TMI Blog2017 (8) TMI 1382X X X X Extracts X X X X X X X X Extracts X X X X ..... paid by the appellant on 21.09.2010 within the same financial year 2010-11. Addition rightly deleted Addition of sum debited by the assessee in IEC plan - Held that:- The expenditure incurred on mass communication and public awareness for the use of the renewable energy sources and energy conservation has thus been incurred for the purposes of the business of the assessee company and is allowable under the provisions of section 37(1) of the Act. In the result, we affirm the order of the ld CIT(A) who has rightly deleted the disallowance made by the AO towards expenditure under the IEC plan. Addition of expenses on Rural Village Electrification (RVE) - Held that:- The appellant is the state nodal agency of MNRE for popularizing the usage of renewable energy sources and as part of its stated business objectives, has incurred the subject expenditure. The expenditure has thus a direct linkage with the activities of the assessee company and has been incurred for the purposes of the business of the assessee company and is allowable under the provisions of section 37(1). From perusal of assessment order, it is also noted that the assessee company has received ₹ 33,50,000 as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal level but definitely at the strategic and management level. The salary expenses of ₹ 45,77,500/- is thus required to be allocated to the eligible units in the ratio of their turnover to the total turnover of the assessee company. The AO is accordingly directed to allocate common expenditure of ₹ 45,77,500 to the power units out of total expenditure of ₹ 3,02,06,576/- in the ratio of their turnover to the total turnover while working out the eligible profits under section 80IA of the Act. Expenditure which falls under the head administrative/establishment and other relates expenses - Held that:- As we have directed earlier to allocate the salary expenses of the Head office employees, the common head office expenses are also directed to be allocated in the ratio of turnover of the power plants to the total turnover of the assessee company. In our view, this is the most rational and reasonable basis for allocation of common expenses in absence of anything more specific which has been brought on record. In any case, the pool of common expenses has been brought down to a large extent as the expenses which have a direct nexus with the promotional activities have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 41,34,609. The AO is accordingly directed to allocate these common head office expenses to the power generating units in the ratio of their turnover to the total turnover of the assessee company. The grounds of appeal are disposed off with above directions. Assessee company is held eligible for deduction u/s 80IA(4) in respect of receipts on account of shortfall/low generation. AO be directed to exclude the sale/stock of carbon financial instruments in computing the total income of the assessee being a capital receipt. Allocate common expenses to the power generating units in the ratio of their turnover to the total turnover of the assessee company. Disallowance of publicity and advertisement expenses on account of topographic survey, recruitments, technical investigation, printing of energy policy, inviting tenders, etc. - Held that:- One of the business objects of the assessee company is to promote and facilitate energy conservation and popularize the usage of renewable energy sources & encourage companies to set up renewable energy plants. As part of its activities, the assessee company has incurred the publicity and advertisement expenditure during the year. CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstances of the case, the ld. CIT(A) was justified in deleting addition of ₹ 29,17,461/- debited by the assessee in IEC Plan. 4. Whether on the facts and circumstances of the case, the ld. CIT(A) was justified in deleting addition of ₹ 34,29,607/- made by the AO by disallowing expenses on Rural village Electrification (RVE) 2010-11. 5. Whether on the facts and circumstances of the case, the ld. CIT(A) was justified in deleting the addition of ₹ 4,12,500/- made by the AO by disallowing expenses on Biomass Fuel Supply Study expenses. 6. Whether on the facts and circumstances of the case, the ld. CIT(A) was justified in deleting the addition of ₹ 92,00,000/- made by the AO on account of extension fee towards Project No. 25/2004. 7. Whether on the facts and circumstances of the case, the ld. CIT(A) was justified in deleting the addition of ₹ 71,00,000/- made by the AO on account of extension fee/ cancellation fee in the case of M/s RRB Energy and M/s Enercon (India) Ltd. 8. Whether on the facts and circumstances of the case, the ld. CIT(A) was justified in partly allowing deduction u/s 80IA(4)(iv) without appreciating the facts on the ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 410 (Raj.) held that where assessee gave contribution to the employee s welfare fund, the same is allowable as business expenditure. The case relied by AO of CIT V. Jodhpur Co-operative Marketing Society 275 ITR 372 (Raj.) is distinguishable as in this case the amount was set apart for the shareholders of the society whereas in the present case amount was provided for the benefit of the employees. In view of this the contribution made to State Renewal Fund is allowable u/s 37(1). 5. In D.B Appeal No. 4/2006 dated 29.04.2016, the Hon ble Rajasthan High Court in case of Principal CIT vs Rajasthan State Seed Corporation Ltd has held as under: 9. Insofar as the expenditure incurred on State Renewal fund is concerned, said expenditure also goes to show that the renewal fund was set up by the State Government and was created with the object of providing a safety net for the workers likely to be effected by restricting in the State Public Enterprise and that a finding of fact has been recorded that the contribution made to the state renewal fund is solely for the purposes of the welfare and benefit of the employees. In our view, it is for the assessee to decide whether any expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of income u/s 139(1). This fact is therefore, not in dispute. In view of the judgments of the Rajasthan High Court in the case Jaipur Vidhyut Vithran Nigam Ltd, 265 CTR 62 (Raj.), CIT Vs. State Bank of Bikaner Jaipur (2014) 99 DTR 131 (Raj.), and other case laws on this issue, the claim of the appellant is allowable. Accordingly, this disallowance made by the Assessing officer, is directed to be deleted. This ground is allowed. 9. In the present case, admittedly, employees s contribution to PF amounting to ₹ 124,442 for the month of August 2010 has been paid by the appellant on 21.09.2010 within the same financial year 2010-11. The issue is no more res integra in light of various judicial pronouncements of the Hon ble Rajasthan High Court referred supra. We accordingly affirm the order of the ld CIT(A) who has rightly deleted the disallowance made by the AO towards employees contribution to PF. In the result, the ground no. 2 of the revenue s appeal is dismissed. 