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TMI Blog2021 (2) TMI 713X X X X Extracts X X X X X X X X Extracts X X X X ..... een held to be not linked with industrial activity of power generation and therefore, in view of the decision of the Hon ble Supreme Court in the case of M/s. Liberty India Ltd., vs. CIT [ 2009 (8) TMI 63 - SUPREME COURT ] same did not have a direct link with the business of power generation, and hence, while computing deduction u/s.80IA of the Act, the other income has been excluded. The facts for the year under consideration are similar to the facts considered by the Tribunal for earlier years except to the extent of two new items of income being surcharge from electricity boards and interest from others [interest received from Fenner India Limited as per terms of agreement. Therefore, the assessee is not entitled for deduction towards eligible profit u/s.80IA of the Act in respect of other income because said income does not have first degree nexus with the main business activity of the assessee. Surcharge from Electricity Boards , the issue has came up for discussion for the first time in the impugned assessment year and hence, needs to be considered in light of arguments advanced by the assessee that it has first degree nexus with business of generation and distribution of pow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see is not entitled for deduction u/s.80IA of the Act in respect of other income and consequently confirm the additions made by the AO towards disallowance of excess deduction claimed, however allow the alternate plea of the assessee towards deduction of expenses in relation to earning of other income and direct the AO to allow 10% deduction towards expenses and re-compute deduction u/s.80IA of the Act Disallowance of expenditure u/s.14A - HELD THAT:- We find that disallowance of expenditure in relation to exempt income u/s.14A of the Act is recurring issue and is a subject matter of deliberation of the Tribunal in the assessee s own case for assessment years 2007-08 to 2012-13. Further, the Tribunal after considering relevant facts and also following its earlier order has set aside the issue to the file of the AO and directed him to re-adjudicate the issue in accordance with law. Addition towards surcharge recoverable from Electricity Boards - AO as well as the ld.CIT(A) were of the opinion that when there is no uncertainty in realization of surcharge from Electricity Boards, the question of postponement of income for taxation on receipt basis does not arise, when the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of CIT vs. BSES Rajdhani Power Ltd. [ 2010 (8) TMI 58 - DELHI HIGH COURT ] held that UPS is an integral part of computer system eligible for higher depreciation at the rate of 60%. Depreciation on civil structures, water supply and drainage systems - assessee has claimed depreciation at the rate of 15% on civil structures qua water supply and drainage system, on the ground that it is part of plant and machinery eligible for depreciation at the rate of 15% - AO has allowed depreciation at the rate of 10% applicable to buildings and has disallowed excess depreciation claimed over and above 10% on the ground that civil structures qua water supply and drainage system cannot be considered as part of plant and machinery - HELD THAT:- We find that the issue of depreciation on civil structures qua water supply and drainage system is a recurring issue which is a subject matter of deliberations by the Coordinate Bench of the Tribunal in the assessee s own case right from assessment years 2007-08 to 2012-13. The Tribunal under identical set of facts has held that civil structures qua water supply and drainage systems is part of plant and machinery and eligible for depreciat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been converted into 8.5% Tax free SLR Power bonds issued by the State Government. V. The Learned AO and CIT(A)failed to appreciate that no expenditure was incurred by the Assessee for earning the exempt income and the Bonds are kept in dematerialized form. VI. The Learned AO and CIT(A) has included even investments in equity shares of the subsidiary of the Appellant without appreciating the fact that no income tax free dividends were received in the relevant year. VII. The Learned AO and Learned CIT(A) has failed to appreciate that the investment made in equity shares of the subsidiary company was strategic in nature and was not merely for the purpose of earning exempt income in the form of dividends and hence, the Learned AO has erred in making disallowance under section 14A read with Rule 8D. VIII. The Learned AO and CIT (A) failed to appreciate that no expenditure was incurred by the Appellant for earning the exempt income, if any, from the investment made in equity shares of the subsidiary. Disallowance of surcharge recoverable from EBs IX. The Learned CIT(A) erred in holding that the surcharge recoverable from electricity boards is taxable in the year under appeal ignoring t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in allowing the depreciation @ 60% on UPS holding it as part of computer as against 15% allowed by the Assessing officer holding it as part of plant and machinery. 