TMI Blog2022 (5) TMI 1265X X X X Extracts X X X X X X X X Extracts X X X X ..... or at the amount recorded in the books of accounts - HELD THAT:- The impugned addition made by the AO, with the view that, without incorporating the amount of tax liability in its Profit Loss account, reduction of the taxable profit has been rightly allowed by the ld. CIT(A). Addition on account of Pre-Commissioning Sales - Revenue challenged the action of the Ld. CIT(A) in allowing capitalization of pre-commissioning expenses, after being netted off with pre-commissioning sales and deleting the addition made by the AO on account of pre-commissioning sales - HELD THAT:- Since, it has been consistently ruled in favour of the assessee by the Co-ordinate bench of Tribunal and Ld. CIT(A) since A.Y. 2003-04, and also accepted by the AO for all the subsequent years, we hereby decline to interfere with the order of the ld. CIT(A) on this issue. Addition u/s 14A - HELD THAT:- Since, the facts of the assessee s case are similar to the facts involved in the case of DCIT, Circle-14(1), New Delhi Vs. Power Grid Corporation of India Ltd. [ 2011 (10) TMI 724 - ITAT DELHI] . So, respectfully following the aforesaid referred to order dated 31.10.2011, we do not see any merit in this g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Member For the Revenue : Ms. Sarita Kumari, CIT-DR For the Assessee : Sh. Ved Jain, Adv. ORDER PER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER: The Revenue as well as the assessee have been filed these cross appeals against the separate orders of the Ld. CIT(A)XVIII, New Delhi, dated 31.03.2014 and ld. CIT(A)-20, New Delhi, dated 31.03.2016 for AY 2006-07 respectively. 2. In ITA No.3194/Del/2016, the Revenue has raised following grounds of appeal: 1. Whether on the facts and circumstances of the case in law, the Ld. CIT(A) is justified in deleting the penalty imposed by the Assessing Officer (AO) u/s 271(1)(c) of the Income Tax Act, 1961 (Act) in respect of the additions relating to provisional revision of sales amounting to Rs. 1112,20,00,000/-, disallowance of deduction u/s 80IA amounting to Rs. 422,42,82,000/- and expenditure of assets not owned by the assessee amounting to Rs. 8,89,00,000/- without considering the findings of the AO that the assessee has furnished inaccurate particulars of income? 2. Whether in facts and circumstances of the case and in law, the Ld. CIT(A) is justified in reducing the penalty by Rs. 519,54,82,260/- levied by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fact that the calculation regarding disallowance has been made by the assessing officer as per the provision of the Income Tax Act and the relevant rules in this regard. 4. In ITA No.2972/Del/2016, the assessee has raised following grounds of appeal: 1. On the facts and circumstances of the case, the order passed by the Ld. CIT(A) u/s 271(1)(c) of the Act is bad, both in the eyes of law and on facts. 2. On the facts and circumstances of the case, the Ld. CIT(A) has erred, both on facts and in law in upholding the levy of penalty on account of the addition made by the AO of the amortization of premium paid on purchase of securities amounting to Rs. 41,30,00,000/-. 3. On the facts and circumstances of the case, the Ld. CIT(A) has erred in upholding the levy of penalty by disregarding the submissions and explanations of the assessee. 4. On the facts and circumstances of the case, the Ld. CIT(A) has erred, both on facts and in law in upholding the levy of penalty despite the issue involved being a debatable and controversial issue. 5. On the facts and circumstances of the case, the Ld. CIT(A) has erred, both on facts and in law, in upholding the levy of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned CIT(A) has erred both on facts and in law in giving a contradictory finding by dismissing ground no. 5(iii) despite holding and giving a finding in respect of ground no. 5(i) that appellant company is eligible to claim deduction of Rs.1221.69 Crores in respect of steam units of CCGPS. 5(i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming disallowance of an amount of Rs.8.89 Crores made by the AO on account of expenses incurred on assets not owned by the assessee. (ii) That the observation of the AO that the appellant has not furnished any details is factually incorrect and against the facts on record. (iii) That the disallowance has been confirmed despite the expenses being incurred wholly and exclusively for the purpose of business. 