9911796707
TMI Blog2014 (5) TMI 1206X X X X Extracts X X X X X X X X Extracts X X X X ..... d under the Act which presupposes that the gross total income shall be arrived at after adjusting the losses of the other division against the profits derived from an industrial undertaking. The Hon ble Supreme Court also held that if the interpretation as suggested by the assessee is accepted then it would almost render the provisions of s. 80A(2) nugatory and, therefore, the same cannot be accepted. It was held that the non obstante clause in s. 80-I(6) cannot restrict the operation of ss. 80A(2) and 80B(5) which operate in different spheres. The Hon ble Court therefore concluded that loss from the oil division of the assessee was required to be adjusted before determining the gross total income, and since the gross total income was Nil , assessee was not entitled to claim deduction under s. 80-I. The above decision rendered in the context of Sec.80-I of the Act would in our view squarely apply to the provisions of Sec.80-IA and 80- IA(7) of the Act as the provisions are impari materia the same. We are of the view that the order of the CIT(Appeals) allowing the claim of the assessee without setoff of losses of earlier years while arriving at the gross total income cannot be susta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us year i.e., on 10.2.2006 and 25.3.2006 when the offer of the assessee and acceptance by SICAL took place. Though the liability may relate to an earlier period, since the liability had crystallised only during the previous year, the same had to be allowed as deduction. Accordingly, we direct that the aforesaid sum be allowed as deduction in computing the total income. Difference in transport charges paid by the assessee for surface transport of coal the document on record show that the Board meeting of the assessee conducted on 2.1.2006 considered the revision of rates for surface transport of coal as recommended by the Technical Committee - The aforesaid sum was paid by the assessee to M/s. Aryan Energy Pvt. Ltd. It is thus clear from the document that the liability of the assessee to pay the differential surface transport charges crystallised only during the previous year. Though the amount in question was payable in respect of transportation done during an earlier period, the same is allowable in the present assessment year as the liability had crystallised only during the previous year. We therefore direct that the claim of the assessee be allowed. Differential sales tax reimb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, pleaded for a fresh opportunity before the AO. We are of the view that the request made is reasonable and accordingly we set aside the order of the CIT(A) insofar as the addition and direct the assessee to file necessary evidence before the Assessing Officer. In this regard we are also of the view that the Assessee being a corporation established by the State of Karnataka should be afforded an opportunity as no motives for any tax evasion can be attributed. Expenditure claimed by the appellant under the head power charges and electricity tax on colony consumption - HELD THAT:- It is not in dispute before us that that the liability of the assessee to pay the aforesaid sum arose only during the previous year. It is also not in dispute before us that the total demand insofar as the power charges are concerned is much more than the sum of 6,53,49,424. The assessee has no doubt challenged the order of KERC, but insofar as the sum of 6,53,49,424 is concerned, the assessee had made the actual payment of the aforesaid sum, notwithstanding the fact that the challenge by the assessee includes this sum also. Strictly speaking, the liability to this extent cannot be said to have been cryst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese five units, three units incurred loss while two units, RPS 5 and 6, and Gerusoppa derived profits. The Assessee claimed deduction u/s. 80IA of the Income Tax Act, 1961 ("Act") in respect of the two units which derived profits. The total deduction claimed u/s. 80IA from these two units is ₹ 133,10,50,731. As per the assessee's computation statement, after having arrived at the gross total income of ₹ 327,47,61,109, the assessee had claimed the deduction amounting to ₹ 133,10,50,731, thus arriving at a profit of ₹ 194,37,10,378. Against this, the brought forward unabsorbed depreciation was set off thus making the income as NIL with a claim for carry forward of unabsorbed depreciation of ₹ 4,92,08,556. The AO proposed to set off unabsorbed depreciation pertaining to earlier years before allowing the deduction u/s. 80IA. The assessee in response to the proposal of the AO submitted that as per the provisions of section 80IA(5) of the Act, the provisions of section 80AB would not be applicable and thus neither the brought forward losses nor the depreciation are required to be set off while applying the provisions of section 80IA. Reliance was placed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80-IA(7) is a part of s. 80-IA, which was newly inserted in the IT Act by the Finance (No. 2) Act, 1991, w.e.f. 1st April, 1991. It starts with the words "notwithstanding anything contained in any other provisions of this Act". Thus, s. 80-IA(7) has been given an overriding effect over any other provisions of IT Act. In other words, s. 80-IA(7) provides that its provisions are to prevail over any other provisions of the Act. All other provisions of the Act would thus be applied subject to the provisions of s. 80-IA(7) for