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2014 (5) TMI 1206 - AT - Income TaxDeduction u/s. 80IA - AO restricted the deduction to the gross total income of the assessee, after set off all the brought forward unabsorbed deprecation - HELD THAT - Similar issue raised by the revenue in this appeal was considered and decided by the Hon ble Supreme Court in the case of Synco Industries 2008 (3) TMI 13 - SUPREME COURT held that on the contention that the profits derived from one industrial undertaking cannot be set off against loss suffered from another undertaking in view of s. 80-I(6) and that the profit is required to be computed as if the profit making industrial undertaking is the only source of income, the Hon ble Supreme Court held that the same has no merits and that the non obstante clause appearing in s. 80-I(6) is applicable only to the quantum of deduction, whereas the gross total income referred to in s. 80- I(1) is required to be computed in the manner provided under the Act which presupposes that the gross total income shall be arrived at after adjusting the losses of the other division against the profits derived from an industrial undertaking. The Hon ble Supreme Court also held that if the interpretation as suggested by the assessee is accepted then it would almost render the provisions of s. 80A(2) nugatory and, therefore, the same cannot be accepted. It was held that the non obstante clause in s. 80-I(6) cannot restrict the operation of ss. 80A(2) and 80B(5) which operate in different spheres. The Hon ble Court therefore concluded that loss from the oil division of the assessee was required to be adjusted before determining the gross total income, and since the gross total income was Nil , assessee was not entitled to claim deduction under s. 80-I. The above decision rendered in the context of Sec.80-I of the Act would in our view squarely apply to the provisions of Sec.80-IA and 80- IA(7) of the Act as the provisions are impari materia the same. We are of the view that the order of the CIT(Appeals) allowing the claim of the assessee without setoff of losses of earlier years while arriving at the gross total income cannot be sustained. Addition to the donation of assets and obsolesce of assets - AO did not allow the claim of the assessee for deduction of the aforesaid sum for the reason that the details of expenditure on account of obsolescence and donation of assets showed that they were capital losses and therefore cannot be allowed as revenue expenditure - HELD THAT - Tribunal in assessee s own case in A.Y. 2007-08 2013 (10) TMI 1505 - ITAT BANGALORE held that AO has not allowed the assessee's claim for deduction of the loss on obsolescence of assets under section 37(1) of the Act, holding it to be capital in nature. Before us, AR was unable to bring on record any cogent evidence to substantiate its claim and controvert the finding of the assessing authority. In this view of the matter, we dismiss assessee's ground. Addition of prior period expenditure - HELD THAT - Claim of stores reconciliation these sums were actually discrepancies in stock noticed during the previous year and had to be allowed as a deduction. The appraisal note by the audit committee,shows difference in quantities. However, it is seen that the aforesaid report has neither been considered by the CIT(Appeals) nor by the Assessing Officer in the remand report filed before the CIT(A). It appears to us that there has been no proper appreciation of the facts in the right perspective as to whether the appraisal note is in relation to reconciliation of stocks as per the books and as physically found relating to the previous year or to a prior period, which has neither been commented upon by the AO nor decided by the CIT(A). Since the facts have not been properly appreciated either by the AO or the CIT(A), we are not in a position to comment on the allowability or otherwise of the claim of the assessee. In the given circumstances, we are of the view that it would be just and proper to set aside the order of the AO on this issue and remand the question of allowing the claim of the assessee for adjudication. Prior period expenses disallowed with regard to price escalation we find that one SICAL who was transporting coal on behalf of the assessee to its various power stations had made a claim for escalation of costs to be paid for transportation of coal - the assessee has made a claim for deduction - aforesaid correspondence that the liability of the assessee to pay the aforesaid sum crystallised only during the previous year i.e., on 10.2.2006 and 25.3.2006 when the offer of the assessee and acceptance by SICAL took place. Though the liability may relate to an earlier period, since the liability had crystallised only during the previous year, the same