Indowind Energy Ltd., CHENNAI V. ACIT, CHENNAI

ITA 938/CHNY/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8271 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-10-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 27-07-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 27-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUPRIYO PAL
• Assessee Lawyers: S SRIDHAR
• Keywords: Depreciation; Earning of tax free income; Deemed to accrue or arise in india; Unabsorbed depreciation; Revenue expenditure
• Section: 143(3); 14A; 115JB; 12; 10; 11

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B B ENCH, CHENNAI . , ' # . $ , & ' BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICI AL MEMBER ./ I.T.A.NO.938/MDS/2015 ( / ASSESSMENT YEAR: 2011-12) M/S. INDOWIND ENERGY LTD. KOTHARI BUILDINGS, IV FLOOR, 114, NUNGAMBAKKAM HIGH ROAD, CHENNAI -600 034. VS THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-II(3), CHENNAI-34. PAN: AAACI1806M ( /APPELLANT) ( /RESPONDENT) & ./ I.T.A.NO.1825/MDS/2015 ( / ASSESSMENT YEAR: 2011-12) THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-II(3), CHENNAI-34. VS M/S. INDOWIND ENERGY LTD. KOTHARI BUILDINGS, IV FLOOR, 114, NUNGAMBAKKAM HIGH ROAD, CHENNAI - 600 034. PAN: AAACI1806M ( /APPELLANT) ( /RESPONDENT) ASSESSEE BY : MR. S.SRIDHAR, ADVOCATE REVENUE BY : MR. SUPRIYO PAL, JCIT /DATE OF HEARING : 4 TH AUGUST, , 2016 /DATE OF PRONOUNCEMENT : 27 TH OCTOBER, 2016 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THESE ARE APPEALS FILED BY THE ASSESSEE AND THE REVENUE RESPECTIVELY AGGRIEVED BY THE ORDER OF TH E LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-6, CHENNAI DAT ED 23.01.2015 IN ITA NO.235/CIT(A)-6/2014-15 PASSED UN DER 2 ITA NO.938 & 1825/MDS/2015 SECTION 143(3) R.W.S. 250(6) OF THE ACT. SINCE BOTH THESE APPEALS PERTAIN TO THE SAME ASSESSEE, THEY ARE HEAR D TOGETHER AND DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NO.938/MDS/2015 (A.Y. 2011-12): 2. THE ASSESSEE HAS RAISED SEVERAL GROUNDS IN ITS A PPEAL, HOWEVER, THE CRUXES OF THE ISSUES ARE AS FOLLOWS:- (I) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE DISALLOWANCE MADE BY TH E LEARNED ASSESSING OFFICER BY INVOKING THE PROVISION S OF SECTION 14A R.W.R 8D FOR RS.7,87,477/- TOWARDS EXPENDITURE INCURRED FOR MAINTAINING TAX FREE PORT FOLIO WHEREIN THE INCOME DERIVED IS EXEMPT FROM TAX FOR T HE PURPOSE OF COMPUTING TAX UNDER SECTION 115JB OF THE ACT. (II) THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) HAS ERRED IN CONFIRMING THE ORDER OF THE LEARNED ASSESSING OFFICER WHO HAD DISALLOWED RS.1,00,00,000 /- BEING THE COMPENSATION PAID FOR DELAYED COMMISSIONING OF WINDMILLS. (III) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN SUSTAINING THE DISALLOWANCE MADE BY THE LEARNED ASSESSING OFFICER FOR RS.4,73,88,435/- BEING THE EXPENSES RELATED TO ISSUANCE OF FOREIGN CURRENCY CONVERTIBLE BONDS IN T HE FINANCIAL YEAR 2007-08 IN THE NORMAL/REGULAR COMPUTATION OF TAXABLE TOTAL INCOME WITHOUT ASSIGNI NG PROPER REASONS AND JUSTIFICATIONS. 3 ITA NO.938 & 1825/MDS/2015 IV) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN SUSTAINING THE DISALLOWANCE OF RS.1,36,56,865/- MADE BY THE LEARNED ASSESSING OFFICER BEING THE DIFFERENCE IN DEPRECIATION AS PER COMPANIES ACT AND THE HIGHER DEPRECIATION CLAIMED B Y THE ASSESSEE AS NOT PRESSED BEFORE THE LEARNED ASSESSING OFFICER. ITA NO.1825/MDS/2015 (A.Y. 2011-12): 3. THE REVENUE HAS RAISED SEVERAL GROUNDS IN ITS AP PEAL, HOWEVER, THE CRUX OF THE ISSUE IS AS FOLLOWS:- THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS.9,33,92,55 5/- MADE BY THE LEARNED ASSESSING OFFICER BEING THE IMPAIRMENT LOSSES CLAIMED BY THE ASSESSEE AS PER ACCOUNTING STANDARD-28 WHILE COMPUTING THE TAX UNDE R SECTION 115JB OF THE ACT. 