Research › Search › Judgment

Gujarat High Court · body

2016 DIGILAW 1390 (GUJ)

Commissioner of Income Tax-I v. Alembic Limited

2016-07-20

G.R.UDHWANI, K.S.JHAVERI

body2016
JUDGMENT : K.S. Jhaveri, J. 1. All these appeals preferred by the appellant-revenue under section 260A of the Income-tax Act, 1961, arise out of the common order passed by the Income-tax Appellate Tribunal (hereinafter referred to as "the Tribunal") on 6.6.2008 whereby the Tribunal has held the issues in favour assessee. We, therefore, decide the appeals by way of this common judgment. 2. These appeals were admitted by this court for consideration of the following substantial questions of law: Tax Appeal No. 471 of 2009: "(A) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in allowing deduction to the extent of actual payment to the ONGC, disregarding the fact that the whole liability was in dispute before the Supreme Court and, being a disputed contractual liability, it was a contingent liability and the real character of payment was that of advance or deposit and not of an expenditure under the mercantile system of accounting followed by the assessee? (B) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in directing to reduce the deduction u/s. 80-HHC was to be computed based on book profit for the purpose of section 115JB? (C) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law and on facts in not considering the decision of the Appellate Tribunal, Chennai rendered in the case of Chettinad Cement Corporation Ltd., in ITA No. 1026 (MDS)/2005 for A.Y. 2001-02, brought to its notice vide the additional ground raised by the Department, according to which the deduction u/s. 80-IA(4) is not allowable to the assessee for generating power for captive consumption? (D) Whether the Appellate Tribunal was right in law and on facts in not appreciating that deduction u/s. 80IA(4) is not allowable to the assessee for generating power for captive consumption?" Tax Appeal No. 472 of 2009: "Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the amount set aside by the assessee to provide for meeting liabilities other than ascertained liabilities was deductible, while computing the book profit under section 115JB of the Act?" Tax Appeal No. 473 of 2009: (A) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in directing to reduce the deduction u/s. 80-HHC was to be computed based on book profit for the purpose of section 115JB? (B) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law and on facts in not considering the decision of the Appellate Tribunal, Chennai rendered in the case of Chettinad Cement Corporation Ltd., in ITA No. 1026 (MDS)/2005 for A.Y. 2001-02, brought to its notice vide the additional ground raised by the Department, according to which the deduction u/s. 80-IA(4) is not allowable to the assessee for generating power for captive consumption? (C) Whether the Appellate Tribunal was right in law and on facts in not appreciating that deduction u/s. 80IA(4) is not allowable to the assessee for generating power for captive consumption?" Tax Appeal No. 474 of 2009: "Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the amount set aside by the assessee to provide for meeting liabilities other than ascertained liabilities was deductible, while computing the book profit under section 115JB of the Act?" 3. So far as ground (A) of Tax Appeal No. 471 of 2009 is concerned, Mr. Parikh, learned counsel for the revenue, has contended that the Tribunal failed to appreciate that the payment was made not towards liability for payment of gas charges but it was of the nature of advance or deposit and could not be allowed as revenue expenditure under the mercantile system of accounting followed by the assessee. 4. Learned senior advocate Mr. Parikh, learned counsel for the revenue, has contended that the Tribunal failed to appreciate that the payment was made not towards liability for payment of gas charges but it was of the nature of advance or deposit and could not be allowed as revenue expenditure under the mercantile system of accounting followed by the assessee. 4. Learned senior advocate Mr. Soparkar appearing for the assessee has submitted that this issue is squarely covered by the decision of this court in the case of the assessee in Tax Appeal No. 1097 of 2006. In that view of the matter, the issue is required to be answered in favour of the assessee. 5. Since we have elaborately considered and decided identical issue in Tax Appeal No. 1097 of 2006 where we answered the question in favour of the assessee, we are of the opinion that the Tribunal is justified in allowing deduction of payment to ONGC. In that view of the matter, we answer the question (A) in favour of the assessee and against the revenue. 