TMI Blog2011 (9) TMI 1093X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed a deduction on account of a sum of ₹ 3,61,59,800/- towards community development and environment monitoring expenses. The assessee explained before the Assessing Officer the purpose for which these expenses were incurred as follows: Environment Monitoring Expenses: 1) Pollution Control and Monitoring Expenses. 2) Horticulture and Poly houses for exotic variety of Flowers expenses. 3) Use of drip irrigation and water harvesting ponds 4) Maintenance of Lawns gardens in and around the generation plants. Community Development Expenses: 1) Maintenance of Public gardens with displaying of placards of company name to create a positive image. 2) Providing scholarships to deserving students. 3) Providing educational assistance and supply of books, educational materials etc. 4) Organising Medical camps and providing medical aid. 5) Providing sponsorships, 3. The assessee relied on the decision of the Hon ble Rajasthan High Court in the case of CIT vs. Kamal Company., 203 ITR 1038(Raj) and the decision of the Hon ble Gujarat High Court in the case of CIT vs. Navasari Cotton Silk Mill Ltd., 135 ITR 546. In the first case expenditure incur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13 to 16 590 436/M/04 2. A.Y. 2000-01 20 14 20 -DO- 3. A.Y. 2001-02 3 6 7 39 TO 40 218/M/05 4. A.Y. 2002-03 7 7 78 3505 3370/M/06 5. A.Y.2003-04 7 7 78 3506 3371/M/06 6. A.Y. 2004-05 4 12 13 84 3951/M/07 7. A.Y.2005-06 3 8 9 89 4164/M/07 8. A.Y 2006-07 2 to 4 2 to 6 93-95 4631 4838/M/09 Respectfully following the decision of the Tribunal on identical issue we uphold the order of CIT(A) and dismiss ground No.1 raised by the revenue. 7. Ground No.2 raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On appeal by the assessee the CIT(A) directed the Assessing Officer to allow the claim of the assessee for deduction following the decision of the Tribunal in assessee s own case in the earlier assessment years. 11. Aggrieved by the order of the CIT(A) the revenue has raised the aforesaid ground of appeal before the Tribunal. 12. We have heard the rival submissions. It is not in dispute before us that identical issue was considered and decided by the Tribunal in assessee s own case in the earlier assessment years. The orders of the Tribunal for the following assessment years were field before us. S.No. Particulars Tribunal decisions Page No. of paper book No. II ITA No. Para No. 1. A.Y 1999-00 590 436/M/04 2 3 2 TO 11 2. A.Y. 2000-01 590 436/M/04 4 5 11 3. A.Y. 2001-02 218/M/05 1 TO 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eligible activities and deducting therefrom the expenses incurred for earning the said income. The profit of the undertaking has to be computed as if such undertaking was the only source of income of the company during the previous year and no head office expenses has been allocated to the undertaking. The benefit in question u/s. 80IA is available on the profits and gains derived from such business . Hence it would be incorrect to reduce the profit and gains derived from such business, by any portion of the head office expenses allocated on any basis to the various business. The assessee also drew attention to the decision of Tribunal in their own case for A.Y 2003-04 in which the allocation of head office expenditure for the purpose of computation of deduction u/s. 80IA was considered and the allocation of expenses was not permitted. 15. The A.O however did not agree with the stand of the Assessee. He held that the deduction u/s. 80 IA in respect of Goa, Windmill Unit and Samalkot unit, where it is in the business of generation and distribution, has been claimed on the profit computed in these units as per books. However, in the profit and loss accounts of these units head ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that identical issue has come up for consideration before the Tribunal in assessee s own case in the earlier assessment years. The details of which are as follows: S.No. Particulars Tribunal decisions ITA No. Para No. Page No. of paperbook No.II 1. A.Y.2002-03 3505 3370/M/06 13 78 to 79 2 A.Y. 2003-04 3506 3371/M/06 13 78 to 79 3. A.Y. 2004-05 3951/M/07 3 4 81 to 82 4. A.Y 2005-06 4164/M/07 3 4 87 to 88 5. A.Y 06-07 4631 4838/M/09 13 to 19 97-101 18. We may in this regard point out that the issue came up for consideration assessee s case in ITA No.399/M/04 for A.Y. 2000-01 and this Tribunal held on identical issue as follows. 