6(i) On the facts and circumstances of the case, the learned C1T(A) has erred both on facts and in law in confirming addition of Rs.41.30 Crores made by the AO on account of premium paid on purchase of securities. (ii) The addition has been confirmed despite the assessee following the mercantile system of accounting and following the accounting standards prescr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een considered in these three judgments of the Hon'ble Supreme Court wherein Hon bie Court has explained what is manufacture or production and what is electricity. Learned DR at the time of hearing, had made reference to the order of the IT AT, Chennai and the judgment of the Hon'ble Supreme Court in the case of NC Budhiraja. As far as the judgment of the Hon'ble Supreme Court in the case of N.C. Budhiraja is concerned that has been considered by the Hon'ble Supreme Court itself in the case of Indian Cine Agency (supra). The ITAT in the case of Tamilnadu Chlorates has considered the admissibility of deduction under section 80-HH and in that test held that electricity is not an article. The ITAT has not dealt with these two judgments extensively rather simply observed that decision in the case of Madhya Pradesh Electricity Board was given in the context of the language of a particular statute. The only discussion made by the ITAT with regard to these two judgments of the Hon ble Supreme Court reads as under: 6. Reference was made to the decisions of Apex Court rendered in the case of M.P. Electricity Board 35 STC 188 (sic). In this case it was held that electri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arat High Court] Tenzing Match Works vs. Dy. CIT, Tax Case (Appeal) Nos. 655, 656 and 657 of 2009 [Madras High Court] 10. Since, the issue under consideration has already been extensively analyzed by coordinate bench of this Hon ble Tribunal in appellant s own case for A.Y. 2005-06, the Hon ble Jurisdictional High Court and other High Court and by the Hon ble Apex Court, decided in favour of the assessee, we hereby decline to interfere with the order of the Ld. CIT(A). Recoverable from the State Electricity Boards: 11. This ground of appeal pertains to taxability of Income Tax Recoverable from State Electricity Boards (SEBs) i.e., at the amount ascertained at the time of filing of return of income (being Rs. 115.85 cr.) or at the amount recorded in the books of accounts (being Rs. 586.3 cr.) 12. With regard to the above, it was submitted that as per para 7 of the CERC guideline, Regulation No. L-7/25(5)/2003CERC dated 26.03.2004, the incidence of income tax on income from generation of electricity (generation income), is on the customers i.e., here SEBs. In other words, out of the total income of the appellant, the tax on generation income is recoverable from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ores on account of income tax recoverable from the State Electricity Boards. In this regard, learned Authorized Representative of the appellant has submitted as under:- This issue has already been decided by ld. CIT(A) in his order for A.Y. 2004-05 in favour of NTPC. In addition, ld. CIT(A) has also decided this issue in favour of NTPC for AYs 1999-2000, 2001-02 2002-03 wherein the Deptt. had reopened the cases. Further, the Hon'ble Delhi High Court has also quashed the reassessment proceedings initiated by the IT department for AYs 1999-00 to 2003-04 vide its orders dated 10.01.2013 and 07.03.2013 on the same issue. 11.1 As the issue has already been settled by various appellate orders and re-assessment proceedings initiated by Department has already been quashed by Hon'ble Delhi High Court, Ground of appeal No. 6 is allowed. 20. In light of the above, the impugned addition made by the AO, with the view that, without incorporating the amount of tax liability in its Profit Loss account, reduction of the taxable profit has been rightly allowed by the ld. CIT(A). Addition on account of Pre-Commissioning Sales: 21. The revenue challenged the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to maintain the judicial discipline, the Ld. CIT(A) for the impugned assessment year has also decided the issue in favor of the appellant with the following observations: {12} Ground of Appeal No. 7 has been taken against addition of Rs. 72.70 crores on account of pre-commission sales. In this regard, learned Authorized Representative of the appellant has submitted as under:- This issue has already been decided by CIT(A) in orders for A.Y. 2003-04 and 2004-05 in favour of NTPC, Further, A.O. has also subsequently accepted NTPC s view that no addition on this account is being made in the assessments since AY 2007-08. 12.1 As issue has already been settled at Assessing Officer level. This ground is decided in favour of appellant. 26. Since, it has been consistently ruled in favour of the assessee by the Co-ordinate bench of Tribunal and Ld. CIT(A) since A.Y. 2003-04, and also accepted by the AO for all the subsequent years, we hereby decline to interfere with the order of the ld. CIT(A) on this issue. Addition u/s 14A: 27. The revenue challenged the action of the Ld. CIT(A) in deleting the disallowance of Rs. 138.12 cr. u/s 14A of the Act. The impugned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure by a reasonable method having regard to all the facts and circumstances. Thus, the disallowance made by the AO invoking Rule 8D of the IT Rules, 1962 in the AY 2007-08, is not justified. 