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A LIMITED COMPANY ENGAGED IN THE BUSINESS OF GENERATION OF PO WER AND COMMISSIONING OF WINDMILL FILED ITS RETURN OF I NCOME FOR THE ASSESSMENT YEAR 2011-12 ON 28.09.2011. ON 12.11 .2013 THERE WAS A SURVEY CONDUCTED IN THE CASE OF THE ASS ESSEE IN ITS PREMISES AND SUBSEQUENTLY ASSESSMENT WAS COMPLE TED UNDER SECTION 143(3) OF THE ACT WHEREIN THE LEARNED ASSESSING OFFICER MADE SEVERAL ADDITIONS WHICH WAS SUBSTANTIALLY CONFIRMED BY THE LEARNED COMMISSIONER OF 4 ITA NO.938 & 1825/MDS/2015 INCOME TAX (APPEALS) WHO HAD ALSO GIVEN CERTAIN REL IEF TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), THE ASSESSEE AND REVENUE ARE BOTH IN APPEAL BEFORE US. GROUND NO.1:DISALLOWANCE UNDER SECTION 14A R.W.R 8D FOR RS.7,87,477/- TOWARDS EXPENDITURE INCURRED FOR EAR NING EXEMPT INCOME WHILE COMPUTING TAX UNDER SECTION 115 JB OF THE ACT: 5.1 AT THE OUTSET, THE LEARNED AUTHORIZED REPRESENT ATIVE SUBMITTED THAT THIS ISSUE IS COVERED BY THE DECISIO N OF THE CHENNAI BENCH OF THE TRIBUNAL IN THE CASE OF M/S. B EACH MINERALS COMPANY PVT.LTD., VS. ACIT IN ITA NOS.2110 & 2188/MDS/2014 DATED 06.08.2015. THE LEARNED DEPARTM ENTAL REPRESENTATIVE COULD NOT CONTROVERT TO THE SUBMISSI ONS OF THE LEARNED AUTHORIZED REPRESENTATIVE. 5.2 AFTER HEARING BOTH THE SIDES, WE FIND MERIT IN THE SUBMISSIONS OF THE LEARNED AUTHORIZED REPRESENTATIV E BECAUSE THE CHENNAI BENCH OF THE TRIBUNAL IN THE CA SE CITED SUPRA HAS HELD THAT WHILE COMPUTING THE BOOK PROFI T OF THE COMPANY UNDER SECTION 115JB OF THE ACT WHICH IS A S ECTION 5 ITA NO.938 & 1825/MDS/2015 WITH FICTION ANOTHER PROVISION WITH FICTION SUCH AS SECTION 14A CANNOT BE IMPORTED. THE GIST OF THE DECISION IS RE PRODUCED HEREIN BELOW FOR REFERENCE:- 8.1. GROUND NO.5.(A) COMPUTATION OF BOOK PROFIT U/S.115JB OF THE ACT BY GIVING EFFECT TO THE DISALLOWANCE OF EXP ENDITURE MADE INVOKING THE PROVISIONS OF THE SECTION-14A OF THE ACT FOR ` 3,11,34,630/- AND ALSO THE DISALLOWANCE OF EXPENDIT URE UNDER THE NORMAL PROVISIONS OF THE ACT. 8.1.1 THE LD. ASSESSING OFFICER WHILE COMPUTING T HE TAX AS PER PROVISIONS OF SECTION 115JB OF THE ACT MADE ADDITIO NS TO THE BOOK PROFIT WITH RESPECT TO THE DISALLOWANCE MADE U /S.14A OF THE ACT READ WITH RULES-8D OF THE INCOME TAX RULES. ON APPEAL, THE LD. CIT (A) CITING THE PROVISIONS OF CLAUSE (F) OF EXPLANATION-1 TO SECTION-115JB, CONFIRMED THE ORDER OF THE LD. ASSES SING OFFICER. THE RELEVANT PORTION OF THE ORDER OF THE LD. CIT (A ) IS REPRODUCED HEREIN BELOW FOR REFERENCE:- 10.2 I HAVE GONE THROUGH THE FACTS AND CIRCUMSTAN CES OF THE CASE. THE ASSESSING OFFICER HAS TAXED THE INCOM E U/S.115JB SINCE THE TAX ON BOOK PROFITS IS MORE THA N THE TAX UNDER NORMAL COMPUTATION. WHILE DOING SO, SHE MADE DISALLOWANCE OF THE AMOUNT RELATABLE TO EXEMPT INCO ME ON THE BASIS OF THE AMOUNT WORKED OUT U/S.14A R.W.RULE 8D UNDER NORMAL COMPUTATION. THE PROVISIONS OF CLAUSE (F) OF EXPLANATION-1 TO S.115JB MAKES IT ABUNDANTLY CLEAR THAT THE AMOUNT OF EXPENDITURE RELATABLE TO ANY EXEMP T INCOME, OTHER THAN S.10(38), IS LIABLE TO BE ADDED BACK TO THE AMOUNT OF NET PROFIT AS SHOWN IN THE P&L A/C. RELIANCE IS PLACED ON THE LATEST DECISION OF THE ITAT MUMBAI IN THE CASE OF DABUR INDIA LTD., 37 TAXMANN.COM 289. RELIA NCE IS ALSO PLACED ON THE LATEST DECISION OF THE ITAT MUMB AI IN THE CASE OF RBK SHARE BROKING P. LTD IN ITA NO.6678 & 7546/MUM/2011 DATED 24.7.2013 WHEREIN IT WAS HELD T HAT THE AMOUNT DISALLOWABLE U/S.14A CAN BE ADDED BACK W HILE COMPUTING BOOK PROFIT UNDER EXPLANATION-1 TO S. 115JB(PARA 6). RESPECTFULLY FOLLOWING THE ABOVE DEC ISIONS, I UPHOLD THE ADDITION MADE BY THE ASSESSING OFFICER . THIS GROUND IS DISMISSED. HOWEVER, ON PERUSING THE EXPLANATION-1(F) OF SECTIO N-115JB(2) OF THE ACT, WE DO NOT FIND MERIT IN THE CONTENTION OF THE LD. CIT (A). THE RELEVANT PROVISION OF THE ACT IS EXTRACTE D HEREIN BELOW FOR REFERENCE:- 6 ITA NO.938 & 1825/MDS/2015 SECTION.115JB EXPLANATION-[1] FOR THE PURPOSES OF THIS SECTION, BOOK PROFIT MEANS THE NET PROFIT AS SHOWN IN THE PROFIT AND LOS S ACCOUNT FOR THE RELEVANT PREVIOUS YEAR PREPARED UNDER SUB-SECTI ON(2), AS INCREASED BY (A) TO (E) --------------------------------------- ------------- (F) THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABLE TO A NY INCOME TO WHICH [SECTION-10 (OTHER THAN THE PROVISI ONS CONTAINED IN CLAUSE (38) THEREOF] OR SECTION 11 OR SECTION 1 2 APPLY; (G) TO (J) --------------------------------------- -------------- FROM THE ABOVE IT IS APPARENT THAT THE AFORESAID PR OVISION OF THE ACT DOES NOT REFER TO ANY DISALLOWANCE MADE U/S.14A OF THE ACT WHILE ARRIVING AT THE BOOK PROFIT FOR THE PURPOSE O F SECTION- 115JB(2) OF THE ACT. FURTHER SECTION 14A OF THE ACT IS A PROVISION WITH FICTION DISALLOWING THE DEEMED EXPENDITURE ATT RIBUTABLE TO EXEMPT INCOME VIZ., DIVIDEND INCOME U/S. 10 OF THE ACT AND SECTION 115JB OF THE ACT IS ALSO A PROVISION WITH F ICTION FOR PAYMENT OF TAX IN RESPECT OF DEEMED INCOME. THEREFO RE WHILE COMPUTING