10. In respect of ground no. 3 of the Revenue s appeal, the Revenue has challenged the action of the ld CIT(A) in deleting addition of ₹ 29,17,461/- debited by the assessee in IEC plan. 11. Briefly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ency for energy conservation. This expenditure under the IEC plan has been incurred for generating public awareness about RES and energy conservation. A part of this expenditure was contributed by MNRE and other agencies while the balance amount has to be contributed by the appellant. It is this sum contributed by the appellant which has been disallowed by the assessing officer without understanding the nature of the business of the appellant and taking into consideration the revenue streams arising from these activities. Therefore, it is held that the above expenditure has been incurred for business purposes. In view of the above discussion, it is held that the disallowance made by the assessing officer of the above expenditure, is without any basis and is directed to be deleted. 15. During the course of hearing, ld. AR submitted that the assessee is engaged in the activity of sale of electricity generated through wind/solar based power projects and activity of providing assistance to various entrepreneurs for setting up power generation plants through non-conventional energy sources. The expenditure thus incurred by the assessee on mass communication and public awareness for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f ₹ 34,29,607/- made by the AO towards expenses on Rural Village Electrification (RVE) 2010-11. The ld AR submitted that the State Government of Rajasthan, as an owner of the assessee, directed it to bear 5% share of the cost of systems and cost on account of replacement of batteries of the home lighting systems under the Rural Village Electrification (RVE) 2010-11 program of Ministry of New and Renewable Energy (MNRE). The object of the program was to provide electrification/lighting through renewable energy sources in unelectrified hamlets of the State of Rajasthan. Accordingly, the assessee, on directions of the State Government of Rajasthan and being a nodal agency of MNRE required to popularize the usage of renewable energy sources incurred expenditure of ₹ 34,29,607/- and claimed the same in the P L a/c. 19. The AO disallowed the expenditure by holding that the expenditure has not been laid out wholly and exclusively in connection with the business of generation of renewable energy or generating electricity from solar/wind-mill. 20. The relevant finding of the ld CIT(A) which are reproduced as under:- 4.3.1 I have perused the facts of the case, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As regards, the expenditure on RVE for F.Y. 2009-10, the Assessing Officer has also stated that this expenditure relates to an earlier previous year and is in the nature of prior period expenses. The ITAT has held in the case of Rajasthan Sahkari Kray Vikray Sangh Ltd. for A.Y 2003-04, 2004- 05 and 2006-07 that prior period expenses are allowable especially in cases of government companies where approval of expenditure has to be taken from higher authorities before debiting the books which may take time leading to prior period expenses being booked in a later year. This system of accounting of expenditure has been regularly followed by the appellant. The genuineness of this expenses has not been doubted by the Assessing Officer. Nothing has been brought on record to show that there has been a distortion of profits or that the books of accounts do not reflect the correct picture. In view of the above discussion, it is held that the disallowances made by the Assessing officer of the above expenditure, is without any basis and is directed to be deleted. Ground No. 3,6 and 7 are allowed. 21. During the course of hearing, the ld. AR submitted that the detailed findings given by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he addition of ₹ 4,12,500/- made by the AO on bio mass fuel supply study expenses. The brief facts of the case are that during the year, Rajasthan Electricity Regulatory Commission (RERC) in the matter of determination of tariff for sale of electricity from Juliflora based bio mass power plants in the State, directed the assessee, being the nodal agency to get the price and price trend of main bio-mass fuel in the State studied/surveyed and to submit a report to it. Accordingly, the assessee issued a work order to Dalkia Energy Service Ltd. for conducting the study. For conducting this study, assessee incurred expenditure of ₹ 4,12,500/- on payment to Dalkia Energy Service Ltd. The AO observed that expenditure is capital in nature as assessee will get enduring benefit spread over years for its business on account of such study being a new line of business. Accordingly, he disallowed the claim of the expenditure. 24. The relevant finding of the ld CIT(A) are reproduced as under:- 4.7 Ground No. 8 relates to disallowance of expenditure on biomass fuel supply study. The assessing Officer has held that this expenditure is capital in nature since biomass fuel supply i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... power plant/wind mill and is thus enduring in nature. It is not the case of the appellant that it will start generating electricity from bio-mass fuel in future and has carried out the study in that respect. The case of the appellant is that it is engaged in the business of promotion and development of non conventional energy and renewable energy sources and bio-mass energy is one such energy, the promotion of which has been taken up as part of the State policy. The expenditure on study of biomass is thus an expenditure undertaken as part of development and promotion of renewable energy sources in the State of Rajasthan. Further, the ld CIT(A) has given a finding that based on this study, appellant has issued work orders to various applicants for which it has received application and processing fees and the said finding remain uncontroverted before us. In the result, we are of the view that expenditure on the subject study is an expenditure incurred in the course of carrying out existing business of the assessee company and not in respect of new line of business, being the main contention of the AO to hold the expenditure as capital and enduring in nature. In the result, we upheld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessing officer has added extension fee towards Project No. 25/2004 amounting to ₹ 92 lacs and extension/cancellation fee for two other projects amounting to ₹ 71 lacs. It has been held by the assessing officer that these incomes have not been accounted for by the assessee in spite of the fact that it follows a mercantile system of accounting. The appellant has explained that projects have to be commissioned within a given time. If the project is not commissioned within a given time, then the applicant is liable to pay extension fee/cancellation fee. Before the levy of this fee, an opportunity is given to the applicant to put forth its case before the Board and SLEC. These bodies may order for levy of extension fee which the entrepreneur may/may not pay as in some cases, the entrepreneur may opt for cancellation of the project. It has been stated by the appellant that only when such fees is realized from the applicant that the assessee shows it as income. The appellant has relied on accounting standard (AS-9) to substantiate its stand that income cannot be