable and establishing that such debts have become bad is not required. Assessee also submits that in CBDT Circular No.12/2016 dated 30-05-2016 reference was made to the above cited decision and it was stated that bad debts written off are allowable as deduction in the year of write off. It was also stated in the said circular that henceforth appeal should not be filed on this issue. As regards the amount of Rs. 6,87,019/- being advances/ deposits written off, appellant submits that the amounts written off are allowable as deduction u/s.28 and 37(1). of the Act. The assessee relies on decision of Hon'ble Delhi High Court in the case of Mohan Meakin vs CIT 348 ITR 109 DEL HC wherein it was held that deposits/advances made during the course of business which later became unrealisable for various reasons are allowable as deduction. The assessee relies on the ratio of the decisions cited above and prays that the disallowance of Rs. Rs.1,33,19,962/- upheld by C.I.T(Appeals) may kindly be directed to be deleted.” :42: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . 27. The ld. DR, on the other hand, relied on the orders of revenue authorities and submitted that the amount was to be recovered from the PSUs and others, theses debtors cannot be considered as bed debts, sooner or later they may receive payments. Before writing off of these amounts, the assessee has not shown any evidence to establish that efforts were made for recovery of receivables/advances and written-off of debts are made by the assessee. 28. We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. We observe from the orders of authorities below there are two types of bad debts; the part A of Rs. 1,26,32,943/- and trade advances written off of Rs. 6,87,019/- by allowing an amount of Rs. 9,30,593/-. As per page No. 19 of paper book, the first part of the bad debts relates to the power charges, which was earlier taken as income and, therefore, on this amount, the decision of the Hon’ble in case of TRF Ltd quoted supra, shall apply. Accordingly, in the light of the above judgment, we remit this issue back to the file of AO with a direction to decide the issue in the light of the decision of the Hon’ble Supreme Court in the case of TRF Ltd. Vs. CIT, 293 ITR 78. 28.1 Further, in respect of the advance for spares of Rs. :43: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . 6,87,019/-, the assessee failed to furnish any documentary evidence when the bench asked to produce that any efforts were made for recovery of the said advances and failed to produce confirmations from the recipients. The decision of the Supreme Court in the case of TRF Ltd. will not apply because earlier the debts were not considered as income of the assessee. Many judgements were relied by the assessee on this issue will not support to the case of the assessee on this count. Therefore, the CIT (A) has rightly dismissed this issue at para No. 9.1 to 9.3 and we are in agreement with the findings of the CIT(A). Therefore, this ground is partly allowed in above terms. 29. In AY 2012-13, the assessee has raised two grounds by way of ground No. 4 & 5 regarding disallowance of Rs. 1,38,97,007/- towards leave encashment and disallowance of Rs. 48,25,058/- towards gratuity u/s 115JB of the Act. 29.1 On perusal of financial statements of Note No. 4, there is a provision for gratuity of Rs. 47,52,313/- and leave encashment of Rs. 1,38,97,007/-. The figures of the closing balances of the above had arrived as per page No. 21 of paper book, are as under: Sl.No. Balance as on 01/04/2011 Provision for the year Paid during the year Balance as on 31/03/2012 A. Gratuity 30,12,765 64,35,525 46,95,977 47,52,313 :44: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . B. Leave encashment 1,07,91,233 53,43,607 22,37,833 1,38,97,007 29.2 From the above table, we deal with the provision for gratuity. During the course of assessment proceedings, the AO noticed that an amount of Rs. 48,25,058/- was added in the computation of income towards provision for Gratuity u/s 40A(7). However, the same was not added back to its book profit. Since any provision is required to be added to the book profit, the Assessing Officer disallowed Rs. 48,25,058/- towards provision for gratuity and added back to its book profit. 30. Before the CIT(A), the appellant submitted that it follows the method of mercantile system of accounting. Therefore, it had to provide for all accrued liabilities upto the date of its Balance sheet in each year. In accordance, the appellant made provision of Rs. 48,25,058/- towards gratuity payable to employees under payment of Gratuity Act on the basis of accrual valuation obtained from an Actuary. Since it is a statutory liability, incurring of liability is certain which is to be discharged in future. The Appellant relying on the decision of Hon'ble Supreme Court in the case of Bharath Earth Movers vs. CIT [245 ITR 428], made provision for gratuity on actuarial valuation is an ascertained liability and therefore cannot be added while computing book profits. The appellant relied on the :45: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . decision of Hon'ble Delhi High Court in the case of CIT Vs. Hewlett Packard India Pvt Ltd (314 ITR 55) wherein similar issue was decided in favour of the assessee. Therefore, the appellant submitted that the Assessing Officer is not justified in adding provision for gratuity to book profit. 31. After considering the submissions of the assessee, the CIT(A) observed that it is very clear that the amount of Rs. 48,25,058/- is a provision not actual. Hence it attracts Section 43B. Assessing Officer is correct in applying the Section 43B. A similar decision was taken by the Hon'ble Tribunal Hyderabad Bench in the case of M/s. Batronics India Ltd Vs. ACIT in ITA No.2188 & 2189/Hyd/2011 held that the provisions of section 43B is very clear and it states that any sum payable by the assessee under any law for the time being in force not paid will be disallowed. Hence, the addition made by the Assessing Officer is upheld. 