2023 (12) TMI 635 - AT - Income Tax

Challenging the authority of Additional Commissioner of Income-tax Act in passing the assessment order - DR has submitted that though the notices issued u/s 143(2) of the Act are available on the assessment record but the relevant notifications authorising the Additional Commissioner of Income tax as AO or the order of elevation of the Joint Commissioner to the post of Additional Commissioner of Income-tax are not available on assessment record because same were part of administrative procedure and therefore were not placed on the assessment record. He submitted that despite making thorough search of all record of the relevant authorities, those notifications / promotion orders could not be traced after a lapse of substantial period of more than 14 years. HELD THAT - We find that in the case of Stock Traders P Ltd case the assessee had placed reliance on the decision of the Tribunal in the case of Tata Sons Ltd 2017 (12) TMI 297 - ITAT MUMBAI and Tata communication limited 2019 (8) TMI 1446 - ITAT MUMBAI but the Tribunal after considering the submission of the parties, rejected the additional ground challenging the authority of the Additional Commissioner of income-tax, in passing the assessment order. Thus, we dismiss the additional ground raised by the assessee. Deduction u/s 80IA - Taxability of renovation and modernization levy collected by the assessee from customers - HELD THAT - We find that the issue in dispute is squarely covered by the decision of the Coordinate Bench of Tribunal in the case of the assessee in 2007 (4) TMI 396 - ITAT MUMBAI . Since the issue of de-commissioning levy being different from the present levy of Renovation and modernization, which is covered against the assessee, thus, to maintain judicial discipline, we are not following the precedent in the case of decommissioning levy and prefer to follow the finding of the Tribunal (supra) on issue of renovation and modernization levy only. We also note that the assessee in assessment years i.e. 2004-05, 2005-06 and 2006-07 has admitted the collection of different levies as its income and claimed deduction on the same for the purpose of section 80IA of the Act. Once the assessee itself has admitted the receipt as income in subsequent years, we do not find any justification on the part of the assessee in contesting those receipts as not taxable. Research Development levy collected by the assessee - research and development levy has been discussed by the AO along with the renovation and modernization levy and added the same as income of the assessee - CIT(A) on the other hand, following the finding of his predecessor in assessment year 1997-98 upheld the order of the Ld. AO - HELD THAT - We also note the assessee in assessment years i.e. 2004-05, 2005-06 and 2006-07 has admitted the collection of different levies as its income and claimed deduction on the same for the purpose of section 80IA of the Act. Once, the assessee itself has admitted the receipt as income in subsequent years, we do not find any justification on the part of the assessee in contesting those receipt as not taxable The issue in dispute in the year under consideration being identical to the issue in dispute raised in assessment year 1997-98, therefore, respectfully following finding of the Tribunal(supra), the ground Nos. 3 4 of appeal of the assessee are accordingly dismissed. De-commissioning levy collected by the assessee - HELD THAT - We find that Hon ble High Court and the Tribunal has given finding on the issue of claim of interest expenditure for utilisation of the funds out of the decommissioning fund on the ground that said interest was credited to the decommissioning fund and when said fund has been utilized for the purpose of the business of the assessee, interest in respect of use of fund was eligible for deduction. The Hon ble High Court has observed that the situation is akin to the assessee borrowing fund from the market and utilising such borrowed funds for the purpose of the business and paying interest to the creditors. Thus, as far as the issue of disallowance of interest expenditure of ₹ 1836.71 lakhs is concerned, the issue is squarely covered in favour of the assessee and therefore the finding of the Ld. CIT(A) to that extent is set aside and matter is restored to the AO for following the decision of the Hon ble Bombay High Court 2019 (1) TMI 868 - BOMBAY HIGH COURT and verify whether interest income credited has already been taxed, then claim of interest expenditure has to be allowed to the assessee. But as far as the issue of receipt collected by way of decommissioning charges and credited separately to decommissioning fund is identical to collection of the levy of renovation and modernisation fund, which we have upheld following the decision of the Tribunal in earlier years in preceding Para, and therefore to have consistency in our view, we uphold the addition treating the receipt of decommissioning charges as income in the hands of the assessee. We also note that the assessee in assessment years i.e. 2004-05, 2005-06 and 2006-07 has admitted the collection of different levies as its income and claimed reduction on the same for the purpose of section 80IA of the Act. Once the assessee itself has admitted the receipt as income in subsequent years, we do not find any justification on the part of the assessee in contesting those receipts as not taxable. The ground No. 5 of the appeal of the assessee is accordingly dismissed, whereas the ground No. 6(six) of the appeal of the assessee is allowed for statistical purpose. Considering the interest income, consultancy receipt and other income under the head income from other sources rather than adjusting the same against the expenditure incurred on construction of plants