4. The learned CIT(A) has erred in treating the drainage and water supply system as plant instead of building for the purpose of depreciation claim. 5. The learned CIT(A) has erred in allowing the claim of expenses towards the insurance spares holding it as a revenue in nature instead of capital expenditure. 6. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing officer be restored. Assessee s Appeal in ITA Nos.868 869/CHNY/2018 3.0 The first issue that came up for consideration from assessee appeal for both assessment years is disallowance of other income for computation of deduction u/s.80IA of the Income Tax Act, 1961 (hereinafter the Act ). The facts with regard to the impugned dispute are that while computing deduction u/s.80IA of the Act, the assessee has included other income being miscellaneous receipts consisting of tender from sales, hospital receipts, notice pay, hire charges of car recovery from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction u/s.80IA of the Act. 3.2 The ld.AR has also made an alternative argument that without prejudice to the first argument with respect to interest received from contractors submitted that consequent to an Arbitral award, the assessee have to pay back a sum of ₹ 3,26,86,729/- to M/s. Fenner India Limited and hence if at all interest received from others is required to be excluded for the purpose of computation of deduction, then only net amount be considered in computing deduction u/s.80IA of the Act. In this regard, he relied upon the following judicial precedents:- i. CIT vs. Translam Limited [2014] 231 taxmann 901(All) ii. CIT vs Phatela Cotgin Industries P Ltd [2008] 303 ITR 411 (P H) iii. Avalon Technologies P Ltd vs. ACIT [2015] 36 ITR(T) 567 (Chennai Tri) iv. CIT vs. Prakash Oils Limited [2011] 58 DTR 279 (Tri- Indore) 3.3 The ld.DR, on the other hand submitted that the issue is squarely covered against the assessee by the decision of ITAT, Chennai Bench for earlier assessment years, where the Tribunal after considering the decision of Hon ble Supreme Court in the case of M/s. Liberty India Ltd. vs. CIT (317 ITR 218), upheld re-computation of amount eligible for ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s interest for delay in payment of dues to the assessee. Therefore, we are of the considered view that interest earned by the assessee for delay in payment of receivables cannot be characterized as income earned from business operations merely for the reason that said receipt is received from supplier. The character of any receipt would not change for the simple reason that the said receipt is received from the first degree supplier who is related to main business activity of the assessee. Hence, we are of the considered view that there is no merit in arguments of the assessee that surcharge received from Electricity Board form part of income from operations, which is eligible for deduction u/s.80IA of the Act. As regards various case laws relied upon by the assessee including the decision of Hon ble Punjab Haryana High Court in the case of CIT vs. Phatela Cotgin Industries P Ltd., 303 ITR 411 and others, we find that all those cases are rendered under different set of facts and has no application to facts of present case, more particularly when the assessee is failed to establish the fact that other income including surcharge received from Electricity Board is having first degree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nate Bench has held that 10% of the said other income could be estimated as the expenses relatable to the earning of the said income and directed the AO to exclude 10% of the other income as expenses while computing the deduction u/s.80IA of the Act. In the year under appeal, the other income includes interest on arrears from Electricity Board and interest from others. Applying the ratio of the decision of the Co-ordinate Bench of this Tribunal in the assessee s own case for the AYs 2007-08, 2008-09, 2009-10 2010-11 referred to supra, the disallowance as made by the AO and as confirmed by the Ld.CIT(A) stands sustained. However, considering the alternate prayer of the assessee and also following decision of the Co-ordinate Bench of this Tribunal, the expenses in relation to the earning of the other income is estimated at 10% and the AO is directed to exclude 10% of the other income as expenses while computing the deduction u/s.80IA of the Act. In the result, Ground Nos.1 2 are partly allowed. 