32. Before us, the ld. AR of the assessee reiterated the submissions made before the CIT(A) and submitted that the assessee made provision towards gratuity payable to employees under payment of Gratuity Act on the basis of accrual valuation obtained from actuary and since it is a statutory liability incurring of liability is certain which is to be discharged in future. :46: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . 33. The ld. DR on the other hand relied on the orders of revenue authorities and submitted that it was a mere provision in the books of account. 34. We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. On perusal of the computation of income, which is placed at page No. 22 of the paper book, we find that the assessee has itself disallowed u/s 40A(7) in respect of the provision for gratuity of Rs. 48,25,058/- and while making assessment, the AO has added it for the MAT calculation. The AO is not justified to add this figure for the calculation of MAT because the figures have been arrived at by the assessee’s actuarial valuation. The assessee has adopted a scientific method for making provision for gratuity and, therefore, it is an allowable expenditure u/s 37(1) of the Act. Our view is supported by the decision of the coordinate bench of ITAT, Kolkata in the case of Apeejay Education Trust Vs. DCIT (Exemption) in ITA No. 2075/Kol/2019 order dated 22/07/2021 wherein the coordinate bench has held as under: “4.6. We have heard rival submissions and gone through the facts and circumstances of the case. We note that the assessee claimed an amount of Rs.33,16,214/- in its income and expenditure account as provisions for gratuity liability. According to AO, an assessee claiming expenditure u/s. 10(23C) of the Act cannot be allowed :47: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . this claim since the provision booked by the assessee has not been applied by the assessee. For that he relied on the decision of Hon’ble Supreme Court in the case of Nachimuthu Industrial Association Vs. CIT 235 ITR 190. According to him, only the actual expenditure made during the year can be treated as application and, therefore, he disallowed the claim of the assessee and made addition. The Ld. CIT(A) has simply confirmed the same. We note that assessee’s case is that the provision for gratuity has been done as per the actuarial valuation and as such it is not an unascertained liability. According to the Ld. AR, the same has been determined by actuarial valuer as in the year end date. According to him, the actuarial value of gratuity liability is akin to ascertained liability. It was pointed out by the Ld. AR that the liability to pay gratuity is a statutory liability. According to him, actuarial valuation is a process thereby liability as on a certain date is crystallized and such a valuation cannot be compared for mere estimate of expenses to be incurred. According to him, the provision of such liability is mandated by the accounting standard applicable for preparation of financial statements and refer to the accounting standard 15 (revised) and he distinguished the case relied on by the AO in the case of Nachimuthu Industrial Association (supra). According to the Ld AR, in that case the assessee had only appropriated out of the profit of the year a sum of Rs. 3 lakhs and credited it to the ‘reserve for donation account’. According to the Ld. AR, the action of the assessee in that case by appropriating out of the profit of the year a sum of Rs. 3 lakh in the ‘Reserve for donation account’ does not tantamount to application of the income. Therefore, the said sum (Rs. 3 lacs) was held to be not a case of application. Therefore in the peculiar facts of the case, it was observed that ‘except for the making of entries in the assessee’s own books, which entries could have been reversed if and when the assessee chose to do, the assessee has not done in anything which can be :48: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . characterize the payment as donation or application of the income of the trust for any charitable purpose’’ which was not the case of the present assessee as misinterpreted by the AO, therefore, according to the Ld. AR the case of Nachimuthu Industrial Association (supra) is distinguishable on facts. Therefore, according to the Ld. AR, the provision for gratuity is required to be made since it is a statutory obligation and, therefore, he prayed that the provision for gratuity need to be considered as application of income. We agree that the gratuity to the employees is a statutory obligation, and therefore is obliged by law to disburse the same when the employees demit office or superannuate. In this case, the assessee has booked provision for gratuity as per the actuarial valuation and the manner and determination of the same is a scientific process adopted by expert professionally trained in the valuation and as such it cannot be compared with mere estimate of expenses to be incurred in future. Therefore, relying on the ratio of the decision rendered by the Hon’ble Supreme Court in the case of Bharat Earthmovers Vs. CIT 112 taxmann 61 though it refers to the case of a company in respect of deduction of provision for gratuity under the head ‘business and profession’, however, the principle can be seen extracted in that order in the case of Metal Box Co. of India Ltd. Vs. Their workmen 73 ITR 53 (SC) wherein the Hon’ble Supreme Court has held as under: “5. In Metal Box Co. of India Ltd. v. Their Workmen [1969] 73 ITR 53 (SC), the appellantcompany estimated its liability under two gratuity schemes framed by the company and the amount of liability was deducted from the gross receipts