TMI Blog2021 (2) TMI 713X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of M/s. Liberty India Ltd., vs. CIT [ 2009 (8) TMI 63 - SUPREME COURT ] same did not have a direct link with the business of power generation, and hence, while computing deduction u/s.80IA of the Act, the other income has been excluded. The facts for the year under consideration are similar to the facts considered by the Tribunal for earlier years except to the extent of two new items of income being surcharge from electricity boards and interest from others [interest received from Fenner India Limited as per terms of agreement. Therefore, the assessee is not entitled for deduction towards eligible profit u/s.80IA of the Act in respect of other income because said income does not have first degree nexus with the main business activity of the assessee. Surcharge from Electricity Boards , the issue has came up for discussion for the first time in the impugned assessment year and hence, needs to be considered in light of arguments advanced by the assessee that it has first degree nexus with business of generation and distribution of power. We have examined the claim of the assessee in light of proviso to Regulation 5(3) of Central Electricity Regulatory [terms and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons made by the AO towards disallowance of excess deduction claimed, however allow the alternate plea of the assessee towards deduction of expenses in relation to earning of other income and direct the AO to allow 10% deduction towards expenses and re-compute deduction u/s.80IA of the Act Disallowance of expenditure u/s.14A - HELD THAT:- We find that disallowance of expenditure in relation to exempt income u/s.14A of the Act is recurring issue and is a subject matter of deliberation of the Tribunal in the assessee s own case for assessment years 2007-08 to 2012-13. Further, the Tribunal after considering relevant facts and also following its earlier order has set aside the issue to the file of the AO and directed him to re-adjudicate the issue in accordance with law. Addition towards surcharge recoverable from Electricity Boards - AO as well as the ld.CIT(A) were of the opinion that when there is no uncertainty in realization of surcharge from Electricity Boards, the question of postponement of income for taxation on receipt basis does not arise, when the assessee is following mercantile system of accounting - HELD THAT:-The view taken by the AO as well as the ld.CIT(A) h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that UPS is an integral part of computer system eligible for higher depreciation at the rate of 60%. Depreciation on civil structures, water supply and drainage systems - assessee has claimed depreciation at the rate of 15% on civil structures qua water supply and drainage system, on the ground that it is part of plant and machinery eligible for depreciation at the rate of 15% - AO has allowed depreciation at the rate of 10% applicable to buildings and has disallowed excess depreciation claimed over and above 10% on the ground that civil structures qua water supply and drainage system cannot be considered as part of plant and machinery - HELD THAT:- We find that the issue of depreciation on civil structures qua water supply and drainage system is a recurring issue which is a subject matter of deliberations by the Coordinate Bench of the Tribunal in the assessee s own case right from assessment years 2007-08 to 2012-13. The Tribunal under identical set of facts has held that civil structures qua water supply and drainage systems is part of plant and machinery and eligible for depreciation at 15% applicable to plant and machinery. Deduction towards insurance spares - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the Assessment year 2004-05, the power bills due and surcharge dues from EB s has been converted into 8.5% Tax free SLR Power bonds issued by the State Government. V. The Learned AO and CIT(A)failed to appreciate that no expenditure was incurred by the Assessee for earning the exempt income and the Bonds are kept in dematerialized form. VI. The Learned AO and CIT(A) has included even investments in equity shares of the subsidiary of the Appellant without appreciating the fact that no income tax free dividends were received in the relevant year. VII. The Learned AO and Learned CIT(A) has failed to appreciate that the investment made in equity shares of the subsidiary company was strategic in nature and was not merely for the purpose of earning exempt income in the form of dividends and hence, the Learned AO has erred in making disallowance under section 14A read with Rule 8D. VIII. The Learned AO and CIT (A) failed to appreciate that no expenditure was incurred by the Appellant for earning the exempt income, if any, from the investment made in equity shares of the subsidiary. Disallowance of surcharge recoverable from EBs IX. The Learned CIT(A) erred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S-l expansion unit by placing reliance on its ITAT order in the assessee s own case for the AY 2001-02 and 2008- 09 to 2010-li. 3. The learned CIT(A) has erred in allowing the depreciation @ 60% on UPS holding it as part of computer as against 15% allowed by the Assessing officer holding it as part of plant and machinery. 