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2024 (8) TMI 1018 - AT - Income TaxNon admission of additional evidence produced by the assessee by CIT(A) - HELD THAT - CIT(A) has rejected the evidences submitted before him without granting proper opportunity to the assessee as well as analyzing the evidences submitted before him. In our considered view, the evidences submitted by the assessee goes to the root of the matter and Ld CIT(A) could have dealt with the issue on merits instead of rejecting on the face of it. Since the issue raised by the assessee and the additional evidences have direct correlation. Hence these are required to be admitted to adjudicate the issue on merit. Accordingly, the ground no 2 raised by the assessee is allowed. Addition on account of non-recognition of late payment surcharge (LPSC) - claim sale prices of the electricity and late payment surcharge (LPSC) of existing rate of 1.5% per month in case the sale considerations are settled beyond the agreed period of settlement - as per AO assessee follows mercantile system of accounting and the same is chargeable to tax whether it is received or receivable - HELD THAT - We observe that the assessee has not recovered any LPSC in the past and as per the accounting standard and norms, the assessee has to declare its income not only based on accrual system, also supported by the concept of certainty of recovery. In the similar facts on record, the Hon ble Supreme Court held in the case of Godhara Electricity Co. Ltd. 1997 (4) TMI 4 - SUPREME COURT that there was real accrual of income to the assessee Co. in respect of the enhanced charges for supply of electricity, has to be considered by taking the probability or improbability of realisation in a realistic manner. Tribunal had rightly held that the claim at the increased rate made by the assessee Co., on the basis of which necessary entries were made, represented only hypothetical income and the impugned amount as brought under tax by the ITO did not represent the income which had really accrued to the assessee during the relevant previous year - mere accrual does not make the income chargeable to tax but also supported by the concept of certainty of recovery . Therefore, we are inclined to allow the grounds raised by the assessee both in addition made under normal provision of income tax and also under MAT provisions. Also we observe that the assessee has submitted various propositions before us, since we have already allowed the grounds raised by the assessee on the basis of concept of certainty of realization based on the Accounting Standards, the other propositions raised by the assessee are not adjudicated at this stage. In the result, the grounds raised in ground 3 and 4 are allowed. Disallowance u/s 36(1)(iii) - proportionate interest calculated by applying average cost of debt to the total investment being CWIP, additions to fixed asset and capital advance - interest on borrowed capital pertaining to additions to fixed asset, Capital WIP and capital advances has been capitalized during the year - HELD THAT - On careful analysis of the facts on record, we observed that the capitalization of interest is directly linked to the specific funds utilized for the purpose of making investment for the creation of fixed assets. In the given case, we observed that the assessee has proceeded to make investments in the three categories, viz., a). direct purchase of fixed assets, b). In house development of project I (Bamnauli project) and c). In house development of project II (Bawana Project). As per the information submitted before us clearly shows that the Bawana Project was already commissioned in FY 2013-14 and to the extent of interest for the period was already capitalized. In this project there was direct utilization of equity funds, loan from PFC and GNCTD. The interest was already determined and capitalized at the time of commissioning of the project itself. Therefore, there is no requirement to make further capitalization in this project. The next project is Bamnauli Project, it was submitted that this project was fully financed out of equity introduced by GNCTD and no borrowed funds were utilized during this AY. The relevant evidence was submitted before CIT(A) and he has rejected the same. For the sake of justice, we observe that none of the tax authorities have verified this aspect and for the sake of clarity, we direct the AO to verify the claim of the assessee and allow the same as per law. The next issue is direct purchase of assets, once it is put to use, or deferred there is no concept of further capitalization. Therefore, we do not see any reason to sustain the addition made by the AO. Therefore, we direct AO to only verify the Project Bamnauli and allow the claim of the assessee as per law after providing proper opportunity of being heard to the assessee. In the result, ground raised by the assessee is partly allowed as per above directions. Deduction claimed u/s 80IA(4)(iv) - addition of amount of notional interest accounted for in the accounts of the company during the Financial Year 2017-18 on the liability to be discharged by the Assessee to its contractors in future by adopting IND AS with effect from the financial year 2015-16 - HELD THAT - Deduction u/s 80IA is allowable to the assessee on the basis of eligible unit. In the present case, the assessee has two eligible units eligible to claim deduction u/s 80IA, therefore the computed income under the Act is towards the income generated for the purpose of eligible business u/s 80IA. After careful consideration, we are of the view that the assessee has rightly determined the eligible profit from the eligible business by adopting the declared profit as per Profit and Loss Account statement and added back the notional finance cost, which is otherwise not allowable expenditure under the Income Tax Act. Even otherwise, the assessee determines the eligible