Appeal details
Counselvise Citation
[2019] 112 COUNSELVISE.COM (IT) 0132 (ITAT-KOLKATA)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 year(s) 3 month(s) 16 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
31-12-2019
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
C
Next Hearing Date
17-10-2019
Assessment Year
2011-2012
Appeal Filed On
14-09-2016
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL B, BENCH KOL KATA BEFORE SHRI A. T. VARKEY, JM & DR. A.L. SAINI, AM ITA NO.1318/DEL/2012 (ASSESSMENT YEAR: 2008-09) SREI INFRASTRUCTURE FINANCE LTD. D-2, 6 TH FLOOR, SOUTHERN PARK, SAKET PLACE, NEW DELHI-110017. VS. ADDL. CIT, RANGE-9, NEW DELHI ./ ./PAN/GIR NO. : AAACS1425L (ASSESSEE) .. (REVENUE/DEPARTMENT) ITA NO.1302/DEL/2012 (ASSESSMENT YEAR: 2008-09) ADDL. CIT, RANGE-9, NEW DELHI VS. SREI INFRASTRUCTURE FINANCE LTD. D-2, 6 TH FLOOR, SOUTHERN PARK, SAKET PLACE, NEW DELHI-110017. ./ ./PAN/GIR NO. : AAACS1425L (RESPONDENT) .. (APPELLANT) ITA NO.1821/KOL/2016 (ASSESSMENT YEAR: 2011-12) SREI INFRASTRUCTURE FINANCE LTD. 86C, VISHWAKARMA, TOPSIA ROAD(SOUTH), KOLKATA-700046. VS. DCIT, CIRCLE-11(2), KOLKATA ./ ./PAN/GIR NO. : AAACS1425L (APPELLANT) .. (RESPONDENT) ITA NO.2003/KOL/2016 (ASSESSMENT YEAR: 2011-12) ACIT, CIRCLE-11(2), KOLKATA VS. SREI INFRASTRUCTURE FINANCE LTD. 86C, VISHWAKARMA, TOPSIA ROAD(SOUTH), KOLKATA-700046. ./ ./PAN/GIR NO. : AAACS1425L (RESPONDENT) .. (APPELLANT) APPELLANT BY : SHRI VIJAY SHAH & AMIT AGARWAL, AR RESPONDENT BY : SHRI RADHEY SHYAM, CIT ITA NO.1821/KOL/2016, ITA NO.1318/DEL/2012, ITA NO.1302/DEL/2012 & ITA NO.2003/KOL/2016 SREI INFRASTRUCTURE FINANCE LTD. 2 / DATE OF HEARING : 17/10/2019 /DATE OF PRONOUNCEMENT : 31/12/2019 / O R D E R PER DR. A. L. SAINI, AM: THE CAPTIONED CROSS APPEALS FILED BY THE ASSESSEE A ND REVENUE, PERTAINING TO ASSESSMENT YEARS 2008-09 & 2011-12 ARE DIRECTED AGAINST THE SEPARATE ORDERS PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) IN APPEAL NO.11/10-11 AND APPEAL NO. 415/CIT(A)-18/11-12/CIR-11(2)/KOL, RESPE CTIVELY, WHICH IN TURN ARISE OUT OF SEPARATE ASSESSMENT ORDERS PASSED BY THE ASS ESSING OFFICER UNDER SECTION 143(3) OF THE ACT. 2. SINCE, THE ISSUES INVOLVED IN ALL THE APPEALS AR E COMMON AND IDENTICAL; THEREFORE, THESE APPEALS HAVE BEEN HEARD TOGETHER A ND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER. FOR THE SAKE OF CONVENIENC E, THE GROUNDS AS WELL AS THE FACTS NARRATED IN ITA NO.1318/DEL/2012, FOR ASSESSM ENT YEAR 2008-09, HAVE BEEN TAKEN INTO CONSIDERATION FOR DECIDING THE ABOVE APP EALS EN MASSE . 3. THE COORDINATE BENCH OF THIS TRIBUNAL PASSED THE ORDER DATED 27.02.2019, IN ASSESSEE`S OWN CASE VIDE ITA NO.1302/DEL/2012 AND ITA NO.1318/DEL/2012, FOR A.Y.2008-09. AGGRIEVED BY THE ORDER OF THE COOR DINATE BENCH, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE HONBLE HIG H COURT OF CALCUTTA. THE HONBLE HIGH COURT OF CALCUTTA REMANDED THE MATTER BACK TO THIS TRIBUNAL, VIDE ORDER NO. ITAT 121 OF 2019, DATED 08.08.2019, DIREC TING THE TRIBUNAL AS FOLLOWS: WE ARE OF THE VIEW THAT INTEREST OF JUSTICE WOULD BE SUBSERVED IF THE MATTER IS REMANDED BACK TO THE TRIBUNAL TO RECONSIDER THE ABO VE ISSUES AFRESH UPON HEARING THE PARTIES AND BY PASSING A REASONED ORDER WITHIN SIX MONTHS OF COMMUNICATION OF THIS ORDER. ONLY THAT PART OF THE ORDER OF THE TRIBUNAL DATED 27 TH FEBRUARY 2019 DEALING WITH THE ABOVE QUESTIONS IS SET ASIDE. ITA NO.1821/KOL/2016, ITA NO.1318/DEL/2012, ITA NO.1302/DEL/2012 & ITA NO.2003/KOL/2016 SREI INFRASTRUCTURE FINANCE LTD. 3 IN THIS ORDER WE ADDRESS THE QUESTIONS RAISED BY TH E ASSESSEE BEFORE THE HONBLE HIGH COURT OF CALCUTTA FOR A.Y.2008-09. WE ALSO ADJ UDICATE THE CROSS APPEALS FILED BY THE ASSESSEE AND REVENUE FOR A.Y. 2011-12 ON IDENTICAL ISSUES. 4. ALTHOUGH, THESE APPEALS FILED BY THE ASSESSEE FO R ASSESSMENT YEAR 2008-09 (IN ITA NO.1318/DEL/2012) AND FOR A.Y. 2011-12 (IN ITA NO.1821/KOL/2016) AND APPEALS FILED BY THE REVENUE IN ASSESSMENT YEAR 200 8-09 ( IN ITA NO.1302/DEL/2012) AND FOR A.Y. 2011-12 ( IN ITA NO. 2003/KOL/2016), CONTAIN MULTIPLE GROUND OF APPEALS. HOWEVER, AT THE TIME OF HEARING WE HAVE CAREFULLY PERUSED ALL THE GROUNDS RAISED BY THE REVENUE AS WE LL AS RAISED BY THE ASSESSEE. MOST OF THE GROUNDS RAISED BY THE REVENUE AS WELL A S ASSESSEE, ARE EITHER ACADEMIC IN NATURE OR CONTENTIOUS IN NATURE. HOWEVE R, TO MEET THE END OF JUSTICE, WE CONFINE OURSELVES TO THE CORE OF THE CONTROVERSY AND MAIN GRIEVANCES OF REVENUE AND THE ASSESSEE AS WELL. WITH THIS BACKGRO UND, WE SUMMARIZE AND CONCISE THE GROUNDS RAISED BY THE REVENUE AS WELL A S ASSESSEE AS FOLLOWS: (1). LD.CIT(A) RESTRICTED THE DISALLOWANCE UNDER SE CTION 14A, READ WITH RULE 8D OF THE INCOME TAX RULES TO RS. 23,35,176/-, BEING AMOUNT O F EXEMPT DIVIDEND INCOME EARNED. (THIS COVERS GROUND NO. 1 RAISED BY THE ASSESSEE IN ITA NO.1318/DEL/12 FOR A.Y.08-09, GROUND NO.2 RAISED BY THE REVENUE IN ITA NO.1302/DE L/12, FOR A.Y.08-09, GROUND NO. 1 RAISED BY THE ASSESSEE IN ITA NO.1821/KOL/16, FOR A.Y.11-12, AND GROUND NO.1 RAISED BY THE REVENUE IN ITA NO.2003/KOL/16, FOR A.Y.11-12 ).[ HON`BLE HIGH COURT QUESTION NO. (I) AND (II)]. (2). LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANC E OF PROVISION FOR NON- PERFORMING ASSETS (NPA) OF RS.13,71,00,000/- MADE IN ACCORDANC E WITH THE PRUDENTIAL NORMS OF THE RBI, IN THE COMPUTATION OF TOTAL INCOME UNDER THE N ORMAL PROVISIONS OF THE ACT. (THIS COVERS GROUND NO. 2 RAISED BY THE ASSESSEE IN ITA N O.1318/DEL/12 FOR A.Y.08-09) [ HON`BLE HIGH COURT QUESTION NO. (III)]. (3). LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANC E OF PROVISION FOR LEAVE ENCASHMENT OF RS.57,30,833/- IN THE COMPUTATION OF TOTAL INCOM E UNDER THE NORMAL PROVISIONS OF THE ACT. (THIS COVERS GROUND NO. 3 RAISED BY THE ASSESS EE IN ITA NO.1318/DEL/12 FOR A.Y.08- 09, GROUND NO. 2 RAISED BY THE ASSESSEE IN ITA NO.1 821/KOL/16, FOR A.Y.11-12) ITA NO.1821/KOL/2016, ITA NO.1318/DEL/2012, ITA NO.1302/DEL/2012 & ITA NO.2003/KOL/2016 SREI INFRASTRUCTURE FINANCE LTD. 4 (4). LD. CIT(A) ERRED IN CONFIRMING THE ADDITION OF PROFIT ON SALE OF FIXED ASSETS/INVESTMENTS OF RS.81,43,970/- IN COMPUTING B OOK PROFITS UNDER SECTION 115JB OF THE ACT. (THIS COVERS GROUND NO. 4 RAISED BY THE AS SESSEE IN ITA NO.1318/DEL/12 FOR A.Y.08-09) [ HON`BLE HIGH COURT QUESTION NO. (VII) ]. (5). LD.CIT(A) ERRED IN CONFIRMING THE ADDITION OF PROVISION FOR NON-PERFORMING ASSETS (NPA) OF RS.13,71,00,000/- IN COMPUTING THE BOOK PR OFIT UNDER SECTION 115JB OF THE ACT, IN TERMS OF EXPLANATION 1(I) TO SECTION 115JB(2) OF THE INCOME TAX ACT 1961. (THIS COVERS GROUND NO. 5 RAISED BY THE ASSESSEE IN ITA N O.1318/DEL/12 FOR A.Y.08-09, GROUND NO. 4 RAISED BY THE ASSESSEE IN ITA NO.1821/ KOL/16, FOR A.Y.11-12). [ HON`BLE HIGH COURT QUESTION NO. (VIII)]. (6). LD CIT(A) ERRED IN NOT TREATING EDUCATION CESS AS AN ALLOWABLE EXPENDITURE UNDER SECTION 37(1) OF THE ACT. (ADDITIONAL GROUND RAISED BY ASSESSEE IN ITA NO.1318/DEL/2012, FOR A.Y.2008-09, AND GROUND NO.3 RAISED BY THE ASSESSEE IN ITA NO.1821/KOL/16 FOR A.Y.2011-12). [ HON`BLE HIGH COU RT QUESTION NO. (V)]. (7). ASSESSEE COMPANY PREPARES BOOKS OF ACCOUNTS AS PER RBI RULES. SECTION 115JB OF THE ACT IS NOT APPLICABLE TO THE ASSESSEE COMPANY, AS IT DOES NOT PREPARE BOOKS OF ACCOUNTS AS PER PART II AND PART III OF SCHEDULE VI OF THE COMPANIES ACT,1956. (ADDITIONAL GROUND RAISED BY ASSESSEE IN ITA NO.131 8/DEL/2012, FOR A.Y.2008-09). [ HON`BLE HIGH COURT QUESTION NO. (VI)]. (8).AMOUNT TRANSFERRED TO SPECIAL RESERVE IN COMPLI ANCE WITH THE PROVISIONS OF SECTION 45IC OF THE RESERVE BANK OF INDIA ACT, 1934, DURING THE YEAR UNDER CONSIDERATION OF RS. 22,00,00,0000/- BE EXCLUDED IN COMPUTING TOTAL INCO ME UNDER THE NORMAL PROVISIONS OF THE ACT. (ADDITIONAL GROUND RAISED BY ASSESSEE IN ITA NO.13 18/DEL/2012, FOR A.Y.2008- 09, GROUND NO.5 RAISED BY THE ASSESSEE IN ITA NO.18 21/KOL/16 FOR A.Y.2011-12 ). [ HON`BLE HIGH COURT QUESTION NO. ( (IV)]. (9). THE LD CIT(A) ERRED IN DELETING THE ADDITION O F RS.22,00,00,000/- MADE BY THE AO ON ACCOUNT OF THE AMOUNT TRANSFERRED TO SPECIAL RESERV E, ( OUT OF STATUTORY COMPULSION IN ACCORDANCE WITH SECTION 45-IC OF RBI ACT) WHILE COM PUTING BOOK PROFIT U/S 115JB OF THE ACT. (GROUND NO.3 RAISED BY REVENUE IN ITA NO. 1302 /DEL/12 FOR A.Y.2008-09). [ HON`BLE HIGH COURT QUESTION NO. (IX)]. (10).LD CIT(A) ERRED IN DELETING THE DISALLOWANCE O F RS.57,72,000/- MADE BY AO ON ACCOUNT OF INTEREST PAID ON LOANS WHICH WERE ADVANC ED INTEREST FREE TO SUBSIDIARIES OF THE ASSESSEE COMPANY. (GROUND NO.1 RAISED BY REVENU E IN ITA NO. 1302/DEL/12 FOR A.Y.2008-09). (11). LD CIT(A) ERRED IN DELETING THE ADDITION OF R S.26,53,10,000/- MADE