recognized unless it is measurable and there is a certainty about its realization. This has also been stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company, such revenues are recognized only when actually received and the same is in consonance with AS-9 as well as well-accepted principle of prudence which has been recognized by the Courts from time to time as part of accrual system of accounting. On perusal of the auditor s report, it is noted that in respect of Enercon India Ltd, it has been stated by the auditors that for the delay in commissioning a part of the project, the assessee company should take action to forfeit the security deposit or levy extension fees of ₹ 16 lacs. Similarly, in respect of Vestas RRB Ltd, the auditors have stated that the assessee company should take appropriate action for recovery of extension fee of ₹ 55 lacs. In respect of Enercon project (25/2004), it has been stated by the auditors that the matter relating to extension fee of ₹ 92 lacs is still under consideration of the management and any accounting treatment shall be considered in the year of receipt as per the consistent accounting policy of the assessee company. In light of the same, these are projects where the action lies with the assessee company to initiate the process of levy of extension fees or the matter for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectly to the promotional activities of the appellant (income from promotional and other activity is ₹ 38,84,12,326/-) and ₹ 24,86,561/- is already allocated by the assessee for working out the eligible profit of 80IA units. Accordingly, he held that out of the expenditure of ₹ 4,76,62,463/-, after reducing the amount of ₹ 2,61,09,810/-, the balance amount of ₹ 1,90,68,091/- remains as a common expenditure under the head administrative/establishment and other expenses. He also considered expenditure on payment and provision to employees at ₹ 3,02,06,576/- as the common expenditure. The aggregate of these two amounts totaling to ₹ 4,92,74,667/- was directed to be apportioned between the turnover of power generating units to the total turnover of the assessee to work out the profit eligible for deduction u/s 80IA(4). He did not accept the contention of the assessee that no part of these expenditure can be allocated to the power generating business as the same has been outsourced. In respect of the income of ₹ 22,83,281/- on account of shortfall in the generation, which is excluded by the AO for calculation of eligible profit u/s 80IA(4), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not correct because the appellant has not included depreciation while calculating he gross profit on cash basis. Therefore, the only reasonable basis for apportioning this expenditure is on the basis of turnover, as has been done by the Assessing Officer with the only difference being that this apportionment is to be done on common expenditure amounting to ₹ 4,92,74,667/-. This ground is partly allowed. 35. During the course of hearing, ld. AR submitted that the first issue in this ground is whether the expenditure on payment to employees and administrative/establishment expenses needs to be allocated towards the power generating units and if so what should be the basis for such allocation. The second issue is whether deduction u/s 80IA(4) is available on the income received on account of shortfall in the generation of power. 36. In respect of the first issue, it was submitted that out of the seven power plants established by the assessee, four power plants are in the district of Jaisalmar and one each in the district of Rajsamand, Jodhpur and Jhunjhunu. All the plants have been given to the operators for operation and maintenance as per the agreement executed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... akings. 38. So far as expenditure of ₹ 4,76,62,462/- under the head administrative/establishment and other expenses is concerned, it was submitted that the Ld. CIT(A) rightly excluded the expenditure of ₹ 2,85,94,371/- comprising of ₹ 24,84,561/- which the assessee itself considered in working out the profit of power units and ₹ 2,61,09,810/- which is directly related to the promotional and other activities for which income of ₹ 38,84,12,326/- has been declared by the assessee. From the balance expenditure of ₹ 1,90,68,091/-, it can be noted that expenditure of ₹ 1 crores is on account of contribution given by the assessee for construction of Rajasthan Bhawan at Mumbai. This amount has already been disallowed by the AO in computing the total income and the same is confirmed by the CIT(A). Therefore, this amount cannot be again allocated otherwise it would amount to double disallowance. Further, this contribution has no relationship with the profit of the power generating undertakings and therefore also it cannot be allocated for working out the profits of power generating undertakings. After considering the same, the remaining expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he plant supplied by him would generate minimum guaranteed units of electricity. In case generation is less than fixed guaranteed unit, the supplier has fulfilled the shortfall by making payment of fixed amount per unit which is generated less. Hence, amount so received is nothing but the additional amount realized by the assessee in respect of the electricity generated by its power plant. The amount so received is therefore the profit or gain derived by the power undertaking from the business of generation and distribution of power. In this connection, reliance is placed on the following cases:- CIT Vs. Prakash Oils Ltd. 58 DTR 279 (MP): The Hon ble Court held as under:- 6. As regards the Sauda settlement income, it was held by the CIT(A) that during the course of the business the assessee has to sometimes pay/receive liquidation damages for not honouring a contract for sale of oil and deoiled cake. It held that the income is directly derived from the industrial undertaking, the same is eligible for deduction under s. 80-IA. Thus, the finding of the CIT(A) was that the income in both the counts is a business income. The said order of CIT(A) has been affirmed by the Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... immediate source of the subsidies is the Government would make no difference, as it cannot be disputed that the said subsidies are only in order to reimburse, wholly or partially, costs actually incurred by the assessee in the manufacturing and selling of its products. The profits and gains referred to in ss. 80-IB and 80- IC have reference to net profit. And net profit can only be calculated by deducting from the sale price of an article all elements of cost which go into manufacturing or selling it. Therefore, the amount received by the assessee as subsidies qualify for deduction u/s 80-IB 80-IC. In view of this decision of Supreme Court, the amount received from the supplier of plant against shortfall in the generation of electricity is only to reimburse the cost relating to the generation and sale of electricity and therefore it has a direct nexus with the profit and gains of the power generating undertaking eligible for deduction u/s 80IA. In view of above, the AO be directed to allow the claim of deduction u/s 80IA on the amount of shortfall in the generation of electricity received by assessee. 