TMI Blog2019 (3) TMI 1687X X X X Extracts X X X X X X X X Extracts X X X X ..... - HELD THAT:- Admittedly the addition, of interest on income tax refund of ₹ 2.16 crores received by the assessee, to the Book Profits of the assessee for the purposes of MAT u/s 115JB of the Act, has been made on consideration of the factual matrix that the same was not included in it. This fact has been demonstrated by assessee as being incorrect, which has not been controverted by the Revenue. Further even we have noted that interest on income tax refund received by the assessee was reflected as other income in its Profit and Loss account as part of Schedule 2.22, in para 14 above. We hold, that the addition to the Book Profits of the assessee of the Income Tax Refund was wrongly made and direct deletion of the same. The order of the Ld.CIT(A) in this regard is therefore set aside. Allowance of deduction u/s 80IA on scrap sales - AO denied the claim of deduction u/s 80IA on the said income by holding that the income was not derived from the manufacturing activity of the Industrial undertaking - CIT(A) allowed the claim on finding that the assessee had clearly brought out the nature of scrap generated and the linkages to the manufacturing activity - HELD THAT:- The fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly related with the running of projects /plants of the assessee and are therefore eligible for deduction u/s 80IA - ITA No.826/Chd/2018, ITA No.834/Chd/2018, ITA No.827/Chd/2018, ITA No.835/Chd/2018 - - - Dated:- 29-3-2019 - Shri Sanjay Garg, Judicial Member And Smt.Annapurna Gupta, Accountant Member Assessee by : Shri Rajiv Sood, CA Revenue by : Smt.Mona Mohanti, CIT DR ORDER Annapurna Gupta, The captioned cross appeals, by the assessee and the Revenue, have been filed against the consolidated order of the Ld. Commissioner of Income Tax (Appeals), Shimla(in short referred to as CIT(A),passed u/s 250(6) of the Income Tax Act,1961,(hereinafter referred to as Act ) dated 23.3.2018 and relates to Assessment Years(A.Y) 2013-14 and 2014-15. 2. It was common ground that the issue involved in the cross appeals was identical. They were therefore heard together and are being disposed off by this common and consolidated order. 3. We shall be dealing with the facts in the cross appeals relating to A.Y 2013-14 in ITA No.834 826/Chd/2018 and our decision rendered therein will apply mutatis mutandis to the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ddl.CIT in ITA Nos.6794 6970/Del/2014 dated 4.4.2018. The Ld. counsel for assessee, therefore, contended that the issue was squarely covered in favour of the assessee and, therefore, requested that the order of the Ld.CIT(A) be set aside on his account. 8. The Ld. DR, on the other hand, relied upon the order of the CIT(A). 9. We have considered the rival contentions, perused the orders of the authorities below and gone through the case laws referred to before us. The issue before us relates to allowability of CSR expenses as business expenses u/s 37 of the Act. That such expenses are not allowable w.e.f. 1.4.2015 on account of the insertion of Explanation.2 to section 37 of the Act, is not disputed. The dispute is whether the nature of the expense is for the purpose of business and whether the explanation 2 to section 37 of the Act, is retrospective in its application as contended by the Revenue or prospective as argued by the Ld.Counsel for the assessee. 10. Both these aspects, we find, have been dealt with in the order of the I.T.A.T. in the case of National Seeds Corporation Ltd. (supra) and Jindal Power Limited (supra), ruling in favour of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d . which is directly connected or related with the carrying on of the assessee's business or which results in the benefit to the assessee's business has to be regarded as an allowable deduction under section 37(1) of the Act. Such a donation, whether voluntary or at the instance of the authorities concerned, when made to a Chief Minister's Drought Relief Fund or a District Welfare Fund established by the District Collector or any other fund for the benefit of the public and with a view to secure benefit to the assesses's business, cannot be regarded as payment opposed to public policy. It is not as if the payment in the present case had been made as an illegal gratification, (here is no law which prohibits the making of such a donation. The mere fact that making of a donation for charitable or public cause or in public interest results in the Government giving patronage or benefit can be no ground to deny the assessce a deduction of that amount under section 37(1) of the Act when such payment had been made for the purpose of assessee's business. 8. In the case of CIT v. Madras Refineries Ltd. [2004] 266 ITR 170, Hon'ble Madras High Court has uphel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te citizen which brings goodwill of with the regulatory agencies and society at large, thereby creating an atmosphere in which the business can succeed in a greater measure with the aid of such goodwill'. 