THE PROFIT FOR THE PURPOSE OF SECTION 115 JB OF THE ACT ANOTHER PROVISION WITH FICTION CANNOT BE SUPERIMPOS ED. HENCE THE QUESTION OF INCREASING THE BOOK PROFIT DUE TO THE DISALLOWANCE U/S.14A OF THE ACT WILL NOT ARISE. HOW EVER, IN THE INSTANT CASE OF THE ASSESSEE, SINCE WE HAVE ALREADY DELETED THE ADDITION MADE U/S.14A, INCREASING THE BOOK PROFIT W ILL NOT ARISE. FURTHER THE DECISION OF HONBLE APEX COURT CITED BY THE ASSESSEE IN THE CASE M/S.APOLLO TYRES LTD. VS. CIT REPORTED IN 255 ITR 273 IS ALSO SQUARELY APPLICABLE TO THE CASE OF THE ASSESSEE. THE GIST OF THE SAME IS REPRODUCED HEREIN BELOW FOR REF ERENCE:- THE ASSESSING OFFICER, WHILE COMPUTING THE BOOK PR OFITS OF A COMPANY UNDER SECTION 115J OF THE INCOME-TAX ACT, 1 961, HAS ONLY THE POWER OF EXAMINING WHETHER THE BOOKS OF ACCOUNT ARE CERTIFIED BY THE AUTHORITIES UNDER THE COMPANIES ACT AS HAVIN G BEEN PROPERLY MAINTAINED IN ACCORDANCE WITH THE COMPANIES ACT. TH E ASSESSING OFFICER, THEREAFTER, HAS THE LIMITED POWER OF MAKIN G INCREASES AND REDUCTIONS AS PROVIDED FOR IN THE EXPLANATION TO SE CTION 115J . THE ASSESSING OFFICER DOES NOT HAVE THE JURISDICTION TO GO BEHIND THE NET PROFITS SHOWN IN THE PROFIT AND LOSS ACCOUNT EXCEPT TO THE EXTENT PROVIDED IN THE EXPLANATION. THE USE OF THE WORDS IN ACCORDANCE WITH THE PROVISIONS OF PARTS II AND III OF SCHEDULE VI TO THE COMPANIES ACT IN SECTION 115J WAS MADE FOR THE LIM ITED PURPOSE OF EMPOWERING THE ASSESSING OFFICER TO RELY UPON THE A UTHENTIC STATEMENT OF ACCOUNTS OF THE COMPANY. WHILE SO LOOK ING INTO THE ACCOUNTS OF THE COMPANY, THE ASSESSING OFFICER HAS TO ACCEPT THE 7 ITA NO.938 & 1825/MDS/2015 AUTHENTICITY OF THE ACCOUNTS WITH REFERENCE TO THE PROVISIONS OF THE COMPANIES ACT, WHICH OBLIGATE THE COMPANY TO MAINTA IN ITS ACCOUNTS IN A MANNER PROVIDED BY THAT ACT AND THE S AME TO BE SCRUTINISED AND CERTIFIED BY STATUTORY AUDITORS AND APPROVED BY THE COMPANY IN GENERAL MEETING AND THEREAFTER TO BE FIL ED BEFORE THE REGISTRAR OF COMPANIES WHO HAS A STATUTORY OBLIGATI ON ALSO TO EXAMINE AND BE SATISFIED THAT THE ACCOUNTS OF THE C OMPANY ARE MAINTAINED IN ACCORDANCE WITH THE REQUIREMENTS OF T HE COMPANIES ACT. SUB-SECTION (1A) OF SECTION 115J DOES NOT EMPO WER THE ASSESSING OFFICER TO EMBARK UPON A FRESH ENQUIRY IN REGARD TO THE ENTRIES MADE IN THE BOOKS OF ACCOUNT OF THE COMPANY . FROM THE ABOVE DECISION IT IS CLEAR THAT WHILE COMP UTING THE BOOK PROFIT OF THE COMPANY UNDER THE PROVISIONS OF SECT ION 115JB OF THE ACT; ANY DISALLOWANCE MADE UNDER THE NORMAL PROVISI ONS OF THE ACT ALSO CANNOT BE GIVEN EFFECT TO FOR ARRIVING AT THE BOOK PROFIT FOR THE PURPOSE OF SECTION 115JB OF THE ACT. ACCORDINGLY, THIS GROUND RAISED BY THE ASSESSEE IS ALLOWED IN ITS FAVOUR . 5.3 THEREFORE, FOLLOWING THE AFORESAID DECISION OF THE CHENNAI BENCH OF THE TRIBUNAL, WE HEREBY HOLD THAT IN THE CASE OF THE ASSESSEE PROVISIONS OF SECTION 14A CANN OT BE INVOKED FOR THE PURPOSE OF COMPUTING TAX UNDER SECT ION 115JB OF THE ACT. THUS, THIS GROUND RAISED BY THE A SSESSEE IS HELD IN ITS FAVOUR. GROUND NO.2: DISALLOWANCE OF RS.1,00,00,000/- BEIN G THE COMPENSATION PAID FOR DELAYED COMMISSIONING OF WINDMILLS . 6.1 THE ASSESSEE HAD CLAIMED RS.1.00 CRORE AS COMPENSATION PAYABLE TO ITS CLIENTS M/S. BEWIND PO WER PVT. LTD., - RS.50.00 LAKHS AND M/S.RAVELLO ADVERTISING PVT. LTD.,- 8 ITA NO.938 & 1825/MDS/2015 RS.50.00 LAKHS DUE TO SHORTAGE IN GENERATION OF POW ER BY THE MACHINES SUPPLIED TO THEM AND GUARANTEED BY THE ASS ESSEE. THE LEARNED ASSESSING OFFICER DISALLOWED THE SAME CONSIDERING IT TO BE BOGUS PAYMENT BECAUSE OF THE F OLLOWING REASONS:- I) THE ASSESSEE HAS NOT PRODUCED ANY AGREEMENT IN SUPPORT OF ITS CLAIM. II) THE ASSESSEE HAS NOT PRODUCED ANY EVIDENCE FOR HAVING MADE SUCH PAYMENTS. 6.2 ON APPEAL, THE LEARNED COMMISSIONER OF INCOME T AX (APPEALS) CONFIRMED THE ORDER OF THE LEARNED ASSESS ING OFFICER WHO HAD MADE THE FOLLOWING FURTHER OBSERVAT IONS:- I) M/S. BEWIND POWER LTD. AND M/S. REVELLO ADVERTIS ING ARE SISTER CONCERNS OF THE ASSESSEE WITH COMMON MANAGEMENT AND DIRECTORS. II) THE ASSESSEE THOUGH HAVE BEEN SUPPLYING WINDMIL LS TO SEVERAL COMPANIES, NO SUCH COMPENSATION WAS EVER PAID TO ITS OTHER CLIENTS. 9 ITA NO.938 & 1825/MDS/2015 III) BOTH THE SISTER CONCERNS OF THE ASSESSEE ARE L OSS MAKING COMPANIES. 