4. The learned CIT(A) has erred in treating the drainage and water supply system as plant instead of building for the purpose of depreciation claim. 5. The learned CIT(A) has erred in allowing the claim of expenses towards the insurance spares holding it as a revenue in nature instead of capital expenditure. 6. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing officer be restored. Assessee s Appeal in ITA Nos.868 869/CHNY/2018 3.0 The first issue that came up for consideration from assessee appeal for both assessment years is disallowance of other income for computation of deduction u/s.80IA of the Income Tax Act, 1961 (hereinafter the Act ). The facts with regard to the impugned dispute are that while computing deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of power. Therefore the AO as well as the ld.CIT(A) were erred in excluding other income, more particularly surcharge received from Electricity Boards and interest from others while computing deduction u/s.80IA of the Act. 3.2 The ld.AR has also made an alternative argument that without prejudice to the first argument with respect to interest received from contractors submitted that consequent to an Arbitral award, the assessee have to pay back a sum of ₹ 3,26,86,729/- to M/s. Fenner India Limited and hence if at all interest received from others is required to be excluded for the purpose of computation of deduction, then only net amount be considered in computing deduction u/s.80IA of the Act. In this regard, he relied upon the following judicial precedents:- i. CIT vs. Translam Limited [2014] 231 taxmann 901(All) ii. CIT vs Phatela Cotgin Industries P Ltd [2008] 303 ITR 411 (P H) iii. Avalon Technologies P Ltd vs. ACIT [2015] 36 ITR(T) 567 (Chennai Tri) iv. CIT vs. Prakash Oils Limited [2011] 58 DTR 279 (Tri- Indore) 3.3 The ld.DR, on the other hand submitted that the issue is squarely covered against the assessee by the decision of ITAT, Chennai Bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ations 2009 and find that although the assessee claims that it has received surcharge from Electricity Boards for delayed payment of receivables in respect of supply of electricity, but in principle said payment represents interest for delay in payment of dues to the assessee. Therefore, we are of the considered view that interest earned by the assessee for delay in payment of receivables cannot be characterized as income earned from business operations merely for the reason that said receipt is received from supplier. The character of any receipt would not change for the simple reason that the said receipt is received from the first degree supplier who is related to main business activity of the assessee. Hence, we are of the considered view that there is no merit in arguments of the assessee that surcharge received from Electricity Board form part of income from operations, which is eligible for deduction u/s.80IA of the Act. As regards various case laws relied upon by the assessee including the decision of Hon ble Punjab Haryana High Court in the case of CIT vs. Phatela Cotgin Industries P Ltd., 303 ITR 411 and others, we find that all those cases are rendered under differe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty India Ltd. Vs. CIT referred to supra, as the same did not have a direct link with the business of power generation, the deduction u/s.80IA of the Act on the said incomes were excluded. However, in Para No.10 of the Order the Coordinate Bench has held that 10% of the said other income could be estimated as the expenses relatable to the earning of the said income and directed the AO to exclude 10% of the other income as expenses while computing the deduction u/s.80IA of the Act. In the year under appeal, the other income includes interest on arrears from Electricity Board and interest from others. Applying the ratio of the decision of the Co-ordinate Bench of this Tribunal in the assessee s own case for the AYs 2007-08, 2008-09, 2009-10 2010-11 referred to supra, the disallowance as made by the AO and as confirmed by the Ld.CIT(A) stands sustained. However, considering the alternate prayer of the assessee and also following decision of the Co-ordinate Bench of this Tribunal, the expenses in relation to the earning of the other income is estimated at 10% and the AO is directed to exclude 10% of the other income as expenses while computing the deduction u/s.80IA of the Act. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rule 8D for years prior to assessment year 2008-09, stands reversed by Hon ble Bombay High Court in the case of Godrej and Boyce Mfg. Co. Ltd vs. Dy. CIT (328 ITR 81). Hon ble Bombay High Court clearly held in the said decision that Rule 8D which came with effect from 24 th March, 2008, will be applicable only after the period 2008-09. Nevertheless, their Lordship has clearly noted that even prior to that year, A.O. was duty bound to compute disallowance under Section 14A by applying a reasonable method having regard to the facts and circumstances of the case. Therefore, despite the argument of learned A.R. that 12 I.T.A. Nos.711, 712 713/Mds/10 electricity bonds were taken under 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. We, therefore, set aside the orders of the authorities below and remit on this aspect back to A.O. for consideration afresh in accordance with law. Assessee can bring to the notice of the A.O. any case law relevant to the issue and A.O. shall proceed in accordance with law. 6.6 Respectfully following the said decision on identical dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SC) in support of its arguments. However, fairly admitted that the issue is covered against the assessee by the decision of ITAT in assessee s own case for assessment year 2008-09 to 2010-11 in ITA Nos.1983/Mds/2011 and 2140/Mds/2013. 5.2 The ld.DR on the other hand strongly supporting order of the CIT(A) submitted that the issue is squarely covered against the assessee by the decision of ITAT for earlier assessment years, where under identical set of facts the Tribunal held that surcharge recovered from Electricity Boards is taxable on accrual basis as and when the assessee has accounted in the books of account. 5.3 We have heard the rival submissions of both sides and perused the materials available on record. On perusal of details filed by the assessee, we find that there is a provision of levy of surcharge for delayed payment by the Electricity Boards and such provision is supported by Tri-party Agreement between Government of India, RBI and the assessee. The assessee has accounted surcharge receivable from Electricity Boards on accrual basis in the books of accounts, but for the purpose of taxation, the same has been offered to tax as and when the amount is received from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wers are conferred u/s.178 of Electricity Act, 2003 r.w.s.61. The CERC has to fix the tariff accordingly and the CERC notified the regulations as under: In exercise of powers conferred under section 178 of the Electricity Act 2003 read with section 61 thereof CERC notifies (Terms and conditions of Tariff) Regulations. These regulations apply in cases where tariff for a generating station or a unit thereof is required to be determined by the Commission under Section 62 of the Act read with section 179 thereof. The relevant extracts attached. c) How tariff for supply to electricity board is fixed: Steps involved: Plant specific Tariff petition / application is prepared based on the capital cost of the plant and norms of Operation of the applicable CERC (Terms Conditions of the Tariff Regulations) and is filed before CERC as per the stipulated procedures. Copies of the petitions filed are sent to the Respondent beneficiaries. Any additional information sought by CERC is filed with a copy to the Respondents. CERC issues Record of proceedings and directs respondents to file their replies and petitioner to file rejoinder if any. Thereafter CERC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceipt, whichever is later. 13.1 SEBs or their successor entities shall open and maintain irrevocable Letter of Credits (L.Cs) that are equal to 105 percent of their average monthly billing for the preceding 12 months. The amount shall be revised once in six months, based on the said average. 13.2 The requisite L.Cs shall be opened no later than 30.09.2002 and failure to do so shall attract reduction in supplies from all CPSUs equal to 2.5 percent of the average daily supply for the preceding 90 days, in addition to the suspension of APDRP as mentioned in paragraph 16 below. These penal provisions shall also apply if the L.Cs are not maintained in future. 14. Payments made after the period specified in paragraph 12 above, shall attract interest at the rate of 15 percent per annum, compounded quarterly. 