18. We have also take note of the fact that in view of insertion of Explanation 2 to Section 37(1), with effect from 1st April 2015, which provides that for the removal of doubts, it is hereby declared that for the purposes of sub-section (1), any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 (18 of 2013) shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession , the expenses incurred in discharging corporate social responsibility are not deductible in computation of business income. Learned Departmental Representative submits that this amendment should be treated as clarificatory in nature, as it is stated to be in so many words, and we should, therefore, hold that the expenses in discharging corporate social responsibility were outside the ambit of expenses deduction under section 37(1). 19. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ature, it would a purposive interpretation giving it a retrospective effect but when a tax legislation imposes a liability or a burden, the effect of such a legislative provision can only be prospective. We have also noted that the amendment in the scheme of Section 37(1) is not specifically stated to be retrospective and the said Explanation is inserted only with effect from 1st April 2015. In this view of the matter also, there is no reason to hold this provision to be retrospective in application. As a matter of fact, the amendment in law, which was accompanied by the statutory requirement with regard to discharging the corporate social responsibility, is a disabling provision which puts an additional tax burden on the assessee in the sense that the expenses that the assessee is required to incur, under a statutory obligation, in the course of his business are not allowed deduction in the computation of income. This disallowance is restricted to the expenses incurred by the assessee under a statutory obligation under section 135 of Companies Act 2013, and there is thus now a line of demarcation between the expenses incurred by the assessee on discharging corporate social respons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... beneficiary and similarly any interest received on excess tax deposited was to be refunded to the beneficiary. Accordingly, it was contended that the interest on income tax refund did not form part of the income of the assessee. The A.O. did not accept the contention of the assessee and treating the same as income of the assessee made addition of ₹ 2,16,05,340/-to the income of the assessee. 14. Before the Ld.CIT(A), the assessee reiterated his contention. The Ld.CIT(A) rejected the same stating that the Regulation of CERC relied upon by the assessee was applicable for the period of 2005 to 2009 and thus did not apply for the impugned year, i.e. A.Y 2013-14. He further pointed out that as per the applicable regulation/Notification No.L-7/145(160)2008-CERC dated 19-01-2009, the tax was not a pass through arrangement. He, therefore, upheld the order of the A.O. 15. Before us, the Ld. counsel for assessee reiterated the contentions made before the Ld. counsel for assessee while the Ld. DR relied upon the order of the Ld.CIT(A). 16. We have heard the contentions of both the parties. 17. The issue in dispute relates to the taxability of inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - Profit on Sale of Fixed Assets - Rent Recovery from Staff/Others 62 Excess Provision Written Back 140 Liquidated Damages recovered 49 Other Misc. Receipts 28 Total 279 18. The contention of the assessee for not including income tax refund in its income,as above, is that the same has to be passed on to beneficiary states as per CERC guidelines, which govern it. 19. The Ld.CIT(A), we find, has given a factual finding that the guideline relied upon by the assessee was not applicable for the impugned year and as per the applicable guideline/notification, tax was not a pass through item The same is reproduced at para 5.3.4 5.3.5 of his order as under: 5.3.4 The contention of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t expenditure during construction period treated as regular income a) interest from bank FDR ₹ 2,71,493/- b) interest from employees ₹ 53,99,144/- c) Misc Income ₹ 91,74,647/- The above income being of capital nature needs to be set off against incidental expenditure during construction period. II. Computation of deduction u/s 80IA Income considered ineligible for deduction u/s 80IA a) Interest received from staff of ₹ 2,46,77,323/-. (i) Miscellaneous income derived from licence fee from quarters, recovery of private use of vehicles, income from transit camps, forfeiture of security, post retirement medical scheme, receipts from buses ₹ 88,49,579/-. 