6.3 BEFORE US, THE LEARNED AUTHORIZED REPRESENTATIV E SUBMITTED THAT THE PAYMENT DUE TO THE CLIENTS OF TH E ASSESSEE ARE FOR COMPENSATING THEM BECAUSE THE WINDMILLS SUP PLIED BY THE ASSESSEE DID NOT PRODUCE THE PROMISED OUTPUT OF POWER AND THEREFORE, IT IS GENUINE EXPENDITURE OF THE ASS ESSEE COMPANY. 6.4 THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND ARGUED IN SUPPORT OF THE ORDER OF THE REVENUE. 6.5 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE MATERIALS ON RECORD. ON AN IDENTICAL IS SUE WHERE THE ASSESSEE HAD MADE PAYMENTS TO SOME OF ITS CLIEN TS AS COMPENSATION, THIS BENCH OF THE TRIBUNAL IN THE ASS ESSEES OWN CASE IN ITA NO. 936 & 937/MDS/2015 DATED 25 TH OCTOBER, 2016 HAD ALLOWED THE APPEAL OF THE ASSESSEE IN ITS FAVOUR. 10 ITA NO.938 & 1825/MDS/2015 THE GIST OF THE RELEVANT PORTION OF THE ORDER IS RE PRODUCED HEREIN BELOW FOR REFERENCE:- PAGE 15, PARA9.5 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS ON RECORD. FROM THE FACT S OF THE CASE, WE FIND MERIT IN THE CONTENTION OF THE LE ARNED AUTHORIZED REPRESENTATIVE. THE AMOUNT OF RS.65.00 L AKHS PAID BY THE ASSESSEE TO ITS CLIENT WAS DUE TO THE D ELAY IN COMMISSIONING OF THE PROJECT AND IN ORDER TO COMPEN SATE FOR THE LOSS OF PROFIT. FURTHER, THE ASSESSEE HAD A LSO RECEIVED AN AMOUNT OF RS.3.00 CRORES AS INTEREST FR EE ADVANCES FOR THE EXECUTION OF THE PROJECT WHICH IS ALSO REQUIRED TO BE COMPENSATED. CONSIDERING ALL THESE F ACTS AND AS A RESULT OF MUTUAL AGREEMENT BETWEEN THE ASSESSEE AND ITS CLIENT, THE ASSESSEE HAD PAID RS.6 5.00 LAKHS AS COMPENSATION. SUCH COMPENSATION NO DOUBT F ALLS IN THE REVENUE FIELD AND THEREFORE IT HAS TO BE ALL OWABLE AS DEDUCTION AS PER SECTION 37 OF THE ACT. HENCE, WE H EREBY DIRECT THE LEARNED ASSESSING OFFICER TO DELETE THE ADDITION MADE ON ACCOUNT OF THE DISALLOWANCE OF RS.65.00 LAK HS IN THE HANDS OF THE ASSESSEE. THUS THIS ISSUE IS ALLOW ED IN FAVOUR OF THE ASSESSEE. 6.6 HOWEVER, FOR THE RELEVANT ASSESSMENT YEAR, IT APPEARS THAT THE ASSESSEE HAD PROMISED COMPENSATION TO ITS SISTER CONCERNS WHICH ARE LOSS MAKING CONCERNS. THE APPREH ENSION OF THE REVENUE IS THAT THE ASSESSEE HAD PROMISED SU CH PAYMENTS TO ITS CLIENTS WHO ARE ITS SISTER CONCERNS IN ORDER TO SHIFT ITS PROFIT TO THOSE COMPANIES WHICH ARE LOSS MAKING COMPANIES. THEREFORE IN ORDER TO ASCERTAIN THE GENU INENESS OF THE PROMISED PAYMENT, WE HEREBY REMIT THE MATTER BACK TO THE FILE OF THE LEARNED ASSESSING OFFICER WHO SHALL VERIFY THE 11 ITA NO.938 & 1825/MDS/2015 PARAMETERS CONSIDERED BY THE ASSESSEE WHILE PAYING COMPENSATION TO ITS CLIENT M/S. INDONET GLOBAL LT D., FOR THE ASSESSMENT YEAR 2006-07 (PARA 9.5 OF THE ORDER IN ITA NO.936 & 937/MDS/2015, 1823 & 1824/MDS/2015 VIDE OR DER DATED 25.10.2016) AND IF THE SAME FALLS IN PARITY I N THE CASE OF THE ASSESSEE FOR THE RELEVANT ASSESSMENT YEAR, THEN ALLOW THE CLAIM OF DEDUCTION THOUGH THE COMPENSATION HAS BEEN SHOWN ONLY AS PAYABLE, OTHERWISE PASS APPROPRIATE O RDERS AS PER LAW & MERIT. GROUND NO.3: DISALLOWANCE OF RS.4,73,88,435/- BEIN G THE EXPENSES RELATED TO ISSUE OF FCCB. 7.1 THE ASSESSEE HAD CLAIMED AN AMOUNT OF RS.4,73,88,434/- TOWARDS FOREIGN CURRENCY CONVERTIB LE BONDS ISSUE EXPENSES. IT WAS EXPLAINED BY THE ASSESSEE TH AT THE ASSESSEE HAD INCURRED EXPENDITURE OF US $ 12,00,011 /- FOR RAISING US BONDS WERE 13 MILLION $. IT WAS FURTHER SUBMITTED THAT THE EXPENDITURE IS ALLOWABLE UNDER SECTION 37 OF THE ACT BECAUSE THESE EXPENSES RELATED TO OBTAINING LOAN. H OWEVER, THE LEARNED ASSESSING OFFICER DISALLOWED THE SAME B ECAUSE THE ASSESSEE HAD INCURRED THE EXPENDITURE IN THE MO NTH OF 12 ITA NO.938 & 1825/MDS/2015 DECEMBER, 2007. THEREFORE, IT PERTAINS TO PRIOR PER IOD. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) HELD THAT THE ASSESSEE WOULD BE ENTITLED FOR DEDUCT ION ON ACCOUNT OF ISSUE EXPENSES ON FCCB IN THE YEAR OF AC TUAL REDEMPTION/CONVERSION OF FCCBS BY OBSERVING AS UNDE R:- 4.3.2 I HAVE CONSIDERED THE ASSESSEE'S SUBMISSIONS CAREFULLY. THE ASSESSEE RECEIVED A FOREIGN CURRENCY LOAN IN THE FORM OF FCCBS IN DECEMBER 2007. THESE BONDS HAVE AN OPTION TO CONVERT THE AMOUNT INTO EQUITY ON A LATER DATE OR T O REDEEM. THEREFORE, TILL SUCH OPTION IS EXERCISED BY THE INVESTOR, THE FCCBS CAN NEITHER BE TREATED AS SHARE CAPITAL NOR A LOAN. FURTHER, AS PER THE PROVISIONS OF THE ACT, EACH ASSESSMENT YEAR IS INDEPENDENT. HENCE ANY EXPENDITURE INCURRED IN A PARTICULAR FINANCIAL (PREVIOUS) YEAR, IS TO BE CLAI MED AS A DEDUCTION IN THAT YEAR ONLY. THE PRESENT EXPENDITURE ON ISSUANCE OF FCCBS WAS INCURRED IN THE FINANCIAL YEAR 2007-08 AND HENCE CAN BE CLAIMED AS REVENUE EXPENDITURE IN THE A.Y.2008- 09 ONLY. FURTHER THE ASSESSEE HAS NOT BROUGHT ON ANY REASONS OR EVIDENCES TO SHOW THAT THERE WERE VALID REASONS FOR NOT CLAIMING THE SAME IN THE A.Y.2008-09. 