during the year under consideration - During the course of hearing, the learned counsel for the assessee was asked to justify as how the interest received from employees for mobilization advances was connected to the construction of project. Similarly, he was asked to justify as how the consultancy receipts were connected with the construction of plants. Similarly, regarding other receipts under the head other income reported as premium received on bonds, the ld Counsel was asked to justify as how same was connected with the construction expenditure. However, the Ld. Counsel for the assessee failed to file any documentary evidence in support of claim that those incomes were having nexus with the construction of the plants and therefore the plea of the assessee is accordingly rejected. We do not find any error in the order of the Ld. CIT(A) on the issue in dispute and accordingly, we uphold the same. Disallowance of prior period expenses - assessee submitted that total turnover of the assessee was around Rs. 1447.72 crores, whereas the total prior period expenses are only ₹ 11.55 crores, which is approximately 0.80%, which being normal and a small percentage, considering the size of organization and the locations, it should be allowed to the assessee - HELD THAT - Before us, also no such detail of the legal expenses amounting to Rs. 7 lakhs has been filed and therefore, we do not have any option other than to uphold the disallowance made by the Assessing Officer. Disallowance of employee state insurance (ESI) and provident fund (PF) u/s 43B - HELD THAT - Since, the issue in dispute of payment of employees contribution to ESI/PF after the due date under the relevant Act has been finally settled by the Hon ble Supreme Court in the case of Checkmate Services Pvt. Ltd. 2022 (10) TMI 617 - SUPREME COURT and therefore employee s contribution ESI/PF paid after due date under the relevant is not allowable. Before us, the Ld. Counsel for the assessee claimed that said amount of disallowance include employee s as well as employer s contribution, however no such breakup of the amount has been given before us, therefore, we remit this matter back to the Assessing Officer for verification and if this amount include any employer s contribution to ESI/PF, then the same may be allowed subject to provisions of section 43B of the Act i.e. paid before the due date of filing of the return of income and employee s contribution should be considered Applicability of section 115JA over the assessee who is an entity incorporated by the Government of India - HELD THAT - As decided in Kerela State Electricity Board Vs DCIT reported in 2010 (11) TMI 127 - KERALA HIGH COURT has firstly, held that the assessee was required to maintain its books of accounts in a manner specified by the Central Government, but not in the manner specified in the Companies Act, 1956, which is the requirement of provisions of section 115JA of the Act, thus section 115JA should not be applicable over government companies. Secondly, referred to the CBDT Circular (supra) and observed that Companies engaged in business of electricity generation were stated to be exempted from the provision of section 115JA of the Act and such an understanding was binding on the Income-tax authorities. Further, held that assessee or body similar, who are totally owned by the Government, have no shareholders, thus profit would be for the benefit of the public at large and taxation being meant for the welfare of the people, the mischief sought to be remedied by way of amendment (i.e. introduction of section 115JA/115JB becomes irrelevant, therefore, the fiction of section 115JB( in our case section 115JA) cannot be pressed into service against the assessee. The assessee before us being a company wholly owned by the Government of India, therefore, in view of the decision of the Hon ble Kerala High Court (supra), as upheld by the Hon ble Supreme Court 2022 (10) TMI 363 - SC ORDER we hold that the assessee is not liable to be taxed under the provisions of section 115JA of the Act. Accordingly, the ground of appeal of the assessee is allowed. Disallowance of provision for the loss/obsolete stock - HELD THAT - If a wrong claim has been allowed in the earlier year same cannot be ground for allowing in the year under consideration also. The Hon ble Supreme Court in the case of Distributor (baroda) Private Limited 1985 (7) TMI 1 - SUPREME COURT held that there is no heroism in continuing the error and it should be corrected when pointed out. Though the learned counsel of the assessee has relied on various decisions cited, but the factual information of the list of such stock and how same became obsolete was not submitted before the lower authorities. Before us also no such evidences have been submitted to establish that relevant stock became obsolete. Unless properly identified the obsolete stock or a scientific way of making provision for such an obsolete stock is produced with documentary evidence, the claim of the assessee cannot be allowed. Therefore, we do not find any error in the order of the Ld. CIT(A) on the issue in dispute, and accordingly, we uphold the same. The ground of the appeal of the assessee is dismissed. Not allowing the deduction for expenditure incurred in respect of income which has held to be income assessable under the head income from other sources - HELD THAT - We are of opinion that under the provisions for assessment of the income under the head income from other sources , the assessee is eligible for expenses incurred for earning such income. Accordingly, we restore this ground to the file of the Assessing Officer for verification of the claim of the assessee and decide in accordance with law. Crystallisation of the expenses - HELD THAT - CIT(A) has given detailed bifurcations