6. So far as question No. (B) is concerned, learned counsel for the revenue has contended that the Tribunal has failed to appreciate that the amount of profit eligible for deduction under section 80-HHC of the Act is subject to the conditions specified in that section. Since the claim of the assessee was not as per the provisions of section 80-HHC of the Act, the Assessing Officer has not allowed the assessee to compute deduction under section 80-HHC for the purpose of section 115JB of the Act. In that view of the matter, the learned counsel for the revenue has contended that the Tribunal has committed serious error in allowing deduction under section 80-HHC of the Act. Considering the material on record, the Tribunal ought not to have allowed the same. 7. The learned counsel for the assessee has submitted that the Tribunal has not committed any error in allowing deduction under section 80-HHC of the Act. The Tribunal has, after carefully considering the material evidence on record, rightly allowed the claim of the assessee. The learned counsel for the assessee has relied on the decision of the Apex Court in the case of Ajanta Pharma Ltd. v. Commissioner of Income-tax, Mumbai reported in (2010) 327 ITR 305 (SC) where the Apex Court has held as under: "Sections 80-HHC and 115JB operate in different spheres. The learned counsel for the assessee has relied on the decision of the Apex Court in the case of Ajanta Pharma Ltd. v. Commissioner of Income-tax, Mumbai reported in (2010) 327 ITR 305 (SC) where the Apex Court has held as under: "Sections 80-HHC and 115JB operate in different spheres. Two essential conditions for invoking section 80-HHC(1) are that the assessee must be in the business of export; and secondly, the sale proceeds of such exports should be receivable in India in convertible foreign exchange. Section 80-HHC(1) refers to 'eligibility' whereas section 80-HHC(3) refers to computation of tax incentive. Coming to section 80-HHC(1B), it is clear that after the Finance Act, 2000, with effect from the assessment year 2001-02, exporters would not get 100 per cent deduction in respect of profits derived from exports but they would get deduction at 80 per cent in the assessment year 2001-02; at 70 per cent in the assessment year 2002-03 and so on. Thus, section 80-HHC(1B) deals not with 'eligibility' but with the 'extent of deduction'. Section 115JB is a self-contained Code. It taxes deemed income. It begins with a non obstante clause. Section 115JB refers to computation of 'book profits' which have to be computed by making upward and downward adjustments. In the downward adjustments, vide clause (iv), it seeks to exclude 'eligible' profits derived from exports. On the other hand, under section 80-HHC(1B), it is the extent of deduction which matters. The word 'thereof' in each of the items under section 80-HHC(1B) is important. Thus, if an assessee earns Rs. 100 crores, then for the assessment year 2001-02, the extent of deduction would be at 80 per cent thereof and so on, which means that the principle of proportionality is brought in to scale down the tax incentive in a phased manner. However, for the purposes of computation of book profits under section 115JB, which computation is different from normal computation under the Act/computation under Chapter VI-A, one needs to keep in mind the upward and downward adjustments and, if so read, it becomes clear that clause (iv) covers full export profits at 100 per cent 'as eligible profits' and that the same cannot be reduced to 80 per cent by relying on section 80-HHC(1b). Thus, for computing 'book profits' in the above example, the downward adjustment, would be Rs. 100 crores and not Rs. Thus, for computing 'book profits' in the above example, the downward adjustment, would be Rs. 100 crores and not Rs. 90 crores, the idea being to exclude 'export profits' from computation of book profits under section 115JB which imposes MAT on deemed income. The above reasoning also gets support from the Memorandum of the Explanation to the Finance Bill 2000. The department, however, contended that as per clause (iv) of the Explanation to section 115JB, it is clear that book profits shall be reduced by the amount of profits eligible for deduction under section 80-HHC as computed under clause (a) or clause (b) of sub-section (3) or sub-section (3A), as the case may be, of that section and subject to the