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TMI Blog2019 (11) TMI 1111X X X X Extracts X X X X X X X X Extracts X X X X ..... hkula ITA No. 452/Chd/2019 A.Y. 2012-13 06/03/2018 CIT(A)-2, Gurgaon 2. Since the issues involved are common and the appeals were heard together so these are being disposed off by way of this consolidated order for the sake of convenience and brevity. 3. At the first instance we will deal with the appeal in ITA No. 741/Chd/2018 for the Assessment Year 2009-10. Following grounds have been raised in this appeal: 1. Whether on the facts and circumstances of the case the Ld. CIT(A) has erred to allow the appeal of the assessee and to delete the addition of Rs. 21,67,62,978/- made account of fuel related losses by holding the same being legitimately claimed by the assessee . 2. Whether on the facts and circumstances of the case the Ld. CIT(A) has erred to allow the appeal of the assessee and to delete the addition of Rs. 4,97,25,987/-made on account of renovation and modernization of projects which is incorrect as the said expenditure is capital in nature and the benefit is spread over the years and therefore, not allowable expenditure to the assessee. 3. It is prayed that the order of the Ld. CIT(A) be set-aside and that of the A.O. be restored. 4. The appellant craves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to the personal attendance of the undersigned and submissions made earlier and explanation given regarding fuel related coal losses by the concerned representative of the assessee, we bring out as under for your kind consideration and taking necessary action in the matter: FTPS is getting coal from subsidiaries coal companies of Coal India Limited. The assesse is getting supply of coal from far off places. The coal generally travels the distance of 1100 KM to 1350KM before it is unloaded at the place of the assessee. The difference in weight of coal at loading point viz-a viz. unloading point is called transit losses. The main reason of transit losses are as under: 1. Evaporation of surface moisture 2. Windage losses during transportation The documentary evidences in respect of transit losses such as invoice of the supplier depicting quantity of coal supplied by the supplier and weighbridges slips depicting quantity received by the assesssee and working in respect of transit losses for the coal loss in transit are enclosed for our kind reference." 7.3 However the A.O. did not find merit in the submissions of the assessee and disallowed 50% of the losses claimed by the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... losses occurred on account of natural process and were beyond control of the appellant and in the given circumstances there was no possibility for the appellant to prevent, recoup or reduce these losses. Out of the total loss of Rs. 43,35,25,957/- recorded in the books of accounts, a sum of Rs. 21,67,62,978/- being 50% of the loss recorded in the books was disallowed. The contention and basis of making addition of Rs. 21,67,62,978/- are rebutted point-wise, hereunder: 1. LOSS OF COAL DURING TRANSIT NOT INSURABLE It is submitted that as per policy of Insurance companies, losses of coal occurring on account of evaporation of surface moisture and windage during course of transportation is not insurable. A copy of letter of Senior Branch Manager, New India Assurance Company Limited, Panchkula, wherein it has been stated out that losses occurring during course of transport on account of pilferage and lost quantity in respect of coal cannot be insured, is enclosed. We may state that information in this regard was sought from other similar State Govt. Undertakings/ Corporations (engaged in business of generation of power), namely Kota TPS, Suratgarh TPS, GGSS TPS Ropar, GND TPS Bathi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions of section 37(1) of the Act. In view of above, observations made by the AO in the order of assessment which are the basis of making this disallowance and the point wise reply to the observations of the AO, in a tabular form are addressed hereunder :- Sr. No. Observations of Assessing Officer in Order of assessment Reply to the Observations 1. How the fuel loss was calculated? Whether there is any weighment was done at the receipt side. FTPS has installed weigh bridges in the plant for weighment of coal on receipt of Rake and regular weighments were carried out. The amount of loss was calculated for the proportion of quantity lost, which was arrived after calculating the difference between weighment of particular rake made at time of loading over weighment of particular rake at the time of unloading. 2. Whether any transit insurance was done in respect of coal. It is a loss making process and as such no insurance companies come forward to make transit insurance, refer our submissions at para I . 0 above. 3. Whether any FIR was lodged in respect of loss. The coal is transported in open wagons and on account of exposure of coal to environment of open wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , as per clause (12) appearing in the Goods Tarrif of Railways are much higher than the amount of loss actually suffered by the appellant. IV. The accounts of the appellant are subject to audit under various laws and the genuineness and legitimacy of transactions (loss suffered by the appellant) cannot be doubted/ challenged. V. The losses recorded in the books of accounts have occurred during course of carrying out business activities are related to its business and are allowable expenditure under the provisions of section 37(1) of the Act. The losses are verifiable and have been deduced from basic record/ documents in possession of the appellant. VI. Amount to the extent of 50% of the total loss has been disallowed by the Assessing Officer on adhoc basis without assigning any specific reasons. " 9. Ld. CIT(A) issued the show cause letter dt. 05/07/2016 regarding disallowance on account of fuel related losses to the assessee which read as under: "Reference is invited to the ground of appeal on the disallowance on account of fuel related losses claimed in the P&L account. On perusal of submissions made for A.Y. 2009-10, it is noticed that the fuel related transit losses ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... license; f) Adjudicate upon the disputes between the licensees, and generating companies and to refer any dispute for arbitration; g) Levy fee for the purposes of this Act; h) Specify State Grid Cod consistent with the Grid Code specified under clause (h) of sub section (1) of section 79; i) Specify or enforce standards with respect to quality, continuity and reliability of service by licensees; j) Fix the trading margin in the intra-State trading of electricity, if considered, necessary; and k) Discharge such other functions as may be assigned to it under this Act. The commission is