of the such expenses claimed by the assessee. In case of TAPS and RAPS, the assessee failed to file any evidence to show that expenses crystallised during the year under consideration and therefore the CIT(A) has upheld the disallowance. Out of the expenses related to MAPS CIT(A), deleted the repayment of electricity charges recovered from the employees, but upheld the disallowance of repair and maintenance expenses and reconciliation adjustment entry for material received in earlier years due to to lack of documentary evidence to support crystallisation of expenses in the year under consideration. Similarly in respect of KAPS, the Ld. CIT(A) has deleted the addition for trade tax and bonus, whereas in respect of repair and maintenance and leave salary and pension contribution, the assessee failed to justify crystallisation of expenses in the year under consideration. Similarly the Ld. CIT(A) has disallowed the miscellaneous expenses and corporate office expenses due to lack of evidence supporting crystallisation of expenses in the year under consideration. In our opinion, the finding of the Ld. CIT(A) on the issue in dispute is justified and we do not find any error in the same, accordingly we uphold the same. Assessee has claimed for setting off of prior period expenditure against prior period Income. In our opinion, when the items of the prior period income are different than the nature of the expenditure, same cannot be allowed to be set off against the prior period income, which has been declared by the assessee on accrual basis. As far as claim of the assessee for allowing the said prior period Expenses in respective financial years, we are of the opinion that it is open for the assessee to avail remedy provided under statutory provisions of the Act for claim of such expenses in relevant financial /assessment years. Disallowance of extraordinary items written off - HELD THAT - We find that Ld. CIT(A) has observed that no explanation or documentary evidence in respect of the claim of the expenditure was filed before the lower authorities. The Ld. CIT(A) has also observed that any amount incurred on account of current repairs to the premises can be allowed as revenue expenditure whereas the amount incurred has been claimed by the assessee for construction of a capital asset. In our opinion, the finding of the Ld. CIT(A) on the issue in dispute is well reasoned, and therefore we uphold the same. The ground of the appeal of the assessee is accordingly dismissed. Disallowance of provision for loss /obsolete stock - We note that neither itemised detail of obsolete stock was filed nor any evidence was filed to show that any of those items had been disposed off being below cost in succeeding years. In absence of any documentary evidence filed by the assessee before the lower authorities, we do not find any error in the order of the Ld. CIT(A) on the issue in dispute and accordingly uphold the same. The ground of the appeal of the assessee is accordingly dismissed. Denial of deduction u/s 80IA in respect of the interest income and miscellaneous income - deduction on interest income earned from giving loans to staff working at undertaking namely KAPS u/s 80IA - HELD THAT - The activity of providing loans or advances to the employees working at the eligible unit, is not part of the business activity of the undertaking. It might be a welfare activity on the part of the assessee but interest earned on such loans and advances to a staff cannot be any income derived from the operation of the power plant. In our opinion finding of the Ld. CIT(A) on the issue in dispute is well reasoned and we do not find any error in the same, accordingly we uphold the finding of the Ld. CIT(A) on the issue in dispute. Regarding the deduction in respect of the miscellaneous income, no details have been submitted by the assessee before the lower authorities, therefore Ld. CIT(A) is justified in rejecting the claim of deduction under section 80IA in respect of miscellaneous income. The ground No. nine of the appeal of the assessee is accordingly dismissed. Exclusion of net interest income from the profit of the business for the purpose of section 80IA instead of gross interest income excluded by the lower authorities - HELD THAT - The interest income earned from loans and advances to the staff has been excluded by the lower authorities for the purpose of deduction under section 80IA of the Act. In this ground, the assessee is claiming that interest expenditure should be adjusted against the interest income earned. The assessee has not given the details of the interest expenditure incurred in respect of the borrowing. If the borrowings were made for the purpose of extending loans and advances to the staff, then same could be netted off against the gross interest income, but in absence of any such nexus of the interest expenditure with the interest income earned, claim of netting off cannot be allowed. Disallowance of prior period expenses - CIT(A) has analysed all the expenses under the prior period Expenses and consider the expenses on the basis whether the same were crystallised in the year under consideration or not. Wherever the assessee failed to file any evidence in support of crystallisation of the expenses in the year under consideration, he upheld the disallowance. Before us no documentary evidence supporting crystallisation of those expenses in the year under consideration has been filed. Therefore, we do not find any error in the order of the Ld. CIT(A) on the issue in dispute and accordingly we uphold the finding of the Ld. CIT(A). Disallowance of expenditure of research and development levy fund - HELD THAT - The fact that expenditure was incurred for capital asset, which was installed at BARC, has not been disputed by the assessee. Evidently