23. The above grounds are therefore dismissed as not pressed 24. Ground No.III(1) raised by the assessee reads as under: III. INCOME AS PER PROVISIONS PF 115JB. 1. Interest on Income Tax Refund ₹ 2,16,05,340/- The interest earned on income tax refund has been already added to the book profit worked out as per prescribed accounting standard and which has been duly approved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rap sales. The AO denied the claim of deduction u/s 80IA on the said income by holding that the income was not derived from the manufacturing activity of the Industrial undertaking. The Ld.CIT(A) allowed the claim on finding that the assessee had clearly brought out the nature of scrap generated and the linkages to the manufacturing activity. Aggrieved by the same the Revenue has come up in appeal before us raising the following effective ground : 1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of ₹ 43,06,075/- made by the A.O. by disallowing the deduction claimed by the assessee u/s 80IA on the income earned from sales of scrap, ignoring the fact that the assessee has not earned the same from the manufacturing activities, but from the unserviceable/damages spares retrieved from the plant, which is capital in nature, not in the nature of scrap generated from normal wear and tear. 34. Before us Ld.DR contended that the scrap sold related to unserviceable/damaged spares retrieved from the plant at the time of repair and maintenance and the income generated from the sale thereof had therefore no connec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he order of the A.O. and the facts of the case have been carefully considered. To decide the issue whether the sale of scrap is eligible for deduction u/s 801A or not, it is material to see as to how the scrap is being generated. In case the scrap is generated out of the manufacturing activity, the same is to be taken as derived from industrial undertaking and will be eligible for deduction u/s 80IA. In case, the scrap is not generated out of the manufacturing activity, the deduction u/s 80IA is ineligible. The order of the AO does not state as to how the scrap is not generated from the manufacturing activity. No details or mention of the sale bills or any factual information has been brought out in the order to substantiate the disallowance of the scrap for claim of deduction u/s 80IA,. The A.O is first required to give a finding that the scrap generated is not derived from manufacturing activity before disallowing deduction u/s 80IA. 5.5.9 In this case, the appellant has clearly brought out the nature of scrap being generated and the linkages to the manufacturing activity. 5.5.10 The issue under appeal has been considered and decided by the Hon'ble Punjab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, and thus higher manufacturing profits to the assessee. And merely because the scrap sale was shown separately, it did not tantamount to a new source of income. The real and ultimate impact of the scrap sold was reduction in cost of spares purchased during the year. Therefore, we agree with the Ld.CIT(A) that the profits commensurate with the scrap sold was directly earned from the manufacturing activity of the assessee and the assessee was entitled to claim deduction u/s 80IA of the Act on the same. 39. Ground of appeal No.1 raised by the Revenue is therefore dismissed . 40. In effect the appeal of the Revenue is dismissed. 41. We shall now take up cross appeals relating to assessment year 2014-15, taking first the appeal of the assessee in ITA No.835/Chd/18 for A.Y 2014-15. The grounds of appeal raised are as under: I. Computation of Gross Total Income as per normal provisions. 1. Income Set off against expenditure during construction period treated as regular income a) interest from bank FDR ₹ 2,07,742/- b) interest from employees ₹ 59,84,547/- The above income being of capital nat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come was not derived from the manufacturing activity of the industrial undertaking. 44. Before the Ld.CIT(A) the assessee contended that the amount outstanding with the security creditors consisted of unclaimed security deposits, the expenditure of which had been debited in earlier years and accordingly, the claim of deduction u/s 80IA of the Act had been reduced with that amount in those years. Vis- -vis the insurance claim received, it was contended by the assessee that the claim had been received against damages caused to security breakers of the machineries of the plant, the repair expenditure on which had already been debited to the Profit Loss Account and claim u/s 80IA reduced with that amount. The assessee contended that both the claims were directly and inextricably linked and derived from the main business of the assessee and the assessee, therefore, was eligible for deduction u/s 80IA of the Act. The Ld.CIT(A) dismissed the contention of the assessee contending that the assessee