BY AO ON ACCOUNT OF DISALLOWANCE U/S 14A, WHILE COMPUTING BO OK PROFIT U/S 115JB OF THE I.T. ACT. (GROUND NO.4 RAISED BY REVENUE IN ITA NO. 1302/DEL/ 12 FOR A.Y.2008-09, GROUND NO.3 RAISED BY REVENUE IN ITA NO.2003/KOL/16, FOR A.Y.20 11-12 ). (12). LD CIT(A) ERRED IN TREATING THE CHARGE OF INT EREST U/S 234C AS CONSEQUENTIAL IN NATURE AND NOT DIRECTING THE AO TO COMPUTE INTEREST U/S 234C ON THE TAX DUE ON RETURNED INCOME. ITA NO.1821/KOL/2016, ITA NO.1318/DEL/2012, ITA NO.1302/DEL/2012 & ITA NO.2003/KOL/2016 SREI INFRASTRUCTURE FINANCE LTD. 5 (13). LD CIT(A) ERRED IN ADMITTING DEBENTURES REDEM PTION RESERVE AS ALLOWABLE EXPENSES U/S115JB OF THE ACT. (GROUND NO.3 RAISED B Y REVENUE IN ITA NO. 2003/KOL/16, FOR A.Y.2011-12) 5. NOW, WE SHALL TAKE THESE CONCISE AND SUMMARIZED GROUNDS ONE BY ONE. 6. CONCISE AND SUMMARIZED GROUND NO.1 IS REPRODUCED BELOW FOR READY REFERENCE: (1). LD.CIT(A) RESTRICTED THE DISALLOWANCE UNDER S ECTION 14A, READ WITH RULE 8D OF THE INCOME TAX RULES TO RS. 23,35,176/-, BEING AMOUNT O F EXEMPT DIVIDEND INCOME EARNED. (THIS COVERS GROUND NO. 1 RAISED BY THE ASSESSEE IN ITA NO.1318/DEL/12 FOR A.Y.08-09, GROUND NO.2 RAISED BY THE REVENUE IN ITA NO.1302/DE L/12, FOR A.Y.08-09, GROUND NO. 1 RAISED BY THE ASSESSEE IN ITA NO.1821/KOL/16, FOR A.Y.11-12, AND GROUND NO.1 RAISED BY THE REVENUE IN ITA NO.2003/KOL/16, FOR A.Y.11-12 ).[ HON`BLE HIGH COURT QUESTION NO. (I) AND (II)]. 7. FACTS OF THE ISSUE WHICH CAN BE STATED QUITE SHO RTLY ARE AS FOLLOWS: IN THE ASSESSMENT ORDER U/S 143(3) OF THE ACT, THE AO COMP UTED THE DISALLOWANCE U/S14A R.W. RULE 8D AT RS. 26.53 CRORES. ON APPEAL BY THE ASSESSEE BEFORE THE FIRST APPELLATE AUTHORITY, LD. CIT(APPEALS) RECOMPUTED TH E DISALLOWANCE UNDER RULE 8D AT RS. 42.61 LACS AND RESTRICTED THE DISALLOWANC E TO RS. 23,35,776/-, BEING AMOUNT OF EXEMPT DIVIDEND INCOME EARNED DURING THE YEAR. 8 ON FURTHER APPEAL BY THE ASSESSEE BEFORE THIS TRI BUNAL, THE TRIBUNAL VIDE ORDER DATED 27-02-2019, CONFIRMED THE ORDER OF LD. CIT(AP PEALS) ON TWO CONTENTIONS VIZ:(A) REJECTED ASSESSEE'S CLAIM THAT NO EXPENDITU RE IS INCURRED FOR EARNING EXEMPT INCOME IS SUFFICIENT SATISFACTION [PARA 10.5 AT PG 8 OF THE TRIBUNAL ORDER] AND (B) THE ASSESSEE HAS NOT FURNISHED ANY CALCULAT ION THAT IT HAD INTEREST FREE FUNDS WHICH CAN BE PRESUMED TO HAVE BEEN INVESTED I N NON-INTEREST BEARING INVESTMENTS [PARA 11 AT PG 9 OF THE TRIBUNAL ORDER] . 9. AGGRIEVED BY THE ORDER OF THIS TRIBUNAL DATED 27 .02.2019, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE HON`BLE CALCUTTA HI GH COURT. THE HON`BLE ITA NO.1821/KOL/2016, ITA NO.1318/DEL/2012, ITA NO.1302/DEL/2012 & ITA NO.2003/KOL/2016 SREI INFRASTRUCTURE FINANCE LTD. 6 CALCUTTA HIGH COURT, VIDE ORDER DATED 08.08.2019, H AS REMANDED THE MATTER BACK TO THIS TRIBUNAL, THEREFORE THE ASSESSEE IS IN APPE AL BEFORE US. 10. WE HEARD BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE SUBMISSION PUT FORTH ON BEHALF OF THE ASSESSEE ALONG WITH THE DOCU MENTS FURNISHED AND THE CASE LAWS RELIED UPON, AND PERUSED THE FACT OF THE CASE INCLUDING THE FINDINGS OF THE LD CIT(A) AND OTHER MATERIALS BROUGHT ON RECORD. WE NO TE THAT THE ISSUE INVOLVED PERTAINING TO SECTION 14A READ WITH RULE 8D IN THE PRESENT APPEAL IS NO LONGER RES INTEGRA. WE NOTE THAT HONBLE DELHI HIGH COURT IN T HE CASE OF CHEMINVEST LTD. VS CIT 317 ITD 33 (DELHI), WHEREIN IT WAS HELD THAT IF THERE IS NO EXEMPT INCOME EARNED OR RECEIVED BY THE ASSESSEE, NO DISALLOWANCE IS WARRANTED UNDER SECTION 14A READ WITH RULE 8D OF THE RULES. THE ITAT KOLKAT A IN THE CASE OF REI AGRO LTD. VS. DCIT 144 ITD 141 (KOL-TRIB) HAS HELD THAT IT IS ONLY THE INVESTMENTS WHICH YIELDS DIVIDEND DURING THE PREVIOUS YEAR THAT HAS TO BE CONSIDERED WHILE ADOPTING THE AVERAGE VALUE OF INVESTMENTS FOR THE P URPOSE OF RULE 8D(2)(II) & (III) OF THE RULES. THE AFORESAID VIEW OF THE TRIBUNAL H AS SINCE BEEN AFFIRMED AS CORRECT BY THE HONBLE CALCUTTA HIGH COURT IN G.A.N O.3581 OF 2013 IN THE APPEAL AGAINST THE ORDER OF THE TRIBUNAL IN THE CASE OF RE I AGRO LTD. (SUPRA). WE NOTE THAT WHERE THE ASSESSEE WAS HAVING A COMMON FUND CONSISTING OF BOTH OWN FUNDS AND BORROWED FUNDS AND IN CASE THE OWN FU NDS ARE SUFFICIENT TO INVEST IN NON-BUSINESS ACTIVITIES, A PRESUMPTION IS DRAWN THAT THE SAID INVESTMENT IS MADE OUT OF OWN FUNDS. TO BUTTRESS THIS PLEA, WE RE LY ON THE JUDGMENT OF BOMBAY HIGH COURT IN THE CASE OF CIT V. RELIANCE UTILITIES AND POWER LTD. (313 ITR 340), WHEREIN IT WAS HELD AS FOLLOWS: THE ASSESSEE CLAIMED DEDUCTION OF INTEREST ON BORR OWED CAPITAL. THE ASSESSING OFFICER RECORDED A FINDING THAT THE SUM OF RS.213 CRORES WAS INVESTED OUT OF ITS OWN FUNDS AND RS. 147 CRORES WAS INVESTED OUT OF BO RROWED FUNDS. ACCORDINGLY, HE DISALLOWED INTEREST AMOUNTING TO RS.4.40 CRORES CALCULATED AT 12 PER CENT PER ANNUM FOR THREE MONTHS FROM JANUARY, 2000 TO MARCH, 2000. THE COMMISSIONER (APPEALS) FOUND THAT THE ASSESSEE HAD ENOUGH INTERE ST-FREE FUNDS AT ITS DISPOSAL FOR INVESTMENT AND ACCORDINGLY DELETED THE ADDITION OF RS.4.40 CORES MADE BY THE ITA NO.1821/KOL/2016, ITA NO.1318/DEL/2012, ITA NO.1302/DEL/2012 & ITA NO.2003/KOL/2016 SREI INFRASTRUCTURE FINANCE LTD. 7 ASSESSING OFFICER AND DIRECTED HIM TO ALLOW THE DED UCTION UNDER SECTION 36(1)(III). THE ORDER OF THE COMMISSIONER (APPEALS) WAS UPHELD BY THE TRIBUNAL. ON APPEAL TO THE HIGH COURT : ' HELD, DISMISSING THE APPEAL, THAT IF THERE WERE F UNDS AVAILABLE BOTH INTEREST-FREE AND OVERDRAFT AND/OR LOANS TAKEN, THE N A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE IN TEREST- FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INT EREST-FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. IN THIS CASE TH IS PRESUMPTION WAS ESTABLISHED CONSIDERING THE FINDING OF FACT BOTH BY THE COMMISSIONER (APPEALS) AND THE TRIBUNAL. THE INTEREST WAS DEDUCT IBLE. ' BESIDES, THE PRINCIPLE THAT THE DISALLOWANCE U/S 14 A READ WITH RULE 8D SHOULD BE RESTRICTED TO THE AMOUNT OF EXEMPT INCOME, HAS BEEN LAID DOWN BY NUMBER OF HIGH COURTS WHICH ARE AS FOLLOWS: I) CIT V. CORRTECH ENERGY PVT. LTD. (2015) 325 ITR 97 (GUJ.) II) CIT V. HOLCIM INDIA PVT. LTD. (2014) 111 DTR 15 8 (DEL.) III) CIT V. SHIVA MOTORS PRIVATE LTD. (2014) 111 DT R 153 (ALL.) 11. TAKING NOTE OF THE AFORESAID DICTUM OF LAW LAI D DOWN BY THE HONBLE HIGH COURTS AND TRIBUNAL, WE NOTE THAT IN THE ASSESSEE`S CASE UNDER CONSIDERATION, THE ASSESSMENT YEAR INVOLVED IS A.Y.2008-09 HENCE, RULE 8D OF THE INCOME TAX RULES READ WITH SECTION 14A OF THE ACT ARE APPLICAB LE TO THE ASSESSEE AND THE AO MAY COMPUTE THE DISALLOWANCE BY APPLYING RULE 8D OF THE INCOME TAX RULES. SO FAR RULE 8D(2)(I) IS CONCERNED, THE ASSESSEE HAS NOT DISALLOWED SUO-MOTO ANY AMOUNT, THEREFORE NO ANY ADDITION UNDER THIS RULE C AN BE MADE BY ASSESSING OFFICER. COMING TO RULE 8D(2) (II) OF THE RULES, WE NOTE TH AT LD COUNSEL SUBMITTED BEFORE THE BENCH A STATEMENT SHOWING OWN FUNDS VIS--VIS T HE INVESTMENTS MADE IN SHARES AND SECURITIES, WHICH IS REPRODUCED BELOW: ITA NO.1821/KOL/2016, ITA NO.1318/DEL/2012, ITA NO.1302/DEL/2012 & ITA NO.2003/KOL/2016 SREI INFRASTRUCTURE FINANCE LTD. 8 A.Y. OWN FUND (PB PG NO. 19)( IN LAKHS) TOTAL INVESTMENT (PB PG NO. 25) (IN LAKHS) INVESTMENT CAPABLE OF GENERATING EXEMPT INCOME (IN LAKHS) 2007-08 47,703 14,668 4,548 2008-09 65,808 32,818 10,424 AS IS EVIDENT FROM THE TABLE ABOVE, THAT THE OWN F UNDS OF THE ASSESSEE IS FAR MORE THAN THE INVESTMENTS AND HENCE IT CAN BE SAFELY PRE SUMED THAT THE INVESTMENTS WERE MADE ONLY OUT OF OWN FUNDS. THEREFORE, THE AO IS DIRECTED TO DELETE THE ADDITION UNDER RULE 8D(2) (II) OF THE RULES. COMING TO RULE 8D(2) (III) OF THE RULES, WE NOTE TH AT ADDITION MAY BE MADE @ 0.50% OF THE DIVIDEND BEARING SECURITIES AS PER THE LAW LAID DOWN BY THE COORDINATE BENCH IN THE CASE OF REI AGRO LTD (SUPRA ). HOWEVER, THE LD COUNSEL HAS ALSO CONTENDED THAT THE DISALLOWANCE CANNOT EXCEED THE AMOUNT OF EXEMPT INCOME. IN THE ASSESSEE`S CASE THE EXEMPT INCOME IS TO THE TUNE OF RS. 23,35,776/-. LD DR FOR THE REVENUE HAS FAIRLY AGREED WITH THE PROPOSITION CANVASSED BY THE LD COUNSEL. HAVING CON SIDERED THE LD COUNSEL`S CONTENTION AND THE AO'S OBSERVATION, WE FIND THAT T HE CONTENTION AS REGARD THE DISALLOWANCE U/S 14A BEING RESTRICTED TO THE AMOUNT OF EXEMPT INCOME HAS BEEN CONSIDERED BY NUMBER OF HIGH COURTS WHICH ARE AS F OLLOWS: I) CIT V. CORRTECH ENERGY PVT. LTD. (2015) 325 ITR 97 (GUJ.) II) CIT V. HOLCIM INDIA PVT. LTD. (2014) 111 DTR 15 8 (DEL.) III) CIT V. SHIVA MOTORS PRIVATE LTD. (2014) 111 DT R 153 (ALL.) HENCE, THE DISALLOWANCE IN SUCH RESPECT SHOULD BE RESTRICTED TO THE AMOUNT ONLY TO THE EXTENT OF THE EXEMPT INCOME FOLLOWING THE P RINCIPLES DECIDED ON THE AFORESAID MATTERS BY VARIOUS HON`BLE HIGH COURTS. T HEREFORE, WE RESTRICT THE ITA NO.1821/KOL/2016, ITA NO.1318/DEL/2012, ITA NO.1302/DEL/2012 & ITA NO.2003/KOL/2016 SREI INFRASTRUCTURE FINANCE LTD. 9 DISALLOWANCE TO RS. 23,35,776/-, BEING AMOUNT OF EX EMPT DIVIDEND INCOME EARNED DURING THE YEAR AND HENCE WE DIRECT THE AO FOR BOTH THE ASSESSMENT YEARS, THAT IS A.Y.2008-09 AND A.Y.2011-12 TO RESTRICT THE DISALLO WANCE TO THE EXTENT OF EXEMPT DIVIDEND INCOME EARNED DURING THE YEAR. THER EFORE, WE DISMISS THE APPEALS FILED BY THE REVENUE AS WELL AS APPEALS FIL ED BY THE ASSESSEE. 