profit of the eligible unit separately, by considering the revenue from eligible units and relevant costs of eligible units, without considering the notional loss adopted in the books of account, the relevant eligible profit would be the same. Therefore, the disallowance of deduction claimed u/s 80IA of the Act by the assessing officer is not proper. Accordingly, the ground raised by the assessee is allowed. Disallowance as revenue expenditure u/s 37(1) r/w section 43A - net loss on account of foreign exchange transaction and translation on account of capital assets acquired by the assessee from abroad - HELD THAT - The assessee has reinstated the forex liability in the Balance Sheet and the excess liability was claimed as forex loss. In the subsequent AY, the relevant settlement will be made and in case the settlement made are lesser than the liability created above, the same will be declared as income during the next AY. The method of accounting is continues process and the liability in the foreign currencies has to be recognized at the end of each year. Therefore, the foreign currency liability relating to the above project remained with the assessee till the relevant liability is settled. Considering the agreement with BHEL on payment procedure agreed with them, the claim made by the assessee during the year under consideration is proper. Accordingly, the ground raised by the assessee is allowed. Disallowance of depreciation - CIT(A) has sustained the additions by observing that the assessee had failed to submit the working/details of depreciation claimed - HELD THAT - As as submitted before us that the assessee itself has claimed 50% of the depreciation for those assets which were added to the fixed assets after 01.10.2017. Since the assessee has already submitted the relevant depreciation schedule in the audit report, we are inclined to remit this issue back to the file of AO to verify the relevant depreciation schedule and also verify the relevant documents submitted to claim that the assets were already put to use on or before 31/03/2018. The assessee had already adopted the relevant method of claiming the depreciation as per the rates in Appendix 1A, AO has to verify the same afresh as per law after giving proper opportunity of being heard to the assessee. Accordingly the grounds raised by the assessee on the issue of depreciation u/s 32(1) as well as allowable depreciation in the computing the book profit u/s 115JB of the Act are remitted back to AO to verify the same and allow them as per law. It is needless to say that assessee may be given proper opportunity of being heard. Accordingly, the ground raised by the assessee is allowed for statistical purpose.
Issues Involved:
1. Addition on account of non-recognition of late payment surcharge (LPSC). 2. Disallowance of proportionate interest under Section 36(1)(iii) of the Income Tax Act. 3. Disallowance of foreign exchange loss under Section 43A of the Income Tax Act. 4. Disallowance of proportionate depreciation under Section 32 of the Income Tax Act. 5. Disallowance of depreciation under MAT provisions. Detailed Analysis: 1. Addition on Account of Non-Recognition of Late Payment Surcharge (LPSC) The assessee argued that LPSC should not be recognized as revenue due to uncertainty in its realization, citing compliance with AS-9, IND AS-115, and ICDs-IV. The Assessing Officer (AO) added Rs. 679,65,74,000/- to the income, stating that the assessee followed the mercantile system. The Tribunal observed that the AO failed to consider the uncertainty of LPSC realization and allowed the assessee's appeal, emphasizing the principle that hypothetical income should not be taxed. 2. Disallowance of Proportionate Interest Under Section 36(1)(iii) The AO disallowed Rs. 17,66,79,721/- as interest on borrowed funds supposedly used for capital work-in-progress (CWIP) and fixed assets. The assessee contended that these were funded by equity and internal accruals. The Tribunal directed the AO to verify the source of funds for the Bamnauli Project and allow the claim as per law, emphasizing that the AO did not establish a nexus between borrowed funds and investments. 3. Disallowance of Foreign Exchange Loss Under Section 43A The AO disallowed Rs. 17,67,88,271/- as foreign exchange loss, treating it as a capital expenditure. The assessee argued that the loss was related to payments made to BHEL for a power plant project and should be allowed under Section 43AA. The Tribunal allowed the appeal, noting that the foreign exchange loss was properly accounted for under IND AS-21 and was not governed by Section 43A, as the assets were not acquired from abroad. 4. Disallowance of Proportionate Depreciation Under Section 32 The AO disallowed Rs. 236,12,51,643/- by applying the SLM rate to the opening WDV instead of the actual cost. The assessee argued that it followed the prescribed rates under Rule 5(1A) and Appendix-IA. The Tribunal remitted the issue back to the AO to verify the depreciation schedule and ensure compliance with the prescribed rates, noting that the AO's method was incorrect. 5. Disallowance of Depreciation Under MAT Provisions The AO added Rs. 3,04,57,234/- to the book profit under Section 115JB, disallowing 50% depreciation for assets acquired on 31.03.2018. The Tribunal noted that the assessee had already claimed 50% depreciation for these assets and directed the AO to verify the depreciation schedule and allow the claim as per law, emphasizing that the AO should not tinker with the book profit computation except as provided in the Explanation to Section 115JB. Conclusion: The Tribunal allowed the appeal on the grounds of LPSC, foreign exchange loss, and directed the AO to verify the claims regarding interest and depreciation under normal provisions and MAT provisions, ensuring compliance with the relevant accounting standards and legal provisions.
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