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TMI Blog2017 (4) TMI 1530X X X X Extracts X X X X X X X X Extracts X X X X ..... de on account of excess depreciation on water suuply and drainage for the above AYs as under: Assessment Year Amount of Depreciation disallowed Rs. 2007-08 1,23,50,917 2009-10 2,37,05,163 2010-11 2,90,90,542 2.1 During the assessment proceedings, the Assessing Officer (in short 'AO') found that the assessee has claimed the depreciation @ 15% on the assets grouped under the head water supply and Drainage in block of assets. The assessee grouped the assets under the head water supply and Drainage consisting of civil construction works like storage tanks, check dams, RCC Aprons and culverts, sewerage and drainage and large size pipelines and bore wells etc. and treated the same as plant and claimed the depreciation @15%. The AO was of the view that the allowable depreciation is @10% as applicable in the case of non-residential buildings. The AO relied on the decision of CIT vs. Anand theatres (244 ITR 192) of the Hon'ble Apex court and restricted the Depreciation to 10% as applicable for non residential buildings and disallowed the balance amount of 5% depreciation as per the details given above. 2.2 Aggrieved by the order of the AO, the assessee went on appeal before the L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vour of the appellant. 2.3 Aggrieved by the order of the Ld.CIT(A), the Department is on appeal before us. The Ld.DR argued that as per the Appendix-I of Income Tax Rules buildings includes roads, bridges, culverts, wells and pipelines. The Ld.DR argued that the rate of depreciation for each type of asset has been incorporated in the Appendix of Income Tax Rules, after getting expert opinions emanating out of vast statistical data and services and profound researches. The rates are to be applied as per the description and also the nomenclature of the asset. The building and plant are treated separately for the purpose of grant of depreciation. Higher rate of depreciation is granted to machinery and plant as against the building which has more durable. On the other hand, the Ld.AR argued that civil constructions in mining works cannot be treated as mere buildings. Since they have to construct for specific purpose in the mining where the water supply and drainage systems are associated with the excavation, generation and transmission activities as submitted by the assessee and the specific technical requirements demand such facilities as indispensable. The Ld.AR relied on the Karna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee argued that the Lignite is excavated from mines and its force will be very high at rate. The observation bore-wells are dug around the spot of lignite excavating area and higher power submersible motor pumps are engaged to dry up the area. The Ld.AR reiterated the submissions made before the Ld.CIT(A) for the AY 2007-08 which is extracted from the order of the Ld.CIT(A) in Para No.5 as under: a. The lignite is excavated at level of, where the water intrusion and force will be at high rate. The observation bore wells are dug around to the spot of lignite excavating area and high power submersion electric motor pumps are engaged to dry up the area. During the time of rains, mega electric motor pumps are engaged to pump out the storm water from lines and drained out. Thus, the Ground Water Control System (GWC) and Storm Water Control System ('SWC) are engaged in mining. b. Vvhere it is found as a fact that a building has been so planned and constructed as to serve special technical requirements, it will qualify to be treated as a plant. For the purpose of the same, following case laws were relied upon: i. CIT v. Karnataka Power Corporation (2001) 247 ITR 268 (SC) (E-2) ii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trical installations installed in the building, godown, bus station, etc. We agree with the Ld.CIT(A) that the electrical installations installed for the purpose of excavation, transmission of mining activities required to be considered as a plant as per the decisions relied upon by the assessee. Whereas, the electrical installations installed in the administrative buildings, bus stations, etc., perform the functions of normal transmission of electricity cannot be held as a plant. The assessee also relied on the decision of Kutti Spinners Pvt Ltd 34 ITR 0470. The Co-ordinate Bench of ITAT, Chennai held in the cited case that the electrical cables, fittings and other electrical works connected with the wind mill considered as a single capacity unit and eligible for depreciation @80%. Our view is supported by the Co-ordinate Bench decision cited supra. Therefore, the issue is remitted the matter back to the file of the AO and to examine the electrical installations for the purpose of mining activity and installed for the purpose of normal electricity supply such as administrative buildings, canteen and bus stations, etc., and allow the depreciation @15% in respect of the installation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate of the decision, the Hon'ble Supreme Court judgment in the case of Godhra Electricity Co. Ltd. Vs. CIT 225 ITR 0746 held to be squarely applicable and accordingly deleted the addition. 