12. CONCISE AND SUMMARIZED GROUND NO.2 IS REPRODUCE D BELOW FOR READY REFERENCE: (2). LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANC E OF PROVISION FOR NON- PERFORMING ASSETS (NPA) OF RS.13,71,00,000/- MADE IN ACCORDANC E WITH THE PRUDENTIAL NORMS OF THE RBI, IN THE COMPUTATION OF TOTAL INCOME UNDER THE N ORMAL PROVISIONS OF THE ACT. (THIS COVERS GROUND NO. 2 RAISED BY THE ASSESSEE IN ITA N O.1318/DEL/12 FOR A.Y.08-09) [ HON`BLE HIGH COURT QUESTION NO. (III)]. 13. WE HEARD BOTH THE PARTIES AND CAREFULLY GONE T HROUGH THE SUBMISSION PUT FORTH ON BEHALF OF THE ASSESSEE ALONG WITH THE DOCU MENTS FURNISHED AND THE CASE LAWS RELIED UPON, AND PERUSED THE FACT OF THE CASE INCLUDING THE FINDINGS OF THE LD CIT(A) AND OTHER MATERIALS BROUGHT ON RECORD. FACTS OF THE ISSUE ARE THAT DURING THE YEAR UNDER CONSIDERATION, THE COMPANY HAS MADE A PROVISION OF RS. 1,371 LAKHS TOWARDS PROVISION FOR NON PERFORMING ASSETS ( NPA) AS PER THE PRUDENTIAL NORMS OF THE RESERVE BANK OF INDIA (RBI). THE SAID PROVISION HAS BEEN CLAIMED AS DEDUCTION IN COMPUTING THE TOTAL INCOME. THE SUP REME COURT IN A RECENT CASE OF SOUTHERN TECHNOLOGIES LTD. VS. JCIT (320 ITR 577 - SC) HAS HELD THAT PROVISION FOR NPA MADE IN TERMS OF THE RBI DIRECT IONS DOES NOT CONSTITUTE EXPENSE FOR PURPOSES OF SECTION 36(1)(VII) AND THUS THE SAME IS NOT ALLOWABLE. FURTHER, THE SUPREME COURT HAS ALSO RULED THAT DEDU CTION CAN ALSO NOT BE CLAIMED U/S 37(1) OF THE ACT. IN VIEW OF THE AFORESAID DECI SION OF THE SUPREME COURT, PROVISION FOR NPA OF RS. 1,371 LAKHS WAS ADDED BACK BY AO IN THE COMPUTATION OF TOTAL INCOME. ITA NO.1821/KOL/2016, ITA NO.1318/DEL/2012, ITA NO.1302/DEL/2012 & ITA NO.2003/KOL/2016 SREI INFRASTRUCTURE FINANCE LTD. 10 WE NOTE THAT G ROUND NO.2 OF THE ASSESSEES APPEAL AND QUESTION NO . (III) OF HIGH COURTS ORDER IS IN RELATION TO DISALLOWANCE OF PRO VISION FOR NON-PERFORMING ASSETS (NPA) OF RS. 13,71,00,000/- MADE IN ACCORDAN CE WITH THE PRUDENTIAL NORMS OF THE RBI IN COMPUTATION OF INCOME UNDER THE NORMA L PROVISIONS OF THE ACT. IN THE RETURN OF INCOME, THE ASSESSEE HAD NOT ADDED BA CK PROVISION FOR NPA WHILE COMPUTING ITS TOTAL INCOME UNDER NORMAL PROVISIONS OF THE ACT. THE ASSESSING OFFICER, RELYING ON THE DECISION OF APEX COURT IN S OUTHERN TECHNOLOGIES LTD. - VS.- JCIT (2010) 320 ITR 577 (SC) DISALLOWED THE SA ME. ON APPEAL, THE CIT(A) AFFIRMED THE DECISION OF THE ASSESSING OFFICER. ON FURTHER APPEAL, THE ITAT IN ITS EARLIER ORDER DATED 27-02-2019 RELYING ON THE DECIS ION OF SOUTHERN TECHNOLOGIES LTD. (SUPRA) DISMISSED THE APPEAL OF THE ASSESSEE. ON APPEAL, BEFORE THE HONBLE CALCUTTA HIGH COURT, QUESTION NO. (III) WHICH DEALS WITH THE ISSUE UNDER CONSIDERATION WAS REMANDED BACK TO THIS TRIBUNAL FO R FRESH CONSIDERATION. ACCORDINGLY, THE ISSUE IS BEFORE US FOR RECONSIDERA TION. 14. BEFORE US, THE LD COUNSEL OF THE ASSESSEE SUBMI TTED THAT THE ASSESSEE BEING A NON-BANKING FINANCE COMPANY IS REQUIRED TO CREATE P ROVISION FOR NON-PERFORMING ASSETS IN ACCORDANCE WITH DIRECTION 9 OF THE NON-BA NKING FINANCIAL (NON- DEPOSIT ACCEPTING OR HOLDING) COMPANIES PRUDENTIAL NORMS (RESERVE BANK) DIRECTIONS, 2007 ISSUED BY THE RBI PURSUANT TO POWE R CONFERRED BY SEC. 45JA(CH. IIIB) OF THE RBI ACT, 1949. FURTHER, SEC. 45Q OF THE RBI ACT PROVIDES THAT, PROVISION OF CH. IIIB HAS AN OVERRIDING EFFEC T ON ANY OTHER STATUTORY ENACTMENT. 15. LD DR FOR THE REVENUE HAS PRIMARILY REITERATED THE STAND TAKEN BY THE ASSESSING OFFICER WHICH WE HAVE ALREADY NOTED IN OU R EARLIER PARA AND THE SAME IS NOT BEING REPEATED FOR THE SAKE OF BREVITY. WE AGRE E WITH THE VIEW TAKEN BY THE COORDINATE BENCH IN ITS EARLIER ORDER DATED 27-02- 2019. THUS, THE ISSUE IS SQUARELY COVERED AGAINST THE ASSESSEE BY THE DECISI ON OF APEX COURT IN SOUTHERN TECHNOLOGIES LTD. (SUPRA). RESPECTFULLY, FOLLOWING THE DECISION OF APEX COURT IN SOUTHERN TECHNOLOGIES LTD. (SUPRA), WE DISMISS THE GROUND RAISED BY THE ITA NO.1821/KOL/2016, ITA NO.1318/DEL/2012, ITA NO.1302/DEL/2012 & ITA NO.2003/KOL/2016 SREI INFRASTRUCTURE FINANCE LTD. 11 ASSESSEE. 16. CONCISE AND SUMMARIZED GROUND NO.3 IS REPRODUC ED BELOW FOR READY REFERENCE: (3). LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANC E OF PROVISION FOR LEAVE ENCASHMENT OF RS.57,30,833/- IN THE COMPUTATION OF TOTAL INCOM E UNDER THE NORMAL PROVISIONS OF THE ACT. (THIS COVERS GROUND NO. 3 RAISED BY THE ASSESS EE IN ITA NO.1318/DEL/12 FOR A.Y.08- 09, GROUND NO. 2 RAISED BY THE ASSESSEE IN ITA NO.1 821/KOL/16, FOR A.Y.11-12) 17. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND TH AT THOUGH THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF EXIDE INDUSTRIES LTD VS UNION OF INDIA REPORTED IN 292 ITR 470 (CAL) HAD STRUCK DOWN THE P ROVISIONS OF SECTION 43B(F) OF THE ACT AS UNCONSTITUTIONAL, THE REVENUE HAD CAR RIED THE MATTER FURTHER TO THE HONBLE SUPREME COURT WHICH INITIALLY IN SPECIAL LE AVE TO APPEAL (CIVIL) CC 12060 / 2008 DATED 8.9.2008 HAD HELD AS UNDER:- THE PETITION WAS CALLED ON FOR HEARING TODAY. UPON HEARING COUNSEL THE COURT MADE THE FOLLOWING O RDER. ISSUE NOTICE. IN THE MEANTIME, THERE SHALL BE STAY OF THE IMPUGNE D JUDGEMENT, UNTIL FURTHER ORDERS. LATER, THE HONBLE SUPREME COURT IN SPECIAL LEAVE T O APPEAL (CIVIL) NO(S). CC 22889 / 2008 DATED 8.5.2009 HAD HELD AS UNDER:- THE PETITION WAS CALLED ON FOR HEARING TODAY. UPON HEARING COUNSEL THE COURT MADE THE FOLLOWING O RDER DELAY CONDONED. LEAVE GRANTED. PENDING HEARING AND FINAL DISPOSAL OF THE CIVIL APP EAL, DEPARTMENT IS RESTRAINED FROM RECOVERING PENALTY AND INTEREST WHICH HAS ACCR UED TILL DATE. IT IS MADE CLEAR THAT AS FAR AS THE OUTSTANDING INTEREST DEMAND AS O F DATE IS CONCERNED, IT WOULD BE OPEN TO THE DEPARTMENT TO RECOVER THAT AMOUNT IN CASE CIVIL APPEAL OF THE DEPARTMENT IS ALLOWED. WE FURTHER MAKE IT CLEAR THAT THE ASSESSEE WOULD, D URING THE PENDENCY OF THIS CIVIL APPEAL , PAY TAX AS IF SECTION 43B(F) IS ON T HE STATUTE BOOK BUT AT THE SAME TIME IT WOULD BE ENTITLED TO MAKE A CLAIM IN ITS RE TURNS. ITA NO.1821/KOL/2016, ITA NO.1318/DEL/2012, ITA NO.1302/DEL/2012 & ITA NO.2003/KOL/2016 SREI INFRASTRUCTURE FINANCE LTD. 12 HENCE FROM THE AFORESAID SUPREME COURT JUDGEMENT, I T COULD BE INFERRED THAT THE HONBLE SUPREME COURT HAD NOT STAYED THE JUDGEMENT OF THE CALCUTTA HIGH COURT DURING LEAVE PROCEEDINGS. BUT THE HONBLE SUPREME COURT HAD ONLY PASSED AN INTERIM ORDER ON THE IMPUGNED ISSUE. HENCE WE DEEM IT FIT AND APPROPRIATE , IN THE INTEREST OF JUSTICE AND FAIR PLAY, TO REMAND THIS I SSUE TO THE FILE OF THE LD AO TO PASS ORDERS BASED ON THE OUTCOME OF THE MAIN APPEAL ON MERITS BY THE HONBLE SUPREME COURT AS STATED (SUPRA). 18. CONCISE AND SUMMARIZED GROUND NO.4 IS REPRODUCE D BELOW FOR READY REFERENCE: (4). LD. CIT(A) ERRED IN CONFIRMING THE ADDITION OF PROFIT ON SALE OF FIXED ASSETS/INVESTMENTS OF RS.81,43,970/- IN COMPUTING B OOK PROFITS UNDER SECTION 115JB OF THE ACT. (THIS COVERS GROUND NO. 4 RAISED BY THE AS SESSEE IN ITA NO.1318/DEL/12 FOR A.Y.08-09) [ HON`BLE HIGH COURT QUESTION NO. (VII) ]. 19. WHEN THIS ISSUE WAS CALLED OUT FOR HEARING, THE LD. COUNSEL FOR THE ASSESSEE INVITED OUR ATTENTION TO THE ORDER DATED 02.07.2010 , PASSED BY THE SPECIAL BENCH OF ITAT, HYDERABAD IN THE CASE OF RAIN COMMODITIES LTD 41 DTR 449 (HYB- SB), WHEREBY THE ISSUE HAS BEEN DISCUSSED AND ADJUD ICATED IN FAVOUR OF THE REVENUE. THE LD. DR ALSO SUBMITTED THAT THE PRESENT ISSUE IS SQUARELY COVERED IN FAVOUR OF REVENUE BY THE ABOVE SAID ORDER OF THE TR IBUNAL, A COPY OF WHICH IS ALSO PLACED BEFORE THE BENCH. 