the purpose of determining quantum of deduction under sub-s. (5) of s. 80-IA. It is seen that s. 80-IA provides a special mode for computation of the profits and gains derived from eligible industrial undertaking under s. 80-IA. In other words, for the purposes of determining the quantum of deduction under sub-s. (5) of s. 80-IA, the profits and gains of an eligible business is to be computed or determined as if such business were the only source of income of the assessee during the relevant year and the assessee had no other source of income. Consequently, the total income of the eligible business is to be computed under the provisions of the Act as if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). The Assessee in that case was engaged in the business of oil and chemicals. It had a unit for oil division at Sirohi District, Rajasthan. It also had a chemical division at Jodhpur. The assessee had earned profit in the asst. y₹ 1990-91 and 1991-92 in both the units. However, the assessee had suffered losses in the oil division in earlier years. The appellant claimed deductions under ss. 80HH and 80-I of the Act, claiming that each unit should be treated separately and the loss suffered by the oil division in earlier years is not adjustable against the profits of the chemical division. The AO noticed that the gross total income of the assessee before deductions under Chapter VI-A was 'Nil'. Therefore, he concluded that the assessee was not entitled to the benefit of deductions under Chapter VI-A. The action of the AO was confirmed by the CIT(A) as well as by the Tribunal. The Hon'ble High Court also confirmed the action of the Tribunal. On further appeal by the Assessee the Hon'ble Supreme Court held that deduction under that clause (5) of s. 80B defines the expression 'gross total income' to mean the total income computed in accordance with the provisions of the Act befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 263 of the Act was in relation to issues which did not arise out of the order of assessment passed u/s. 143(3) of the Act and were in relation to different issues which had not been considered in the order u/s. 143(3) of the Act. The order of assessment u/s. 143(3) of the Act, which order of assessment is subject matter of present appeal was passed on 15.3.2006. Against the aforesaid order, the CIT(A) passed the order dated 11.08.2006 against which the present appeal arises. The order passed u/s. 263 of the Act was dated 4.11.2009. It is the submission of the ld. counsel for the assessee that consequent to the order dated 4.11.2009 by the CIT u/s. 263 of the Act, the order of assessment u/s. 143(3) of the Act dated 15.3.2006 is deemed to have been cancelled and therefore the issues raised by the revenue in this appeal have become infructuous. 12. In our view, the facts of the present case stand on a totally different footing. It is an admitted position that the order u/s. 263 of the Act were on issues which were not considered by the Assessing Officer in the order u/s. 143(3) of the Act. The order u/s. 263 of the Act had to be therefore considered as having been set aside only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same were as follows:- The details of donation of assets: Particulars Amount (Rs.) Withdrawal of value of building in view of released materials spared to private agencies during dismantling. 7,43,177 Transfer of temporary building at Sampekatte Gram Panchayat, Sampekatte. 1,22,680 Total 8,65,857 The details of loss on obsolescence of assets is as under: Accounting Unit Particulars Amount (Rs.) Ganeshgudi Radial gates 2,91,797 Exide batteries 9,423 Pedestal fan 180 Total : 3,01,400 The Assessee contended before CIT(A) that the Assessing Officer failed to appreciate that such donations and write off of obsolete assets were part of business activity and hence allowable. It was also contended that the above expenses were wholly and exclusively spent in earning the income and the same are allowable under section 37(1) of the Income Tax Act. The assessee explained that most of the sites where the generation of power takes place are temporary or make shift places belonging to local authority. When the temporary sites are abandoned, the assets lying therein are either given as donations. Some assets also become obsolete making them unfit for any use. In so far ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agencies in conducting the activity of the assessee for which bills were produced by the employees and other agencies pertaining to prior period only during the previous year ₹ 82,43,612 26. The AO in the order of assessment has made no discussion on this claim of the assessee for deduction and has rejected the same by observing that prior period expenses cannot be allowed as deduction in computing the income of the previous year. 27. Before the CIT(A), the assessee submitted the details of prior period expenses and submitted that though those expenses related to a period earlier to the previous year, yet they crystallized as liability of the Assessee only during the previous year. The Assessee in this regard pointed out that the major of item of expenses pertaining to prior period to the tune of ₹ 19,95,80,290/- pertained to stores reconciliation. It was submitted that the similar expenses were allowed in the previous assessment years and that rule of consistency in making assessments as laid down by the Karnataka High Court in the case of CIT vs. Sridevi Enterprises reported in 192 ITR 165 (Kar) should be followed. It was pointed out that reconciliation of stor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Hence the same is to be allowable during the year. 31. Thus the Assessee pleaded that the amount of ₹ 13,70,43,439/- is not prior period expenses but has been wrongly classified. The other expenses have crystallized during the year and under any event the claim is revenue neutral. No such disallowance was made in any of the earlier years. Taking all factors into account, the Assessee submitted that the amount of ₹ 19,95,80,290/- requires to be allowed as deduction. 