4.2 Appearing for the Revenue, the Ld.DR argued that the assessee is following mercantile system of accounting and the income has been accrued as per the system of accounting followed by the assessee. In the case of the assessee, the improbability of recovery does not arise because of the liability has been ascertained and the income has been accrued as per the CERC notification. The recovery is also assured by tripartite agreement between the RBI, Government of India and the State Governments. It was also mentioned in the Tripartite agreement dated 17.04.2002 that the payments remaining outstanding after 90 days from the date of billing shall be recovered on behalf of CPSUs by Ministry of Finance, through adjustment against release due to respective state governments on account of plan assistance of states share of central taxes and any other grant or loan Hence the DR contended that there is no case of uncertainty and in the real income theory also the same has been accrued and argued that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act * 2003 read with section 61 thereof CERC notifies (Terms and conditions of Tariff) Regulations. * These regulations apply in cases where tariff for a generating station or a unit thereof is required to be determined by the Commission under Section 62 of the Act read with section 179 thereof. The relevant extracts attached. c) How tariff for supply to electricity board is fixed: Steps involved: * Plant specific Tariff petition / application is prepared based on the capital cost of the plant and norms of Operation of the applicable CERC (Terms & Conditions of the Tariff Regulations) and is filed before CERC as per the stipulated procedures. * Copies of the petitions filed are sent to the Respondent beneficiaries. * Any additional information sought by CERC is filed with a copy to the Respondents. * CERC issues Record of proceedings and directs respondents to file their replies and petitioner to file rejoinder if any. * Thereafter CERC will schedule hearing for hearing the arguments of both parties (petitioner and respondents) and issue tariff order. * If parties are aggrieved over the tariff order parties can file for review of order before CERC or challenge th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed once in six months, based on the said average. * 13.2 The requisite L.Cs shall be opened no later than 30.09.2002 and failure to do so shall attract reduction in supplies from all CPSUs equal to 2.5 percent of the average daily supply for the preceding 90 days, in addition to the suspension of APDRP as mentioned in paragraph 16 below. These penal provisions shall also apply if the L.Cs are not maintained in future. * 14. Payments made after the period specified in paragraph 12 above, shall attract interest at the rate of 15 percent per annum, compounded quarterly. * 15.1 In the event that payments are not made within the period specified in paragraph 13 above, the supply of electricity shall be reduced forthwith by 5 percent (inclusive of the reduction, if any, under the provisions of paragraph 13 above) as compared to the average daily supply for the preceding 90 days. The reduction in supply shall be increased to 10 percent and 15 per cent after 75 and 90 days of billing respectively. Supplies of coal, lignite, etc., shall also be reduced in a similar manner. * 15.2 In case supplies are made by a CPSU without making the aforesaid reductions, payments in respect of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rge on accrual basis. After recognizing the surcharge on accrual basis, if for some genuine reason the same could not be realized, then the assessee can write off the same as bad debt. But even for making such a claim, sec.36(2) stipulates a condition that the corresponding income should have been offered to tax. 8.6 In view of the above discussion, the surcharge recoverable by the assessee company from Electricity Boards during the relevant year on the belated settlement of the power bill, amounting to Rs. 118 crores, is treated as income accrued to the assessee and added to the total income. From the discussion of the AO, as per Clause-16 of the guidelines of the tri-partite agreements payments remained outstanding after 90 days from the date of billing require to be recovered through adjustment the from the plan assistance of respective state governments, hence, there was an assurance created through the tri-partite agreement and the Government of India has to recover the amount by adjustment and remit the same to the CPSUs. Hence, the assessee's contention that there was no certainty in recovery of the dues is ill-founded and the quantum of interest is also fixed in Para No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... found that the assessee has claimed the deduction u/s 80IA pertaining to the Unit TPS-I expansion. AO was of the view that the Unit TPS-I was an expansion of the existing unit and hence not eligible for deduction u/s80IA.The AO disallowed the deduction holding that the expansion cannot be considered as a new unit. The disallowance made by the AO u/s.80IA for the AYs 2008-09, 2009-10 & 2010-11 is as under: Assessment Year Amount in Rs. 2008-09 147,36,91,926 2009-10 209,94,46,495 2010-11 246,92,76,304 5.1 For the sake of convenience, the reasoning given by the AO is