4.3.3 NORMALLY IN THE CASE OF ANY LONG TERM LOANS AVAILED, IN THE FORM OF BONDS, DEBENTURES ETC, THE EXPENSES (WHICH ARE BASICALLY IN THE NATURE OF ISSUE EXPENSES OR INTEREST EXPENSES) CAN BE CLAIMED IN THE YEAR OF INCURRENCE (I.E. FIRST YEAR ITSELF); OR PROPORTIONATELY DURING THE PERIOD OF OPERATION OF THE BONDS/DEBENTURES ETC; OR AT THE TIME OF REDEMPTION/ CONVERSION. THE ENTIRE EXPENDITURE CANNOT BE CLAIMED AS A DEDUCTION IN BETWEEN IN ANYONE PARTICULAR YEAR. IN THE PRESENT CASE, THE ASSESSEE HAS NOT CLAIMED ANYTHING THE FIRST YEAR OF INCURRENCE (I.E. IN F.Y.2007-08). NOR IT MADE ANY SUCH CLAIMS IN THE NEXT TWO FINANCIAL YEARS (I.E. F.YS. 2008-09 & 2009-10). SUDDENLY 13 ITA NO.938 & 1825/MDS/2015 THE COMPANY CLAIMED THE ENTIRE ISSUE EXPENSES AS A DEDUCTION IN THE PRESENT F.Y.201O-11, THAT TOO WITHOUT ANY VALID REASONS. IT IS NOT OUT OF CONTEXT TO MENTION HERE THAT THE FCCBS ARE NEITHER REDEEMED NOR CONVERTED 'IN THE FINANCIAL YEAR 2010-11. HENCE THE ASSESSEE IS NOT JUSTIFIED IN CLAIMING THE ISSUE EXPENSES OF THE FCCBS IN THE PRESENT F.Y.2010-11 (A.Y.2011-12). ON THE OTHER HAND, SINCE THE ASSESSEE HAS NEITHER CLAIMED THESE EXPENSES IN THE YEAR OF INCURRENCE, NOR OPTED FOR CLAIMING THEM ON PROPORTIONATE BASIS DURING THE OPERATION OF THE BONDS, THE ONLY COURSE (OPTION) LEFT TO THE ASSESSEE IS TO CLAIM THE SAME AT THE TIME OF REDEMPTION / CONVERSION OF THE FCCBS, BEING THE THIRD OPTION. THEREFORE THE ISSUE EXPENSES OF FCCBS CANNOT BE ALLOWED AS A DEDUCTION IN THE CURRENT A. Y .2011-12, UNDER CONSIDERATION. THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING THE ISSUE EXPENSES OF FCCBS IS JUSTIFIED AND CONFIRMED. 4.3.4 HOWEVER, THE ISSUE EXPENSES OF FCCBS CAN BE ALLOWED AS AN ALLOWABLE DEDUCTION, IN THE YEAR(S) IN WHICH THE FCCBS ARE FINALLY REDEEMED OR CONVERTED. SIMILARLY, IF THERE IS A PART REDEMPTION OR CONVERSION IN ANY YEAR, THE ALLOWANCE CAN BE ON PROPORTIONATE BASIS. THEREFORE, IT IS HELD THAT THE ASSESSEE IS ENTITLED FOR THE DEDUCTION ON ACCOUNT OF THE ISSUE EXPENSES OF FCCBS IN THE YEAR OF ACTUAL REDEMPTION/ CONVERSION OF FCCBS. 7.2 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS ON RECORD. FROM THE FACTS OF THE CASE, W E FIND THAT THE ENTIRE EXPENSE OF RS. 4,73,88,434/- IS INCURRED BY THE ASSESSEE DURING THE PREVIOUS YEAR 2006-07 RELEVANT TO THE ASSESSMENT YEAR 2007-08. FURTHER, THIS IS AN EXPENS E INCURRED FOR EITHER RAISING LOAN OR FOR RAISING CAP ITAL. IF THE 14 ITA NO.938 & 1825/MDS/2015 EXPENSE IS INCURRED FOR RAISING LOAN THEN THE SAME WILL BE ALLOWED AS DEDUCTION SPREAD OVER EVENLY FOR THE PER IOD OF LOAN EXTENDED BECAUSE IT IS AN EXPENDITURE RELATED TO THE FINANCIAL CHARGE. HOWEVER, IF THE AMOUNT IS INCURRE D FOR RAISING CAPITAL, THEN THE SAME WILL NOT BE ALLOWED AS DEDUCTION BY VIRTUE OF THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF BROOKE BOND INDIA LTD. VS. CIT REPO RTED IN 225 ITR 798 (SC). THEREFORE, WE HEREBY REMIT BACK THE M ATTER TO THE FILE OF THE LEARNED ASSESSING OFFICER FOR FRESH CONSIDERATION IN THE LIGHT OF OUR OBSERVATIONS MADE HEREIN ABOVE. GROUND NO.4: DISALLOWANCE OF RS.1,36,56,865/- BEING DIFFERENCE IN DEPRECIATION AS PER COMPANIES ACT: 8.1 IT APPEARS THAT THE ASSESSEE HAD CLAIMED HIGHER DEPRECIATION THAN WHAT IS PRESCRIBED BY THE COMPANI ES ACT WHILE COMPUTING BOOK PROFIT FOR THE PURPOSE OF TAX UNDER SECTION 115JB OF THE ACT, THE DIFFERENCE OF WHICH B EING RS.1,36,56,865/-, THOUGH THE FACTS ARE NOT CLEARLY EMERGING OUT OF THE ORDER OF THE LEARNED ASSESSING OFFICER O R THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS). SINCE THE 15 ITA NO.938 & 1825/MDS/2015 FACTS ARE NOT CLEAR, WE REMIT BACK THIS ISSUE TO TH E FILE OF THE LEARNED ASSESSING OFFICER FOR DE NOVO CONSIDERATION . WE ALSO DIRECT THE LEARNED ASSESSING OFFICER TO CONSIDER TH E DECISION RENDERED BY US IN THE REVENUES APPEAL IN ITA NO.1824/MDS/2015 (ASSESSMENT YEAR 2008-09) VIDE ORD ER DATED 25.10.2016 IN THE CASE OF THE ASSESSEES OWN CASE, AND IF THE FACTS ARE IDENTICAL ON THE ISSUE AS DISC USSED IN PARA 14.1 TO 14.4(PAGE 24 TO 31) OF THE ABOVE SAID ORDER THEN PASS