11.1. Moreover, Hon ble Supreme Court in their decision dated 6.7.2010 in CIT vs. Walfort Share Stock Brokers (P.) Ltd., 326 ITR 1, inter alia, observed that for attracting section 14A of the Act there has to be a proximate cause for disallowance, which is its relationship with the tax exempt income. Hon ble Apex Court observed in the context of provisions sec.14A of the Act in the following terms: 17. The insertion of section 14A with retrospective effect is the serious attempt on the part of the Parliament not to allow deduction in respect of any expenditure incurred by the assessee in relation to income, which does not form part of the total income under the Act against the taxable income (see Circular No. 14 of 2001, dated 22- 11-2001). In other words, section 14A clarifies that expenses incurred can be allowed only to the extent they are relatable to the earning of taxable income. In many cases the nature of expenses incurred by the assessee may be relatable partly to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15 to 59 but related to the income not forming part of total income could not be allowed against other income includible in the total income for the purpose of chargeability to tax. The theory of apportionment of expenditures between taxable and non-taxable has, in principle, been now widened under section 14A. Reading section 14 in juxtaposition with sections 15 to 59, it is clear that the words expenditure incurred in section 14A refers to expenditure on rent, taxes, salaries, interest, etc. in respect of which allowances are provided for (see sections 30 to 37) .. 11.2. Hon ble Punjab Haryana High Court in their decision in CIT vs. Hero Cycles Ltd., 323 ITR 518 have observed that disallowance under section 14A requires finding of incurring of expenditure and where it is found that for earning exempted income no expenditure has been incurred, disallowance under section 14A cannot stand. 11.3. Hon ble Kerala High Court in their decision in Catholic Syrian Bank Ltd. (supra) held that there being no precise formula for proportionate disallowance, no disallowance is called for out of administrative expenses until Rule 8D came in to force. 11.4. Hon ble jurisd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the annual fixed charges as applicable on 31st March 2004 shall be billed at target availability and variable charges based on norms of operation notified in Regulation 2004. The amount billed for the year on this basis was Rs. 26,830.1 cr. 33. Since, the amount billed is subject to adjustment w.e.f. 01.04.2004, pending final determination of the tariff by CERC, sales amounting to Rs. 25,717.9 cr. for the year have been provisionally recognized on the basis of principles enunciated by the CERC in Regulations, 2004. 34. Such downward revision of sales of Rs. 1,112.20 cr. reflecting the difference between provisional billing of sales at Rs. 26,830.10 cr. and its downward accounting at Rs. 25,717.90 cr. was disallowed and added back as sale of the year to the total income of the appellant. 35. It is to be mentioned that the impugned issue arose for the first time in A.Y. 2005-06, wherein though no addition in this respect was made by the AO, however the case on this issue was reopened by the Ld. CIT(A) u/s 263 of the Act. 36. It is pertinent to mention that initiation of the said reassessment proceedings were further upheld by Co-ordinate Bench of the Tribunal vide its ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht into force. In these circumstances, the CERC directed that the existing conditions were to be applied till 30.9.2004. The notification of 01.04.2004 thereafter directed corporations like NTPC in the following terms: ... It is hereby directed that the billing of charges in terms of the Commission s notification No.L-7/25(7)/2004-Legal dated 30.4.2004, read with the notification of even number dated 11.6.2004, shall be continued on provisional basis for a period up to 31.3.2005 or till disposal of the applications made by the utilities for approval of tariff, whichever is earlier and shall be subject to adjustment after final determination of tariff by the Commission based on such applications. 20. NTPC thus had no choice in the matter but to carry on billing in terms of the previous notification on a provisional basis up to 31.03.2005 or till the approval of tariffs; such billing figures were to be subject to adjustment after final tariff determination. Thus, inherently there was a degree of uncertainty and incompleteness in the process. This was reflected in the return when the adjustment of the billing became necessary on account of the application of the CERC noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orkmen, (1969) 73 ITR 53, that a provision made on a reasonable basis, it would be in the nature of an ascertained liability and that in a mercantile system of accounting, provision for liability ascertained during the course of the relevant accounting period, which is payable at a future is permissible. 22. The expression error of law resulting in prejudice to the interests of the revenue are not to be given wide connotation, as is sought to be urged by the Revenue here. Where two views are possible, the Commissioner should not exercise his power under Section 263; Leisure Wear (supra) aptly summarizes this power as not enabling a revisional interdict on the mere existence of another view which conflicts with what was adopted by the Income Tax Officer; so long as the tatter s opinion is a plausible one, exercise of power would be unwarranted. The fulfillment of both preconditions, i.e. error of law, and prejudice to revenue is essential, else the revenue would have wide ranging powers to oversee and re-open almost every assessment order. In the present case, the court is satisfied that the AO s order was made after appropriate inquiry; the absence of discussion regarding do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rward losses pertaining to years prior to the initial assessment year (here, the sixth year). 