conditions specified in that section, thereby meaning that the deduction allowable would be only to the extent of deduction computed in accordance with the provisions of section 80-HHC. Thus, according to the department, both 'eligibility' as well as 'deductibility' of the profit have got to be considered together for working out the deduction as mentioned in clause (iv) of the Explanation to section 115JB. There was no merit in that argument of the department. If the dichotomy between 'eligibility' of profit and 'deductibility' of profit is not kept in mind, then section 115JB will cease to be a self-contained code. In section 115JB, as in section 115JA, it has been clearly stated that the relief will be computed under section 80-HHC(3)/(3A), subject to the conditions under sub-sections (4) and (4A) of that section. The conditions are only that the relief should be certified by the chartered accountant. Such condition is not a qualifying condition but it is a condition of compliance. Therefore, one cannot rely upon the last sentence in clause (iv) of the Explanation to section 115JB (Subject to the conditions specified in sub-sections (4) and (4A) of that section) to obliterate the difference between 'eligibility' and 'deductibility' of profits as was contended on behalf of the department. Therefore, one cannot rely upon the last sentence in clause (iv) of the Explanation to section 115JB (Subject to the conditions specified in sub-sections (4) and (4A) of that section) to obliterate the difference between 'eligibility' and 'deductibility' of profits as was contended on behalf of the department. For the aforesaid reasons, the impugned judgment of the High Court was to be set aside and the judgment of the Tribunal was to be restored." 7.1 He has further relied on the decision of this court in the case of Commissioner of Income-tax v. Aarvee Denims & Exports Ltd., reported in (2013) 40 taxmann.com 85 where this court has held as follows: "For computing deduction under clause (iv) of section 115JB(2), calculations are to be made with respect to adjusted book profit and not with respect to income assessable under head 'profits and gains of business and profession' 7.2 In view of above decisions, the learned counsel for the assessee has contended that the Tribunal has rightly allowed the claim of the assessee and no interference is called for with the same. 8. We have heard learned counsel for the parties. We have gone through the case laws cited by the learned counsel for the assessee. Considering the decision of the Apex Court in the case of Ajanta Pharma Ltd. v. Commissioner of Income-tax (supra) and the decision of this court in the case of Commissioner of Income-tax v. Aarvee Denims & Exports Ltd., (supra), we are of the opinion that the Tribunal has rightly allowed the claim of the assessee. In that view of the matter, we answer the question (B) in favour of the assessee and against the revenue. 9. As regards question (C) regarding whether additional ground can be raised in tax appeal or not, learned counsel for the revenue has contended that the assessee has raised the additional ground for the first time before the Commissioner of Income-tax (Appeals) claiming deduction under section 80IA(4) of the Act. Therefore, learned counsel for the revenue contended that the Assessing Officer would not have a chance to meet with the same. Therefore, the Tribunal has committed error in allowing the claim of the assessee. Therefore, learned counsel for the revenue contended that the Assessing Officer would not have a chance to meet with the same. Therefore, the Tribunal has committed error in allowing the claim of the assessee. Regarding eligibility and rate for the purpose of granting benefit, he has contended that it should be the actual rate on which the Gujarat Electricity Board purchases electricity from market i.e. the Power Grid or other supply agencies and not the market rate of electricity supplied by the Gujarat Electricity Board. In that view of the matter, he has contended that the Tribunal has committed error in granting deduction under section 80-IA(4) by holding that the assessee is entitled to market price of electricity supplied by the Gujarat Electricity Board. 10. The learned counsel for the assessee has supported the order of the Tribunal and contended that the Tribunal has not committed any error in allowing the claim of the assessee. So far as the raising additional ground before the appellate authority is concerned, he has relied on the decisions of this court in the case of Commissioner of Income-tax v. Mitesh Impex reported in 270 CTR 66 and New India Industries Ltd. v. Commissioner of Income-tax reported in (1994) 207 ITR 1010 where this court has held in favour of the assessee that additional ground can be raised in appeal before the Commissioner (Appeal) and the appellate authority has power to admit the appeal. 