APPROPRIATE IN THE LIGHT OF THE SAME. ITA NO.1825/MDS/2015 (A.Y. 2011-12): (REVENUE APPEAL): GROUND: ADDITION OF RS.9,33,92,555/- BEING THE IMPAIRMENT LOSSES CHARGED TO P&L A/C AS PER ACCOUNT ING STANDARD-28 FOR THE PURPOSE OF DETERMINING BOOK PRO FIT UNDER SECTION 115JB OF THE ACT. 9.1 THE ASSESSEE HAD CLAIMED A SUM OF RS.9,33,92,55 5/- TOWARDS IMPAIRMENT LOSSES IN ITS PROFIT & LOSS ACCO UNT. IT WAS EXPLAINED BY THE ASSESSEE COMPANY THAT THE ASSESSEE COMPANY HAD DECIDED TO CHARGE THE LOSS ON THE 9 MW CAPACITY WIND FARM BACKED BY SCIENTIFIC CALCULATION S. IT WAS FURTHER EXPLAINED THAT THE ASSESSEE COMPANY HAD EXP ECTED TO GENERATE 42 LAKHS UNITS PER MACHINE PER YEAR. HOWEV ER 16 ITA NO.938 & 1825/MDS/2015 ACTUAL GENERATION COULD BE OBTAINED ONLY AROUND 35 LAKHS UNITS PER MACHINE PER YEAR. THEREFORE, THE COMPANY HAD DECIDED TO WRITE OFF RS.9,33,92,555/- AS IMPAIRMENT LOSSES AND COMPUTED THE BOOK PROFIT ACCORDINGLY FOR THE PU RPOSE OF SECTION 115JB OF THE ACT. HOWEVER, THE LEARNED ASSE SSING OFFICER DISALLOWED THE SAME BY OBSERVING AS UNDER:- NOW AS PER THE PROVISIONS OF SECTION 115JB: EXPL 1 : FOR THE PURPOSE OF THIS SECTION, BOOK PROF IT MEANS NET PROFIT AS SHOWN IN PROFIT & LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR AS INCREASED BY.. I) THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISI ON FOR DIMINUTION IN VALUE OF ANY ASSET, THE SAID PROVISIO NS FOR IMPAIRMENT IS ADDED TO THE BOOK PROFIT AND ASSESSED ACCORDINGLY. 9.2 BEFORE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IT WAS EXPLAINED BY THE ASSESSEE THAT IMP AIRMENT LOSSES STATED IN AS 28 IS NOT WHAT IS INCLUDED UNDE R CLAUSE (A) TO (I) OF EXPLANATION 1 TO 115JB OF THE ACT AND HENCE CANNOT BE DISALLOWED WHILE COMPUTING THE BOOK PROF IT FOR THE PURPOSE OF TAX UNDER SECTION 115JB OF THE ACT. THE ASSESSEE HAD FURTHER EXPLAINED THAT IN THE CASE OF THE ASSES SEE IT WAS NOT A PROVISION MADE BUT THE ASSESSEE HAD ACTUALL Y WRITTEN OFF THE VALUE OF THE ASSETS BY CHARGING IT TO PROFI T & LOSS 17 ITA NO.938 & 1825/MDS/2015 ACCOUNT. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AFTER CONSIDERING THE EXPLANATION OF THE ASSESSEE DIRECTED THE LEARNED ASSESSING OFFICER TO DELETE TH E ADDITION BY STATING AS UNDER:- 4.4.2 HAVE CONSIDERED THE ASSESSEE'S SUBMISSIONS CAREFULLY. AS EXPLAINED BY THE ASSESSEE, THE COMPANY HAS A WINDMILL PROJECT AT CHITRADURGA (KARNATAKA). IN THIS PROJECT THERE ARE 6 WINDMILLS SUPPLIED BY SUZLON, WHERE THE SUPPLIER HAD ASSURED POWER GENERATION OF 42 LAKH UNITS PER WINDMILL PER YEAR. HOWEVER, THE ACTUAL PRODUCTION WAS ONLY 33.14 LAKH UNITS PER WINDMILL PER ANNUM. THE ACTUAL GENERATION OF WIND ENERGY WAS SHORT BY 16%. HENCE, THE COMPANY WROTE OFF RS.9,33,92,555/-, IN ITS BOOKS, BY WAY OF IMPAIRMENT LOSS, BEING THE VALUE OF THE WINDMILLS PROPORTIONATE TO SUCH UNDER PERFORMANCE. 4.4.3 FOR THE PURPOSE OF SECTION 115JB OF THE ACT, THE ASSESSEE IS REQUIRED TO PREPARE THE P&L ACCOUNT AS PER THE PROVISIONS OF PARTS II AND III OF SCHEDULE VI TO THE COMPANIES ACT, 1956. THEREAFTER, THE BOOK PROFIT FOR THE PURPOSE OF SECTION 115JB IS TO BE DETERMINED BY ADOPTING THE NET PROFIT AS SHOWN IN THE SAID P&L ACCOUNT AND AS INCREASED BY THE ITEMS CONTAINED IN CLAUSES (A) TO (I) OF THE EXPLANATION-I OF SECTION 115JB; AND AS REDUCED BY ITEMS CONTAINED IN CLAUSES (I) TO [VIII] OF THE EXPLANATION-I OF SECTION 115JB. THE ASSESSING OFFICER CANNOT MAKE ANY OTHER ADJUSTMENTS [I.E. INCREASING OR DECREASING) OTHER THAN THOSE SPECIFIED IN THE CLAUSES OF EXPLANATION-L OF SECTION 115JB OF THE ACT. THE PROVISIONS OF SECTION 115JB OF THE ACT ARE AS UNDER: SPECIAL PROVISION (OR PAYMENT OF TAX BY CERTAIN COMPANIES. SEC.115JB. (L) NOTWITHSTANDING 18 ITA NO.938 & 1825/MDS/2015 ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS ACT, WHERE IN THE CASE OF AN ASSESSEE, BEING A COMPANY, THE INCOME-TAX, PAYABLE ON THE TOTAL INCOME AS COMPUTED UNDER THIS ACT IN RESPECT OF ANY PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 2011, IS LESS THAN EIGHTEEN PER CENT OF ITS BOOK PROFIT, SUCH BOOK PROFIT SHALL BE DEEMED TO BE THE TOTAL INCOME OF/HE ASSESSEE AND THE TAX PAYABLE BY THE ASSESSEE ON SUCH TOTAL INCOME SHALL BE THE AMOUNT OF INCOME-TAX AT THE RATE OF EIGHTEEN PER CENT. (2) EVERY ASSESSEE, BEING A COMPANY, SHALL FOR THE PURPOSES OF THIS SECTION, PREPARE ITS PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR IN ACCORDANCE WITH THE PROVISIONS OF PARTS II AND III OF SCHEDULE VI TO THE COMPANIES ACT, 1956 (I OF 1956) : PROVIDED ... PROVIDED FURTHER .' EXPLANATION I.