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TMI Blog2019 (11) TMI 1111X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 proje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. At the first instance we will deal with the appeal in ITA No. 741/Chd/2018 for the Assessment Year 2009-10. Following grounds have been raised in this appeal: 1. Whether on the facts and circumstances of the case the Ld. CIT(A) has erred to allow the appeal of the assessee and to delete the addition of ₹ 21,67,62,978/- made account of fuel related losses by holding the same being legitimately claimed by the assessee . 2. Whether on the facts and circumstances of the case the Ld. CIT(A) has erred to allow the appeal of the assessee and to delete the addition of ₹ 4,97,25,987/-made on account of renovation and modernization of projects which is incorrect as the said expenditure is capital in nature and the benefit is spread over the years and therefore, not allowable expenditure to the assessee. 3. It is prayed that the order of the Ld. CIT(A) be set-aside and that of the A.O. be restored. 4. The appellant craves leave to add or amend the grounds of appeal before the appeal is heard and disposed off. 4. Vide Ground No. 1 the grievance of the Department relates to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. 7.2 In response the assessee vide written submission dt. 20/12/2011 submitted as under: Further to the personal attendance of the undersigned and submissions made earlier and explanation given regarding fuel related coal losses by the concerned representative of the assessee, we bring out as under for your kind consideration and taking necessary action in the matter: FTPS is getting coal from subsidiaries coal companies of Coal India Limited. The assesse is getting supply of coal from far off places. The coal generally travels the distance of 1100 KM to 1350KM before it is unloaded at the place of the assessee. The difference in weight of coal at loading point viz-a viz. unloading point is called transit losses. The main reason of transit losses are as under: 1. Evaporation of surface moisture 2. Windage losses during transportation The documentary evidences in respect of transit losses such as invoice of the supplier depicting quantity of coal supplied by the supplier and weighbridges slips depicting quantity received by the assesssee and working in respect of transi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. Coal India Ltd is a Govt. Public Sector Undertaking. The subsidiaries of Coal India Limited transfer the title of goods to HPGCL after loading of coal in Railway wagons and its weighment. It is submitted that the transit losses to the tune of ₹ 43,35,25,957/-occurred during course of carrying out the business and that these losses are not capital in nature. It is highlighted these losses occurred on account of natural process and were beyond control of the appellant and in the given circumstances there was no possibility for the appellant to prevent, recoup or reduce these losses. Out of the total loss of ₹ 43,35,25,957/- recorded in the books of accounts, a sum of ₹ 21,67,62,978/- being 50% of the loss recorded in the books was disallowed. The contention and basis of making addition of ₹ 21,67,62,978/- are rebutted point-wise, hereunder: 1. LOSS OF COAL DURING TRANSIT NOT INSURABLE It is submitted that as per policy of Insurance companies, losses of coal occurring on account of evaporation of surface moisture and windage during course of transportation is not insurable. A copy of letter of Senior ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carrying out its business activity. The correctness, legitimacy and genuineness of loss cannot be doubted as the books of accounts of the appellant are subject to audit by statutory auditors appointed under section 619(3) of the Companies Act and are also subject to audit by Comptroller and Auditor General of India. The losses appearing in the books of accounts have been duly verified by the auditors and no adverse inference has been drawn in this regard. It may be relevant to state here that since these losses (fuel related losses) have occurred during course of carrying out the business activities and are neither in the nature of personal expenditure, nor capital expenditure, the same are allowable under the provisions of section 37(1) of the Act. In view of above, observations made by the AO in the order of assessment which are the basis of making this disallowance and the point wise reply to the observations of the AO, in a tabular form are addressed hereunder :- Sr. No. Observations of Assessing Officer in Order of assessment Reply to the O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellant, freight charges payable for transit of coal would have been higher than the loss suffered by the Appellant. Thus to avoid extra loss, the coal was transported at owners risk and hence claim could not be filed with the Railway Authorities. 6. Whether the deduction was made from the seller party, if not reason thereof. When the booking of rakes is made at owner's risk then the deduction from seller cannot be made. If the rakes would have been booked at seller's risk then 20% extra cost was to be paid which would have been quite higher than the loss occurred in booking oj rakes at owner risk. Thus to avoid extra loss, the coal was transported at owners risk and hence claim could not be filed with seller. To sum up, it is submitted as hereunder: I. The appellant is procuring coal from collieries, which are located at distant places (almost about 1100 Kms to 1350 kms from the thermal power plants). Loss on account of evaporation of surface moisture, windage loss takes place during transportation in the normal cours ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... coal recorded at 2.31% by the appellant corporation may not be restricted to 0.8%, we state as under which alongwith out detailed submissions dated 08.12.2015 supported by documentary evidence may be taken into consideration while deciding the matter: Functions of HERC As per the Electricity Act, 2003, the main functions of the Commission viz. a viz. the appellant corporation is to : a) Determine the tariff for generation, supply, transmission and wheeling of electricity, wholesale, bulk or retail, as the case may be within the state: Provided that where open access has been permitted to a category of consumers u/s 42, the state commission shall determine only the wheeling