15.1 In the event that payments are not made within the period specified in paragraph 13 above, the supply of electricity shall be reduced forthwith by 5 percent (inclusive of the reduction, if any, under the provisions of paragraph 13 above) as compared to the average daily supply for the preceding 90 days. The reduction in supply shall be increased to 10 percent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lectricity Boards defaults in making payments due to the assessee company, the tripartite agreement provides for recovery of the same through adjustment by Ministry of finance. Thus, there is no reason for the assessee company in not recognizing the surcharge on accrual basis. After recognizing the surcharge on accrual basis, if for some genuine reason the same could not be realized, then the assessee can write off the same as bad debt. But even for making such a claim, sec.36(2) stipulates a condition that the corresponding income should have been offered to tax. 8.6 In view of the above discussion, the surcharge recoverable by the assessee company from Electricity Boards during the relevant year on the belated settlement of the power bill, amounting to ₹ 118 crores, is treated as income accrued to the assessee and added to the total income. From the discussion of the AO, as per Clause-16 of the guidelines of the tripartite agreements payments remained outstanding after 90 days from the date of billing require to be recovered through adjustment the from the plan assistance of respective state governments, hence, there was an assurance created through the tri-partit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal raised by the Revenue on the issue of surcharge recovery from Electricity Boards is allowed for the AYs 2007-08 to 2010-11. 5.4 In this view of the matter and consistent view taken by the Tribunal in assessee s own case for earlier years, we are of the considered view that surcharge recovered from Electricity Board is taxable on accrual basis as and when the assessee has been accounted in the books of accounts. However, if assessee has already offered said amount to tax on receipt basis, due credit must be given to the assessee for the year in which such income is offered to tax. Accordingly, the ground raised by the assessee for both assessment years are dismissed. 6. In the result, appeals filed by the assessee for assessment years 2013-14 and 2014-15 are treated as partly allowed for statistical purposes. Revenue s Appeal in ITA Nos.952 953/CHNY/2018. 7.0 The first issue that came up for our consideration from ground No.1 of Revenue appeal is eligibility of deduction u/s.80IA of the Act. The AO has denied claim u/s.80IA of the Act in respect of income derived from unit TPS I expansion. According to the AO, unit TPS I was expansion of an existing uni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2010-11 246,92,76,304 5.1 For the sake of convenience, the reasoning given by the AO is extracted from the Assessment order made available in Page No.5 of the A.Y.2008-09 as under: In the instant case also, the assessee has claimed deduction u/s 80-IA of the Income-tax Act on the profit of power generated in the TPS-l Expansion Unit by treating the same as separate unit / undertaking, even though the final product manufactured is same i.e. Power. Further, there is interconnection of management, financial, administrative and production aspects. Therefore, the above decision of the Honourable High Court is squarely applicable in the instant case. Accordingly, the TPS-l Expansion Unit cannot be considered as new/separate unit for the purpose of provision of section 80-lA of the Income-tax Act. ii) It has been observed that, deduction u/s 80-IA of the IT Act to the tune of ₹ 147.36 crores has been claimed for the Unit TPS-I Expansion. Hence, it is clear that, the assessee company itself has stated that the above unit is nothing but the expansion of the already existing TPS-I Unit. Therefore, the Unit TPS-l Expansion cannot be consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect 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 in which the undertaking or the enterprise generates power or commences transmission or distribution of the power. Therefore, deduction is clearly for the profits of an undertaking and not for an undertaking engaged in a new business. Similar expressions as found in sec 80-IA are found in sections 80HH, 80I and 80J. For example, in section 80J, deduction is in respect of new undertaking and the section also has similar proviso referred to by the AO. The Supreme Court while interpreting the Section 80J in the case of Textile Machinery Corporation Ltd v. CIT, 107 ITR 195 (SC) has held that expansion of the existing business will also be entitled to relief under section 80J. In the case of CIT v. Ganga Sugar Corporation Ltd, 92 ITR 173 (Del.), it was pointed out that the concept of reconstruction of business is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gains from certain new business . In these circumstances, I am of the considered opinion that the appellant is entitled to relief under section 80-lA in respect of TPS-l Expansion. The requirement regarding investment in the plant and machinery and other conditions for availing benefit of deduction u/s.80-IA have also been satisfied and the AO has not raised any other objection regarding these conditions. In view of the above factual position and authoritative precedents, the deduction claimed by the appellant us 80-IA is allowed. Accordingly, the ground is allowed. 