extracted from the Assessment order made available in Page No.5 of the A.Y.2008-09 asunder: In the instant case also, the assessee has claimed deduction u/s 80-IA of the Income-tax Act on the profit of power generated in the TPS-l Expansion Unit by treating the same as separate unit / undertaking, even though the final product manufactured is same i.e. Power. Further, there is interconnection of management, financial, administrative and production aspects. Therefore, the above decision of the Honourable High Court is squarely applicable in the instant case. Accordingly, the TPS-l Expansion Unit cannot be consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business by establishing new plant and machinery and also by introducing new technology for enhancing existing productivity. But reading of the section, in my opinion, does not lead to the interpretation as expounded by the AO. Relief u/s 80-lA(1) is in respect of profits and gains derived by an undertaking from business referred to in subsection (4) of sec 80-lA. In the present case, as per clause(iv) of sub-sec (4), deduction in respect of an undertaking which is set up in any part of India for the generation or generation and distribution of power if it begins to generate power at any time during the period beginning on the 1st day of April, 1993 and ending on 31st day of March, 2011 shall be 100% of the profit for a period of ten consecutive assessment years out of fifteen years beginning from the year in which the undertaking or the enterprise generates power or commences transmission or distribution of the power. Therefore, deduction is clearly for the profits of an undertaking and not for an undertaking engaged in a new business. Similar expressions as found in sec 80-IA are found in sections 80HH, 80I and 80J. For example, in section 80J, deduction is in respect of new und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elating to deductions u/s. 80HH, 80I and 80J, have consistently held that expansion in production of the existing product in a geographically separate and independent undertaking will be entitled to relief under those sections. In fact, the heading of these section as well as 80-lA is "Deduction in respect of profits and gains from industrial undertakings or enterprise engaged in infrastructure development, etc.." and not "profits and gains from certain new business". In these circumstances, I am of the considered opinion that the appellant is entitled to relief under section 80-lA in respect of TPS-l Expansion. The requirement regarding investment in the plant and machinery and other conditions for availing benefit of deduction u/s.80-IA have also been satisfied and the AO has not raised any other objection regarding these conditions. In view of the above factual position and authoritative precedents, the deduction claimed by the appellant us 80-IA is allowed. Accordingly, the ground is allowed. 5.3 The issue is squarely covered by this Tribunal order in the assessee's own case for the AY 2001-02 in ITA No.2315/Mds/2003 dated 18.08.2004. Respectfully following the decision of Co- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... am not satisfied with the correctness of the claim of the assessee and the claim of the assessee that no expenditure has been incurred in relation to income which does not form part of the total income. 6.2 The assessee went on appeal before the Ld.CIT(A) and the Ld.CIT(A) allowed the assessee's appeal as per the discussion made in para No.8.2 of the Ld.CIT(A)'s Order for the AY 2008-09 as under: 8.2 I have carefully considered the facts of the case and the submissions of the Ld.AR. I have also gone through the decisions relied on by the Ld.AR. There is no dispute regarding the fact that Rule 8D is applicable for the subject asst.year. The method for allocating expenditure in relation to exempt income is prescribed in rule 8D and sec.14A(2). Where the AO, having regard to the accounts of the assessee, is satisfied with the correctness of the claim of expenditure or he is satisfied that no expenditure has been incurred for such exempt income, no further action is needed by the AO in this regard. On the other hand, if the AO is not satisfied as regards the above conditions, he shall determine the quantum of expenditure as per the method prescribed under rule 8D. Let us now examine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of Rule 8D for years prior to assessment year 2008-09, stands reversed by Hon'ble Bombay High Court in the case of Godrej and Boyce Mfg. Co. Ltd vs. Dy. CIT (328 ITR 81). Hon'ble Bombay High Court clearly held in the said decision that Rule 8D which came with effect from 24 th March, 2008, will be applicable only after the period 2008-09. Nevertheless, their Lordship has clearly noted that even prior to that year, A.O. was duty bound to compute disallowance under Section 14A by applying a reasonable method having regard to the facts and circumstances of the case. Therefore, despite the argument of learned A.R. that 12 I.T.A. Nos.711, 712 & 713/Mds/10 electricity bonds were taken under compulsion and there was no expenses incurred for earning the interest income, we are inclined to remit the issue back to the file of A.O. for consideration afresh. We, therefore, set aside the orders of the authorities below and remit on this aspect back to A.O. for consideration afresh in accordance with law. Assessee can bring to the notice of the A.O. any case law relevant to the issue and A.O. shall proceed in accordance with law. Respectfully following the decision of the Co-ordinate Bench, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue on this issue is dismissed. 