2019 (11) TMI 1111 - AT - Income Tax

Addition on account of fuel related losses - CIT-A deleted the addition - HELD THAT - In the present case the A.O. while accepting the 50% of the loss as genuine and remaining 50% as non genuine, had not given any cogent reason or basis and even in the past such losses were accepted by the Department. In the present case the findings given by the CIT(A) that the coal loss varies from year to year and it was dependent on various factors such as weather condition, moisture content, travel forces etc. which were variable from time to time had not been rebutted. Moreover the transit of coal was not insurable and the assessee had claimed actual loss which was on account of difference in weight of coal recorded first in the SMB Register, thereafter in the stock register and the books of accounts. CIT(A) categorically stated in the impugned order that the AO verified from the record related to the loss suffered by Panipat Unit of assessee corporation while completing the assessment proceedings for the year under consideration and no adverse comment / discrepancy as regards to the record maintained by the Assessee for fuel loss was observed by the AO while passing the assessment order. This observation of the Ld. CIT(A) has not been rebutted by bringing any cogent material on record. We therefore by considering the totality of the facts as discussed hereinabove do not see any valid ground to interfere with the findings of the Ld. CIT(A) and do not see any merit in this ground of the Departmental appeal. Addition on account of renovation and modernization of projects - CIT-A deleted the addition -HELD THAT - As noticed that a similar issue having identical facts has been adjudicated by this Bench of ITAT in assessee s own case factual findings of the Ld. CIT(A) that the interest expenses claimed, pertained to loans taken for projects which had already been commissioned prior to the impugned year have not been controverted by the Revenue. Nor has the Revenue pointed out any any infirmity in the conclusion drawn by the Ld. C1T(A) , from the said factual position of the assessee, that interest expenses incurred subsequent to completion of renovation of projects was to be treated as Revenue in nature as per section 36(l)(iii) of the Act. The Revenue has also not controverted the finding of the C1T(A) that such claim has been allowed in the past too u / s 36(l)(iii) of the Act. We, therefore, see no reason to interfere in the order of the Ld. C1T(A) - Decided against revenue

Summary

Issues Involved:
1. Deletion of addition on account of fuel-related losses.
2. Deletion of addition on account of renovation and modernization of projects.

Detailed Analysis:

1. Deletion of Addition on Account of Fuel-Related Losses
The Department challenged the deletion of an addition of ?21,67,62,978/- made by the Assessing Officer (A.O.) on account of fuel-related losses. The assessee had declared fuel-related losses at ?43,35,25,957/- in their Profit & Loss Account. The A.O. disallowed 50% of these losses, amounting to ?21,67,62,978/-, citing reasons such as lack of independent evidence, no insurance claims, and no claims filed with Railway Authorities.

The assessee argued that the coal was transported over long distances (1100 KM to 1350 KM) and that transit losses due to evaporation and windage were inevitable. They provided documentary evidence, including weighbridge slips and invoices. The Ld. CIT(A) accepted the assessee's explanation, noting that the losses were genuine and occurred in the normal course of business. The Ld. CIT(A) also observed that the A.O. had not undertaken any enquiry to determine the correct loss and had made the disallowance on an estimated basis.

The Ld. CIT(A) further noted that the Haryana Electricity Regulatory Commission (HERC) had allowed transit losses at higher rates for the assessee's power plants. The Ld. CIT(A) concluded that the expenses disallowed by CERC/HERC were for tariff fixation purposes and could not be the basis for assessing income under the Income Tax Act. The Ld. CIT(A) found that the transit losses were consistently allowed in previous years and were verified by statutory auditors and the Comptroller and Auditor General (CAG) of India.

The Tribunal upheld the Ld. CIT(A)'s decision, noting that the A.O. had accepted 50% of the loss without any cogent reason and that the Department had accepted similar losses in previous years. The Tribunal found no merit in the Department's appeal and dismissed it.

2. Deletion of Addition on Account of Renovation and Modernization of Projects
The Department also challenged the deletion of an addition of ?4,97,25,987/- made by the A.O. on account of renovation and modernization of projects, which the A.O. considered capital in nature. The Ld. CIT(A) had allowed the expenses as revenue expenditure.

The assessee argued that the issue was covered in their favor by a previous order of the ITAT for the Assessment Years 2004-05 to 2008-09, where similar expenses were allowed as revenue expenditure under Section 36(1)(iii) of the Income Tax Act. The Ld. CIT(DR) could not controvert this contention.

The Tribunal noted that the factual findings of the Ld. CIT(A) that the interest expenses pertained to loans for already commissioned projects were not disputed by the Revenue. The Tribunal found no merit in the Department's appeal and upheld the Ld. CIT(A)'s order, dismissing the Department's appeal.

Conclusion:
The Tribunal dismissed the Department's appeals, upholding the Ld. CIT(A)'s orders that allowed the fuel-related losses and renovation and modernization expenses as legitimate business expenditures. The Tribunal found that the disallowances made by the A.O. were not justified and lacked a proper basis.