TMI Blog2017 (4) TMI 1530X X X X Extracts X X X X X X X X Extracts X X X X ..... ATION [ 2000 (7) TMI 72 - SUPREME COURT] supports this view. Therefore, we hold that the civil constructions made for the drainage and water supply in the mines are to be treated as plant and entitled for excess depreciation. Therefore, we do not find any infirmity in the order of the Ld.CIT(A) and the same is upheld. The Revenue s appeal dismissed. Higher rate of depreciation on Electrical installations - assessee claimed the depreciation @15% and the AO restricted the same to 10% and the balance depreciation was disallowed - HELD THAT:- We agree with the Ld.CIT(A) that the electrical installations installed for the purpose of excavation, transmission of mining activities required to be considered as a plant as per the decisions relied upon by the assessee. Whereas, the electrical installations installed in the administrative buildings, bus stations, etc., perform the functions of normal transmission of electricity cannot be held as a plant. The assessee also relied on the decision of Kutti Spinners Pvt Ltd [ 2014 (5) TMI 692 - ITAT CHENNAI] . The Co-ordinate Bench of ITAT, Chennai held in the cited case that the electrical cables, fittings and other electrical works con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven due credence and simply cannot be brushed aside. Considering all the facts and merits of the case we hold that there was no uncertainty in realizing the tariff or surcharge by the assessee company and accordingly we hold that the income is accrued and the assessing officer has rightly brought to tax. Therefore we set-aside the orders of the Ld.CIT(A) and restore the Assessment Order. Appeal raised by the Revenue on the issue of surcharge recovery from Electricity Boards is allowed. Deduction u/s.80IA - AO was of the view that the Unit TPS-I was an expansion of the existing unit and hence not eligible for deduction u/s 80IA - Whether expansion cannot be considered as a new unit? - HELD THAT:- As decided in own case [ 2004 (8) TMI 364 - ITAT MADRAS-B] As per clause(iv) of sub-sec (4), deduction in respect of an undertaking which 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 31st day of March, 2011 shall be 100% of the profit for a period of ten consecutive assessment years out of fifteen years beginning from the year i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... compulsion and there was no expenses incurred for earning the interest income, we are inclined to remit the issue back to the file of A.O. for consideration afresh. Disallowance of pre-paid expenditure - Expenditure disallowed by the AO stating that the expenditure was not ascertained - HELD THAT:- Both the Ld.DR and the Ld.AR accepted during the appeal hearing that the assessee s case covered by this Tribunal order [ 2011 (6) TMI 997 - ITAT CHENNAI] - Since the issue is covered by this Tribunal order and the Ld.CIT(A) followed the order this tribunal we do not find any infirmity in the order of the Ld.CIT(A) and the appeal of the revenue on this issue is dismissed. Disallowance of Advance Overburden removal of Rajasthan Mine - HELD THAT:- As decided in own case [ 2008 (4) TMI 381 - ITAT MADRAS-C] Expenditure on removing overburden in the continuous process of mining lignite from an old open cast mine is not expenditure for prospecting, etc. of minerals within the meaning of s.35E and also not capital expenditure but same is allowable revenue expenditure under s.37(1). Deduction u/s.80IA only on power project TPS-I - interest received from the employees and miscel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S.SUNDER SINGH, ACCOUNTANT MEMBER For the Appellant : Mr.B.Koteswara Rao, CIT For the Respondent : Mr.R. Vijayaraghavan, Adv. ORDER PER D.S.SUNDER SINGH, ACCOUNTANT MEMBER: These are the cross appeals filed by the Revenue as well as the assessee against the orders of the CIT(A) for the A.Y 2007-08,2008- 09,2009-10(By Revenue) and 2010-11(Revenue and the Assessee). Since the common issues are involved, all the above appeals are clubbed, heard together and disposed off in common order for the sake of the convenience as under: Revenue appeals: 2.0 The first issue is related to the addition relating to the depreciation on water supply and drainage. The assessee is engaged in the business of coal mining and electricity generation. Common issue involved for the A.Y 2007-08 2009-10 and 2010-11 is the disallowance made on account of excess depreciation on water suuply and drainage for the above AYs as under: Assessment Year Amount of Depreciation disallowed Rs. 2007-08 1,23,50,917 2009-10 2, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assets on which the appellant has claimed higher depreciation will sufficiently fit under the inclusive definition of Building mentioned at note 1 to the New Appendix-I of IT Rules. However, since it is a case of a mining, where the water supply and drainage system are associated with the excavation, generation and transmission activities as submitted by the appellant and the special technical requirement demands such facilities as indispensible, it should be treated as plant and depreciation at the rate of 15% should be allowed. The case law of CIT v Karnataka Power Corporation (2001) 247 ITR 268 (SC) relied on by the appellant will come to its rescue wherein it is decided that if it serves an assessee s special technical requirement , it will qualify to be treated as plant. The case law relied on by the AO in the case of CIT vs. Anand Theatres (2000) (244 ITR 192) wherein the cinema theaters were not considered as plant was also discussed in the Supreme Court s above decision. I accordingly direct the A.O to allow it. This issue is decided in favour of the appellant. 