20. WE SEE NO REASON TO TAKE ANY OTHER VIEW OF THE MATTER THEN THE VIEW SO TAKEN BY THE SPECIAL BENCH OF ITAT, HYDERABAD IN RAIN COM MODITIES LTD. THE FINDINGS OF THE SPECIAL BENCH ARE GIVEN BELOW: THE ASSESSEE CREDITED ITS P&L A/C WITH AN AMOUNT O F RS. 149.77 CRORES BEING THE PROFIT ON SALE OF ASSETS TO ITS WHOLLY OWNED SUBSIDIARY. AS THE SAID PROFITS WERE NOT CHARGEABLE TO TAX U/S 47(IV), THE ASSESSEE TOOK THE VIEW THAT THE SAME HAD ALSO TO BE REDUCED FROM THE BOOK PROFITS U/S 115JB . THE SPECIAL BENCH HAD TO CONSIDER WHETHER EXEMPT INCOME COULD BE EXCLUDED FROM THE COMPUTATION OF B OOK PROFITS U/S 115JB. HELD DECIDING AGAINST THE ASSESSEE: ITA NO.1821/KOL/2016, ITA NO.1318/DEL/2012, ITA NO.1302/DEL/2012 & ITA NO.2003/KOL/2016 SREI INFRASTRUCTURE FINANCE LTD. 13 (I) THE AO CAN ALTER THE BOOK PROFIT ONLY IN TWO CIRCUMSTANCES (A) IF THE P&L A/C IS NOT DRAWN UP IN ACCORDANCE WITH PARTS II & III OF S CHEDULE VI TO THE COMPANIES ACT OR (B) IF ACCOUNTING POLICIES & STANDARDS, METHOD & RA TE OF DEPRECIATION HAVE BEEN INCORRECTLY ADOPTED FOR PREPARATION OF THE P & L A/ C. EXCEPT FOR THE SAID TWO CASES, THE AO HAS NO POWER TO ALTER THE NET PROFIT SHOWN IN TH E P&L A/C. UNDER (A), THE AO CANNOT DISTURB THE NET PROFIT SHOWN BY THE ASSESSEE WHERE THERE ARE NO ALLEGATIONS OF FRAUD OR MISREPRESENTATION BUT ONLY A DIFFERENCE OF OPINION AS TO WHETHER A PARTICULAR AMOUNT SHOULD BE PROPERLY SHOWN IN THE P&L A/C OR BALANCE SHEET; (II) PARTS II & III OF SCHEDULE VI TO THE COMPANIES ACT DO NOT PERMIT THE EXCLUSION OF CAPITAL GAIN FROM THE P & L A/C . THE P & L A/C IS REQUIRED TO DISCLOSE EVERY MATER IAL FEATURE INCLUDING CREDITS OR RECEIPTS AND DEBITS OR EXPENSES IN RESPECT OF NON-RECURRING TRANSACTIONS OR TRANSACTIONS OF AN EXCEPTIONAL NATU RE INCLUDING CAPITAL PROFITS ( VEEKAYLAL INVESTMENTS 249 ITR 597 (BOM) FOLLOWED). ITEMS REFERRED TO IN THE NOTES ARE A PART OF THE P&L A/C ( SAIN PROCESSING 221 CTR 493 (DEL) FOLLOWED; (III) THE ASSESSEE HAD INCLUDED THE SAID CAPITAL GA INS IN THE P & L A/C AND IT WAS NOT ITS CASE THAT SAME WAS NOT INCLUDIBLE. THE FACT THAT THE CAPITAL GAINS WAS EXEMPT U/S 47(I V) DOES NOT MEAN IT CAN BE EXCLUDED FROM THE BOOK PRO FIT BECAUSE NO SUCH EXCLUSION WAS PERMITTED UNDER THE EXPLANATION TO S. 115JB . THE TAXABILITY OF CAPITAL GAIN IS RELEVANT ONLY FOR THE PURPOSE OF COMPUTATION OF INC OME UNDER THE NORMAL PROVISIONS AND HAS NOTHING TO DO WITH THE COMPUTATION OF BOOK PRO FITS. { N.J. JOSE & CO 217 CTR 479 (KER) (CAPITAL GAINS EXEMPT U/S 54E) FOLLOWED}; (IV) THE ARGUMENT THAT AS S. 115JB (4) PROVIDES THA T SAVE AS OTHERWISE PROVIDED IN THIS SECTION ALL OTHER PROVISIONS OF THE ACT SHALL APPLY DOES NOT MEAN THAT THE EXEMPTION PROVISIONS OF S. 47(IV) CAN BE READ INTO S. 115JB. THIS ONLY MEANS THAT WHILE THE COMPUTATION HAS TO BE AS PER S. 115JB, ANYTHING OVE R AND ABOVE THAT WILL BE SUBJECT TO OTHER PROVISIONS OF THE ACT. FRIG SALES 4 SOT 376 (MUM) OVERRULED); (V) ACCORDINGLY, IN THE ABSENCE OF ANY PROVISION FO R EXCLUSION OF EXEMPTED CAPITAL GAIN IN THE COMPUTATION OF BOOK PROFIT U/S 115JB, THE AS SESSEE IS NOT ENTITLED TO THE EXCLUSION CLAIMED. 21. AS THE ISSUE IS SQUARELY COVERED IN FAVOUR OF T HE REVENUE BY THE DECISION OF SPECIAL BENCH IN CASE OF RAIN COMMODITIES (SUPRA) AND THERE IS NO CHANGE IN FACTS AND LAW AND THE LD COUNSEL IS UNABLE TO PRO DUCE ANY MATERIAL TO CONTROVERT THE ABOVE SAID FINDINGS OF THE SPECIAL BENCH. THERE FORE, RESPECTFULLY FOLLOWING THE DECISION OF SPECIAL BENCH (SUPRA) WE DISMISS TH E GROUND OF APPEAL RAISED BY THE ASSESSEE. 22. CONCISE AND SUMMARIZED GROUND NO.5 IS REPRODUCE D BELOW FOR READY REFERENCE: (5). LD.CIT(A) ERRED IN CONFIRMING THE ADDITION OF PROVISION FOR NON-PERFORMING ASSETS (NPA) OF RS.13,71,00,000/- IN COMPUTING THE BOOK PR OFIT UNDER SECTION 115JB OF THE ACT, ITA NO.1821/KOL/2016, ITA NO.1318/DEL/2012, ITA NO.1302/DEL/2012 & ITA NO.2003/KOL/2016 SREI INFRASTRUCTURE FINANCE LTD. 14 IN TERMS OF EXPLANATION 1(I) TO SECTION 115JB(2) OF THE INCOME TAX ACT 1961. (THIS COVERS GROUND NO. 5 RAISED BY THE ASSESSEE IN ITA N O.1318/DEL/12 FOR A.Y.08-09, GROUND NO. 4 RAISED BY THE ASSESSEE IN ITA NO.1821/ KOL/16, FOR A.Y.11-12). [ HON`BLE HIGH COURT QUESTION NO. (VIII)]. 23. WE HEARD BOTH THE PARTIES AND CAREFULLY GONE TH ROUGH THE SUBMISSION PUT FORTH ON BEHALF OF THE ASSESSEE ALONG WITH THE DOCUMENTS FURNISHED AND THE CASE LAWS RELIED UPON, AND PERUSED THE FACT OF THE CASE INCLU DING THE FINDINGS OF THE LD CIT(A) AND OTHER MATERIALS AVAILABLE ON RECORD. WE NOTE THAT ADDITION OF PROVISION FOR NPA IN COMPUTING BOOK PROFIT WAS CONF IRMED BY THIS TRIBUNAL, VIDE ITAT ORDER DATED 27-02-2019 ON THE CONTENTION THAT PROVISION FOR NPA IS PROVISION FOR DIMINUTION IN VALUE OF ASSETS AND COV ERED BY RETROSPECTIVE INSERTION OF EXPLANATION 1(I) TO SECTION 115JB OF THE I.T. AC T. [REFER PARA 15 AT PG 11-12 OF TRIBUNAL ORDER DATED 27.02.2019]. LD COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THA T THE ASSESSEE, IN ITS RETURN OF INCOME HAS NOT ADDED BACK PROVISION FOR NPA IN COMP UTING BOOK PROFITS U/S 115JB OF THE ACT. THE ASSESSING OFFICER, IN VIEW OF RETROSPECTIVE INSERTION OF CLAUSE (I) TO EXPLANATION 1 OF SEC. 115JB(2) OF THE ACT ADDED BACK THE SAME IN COMPUTING BOOK PROFIT. THE CIT(A) CONFIRMED THE ADD ITION MADE BY THE ASSESSING OFFICER. ON FURTHER APPEAL, THE ITAT IN I TS EARLIER ORDER DATED 27-02- 2019 CONCURRED WITH THE VIEW OF ASSESSING OFFICER A ND CIT(A) AND DISMISSED THE APPEAL OF THE ASSESSEE. ON SUBSEQUENT APPEAL BEFORE HIGH COURT, THE ISSUE DEALT IN QUESTION (VIII) OF THE HIGH COURT ORDER HAS BEEN RE MANDED BACK TO THIS TRIBUNAL FROM FRESH CONSIDERATION. THE LD. AR OF THE ASSESSE E SUBMITTED BEFORE US THAT PROVISION FOR NONPERFORMING ASSETS IS MADE AS PER D IRECTION 9 OF THE NON- BANKING FINANCIAL (NON- DEPOSIT ACCEPTING OR HOLDIN G) COMPANIES PRUDENTIAL NORMS (RESERVE BANK) DIRECTIONS, 2007 ISSUED BY RBI PURSUANT TO POWER CONFERRED BY SEC. 45JA (CH. IIIB) OF THE RBI ACT. F URTHER, SEC. 45Q OF THE RBI ACT PROVIDES THAT, PROVISION OF CH. IIIB HAS AN OVE RRIDING EFFECT ON ANY OTHER STATUTORY ENACTMENT. THE AR FURTHER CONTENDED THAT AS PER DIRECTION 10 OF THE RBI PRUDENTIAL NORMS, THE ASSESSEE HAS TO SPECIFICA LLY DISCLOSE THE PROVISION FOR ITA NO.1821/KOL/2016, ITA NO.1318/DEL/2012, ITA NO.1302/DEL/2012 & ITA NO.2003/KOL/2016 SREI INFRASTRUCTURE FINANCE LTD. 15 NPA SEPARATELY WITHOUT NETTING IT AGAINST THE VALUE OF ASSETS. HENCE, IN THE ABSENCE OF ANY REDUCTION IN THE VALUE OF ASSET, IT CANNOT BE TREATED AS A PROVISION FOR DIMINUTION IN THE VALUE OF ASSET. PROVISION FOR NON-PERFORMING ASSET IS NOT PROVISION FOR DIMINUTION IN VALUE OF ASSET AS THERE IS NO DIMINUTION IN VALUE OF NON-PERFORMING ASSET. THE VALUE OF ASSET REMAINS IN TACT WITHOUT ANY REDUCTION. PROVISION FOR NPA APPEARS SEPARATELY IN THE LIABILI TY SIDE OF THE BALANCE SHEET. THE LD. AR OF THE ASSESSEE BROUGHT ATTENTION OF THI S BENCH TO THE DECISION OF HONBLE APEX COURT IN SOUTHERN TECHNOLOGIES LTD. VS . JCIT (2010) 320 ITR 577 (SC), WHEREIN THE HONBLE SUPREME COURT HAS HELD TH AT REDUCTION IN NPA TAKES PLACE IN TWO WAYS, NAMELY BY RECOVERIES AND B Y WRITE OFF. HOWEVER, BY MAKING A PROVISION FOR NPA, THERE WILL BE NO REDUCT ION IN NPA. ON THE BASIS OF THE AFORESAID FINDINGS OF THE APEX COURT, THE LD. A R ARGUED THAT BY CREATING PROVISION FOR NON-PERFORMING ASSET THERE WAS NO RED UCTION IN VALUE OF ASSET AND HENCE CLAUSE (I) TO EXPLANATION 1 TO SEC. 115JB(2) IS NOT APPLICABLE AS HELD BY THE HONBLE APEX COURT. FURTHER THE AR ALSO RELIED ON T HE DECISION OF JURISDICTIONAL ITAT IN DCIT -VS.- NATIONAL INSURANCE CO. LTD. [201 6] 72 TAXMANN.COM 116 (KOLKATA - TRIB.). IN THE SAID CASE, THE ITAT HELD THAT 'RESERVE FOR UNEXPIRED RISK' CREATED IN ACCORDANCE WITH THE RELEVANT PROVI SIONS OF THE INSURANCE ACT, 1938 BEING STATUTORY IN NATURE IS NOT REQUIRED TO B E ADDED IN MAT COMPUTATION. RELEVANT EXTRACT OF THE DECISION IS REPRODUCED AS U NDER:- 11. ADDITION TOWARDS RESERVE CREATED FOR UNEXPIRED RISK U/S 115JB OF THE ACT THE BRIEF FACTS OF THIS ISSUE IS THAT WHILE COMPUTING THE BOO K PROFIT U/S. 115JB OF THE ACT FOR THE PURPOSE OF MAT, THE ID AO CONSIDERED A SUM OF RS. 1 69,45,00,000/- BEING THE RESERVE FOR UNEXPIRED RISK CREATED AS PER THE REQUIREMENT O F LAW, AS ALLEGEDLY REQUIRED TO BE ADDED BACK. THE ID AO ADDED BACK THE AFORESAID SUM OF RS. 169,45,00,000/- IN COMPUTING THE BOOK PROFIT. THE ASSESSEE SUBMITTED T HAT AS PER THE INSURANCE ACT, 1938, IN CASE OF AN INSURANCE COMPANY CARRYING ON GENERAL INSURANCE BUSINESS, PREMIUM IS RECOGNISED AS INCOME OVER THE CONTRACT PERIOD OR TH E PERIOD OF RISK, WHICHEVER IS APPROPRIATE. PREMIUM RECEIVED IN ADVANCE WHICH REPR ESENTS PREMIUM INCOME NOT RELATING TO THAT PARTICULAR ACCOUNTING PERIOD IN WH ICH THE SAID PREMIUM HAS BEEN RECEIVED, IS SEPARATELY DISCLOSED IN THE FINANCIAL STATEMENTS OF AN INSURANCE COMPANY. THAT PART OF INCOME WHICH IS ATTRIBUTABLE TO THE SU CCEEDING ACCOUNTING PERIOD OR PERIODS IS REDUCED FROM THE TOTAL PREMIUMS RECEIVED DURING AN ACCOUNTING PERIOD BY WAY OF CREATION OF A RESERVE FOR UNEXPIRED RISK IN ACCORDA NCE WITH SECTION 64V(L)(II)(B) OF THE INSURANCE ACT, 1938. THE AFORESAID RESERVE IS TO BE CREATED FOR A MINIMUM AMOUNT AS ITA