-FOR THE PURPOSES OF THIS SECTION, 'HOOK PROFIT' MEANS THE NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR PREPARED UNDER SUB-SECTION (2), AS INCREASED BY- (A) THE AMOUNT OF INCOME-TAX PAID OR PAYABLE, AND THE PROVISION THEREFOR; OR (B) THE AMOUNTS CARRIED TO ANY RESERVES, BY WHATEVER NAME CALLED, OTHER THAN A RESERVE SPECIFIED UNDER SECTION 33AC; OR (C) THE AMOUNT OR AMOUNTS SET ASIDE TO PROVISIONS MADE FOR MEETING LIABILITIES, 19 ITA NO.938 & 1825/MDS/2015 OTHER THAN ASCERTAINED LIABILITIES; OR (D) THE AMOUNT BY WAY OF PROVISION FOR LOSSES OF SUBSIDIARY COMPANIES; OR (E) THE AMOUNT OR AMOUNTS OF DIVIDENDS PAID OR PROPOSED; OR (F) THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABLE TO ANY INCOME 10 WHICH SECTION (OTHER THAN THE PROVISIONS CONTAINED IN CLAUSE (38) THEREOF) OR SECTION 11 OR SECTION 12 APPLY; OR (G) THE AMOUNT OF DEPRECIATION, (H) THE AMOUNT OF DEFERRED LAX AND THE PROVISION THEREFOR, (I) THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISION FOR DIMINUTION IN THE VALUE OF ANY ASSET, IF ANY AMOUNT REFERRED 10 IN CLAUSES (A) TO (I) IS DEBITED. TO TILE PROFIT AND LOSS ACCOUNT, AND AS REDUCED BY,- (I) THE AMOUNT WITHDRAWN FROM ANY RESERVE OR PROVISION (EXCLUDING A RESERVE CREATED BEFORE THE IS1 DAY OF APRIL, 1997 OTHERWISE THAN BY WAY OF A DEBIT TO THE PROFIT AND LOSS ACCOUNT), IF ANY SUCH AMOUNT IS CREDITED TO THE PROFIT AND LOSS ACCOUNT: PROVIDED THAT WHERE THIS SECTION IS APPLICABLE 10 AN ASSESSEE IN ANY PREVIOUS YEAR, THE AMOUNT WITHDRAWN FROM RESERVES CREATED OR PROVISIONS MADE IN A PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON OR AFTER THE LST DAY OF APRIL, 1997 SHALL NOT BE REDUCEDFROM THE BOOK PROFIT UNLESS THE BOOK PROFIT OF SUCH YEAR HAS BEEN INCREASED BY THOSE RESERVES OR PROVISIONS 20 ITA NO.938 & 1825/MDS/2015 (OUT OF WHICH THE SAID AMOUNT WAS WITHDRAWN) UNDER THIS EXPLANATION OR EXPLANATION BELOW THE SECOND PROVISO TO SECTION 115JA, AS THE CASE MAY BE; OR] (II) THE AMOUNT OF INCOME TO WHICH ANY OF THE PROVISIONS OF SECTION 10 (OTHER THAN THE PROVISIONS CONTAINED IN CLAUSE (38) THEREOF) OR SECTION 1 J OR SECTION 12 APPLY, IF ANY SUCH AMOUNT IS CREDITED TO THE PROFIT AND LOSS ACCOUNT; OR (IIA) THE AMOUNT OF DEPRECIATION DEBITED TO THE PROFIT AND LOSS ACCOUNT (EXCLUDING THE DEPRECIATION ON ACCOUNT OF REVALUATION OF ASSETS); OR (IIB) THE AMOUNT WITHDRAWN FROM REVALUATION RESERVE AND CREDITED TO THE PROFIT AND LOSS ACCOUNT, TO THE EXTENT IT DOES NOT EXCEED THE AMOUNT OF DEPRECIATION ON ACCOUNT OF REVALUATION OF ASSETS REFERRED TO IN CLAUSE (IIA); OR (III) THE AMOUNT OF LOSS BROUGHT FORWARD OR UNABSORBED DEPRECIATION, WHICHEVER IS LESS AS PER BOOKS OF ACCOUNT. EXPLANATION.-FOR THE PURPOSES OF THIS CLAUSE,- (A) THE LOSS SHALL NOT INCLUDE DEPRECIATION; (B) THE PROVISIONS OF THIS CLAUSE SHALL NOT APPLY IF THE AMOUNT OF LOSS BROUGHT FORWARD OR UNABSORBED DEPRECIATION IS NIL; OR (IV) TO (VI) (VII) THE AMOUNT OF PROFITS OF SICK INDUSTRIAL COMPANY FOR THE ASSESSMENT YEAR COMMENCING ON AND FROM THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE SAID COMPANY HAS BECOME A SICK INDUSTRIAL COMPANY UNDER SUB- 21 ITA NO.938 & 1825/MDS/2015 SECTION (1) OF SECTION 17 OF THE SICK INDUSTRIAL COMPANIES (SPECIAL PROVISIONS) ACT, 1985 (L OF 1 986) AND ENDING WITH THE ASSESSMENT YEAR DURING WHICH THE ENTIRE NET WORTH OF SUCH COMPANY BECOMES EQUAL TO OR EXCEEDS THE ACCUMULATED LOSSES. EXPLANATION-FOR THE PURPOSES OF THIS CLAUSE, 'NET WORTH' SHALL HAVE THE MEANING ASSIGNED TO IT IN CLAUSE (GA) OF SUB-SECTION (I) OF SECTION 3 OF THE SICK INDUSTRIAL COMPANIES (SPECIAL PROVISIONS) ACT, 1985 (1 OF 1986); OR (VIII) THE AMOUNT OF DEFERRED LAX, IF ANY SUCH AMOUNT IS CREDITED TO THE PROFIT AND LOSS ACCOUNT. 