had to be allowed as deduction. Accordingly, we direct that the aforesaid sum be allowed as deduction in computing the total income. Difference in transport charges paid by the assessee for surface transport of coal the document on record show that the Board meeting of the assessee conducted on 2.1.2006 considered the revision of rates for surface transport of coal as recommended by the Technical Committee - The aforesaid sum was paid by the assessee to M/s. Aryan Energy Pvt. Ltd. It is thus clear from the document that the liability of the assessee to pay the differential surface transport charges crystallised only during the previous year. Though the amount in question was payable in respect of transportation done during an earlier period, the same is allowable in the present assessment year as the liability had crystallised only during the previous year. We therefore direct that the claim of the assessee be allowed. Differential sales tax reimbursement of lease rentals - HELD THAT - Though the assessee s liability to differential sales tax was in relation to an earlier period, the liability had crystallised only during the previous year and therefore had to be allowed as a deduction in computing the total income of the previous year. We therefore direct the AO to allow the aforesaid claim of the assessee for deduction. Disallowance of expenses claimed by the assessee s employees and other agencies - HELD THAT - We are of the view that considering the explanation offered, it would be reasonable to allow the claim of the assessee. Consequently the claim of the assessee is directed to be accepted. MAT computation applicability u/s 115JB - additional grounds raised by the assessee seek to challenge the applicability of provisions of section 115JB to an electricity supply company such as the assessee - HELD THAT - Following the decision of the Tribunal in the assessee s own case 2013 (10) TMI 1505 - ITAT BANGALORE we allow the additional grounds raised by the assessee and hold that the provisions of section 115JB are not applicable to the assessee. Expenditure claimed under the head expenditure on maintenance expenses - HELD THAT - From a perusal of the order of the AO as well as CIT(Appeals), it is clear that the revenue authorities have not denied the fact that the expenditure crystallised during the previous year, though they related to a period earlier to the previous year. In our view, under the mercantile system of accounting it is the crystallization of liability that will decide as to allowability of an expenditure. Since, admittedly, crystallization of expenses in question had happened during the previous year, the expenditure claimed by the assessee has to be allowed. Accordingly, the AO is directed to allow the claim of the assessee for deduction. Expenditure claimed under the head expenditure on establishment and general expenses - HELD THAT - CIT(A) in enhancing the disallowance made by the AO has overlooked the fact that the liability of the assessee to pay DA had crystallised only during the previous year. Accordingly, the addition made by way of enhancement by the CIT(A) is directed to be deleted. For balance amount assessee submitted before us that the necessary evidence to prove crystallization of liability during the previous year can be produced by the assessee and for this purpose, pleaded for a fresh opportunity before the AO. We are of the view that the request made is reasonable and accordingly we set aside the order of the CIT(A) insofar as the addition and direct the assessee to file necessary evidence before the Assessing Officer. In this regard we are also of the view that the Assessee being a corporation established by the State of Karnataka should be afforded an opportunity as no motives for any tax evasion can be attributed. Expenditure claimed by the appellant under the head power charges and electricity tax on colony consumption - HELD THAT - It is not in dispute before us that that the liability of the assessee to pay the aforesaid sum arose only during the previous year. It is also not in dispute before us that the total demand insofar as the power charges are concerned is much more than the sum of ₹ 6,53,49,424. The assessee has no doubt challenged the order of KERC, but insofar as the sum of ₹ 6,53,49,424 is concerned, the assessee had made the actual payment of the aforesaid sum, notwithstanding the fact that the challenge by the assessee includes this sum also. Strictly speaking, the liability to this extent cannot be said to have been crystallized during the previous year. However, as and when the dispute is settled, the assessee will be entitled to claim this expenditure in the assessment year in which the dispute is ultimately settled. Consequently, this ground of appeal by the assessee is dismissed.