42. We have heard the rival contentions and perused the material available ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure under consideration falls under two broad baskets. The first expenditure relates to payment to and provision for employees amounting to ₹ 3,02,06,576. In this regard, the ld AR has submitted that all the seven power plants have been given to the third party operators for operation and maintenance and the assessee is liable to pay specified amounts as per the agreement executed with them. Therefore, assessee is not required to employ any person for day-to- day operation and maintenance of these plants. It was further submitted that as far as the expenditure of ₹ 3,02,06,576/- on account of payment and provision to employees is concerned, it was submitted that from the employee-wise details of the expenditure under this head, it can be noted that salary to the employees who are exclusively employed towards promotional activities is of ₹ 2,56,29,076/-. The remaining salary of ₹ 45,77,500/- is both towards the promotional activities and the power projects which can at the most be allocated towards the power plants in the ratio of the turnover of the power plants to the total turnover of the assessee which comes to ₹ 18,13,289/-. It is noted from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s submitted that the same can be allocated in the ratio of turnover of the power plants to the total turnover of the assessee. We agree with the assessee s contention to restrict the pool of common expenses to ₹ 90,68,091. Given the fact that these are common head office expenses relating to the activities in the nature of management and supervision at the Head office, they have a direct nexus with the activities of the seven plants at the strategic and management level. As we have directed earlier to allocate the salary expenses of the Head office employees, the common head office expenses are also directed to be allocated in the ratio of turnover of the power plants to the total turnover of the assessee company. In our view, this is the most rational and reasonable basis for allocation of common expenses in absence of anything more specific which has been brought on record. In any case, the pool of common expenses has been brought down to a large extent as the expenses which have a direct nexus with the promotional activities have already been excluded and the assessee has also accepted this allocation methodology. The AO is accordingly directed to allocate ₹ 90,68,09 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... energy, the expenditure incurred is not with a view to bring profit or monetary advantage to the assessee and it is a clear cut case of application of income. 51. The ld CIT(A) confirmed the disallowance. The relevant findings of the ld CIT(A) are produced as under:- 5.3 I have perused the facts of the case, the assessment order and the submission of the appellant. The Assessing officer has disallowed contribution of Rs. ₹ 1,00,00,000/- for Rajasthan Bhawan to be built in Mumbai on the ground that this expenditure is not related to the business of the assessee. The appellant has stated that this guest house has been constructed for the benefit of the employees of Rajasthan Government as well as for the employees of companies of the State Government of Rajasthan, as and when they visit Mumbai. The appellant has relied on the order ITAT, Jaipur in the case of Rajasthan State Industrial Development and Investment Corporation Ltd. (ITA No.324/JP/2006) and the order of ITAT, Jaipur in the case of Rajasthan State Road Development and Construction Corporation Ltd. (ITA No. 129/JP/2008). In these cases, expenditure had been incurred for a guest house in New Delhi for which a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess activities. Therefore, in the business interest, assessee has contributed such amount and a request is also made to provide the accommodation facility to its officers in the Rajasthan Bhawan. The Ld. CIT(A) has incorrectly held that the decision of Hon ble ITAT in case of RIICO Ltd. and RSRDC Ltd. is not applicable as in those cases certain rooms were earmarked for the use of its employees for the guest house in New Delhi ignoring that in those cases also contribution was made as per the direction of the Government and it make no difference whether the rooms are earmarked or not. In this decision, a finding is given that the same was required only for running the business and working of the assessee for better interaction with the Government of India and various financial organizations. Copy of the decision in case of ACIT Vs. RIICO in ITA No. 324/JP/2006 order dated 21.08.2007 is at PB 205-213. Hence, the expenditure so incurred is allowable expenditure u/s 37(1). In view of above, the disallowance made by the AO and confirmed by the CIT(A) be directed to be deleted. 54. The ld DR has vehemently argued the matter and relied upon the order of the lower authorities. 55. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se Jaipur Vidhyut Vithran Nigam Ltd, 265 CTR 62 (Raj.), CIT Vs. Stae bank of Bihaner Jaipur (2014) 99 DTR 131 (Raj.) and ITAT, Jaipur, in the case of the assessee, the claim of the appellant is allowable. Accordingly, the disallowance made by the Assessing Officer is directed to be deleted. This ground is allowed. 6.3 I have perused the facts of the case, penalty order and the submissions of the appellant. In Assessment Year 2011-12, the CIT(A)-2, Jaipur (Appeal No. 334/13-14) has also decided the matter in favour of the assessee. The CIT(A) has allowed the claim of the assessee by holding as under: The facts of this issue are similar to the facts in the case of M/s Rajasthan State Seeds Corporation Ltd., in A.Y. 2006-07. In this case, the ITAT, Jaipur (in ITA No. 233/JP/2009) has decided the matter in favour of the assessee by holding as under:- As per the memorandum of state renewal fund set up by the state government, it is created with the object of providing a safety net for the workers likely to be affected by restructuring in the State Public Enterprises. We are thus of the view that contribution made to the said fund is solely for the purpose of the welfare a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in law and its own presumptions and ignoring the facts not fully allowing the claim of deduction of Administrative Establishment other Expenses and payment Provision for employees U/s 80IA(4) of Income Tax Act, 1961. 