10.1 Regarding eligibility and rate for the purpose of granting benefit, learned counsel for the assessee has contended that the assessee is entitled to claim market value of the eligible unit. In support of this contention, he has relied on the decisions of this court in Tax Appeal No. 1646 of 2010 - A.C.I.T., Bharuch Circle, Bharuch, through Commissioner v. Pragati Glass Works Pvt. Ltd. decided on 30.1.2012; Tax Appeal No. 1493 of 2011, Commissioner of Income-tax-IV v. Shah Alloys Ltd., decided on 25.9.2012 and Tax Appeal No. 2092 of 2010 - Commissioner of Income-tax-IV v. Shah Alloys Ltd., decided on 22.11.2011. He has further relied on the decision of Calcutta High Court in the case of Commissioner of Income-tax, Kolkata-IV, Kolkata v. Kanoria Chemicals & Industries Ltd., reported in (2013) 35 taxmann.com 566 (Calcutta) where the court has held as under: "It is price at which assessee transferred electricity generated by it eligible business to its other business which would be considered for purpose of computation of profits and gains of eligible business in terms of section 80-IA(8) and not lesser price at which surplus electricity was sold to Electricity Board." 10.2 The learned counsel for the assessee has further relied on the decision in the case of Commissioner of Income-tax, Raipur v. Godawari Power & Ispat Ltd., reported in (2014) 42 taxmann.com 551 (Chhattisgarh) where the court has held thus: "Where the assessee had established a captive power plant in State of Chhattisgarh to supply electricity to its steel division, for purpose of section 80-IA deduction market value of power supplied by assessee to steel division should be computed considering rate of power charged by Chhattisgarh State Electricity Board for supply of electricity to industrial consumers." 10.3 The learned counsel for the assessee has submitted that the assessee is eligible for deduction under section 80-IA of the Act for captive power plant. In this regard, he has relied on the decision of Delhi High Court in the case of Commissioner of Income-tax v. Orient Abrasive Ltd., reported in (2014) 49 taxmann.com 174 (Delhi) where it is held as under: "Profit and gain from captive consumption of electricity supplied only to assessee by power plant of assessee will qualify for deduction under section 80IA". 10.4 Further reliance has been placed on the decision in the case of Commissioner of Income-tax v. Cethar Ltd., reported in 228 Taxman 139 (Madras) (Mag.) where it is observed as follows: "Assessee was entitled to claim deduction under section 80-IA in respect of income relatable to power generated by its own wind mill that was consumed by assessee." 10.5 Lastly, the learned counsel for the assessee has relied on the decision of Madras High Court in the case of Tamilnadu Petro Products Ltd. v. Assistant Commissioner of Income-tax reported in 338 ITR 643 where it is held as under: "The revenue's contention had no application to the case on hand. Inasmuch the issue was to be dealt with in the light of section 80-IA and in particular sub-clause (iv) of the said section which provides for the benefit even in respect of electricity generation plant established by the assessee and the income derived from such enterprise of the assessee, it would have to be held that the assessee fully complied with the requirements prescribed under section 80-IA in order to avail the benefits provided therein. Therefore, the contention based on the interpretation of the expression 'derived from' could have no application to the case where the provisions of section 80-IA got attracted." 