4. After considering the rival submission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for ten consecutive assessment years. (2) to (3) . (4) (i) To (iii) (iv) an undertaking which,- (a) 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 the 31st day of March,2011; 21. The claim for deduction u/s 80IA was made in AY 2000-01 and subsequent years. We have already seen that the Assessee was distributing power prior to its commencing the business of generation and distribution of power. The activity of distribution of electricity was not entitled to the benefit of deduction u/s.80-IA(4) of the Act. In its business of distribution of electricity prior to its activity of generation and distribution of electricity, the Assessee was purchasing electricity from Tata Power Companies (TPC) and distributing it. After the commencement of generation of electricity at Dahanu, the company continued to purchase electricity from TPC as the generation of electricity at Dahanu was only 500 MW whereas the supply in Mumbai region was more than 1200 MW. The Assessee did not sell the electricity that it generated at Da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit. Explanation.-For the purposes of this sub-section, market value , in relation to any goods or services, means the price that such goods or services would ordinarily fetch in the open market. 22. In working out the price paid to TPC by the company, the Assessing Officer included the standby charges paid to them in respect of assured uninterrupted supply of electricity. Stand by charges are nothing but an extra payment which the Assessee makes to TPC over and above the price paid for the units of electricity supplied by TPC to ensure that the supply of power by TPC is uninterrupted. However, there was a dispute between the company and TPC regarding the amount payable as standby charges. The Assessing Officer included undisputed standby charges in working out the price. The company was claiming that the disputed portion of standby charges should also be included in working out the market price. The above issue of average consumer selling price vs TPC price, being the market value as provided in section 80IA(8), was decided by CIT (A). The CIT (A) had upheld the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered while fixing tariffs for the subsequent year. This exercise of adjusting gap between the reasonable return and clear profits is an on going process and the same is either allowed to be recovered from the consumers out of fixation of tariff for subsequent year or the tariff for the subsequent year is adjusted to take care of the excess gap. 24. MERC in its order dated 3/10/2006 while fixing tariffs for F.Y. 05-06 (relevant to AY 06-07) had determined the profits of generation and distribution business in Mumbai suburbs. According to the AO, if reasonable rate of return is determined on pro rata basis of self generated power and purchased power, the profits of Dahanu 1 and Dahanu 2 units would be less than what is shown by the assessee as profits for claiming deduction u/s. 80 IA. He was of the view that the earlier orders of Tribunal adopting the price paid by Assessee while purchasing power from TPC for determining profits of the business of generating power in Dahanu 1 and Dhanau 2 units for allowing deduction u/s.80-IA of the Act, was no longer relevant because of the determination of tariff by MERC. He was of the view that the claim of the Assessee for deduction u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eneration activity and distribution activity distribution of self generated as well as purchased power for the purpose of computing deduction u/s. 80IA. It was submitted that it was at this juncture, the bifurcation of total profits into various segments have to be carried out. The assessee bifurcated its Profit and Loss Account into various divisions, as under: (a) Distribution in Mumbai Region. (b) Generation at Dahanu Plant (c) Wind Mill Division. (d) Elastimold Division (e) EPC Division. Profit in MERC order are therefore required to be compared with the combined figures of distribution and generation divisions. Whereas for deduction u/s. 80 IA only profit of generation activity is to be considered. c) MERC while fixing up the tariff redraws upon the profitability based on allowance or disallowance of certain items. It was pointed that from page 57 of the MERC order for F.Y 2005-06, the Clear Profit worked out by the assessee was ₹ 158 crores in the petition whereas MERC has worked out the same at ₹ 266 crores. MERC compared the revised Clear Profit worked out by them with the Reasonable Return and worked out the gap at ₹ 56 crores. Thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hetical figure of Capital Base which is also adjusted on a year to year basis and having no reference to the actuals in the books of accounts is only an exercise for fixation of tariff. However, the actual profit earned which are liable to tax have to be as per the books of accounts and based on the same profits as computed in the books of accounts the deduction u/s. 80 IA has to be computed. It was further pointed out that if the profits as per books of accounts are less than the Reasonable Return the deduction u/s. 80 IA cannot be granted on the amount of Reasonable Return which is a higher figure. Thus the amount of Reasonable Return is not the criteria for allowance of deduction u/s. 80 IA. The profits which are included in total income irrespective of whether the same are more or less than the Reasonable Return are eligible for deduction