also required to advise the State Government on all or any of the following matters, namely:- i) Promotion of competition, efficiency and economy in activities of the electricity industry; ii) Promotion of investment in electricity industry; iii) Reorganization and restructuring of electricity industry in the State; iv) Matters concerning generation, transmission, distribution and trading of electricity or any other matter referred to the State Commission by that Government. Apart from the above, the functions of the commission as per the Haryana Electricity Reform Act, 1997 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectness of the expenses incurred by the electricity generating companies. Perusal of the functions as stated above also reveals that the commission is a statutory authority whose main role is to ensure efficiency, cost effectiveness and adequate supply of power etc. to the general public in the State. In furtherance of its object it fixes the tariff to be charged for retail, wholesale and bulk supply etc. while fixing the tariff and allowing transit losses/various other expenditure, it takes into consideration the expenses incurred by the corporation and then arrives at the rate of electricity, which ultimately is to be borne by the general public. HERC for the purpose of bringing more efficiency and economy as a practice resists the losses suffered by the power sector companies so that the general public may be benefitted in the form of low price and adequate supply of power. The expenses not considered for the purpose of fixing the tariff remain unrecovered from the consumers and as a result of this most of the PSUs in power sectors are at huge losses. The expenses disallowed by CERC/HERC therefore cannot be yardstick/basis for assessing the income of the appellant under in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss of coal suffered by the appellant during the year under question . It may be relevant to mention here that these transit losses were duly allowed by the AO while completing assessment proceedings/reassessment proceedings upto the F.Y. 2007-08 (A.Y. 2008-09) and no disallowance in this regard was ever made by AO. Since, no disallowance in respect of transit loss of coal suffered by the appellant was made in the earlier years, transit losses for coal during the year under consideration also deserves to be allowed, keeping in view the principle of consistency and natural justice. " 10. The Ld. CIT(A) after considering the submissions of the assessee observed that coal was transported by road mode from coal mines to loading railway sidings and then lifted into open rail wagons for transport to power plants and that the damaged wagons with cracks/gaps may cause significant quantum of enroute spillage over long distances. He further observed that losses in transportation came from the uncovered moving of coal using trucks & railways where wind and agitation could have caused significant coal dust emission losses and that the weight loss also occurred due to evaporation of moistur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so pointed out that the CERC/HERC had set standards for the electricity industry to promote efficiency, economy & competitiveness and to regulate the tariff in view of both interest of consumer as well as the consideration that supply & distribution could not be maintained unless adequate charges for electricity supply ere adequately levied and duly collected and that while setting normative loss the Regulatory commission had not commented on validity, genuineness or correctness of loss figures incurred by generating companies. Ld. CIT(A) observed that HERC resisted the losses suffered so that general public/consumers may be benefited and more efficiency & economy was exercised by Power Companies. He also observed that most of the Public Sector undertakings in Power sector were at huge loss because expenses not considered for fixing of tariff remained unrecovered from consumer. He therefore accepted this submission of the assessee that the expenses disallowed by CERC/HERC were only for the limited purpose of fixing the tariff and promoting efficiency of those companies and could not be the basis of assessing income of assessee under the Income Tax Act, by making the disallowance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the record in respect of fuel related losses suffered by "Panipat Unit" of the assessee corporation was examined by the A.O. while completing the assessment proceedings for the A.Y. 2009-10 and no adverse comments / discrepancies as regards to the records maintained by the assessee for fuel losses was observed by the A.O. while passing the assessment order. The Ld. CIT(A) observed that for the year under consideration any excessive quantity of coal received in any of the rakes was adjusted against short quantity of coal received in other rakes and thus net transit loss was claimed and that for the year under consideration as a whole no excess coal was received by the assessee. The Ld. CIT(A) also pointed out that the assessee was a State Government PSU and the correctness, legitimacy and genuineness of the loss had been verified by statutory auditors and also the accounts were submitted to the office of the C&AG of India. 10.7 The Ld. CIT(A) observed that the losses had been regularly suffered since the inception of the assessee corporation and duly allowed in the past upto A.Y. 2008-09 by the A.O. Thus the principle of consistency was also in favour of the assessee. He theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e companies which clearly shows that in such type of business there was always transit loss of coal. In the present case the A.O. while accepting the 50% of the loss as genuine and remaining 50% as non genuine, had not given any cogent reason or basis and even in the past such losses were accepted by the Department. 15. In the present case the findings given by the Ld. CIT(A) that the coal loss varies from year to year and it was dependent on various factors such as weather condition, moisture content, travel forces etc. which were variable from time to time had not been rebutted. Moreover the transit of coal was not insurable and the assessee had claimed actual loss which was on account of difference in weight of coal recorded first in the SMB Register, thereafter in the stock register and the books of accounts. 16. The Ld. CIT(A) categorically stated in the impugned order that the AO verified from the record related to the loss suffered by Panipat Unit of assessee corporation while completing the assessment proceedings for the year under consideration and no adverse comment / discrepancy as regards to the record maintained by the Assessee for fuel loss was observed by the AO wh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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