4.4.4 THUS, THE EXPLANATION-L TO SECTION 115JB DEFINES THE WORDS 'BOOK PROFIT' WHICH MEAN 'NET PROFIT' AS SHOWN IN THE PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR. SUCH BOOK PROFIT HAS TO BE INCREASED BY CLAUSES (A) TO (I) OF THE EXPLANATION-L TO SAID SECTION IF THEY ARE DEBITED T O THE PROFIT AND LOSS ACCOUNT AND FROM SUCH PROFIT. SIMILARLY, THE SUMS MENTIONED IN CLAUSES (I) TO (VIII) OF THE EXPLANATION-L TO SECTION 115JB ARE TO BE REDUCED. THE FIGURE ARRIVED AT AFTER THE ABOVE EXERCISE IS THE BOOK PROFIT OF THE ASSESSEE FOR THE RELEVANT PREVIOUS YEAR, FOR THE PURPOSE OF SECTION 115JB. 4.4.5 THUS, THE EXPLANATION-L TO SECTION 115JB HAS PROVIDED NINE CLAUSES, I.E., CLAUSES (A) TO (I) WHICH IF DEBITED TO THE PROFIT AND LOSS ACCOUNT CAN BE ADDED BACK TO THE NET PROFIT FOR COMPUTING THE BOOK PROFIT. IN THE INSTANT CASE, WE ARE CONCERNED WITH CLAUSE (I) WHICH REFERS TO THE 'PROVISION FOR DIMINUTION IN THE VALUE OF ANY ASSET' WHICH CAN BE ADDED BACK TO THE NET PROFIT, ONLY IF CLAUSE (I) STANDS ATTRACTED. THE CLAUSE (I) DEALS WITH AMOUNT(S) SET ASIDE AS 'PROVISION FOR DIMINUTION IN THE VALUE OF ANY ASSET'. THE CLAIM WOULD, THEREFORE, FALL WITHIN THE AMBIT OF CLAUSE (I), ONLY IF THE AMOUNT HAS BEEN SET ASIDE AS 'PROVISION'. IN THE PRESENT CASE, IT IS NOT BY WAY OF 'PROVISION'. IT WAS AN 'ACTUAL WRITE OFF' IN 22 ITA NO.938 & 1825/MDS/2015 THE BOOKS OF ACCOUNT. ANY AMOUNT WHICH HAS ACTUALLY BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNT AND DEBITED TO P&L ACCOUNT CANNOT BE TERMED AS A 'PROVISION'. THE PRESENT CLAIM OF 'IMPAIRMENT LOSSES', WHICH HAS ACTUALLY BEEN DEBITED IN THE P&L ACCOUNT, IS AN ACTUAL CHARGE ON THE ASSETS, AND HENCE WILL NOT AMOUNT TO 'PROVISION FOR DIMINUTION IN VALUE OF ASSETS'. THEREFORE, SINCE THE ASSESSEE'S 'IMPAIRMENT LOSSES' DEBITED IN THE P&L ACCOUNT, IS NOT IN THE FORM OF 'PROVISION', BUT AN ACTUAL WRITE OFF IN THE BOOKS, THE SAME WILL NOT FALL UNDER THE AMBIT OF CLAUSE (I) OF THE EXPLANATION-I TO SECTION 115JB. 4.4.6 THEREFORE, CLAUSE (I) OF THE EXPLANATION-L TO SECTION 115JB IS NOT ATTRACTED TO THE FACTS OF THE INSTANT CASE. THE ASSESSING OFFICER IS NOT JUSTIFIE D IN ADDING BACK THE 'IMPAIRMENT LOSSES' OF RS.9,33,92,555/-, ACTUALLY WRITTEN OFF IN THE BOOKS AND DEBITED TO P&L ACCOUNT, UNDER CLAUSE (I) OF THE EXPLANATION-I TO SECTION 115JB FOR THE PURPOSE OF COMPUTING BOOK PROFIT UNDER SECTION 1 15JB. FURTHER, THE ASSESSEE'S CLAIM OF 'IMPAIRMENT LOSSES' DEBITED TO P&L ACCOUNT WILL NOT FALL INTO THE AMBIT OF ANY OTHER CLAUSES OF (A) TO (H) OF THE EXPLANATION-I TO SECTION 115JB. AND ONCE THE EXPENSES DEBITED TO P&L ACCOUNT FALLS OUTSIDE THE AMBIT OF THE CLAUSES (A) TO (I) OF EXPLANATION-I TO SECTION 115JB, THE ASSESSING OFFICER WILL NOT HAVE ANY JURISDICTION TO DISALLOW SUCH CLAIMS AND ADD BACK TO THE BOOK PROFITS U] S.115JB OF THE ACT. THEREFORE, THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE ASSESSEE'S CLAIM OF 'IMPAIRMENT LOSSES' OF RS.9,33,92,555/-, AS AN ALLOWABLE DEDUCTION, WHILE DETERMINING THE BOOK PROFITS UJS.115JB OF THE ACT. THE ADDITION OF RS.9,33,92,555/-, MADE BY THE ASSESSING OFFICER, U/S. 115JB OF THE ACT STANDS DELETED. 9.3 WE FIND MERIT IN THE ORDER OF THE LD.CIT(A) ON THIS ISSUE BECAUSE OF THE FOLLOWING REASONS:- 23 ITA NO.938 & 1825/MDS/2015 I) SECTION 2(11) (3A) OF THE COMPANIES ACT PROVIDES THAT THE PROFIT AND LOSS ACCOUNT AND BALANCE SHEET OF TH E COMPANY SHALL COMPLY WITH THE ACCOUNTING STANDARDS. II) ACCOUNTING STANDARD-28 STATES THAT AN ASSET IS SAID TO BE IMPAIRED WHEN CARRYING AMOUNT OF THE ASSET IS MORE THAN THE RECOVERABLE AMOUNT. IT FURTHER STATES THAT SUCH IMPAIRMENT LOSS ON THE ASSET IS TO BE ACCOUNTED AND THE ASSET SHOULD BE SHOWN IN THE BALANCE SHEET AT ITS C OST LESS DEPRECIATION LESS IMPAIRMENT LOSS. PRECISELY T HE IMPAIRMENT LOSS HAS TO BE WRITTEN OFF IN THE BOOKS OF ACCOUNTS BY DEBITING TO PROFIT & LOSS ACCOUNT AND CREDITING TO ASSET ACCOUNT. THIS IS MANDATORY AS PE R ACCOUNTING STANDARD-28, WHICH EVERY COMPANY HAS TO FOLLOW WHILE PREPARING ITS STATEMENT OF AFFAIRS. III) AS HELD BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) THERE IS NO WHISPER IN THE PROVISIONS OF SECTION 115JB OF THE ACT FOR ADDING BACK THE IMPAIRMENT LOS S TO THE PROFIT & LOSS ACCOUNT OF THE ASSESSEE WHILE COMPUTING BOOK PROFIT & TAX UNDER SECTION 115JB O F THE ACT. 24 ITA NO.938 & 1825/MDS/2015 9.4 THEREFORE, WE DO NOT FIND IT NECESSARY TO INTER FERE WITH THE ORDERS OF THE LEARNED COMMISSIONER OF INCOME TA X (APPEALS) ON THIS ISSUE. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES AND THAT OF THE RE VENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 27 TH OCTOBER, 2016 SD/- SD/- ( ' # . $ ) ( . ) ( DUVVURU RL REDDY ) ( A. MOHAN ALANKAMONY ) ! # / JUDICIAL MEMBER # / ACCOUNTANT MEMBER ! /CHENNAI, ' /DATED 27 TH OCTOBER, 2016 SOMU )* +* /COPY TO: 1. ASSESSEE 2. ASSESSING OFFICER 3 . , () /CIT(A) 4. , /CIT 5. * 0 /DR 6. /GF