58. In respect of ground No. 1, the assessee has challenged the action of the ld CIT(A) in not allowing the claim of deduction of ₹ 5,79,589/- of FDR interest u/s 80-IA of the Act by holding that earning of interest is not directly related to the business for which exemption is available and in ground no. 2, in not fully allowing the claim of deduction of administrative, establishment and other expenses and payment provision for employees u/s 80-IA of the Act. 59. Brief facts of the case are that the assessee claimed deduction u/s 80-IA(4)(iv) in respect of its power generating undertakings at ₹ 2,85,07,321/-. In the original assessment proceedings, the claim was allowed. However, the case was reopened u/s 147 on the ground that assessee has claimed deduction u/s 80-IA on FDR interest and has not apportioned various head office and other day-to-day management supervision expenses amongst the units claiming u/s 80-IA of the Act. In reasses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cated to the power generating business as the same has been outsourced. The relevant finding of the ld. CIT(A) are reproduced as under:- 2.3 I have perused the facts of the case, the assessment order and the submission of the appellant. The Company has taken a loan from the financial institution (PFC) and as per terms and conditions of the agreement executed between them, company was required to maintain a escrow account, wherein receipt of power sales will be credited and out of that credit, company will pay quarterly installment to the institution as considered the first charges on that credit of the financial institution. The company has made the fixed deposit on short terms basis till the installment are due and earned the interest on such surplus funds during the year and claimed such interest income for deduction u/s 10A form the eligible business. During the year under consideration this amount has been claimed that ₹ 5,79,589/-. In support of allowability of this interest the assessee has placed reliance on the following decisions, as appearing, in the assessee s submission at para 5 above. In the case of CIT vs Advance Detergents 2011-339 ITR 81 (Del) which th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d interest on such amount for which deduction u/s 80-IA is claimed. This fact is admitted by CIT(A) at Para 2.3 of the order but still she wrongly held that it is not derived exclusively from the eligible business income. In doing so, it was ignored that the interest of ₹ 5,79,589/- is earned by the assessee only on the funds received from sale of power of windmill which temporarily remained unutilized and such interest receipt has reduced the interest burden paid on loan taken from PFC. Thus, such interest is derived exclusively from the eligible business. It is pertinent to note that assessee has also earned interest on FDR of ₹ 2,53,99,995/- but the same is not considered by the assessee himself as derived from the eligible business for claiming deduction u/s 80-IA. Reliance in this connection is placed on the following cases:- Assessee received lease deposits from the lessees which are required to be returned to them upon vacating the premises. Since the possibility of vacating the premises in the middle is always there, as a prudent business policy, the assessee was constrained to keep part of the lease deposits as fixed deposits maintained with banks. Since the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of Jaisalmar and one each in the district of Rajsamand, Jodhpur and Jhunjhunu. All the plants have been given to the operators for operation and maintenance as per the agreement executed by them. As per the agreement, assessee is liable to pay specified amounts as per the generation of power for operating and maintaining expenses of the plant. Therefore, assessee is not required to employ any person for day to day operation of plant or to incur any other expenditure in relation to it. All the direct expenses relating to these power plants i.e. expenditure on operation maintenance, repair maintenance, interest financial expenses, depreciation, insurance premium and lease rent aggregating to ₹ 21,56,56,752/- has been considered by the assessee for working out the eligible profit of these power generating units. Therefore, no part of the expenditure on payment to employees and administrative/establishment expenses needs to be allocated against the power generating units. 63. It was further submitted that so far as the expenditure of ₹ 1,76,54,963/- on account of payment and provision to employees are concerned, such expenditure is on account of other promotional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and therefore even if an allocation is to be made, it should be restricted to ₹ 2,06,730/- only. In view of above, the AO be directed to rework out the claim of deduction u/s 80-IA in light of the submission given above. 65. The ld DR is heard who has relied upon the order of the lower authorities. 66. We have heard the rival contentions and perused the material available on record. The Ld A.R contended before us that assessee was required to maintain a escrow account wherein receipt of power sales is to be credited and out of that credit, it is to pay quarterly installment of repayment of loan to PFC. PFC has first charge on the amount lying in this account. The assessee made fixed deposit on short term basis till the installments are due and earned interest on such amount for which deduction u/s 80-IA is claimed. However, the moot point is that the deduction u/s 80-IA is allowed in respect of Profits and gains derived from the eligible undertaking. As explained by the Hon'ble Supreme Court in the case of CIT v. Sterling foods reported in 237 ITR 579, for application of the words derived from , there must be a direct nexus between the profits and gains and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 80IA(4) of Income Tax Act, 1961. Revenue s appeal ( ITA No. 87/JP/16) In its cross-appeal for AY 2009-10, the Revenue has taken following sole ground of appeal: 1. Whether on the facts and in the circumstances of the case and in law, the CIT(A) has erred in restricting the disallowance u/s 80IA(4)(i) from ₹ 2,50,95,465/- to ₹ 2,31,13,978/-. 67. Brief facts of the case are that the assessee claimed deduction u/s 80-IA(4) in respect of its power generating undertakings at ₹ 17,67,94,304/-. In the original assessment proceedings, claim was allowed. However, the case was reopened u/s 147 on the ground that assessee has claimed deduction u/s 80-IA on income such as shortfall in generation, low generation stock of Carbon Financial Instruments ₹ 2,73,48,665/- and other receipts of ₹ 62,45,945/- by incorrectly treating it as profit derived from eligible business and has not apportioned various head office and other day-to-day management supervision expenses amongst the units claiming u/s 80-IA of the Act. 68. In reassessment proceedings, the AO observed that income on account of shortfall in generation, low generation, stock Carbon Fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f ₹ 50,32,399/- remains as a common expenditure under the head administrative/establishment and other expenses. He also considered expenditure on payment and provision to employees at ₹ 2,97,08,935/- as the common expenditure. The aggregate of these two amounts totalling to ₹ 3,47,41,334/- was directed to be apportioned between the turnover of power generating units to the total turnover of the assessee to work out the profit eligible for deduction u/s 80-IA(4). He did not accept the contention of the assessee that no part of these expenditure can be allocated to the power generating business as the same has been outsourced. 