Issues Involved:
1. Requirement of COD approval for filing appeals. 2. Deduction under Section 80IA and set-off of unabsorbed depreciation. 3. Disallowance of expenses related to donation and obsolescence of assets. 4. Disallowance of prior period expenses. 5. Applicability of Section 115JB to electricity companies. 6. Disallowance of maintenance expenses. 7. Disallowance of establishment and general expenses. 8. Disallowance of power charges and electricity tax on colony consumption. 9. Levy of interest under Sections 234B and 234D. Issue-wise Detailed Analysis: 1. Requirement of COD Approval for Filing Appeals: The Tribunal initially dismissed the revenue's appeal due to the absence of COD approval, as mandated by the Supreme Court's judgment in ONGC v. Collector of Central Excise. However, the High Court of Karnataka set aside this dismissal based on a subsequent Supreme Court ruling in Electronics Development Corporation of India Ltd. v. UOI, which dispensed with the need for COD approval. 2. Deduction under Section 80IA and Set-off of Unabsorbed Depreciation: The assessee claimed a deduction under Section 80IA for two profitable units, while the AO set off unabsorbed depreciation before allowing the deduction. The CIT(A) allowed the assessee's claim, referencing the Tribunal's decision in ITO v. Kanchan Oil Industries Ltd. The Tribunal, however, relied on the Supreme Court's decision in Synco Industries Ltd. v. AO, which mandated that gross total income should be computed after adjusting losses and unabsorbed depreciation. Consequently, the Tribunal allowed the revenue's appeal, disallowing the deduction without set-off. 3. Disallowance of Expenses Related to Donation and Obsolescence of Assets: The AO disallowed the expenses claimed for donation and obsolescence of assets, treating them as capital losses. The CIT(A) upheld this view. The Tribunal referred to its earlier decision in the assessee's case for A.Y. 2007-08, which also upheld similar disallowance, and dismissed the assessee's appeal. 4. Disallowance of Prior Period Expenses: The AO disallowed prior period expenses claimed by the assessee. The CIT(A) upheld the disallowance, except for the sum of Rs. 13,70,43,439, which was remanded to the AO for fresh adjudication. The Tribunal allowed certain claims related to price escalation and differential sales tax reimbursement, as these liabilities crystallized during the previous year. Other claims were remanded or dismissed based on the evidence provided. 5. Applicability of Section 115JB to Electricity Companies: The assessee contested the applicability of Section 115JB, arguing that as an electricity company, it was exempt from preparing accounts as per Schedule VI of the Companies Act. The Tribunal, referencing its decision in the assessee's case for A.Y. 2007-08, agreed and held that Section 115JB did not apply to the assessee. 6. Disallowance of Maintenance Expenses: The AO disallowed maintenance expenses claimed by the assessee, which were said to have crystallized during the previous year. The CIT(A) upheld the disallowance. The Tribunal, however, allowed the claim, noting that the expenses had indeed crystallized during the previous year. 7. Disallowance of Establishment and General Expenses: The AO disallowed a portion of establishment and general expenses, which the CIT(A) enhanced. The Tribunal found that the CIT(A) overlooked the crystallization of DA liability and directed the AO to reconsider the remaining expenses, providing the assessee an opportunity to substantiate its claim. 8. Disallowance of Power Charges and Electricity Tax on Colony Consumption: The AO disallowed the claim for power charges and electricity tax on colony consumption. The CIT(A) upheld the disallowance, noting that the liability was not ascertained. The Tribunal dismissed the assessee's appeal, stating that the liability had not crystallized during the previous year. 9. Levy of Interest under Sections 234B and 234D: The Tribunal directed the AO to provide consequential relief regarding the levy of interest under Sections 234B and 234D. Conclusion: The Tribunal allowed the revenue's appeal regarding the set-off of unabsorbed depreciation before Section 80IA deduction. It partly allowed the assessee's appeals on various grounds, including the applicability of Section 115JB and certain expense claims, while remanding or dismissing others based on the evidence and legal principles involved.
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