2.3 Aggrieved by the order of the Ld.CIT(A), the Department is on appeal before us. The Ld.DR argu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l installations. For the AYs 2007-08 2010-11, the AO disallowed the depreciation on electrical installations as under: o A.Y 2007-08 - ₹ 2,76,04,266/- o A.Y 2010-11 - ₹ 5,29,14,848/- The assessee claimed the depreciation @15% and the AO restricted the same to 10% and the balance depreciation was disallowed as above. The AO was of the view that the electrical installations made in the mines such as panels, switch gears and various types of other cables for transmission of power are normal Electrical installations and the Depreciation required to be allowed at normal rates but the assessee claimed the depreciation @15% instead of 10% as per the Income Tax Rules. Therefore, the AO disallowed the excess depreciation. 3.1 Aggrieved by the order of the AO, the assessee went on appeal before the Ld.CIT(A). The Ld.CIT(A) allowed the assessee s appeal placing reliance on the case of Karnataka Power Corporation vs. CIT 247 ITR 268 of the Hon ble Karnataka High Court. 3.2 Aggrieved by the order of the Ld.CIT(A), the Revenue has filed the appeal before us. The assessee argued that the Lignite is excavated from mines and its force will be very high at rate. The o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tem and cannot be equated pure electrical fittings like fans, tube light etc. h. Considering the above facts we pray that the appeal of the assessee shall please be allowed. The building has been so planned and constructed as to serve special requirement. According to the assessee, it qualifies for plant for the purpose of depreciation. On the other hand, the Ld.DR argued that as per the new Appendix-1 of Income Tax Rules, electrical fittings include electrical wires, socket and phase, etc. Electrical installations should not be classified as plant for higher depreciation. The functions of the electrical fittings, installations are one and the same for the buildings and mines. Therefore, electrical fittings required to be allowed as depreciation @10% as per new Income Tax Rules. 3.3 We heard the rival submissions and perused the material placed before us. As per the Assessment Order and breakup of the block of assets, there are two types of electrical installations. Electrical installations installed in mines for the purpose of excavation, generation and transmission activities and the electrical installations installed in the building, godown, bus station, etc. We agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... behalf of Electricity Boards. There was no uncertainty in the accrual of surcharge and held that ₹ 118 Cr. is an accrued income required to be brought to tax for the Assessment Year under consideration. Accordingly, added back to the income. The above issue is involved for the Assessment Years 2007-08 to 2010-11 as under: Assessment Year Amount in Rs. 2007-08 118.00 Crores 2008-09 15.11 Crores 2009-10 1.17 Crores 2010-11 116.83 Crores The Ld.AO relied on the decision of Kerala High court in the case of CIT vs Southern Cables and Engineering works 289 ITR 167. 4.1 Aggrieved by the order of the AO, the assessee went on appeal before the Ld.CIT(A) and the Ld.CIT(A) deleted the addition following the order of the Ld.CIT(A) for the Assessment Years 2008-09. In the Assessment Year 2008-09, the Ld.CIT(A) relied on the Hon ble Supreme Court judgment in the case of Godhra Electricity Co. Ltd. Vs. CIT 225 ITR 0746 and deleted the addition and held that the improbability of reali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relied on the decision of the Hon ble Supreme Court in the case of Godhra Electricity Co. Ltd. Vs. CIT 225 ITR 0746 cited supra. 