32. The CIT(Appeals) obtained a remand repot from the AO on the submissions made by the assessee. In his remand report, the AO took the stand as follows:- (a) The assessee was following mercantile system of accounting and therefore should establish as to how prior period expense can be claimed in the present assessment year. (b) The assessee did not file documentary evidence as to why the prior period expenses were accounted for only during the previous year. (c) The reasons for revision for rates in coal have not been mentioned. (d) Major expenses relating to repairs and expenses have been claimed and as such expenses may not crystallise only in a later period. 33. On a consideration of the abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as on 31.3.2006 and it was noticed that a sum of ₹ 8,45,05,557 was actually reconciliation of material of coal carried out during the previous year and in relation to quantity found short during the previous year. Another sum of ₹ 5,25,37,882 related to stores discrepancy issued during February, 2006. The above two amounts have been wrongly shown as prior period expenses. These sums were actually discrepancies in stock noticed during the previous year and had to be allowed as a deduction. The appraisal note by the audit committee, a copy of which is placed at pages 49 to 55 of the assessee's paperbook shows difference in quantities. However, it is seen that the aforesaid report has neither been considered by the CIT(Appeals) nor by the Assessing Officer in the remand report filed before the CIT(A). It appears to us that there has been no proper appreciation of the facts in the right perspective as to whether the appraisal note is in relation to reconciliation of stocks as per the books and as physically found relating to the previous year or to a prior period, which has neither been commented upon by the AO nor decided by the CIT(A). It, however, appears from page 3 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this decision is not as per the terms of the contract. However, as we have certain pressing commitments we are willing to receive the money approved by the Board in view of the good business relationship we had with KPCL. Hence we would request you to release us payment of ₹ 2,07,60,000/- (3,46,000 Mts x ₹ 60/- pmt). This amount is being received by us without prejudice. We would simultaneously request KPCL to process our claim sent to you vide our letter dated 14.2.2006. We shall be thankful if this amount of ₹ 2,07,60,000/- is released to us at the earliest." 38. Based on the aforesaid letter, the assessee has made a claim for deduction of ₹ 2,07,60,000. It is clear from the aforesaid correspondence that the liability of the assessee to pay the aforesaid sum crystallised only during the previous year i.e., on 10.2.2006 and 25.3.2006 when the offer of the assessee and acceptance by SICAL took place. Though the liability may relate to an earlier period, since the liability had crystallised only during the previous year, the same had to be allowed as deduction. Accordingly, we direct that the aforesaid sum be allowed as deduction in computing the total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee reimbursed the differential sales tax on lease rentals amounting to ₹ 2,63,72,297/- on 07/03/2006 to M/s. ICICI Bank Limited with retrospective effect at 7.70% (i.e., 9.20% less 1.50%). It was submitted that the liability to pay the sales tax on lease rentals to M/s. ICICI Bank Limited was crystallized only during the impugned assessment year and hence the same is allowable expenditure. 42. In this regard, we find that ICICI Bank had addressed a letter dated 27.5.2005 to the assessee, which reads as follows:- "As you are aware notification FD 185 CSL 95 (II) dated 1.3.96 (exempting the lease rentals of KPCL) was withdrawn w.e.f. August 1, 2004. Hence the lease rentals have become taxable under Karnataka Sales Tax Act. ICICI Bank Limited ( Erst. ICICI Limited) had leased two boilers to your company under sale and lease back arrangement. At the time of sale, your company has not charged us any sales tax on sale of these boilers as the same was exempt from sales tax vide notification ED 185 CSL 95 (II) dated 1.3.96. The copies of your purchase invoices sent to us show that the boilers are purchased interstate from Haridwar to Karnataka. The lease transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and under proviso to section 211[2] of the Act,, the appellant is exempted from preparing its books of account in terms of requirements under schedule VI to the Companies Act." 48. These grounds were not raised before the lower authorities and being purely legal questions are sought to be raised before the Tribunal. In view of the decision of the Hon'ble Supreme Court in the case of NTPC Ltd., 229 ITR 383, if a question of law can be raised which can be decided on the available facts on record, the same should be admitted for consideration. Following the said decision, we admit the additional grounds for adjudication. 