charges and surcharge thereon, if any, for the said category of consumers; b) Regulate electricity purchase and procurement process of distribution licensees including the price at which electricity shall be procured from the generating companies or licensees or from, other sources through agreements for purchase of power for distribution and supply within the state; c) Facilitate intrastate transmission and wheeling of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds for electricity to be met; c) To regulate the purchase, distribution, supply and utilization of electricity, the quality of service, the tariff and charges payable keeping in view both the interest of the consumer as well as the consideration that the supply and distribution cannot be maintained unless the charges for the electricity supplied are adequately levied and duly collected; d) To promote competitiveness and progressively involve the participation of private sector, while ensuring fair deal to the customers; e) To collect data and forecast on the demand for and use of electricity and to require the licensees to collect such data and forecast; f) To require licensees to formulate perspective plans and schemes in coordination with others for the promotions o generation, transmission, distribution and supply of electricity; g) To set appropriate code of conduct and standards for the electricity industry in the State; h) To regulate the assets, properties and interest in properties concerning or related to the electricity industry in the State; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e tariff and the purpose of increasing the cost effectiveness of electricity generating companies so that the efficiency of these government companies is maximized and the benefit of the same is passed on to the consumers in form of lower tariff. By questioning the genuineness of expenses actually incurred or holding that the expenses incurred by the electricity companies are excessive can in no manner lead to the conclusion that these expenses are not in the nature of business expenses and are not to be taken into account for the purpose of determining the taxable income under the provision of Income Tax Act. It may also be relevant to mention here that in the case of appellant even HERC has allowed transit loss of coal @ 2% in the case of Panipat Thermal Power Plant and @ 2.5% in the case of Faridabad Thermal Power Plant for the year under question. In light of the above submissions made in response to the notice dated 05.07.2016 and also in written submission filed vide letter dated 08.12.2015, it is prayed that parameter in regard to transit loss for coal adopted by CERC @ 0.8% may not be applied while considering the ground relating to add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances and moisture loss was more in washed coal. He also observed that as the wagons in coal rakes were uncovered they were also subjected to rain as well as pilferage. Thus the transit losses varied due to factors such as metrological condition, moisture content, washed / unwashed coal, travel forces etc. 10.1 The Ld. CIT(A) observed that the Railway transit insurance was expensive and that although escorting services have come up in private sector which provided, trained escorts to ensure safe transit of coal by providing tarpaulin covering to cover rake wagon for safety of material from pilferage and rain / wind, checking open doors of wagons, keep record of adjustment of weighment (under load overload) for load adjustment, ensuring that no cargo was left in wagons during unloading, however those services also involved additional costs. 10.2 Ld. CIT(A) was of the view that the assessee had specifically addressed the adverse observations of A.O. regarding transit insurance, recovery of loss claim from seller / railways etc. He also observed that the disallowance of coal loss was made by the A.O. by considering the loss to be excessive and unrea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enses incurred while carrying out its business activities when the expenses were genuine and even if considered excessive for fixation of tariff purposes. 10.4 Ld. CIT(A) mentioned that the transit loss of coal recorded by the assessee over the years were as under: F.Y. A.Y. Actual transit loss of coal suffered by the appellant (in %) Allowed by HERC(in %) 2001-2002 2002-2003 6.58% 2002-2003 2003-2004 6.48% 2003-2004 2004-2005 4.19% 2004-2005 2005-2006 4.23% 3.00% 2005-2006 2006-2007 4.79 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egister, thereafter in the stock register and the books of accounts under the head fuel related losses , and that the record in respect of fuel related losses suffered by Panipat Unit of the assessee corporation was examined by the A.O. while completing the assessment proceedings for the A.Y. 2009-10 and no adverse comments / discrepancies as regards to the records maintained by the assessee for fuel losses was observed by the A.O. while passing the assessment order. The Ld. CIT(A) observed that for the year under consideration any excessive quantity of coal received in any of the rakes was adjusted against short quantity of coal received in other rakes and thus net transit loss was claimed and that for the year under consideration as a whole no excess coal was received by the assessee. The Ld. CIT(A) also pointed out that the assessee was a State Government PSU and the correctness, legitimacy and genuineness of the loss had been verified by statutory auditors and also the accounts were submitted to the office of the C AG of India. 10.7 The Ld. CIT(A) observed that the losses had been regularly suffered since the inception of the assessee corporation and duly al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot consistent i.e; there was variation in every year and even HERC had also allowed the loss but that allowance was for the limited purpose of fixing the tariff and promoting efficiency of the companies which clearly shows that in such type of business there was always transit loss of coal. 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. 15. In the present case the findings given by the Ld. 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. 16. The Ld. CIT(A) categorically stated in the impugned order that the AO verified from the record related to the loss suffered by Panipat Unit of ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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