70. The relevant finding of the ld. CIT(A) which are reproduced as under:- 2.3 I have perused the facts of the case, the assessment order and the submissions of the appellant. The assessee has included the other income, on account of shortfall in generation, low generation, amounting to ₹ 2,73,48,665/- which also includes stock of carbon financial instruments of ₹ 40,00,000/- as eligible income for deduction u/s 80IA. The deduction u/s 80IA has been denied by the Assessing Officer holding that these incomes cannot be said to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neration, a penalty @ 110% of the deemed revenue loss to RREC shall be levied on the annual basis. The penalty shall be reckoned and recovered on a block of every 02 years performance from SEL. It was further explained that the low generation and short fall was recognized based on the agency report of centre for wind energy test (C-WET) which certifies and quantifies the low generation. Further, this process takes almost a year and therefore the shortfall received may not relate to the shortfall in generation for that particular year. It is also seen that in the assessment year 2011-12 this amount was claimed for the first time by the assessee and excluded from the income eligible for section 10A by the Assessing Officer. The above discussion clearly shows that this income relates to penalties imposed on the seller by the assessee company if the machines do not deliver as per the promised performance. These cannot be said to be directly derived from the business of power generation and do not have a first degree nexus with the eligible business. In view of the above, deduction under section 80IA is not allowable on this amount. 3.3 I have perused the facts of the case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the income received on account of shortfall in the generation/low generation of power. The second issue is whether deduction u/s 80-IA(4) is available on the income received from sale of Carbon Financial Instruments/ stock of such instruments and third issue is whether the expenditure on payment to employees and administrative/establishment expenses needs to be allocated towards the turnover of the power generating unit to the total turnover of the assessee and if so what should be the basis for such allocation. 72. In Ground No.1, assessee has challenged not allowing deduction of ₹ 2,73,48,665/- on shortfall in generation, low generation and stock carbon financial instruments. This amount comprise of the following amounts:- (a) Shortfall in generation of electricity Rs.1,80,86,484/- (b) Low generation of electricity Rs.43,02,041/- (c) Stock of carbon financial instruments Rs.49,60,140/- Total Rs.2,73,48,665/- The stock of carbon financial instruments of ₹ 49,60,140/- and the sale of carbon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rresponding period from the wind farm. For shortfall in annual generation below 95% of calculated generation, a penalty @ 110% of the deemed revenue loss to RREC shall be levied on the annual basis. The penalty shall be reckoned and recovered on a block of every 2 years performance from SEL. From the above condition, it can be noted that amount received on account of shortfall in generation of electricity/low generation of electricity is nothing but the additional amount realized by the assessee to recover the revenue loss incurred by the assessee. The amount so received is therefore the profit or gain derived by the power undertaking from the business of generation and distribution of power. 75. The AO in holding that the compensation so received is not an income derived from the eligible undertaking has relied on the decision of Supreme Court in case of Liberty India Ltd. However, this case is not applicable on facts as it was a case in which it was held that the duty drawback receipt could not be said to be profits and gains derived from an eligible business. Thus, this case was concerned with an export incentive which is far removed from the reimbursement of an element o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciation would be lower and the income would be more which would be entitled for deduction u/s 80IA. In present case, the amount is given by the supplier of power plants for shortfall in the minimum guaranteed generation per annum and therefore it is directly related to the income derived from the operation of the windmill and therefore on such income, assessee is eligible to claim deduction u/s 80IA. In view of above, the AO be directed to allow the claim of deduction u/s 80IA on the amount of shortfall in the generation/low generation of electricity received by assessee. 78. We have heard the rival submissions and pursued the material available on record. Regarding receipts on account of shortfall/low generation amounting to ₹ 2,23,88,525, we have already dealt with the subject issue in AY 2011-12. Our findings and directions contained therein shall apply mutatis mutandis to this year as well. In the result, the assessee company is held eligible for deduction u/s 80IA(4) in respect of receipts on account of shortfall/low generation. 79. In respect of the second issue, i.e. stock of carbon financial instruments ₹ 49,60,140/- and sale of carbon financial instrument ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and/or selling any product, bi-product or for rendering any service for carrying on the business. In our opinion, carbon credit is entitlement or accretion of capital and hence income earned on sale of these credits is capital receipt. For this proposition, we place reliance on the judgment of the Supreme Court in the case of CIT v. Maheshwari Devi Jute Mills Ltd. (57 ITR 36) wherein held that transfer of surplus loom hours to other mill out of those allotted to the assessee under an agreement for control of production was capital receipt and not income. Being so, the consideration received by the assessee is similar to consideration received by transferring of loom hours. The Supreme Court considered this fact and observed that taxability of payment received for sale of loom hours by the assessee is on account of exploitation of capital asset and it is capital receipt and not an income. Similarly, in the present case the assessee transferred the carbon credits like loom hours to some other concerns for certain consideration. Therefore, the receipt of such consideration cannot be considered as business income and it is a capital receipt. Accordingly, we are of the opinion that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Our above view is also supported by the decision of Supreme Court in the case of Vodafone International Holdings Vs. UOI [supra] wherein Supreme Court has held that treatment of any particular item in different manner in the 1961 Act and DTC serves as an important guide in determining the taxability of said item. Since DTC by virtue of the deeming provisions specifically provides for taxability of carbon credit as business receipt and Income Tax Act does not do so, our view gets duly fortified by the principles stated in the above decision of Supreme Court. Accordingly this ground of the assessee is allowed and the addition made by the AO is deleted. Following this decision, the Hon ble Bench in case of RSMM Ltd. in ITA No.144/JP/14 124/JP/14 for AY 2010-11 dt.12.02.2016 has again held that the receipt from sale of CER is a capital receipt. 