49. The additional grounds raised by the assessee seek to challenge the applicability of provisions of section 115JB to an electricity supply company such as the assessee. In this regard, the ld. counsel for the assessee brought to our notice the decision of ITAT Bangalore in the assessee's own case for the A.Y. 2007-08 in ITA No.711/Bang/2011 dated 11.10.2013, wherein this Tribunal on an identical issue, held as follows:- "11.1 Ground Nos.8 and 9 raised by the assessee is in respect of the very applicability of the provisions of section 115JB of the Act, to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative the newly inserted Explanation - 3 to section 115JB of the Act is clear that the assessee is given an option to prepare its profit and loss account for the relevant previous year either in accordance with the provisions of Parts II and III of Schedule VI of the Companies Act, 1956, OR in accordance with the provisions of the Act governing such company, w.e.f. 1.4.2013. Since there is no dispute that the assessee is engaged in the generation of power and in an electricity company, it is governed by and bound to follow the relevant Electricity Act and Rules thereto in preparation of its financial statements. In this view of the matter and taking into consideration the judicial decisions cited and relied upon by the assessee, we are of the considered view that the provisions of section 115JB of the Act are not applicable to the assessee which is an electric company in the business of generation of power. In this view of the matter, the additional grounds of appeal raised by the assessee on the non-applicability of the provisions of section 115JB of the Act is allowed." 50. Following the decision of the Tribunal in the assessee's own case, we allow the additional grounds raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since the appellant had an eligible claim of deduction under section 80IA of the Act amounting to sum of ₹ 249,82,55,108/- and the same will be restricted to the available total income under the facts and circumstances of the case. 7. The learned CIT(A) failed to appreciate that the learned assessing officer was not correct in law in determining the total income of the appellant at ₹ 7,33,79,721/- under the normal provisions by treating the entire additions as independent income without considering the same as gross total income under the facts and circumstances of the case." 57. These grounds do not arise out of the order of the CIT(A) because the CIT(A) has directed the AO to allow deduction u/s. 80IA of the Act after considering the gross total income as increased by additions which were made by the AO consequent to disallowance of certain expenses. Hence these grounds are dismissed. 58. Grounds No.9 & 10 raised by the assessee by way of additional ground are similar to grounds No.5 & 6 raised by the assessee for A.Y. 2006-07. For the reasons stated therein, these grounds are allowed. 59. Ground No.3 raised by the assessee are as follows:- "3. The Learned CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant under the head expenditure on establishment and general expenses of ₹ 61,21,109/- as against the original addition made by the learned assessing officer of ₹ 38,55,151/- instead of deleting the entire additions made on account of expenditure on establishment and general expenses under the facts and circumstances of the case." 64. As far as ground No.4 is concerned, the factual background is as follows. The Assessing Officer disallowed a sum of ₹ 38,55,151 towards the establishment and general expenses. The breakup of the expenses are as under:- Sl. Particulars Amount (Rs.) 1. Salary Arrears Exgratia 2,78,2 17 2. Advertisement 62,294 3. Hire Charges 22,553 4. Municipal taxes & others 3,90,428 5. Other establishment 31,01,209 38,55,151 65. The CIT(Appeals) during the course of first appellate proceeding further enhanced the disallowance to ₹ 61,21,109 without appreciating that the sum enhanced amounting to ₹ 22,65,958 were claimed by the Assessee towards the D.A arrears as per the Government Order. Such amount was already considered during the assessment proceedings and the AO allowed the claim of the assessee holding that the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO is directed to consider the claim of the assessee afresh, with liberty to file evidence to substantiate its claim. The AO will thereafter decide the issue affording the assessee opportunity of being heard. 69. Ground No.5 raised by the assessee reads as follows:- "5. The learned CIT[A] is not justified in law in confirming the disallowance made by the learned assessing officer on account of expenditure claimed by the appellant under the head power charges and electricity tax on colony consumption amounting to ₹ 6,53,49,424/- on the facts and circumstances of the case." 70. As far as the aforesaid issue raised in ground No.5 is concerned, the facts are that the assessee being engaged in the activity of generation of electricity has townships and colonies in project locations. The electricity generated in the power station was being used by the Assessee for running the machineries like boilers, turbines and generators and for plant lighting. The user of electricity within the power stations is termed as "auxiliary consumption" and besides, the electricity consumed in the colonies and townships are termed as colony consumption. The user of power for colony consumption ..... X X X X Extracts X X X X X X X X Extracts X X X X
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