had been unable to establish that these amounts were received while carrying out the business of the assessee. Relevant findings of the CIT(A) at paras 8.2.1 and 8.2.4 of the order ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sioner of Income-tax Vs. Gangothri Textiles Ltd. Wherein the following question of law was raised before the High Court:- 8. Whether the insurance money received on loss of production is entitled for deduction under Section 80IA 9. The High Court while allowing the appeal of the Revenue held that in the absence of any nexus shown between the compensation received and the business activities of the industrial undertaking, the compensation could not be held as derived from the undertaking for the purpose of inclusion under Section 80-IA of the Act. Even otherwise, the issue is squarely covered by the decisions of the Apex Court relied on by the A.O. in his order. This contention of the appellant is accordingly rejected and appeal of the assessee on this issue is dismissed. Accordingly, these grounds of appeal are dismissed except for on the issues mentioned in Para 8.2.2 to 8.2.3. Considering the detailed discussion above, this apeal of the assessee is partly allowed. To conclude, appeal for the A.Y. 2013-14 is dismissed and appeal for the A.Y. 2014-15 is partly allowed. 45. Before us, the Ld. counsel for asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has mentioned that as per Note2.11 of the Audited Accounts relating to expenditure during construction , it was found that the assessee had adjusted the following receipts against interest and financial charges which the A.O. had disallowed and held that no adjustment of the same was allowable and had taxed the entire income received. The relevant portion of the assessment order at paras 7 and 8.1 of the assessment order is as under: 7. The assessee was confronted that in note 2.11.1. (Expenditure during construction) of audited accounts, it is found that the assessee has adjusted Interest and Finance charges of ₹ 4,10,98,7297- for which the assessee was requested to submit ledger detailed break up of each of the above figures and explain with evidence why such receipts will not be taken separately as the income of the assessee. The assessee explained that: In note no. 2.11.1. Expenditure during construction the following receipts have been adjusted against interest and financial charges. Receipts Recoveries Interest From : Rupees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A on the income earned from recovery from M/s JP Power Ventures and M/s Karcham Wangtoo, ignoring the fact that prior period income was rightly added to the income by the AO, as the expense to this extent was claimed by the assessee in the P L account of previous assessment year. 55. Brief facts relating to the same are that the assessee had received recovery from M/s JP Power Ventures and M/s Karcham Wangtoo amounting to ₹ 1.83 crores and ₹ 17,63,383 which was shown as miscellaneous income during the year and deduction claimed u/s 80IA of the Act on this receipts. The same was denied by the A.O. holding that the income was not derived from the manufacturing activity of the industrial undertaking. The Ld.CIT(A) allowed the same on noting that as per the facts of the case the said recoveries related to the business undertaking of the assessee. The relevant findings of the Ld.CIT(A) at para 8.2.2 8.2.3 of the order is as under: 8.2.2 (b)Recovery from JP Power Ventures of ₹ 1,83,00,000/- It was argued that the said amount of ₹ 1,83,00,000/- has beenreimbursed by M/s JP Power Ventures Ltd towards cost of repair of R Phase Circu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l have to be increase on receipt of reimbursement for the same. Considering the facts of the case, this contention of the appellant is accepted and this receipt of ₹ 1,83,00,000/- is directed to eligible for deduction u/s 80IA of the I.T.Act, 1961. 8.2.3 (c) Recovery from Karcham Wangtoo of ₹ 17,63,383/- With respect to these receipts it was argued by the appellant that this amount of ₹ 17,63,383/- was recoverable from Karcham Wangtoo for water discharge data. The appellant incurs expenditure towards recording the water discharge and shares the data with other companies in similar lines. The expenditure on collection of data is debited to P L a/c. I have perused the facts of the case, the action of the A.O. and the submissions of the appellant. The observations made for the receipt of ₹ 1,83,00,000/- from M/s. JP Power Ventures are applicable here also. Following the same, this receipt of ₹ 17,63,383/- is directed to be held as eligible for deduction u/s 80IAofthe I.T.Act, 1961. 56. Before us the Ld. DR relied upon the order of the A.O. while the Ld.Counsel for the assessee relied on the order of the Ld.CIT(A). ..... X X X X Extracts X X X X X X X X Extracts X X X X
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