82. This issue is also decided in favour of the assessee by the following Tribunal decisions where such receipts were held to be capital receipts: - M/s. Subhash Kabini Powers Vs. CIT ITA no.258/Banglore/2014, AY 2009-10 dated 28.11.2014 affirmed by Hon ble Karnataka High Court (2016) 385 ITR 592 - Ambica Cottons Mills Ltd. Vs. DCI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipts as eligible for deduction under section 80IA of the Act doesn t arise for consideration. The reason for the same is that firstly, the receipt has to form part of gross total income and thereafter, where such receipts are derived from the eligible business, it is held eligible for deduction. Where the receipts are in the nature of capital receipts, it doesn t get included in the gross total income. In the instant case, the assessee company has suo-moto offered these receipts to tax and included it in its gross total income. In such a situation, the assessee cannot plead now that since the Revenue has denied the deduction holding that such receipts are not derived from the eligible business, the assessee should be allowed to contend that such receipts are not includible in gross total income itself being in the nature of capital receipts. Further, no arguments have been canvassed before us to controvert the findings of the lower authorities that these receipts are not derived from the eligible business of power plants. Infact, the decision of the Hon ble Karnataka High Court in case of My Home Power Ltd (supra) holds such receipts as not even business receipt at first place. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plants in the ratio of the turnover of the power plants to the total turnover of the assessee. The CIT(A) is not correct in allocating the entire expenditure on salary on proportionate basis instead of allocating only a part of such salary. If this amount of ₹ 26,22,075/- is allocated in the ratio of the turnover, the expenditure relating to the power generating unit would be ₹ 17,44,509/- (26,22,075*28,33,95,225/42,59,55,582). Before the CIT(A) assessee requested that considering the involvement of the employees towards power project, only 5% of the salary i.e. ₹ 14,85,447/- be considered in working out the deduction u/s 80IA. In these circumstances, considering the specific details, only an amount of ₹ 17,44,509/- can be considered as expenses on salary attributable to the power generating undertakings. 86. So far as expenditure of ₹ 88,61,651/- under the head administrative/establishment and other expenses is concerned, an amount of ₹ 33,02,080/- is already considered by the assessee in working out the income from power project and an amount of ₹ 5,27,172/- exclusively relate to the income from promotional and other activities. This h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovided in the respective Acts. (b) Whether on the facts and in the circumstances of the case and in law, the CIT(A) has erred in holding that employee s contribution to PF ESI are governed by the provision of section 43B and not by section 36(1) (va) r.w.s. 2(24)(x) of I.T.Act. 3. Whether on the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting disallowance of expenses on rural village electrification (RVE) of ₹ 19,02,871/- as made by AO. 4. Whether on the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting disallowance of RVE travelling expenses of ₹ 58,221/- as made by AO. 5. Whether on the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting disallowance of reimbursement of conveyance expenses ( RVE) of ₹ 36,835/- as made by AO. 6. Whether on the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting disallowance of RVE training expenses of ₹ 3,02,380/- as made by AO. 7. Whether on the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting disallowance of contribut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to a public welfare fund which is connected or related with this business is an allowable deduction u/s 37. Again the court in the case of CIT V. Shri Rajasthan Syntex Limited 221 CTR 410 ( Raj.) held that where assessee gave contribution to the employee s welfare fund, the same is allowable as business expenditure. The case relied by AO of CIT V. Jodhpur Co-operative Marketing Society 275 ITR 372 (Raj.) is distinguishable as in this case the amount was set apart for the shareholders of the society whereas in the present case amount was provided for the benefit of the employees. In view of this the contribution made to State Renewal Fund is allowable u/s 37(1). Following the above judgment, the disallowance on account of contribution to State Renewal Fund of ₹ 20,00,000/- made by the Assessing Officer is directed to be deleted. This ground is allowed. 3.3 I have perused the facts of the case, the assessment order and the submissions of the appellant. Admittedly, contribution of PF has been paid by the appellant, in all instances, before the due date of filing the return of income u/s 139(1). This fact is therefore, not in dispute. In view of the judgments of the Raja ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses are allowable especially in cases of government companies where approval of expenditure has to be taken from higher authorities before debiting the books which may take time leading to prior period expenses being booked in a later year. This system of accounting of expenditure has been regularly followed by the appellant. The genuineness of these expenses has not been doubted by the Assessing Officer. Nothing has been brought on record to show that there has been a distortion of profits or that the books of accounts do not reflect the correct picture. In view of the above discussion, it is held that the disallowance made by the Assessing Officer of the above expenditure, is without any basis and is directed to be deleted. Ground No. 3,6, 7 are allowed. Following the above judgment, addition made by the Assessing Officer on ground 3,6,7 8 is directed to be deleted. Ground No. 3,6,7 8 are allowed. 90. In respect of ground of appeal no. 1 to 6, in AY 2011-12, similar grounds of appeal have been raised by the Revenue and after examining the matter in great detail, we have dismissed these grounds of appeal. Our findings and directions contained in ITA No. 159/JP/15 sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n ble jurisdictional High Court in the case of CIT Vs. Raj Shipping and Weaving Mills Ltd. (supra) is squarely applicable in the case of the assessee wherein it has been held that contribution to the fund set up for products which was also the business of the assessee has direct nexus to the advancement of the assessee business. Following the above judgment, the disallowance on account of contribution to energy conservation fund of ₹ 1,00,00,000/- made by the Assessing Officer is directed to be deleted. This ground is allowed. 94. Undisputedly, there is no change in the facts and circumstances of the case or any authority which has been brought to our notice subsequent to the decision of the Coordinate Bench in assessee s own case in AY 2008-09. Respectfully following the decision of the Coordinate Bench referred supra, we affirm the findings of the ld CIT(A) and the ground taken by the Revenue is dismissed. 