under section 80 IA. 26. The Assessing Officer however did not agree with the contention on behalf of the assessee. The CIT(A) however reversed the order of the A.O. 27. Before us it is not in dispute that the ITAT in A.Y 2006-07 on the same issue in ITA No.4838/Mum/09 had held as follows: 38. We have considered the rival submissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer included the standby charges paid to them in respect of assured uninterrupted supply of electricity. Stand by charges are nothing but an extra payment which the Assessee makes to TPC over and above the price paid for the units of electricity supplied by TPC to ensure that the supply of power by TPC is uninterrupted. However, there was a dispute between the company and TPC regarding the amount payable as standby charges. The Assessing Officer included undisputed standby charges in working out the price. The company was claiming that the disputed portion of standby charges should also be included in working out the market price. The above issue of average consumer selling price vs TPC price, being the market value as provided in section 80IA(8), was decided by CIT (A). The CIT (A) had upheld the Assessing Officer s order and rejected the Assessee s contention to consider average consumer selling price. Thus the TPC price was considered as market price for the purpose of section 80IA(8). However, the issue regarding disputed standby charges was appealed to the Tribunal. When the appeal was pending, the matter was resolved between TPC and the company and a compromise was reached ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfer should be the market value. The market value according to the Assessee is best reflected in the price that the Assessee pays to TPC when it purchases power for use in its distribution business. The price determined by the MERC is not reflective of the correct market price for the following reasons: a) That the amount of Reasonable Return determined by the order of MERC is after deducting the income tax and statutory appropriations being contingency and special appropriation. The profits which are eligible for deduction u/s. 80 IA are the profits before tax and before the statutory appropriations (which are not allowed to be reduced while computing profits eligible for deduction u/s. 80IA). b) The profits determined by MERC are not for generation alone but generation and distribution as well purchase and distribution. The combined profits have to be bifurcated between generation activity and distribution activity distribution of self generated as well as purchased power for the purpose of computing deduction u/s. 80IA. c) The profits of the assessee whether as per books of accounts or as allowed to be computed for the purpose of tariff fixation will match with the Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be relevant while computing income under the Act. Reasonable Return determined by the order of MERC is after deducting the income tax and statutory appropriations being contingency and special appropriation. That is not the basis on which income is computed under the Act. Under Sec.80-IA(8) the following conditions are required to be satisfied: a) Any goods or services held for the purposes of the eligible business are transferred to any other business carried on by the assessee. In this case the eligible business is generation of power and power generated is transferred to the business of distribution of power which is also carried on by the Assessee. b) The consideration, if any, for such transfer as recorded in the accounts of the eligible business does not correspond to the market value of such goods or services as on the date of the transfer. c) It is only when condition (b) is satisfied then the Revenue gets a right to determine profits and gains of such eligible business at the market value of such goods or services as on the date of its transfer. Till A.Y. 05-06, the Revenue considered the rates at which power was purchased by the Assessee from TPC as the marke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome filed for the year. The claim for deduction u/s. 80IA was more than the profit under the head profits and gains of business or profession but was less than the gross total income. The Assessee had claimed that the deduction under section 80IA should be granted to the extent of gross total income and should not be restricted to the income under the head profits and gains from business /profession. 