4.3 We heard the rival submissions and perused the material placed before us. In this case there is provision for levy of surcharge in delayed payments and the assessee has not reckoned the surcharge as income. The assessing officer has assessed the surcharge on the basis of the accounting system followed by the assessee. The tariff in respect of NLC which is central generating station is governed by the Central Electricity Regulation Commission (in short CERC ) which is generally notifies once in three years. Accordingly, CERC has notified tariff regulations 2001 for the period 2001-04, Tariff regulations-2004 for the period 2004-09 and tariff regulations 2009 for the period of 2009-14 and presently tariff regulations 2014 is valid till 31.03.2019. In all the above notification CERC has provided late payment surcharge and the assessee has levied surcharge, but could not recover from the Electricity Boards. According to the tariff regulations of the CERC, the powers are conferred u/s.178 of Electricity Act, 2003 r.w.s.61. The CERC has to fix the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of surcharge levied or leviable by the assessee is uncertain or certain? Is there any uncertainty in accrual or collecting the surcharge? In this connection, the AO brought out the list of conditions, stipulations and strict guidelines to the Electricity Boards in Para No.8.3 to 8.6 from the tripartite agreement in the Assessment Order which is extracted as under: 8.3 However, the tripartite agreement also stipulates strict guidelines to the Electricity Boards for making payment of current dues, i.e., dues payable on or after 1st October 2001. For ready reference, list of such conditions and guidelines given in the tripartite agreement dated 17.04.2002 are given below. 12. All CPSUs ( viz., assessee company and other power suppliers) will continue to raise and collect their current bills against the SEBs or their successor entities in accordance with the existing practice or such other arrangement as may be mutually determined. Notwithstanding any mutual arrangement, payment of such bills shall be made no later than 60 days from the date of billing, or within 45 days of their receipt, whichever is later. 13.1 SEBs or their successor entities shall open and maintain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spective State Government on account of plan assistance. States share of Central taxes and any other grant or loan. 8.4 From the above guidelines and conditions as given in the tripartite agreement, particularly in Para 14 (highlighted) it is amply clear that interest (or surcharge) becomes payable from Electricity Boards if payments due to the assessee company are not made within 60 days from the date of billing or within 45 days of receipt of bill, whichever is later. It is also provided in Para 17 of the agreement that payments that remain outstanding after 90 days from the date of billing shall be recovered, on behalf of the assessee company, by the Ministry of Finance through adjustment against releases due to the respective State Government on account of plan assistance, States share of Central taxes and any other grant or loan. This tripartite agreement would be in force till 31.10.2006 and hence, the year under consideration is covered by this agreement. 8.5 In view of the above, it cannot be said that there is uncertainty in recovery of surcharge. Even assuming that the Electricity Boards defaults in making payments due to the assessee company, the tripartite agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould not be realized either by Court orders or Government Orders, since there was a decree granted by the Trial Court which was affirmed by the Appellate Court and there was an uncertainty in releasing the dues in the case of Godhra Electricity Co. Ltd. There was no tri-partite agreement, as if, in the case of the assessee to ensure recovery by Ministry of Finance through adjustment in the case of Godhra Electricity Co. Ltd.. Therefore, the case law relied upon by the assessee cannot come to help of the assessee. The tripartite agreement entered in to with the Government of India, Reserve Bank of India and the state Governments has to be given due credence and simply cannot be brushed aside. Considering all the facts and merits of the case we hold that there was no uncertainty in realizing the tariff or surcharge by the assessee company and accordingly we hold that the income is accrued and the assessing officer has rightly brought to tax. Therefore we set-aside the orders of the Ld.CIT(A) and restore the Assessment Order. 4.4 In the result, the ground of appeal raised by the Revenue on the issue of surcharge recovery from Electricity Boards is allowed for the AYs 2007-08 to 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Textile Machinery Corporation Ltd Vs CIT (107 ITR 195) cannot be accepted in the assessee s case due to the fact that the above said decision of the Honorable Supreme Court was purely related to the restructuring of the business. Hence, the facts of the said case are not applicable in the instant case. Therefore, it is clear that the provisions of section 80-lA shall be applicable only to the assessees who have started new business of generation of power and accordingly, the said provisions of section 801A(4) of the Act is not applicable to the assessees who are expanding their business by way of establishing new Plant machineries and also by way of introducing new techniques for enhancing its already existing productivity. 