NO.1821/KOL/2016, ITA NO.1318/DEL/2012, ITA NO.1302/DEL/2012 & ITA NO.2003/KOL/2016 SREI INFRASTRUCTURE FINANCE LTD. 16 PRESCRIBED UNDER THE ABOVE MENTIONED SECTION. APPRE CIATING THE SPECIAL NATURE OF THE INSURANCE BUSINESS, THE LAWMAKERS PRESCRIBED SPECIA L PROCEDURE FOR COMPUTATION OF TOTAL INCOME OF AN INSURANCE COMPANY CARRYING ON BU SINESS OF INSURANCE OTHER THAN LIFE INSURANCE WHICH ARE TO BE FOUND IN RULE 5 OF T HE FIRST SCHEDULE TO THE INCOME- TAX ACT, 1961, READ WITH RULE 6E, OF THE INCOME-TAX RUL ES, 1962. THIS PARTICULAR PROCEDURE HAS TO BE MANDATORILY COMPLIED WITH IN MAKING THE A SSESSMENT FOR INCOME-TAX PURPOSES. EVERY YEAR ADJUSTMENTS ARE MADE TO THE EXISTING RES ERVE FOR UNEXPIRED RISK BY WAY OF CREDITING OR DEBITING BY THE AMOUNT OF DIFFERENCE B ETWEEN THE RESERVE CREATED IN THE IMMEDIATE PRECEDING YEAR AND THE RESERVE REQUIRED T O BE CREDITED DURING THE CURRENT ACCOUNTING YEAR. THIS CANNOT BE CONSIDERED AS ANY A LLEGED 'AMOUNT CARRIED TO ANY RESERVE' DEBITED TO THE PROFIT & LOSS ACCOUNT, BUT IT SHOULD BE APPRECIATED THAT THIS RESERVE REPRESENTS THAT PART OF PREMIUM INCOME WHIC H DOES NOT RELATE TO THE CURRENT ACCOUNTING PERIOD. IT MUST BE APPRECIATED THAT AS P ER THE MERCANTILE SYSTEM OF ACCOUNTING, IT IS ONLY THAT INCOME/EXPENDITURE WHIC H RELATE TO THE CURRENT ACCOUNTING PERIOD, SHOULD FIND PLACES IN 'THE REVENUE/PROFIT & LOSS ACCOUNT OF THE YEAR. HENCE IT WAS SUBMITTED THAT IN CASE OF AN INSURANCE COMPANY (CARRYING ON GENERAL INSURANCE BUSINESS), THE CREATION OF 'RESERVE FOR UNEXPIRED R ISK' CANNOT BE CONSIDERED TO BE SIMILAR TO THOSE 'RESERVES' WHICH HAVE BEEN REFERRE D TO IN CLAUSE (B) OF EXPLANATION (1) TO SECTION 1I5JB(2). IT MAY ALSO BE APPRECIATED THA T THE 'RESERVE FOR UNEXPIRED RISK' CAN, IN ANY CASE, NOT BE CONSIDERED AS ANY PROVISIO N MADE FOR MEETING LIABILITIES, OTHER THAN ASCERTAINED LIABILITIES AS REFERRED TO IN CLAU SE(C) OF EXPLANATION (1) TO SECTION 115JB(2). ON THE BASIS OF THE ABOVE FACTS IT MAY KI NDLY BE APPRECIATED THAT THERE HAS NOT BEEN ANY REQUIREMENT TO ADD BACK ANY SUM IN RELATIO N TO THE 'RESERVE FOR UNEXPIRED RISK' WHILE COMPUTING 'BOOK PROFIT' U/S115JB(2) FOR THE ASSESSMENT YEAR 2008-09. ACCORDINGLY, THE ASSESSEE SUBMITTED THAT THE 'RESER VE FOR UNEXPIRED RISKS' NOT BEING OF THE NATURE AS SPECIFIED IN CLAUSE (B) OF EXPLANATIO N 1 TO SECTION 115JB(2), THE ACTION OF THE ID AO IN MAKING AN ADDITION OF SUCH RESERVE SHO ULD BE HELD AS UNJUSTIFIED. HENCE, THE ASSESSEE SUBMITTED THAT THE ID AO MAY KINDLY BE DIRECTED TO DELETE THE ADDITION OF RS.L69,45,00,000/-MADE BY HIM IN COMPUTING THE BOOK PROFIT U/S 115JB OF THE ACT. 11.1 THE ID CIT(A) OBSERVED THAT THE PROVISIONS CONTAINE D IN RULE 6E OF THE INCOME-TAX RULES, 1962 HAS ALSO BEEN CONSIDERED. SECTION 115JB (2)- EXPLANATION (L)(B) REQUIRES INCREASING 'THE AMOUNTS CARRIED TO ANY RESERVE, BY WHATEVER NAME CALLED, OTHER THAN A RESERVE SPECIFIED U/S 33AC' IF SUCH AMOUNT IS DEBIT ED TO THE PROFIT & LOSS ACCOUNT. IT IS HELD THAT THE RESERVE FOR UNEXPIRED RISK HAS NOT BE EN DEBITED IN THE PROFIT & LOSS ACCOUNT AT ANY POINT OF TIME, THEREFORE EXPLANATION 1 TO SUB-SECTION 2 OF SECTION 115JB IS NOT APPLICABLE IN THE PECULIAR FACTS OF THE GENE RAL INSURANCE BUSINESS CARRIED OUT BY THE ASSESSEE. IN THE ASSESSEE'S CASE, FIRSTLY THE C ONCERNED RESERVE FOR UNEXPIRED RISK HAS NOT BEEN CREATED THROUGH ANY DEBIT ENTRY MADE IN TH E PROFIT & LOSS ACCOUNT. THE RESERVE HAS BEEN CREATED IN ACCORDANCE WITH THE REL EVANT PROVISIONS OF THE INSURANCE ACT, 1938, BY WAY OF DEBITING THE PREMIUM RECEIVED FOR ADJUSTING THE AMOUNT OF PREMIUM THAT MAY BE RELATED TO FUTURE YEAR OR YEARS. IT IS NOTED THAT RULE 5 OF THE FIRST SCHEDULE OF THE INCOME-TAX ACT, 1961, WHICH SPECIFIES THE PR OCEDURE TO BE FOLLOWED FOR COMPUTING THE BUSINESS INCOME OF A GENERAL INSURANCE BUSINESS , SPECIFICALLY ALLOWS DEDUCTION FOR RESERVE CARRIED OVER FOR UNEXPIRED RISK AND RULE 6E OF THE INCOME-TAX RULES, 1962 PROVIDES THAT SUCH DEDUCTION WILL BE ALLOWED TO THE MAXIMUM EXTENT OF 50% OF THE NET PREMIUM RECEIVED DURING THE RELEVANT YEAR. HENCE, T HIS CREATION OF RESERVE OUT OF THE PREMIUM RECEIVED DURING THE YEAR, IS A STATUTORY RE QUIREMENT AND THE SAME IS DULY RECOGNISED BY THE INCOME-TAX ACT/RULES. AS ALREADY MENTIONED HEREINABOVE, THIS ITA NO.1821/KOL/2016, ITA NO.1318/DEL/2012, ITA NO.1302/DEL/2012 & ITA NO.2003/KOL/2016 SREI INFRASTRUCTURE FINANCE LTD. 17 PARTICULAR RESERVE DOES NOT FALL IN THE CATEGORY OF THOSE RESERVES WHICH HAVE BEEN SPECIFIED IN EXPLANATION 1 (B) TO SECTION 115JB(2). THEREFORE, THIS RESERVE VIZ., THE RESERVE FOR UNEXPIRED RISK IN THE CASE OF A GENERAL INSURANCE BUSINESS, SHOULD NOT BE ADDED BACK FOR THE PURPOSE OF COMPUTATION OF BOOK P ROFIT U/S. 115JB(2) FOR MAT PURPOSES. ON THE BASIS OF THIS OBSERVATION, IT WAS HELD THAT THE ID AO'S ACTION IN ADDING BACK A SUM OF RS. 169,45,00,000/- BEING RESERVE CRE ATED FOR UNEXPIRED RISK, WAS NOT IN ACCORDANCE WITH THE RELEVANT PROVISIONS OF THE INCO ME-TAX ACT, 1961 AND ACCORDINGLY DELETED THE ADDITION. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND: '4. THE CIT(A) ERRED ON THE FACTS OF THE C ASE AND IN LAW IN HOLDING THE SUM OF RS. 1694500000 BEING THE RESERVE CREATED FOR UNEXPI RED RISK SHOULD BE CONSIDERED AS RESERVE FOR COMPUTING THE BOOK PROFIT UNDER SECTION 115JB OF THE INCOME-TAX ACT.'ID DR VEHEMENTLY RELIED ON THE ORDER OF THE ID AO. IN RES PONSE TO THIS, THE ID AR VEHEMENTLY RELIED ON THE ORDER OF THE ID CITA. 11.4. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THAT THE ID CITA HAD DEALT THIS ISSUE VERY ELABORATELY AND HAD GIVEN PROPER FINDING THAT THE RESERVE CREATED FOR UNEXPIRED RISK NEED NOT BE ADDED BACK FOR THE PURPOSE OF COMP UTATION OF BOOK PROFITS U/S 115JB OF THE ACT. THE REVENUE WAS NOT ABLE TO CONTROVERT THE FINDINGS OF THE ID CITA BEFORE US. HENCE WE FIND NO INFIRMITY IN THE ORDER PASSED BY T HE ID CITA IN THIS REGARD. ACCORDINGLY, THE GROUND NO. 4 RAISED BY THE REVENUE FOR ASST YEAR 2008-09 IS DISMISSED. 24. THE LD. AR ALSO RELIED ON THE DECISION OF HONB LE DELHI HIGH COURT IN CIT - VS.- MGF INDIA LTD. (2018) TAXMANN.COM 405 (DEL) WH ICH ALLOWED PROVISION FOR NPA IN COMPUTING BOOK PROFITS. LD. DEPARTMENTAL R EPRESENTATIVE RELIED ON THE CIT(A)S ORDER AND EARLIER ORDER OF ITAT DATED 27-0 2-2019 WHICH WE HAVE ALREADY DISCUSSED IN OUR EARLIER PARAS AND THE SAM E IS NOT BEING REPEATED FOR THE SAKE OF BREVITY. WE NOTE THAT PROVISION FOR NPA IS MADE AS PER DIRECTION 9 OF RBI PRUDENTIAL NORMS AND DISCLOSED SEPARATELY AS LI ABILITIES IN THE BALANCE SHEET AS PER DIRECTION 10 OF THE SAID PRUDENTIAL NORMS. T HE NON- PERFORMING ASSETS, AGAINST WHICH THE PROVISION IS MADE REMAINS INTACT WITHOUT ANY REDUCTION. BASED ON THE ABOVE FACTUAL AND LEGAL POSITION, WE ARE OF THE VIEW THAT PROVISION FOR NON- PERFORMING ASSETS CANNOT BE SAID TO BE PROVISION FO R DIMINUTION IN VALUE OF ASSETS TO ATTRACT DISALLOWANCE AS PER CLAUSE (I) OF EXPLAN ATION 1 TO SEC. 115JB(2) OF THE ACT. IN OTHER WORDS, BY MAKING A PROVISION FOR NPA, THERE WILL BE NO REDUCTION IN NPA. HENCE, CLAUSE (I) OF EXPLANATION TO SEC. 115J B(2) DOES NOT APPLY SINCE THERE IS NO REDUCTION IN VALUE OF ASSET. ACCORDINGL Y, THIS GROUND OF THE ASSESSEE IS ITA NO.1821/KOL/2016, ITA NO.1318/DEL/2012, ITA NO.1302/DEL/2012 & ITA NO.2003/KOL/2016 SREI INFRASTRUCTURE FINANCE LTD. 18 ALLOWED AND ASSESSING OFFICER IS DIRECTED TO DELETE ADDITION MADE OF RS. 13,71,00,000/- IN COMPUTING BOOK PROFIT U/S 115JB O F THE ACT. THESE GROUNDS OF ASSESSEE ARE ALLOWED. 25. CONCISE AND SUMMARIZED GROUND NO.6 IS REPRODUCED BE LOW FOR READY REFERENCE: (6). LD CIT(A) ERRED IN NOT TREATING EDUCATION CESS AS AN ALLOWABLE EXPENDITURE UNDER SECTION 37(1) OF THE ACT. (ADDITIONAL GROUND RAISED BY ASSESSEE IN ITA NO.1318/DEL/2012, FOR A.Y.2008-09, AND GROUND NO.3 RAISED BY THE ASSESSEE IN ITA NO.1821/KOL/16 FOR A.Y.2011-12). [ HON`BLE HIGH COU RT QUESTION NO. (V)]. 26. WE HEARD BOTH THE PARTIES AND CAREFULLY GONE TH ROUGH THE SUBMISSION PUT FORTH ON BEHALF OF THE ASSESSEE ALONG WITH THE DOCUMENTS FURNISHED AND THE CASE LAWS RELIED UPON, AND PERUSED THE FACT OF THE CASE INCLU DING THE FINDINGS OF THE LD CIT(A) AND OTHER MATERIALS AVAILABLE ON RECORD. WE NOTE THAT THIS TRIBUNAL IN ITS EARLIER ORDER DATED 27-02-2019, HAD ADMITTED THE AD DITIONAL GROUND AND DECIDED THE ISSUE ON MERITS. THE TRIBUNAL HAD DISALLOWED ED UCATION CESS ON THE BASIS OF FOLLOWING CONTENTIONS:- A) EDUCATION CESS IS AN ADDITIONAL SURCHARGE AND HE NCE FORMS OF INCOME TAX. B)DECISION OF KALIMATI INVESTMENT COMPANY LTD. -VS. - ITO (ITA NO.2706,4508/M/2010,2552,2553/M/2011) AND SESA GOA LTD. -VS.