said expenditure is in the nature of the capital expenditure and not allowable as revenue expenditure u/s 37 of the Act. Accordingly, we do not find any error in the order of the Ld. CIT(A) on the issue in dispute and we uphold the same. The ground of the appeal of the assessee is accordingly dismissed. Apportionment of research and development expenditure to the units which were eligible for deduction u/s 80IA - CIT(A) has observed that research and development expenses have been incurred by the office. Before us the assessee has not provided details of specific R D activity carried out by the head office and whether same was not related to the electricity production activity of the plant eligible for deduction under section 80IA of the Act. In absence of any such information, the action of the lower authorities in allocating the said R D expenditure towards the profit from the undertaking eligible for deduction under section 80IA is justified and we do not find any error in the order of the Ld. CIT(A) in upholding the allocation of the R D expenditure to the eligible units. Disallowance u/s 14A - HELD THAT - Prior to assessment year 2008-09, rule 8D of Income-tax Rules, 1962 (in short the rules) was not in operation and it was discretion of the AO to disallow expenses corresponding to earning of exempted on a reasonable basis. In the case, the AO has disallowed the administrative expenses in proportion to the ratio of exempted income to the total turnover of the assessee. But as per the submission of the assessee, assessee is receiving tax-free interest income on bonds invested in state electricity board, and no efforts except depositing the cheques of the interest were deposited in the bank. In such circumstances, we are of the opinion that disallowance proportional to the receipt of interest is too excessive. At maximum, some percentage of administrative expenses on salary, office establishment expenses etc would be sufficient to cover expenses corresponding to earning of exempted income. Accordingly, we set aside the finding of the CIT(A) on the issue in dispute and restore the matter to the file of the Assessing Officer for making disallowance on some reasonable basis . The assessee is directed to provide details of expenses including office establishment expenses related to employees engaged in work related to earning of exempted income so that Assessing Officer after verification of the same may be in position to decide the quantum of disallowance on reasonable basis. Depreciation on a reactor building at higher rate being classified as plant and machinery - CIT(A) has not given a specific finding on the issue of classification of the building under the category of plant and machinery by the assessee. But as far as facts related to the issue in dispute as whether the building which is part of the reactor could be termed as plant and machinery , available on record, therefore, both parties argued before us to decide the issue on merit. In our opinion, the ld. Assessing Officer has followed the ratio of the Hon ble Supreme Court in the case of M/s Anand theatre 2000 (5) TMI 4 - SUPREME COURT and referred to the relevant provisions of the Act, we do not find any error on the part of the Assessing Officer in restricting the depreciation at the rate of the 10% of written down value of the building under reference. No other decision contrary to the decision cited by the Assessing Officer has been brought to our knowledge; therefore, we uphold the finding of the Assessing Officer. The ground of the appeal of the assessee is accordingly dismissed. Direction given by the Ld. CIT(A) for verification of the supplementary tax audit report in respect of the claim of the additional depreciation - HELD THAT - The reason for difference was explained as misclassification of the asset and arithmetical error while computing the written down value. Before the Ld. CIT(A) the assessee filed engineer s certificate for valuation of plant and machinery eligible for depreciation at the rate of the 80% and 100 % (hundred percentile). It was submitted by the assessee that the above errors were identified during the tax audit for assessment year 2008-09. A copy of the relevant annexure to tax audit report for assessment year 2008-09 was also submitted during the course of the appeal before ld CIT(A). As further submitted that assessee obtained supplementary tax audit report from the tax auditor in which revised claim of the depreciation was certified by the auditor and reason for the claim of additional depreciation were stated. In view of the additional supplementary tax audit report, the Ld. CIT(A) directed the AO to verify and allow the ground of the appeal. In our opinion, there is no error in the finding of the Ld. CIT(A) on the issue in dispute and accordingly we uphold the same. The ground No. 30 of the appeal of the assessee is accordingly dismissed. Reduce of expenses from business profits for the purpose of 80-IA deduction - HELD THAT - We find that Ld. CIT(A) considered the submission of the assessee that each unit of the assessee is a profit centre and all the expenses relating to the unit are captured at the respective unit and only unidentifiable head office expenses are allocated to power stations and projects in the ratio of annual net sale of electrical energy and annual capacity outlay. In our opinion, the assessee has allocated head office expenses not identified to particular unit on the basis of a reasonable allocation key. Accordingly the Ld. CIT(A) has held that no portion of said administrative expenses ought to be directed in the computation of the deduction under section 80IA of the Act. In our opinion, there is nowhere in the order of the Ld. CIT(A) on the issue in dispute and accordingly we uphold the same.