5.2 Aggrieved by the order of the AO, the assessee went on appeal before the Ld.CIT(A) and the Ld.CIT(A) deleted the addition as under: 4.2 I have carefully considered the facts of the case and the submissions of the Ld.AR. I have also gone through the decisions relied on by the Ld.AR and the AO. The main objection of the AO is that the new unit started cannot be considered as separate undertaking because it is using the same manufacturing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o accelerate the process of industrialization and that it does not appear or to have been the intention of the legislature that the benefit of the section would be confined only to parties who had not already set up such industrial undertakings and not to parties who had past experience of running similar industrial undertaking. This principle has since been approved by the Supreme Court in the case of Textile Machinery Corporation Ltd(supra). Applying the principles of the above decision of the Hon ble Supreme Court, it has been held that mere fact that the second unit manufactured some of the items which were manufactured by the first, did not make it an integral part of the first unit as it could survive independently of the first unit. Reference may be made to (the decision in CIT v. Indian Aluminium Co Ltd, 108 ITR 367(SC), CIT v. Gedore Tools (India) P. Ltd, 126 ITR 673, CIT v. Ambur Cooperative Sugar Mills Ltd, 127 ITR 495(Mad.), CIT v. Hutti Gold Mines Co.Ltd, 128 ITR 476(Kar). In the case of the appellant, the main section grants relief in respect of profits and gains of an undertaking. Explanation 2 under subsection (3) of sec 80-IA cannot govern or restrict the relief av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the above exempt income should not be disallowed in view of provisions of Section 14A of the IT Act read with rule 8D of the l.T. Rules. The assessee s representative has stated that this amount represents 8.5% tax free interest from tax free bonds. These bonds were issued by respective State Governments. The interest thereon is being credited directly and no expenditure has been incurred thereon. Therefore, it was argued that as there was no expenditure incurred in relation to this income, no disallowance is called for u/s.14A of the Income-tax Act. The above referred arguments of the assessee are not acceptable in view of Rule 8D introduced in the l.T. Rules. As per provisions of Section 14A(1), for computing total income under Chapter-IV, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of total income. As per provisions of Section 14A(2), the Assessing Officer is empowered to determine the amount of expenditure incurred as per Rule 8D of the l.T. Rules, having regard to the accounts of the assessee, if he is not satisfied with the correctness of the amount claimed by the assessee in respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... automatically issued in F.Y.2003-04 by state governments to discharge the power bills due and surcharge dues from the Electricity Boards. The bonds were received in dematerialized form in F.Y.2003-04 and accounted as investment in that year. No fresh investment was made in the subject assessment year. Moreover, the investment is being held with Indian bank free of cost. Interest is automatically credited to the bank account. The loans are also not general purpose loans. They are specific to various projects and hence the question of allocating interest does not arise. In view of the above, I am of the considered opinion that there was no objective reason for non-satisfaction of the AO to invoke rule 8D. On similar facts, additions made in AYs 2006-07 and 2007-08 were deleted by CIT(A). The decisions relied on by the appellant in the cases of CIT v. Hero Cycles Ltd, 323 ITR 518 (P H) and CIT v. Reliance Utilities and Power Ltd, 221 CTR 435(Bom) also supports the case of the appellant. In view of the above factual and legal positions, the addition is deleted and the ground is allowed. 6.3 Both the Ld.AR and the Ld.DR brought to our notice that on the same facts in the assessee s o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.3 as under: It has been observed that during the current year, the assessee has claimed an amount of ₹ 131.60 lakhs of prepaid expenditure related to the insurance premium as the expenditure of the current year. Since the above expenditure is related to the future liability, the assessee was show caused to explain why the same should not be disallowed and added to the total income. In response to the same, the assessee has submitted its reply vide letter dated 12.10.2010, which is as under: Insurance premium Expenses are accounted under prepaid expenses only where the amounts relating to unexpired period exceed ₹ 1 Crore in each case. Accordingly, during the previous year relevant to the AY 2008-09, insurance premium paid less than 1 crore has been debited to the profit and loss account which is amounting to ₹ 131.60 Lakh on payment basis. Considering the volume of business, the charged amount is insignificant, hence the same may be allowed as deduction. In the event of continuing the same stand, which the department took in the AY 2007-08, and disallowed ₹ 131.60 Lakh, it is requested that