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TMI Blog2018 (2) TMI 1529X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction under Section 80-IA(4)(iv)(c) of the Act by the ITAT. We answer the substantial questions of law in favour of the revenue and against the assessee as far as certain items of income are concerned, i.e., miscellaneous recovery from employees, difference between WDV/book value of released assets, commission for collection of electricity duty, rental income. Income derived from the items, viz., penalty recovered from suppliers/contracts, unclaimed balance outstanding pertaining to SD/EMD of contractor written back in the books of accounts, rebate from power generators, interest income (FD for opening of LC to Power Grid Corporation Ltd., PGCIL) are allowable deduction under Section 80-IA(4)(iv)(c) of the Act, the substantial questions of law relating to these items are answered in favour of the assessee. The substantial questions of law relating to the revisional order under Section 263 is held in favour of the assessee and against the Revenue. X X X X Extracts X X X X X X X X Extracts X X X X ..... or deduction, thus resulting in violation of the provisions of Article 265 of the Constitution of India? 4. The appellant, a wholly owned company of Government of Karnataka is engaged in the business of distribution of electricity. During the assessment year 2006-07, its income included the following items of income which were treated as "income from profits and gains of business". 1) Interest on bank Fixed deposits Rs.4,53,925 2) Interest on loans to societies Income from trading Rs.13,770 3) Profit on sale of stores Rs.4,47,120 4) Sale of scrap Rs.11,60,671 5) Other misc. receipts from trading Miscellaneous receipts Rs.30,58,776 6) Rental from staff quarters Rs.28,53,683/- 7) Rental from others Rs.1,36,591 8) Excess found on physical Verification of cash Rs.4,419 9) Excess found on physical Verification of materials stock Rs.4,19,297 10) Commission for collection of Electricity duty Rs.1,79,85,415 11) Misc. recoveries Rs.8,43,44,983 12) Rebate from power generators Rs.4,45,21,271 Total Rs.15,53,99,921 5. The appellant's case was selected for scrutiny, subsequently, an assessment order was passed under Section 143(3) of the Act by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red from suppliers/contracts vii) Unclaimed balance and difference between WDV/book value of released asset. viii) Miscellaneous recovery from employees of ₹ 8,45,452/- 7. The items which are not reduced from the profits of the assessee as per the profits and loss account for the purpose of computing deduction are as under: i) Department of exam fees ii) Sale of department books iii) Sale of forms iv) Sale of scrap/stock excess found v) Meter reading testing charges vi) BBC theft ca collected etc. 8. Being aggrieved by the same, the appellant is in appeal challenging the order of the revisional authority as well as the orders passed by the ITAT for the A.Y.2006-07, 2007-08 and 2008-09. 9. Sri.V.K. Gurunathan, learned counsel appearing for the appellant/assessee would contend that the subsequent assessment order as well as the appellate orders passed by the CIT(A) and ITAT relating to the A.Y. 2006-07 were based on the order of the revisional authority passed under Section 263 of the Act. Section 263 of the Act provides that the Commissioner may call for and examine the record of any proceeding under the Act and if he considers that any order passed therein, by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nataka Electricity (Taxation on Consumption) Act, 1959 and Circular No.05/2004, dated 15.07.2005, inasmuch as extension of tax benefit under Section 80-IA of the Act, in case of substantial renovation and modernization of transmission and distribution lines in the power sector. 12. In support of his contentions, learned counsel placed reliance on the following judgments: I) COMMISSIONER OF INCOME TAX VS. GOVINDA CHOUDHURY & SONS, (1993) 203 ITR 0881 II) COMMISSIONER OF INCOME TAX VS. MEGHALAYA STEELS LTD. (2016) 383 ITR 0217 III) THE COMMISSIONER OF INCOME TAX & ANOTHER VS. M/S. WIPRO LTD. (ITA NO.507/2002, DD 25.08.2010) IV) PANDIAN CHEMICALS LTD. VS. COMMISSIONER OF INCOME (2003) 262 ITR 0278(SC) 13. Learned counsel Sri.Y.V. Raviraj, appearing for the Revenue supporting the impugned orders submitted that in order to claim deduction under Section 80-IA(4)(iv)(c) of the Act, it is essential to establish that the income of the assessee includes any profits and gains derived from an industrial undertaking should be towards reimbursement of manufacturing or selling cost, such income should reduce the cost of manufacturing/selling and resultant increase in profit of the indus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cable to the facts of the present case. 16. We have heard the learned counsel appearing for the respective parties and perused the material on record. 