11. We have considered the submissions made by the learned counsel for the parties. We have also considered the case laws cited by the learned counsel for the assessee. Taking into consideration the judgments of this court and other High Courts, cited above, we are of the opinion that the Tribunal has rightly allowed the claim of the assessee. In that view of the matter, we do not find any infirmity in the order of the Tribunal. Therefore, we answer question (C) and (D) in favour of the assessee and against the revenue. Tax Appeal No. 472 of 2009 12. The learned counsel for the revenue has contended that the assessee had not added the following provisions while computing book profit under section 115JB of the Act. Sr. No. Particulars Amount 1 Provision of gratuity 1444230 2 Provision of ONGC liability 22167563 3 Provision for diminution in value of investment 6350348 12.1 The Assessing Officer found that these are merely provisions made for meeting liabilities other than ascertained liabilities. Accordingly, the Assessing Officer made addition of these amounts while computing book profit under section 115JB of the Act. In appeal, the Commissioner (Appeals) allowed the claim of the assessee. In further appeal, the Tribunal has dismissed the appeal of the revenue. The learned counsel for the appellant has contended that the decision of the Tribunal is erroneous as it is merely a provision and represents the amount set aside by the assessee to provide for meeting liabilities other than ascertained liabilities. Such type of unascertained liabilities are covered by clause (c) to Explanation (1) to section 115JB of the Act and the same is required to be added for computation of book profit of the assessee. Such type of unascertained liabilities are covered by clause (c) to Explanation (1) to section 115JB of the Act and the same is required to be added for computation of book profit of the assessee. They cannot be held as ascertained liabilities since they are merely provisions which may have been made on the basis of certain parameters. In that view of the matter, the Tribunal has committed error in allowing the claim of the assessee. 13. The learned counsel for the assessee has submitted that the Tribunal has not committed any error in allowing the claim of the assessee. In this regard he has relied on the decision of this court in the case of Deputy Commissioner of Income-tax, Circle 1(2), Baroda v. Inox Leisure Ltd., reported in 351 ITR 314 (Gujarat) where this court held that "provision for gratuity liability made on basis of actuarial valuation cannot be stated to be an uncertained liability so as to add it back in terms of clause (c) to Explanation (1) to section 115JB.". He has further relied on the decision of the Bombay High Court in the case of Commissioner of Income-tax v. Echjay Forgings (P) Ltd., reported in 251 ITR 15 (Bombay). So far as the claim of ONGC is concerned, he has submitted that the claim is allowable. In this regard he has relied on the decision of the Apex Court in the case of Apollo Tyres Ltd. v. CIT (255 ITR 273 (SC)). As regards provision for diminution in value of investments under section 115JB is concerned, relying on the decision of the Apex Court in the case of Commissioner of Income-tax, Delhi v. HCL Comnet Systems & Services Ltd., reported in 305 ITR 409 and the decision of Karnataka High Court in the case of Commissioner of Income-tax v. Yokogawa India Ltd., reported in 204 Taxman 305, it is submitted that the claim is allowable. Further relying on the decision of this court in Tax Appeal No. 1775 of 2008, the learned counsel for the assessee has contended that the issue may be decided in favour of the assessee. 14. We have considered the submissions and the case laws cited by the learned counsel for the assessee. Further relying on the decision of this court in Tax Appeal No. 1775 of 2008, the learned counsel for the assessee has contended that the issue may be decided in favour of the assessee. 14. We have considered the submissions and the case laws cited by the learned counsel for the assessee. In view of the fact that the issue is squarely covered by the decision of the Deputy Commissioner of Income-tax, Circle 1(2), Baroda v. Inox Leisure Ltd., (supra) and other decisions, we answer the issue in favour of the assessee and against the revenue. Tax Appeal No. 473 of 2009: So far as question (A) is concerned, this is identical to the question (B) of Tax Appeal No. 471 of 2009 where we have decided the question in favour of the assessee and against the revenue. In that view of the matter, we answer the question in favour of the assessee and against the revenue. So far as questions (B) and (C) are concerned, for the detailed discussion given in Tax Appeal No. 471 of 2009 while deciding questions (C) and (D), where we have held the issues in favour of the assessee, we answer these questions in favour of the assessee and against the revenue. Tax Appeal No. 474 of 2009: This question is identical to the issue in Tax Appeal No. 472 of 2009. For the identical reasoning given in Tax Appeal No. 472 of 2009, we answer this question in favour of the assessee and against the revenue. In the result, all the appeals preferred by the revenue are dismissed.