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2017 (9) TMI 962 - AT - Income TaxDisallowance of deduction u/s 80IA - basis of sale price considered by the TPP for sale of power to the cement units of the appellant company - whether electricity duty and cess has to be excluded from the price while determining profits derived from the business? - Held that - Identical issue has already been decided in assesee s own case for A.Y.2008-09 and 2009-10 as held that as during the previous year relevant to the Asst Year 2009-10, the assessee in fact sold electricity at rates higher than that charged from it by the State Electricity Board. The assessee nevertheless made the computation for the purpose of section 80IA of the Act with reference to the price charged from it by the State Electricity Board. In such circumstances, we hold that, when it was permissible for the assessee to sell electricity to consumers and distribution licensees at rates higher than that paid by it to the State Electricity Board, the price charged by the State Electricity Board would be a very good indication of the market value of electricity and the assessee did not commit any error in adopting such price for working out the amount eligible for deduction u/s 80IA of the Act. The Tribunal agreed with the submission of the Assessee that the price paid by an assessee for purchase of raw material represents the market price of such raw material produced by the assessee. The Tribunal also held that the method adopted by the assessee viz. to take the average rate charged by the State Electricity Board for the previous month is quite appropriate and reasonable for determining the market value for the month of supply. The tribunal held that the annual weighted average adopted by the ld CITA would result in variations occurring during the year at different times being made applicable uniformly for the whole year and therefore the assessee s method is more appropriate as it factors in variations as and when they take place. On the issue whether electricity duty and cess has to be excluded from the price while determining profits derived from the business, the Tribunal held that they are also to be considered as part of the price. - Decided against revenue Income derived by Thermal Power Plant cannot be held as income derived from eligible business for the purpose of allowing deduction u/s 80IA of the Act - Decided against assessee. Compensation paid for infringement of mining right - revenue or capital - whether infringed mining right transferred in lieu of compensation had got benefit of enduring nature, hence capital in nature? - Held that - Identical issue was considered by the Tribunal in assesee s own case for A.Y.2008-09 and 2009-10 held that payments are progressively distributed as they work, as they proceed year by year, going on with their work and the payments are in the nature of incidental expenditure to conduct the mine and the business operations. Therefore, held that the payment of compensation to persons whose rights are infringed by the mining activity is revenue in nature. Subsidy received - nature of receipt - Held that - The subsidy in question is a capital receipt and not chargeable to tax. We also hold that capital receipt need not be reduced from the cost of the assets and under Explanation 10 to section 43(1) of the Act. We accordingly allow ground raised by the assessee in its appeal. Disallowance u/s 14A r.w.r. 8D - whether only investments from which exempt income was received should be considered - Held that - Direct the AO to consider all investments (excluding investments in subsidiary companies) which yielded dividend income to the assessee for computing disallowance u/s 14A of the Act r.w. Rule 8D(2)(iii) of the Rules. Depreciation u/s 32(1)(ii) - allow balance 50% initial depreciation on Plant & Machinery put to use for a period of less than 180 days during the financial yer 2008-09 relevant to Asst. Year 2009-10 - Held that - Assessee is entitled to additional depreciation (remaining portion). Ground raised by the assessee is allowed. Provision for leave encashment - whether it is neither a statutory liability nor contingent liability and therefore not to be considered for the purpose of computing disallowance u/s.43B(f)? - Held that - We set aside the order of CIT(A) and remand the issue to the AO to pass order based on the outcome in the proceedings pending before the Hon ble Supreme Court in the case of Exide Indusries Ltd. (2008 (9) TMI 921 - SUPREME COURT ). Thus ground raised by the assessee is allowed for statistical purposes. Provision for sick leave liability - whether is notional and contingent liability and therefore covered by the provisions of section 43B(f) ? - Held that - This liability is purely notional and cannot be allowed as deduction. It is an admitted position that there is no out flow on this account in any assessment year and the liability is notional and is based purely on entries in the books of account on the basis of notional figures. This may be relevant for the purpose of showing the true and fair view of the state of affairs of the assessee as is required for reporting to share holders and other public authorities. When it comes to computing total income under the Act, such notional liability cannot be allowed as deduction. We concur with the view of CIT(A) in this regard. We are of the view that application of the provision of section 43B(f) of the Act would not be relevant because the liability in question is not otherwise allowable under the Act and Sec.43B of the Act will come into operation only when a expenditure is otherwise allowable under the Act. With this observation we dismiss ground raised by the assessee. Interest subsidy in question is a capital receipt not chargeable to tax.