47. The assessee preferred an appeal before the Ld. CIT(A) placing reliance on various decisions of courts to contend that the provisions of Section 80IA(5) treating the undertaking as a separate sole source of income could not be applied to a year prior to the year in which the appellant opted to claim relief under section 80IA for the first time. 48. The Ground of appeal raised before the Ld. CIT(A) is reproduced below: 5 (ii) On the facts and circumstances of the case, the Id. AO has erred, both on facts and in law, in disallowing an amount of Rs. 422.42 cr. out of deduction under section 80IA claimed by the assessee on account of units which have no profit left after adjusting brought forward losses. 49. The Ld. CIT(A) dismissed the appeal of the assessee. 50. It was argued that the issue under consideration is no longer res-integra and has already been decided by the Hon ble Madras High Court in the case of Velayudhswamy Spinning Mills, 340 ITR 477, dated 11.03.2010, wherein it was held that the initial assessment year cannot be the year in which the undertaking com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In fact, taking note of the above said decision of Madras High Court in the case of Velayudhswamy Spinning Mills (supra) and the CBDT Circular No. 1/2016 (supra), a plethora of courts have held that loss in years earlier to the initial assessment year which were already absorbed against the profit of other business cannot be notionally brought forward and set off against profit of eligible business in the Initial AY, as no such mandate is provided in section 80IA(5). CST vs. M/s G. R. T. Jewellers (India) in TCA No. 176 of 2016 (Madras) South India Corporation Ltd. vs. ACIT in ITA Nos. 74 75 of 2008 dated 07.01.2019 (Kerala) Tata Power Co. Ltd. vs. ACIT in ITA No.3452/Mum/2012, dated 29.11.2019 (ITAT Mumbai) Bajaj Electricals Ltd. vs. ACIT in ITA No. 3892/Mum/2011, dated 14.10.2019 (ITAT Mumbai) DCIT vs. Birla Corporation Ltd. in ITA No. 971/Kol./2012, dated 25.08.2017 (ITAT Kolkata) M/s. Zaveri Co. P. Ltd. vs. DCIT in ITA No.1080 1081/Ahd./2018, dated 19.03.2020 (ITAT Ahmadabad) 54. In light of the above, we find that the issue under consideration already stands settled in favor of the appellant by various judicial precedents upto the level of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not furnished any details so as to establish its claim that expenditure was incurred as per business expediency of the appellant. Since, the purpose of expenditure and the allowability thereof has not been disputed by the revenue, we find that the addition has been made owing to non-furnishing of the details only. Hence, in the interest of justice, we direct the AO to examine the details with regard to the expenditure of Rs.8.89 Cr. The assessee shall submit all the required details to the AO to substantive the claim. Appeal of the assessee on this ground is allowed for statistical purpose. Amortization of premium paid on purchase of securities: 60. The assessee has purchased GOI securities from the market having face value of Rs. 455 cr. at Rs. 508.4 cr. i.e., at a premium of Rs. 53.4 cr. It was submitted that these securities were purchased at a premium, as interest rate on these securities was higher than the prevailing market rate. On redemption of such securities, only the face value was to be received. 61. It was argued that such premium was amortized over the maturity period of the securities, being in line with Accounting Standard 13 and opinion of Expert Advis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the above said Circular is reproduced below for ready reference: (vi) In cases where an assessee bank purchases securities under capital account at a price inclusive of any accrued interest, the entire purchase consideration is in the nature of capital outlay. Therefore, any interest element included in the purchase consideration is not allowable a expenditure against income accruing on those securities. (Vijaya Bank v/s CIT 187 UR 541 Supreme Court). (vii) As per RBI guidelines dated 16th October 2000, the investment portfolio of the banks is required to be classified under three categories viz. Held to Maturity (HTM), Held for Trading (HFT) and Available for Sale (AFS). Investments classified under HTM category need not be marked to market and are carried at acquisition cost unless these are more than the face value, in which case the premium should be amortized over the period remaining to maturity. In the case of HFT and AFS securities forming stock in trade of the bank, the depreciation /appreciation is to be aggregated scrip wise and only net depreciation, if any, is required to be provided for in the accounts. The latest guidelines of the RBI may be referred to f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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