- JCIT (ITA NO. 72/PNJ/2012) ARE SQUARELY APPLICABLE. AGGRIEVED BY THE ORDER OF THIS TRIBUNAL, THE ASSES SEE FILED APPEAL BEFORE THE HONBLE HIGH COURT WHICH REMANDED BACK THE ISSUE TO THIS TRIBUNAL FOR FRESH CONSIDERATION. ACCORDINGLY, THE MATTER IS BEFORE US FOR RENEWED DELIBERATION. THE BRIEF FACTS QUA THE ISSUE IS THAT DURING THE RELEVA NT PREVIOUS YEAR, THE ASSESSEE HAS DEBITED EDUCATION CESS AMOUNTING TO RS. 22,36,508/- TO THE PROFIT AND LOSS ACCOUNT. LD. AR OF THE ASSESSEE SUBMITTED THAT EDUC ATION CESS IS NOT TAX AND HENCE NOT DISALLOWABLE U/S 40(A)(II) OF THE ACT. HE INVITED OUR ATTENTION TOWARDS ITA NO.1821/KOL/2016, ITA NO.1318/DEL/2012, ITA NO.1302/DEL/2012 & ITA NO.2003/KOL/2016 SREI INFRASTRUCTURE FINANCE LTD. 19 THE CBDT CIRCULAR NO. 91/58/66 - ITJ(19) DATED 18-0 5-1967, WHEREIN IT HAS BEEN CLARIFIED THAT THE EFFECT OF OMISSION OF THE WORD CESS FROM SEC. 40(A)(II) OF THE ACT IS THAT ONLY TAXES PAID ARE TO BE DISALLOWED AN D NOT CESS. RELEVANT EXTRACT OF CIRCULAR IS AS UNDER:- RECENTLY A CASE HAS COME TO THE NOTICE OF THE BOAR D WHERE THE ITO HAS DISALLOWED THE CESS' PAID BY THE ASSESSEE ON THE GROUND THAT THER E HAS BEEN NO MATERIAL CHANGE IN THE PROVISIONS OF S. 10(4) OF THE OLD ACT AND S. 40(A)( II) OF THE NEW ACT. THE VIEW OF THE ITO IS NOT CORRECT. CLAUSE 40(A) (I I) OF THE IT BILL, 1961 AS INTRODUCED IN THE PARLIAMENT STOOD AS UNDER: '(II) ANY SUM PAID ON ACCOUNT OF ANY CESS, RATE OR TAX LEVIED ON THE PROFITS OR GAINS OF ANY BUSINESS OR PROFESSION OR ASSESSED AT A PROPORT ION OF OR OTHERWISE ON THE BASIS OF ANY SUCH PROFITS OR GAINS'. WHEN THE MATTER CAME UP BEFORE THE SELECT COMMITTEE , IT WAS DECIDED TO OMIT THE WORD CESS' FROM THE CLAUSE. THE EFFECT OF THE OMISSION OF THE WORD CESS' IS THAT ONLY TAXES PAID ARE TO BE DISALLOWED IN THE ASSESSMENTS FOR TH E YEARS 1962-63 AND ONWARDS. THE BOARD DESIRE THAT THE CHANGED POSITION MAY PLEA SE BE BROUGHT TO THE NOTICE OF ALL THE ITOS SO THAT FURTHER LITIGATION ON THIS ACCOUNT MAY BE AVOIDED 27. THE LD. AR ALSO RELIED ON THE JUDGMENT OF HON'B LE RAJASTHAN HIGH COURT IN THE CASE OF CHAMBAL FERTILIZERS AND CHEMICALS LTD. VS. JCIT (ITA NO. 52/2018) WHICH AFTER TAKING INTO ACCOUNT AFOREMENTIONED CBDT CIRCULAR HELD THAT SEC. 40(A)(II) APPLIES ONLY TO TAXES AND NOT TO EDUCATIO N CESS. RELEVANT EXTRACT OF THE DECISION IS REPRODUCED FOR EASE OF REFERENCE:- 13. ON THE THIRD ISSUE IN APPEAL NO. 52/2018, IN V IEW OF THE CIRCULAR OF CBDT WHERE WORD 'CESS' IS DELETED, IN OUR CONSIDERED OPI NION, THE TRIBUNAL HAS COMMITTED AN ERROR IN NOT ACCEPTING THE CONTENTION OF THE ASSESSEE. APART FROM THE SUPREME COURT DECISION REFERRED THAT ASSESSMENT YEAR IS INDEPENDENT AND WORD CESS HAS BEEN RIGHTLY INTERPRETED BY THE SUPRE ME COURT THAT THE CESS IS NOT TAX IN THAT VIEW OF THE MATTER, WE ARE OF THE CONSI DERED OPINION THAT THE VIEW TAKEN BY THE TRIBUNAL ON ISSUE NO. 3 IS REQUIRED TO BE REVERSED AND THE SAID ISSUE IS ANSWERED IN FAVOUR OF THE ASSESSEE. ITA NO.1821/KOL/2016, ITA NO.1318/DEL/2012, ITA NO.1302/DEL/2012 & ITA NO.2003/KOL/2016 SREI INFRASTRUCTURE FINANCE LTD. 20 28. WE NOTE THAT COORDINATE BENCHES OF THIS TRIBUN AL IN THE FOLLOWING CASES HELD THAT EDUCATION CESS SHOULD BE ALLOWED AS AN EX PENSE. THE RELEVANT JUDGMENTS ARE GIVEN BELOW: (I) M/S ITC LIMITED -VS.-ACIT (ITA NO. 685/KOL/2014 ) THE ASSESSEES ADDITIONAL LAST/ SUBSTANTIVE GROUND AVERS THAT IT IS ENTITLED FOR THE EDUCATIONS SECONDARY HIGHER EDUCATION CESS AS OVERH EAD DEDUCTION AMOUNTING TO RS. 423618317 U/S 37 OF THE ACT. WE NOTE THAT HONBLE R AJASTHAN HIGH COURTS DECISION IN DB INCOME TAX APPEAL NO. 52/KOL/2018 M/S CHAMBAL FE RTILIZERS LTD. VS. DCIT DECIDED ON 31.07.2018 TAKES INTO ACCOUNT CBDT CIRCULAR DATE D 18.05.1967 FOR HOLDING SUCH CESS(ES) TO BE ALLOWABLE AS DEDUCTION. THEIR LORDSH IPS HOLD THAT SECTION 40A(II) APPLIES ONLY ON TAXES SUCH THAN EARN CESS(ES). WE THEREFORE REJECT THE REVENUES CONTENTIONS SUPPORTING THE IMPUGNED DISALLOWANCE. THE ASSESSEE S INSTANT SUBSTANTIVE GROUND IS ACCEPTED. THE ASSESSING OFFICER IS DIRECTION TO VER IFY ALL THE RELEVANT FACTS AND ALLOW THE IMPUGNED CESS (ES) AS DEDUCTION U/S 37 OF THE ACT. THE ASSESSEES APPEAL I.T.A. NO. 685/KO/2014 IS PARTLY ACCEPTED IN ABOVE TERMS. (II).PEERLESS GENERAL FINANCE & INVESTMENT CO. LTD. -VS. - DCIT (ITA NO. 937/KOL/2018) 37. ADDITIONAL GROUND RAISED BY THE ASSESSEE IN ITA NO. 937/KOL/2018 FOR A.Y.201011 READS AS UNDER:THAT ON THE FACTS AND IN THE CIRCUM STANCES OF THE CASE, THE AUTHORITIES BELOW ERRED IN NOT ALLOWING DEDUCTION U/S 37(1) OF THE INCOME TAX ACT,1961, ON ACCOUNT OF EDUCATION CESSES PAID BY THE ASSESSEE WHILE ARRI VING AT THE ASSESSED INCOME FOR THE YEAR UNDER APPEAL. 38. AFTER GIVING OUR THOUGHTFUL CONSIDERATION TO TH E SUBMISSION OF THE PARTIES AND PERUSING THE JUDICIAL DECISIONS RELIED UPON BY THE LD. AR, WE FIND THAT THE ISSUE INVOLVED IN THE PRESENT GROUND OF APPEAL IS NO LONGER RES IN TEGRA. THE EDUCATION CESS BEING NOT INCOME TAX IS ALLOWABLE AS DEDUCTION UNDER SECTIO N 37 (1) OF THE ACT. FOR THIS, WE RELY ON THE JUDGMENT OF THE COORDINATE BENCH OF IT AT KO LKATA IN THE CASE OF ITC LIMITED, ITA NO.685/KOL/2014, ORDER DATED 27.11.2018, WHEREI N IT WAS HELD THAT EDUCATION CESS IS AN ALLOWABLE EXPENDITURE UNDER SECTION 37(1) OF THE ACT. THEREFORE, WE DIRECT THE ASSESSING OFFICER TO VERIFY ALL THE RELEVANT FACTS AND ALLOW EDUCATION CESS AS DEDUCTION UNDER SECTION 37(1) OF THE ACT. (III) TEGA INDUSTRIES -VS.- ACIT (ITA NO. 404/KOL/2 017)- WE FURTHER TO NOTICE THAT ASSESSEE HAS RAISED AN I DENTICAL ADDITIONAL GROUND IN BOTH CASES SEEKING TO CLAIM EDUCATION CESS ON PROVI SION FOR INCOME-TAX AMOUNT OF RS. 71,65,049/- AND RS. 77,76,699 (ASSESSMENT YEAR WISE); RESPECTIVELY AS ALLOWABLE IN COMPUTING TOTAL INCOME OTHER THAN MAT U/S. 115JB OF THE ACT. HONBLE APEX COURTS LAND MARK DECISION NATIONAL TH ERMAL POWER CORPORATION LTD (NTPC) V/S. CIT (1998) 229 ITR 383 (SC) AS CONS IDERED BY THIS TRIBUNALS SPECIAL BENCH ORDER M/S. ALL CARGO GLOBAL LOGISTICS LTD V/S. DCIT (12) 137 1TD 26 (MUM.) SETTLES THE LAW THAT WE AN VERY WELL ENTE RTAIN SUCH A LEGAL QUESTION IN ITA NO.1821/KOL/2016, ITA NO.1318/DEL/2012, ITA NO.1302/DEL/2012 & ITA NO.2003/KOL/2016 SREI INFRASTRUCTURE FINANCE LTD. 21 ORDER TO DETERMINE THE CORRECT TAX LIABILITY WHEN A LL THE RELEVANT FACTS FORM PART OF RECORDS. WE THUS ALLOW ASSESSEES ADDITIONAL GROUND TO BE RAISED. 12. COMING TO MERITS OF THE HONBLE RAJASTHAN HIGH COURTS DECISION IN CHAMBAL FERTILISERS & CHEMICALS LIMITED V/S. JCIT(D.B INCOM E TAX APPEAL NO. 52/2018, DATED 31-07-2018 TAKING NOTE OF CBDTS CIRCULAR NO. 91/58/66 DATED 18-05-1965 AS WELL AS CO-ORDINATE BENCHS ORDER IN ITC LIMITED V/S. ACIT( ITA NO. 685/KOL/2014 DATED 27- 11-2018 HOLD THAT SUCH A CLA IM OF EDUCATION CESS IS VERY MUCH ALLOWABLE IN COMPUTING TOTAL INCOME UNDER THE PROVISIONS OF THE ACT. 29. THE LD DEPARTMENTAL REPRESENTATIVE RELIED ON TH E EARLIER DECISION OF ITAT DATED 27- 02-2019, WHEREIN THIS TRIBUNAL HAD DISAL LOWED THE CLAIM ON THE BASIS OF TWO CONTENTIONS: (I) EDUCATION CESS IS AN ADDITI ONAL SURCHARGE AND HENCE FORMS OF INCOME TAX AND (II) DECISION OF KALIMATI INVESTM ENT COMPANY LTD. -VS.- ITO (ITA NO.2706,4508/M/2010,2552,2553/M/2011) AND SESA GOA LTD. -VS.- JCIT (ITA NO. 72/PNJ/2012) SQUARELY APPLICABLE AGAINST T HE ASSESSEE. 30. WE ACCEPT THE SUBMISSIONS OF THE ASSESSEE CONC URRING WITH THE DECISIONS OF RAJASTHAN HIGH COURT AND BINDING FAVOURABLE DECISIO NS OF JURISDICTIONAL TRIBUNAL AND THUS WE ALLOW THE CLAIM OF THE EDUCATION CESS. THE AO IS DIRECTED TO ALLOW THE CLAIM OF EDUCATION CESS IN COMPUTING TOTAL INCO ME OF THE ASSESSEE COMPANY. THESE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 31. CONCISE AND SUMMARIZED GROUND NO.7 IS REPRODUCE D BELOW FOR READY REFERENCE: (7). ASSESSEE COMPANY PREPARES BOOKS OF ACCOUNTS AS PER RBI RULES. SECTION 115JB OF THE ACT IS NOT APPLICABLE TO THE ASSESSEE COMPANY, AS IT DOES NOT PREPARE BOOKS OF ACCOUNTS AS PER PART II AND PART III OF SCHEDULE VI OF THE COMPANIES ACT,1956. (ADDITIONAL GROUND RAISED BY ASSESSEE IN ITA NO.131 8/DEL/2012, FOR A.Y.2008-09). [ HON`BLE HIGH COURT QUESTION NO. (VI)]. 32. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE NOTE THAT IN EARLIER ORDER OF THE TRIBUNAL DATED 27-02-2019, THE TRIBUNAL DID NOT ADMIT THE ADDITIONAL GROUND CONTENDING IT TO BE AGAINST THE FACTS ON RECORD. ITA NO.1821/KOL/2016, ITA NO.1318/DEL/2012, ITA NO.1302/DEL/2012 & ITA NO.2003/KOL/2016 SREI INFRASTRUCTURE FINANCE LTD. 22 THE TRIBUNAL HELD THAT AS THERE WAS NO QUALIFICATIO N OR COMMENT BY THE STATUTORY AUDITORS, THE PLEA OF THE ASSESSEE THAT THE ACCOUNT S OF THE ASSESSEE IS NOT PREPARED AS PER PART II OF SCHEDULE VI OF THE COMPANIES ACT, 1956 IS FACTUALLY INCORRECT. BEFORE US, THE LD. AR CONTENDED THAT THE ASSESSEE HAD DULY PREPARED IT ACCOUNTS IN ACCORDANCE WITH COMPANIES ACT ALONG WITH RBI GUI DELINES WHEREVER APPLICABLE. SECTION 616 OF THE COMPANIES ACT PERMIT S THE ASSESSEE TO FOLLOW PROVISIONS OF RBI ACT. ACCORDINGLY, NO QUALIFICATIO N OR COMMENT OF THE AUDITORS WAS WARRANTED. CONSIDERING THE SUBMISSIONS OF THE L D. AR, WE ARE OF THE VIEW THAT THIS ISSUE IS PURELY LEGAL AND HENCE ADMITTED AND DECIDED ON MERITS OF THE CASE. 33. ON MERITS, THE LD. AR CONTENDED THAT THE ASSESS EE BEING A NON- BANKING FINANCE COMPANY, GOVERNED BY THE PROVISIONS OF RBI ACT, IS NOT PREPARING ITS PROFIT AND LOSS ACCOUNT STRICTLY AS PER PART II AND PART III OF SCHEDULE VI OF COMPANIES ACT, 1956 AND HENCE PROVISIONS OF SEC. 11 5JB ARE NOT APPLICABLE TO THE ASSESSEE. TO SUBSTANTIATE ITS CLAIM, THE ASSESS EE SUBMITTED A TABLE OF DEVIATIONS BETWEEN THE ACCOUNTS OF THE ASSESSEE AND ACCOUNTS AS PER COMPANIES ACT AND ACCOUNTING STANDARD. THE SAME IS REPRODUCED BELOW:- ITA NO.1821/KOL/2016, ITA NO.1318/DEL/2012, ITA NO.1302/DEL/2012 & ITA NO.2003/KOL/2016 SREI INFRASTRUCTURE FINANCE LTD. 23 ITA NO.1821/KOL/2016, ITA NO.1318/DEL/2012, ITA NO.1302/DEL/2012 & ITA NO.2003/KOL/2016 SREI INFRASTRUCTURE FINANCE LTD. 24 ITA NO.1821/KOL/2016, ITA NO.1318/DEL/2012, ITA NO.1302/DEL/2012 & ITA NO.2003/KOL/2016 SREI INFRASTRUCTURE FINANCE LTD. 25 ITA NO.1821/KOL/2016, ITA NO.1318/DEL/2012, ITA NO.1302/DEL/2012 & ITA NO.2003/KOL/2016 SREI INFRASTRUCTURE FINANCE LTD. 26 LD. AR FURTHER RELIED ON THE DECISION OF HONBLE BA NGALORE ITAT IN ITO -VS.- ATRIA HYDEL POWER LTD. (ITA NO. 534 TO 536/BANG/201 8) WHEREIN IT WAS HELD THAT THE PROVISIONS OF SEC. 115JB ARE NOT APPLICABLE TO THE ASSESSEE COMPANY WHICH PREPARED ITS ACCOUNTS UNDER THE COMPANIES ACT ALONG -WITH THE PROVISIONS OF ELECTRICITY ACT AND RULES, WHEREVER APPLICABLE. DEC ISIONS OF KOLKATA ITAT IN DPSC -VS.- DCIT (ITA NO. 890/KOL/2013 AND MUMBAI IT AT IN RELIANCE ENERGY LTD. -VS.- ACIT (ITA NO. 218/MUM/05) WERE ALSO REFE RRED. 34. ON THE OTHER HAND, LD. DR RELIED ON THE EARLIER ORDER OF THIS TRIBUNAL, IN ASSESSEE`S OWN CASE DATED 27-02-2019, WHEREIN THE S AID CLAIM HAD BEEN DISMISSED. 35. HAVING HEARD BOTH THE PARTIES, WE ARE OF THE VI EW THAT THERE IS MERIT IN THE EARLIER ORDER OF THIS TRIBUNAL IN ASSESSEE`S CASE, DATED 27-02-2019. EVEN THOUGH THE ASSESSEE HAS PREPARED ITS ACCOUNTS FOLLOWING TH E RBI GUIDELINES AND THE ACCOUNTS SO PREPARED IS STRICTLY NOT IN ACCORDANCE WITH PROVISIONS OF PART II & PART III OF SCHEDULE VI OF THE COMPANIES ACT, 1956, YET IT CANNOT BE SAID THAT PROVISIONS OF SEC 115JB WOULD NOT BE APPLICABLE TO THE ASSESSEE COMPANY. THE ASSESSEE COMPANY HAS INCORPORATED UNDER THE COMPANI ES ACT AND PREPARED ITS ACCOUNTS IN ACCORDANCE WITH PROVISIONS OF PART II & PART III OF SCHEDULE VI OF THE COMPANIES ACT, 1956. SINCE THERE IS NO SUCH OBSERVA TIONS BY THE AUDITORS ALSO IN THEIR AUDIT REPORT, WE DO NOT AGREE WITH LD AR FOR THE ASSESSEE AND THEREFORE, WE CONFIRM THE EARLIER ORDER PASSED BY THIS TRIBUNAL D ATED 27-02-2019. ACCORDINGLY, ITA NO.1821/KOL/2016, ITA NO.1318/DEL/2012, ITA NO.1302/DEL/2012 & ITA NO.2003/KOL/2016 SREI INFRASTRUCTURE FINANCE LTD. 27 THIS GROUND OF THE ASSESSEE IS DISMISSED AS DEVOID OF MERIT. 36 CONCISE AND SUMMARIZED GROUND NO.8 IS REPRODUCED BELOW FOR READY REFERENCE: (8).AMOUNT TRANSFERRED TO SPECIAL RESERVE IN COMPLI ANCE WITH THE PROVISIONS OF SECTION 45IC OF THE RESERVE BANK OF INDIA ACT, 1934, DURING THE YEAR UNDER CONSIDERATION OF RS. 22,00,00,0000/- BE EXCLUDED IN COMPUTING TOTAL INCO ME UNDER THE NORMAL PROVISIONS OF THE ACT. (ADDITIONAL GROUND RAISED BY ASSESSEE IN ITA NO.13 18/DEL/2012, FOR A.Y.2008- 09, GROUND NO.5 RAISED BY THE ASSESSEE IN ITA NO.18 21/KOL/16 FOR A.Y.2011-12 ). [ HON`BLE HIGH COURT QUESTION NO. ( (IV)]. 37. WE NOTE THAT LD AR FOR THE ASSESSEE AT THE OUTS ET ITSELF HAS FAIRLY AGREED THAT THIS ISSUE HAS BEEN ADJUDICATED AGAINST THE ASSESSE E, IN THE ASSESSEES OWN CASE, BY THE HONBLE DELHI HIGH COURT IN ITA NO.37 1/2012 & 372/2012. THIS IS MORE SPECIFICALLY DEALT IN PARA 12.3 OF THI S ORDER. A TRANSFER TO A SPECIFIC RESERVE CANNOT BE CHARGE ON PROFIT. IT IS NOT EXPENDITURE. IT IS APPROPRIATION OF PROFIT. RESPECTFULLY FOLLOWING THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN ITA NO.371/2012 & 372/2012, IN ASSESSEE`S OWN CASE, WE DISMISS THE GROUND RAISED BY THE ASSESSEE. 39. CONCISE AND SUMMARIZED GROUND NO.9 IS REPRODUCED B ELOW FOR READY REFERENCE: (9). THE LD CIT(A) ERRED IN DELETING THE ADDITION O F RS.22,00,00,000/- MADE BY THE AO ON ACCOUNT OF THE AMOUNT TRANSFERRED TO SPECIAL RES ERVE, ( OUT OF STATUTORY COMPULSION IN ACCORDANCE WITH SECTION 45-IC OF RBI ACT) WHILE COM PUTING BOOK PROFIT U/S 115JB OF THE ACT. (GROUND NO.3 RAISED BY REVENUE IN ITA NO. 1302 /DEL/12 FOR A.Y.2008-09). [ HON`BLE HIGH COURT QUESTION NO. (IX)]. ITA NO.1821/KOL/2016, ITA NO.1318/DEL/2012, ITA NO.1302/DEL/2012 & ITA NO.2003/KOL/2016 SREI INFRASTRUCTURE FINANCE LTD. 28 40. WE NOTE THAT THIS TRIBUNAL IN ITS EARLIER ORDER DATED 27.02.2019 HAD DISALLOWED THE GROUND RELYING ON THE DECISION OF DELHI HIGH CO URT IN ASSESSEES OWN CASE FOR A.Y 2006-07 & 2007-08 (ITA NO. 372/DEL/2012). IN T HE ABSENCE OF ANY OTHER JUDGMENT POINTED OUT BY THE A.R IN FAVOUR OF THE AS SESSEE, WE AGREE WITH THE VIEW OF THE EARLIER BENCH AND ACCORDINGLY THE GROUN D IS DECIDED IN FAVOUR OF THE REVENUE. THUS GROUND RAISED BY THE REVENUE IS ALLOW ED. 41. CONCISE AND SUMMARIZED GROUND NO.10 IS REPRODUC ED BELOW FOR READY REFERENCE: (10).LD CIT(A) ERRED IN DELETING THE DISALLOWANCE O F RS.57,72,000/- MADE BY AO ON ACCOUNT OF INTEREST PAID ON LOANS WHICH WERE ADVANC ED INTEREST FREE TO SUBSIDIARIES OF THE ASSESSEE COMPANY. (GROUND NO.1 RAISED BY REVENU E IN ITA NO. 1302/DEL/12 FOR A.Y.2008-09). 42. BRIEF FACTS QUA THE ISSUE ARE THAT THE DURING T HE ASSESSMENT YEAR UNDER CONSIDERATION, FROM THE DETAILS FILED BY THE ASSESS EE IT WAS NOTICED BY AO THAT THE ASSESSEE HAS GIVEN RS. 481 LAKHS AS INTEREST FREE L OANS TO ITS SUBSIDIARIES. IN THE COURSE OF THE ASSESSMENT PROCEEDINGS THE ASSESSEE W AS ASKED TO SUBMIT AS TO WHY PROPORTIONATE INTEREST RELATABLE TO EXTENDING INTER EST FREE LOAN TO SISTER CONCERNED SHOULD NOT BE DISALLOWED AS IT HAS BORROWED SUBSTAN TIAL FUNDS FOR WHICH SUBSTANTIAL AMOUNT OF INTEREST HAD BEEN PAID. IN RESPONSE, THE ASSESSEE, VIDE LETTER DATED 24.02. 2010, HAS FURNISHED WRITTEN SUBMISSIONS, WHICH IS REPRODUCED BELOW : '1 DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSM ENT YEAR UNDER CONSIDERATION, THE ASSESSEE HAD GIVEN INTEREST FREE LOAN TO ITS SU BSIDIARIES AMOUNTING TO RS. 481 LAKHS. IN THIS REGARD, YOUR GOODSELF HAS ASKED US T O SUBMIT AS TO WHY NOTIONAL INTEREST ON THE SAID LOAN SHOULD NOT BE DISALLOWED AS THE ASSESSEE BORROWED SUBSTANTIAL FUNDS FOR WHICH SUBSTANTIAL AMOUNT OF I NTEREST HAD BEEN PAID DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR U NDER CONSIDERATION. 2 AT THE OUTSET, IT IS SUBMITTED THAT THE ASSESSEE HA D SUFFICIENT INTERNAL FUNDS IN THE FORM OF RESERVES & SURPLUS TO FUND THE INTEREST FREE LOANS. AS PER THE AUDITED ITA NO.1821/KOL/2016, ITA NO.1318/DEL/2012, ITA NO.1302/DEL/2012 & ITA NO.2003/KOL/2016 SREI INFRASTRUCTURE FINANCE LTD. 29 ACCOUNTS OF THE ASSESSEE AS AT 31 MARCH 2008, IT CA N BE SEEN THAT THE OPENING BALANCE OF RESERVES AND SURPLUS STOOD AT RS. 36,794 LAKHS AND THE CLOSING BALANCE WAS RS. 52,399 LAKHS. FURTHER, THE ASSESSEE EARNED PROFIT AFTER TAX OF RS. 10,796 LAKHS DURING THE AY UNDER CONSIDERATION. HEN CE, IT IS AMPLY CLEAR THAT THESE INTERNAL ACCRUALS OF THE ASSESSEE FAR EXCEEDE D THE AMOUNT OF INTEREST FREE LOAN OF RS. 481 LAKHS ADVANCED TO SUBSIDIARIES. ACC ORDINGLY, IT IS SUBMITTED THAT THE INTEREST FREE ADVANCES WERE NOT MADE OUT OF INT EREST BEARING BORROWED FUNDS. HOWEVER, THE AO REJECTED THE CONTENTION OF THE ASSE SSEE AND NOTED THAT SINCE THE ASSESSEE COMPANY HAS PAID SUBSTANTIAL INTEREST ON B ORROWED FUNDS, THEREFORE DEDUCTION OF INTEREST ON BORROWED FUNDS CAN BE ALLO WED ONLY IF SUCH FUNDS ARE USED ONLY FOR THE PURPOSE OF BUSINESS. IF THE PAYME NT IS NOT FOR THE PURPOSE OF BUSINESS IT PUTS EXTRA BURDEN ON THE COMPANY BY WAY OF EXCESS AVOIDABLE INTEREST EXPENDITURE. IN VIEW OF THE ABOVE DISCUSSION, THE P ROPORTIONATE INTEREST @ 12% (AVERAGE COST OF BORROWINGS FOR THE ASSESSEE) WAS WORKED OUT BY AO TO THE TUNE RS. 57,72,000/- AND WAS DISALLOWED, BEING ATTRIBUT ABLE TO DIVERSION OF BUSINESS FUNDS FOR NON-BUSINESS PURPOSES. 