Issues Involved:
1. Delay in filing the appeal by the revenue. 2. Disallowance of deduction under Section 80IA. 3. Interest income eligibility for deduction under Section 80IA. 4. Compensation for infringement of mining rights. 5. Nature of Industrial Promotion Assistance subsidy. 6. Disallowance under Section 14A read with Rule 8D. 7. Balance of initial depreciation under Section 32(1)(ii). 8. Provision for leave encashment under Section 43B(f). 9. Provision for sick leave liability. 10. Interest subsidy as capital receipt. Detailed Analysis: 1. Delay in Filing the Appeal by the Revenue: The revenue's appeal had an 8-day delay, which was explained due to administrative reasons. The Tribunal found the reasons sufficient and condoned the delay. 2. Disallowance of Deduction Under Section 80IA: The primary dispute was the price to be adopted for power generated by the Assessee's Thermal Power Plant (TPP) and consumed by its cement units. The Assessee adopted the price paid to the grid by the consuming units in the previous month (?6.82 per unit). The AO proposed using the rates determined by the Rajasthan and M.P. Electricity Regulatory Commissions (?2.44 and ?1.39 per unit, respectively). The Tribunal, following the CIT(A)'s previous orders and the ITAT's decision in the Assessee's own case, directed the AO to adopt the weighted average basis of annual consumption, excluding electricity duty and cess charges. 3. Interest Income Eligibility for Deduction Under Section 80IA: The AO excluded interest income from fixed deposits (?6,96,85,282/- and ?7,18,61,971/-) from the profits derived from the industrial undertaking, citing the Supreme Court's decision in Liberty India Vs. CIT. The CIT(A) upheld this decision, and the Tribunal agreed, dismissing the Assessee's ground on this issue. 4. Compensation for Infringement of Mining Rights: The Assessee paid ?23,71,340/- as compensation for infringement of mining rights. The AO treated this as a capital expenditure, while the Assessee claimed it as revenue expenditure. The CIT(A) and Tribunal, following previous decisions in the Assessee's own case, held the compensation as revenue in nature and allowed the deduction. 5. Nature of Industrial Promotion Assistance Subsidy: The Assessee received ?13,59,12,890/- as Industrial Promotion Assistance under the West Bengal Investment Scheme, 2000. The AO treated this as revenue receipt, while the Assessee claimed it as a capital receipt. The CIT(A) treated it as a capital receipt but directed the AO to reduce it from the cost of fixed assets for computing depreciation. The Tribunal, following its previous decisions, held the subsidy as a capital receipt not to be reduced from the cost of assets. 6. Disallowance Under Section 14A Read with Rule 8D: The Assessee offered ?5,84,022/- as disallowance under Section 14A, while the AO computed ?4,23,49,000/- using Rule 8D. The CIT(A) directed the AO to consider only investments yielding exempt income, reducing the disallowance to ?107.61 lakhs. The Tribunal, following its previous decisions, directed the AO to consider all investments (excluding those in subsidiary companies) yielding dividend income for computing disallowance. 7. Balance of Initial Depreciation Under Section 32(1)(ii): The Assessee claimed further depreciation (balance 10%) on plant and machinery used for less than 180 days in the previous year. The AO and CIT(A) disallowed this claim. The Tribunal, following its decision in the Assessee's own case, allowed the claim for the remaining portion of additional depreciation. 8. Provision for Leave Encashment Under Section 43B(f): The AO disallowed ?1,61,10,394/- as provision for leave encashment under Section 43B(f). The CIT(A) upheld the disallowance. The Tribunal, following its previous decision, remanded the issue to the AO to pass orders based on the outcome of the Supreme Court's decision in Exide Industries Ltd. 9. Provision for Sick Leave Liability: The AO disallowed ?10,35,870/- as provision for sick leave, considering it notional and contingent. The CIT(A) upheld the disallowance. The Tribunal agreed, stating the liability was notional and not allowable under the Act. 10. Interest Subsidy as Capital Receipt: The AO treated the interest subsidy of ?1,11,42,419/- as revenue receipt. The CIT(A) upheld this decision. The Tribunal, following its previous decision in the Assessee's own case, held the interest subsidy as a capital receipt not chargeable to tax. Conclusion: The Tribunal dismissed the revenue's appeal and partly allowed the Assessee's appeal, providing relief on several grounds while remanding the issue of leave encashment provision to the AO.
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