17. Section 80-IA(4)(iv)(c) of the Act is excerpted for ready reference:- 80-IA. Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc. (4)This Section applies to_ (i) xxxxx (ii) xxxxx (iii)xxxxx (iv) an undertaking which, (a)xxxx (b)xxxx (c) undertakes substantial renovation and modernization of the existing network of transmission or distribution lines at any time during the period beginning on the 1st day of April, 2004 and ending on the 31st day of March, 2017. 18. Section 263 of the Act reads thus: Revision of orders prejudicial to revenue. (1) The [Principal Commissioner or] Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the [Assessing] Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he dee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It only remains to consider one further argument by Shri Radhakrishnan. He has argued that as the subsidies that are received by the respondent, would be income from other sources referable to Section 56 of the Income Tax Act, any deduction that is to be made, can only be made from income from other sources and not from profits and gains of business, which is a separate and distinct head as recognized by Section 14 of the Income Tax Act. Shri Radhakrishnan is not correct in his submission that assistance by way of subsidies which are reimbursed on the incurring of costs relatable to a business, are under the head "income from other sources", which is a residuary head of income that can be availed only if income does not fall under any of the other four heads of income. Section 28(iii)(b) specifically states that income from cash assistance, by whatever name called, received or receivable by any person against exports under any scheme of the Government of India, will be income chargeable to income tax under the head "profits and gains of business or profession". If cash assistance received or receivable against exports schemes are included as being income under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms of the contract, obviously it relates to receipts relatable to the business and cannot be treated as "income from other sources". Hence, the penalty recovered from suppliers/contracts to an extent of ₹ 4,31,07,307/- is allowable deduction under Section 80-IA of the Act. 26. Unclaimed balance outstanding for many years which pertains to S.D./EMD of Contractor written back on their books of accounts also partakes the character of the receipts which arise mostly due to non performance of the obligation originating from contract. This amount is relating to the business undertaking and the same has to be construed as income derived by the industrial undertaking. It cannot be accepted how there is no direct nexus with the business of the assessee as held by the authorities and the ITAT. 27. As regards miscellaneous recovery from employees, ITAT in para-20 of its order, it is observed thus: 20. Now we are left with only one item i.e. miscellaneous recovery from employees of ₹ 8,45,452. Regarding this item, nothing has been shown that these are on account of recovery of certain expenses incurred by the assessee and debited to Profit and Loss account and therefore, reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are in respectful agreement with the same. The amount of deposit parked in the bank(FD for opening of LC to Power Grid Corporation Ltd., PGCIL) deserves to be considered for deduction under Section 80-IA(4)(iv)(c) of the Act. 34. As regards the rental income, it is also required to be observed that it is an independent income having no direct nexus towards reimbursement of manufacturing or selling expenses, in the absence of the fact that the assessee was paying rent of staff quarters which was debited to profit and loss account. Thus , it cannot be construed as income derived from the industrial undertaking. This view of the Tribunal does not call for any interference by this Court. We confirm the finding of the Tribunal on this aspect. 35. Other items namely department exam fees, sale of service register/departmental books, sale of forms/booklet etc., sale of scrap/stock excess found, meter rating testing charges (part of business income), Back Billing Charges (BBC) theft cases collected are already held to be allowable deduction under Section 80-IA(4)(iv)(c) of the Act by the ITAT. 36. For the foregoing reasons, we answer the substantial questions of law in favour of the rev ..... X X X X Extracts X X X X X X X X Extracts X X X X
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