3.6 In this view of matter and consistent with view taken by the Co-ordinate Bench, we are of the considered view that the assessee is not entitled for deduction u/s.80IA of the Act in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 6.6 Respectfully following the said decision on identical directions, the issue is restored to the file of the AO for re-adjudication 4.2 In this view of the matter and consistent with view taken by the Co-ordinate Bench, the ground raised by the assessee for both assessment years is allowed for statistical purposes. 5.0 The next co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of the CIT(A) submitted that the issue is squarely covered against the assessee by the decision of ITAT for earlier assessment years, where under identical set of facts the Tribunal held that surcharge recovered from Electricity Boards is taxable on accrual basis as and when the assessee has accounted in the books of account. 5.3 We have heard the rival submissions of both sides and perused the materials available on record. On perusal of details filed by the assessee, we find that there is a provision of levy of surcharge for delayed payment by the Electricity Boards and such provision is supported by Tri-party Agreement between Government of India, RBI and the assessee. The assessee has accounted surcharge receivable from Electricity Boards on accrual basis in the books of accounts, but for the purpose of taxation, the same has been offered to tax as and when the amount is received from Electricity Boards. The AO as well as the ld.CIT(A) were of the opinion that when there is no uncertainty in realization of surcharge from Electricity Boards, the question of postponement of income for taxation on receipt basis does not arise, when the assessee is following mercantile syste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 the impugned order before APTEL/Supreme Court. d) Whether surcharge is levied under the statute as it is only broa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 supplies that are equivalent to the specified reduction shall be computed separately, and shall not qualify for the measures stipulated in this s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 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 tripartite 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.14 in tri-partite agreement entered into between the Government of India and RBI and state governments on behalf of the Electricity Boards. Therefore, there is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered said amount to tax on receipt basis, due credit must be given to the assessee for the year in which such income is offered to tax. Accordingly, the ground raised by the assessee for both assessment years are dismissed. 6. In the result, appeals filed by the assessee for assessment years 2013-14 and 2014-15 are treated as partly allowed for statistical purposes. Revenue s Appeal in ITA Nos.952 953/CHNY/2018. 7.0 The first issue that came up for our consideration from ground No.1 of Revenue appeal is eligibility of deduction u/s.80IA of the Act. The AO has denied claim u/s.80IA of the Act in respect of income derived from unit TPS I expansion. According to the AO, unit TPS I was expansion of an existing unit and hence not eligible for deduction u/s.80IA of the Act. On appeal, the ld.CIT(A) has allowed deduction towards income derived from TPS-I by following the decision of the Tribunal in assessee s own case for earlier years. 7.1 The ld.AR for the assessee, at the time of hearing submitted that this issue is squarely covered in favour of the assessee by the decision of Tribunal in assessee s own case for assessment years 2008-09 to 2010-11, where under identical set of facts th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case. Accordingly, the TPS-l Expansion Unit cannot be considered as new/separate unit for the purpose of provision of section 80-lA of the Income-tax Act. ii) It has been observed that, deduction u/s 80-IA of the IT Act to the tune of ₹ 147.36 crores has been claimed for the Unit TPS-I Expansion. Hence, it is clear that, the assessee company itself has stated that the above unit is nothing but the expansion of the already existing TPS-I Unit. Therefore, the Unit TPS-l Expansion cannot be considered as separate undertaking for the purpose of claim of deduction u/s.801A of the Income-tax Act. In the instant case also, the assessee s TPS-I Expansion Unit cannot be considered as separate undertaking based on the reasons cited in the paragraph (i) (ii) above. Accordingly, the deduction claimed by the assessee u/s.80-IA of the Income-tax Act cannot be accepted. iv) The decision of the Supreme Court in the case of Textile Machinery Corporation Ltd Vs CIT (107 ITR 195) cannot be accepted in the assessee s case due to the fact that the above said decision of the Honorable Supreme Court was purely related to the restructuring of the business. Hence, the facts of the said case are not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 80J, deduction is in respect of new undertaking and the section also has similar proviso referred