2015 (1) TMI 511 - AT - Income Tax

Deduction u/s. 80IA - whether was not allowable in respect of income from investment/deposits as the income was not derived from business of generation of electricity - Held that - This issue has been decided by the Tribunal against the assessee in earlier assessment year. However, the appeal has been filed before the Hon ble Jurisdictional High Court and, therefore, in order to keep the issue alive, these grounds may be decided as per the decisions of earlier assessment years for the reasons given in assessment year 2003-04 that the contention of the assessee that Interest received for delayed payment of power bills by M/s. GRIDCO is not borne out of the facts on record. The assessee has not been able to show any nexus between impugned interest received by it with interest payments - Decided against assessee. Peripheral development expenses disallowed - Held that - The assessee had not clarified that the expenditure had been incurred in respect of area where industrial activity was being carried out. Therefore, the facts for assessment year 2009-10 wherein CIT(A) has directed to restrict the disallowance to an amount of ₹ 25,41,312/- on account of peripheral development because the amount paid through Corporation office at Bhubaneswar was not in connection with business are distinguishable from the facts for assessment year 2007-08 - Decided against assessee. Entertainment expenses - dis allowance of 20% of such expenses on estimate basis - Held that - AO has disallowed 20% of the claim of entertainment expenses on adhoc basis without pointing out specific item, which allegedly were personal in nature. The assessee is a Government of Odisha Undertaking. Thus being a legal entity, no disallowance is called for particularly on the ground of the same being personal in nature - Decided in favour of assessee. Disallowance under section 80-IA - assessee s claim is that if disallowances are sustained correspondingly eligible business profits will increase - Held that - There was no ground before ld CIT(A) in this regard. Therefore, this issue does not arise out of the order of ld CIT(A). Thus, this ground is misconceived and, therefore, dismissed - Decided against assessee. Period expenses disallowed - Held that - Since the AO has himself observed that these expenses crystalised in assessment year 2007-08, therefore, he is directed to allow these expenses in assessment year 2007-08 while giving effect to our order for assessment year 2007-08 vide ITA No.554/Ctk/2012 - Decided in favour of assessee for statistical purposes. Disallowance of periphery development - Held that - No reason to interfere with the order of ld CIT(A) directing the AO to allow ₹ 33,12,500/- being the amount paid to Collector for peripheral development. He observed that whether the total amount of ₹ 1,08,77,070/- included the amount of ₹ 33,12,500/- as claimed by the assessee was to be verified by the AO. Accordingly, he directed the AO to verify the same and recompute the disallowance accordingly. However, in sum and substance, he confirmed the action of the AO following the assessment year 2004-05, by excluding an amount of ₹ 33,12,500/- and confirming the addition of ₹ 75,64,170/- - Decided against assessee. Disallowance of entertainment expenses - Held that - Since the AO has himself observed that these expenses crystalised in assessment year 2007-08, therefore, he is directed to allow these expenses in assessment year 2007-08 while giving effect to our order for assessment year 2007-08 vide ITA No.554/Ctk/2012 - Decided in favour of assessee for statistical purposes.

Issues Involved:
1. Validity of the assessment and rectification orders.
2. Exclusion of certain incomes while computing deduction under Section 80IA.
3. Disallowance of peripheral development expenses.
4. Disallowance of entertainment expenses.
5. Treatment of disallowed expenses as business profit eligible for deduction under Section 80IA.
6. Disallowance of prior period expenses.
7. Disallowance of staff welfare expenses.
8. Disallowance for non-deduction of tax under Section 194A.

Detailed Analysis:

1. Validity of Assessment and Rectification Orders:
- Issue: The assessee challenged the assessment order dated 31.12.2009 and rectification order dated 30.06.2010 as void ab initio, against natural justice, and legally untenable.
- Judgment: The tribunal did not find it necessary to adjudicate this general ground.

2. Exclusion of Certain Incomes While Computing Deduction Under Section 80IA:
- Issue: The assessee contested the exclusion of Rs. 2,51,00,337/- while computing the deduction of "Power Profits" under Section 80IA.
- Judgment: The tribunal upheld the Assessing Officer's (AO) decision to exclude certain incomes like interest from investments and deposits, following earlier tribunal decisions and judicial pronouncements. The tribunal dismissed the related grounds of appeal (Ground Nos. 2 to 5).

3. Disallowance of Peripheral Development Expenses:
- Issue: The AO disallowed Rs. 34,03,487/- under peripheral development expenses, arguing they were not related to the business and were voluntary.
- Judgment: The tribunal upheld the AO's disallowance for the assessment year 2007-08, noting the expenses were not incurred in areas where the industrial activity was carried out. However, for the assessment year 2009-10, the tribunal allowed part of the expenses incurred at IB Thermal station but upheld the disallowance of Rs. 25,41,312/- spent through the corporate office.

4. Disallowance of Entertainment Expenses:
- Issue: The AO disallowed 20% of entertainment expenses, considering them personal in nature.
- Judgment: The tribunal found the disallowance to be arbitrary and deleted it, emphasizing that the assessee is a government undertaking, and such expenses could not be personal.

5. Treatment of Disallowed Expenses as Business Profit Eligible for Deduction Under Section 80IA:
- Issue: The assessee argued that disallowed expenses should be considered as an addition to business profit eligible for deduction under Section 80IA.
- Judgment: The tribunal dismissed this ground, noting it did not arise out of the order of the CIT(A).

6. Disallowance of Prior Period Expenses:
- Issue: The AO disallowed prior period expenses not related to the assessment year under consideration.
- Judgment: The tribunal directed the AO to allow these expenses in the year they crystallized, providing relief to the assessee for certain amounts but maintaining disallowance for others not substantiated.

7. Disallowance of Staff Welfare Expenses:
- Issue: The AO disallowed 15% of staff welfare expenses for want of details.
- Judgment: The tribunal upheld the CIT(A)'s decision to delete the disallowance, noting the expenses were incurred during the course of conducting business.

8. Disallowance for Non-Deduction of Tax Under Section 194A:
- Issue: The AO disallowed Rs. 2,52,00,981/- for non-deduction of tax on interest paid to Power Finance Commission.
- Judgment: The tribunal upheld the CIT(A)'s deletion of the disallowance, citing a notification that exempted such payments from TDS under Section 194A.

Conclusion:
The tribunal provided a detailed analysis for each issue, often upholding the decisions of the AO and CIT(A) based on prior judicial pronouncements and the specifics of each case. The appeals were partly allowed and partly dismissed, with specific directions for re-evaluation of certain expenses in the relevant assessment years.

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