the amount disallowed in the AY 2007-08 amounting to &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l expenditure and the same has been claimed as revenue. Sometimes, the connected thermal project is not ready to take lignite, due to delay in commissioning of the project. At that time, the overburden removal activities are carried out continuously, for future operations. Such expenditures are kept as advance overburden removal expenditure in the accounts and it will be written off over the period of 3 years from the date of excavation of lignite or commissioning of thermal project. As such there is no provision in the Income Tax Act, with regard to Deferred revenue expenditure, hence the advance OB removal amounts are claimed as expenditure, during the period of incurrence and the same will be deducted from the income. Mine development of Barsingsar Mines completed during No.2008 and advance OB removal expenditure booked up to Nov 2009. Hence, advance OB removal accounted during the period 2008-09 and 2009-10 had been claimed as revenue expenditure. In the financial year 2008-09 relevant to the Assessment year 2009-10 an amount of ₹ 18.26 Cr had been claimed as revenue expenditure and in the financial year 2009-10 an amount of ₹ 43.93 Cr had been claimed as r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est on loan given to employees and ₹ 35.69 lakhs miscellaneous income and fly ash of ₹ 2,25,02,000/- which was not considered for the deduction u/s.80IA by the AO. The AO disallowed the deduction claimed by the assessee as per the discussion made in the Assessment Order in Para No.2.9 to 2.10 as under: 2.9 The assessee s reply is carefully considered but not found to be acceptable. As per sec.80-IA, deduction of an amount equal to hundred percent of the profits and gains derived from business referred in subsection (4) is allowable for ten consecutive years. Under sec.80-lA(4)(iv) of the Act, generation or generation and distribution of power is mentioned as one of the eligible business. It cannot be said that the interest Income derived from advances given to employees is also eligible for deduction uls 80-IA. The assessee itself had classified this receipt as part of Other Income . The hon ble Supreme court, in the case of Liberty India v. CIT-317 ITR 218, held that profits from sale of duty drawback are not eligible for deduction u/s.80-IA. The Apex Court held that the expression derived from industrial undertaking used in sec.80-lA is narrower in connotation a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eated as not derived from the industrial undertaking. The assessee had utilized the funds available with it to give interest bearing advance to the employees and had earned interest income. This interest income is beyond the first degree of nexus with the profit derived from the activity of the industrial undertaking, viz., generation of power. Hence, the same is excluded from the profits for computation of deduction u/s 80-IA. On similar analogy, receipts from Handling Charges i.e, sale of fly ash (₹ 225.02 lakhs), is treated as a source of income beyond the first degree (as held by hon ble Supreme Court) and excluded from the profits for computation of deduction u/s 80-IA. The assessee has not given any submission as to how miscellaneous income of ₹ 35.69 lakhs would be eligible for deduction u/s.80-IA. In view of the discussion on non-eligibility of handling charges and interest income for deduction u/s.80-IA, the miscellaneous income, grouped under Other income is also excluded from profits for computation of deduction u/s.80-IA. To summarise, the following receipts are excluded from the profits of TPS I Expansion unit, for computation of deduction u/s.80-lA. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the profits on sale of duty drawback are not eligible for deduction u/s.80IA. The word used in Sec.80IA for deduction of the profits and gains derived from undertaking or enterprise from any business referred to Sec.4 of 80IA is used in narrower, connotation and intend to cover not beyond the first degree of the source. Handling charges, interest received from employees and miscellaneous income are not the direct source of income from Power generation. Therefore, we are unable to accept the contention of the assessee to allow the deduction u/s.80IA on the other income. Accordingly, the assessee ground on allowing deduction u/s.80IA on the other income is dismissed. 10.0 The next ground raised by the assessee on this appeal is alternatively to exclude the expenditure relating to earning the other income for the purpose of computing the deduction u/s 80IA. Though, the assessee has argued that expenditure related to other income required to be excluded. The Ld.AR of the assessee has not furnished the details of expenditure for earning the other income. The entire expenditure has been debited to the Profit Loss A/c relating to the earning of Gross total Income. Unless a specific d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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