to by the AO. The Supreme Court while interpreting the Section 80J in the case of Textile Machinery Corporation Ltd v. CIT, 107 ITR 195 (SC) has held that expansion of the existing business will also be entitled to relief under section 80J. In the case of CIT v. Ganga Sugar Corporation Ltd, 92 ITR 173 (Del.), it was pointed out that the concept of reconstruction of business is not attracted when a company which is already running one industrial unit sets up another industrial unit. The industrial unit, it was pointed out, would not lose its separate and independent identity even though it has been set up by a company which is already running an industrial unit. It was further pointed out that the object of the section was to provide an incentive for selling up of new industries so as to accelerate the process of industrialization and that it does not appear or to have been the intention of the legislature that the benefit of the section would be confined only to parties who had not already set up such industrial undertakings and not to parties who had past experience of running s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spectfully following the decision of Co-ordinate Bench, we dismiss the appeal of the Revenue for the AYs 2008-09, 2009-10 and 2010-11. 7.4 In this view of the matter and consistent view taken by the Co-ordinate Bench, we are inclined to uphold the findings of the CIT(A) and reject ground taken by the Revenue for both assessment years. 8.0 The next issue that came up for our consideration from Ground No.3 for assessment year 2013-14 is disallowance of excess depreciation on UPS. The AO has disallowed excess depreciation claimed on UPS at the rate of 60% on the ground that UPS is not a part of computer system which is eligible for higher depreciation. Accordingly allowed depreciation at the rate of 15% applicable to normal plant and machinery and disallowed excess depreciation claimed by the assessee. The assessee carried the matter in appeal before the first appellate authority and the ld.CIT(A) by following the decision of ITAT, in assessee s own case for assessment year 2012-13 in ITA No.2163/Mds/2016 has deleted disallowance made by the AO towards excess depreciation. 8.1 At the time of hearing, the ld.counsel for the assessee and the ld.DR fairly accepted that this issue is cove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... structures, water supply and drainage systems. The assessee has claimed depreciation at the rate of 15% on civil structures qua water supply and drainage system, on the ground that it is part of plant and machinery eligible for depreciation at the rate of 15%. The AO has allowed depreciation at the rate of 10% applicable to buildings and has disallowed excess depreciation claimed over and above 10% on the ground that civil structures qua water supply and drainage system cannot be considered as part of plant and machinery. 9.1 The ld.AR for the assessee submitted that this issue is squarely covered in favor of the assessee by the decision of ITAT, Chennai Bench in assessee s own case for assessment year 2012-13 in ITA No.2163/Mds/2016, where under identical set of facts, the Tribunal by following its earlier order for assessment years 2007-08 to 2010-11 held that civil structures qua water supply and drainage system is part of plant and machinery eligible for depreciation at the rate of 15% applicable to plant and machinery. The ld.DR on the other hand fairly accepted that this issue is covered in favor of the assessee by the decision of ITAT for earlier assessment years, but he st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... although the same has been treated as capital in nature in books of accounts. The AO has disallowed deduction claimed towards insurance spares consumption on the ground that insurance spares are exclusive to the particular fixed asset and are unique in nature. The AO further held that as per the Explanation to Section 31 of the Act, amount paid on account of current repair to be allowed shall not include any expenditure in the nature of capital expenditure. Therefore, he opined that deduction claimed towards insurance spare consumption is capital in nature which cannot be allowed as deduction u/s.31 of the Act. The AO has taken support from the books of account of the assessee, where the assessee itself has treated said expenditure as capital in nature. On appeal, the ld.CIT(A) has deleted the additions made by the AO towards insurance spares consumption by following the decision of ITAT in assessee s own case for assessment year 2012-13. 10.1 The ld.AR for the assessee submitted that this issue is also covered in favour of the assessee by the decision of ITAT, Chennai Bench in assessee s own case for assessment year 2012-13 in ITA No.2163/Mds/2016, where the Tribunal by following ..... X X X X Extracts X X X X X X X X Extracts X X X X
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