in the profit and loss account. The company had worked out on an actuarial valuation its estimated liability and made provision for such liability not all at once but spread over a number of years. The practice followed by the company was that every year the company worked out the additional liability incurred by it on the employees putting in every :49: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . additional year of service. The gratuity was payable on the termination of an employee's service either due to retirement, death or termination of service - the exact time of occurrence of the latter two events being not determinable with exactitude before hand. A few principles were laid down by this Court, the relevant of which for our purpose are extracted and reproduced as under : (i) For an assessee maintaining his accounts on mercantile system, a liability already accrued, though to be discharged at a future date, would be a proper deduction while working out the profits and gains of his business, regard being had to the accepted principles of commercial practice and accountancy. It is not as if such deduction is permissible only in case of amounts actually expended or paid; 3 (ii) Just as receipts, though not actual receipts but accrued due are brought in for the income-tax assessment, so also liabilities accrued due would be taken into account while working out the profits and gains of the business; (iii) A condition subsequent, the fulfilment of which may result in the reduction or even extinction of the liability, would not have the effect of converting that liability into a contingent liability; (iv) A trader computing his taxable profits for a particular year may properly deduct not only the payments actually made to his employees but also the present value of any payments in respect of their services in that year to be made in a subsequent year if it can be satisfactorily estimated. 6. So is the view taken in Calcutta Co. Ltd. v. CIT [1959] 37 ITR 1, wherein this Court has held that the liability on the assessee having been imported, the liability would be an accrued liability and would not convert into a conditional one merely because the liability was to be discharged at a future date. There may be some difficulty in the estimation thereof but that would not convert the accrued liability into a conditional one; it was always open to the tax authorities concerned to arrive at a proper estimate of the liability having regard to all the circumstances of the case.” 4.7. :50: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . Therefore, in the light of the aforesaid discussion and the ratio of the case law supra, we are of the opinion that the assessee’s claim in respect of provision for gratuity as per the actuarial valuation should have been allowed in the facts and circumstances of the case; and, consequently, the impugned order of the Ld. CIT(A) is set aside and the AO is directed to allow the provision for gratuity as application of income. Therefore, ground no. 2 of the assessee’s appeal stands allowed.” 34.1 As the issue in the case on hand is similar to the above case, we are of the view that the provision for gratuity is an allowable expenditure u/s 37(1) and, therefore, it cannot be considered for the purpose of MAT calculation u/s 115JB(c) of the Act. This ground is allowed. 35. As regards the provision for leave encashment u/s 115JB of the Act, the AO has added Rs. 1,38,97,007/- which is a closing balance as on 31 st March, 2012. On perusal of the above table, the current year’s provision is only Rs. 53,43,607/- and, therefore, the provision made for the impugned AY is only can be disallowed. We have decided the similar issue against the assessee in AY 2011-12 in ITA No. 1126/Hyd/2017 in ground No. 4 (supra). The decision taken in AY 2011-12 shall mutatis-mutandis shall apply to this ground also. Further, we make it clear that while calculating figure of leave encashment under MAT provisions, the AO shall add only the current year’s provision only of Rs. 53,43,607/-. :51: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . Accordingly, this ground is partly allowed. 36. In the result, appeal in ITA No. 1124/Hyd/2017 for AY 2007-08 is partly allowed and appeals in ITA Nos. 1125, 1126 & 1127/Hyd/2017 for AYs 2008-09, 2011-12 & 2012-13 are partly allowed for statistical purposes in above terms. A copy of this common order be placed in respective case files. Pronounced in the open court on 21 st December, 2021. Sd/- Sd/- (S.S. GODARA) (L. P. SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, Dated: 21 st December, 2021. kv Copy to : 1 Andhra Pradesh Gas Power Corporation ltd., 201, 2 nd Floor, My Home Sarovar Plaza, Secretariat Road, Hyderabad – 63 2 DCIT, Circle – 1(1), Hyderabad. 3 CIT(A) - 1, Hyderabad 4 Pr. CIT - 1, Hyderabad 5 ITAT, DR, Hyderabad. 6 Guard File. :52: ITA No. 1124 to 1127Hyd/2017 Andhra Pradesh Gas Power Corporation ltd., H y d . S.No. Details Date 1 Draft dictated on 2 Draft placed before author 3 Draft proposed & placed before the Second Member 4 Draft discussed/approved by Second Member 5 Approved Draft comes to the Sr. PS/PS 6 Kept for pronouncement 7 File sent to Bench Clerk 8 Date on which the file goes to Head Clerk 9 Date on which file goes to A.R. 10 Date of Dispatch of order
Other Referred Cases
-
Laws Referred To
-
Consultation on Entity Formation
₹0
1:1 Consultation on Tax Litigation
₹0
1:1 Consultation on Salary Structuring
₹1
Research Collaboration Agreement
₹0
Contractor Indemnity Agreement
₹0
Why Lacoste Won a 20-Year Trademark Battle Against Crocodile ?
Team Counselvise - March 10, 2026
Finance Bill, 2026: Key Direct Tax Amendments on Assessments and Appeals
Team Counselvise - February 06, 2026
Residency Rules: Income Tax Act, 1961 vs Income Tax Bill, 2025 — A Subtle Yet Significant Shift!
Team Counselvise - February 18, 2026