8.0 The Next issue of Revenue's appeal for the A.Y.2010-11 is over Burden removal of Rajasthan Mine amounting to Rs. 43,93,11543/-.The assessee claimed expenditure of Rs. 43,93,11,543/- in the memo of income towards advance OB removal - Rajasthan. Further, it is seen from Sch.12A to balance sheet- miscellaneous expenditure that such expenses were capitalized in the books. The AO asked the assessee to explain the nature of expenditure and the submitted the reply. The submissions made by the assessee in this regard are given below: 9. Disallowance of Advance Overburden removal of Rajasthan Mine: The assessee claimed expenditure of Rs. 43,93,11,543 in the memo of income towards advance OB removal - Rajasthan. Further, it is seen from Sch.12A to balance sheetmiscellaneous expenditure that such expenses were capitalized in the books. The assessee was asked to explain why part of such capitalized expenses is claimed in the memo of income and show cause why the claim should not be disallowed. The submissions made by the assessee in this regard are given below: "Mine development Expenditure: Over Burden removal cost are classified under mine develop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder: Expenditure incurred for Mine I overburden removal outsourcedexisting Operation 6,32,456.001 Expenditure incurred for barsingsar mine during the period of advance overburden removal stage- transferred to deferred expenditure (included in the expenditure capitalized -vide page no.57 of Annual report) 43,93,11,542.00 Expenditure incurred for barsingsar mine after 1-12-2009 6,18,27,485.00 Total 50,17,71,483.00 8.1 Aggrieved by the order of the AO, the assessee went on appeal before the Ld.CIT(A) and the Ld.CIT(A) allowed the appeal placing reliance on ITAT Order for the AY 2002-03 in ITA No.198/Mds/2008 in assessee's own case. The Hon'ble ITAT held as under: "Expenditure on removing overburden in the continuous process of mining lignite from an old open cast mine is not expenditure for prospecting, etc. of minerals within the meaning of s.35E and also not capital expenditure but same is allowable revenue expenditure under s.37(1)". 8.2 Following the order of the Co-ordinate Bench, we dismiss the Revenue's appeal on this ground. 9.0 AY 2010-11 Assessee's appeal: Ground Nos.1 & 2 is related to the exclusion of other income a) Inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions 80-I, 80-IA and 804B as having a common scheme. On perusal of sub-section (5) of section 80-lA, it may be noticed that it provides for manner of computation of profits of an eligible business. Accordingly, such profits are to be computed as if such eligible business is the only source of income of the assessee. Therefore, the devices adopted to reduce or inflate the profits of eligible business have got to be rejected in view of the overriding provisions of sub-section (5) of section 80-lA, which are also required to be read into section 80-IB. Sections 80-I, 80-IA and 80-lB have a common scheme and if so read, it is clear that the said sections provide for incentives in the form of deduction(s) which are linked to profits and not to investments. On analysis of sections 80-lA and 80-IB it becomes clear that any industrial undertaking, which becomes eligible on satisfying subsection (2), would be entitled to deduction under sub-section (1) only to the extent of profits derived from such industrial undertaking after specified date(s). Hence, apart from eligibility, sub-section(1) purports to restrict the quantum of deduction to a specified percentage of profits. This is the impo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the stand of the Law. I fully agree with the reasoning of the AO that 80-IA is a special provision and the deduction will be possible only when the profits are 'derived from' the industrial undertaking. The 'other income' shown by the appellant goes beyond any stretch of imagination that they have been derived from the industrial activity from the point of view of the existing provisions and the judicial rulings. Therefore, those receipts are to be excluded from the profits of TPS-l expansion unit for computation of deduction u/s.80-IA. The AO is directed accordingly. Disallowance made by The AO is upheld and the ground raised by the appellant is dismissed. 9.4 We heard the rival submissions and perused the material placed before us. The interest received from the employees and miscellaneous income cannot be held to be derived from industrial entity for the purpose of deduction u/s.80IA. The assessee is eligible for deduction u/s.80IA only on power project TPS-I. Handling charges, interest received from employees and miscellaneous income is not inter linked to the industrial activity of power generation Therefore, we do not find any infirmity in the order of the AO and the same ..... X X X X Extracts X X X X X X X X Extracts X X X X
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