30. The AO called upon the Assessee to explain as to why the deduction u/s.80IA should not be restricted to the income from business as per provisions of section 8OAB. 31. The Assessee explained before the AO that similar issue had come up in the appeal for earlier years in appellant s own case A.Y. 2001-02 and the Tribunal had allowed the appellant s appeal upholding the claim of the Assessee that deduction under chapter VIA including deduction u/s 80IA should be allowed against gross total income and not restricted to business income only. In other words, the Tribunal held that deduction u/s. 80IA is to be allowed to the extent of gross total income and not restricted to income under the head profits and gains of business or profession . The above order of Tribunal was foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business of a hotel to which this section applied, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to 20% thereof. Sec. 80I(1) is similar in substance. These provisions, read together, indicate that though the quantification of the deduction under the various sections of chapter VI-A is to be made with regard to the profits of the legible business, all such deductions are to be aggregated and granted against the gross total income, in order to arrive at the gross total income at ₹ 11,84,54,517/. He has also rightly quantified the deductions available to the assessee u/s 80HH, 90I and 80HHC. However, he has taken the view that the aggregate of the deductions should be restricted to the business income of ₹ 11,67,51,200/-. There is no warrant for this view, regard being had to the provisions of the Act referred above. The combined effect of the aforesaid provisions is that the aggregate of the deductions under chapter VIA has to be allowed against the figure of gross total income. The language of sec. 80A(1) is very clear an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase is applicable to the present A.Y. also because the AO while coming to the conclusion that deduction under Chapter VIA has to be restricted to the income under the head Income from Business or Profession had followed the earlier order of the AO, which has been found by the Tribunal to be not correct. The fact that an appeal has been filed against the order of the Tribunal before the Hon ble High Court is no ground for rejecting the claim of the Assessee. In the event of a contrary decision of the Hon ble High Court, the revenue has other remedies open in law. We therefore, respectfully following the decision of the Tribunal referred to above, uphold the order of the CIT(A) and dismiss Gr.No.5 raised by the Revenue. 36. Ground No.6 raised by the assessee reads as follows: 6. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in holding that the provisions of section 115JB are not applicable to the assessee, since the accounts prepared by the assessee are in accordance with the provisions of Electricity Supply Act and not in accordance with the provisions of Part II III of Schedule VI of the Companies Act. 37. Ground No.6 is against th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision of the Special Bench of the ITAT in the case of Daga Capital Management Pvt.Ltd. 117 ITD 169 (mum) (SB) and has laid down the following proposition: i) Dividend income and income from mutual funds falling within the ambit of Section 10(33) of the Income Tax Act 1961, as was applicable for Assessment Year 2002-03 is not includible in computing the total income of the assessee. Consequently, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to such income which does not form part of the total income under the Act, by virtue of the provisions of Section 14A(1); ii) The payment by a domestic company under Section 115O(1) of additional income tax on profits declared, distributed or paid is a charge on a component of the profits of the company. The company is chargeable to tax on its profits as a distinct taxable entity and it pays tax in discharge of its own liability and not on behalf of or as an agent for its shareholders. In the hands of the shareholder as the recipient of dividend, income by way of dividend does not form part of the total income by virtue of the provisions of Section 10(33). Income from mutual funds stands o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ows: The ld learned CIT(A) erred in confirming the action of the Assessing Officer in disallowing the bad debts of ₹ 7,29,42,769/- being loan written off. 45. Through this ground of appeal, the Assessee has agitated against the disallowance of ₹ 7,29,42,769/-, which was claimed by the Assessee as loan written off. During the year, the Assessee had debited an amount of ₹ 10,71,04,553 as bad debts. Out of the above sum, ₹ 7,29,42,769/- represented loan given to Reliance Thermal Energy Ltd. which was written off as irrecoverable. This loan was received by Reliance Venture Ltd. as a part of scheme of arrangement under S.391 to 394 of the Companies Act, 1956 and with the approval order of the Hon ble High Court of Mumbai dated 09.12.2005 of the coal based energy undertaking of Reliance Industries Ltd. w.e.f. 01.09.2005. The loan was accounted in the books of the appellant company on account of amalgamation of Reliance Energy Ventures Ltd. with the company. The learned Assessing Officer disallowed the loan written off of ₹ 7,29,42, 769 for the reason that the loan was not advanced in the ordinary course of business and since the Assessee itself has o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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