43. ON APPEAL, THE LD. CIT(A) DELETED THE ADDITION MADE BY AO OBSERVING THE FOLLOWING: 4.2 THE AR OF THE ASSESSEE SUBMITTED THAT IT HAD SU FFICIENT INTERNAL FUNDS IN THE FORM OF RESERVE & SURPLUS TO FUND THE INTEREST FREE LOANS. THE ASSESSEE ALSO SUBMITTED AUDITED ACCOUNTS AS AT 31 ST MARCH 2008, WHEREIN OPENING & CLOSING BALANCE OF R ESERVES AND SURPLUS STOOD AT RS. 36,794 LACS AND RS. 52,399 LAC S RESPECTIVELY. FURTHER, THE ASSESSEE SUBMITTED THAT IT HAD EARNED PROFIT AFTER TAX OF RS . 10,796 LACS FOR THE ASSESSMENT YEAR UNDER CONSIDERATION AS PER ITS PROFIT & LOSS ACCOUN T WHICH WERE SUFFICIENT TO FINANCE INTEREST FREE LOAN OF RS. 481 LACS TO THE SISTER CO NCERNS. THUS, IT WAS STATED THAT THE INTEREST FREE LOANS WERE MADE OUT OF THE INTERNALLY GENERATED FUNDS AND NOT FROM THE INTEREST BEARING BORROWED FUNDS. IN THIS CONTEXT TH E AR OF THE ASSESSEE RELIED, INTER-ALIA, ON THE PRINCIPLES LAID DOWN BY THE DECISION OF MON BLE APEX COURT IN THE CASE OF MUNJAL SALES CORPORATION -VS- CIT AND ANR. (2008) 298 ITR 298 (SC) WHEREIN THE HONBLE APEX COURT HAS HELD THAT SINCE THE OPENING BALANCE OF OWN FUNDS AS ON 01-04-94 WAS RS.1.91 CRORES WHEREAS THE LOAN GIVEN TO THE SISTER CONCERN WAS A SMALL AMOUNT OF RS. 5 LACS, THE PROFITS EARNED BY THE ASSESSEE DURING THE RELEVANT YEAR WERE SUFFICIENT TO COVER THE IMPUGNED LOAN OF RS. 5 LACS AND HENCE IS ENTITL ED TO CLAIM DEDUCTION U/S 36(L)(III). 4.13 I HAVE PERUSED THE FACTS STATED IN THE ASSESS MENT ORDER AS WELL AS THOSE SUBMITTED BY THE ASSESSEE WRITTEN AND ORAL; ITA NO.1821/KOL/2016, ITA NO.1318/DEL/2012, ITA NO.1302/DEL/2012 & ITA NO.2003/KOL/2016 SREI INFRASTRUCTURE FINANCE LTD. 30 I AM IN AGREEMENT WITH THE ASSESSEE THAT THE FACTS OF THE ASSESSEE IS SQUARELY COVERED BY THE DECISION OF THE APEX COURT IN THE CASE OF MUNJA L SALES (SUPRA). THE ASSESSEE HAD OWNED FUNDS OF RS. 65,808 LACS AS ON 31 -03-2008 AN D DURING THE YEAR PROFIT OF RS. 10,796 LACS (PAT) HAS BEEN EARNED WHICH IS SUFFICIE NT TO FINANCE THE INTEREST FREE LOAN OF RS. 481 LACS TO THE SISTER CONCERNS. THUS, APPLYING THE PRINCIPLE AS LAID DOWN BY THE HONBLE APEX COURT, IT CANNOT BE PRESUMED THAT THE SUBSIDIARIES WERE PAID OUT OF THE BORROWED FUND BY THE ASSESSEE. THE DECISION OF ABHISHEK INDUSTRIES LTD.(SUPRA) AS RELIED BY THE A.O. HAS BEEN OVERRULED BY THE APEX COURT IN THE CASE OF MUNJAL SALES (SUPR A) WHICH IS IN FAVOUR OF THE ASSESSEE. BESIDES ABOVE, ADVANCED INTEREST FREE LOANS TO ITS WHOLLY OWNED SUBSIDIARIES OUT OF COMMERCIAL EXPEDIENCY FOR THE PURPOSE OF UTILIZING THE SAME IN THE BUSINESS OF THE SUBSIDIARIES IS A ALLOWABLE DEDUCTION IN TERMS OF T HE DECISION OF HONBLE APEX COURT IN THE CASE OF S.A BUILDERS LTD. -VS.- CIT(APPEALS) & ANOTHER (2006) 288 ITR 1 (SC). THE SAID STAND HAS BEEN FURTHER AFFIRMED BY THE JURISDI CTIONAL HIGH COURT IN THE CASE OF DALMIA CEMENT (SUPRA.) & BHARTI TELEVENTURE LTD (SU PRA.) RELYING ON THE DECISION OF THE APEX COURT. FURTHER, FROM PERUSAL OF THE BALANCE SHEET AND THE AUDITED ACCOUNTS OF THE COMPANY, IT LEAVES BEYOND DOUBT, THE FACT THAT THE ASSESSEE HAD SUFFICIENT OWN FUNDS FOR ADVANCING SUCH FUNDS TO ITS SUBSIDIARY COMPANY. THUS, BASED O N THE ABOVE FACTUAL AS WELL AS JUDICIAL PRONOUNCEMENTS, THE AO IS DIRECTED TO DELE TE THE DISALLOWANCE MADE. THIS GROUND IS THUS ALLOWED. WE HAVE HEARD LD DR FOR THE REVENUE AND ALSO GONE T HROUGH THE FINDINGS OF LD CIT(A). THE CONCLUSIONS/FINDINGS ARRIVED AT BY THE CIT(A) ARE CORRECT AND ADMIT NO INTERFERENCE BY US. WE, APPROVE AND CONFIRM THE ORDER OF THE CIT(A). 44. CONCISE AND SUMMARIZED GROUND NO.11 IS REPRODUCED B ELOW FOR READY REFERENCE: (11). LD CIT(A) ERRED IN DELETING THE ADDITION OF R S.26,53,10,000/- MADE BY AO ON ACCOUNT OF DISALLOWANCE U/S 14A, WHILE COMPUTING BO OK PROFIT U/S 115JB OF THE I.T. ACT. (GROUND NO.4 RAISED BY REVENUE IN ITA NO. 1302/DEL/ 12 FOR A.Y.2008-09, GROUND NO.3 RAISED BY REVENUE IN ITA NO.2003/KOL/16, FOR A.Y.20 11-12 ). 45. WE HEARD BOTH THE PARTIES AND CAREFULLY GONE TH ROUGH THE SUBMISSION PUT FORTH ON BEHALF OF THE ASSESSEE ALONG WITH THE DOCUMENTS FURNISHED AND THE CASE LAWS RELIED UPON, AND PERUSED THE FACT OF THE CASE INCLU DING THE FINDINGS OF THE LD ITA NO.1821/KOL/2016, ITA NO.1318/DEL/2012, ITA NO.1302/DEL/2012 & ITA NO.2003/KOL/2016 SREI INFRASTRUCTURE FINANCE LTD. 31 CIT(A) AND OTHER MATERIALS AVAILABLE ON RECORD. WE NOTE THAT THE PROVISIONS RELATING TO ADJUSTMENTS BY WAY OF INCREASE AND DECR EASE TO THE NET PROFIT SHOWN BY THE ASSESSEE IN PROFIT & LOSS ACCOUNT, ARE VERY EXP LICIT IN SECTION 115JB OF THE ACT. THE ITEMS WHICH ARE TO BE ADDED TO THE NET PRO FIT HAVE BEEN LISTED OUT IN EXPLANATION 1 TO THAT SECTION. THE LEARNED AO SHOUL D ADHERE TO THAT LIST AND CANNOT TRAVEL BEYOND THESE ITEMS. SINCE THERE IS N O MENTION OF SECTION 14A IN THE SAID EXPLANATION 1 TO SECTION 115JB, THE SAME CANNO T BE ADDED TO RE-DETERMINE THE QUANTUM OF 'BOOK PROFIT'. THE PROVISIONS OF SE CTION 115JB RELATING TO COMPUTATION OF BOOK PROFIT ARE AMPLY CLEAR AND UNAM BIGUOUS. THESE PROVISIONS DO NOT LEAVE ANY ROOM FOR ADJUSTMENT BY THE ASSESSI NG OFFICER OTHER THAN THOSE MENTIONED IN EXPLANATION 1 TO SECTION 115JB TO THE NET PROFIT REFLECTED IN THE ACCOUNTS OF ANY ASSESSEE AND ADJUSTMENT BY WAY OF D ISALLOWANCE U/S 14A IS NOT INCLUDED IN THE SAID EXPLANATION. THIS ISSUE IS ALS O COVERED BY THE JUDGMENT OF THE SPECIAL BENCH OF TRIBUNAL IN THE CASE OF ACIT VS. V IREET INVESTMENTS (P) LTD, IN ITA NO.502/DEL/2012. THEREFORE, SUCH UPWARD REVISIO N IN THE SUM OF RS. 26,53,10,000/-TO THE BOOK-PROFIT BY MAKING DISALLOW ANCE SECTION 14A READ WITH RULE 8D IS NOT PERMITTED THAT BEING SO, WE DECLINE TO INTERFERE WITH THE ORDER OF ID. CIT (A) DELETING THE AFORESAID ADDITION. HIS OR DER ON THIS ISSUE IS, THEREFORE, UPHELD AND THE GROUNDS OF APPEAL OF THE REVENUE ARE DISMISSED. 46. CONCISE AND SUMMARIZED GROUND NO.12 IS REPRODUC ED BELOW FOR READY REFERENCE: (12). LD CIT(A) ERRED IN TREATING THE CHARGE OF INT EREST U/S 234C AS CONSEQUENTIAL IN NATURE AND NOT DIRECTING THE AO TO COMPUTE INTEREST U/S 234C ON THE TAX DUE ON RETURNED INCOME. IT IS A SETTLED POSITION OF LAW THAT INTEREST U/S 2 34C OF THE ACT SHOULD BE CHARGED ON THE TAX DUE ON RETURNED INCOME. THEREFORE, WE DI RECT THE ASSESSING OFFICER TO CHARGE INTEREST U/S 234C OF THE ACT ON THE TAX DUE ON RETURNED INCOME. ITA NO.1821/KOL/2016, ITA NO.1318/DEL/2012, ITA NO.1302/DEL/2012 & ITA NO.2003/KOL/2016 SREI INFRASTRUCTURE FINANCE LTD. 32 47. CONCISE AND SUMMARIZED GROUND NO.13 IS REPRODUC ED BELOW FOR READY REFERENCE: (13). LD CIT(A) ERRED IN ADMITTING DEBENTURES REDEM PTION RESERVE AS ALLOWABLE EXPENSES U/S115JB OF THE ACT. (GROUND NO.3 RAISED B Y REVENUE IN ITA NO. 2003/KOL/16, FOR A.Y.2011-12) 48. WE HAVE HEARD BOTH THE PARTIES. WE NOTE THAT THE G ROUND 13 NOTED ABOVE IS WITH REGARD TO ADDITION OF AMOUNT TRANSFERRED TO DE BENTURE REDEMPTION RESERVE (DRR) IN COMPUTING BOOK PROFIT U/S 115JB OF THE ACT . THE ASSESSEE HAD NOT ADDED AMOUNT TRANSFERRED TO DRR OF RS. 22,28,00,000 /- AS DRR IS NEITHER RESERVE NOR UNASCERTAINED PROVISION TO ATTRACT ADD ITION UNDER CLAUSE (B) OR CLAUSE (I) OF EXPLANATION 1 TO SEC. 115JB (2) OF THE ACT. WITHOUT CONSIDERING THE ABOVE, ASSESSING OFFICER ADDED DRR IN COMPUTING BOOKS PROF ITS. ON APPEAL, LD. CIT(A) DELETED THE DISALLOWANCE ON THE BASIS OF PRINCIPLES LAID IN THE DECISION OF APEX COURT IN NATIONAL RAVON CORPORATION LTD. VS. CIT (1 997) 227 ITR 764 (SC). AGGRIEVED THE REVENUE IS IN APPEAL BEFORE US. THE LD. D.R DID NOT PRODUCE ANY DECISION AGAINST THE ASSESSEE. WHEREAS THE ASSESSEE FILED COMPUTATION OF DRR WITH THE PAPER BOOK SHOWING THAT IT IS AN ASCERTAIN ED LIABILITY AND NOT A RESERVE. THE LD A.R. ALSO RELIED ON A CATENA OF JUDGMENTS SQ UARELY COVERING THE ISSUE IN FAVOUR OF THE ASSESSEE:- IOL LTD. VS. DCIT (2003) 81 TTJ 525 (CAL) LMJ INTERNATIONAL LTD. VS. DCIT (ITA NO. 230/KOL/20 13) DCIT VS. M/S EXIDE INDUSTRIES LTD. (ITA NO. 2518/KO L/2004) ACIT VS. USHA MARTIN LTD. (ITA NO. 112/KOL/2006). IN VIEW OF THE ABOVE, WE ARE OF THE VIEW THAT THE D RR IS ASCERTAINED LIABILITY AND NOT A RESERVE. ACCORDINGLY, THE REVENUES GROUND IS DISMISSED. ITA NO.1821/KOL/2016, ITA NO.1318/DEL/2012, ITA NO.1302/DEL/2012 & ITA NO.2003/KOL/2016 SREI INFRASTRUCTURE FINANCE LTD. 33 49. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE AND REVENUE ARE ALLOWED TO THE EXTENT INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 31 / 12/2019. SD/- (A. T. VARKEY) SD/- (A. L. SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /KOLKATA; DATED: 31/12/2019 (SB, SR. PS) / COPY OF THE ORDER FORWARDED TO : 1. / THE ASSESSEE - SREI INFRASTRUCTURE FINANCE LTD. 2. / THE REVENUE- (I) DCIT, CIRCLE-11(2), KOLKATA (II) ADDL. CIT, RANGE -9, NEW DELHI 3. ( ) / THE CIT(A), 4. / CIT 5. ! $$% , % , / DR, ITAT, KOLKATA 6. ( / GUARD FILE. //TRUE COPY// BY ORDER ASSISTANT REGISTRAR, I.T.A.T, KOLKATA BENCHES, KOLKATA .