Summary

Issues Involved:

1. Jurisdiction of the Assessing Officer.
2. Taxability of various levies (Renovation & Modernisation, Research & Development, Decommissioning).
3. Nature of receipts (capital or revenue).
4. Deduction under Section 80IA.
5. Income reduced from expenditure during construction.
6. Disallowance of prior period expenses.
7. Disallowance under Section 14A.
8. Classification of assets for depreciation.
9. Computation of book profits under Section 115JB.

Summary:

1. Jurisdiction of the Assessing Officer:
The assessee challenged the jurisdiction of the Additional Commissioner of Income Tax in passing the assessment orders, arguing that the proper authority to pass such orders was not followed. The Tribunal admitted the additional grounds but ultimately dismissed them, following the precedent set in the case of Stock Traders P Ltd.

2. Taxability of Various Levies:
The Tribunal upheld the taxability of the Renovation & Modernisation levy, Research & Development levy, and Decommissioning levy as income of the assessee, rejecting the argument that these were capital receipts. This decision was consistent across multiple assessment years.

3. Nature of Receipts:
The Tribunal rejected the assessee's claim that certain levies collected were capital receipts and not taxable. It was held that these levies were part of the income and not diverted at source by an overriding title.

4. Deduction under Section 80IA:
The Tribunal allowed the deduction under Section 80IA for delayed payment charges, provision no longer required, and scrap sales, following the decision of the Hon'ble Gujarat High Court in Nirma Industries Ltd. However, interest income and miscellaneous income were excluded from the profits eligible for deduction under Section 80IA.

5. Income Reduced from Expenditure During Construction:
The Tribunal upheld the Assessing Officer's decision to treat interest on staff loans, penal interest recovered from employees, sale of power, and other income as income from other sources, rather than adjusting them against construction expenditure.

6. Disallowance of Prior Period Expenses:
The Tribunal upheld the disallowance of prior period expenses where the assessee failed to provide evidence that the expenses crystallized during the year under consideration. It also rejected the claim for setting off prior period expenses against prior period income.

7. Disallowance under Section 14A:
The Tribunal restored the issue of disallowance under Section 14A to the Assessing Officer for re-computation on a reasonable basis, rejecting the application of Rule 8D for assessment years prior to 2008-09.

8. Classification of Assets for Depreciation:
The Tribunal upheld the Assessing Officer's decision to classify the reactor building and other related structures as buildings rather than plant and machinery, thereby restricting the depreciation rate to that applicable to buildings.

9. Computation of Book Profits under Section 115JB:
The Tribunal held that provisions of Section 115JB were not applicable to the assessee, a government company, following the decision of the Hon'ble Kerala High Court in Kerala State Electricity Board v. Dy. CIT, which was upheld by the Hon'ble Supreme Court. Consequently, adjustments to book profits under Section 115JB were not sustained.

Final Order:
The appeals were allowed or dismissed as indicated in the table provided, with several issues remanded back to the Assessing Officer for further verification and computation. The Tribunal's decisions were consistent with judicial precedents and the specific facts of each case.