5.3 The issue is squarely covered by this Tribunal order in the assessee s own case for the AY 2001-02 in ITA No.2315/Mds/2003 dated 18.08.2004. Respectfully following the decision of Co-ordinate Bench, we dismiss the appeal of the Revenue for the AYs 2008-09, 2009-10 and 2010-11. 7.4 In this view of the matter and consistent view taken by the Co-ordinate Bench, we are inclined to uphold the findings of the CIT(A) and reject ground taken by the Revenue for both assessment years. 8.0 The next issue that came up for our consideration from Ground No.3 for assessment year 2013-14 is disallowance of excess d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of the Hon ble Supreme Court in the case of CIT vs. BSES Rajdhani Power Ltd. referred to supra. This being so, we find no reason to interfere in the findings of the Ld.CIT(A) on this issue. Consequently, Ground No.5 of the Revenue s appeal stands dismissed. 8.3 In this view of matter and consistent view taken by the Coordinate Bench, we are of the considered view that the ld.CIT(A) was right in deleting additions made by the AO towards disallowance of excess depreciation on UPS and hence, we are inclined to uphold the findings of CIT(A) and reject the ground taken by the Revenue for both the assessment years. 9.0 The next common issue that came up for our consideration from Revenue s appeals for both assessment years is depreciation on civil structures, water supply and drainage systems. The assessee has claimed depreciation at the rate of 15% on civil structures qua water supply and drainage system, on the ground that it is part of plant and machinery eligible for depreciation at the rate of 15%. The AO has allowed depreciation at the rate of 10% applicable to buildings and has disallowed excess depreciation claimed over and above 10% on the ground that civil structur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o-ordinate Bench of this Tribunal in the assessee s own case, findings of the Ld.CIT(A) stands confirmed. In the result, Ground Nos.6.1 6.2 of the Revenue s appeal stands dismissed. 9.3 In this view of the matter and consistent view taken by the Co-ordinate Bench, we are of the considered view that there is no error in the findings recorded by the ld.CIT(A) in allowing relief to the assessee and hence we are inclined to uphold the findings of the ld.CIT(A) and reject the ground taken by the Revenue for both the assessment years. 10.0 The next common issue that came up for our consideration from Revenue appeals for both assessment years is deduction towards insurance spares. The assessee has claimed deduction towards insurance spares consumption as revenue expenditure although the same has been treated as capital in nature in books of accounts. The AO has disallowed deduction claimed towards insurance spares consumption on the ground that insurance spares are exclusive to the particular fixed asset and are unique in nature. The AO further held that as per the Explanation to Section 31 of the Act, amount paid on account of current repair to be allowed shall not include any e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spares were to be treated as the Revenue expenditure. 7.14 We have considered the rival submissions. As it is noticed that the Ld.CIT(A) has followed the decision of the Co-ordinate Bench of this Tribunal in the assessee s own case, which has been upheld by the Hon ble jurisdictional High Court, we find no reason to interfere in the findings of the Ld.CIT(A) on this issue, consequently, the findings of the Ld.CIT(A) on this issue stands confirmed. In the result, Ground No.8 of the Revenue s appeal stands dismissed. 10.3 In this view of the matter and consistent view taken by the Co-ordinate Bench, we are of the considered view that there is no error in the findings recorded by the CIT(A), while deleting the additions made by the AO towards disallowance of insurance spare consumption and hence, we are inclined to uphold the findings of CIT(A) and reject the ground taken by the Revenue for both the assessment years. 11. In the result, the appeals filed by the Revenue for both assessment years are dismissed. 12. As a result, appeals filed by the assessee for both assessment years are partly allowed for statistical purposes and appeals filed by the Revenue for both ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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