95. In respect of ground No. 8, the Revenue has challenged the action of ld CIT(A) in deleting disallowance of expenses for Information, Education Communication Plan 2011-12 (IEC) of ₹ 18,50,580/-. The objective of the plan was mass communication and pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gaged in the activity of sale of electricity generated through wind/solar based power projects and activity of providing assistance to various entrepreneurs for setting up power generation plants through non-conventional energy sources. The expenditure thus incurred by the assessee on mass communication and public awareness for the use of renewable energy sources and energy conservation under IEC Plan 2011-12 is wholly and exclusively for the purpose of its business more so when the same is as per its object as stated in the MOA and the assessee is a state nodal agency of MNRE and also a state designated agency required for popularizing the use of renewable energy sources and promote energy conservation measures. The AO has not doubted the genuineness of the expenditure. Hence, the expenditure incurred by the assessee is allowable to it u/s 37(1). 98. It was further submitted that due to the expenditure incurred by the assessee on such awareness programme, various entrepreneurs have come to Rajasthan for development and generation of electricity through non-conventional sources of energy from whom the assessee has received registration/processing fees on the plants installed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant. The Assessing Officer has made the disallowance under this head as he found that the expenditure had been incurred for topographic survey, recruits members, technical investigations, printing of energy policy and inviting tenders etc. and was of the opinion that this seemed in the nature of new business development and exploration of business opportunity. Further, it was also felt that this expenditure had increased exceptionally during the year almost 4 times. In the present proceedings, the AR in his written submissions has stated that the assessee company being the State Nodal Agency of the Ministry of new renewable energy department, Govt. of India, is required to popularize the usage of Renewable Energy Source policy deployment too. Further, in the F.Y. 2010-11, the State Government of Rajasthan, Issued Rajasthan Solar Energy Policy, 2011 Vide Notification No. F.20(6) Energy/2010 dated 19.04.2011 for the promotion the solar energy in Rajasthan, Prior to enactment to this policy, the promotion of solar energy was being done under the policy for promoting generation of electricity through Non-Conventional Energy Sources, 2004. The company was also a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of head office as per the cost audit report. The AO excluded the income of ₹ 10,33,63,630/- (93,32,447+9,40,31,183) for computing deduction u/s 80-IA but did not exclude the indirect expenses of head office of ₹ 7,11,35,342/- and thus worked out the claim of deduction u/s 80-IA at ₹ 1,40,44,178/-. The Ld. CIT(A) confirmed the findings of the AO. 106. The relevant finding of the ld. CIT(A) which are reproduced as under:- 8.3 I have perused the facts of the case, the assessment order and the submissions of the appellant. The assessee has included the other income, on account of shortfall in generation, low generation, amounting to ₹ 93,32,447/- as eligible income for deduction u/s 80IA. The deduction u/s 80IA has been denied by the Assessing Officer holding that these incomes cannot be said to be derived from the power generation income and has placed reliance on the decision of the Apex Court in the case of Liberty India vs. CIT 317 ITR 218 (SC). The assessee in its written submission stated that the shortfall/low generation are being taken under the Group head application/processing/registered fees others . The AR was asked to explain the exa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration. Further, this process takes almost a year and therefore the shortfall received may not relate to the shortfall in generation for the particular year. It is also seen that in the assessment year 2011-12 this amount was claimed for the first time by the assessee and excluded from the income eligible for section 10A by the Assessing Officer. The above discussion clearly shows that this income relates to penalties imposed on the seller by the assessee company if the machines do not deliver as per the promised performance. These cannot be said to be directly derived from the business of power generation and do not have a first degree nexus with the eligible business. In view of the above, deduction under section 80IA is not allowable on this ground. 107. During the course of hearing, the ld. AR submitted that the two issues are involved. One is whether the income of ₹ 93,32,447/- on shortfall/low generation of power is income derived from business or not and the second issue is whether the indirect power related income is to be included for computing the deduction u/s 80-IA(4) or not and if not, the indirect expenses of HO of ₹ 7,11,35,342/- is to be excluded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be levied on the annual basis. The penalty shall be reckoned and recovered on a block of every 2 years performance from SEL. From the above condition, it can be noted that amount received on account of shortfall in generation of electricity/low generation of electricity is nothing but the additional amount realized by the assessee to recover the revenue loss incurred by the assessee. The amount so received is therefore the profit or gain derived by the power undertaking from the business of generation and distribution of power. 110. The AO in holding that the compensation so received is not an income derived from the eligible undertaking has relied on the decision of Supreme Court in case of Liberty India Ltd. However, this case is not applicable on facts as it was a case in which it was held that the duty drawback receipt could not be said to be profits and gains derived from an eligible business. Thus, this case was concerned with an export incentive which is far removed from the reimbursement of an element of cost. As against this, in the subsequent decision of Supreme Court in case of CIT Vs. Meghalaya Steels Ltd. (2016) 383 ITR 217, after distinguishing the judgment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ants for shortfall in the minimum guaranteed generation per annum and therefore it is directly related to the income derived from the operation of the windmill and therefore on such income, assessee is eligible to claim deduction u/s 80IA. In view of above, the AO be directed to allow the claim of deduction u/s 80IA on the amount of shortfall in the generation/low generation of electricity received by assessee. 113. It was further submitted that so far as including indirect income relating to power of ₹ 9,40,31,183/- and reducing the indirect head office expenses of ₹ 7,11,35,342/- in computing deduction u/s 80-IA by the assessee is concerned, the same is done as per the calculation of cost auditors. This calculation is not as per section 80-IA. The cost auditor pulled the indirect income like interest, forfeiture of security deposit, etc. on proportionate basis and also considered the indirect head expenses on proportionate basis which is incorrect. Therefore, the income of ₹ 9,40,31,183/- is to be excluded in computing the deduction u/s 80-IA(4) but at the same time the indirect expenses of HO allocated at ₹ 7,11,35,342/- is also incorrect as part of su ..... X X X X Extracts X X X X X X X X Extracts X X X X
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