TMI Blog2014 (5) TMI 1206X X X X Extracts X X X X X X X X Extracts X X X X ..... n against the profits derived from an industrial undertaking. The Hon ble Supreme Court also held that if the interpretation as suggested by the assessee is accepted then it would almost render the provisions of s. 80A(2) nugatory and, therefore, the same cannot be accepted. It was held that the non obstante clause in s. 80-I(6) cannot restrict the operation of ss. 80A(2) and 80B(5) which operate in different spheres. The Hon ble Court therefore concluded that loss from the oil division of the assessee was required to be adjusted before determining the gross total income, and since the gross total income was Nil , assessee was not entitled to claim deduction under s. 80-I. The above decision rendered in the context of Sec.80-I of the Act would in our view squarely apply to the provisions of Sec.80-IA and 80- IA(7) of the Act as the provisions are impari materia the same. We are of the view that the order of the CIT(Appeals) allowing the claim of the assessee without setoff of losses of earlier years while arriving at the gross total income cannot be sustained. Addition to the donation of assets and obsolesce of assets - AO did not allow the claim of the assessee for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CAL took place. Though the liability may relate to an earlier period, since the liability had crystallised only during the previous year, the same had to be allowed as deduction. Accordingly, we direct that the aforesaid sum be allowed as deduction in computing the total income. Difference in transport charges paid by the assessee for surface transport of coal the document on record show that the Board meeting of the assessee conducted on 2.1.2006 considered the revision of rates for surface transport of coal as recommended by the Technical Committee - The aforesaid sum was paid by the assessee to M/s. Aryan Energy Pvt. Ltd. It is thus clear from the document that the liability of the assessee to pay the differential surface transport charges crystallised only during the previous year. Though the amount in question was payable in respect of transportation done during an earlier period, the same is allowable in the present assessment year as the liability had crystallised only during the previous year. We therefore direct that the claim of the assessee be allowed. Differential sales tax reimbursement of lease rentals - HELD THAT:- Though the assessee s liability to differ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the view that the request made is reasonable and accordingly we set aside the order of the CIT(A) insofar as the addition and direct the assessee to file necessary evidence before the Assessing Officer. In this regard we are also of the view that the Assessee being a corporation established by the State of Karnataka should be afforded an opportunity as no motives for any tax evasion can be attributed. Expenditure claimed by the appellant under the head power charges and electricity tax on colony consumption - HELD THAT:- It is not in dispute before us that that the liability of the assessee to pay the aforesaid sum arose only during the previous year. It is also not in dispute before us that the total demand insofar as the power charges are concerned is much more than the sum of ₹ 6,53,49,424. The assessee has no doubt challenged the order of KERC, but insofar as the sum of ₹ 6,53,49,424 is concerned, the assessee had made the actual payment of the aforesaid sum, notwithstanding the fact that the challenge by the assessee includes this sum also. Strictly speaking, the liability to this extent cannot be said to have been crystallized during the previous year. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has five units which are eligible to claim deduction u/s. 80IA. Out of these five units, three units incurred loss while two units, RPS 5 and 6, and Gerusoppa derived profits. The Assessee claimed deduction u/s. 80IA of the Income Tax Act, 1961 ( Act ) in respect of the two units which derived profits. The total deduction claimed u/s. 80IA from these two units is ₹ 133,10,50,731. As per the assessee s computation statement, after having arrived at the gross total income of ₹ 327,47,61,109, the assessee had claimed the deduction amounting to ₹ 133,10,50,731, thus arriving at a profit of ₹ 194,37,10,378. Against this, the brought forward unabsorbed depreciation was set off thus making the income as NIL with a claim for carry forward of unabsorbed depreciation of ₹ 4,92,08,556. The AO proposed to set off unabsorbed depreciation pertaining to earlier years before allowing the deduction u/s. 80IA. The assessee in response to the proposal of the AO submitted that as per the provisions of section 80IA(5) of the Act, the provisions of section 80AB would not be applicable and thus neither the brought forward losses nor the depreciation are required to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sal of s. 80-IA(7) shows that s. 80-IA(7) enacts provisions of overriding nature. Sec. 80-IA(7) is a part of s. 80-IA, which was newly inserted in the IT Act by the Finance (No. 2) Act, 1991, w.e.f. 1st April, 1991. It starts with the words notwithstanding anything contained in any other provisions of this Act . Thus, s. 80-IA(7) has been given an overriding effect over any other provisions of IT Act. In other words, s. 80-IA(7) provides that its provisions are to prevail over any other provisions of the Act. All other provisions of the Act would thus be applied subject to the provisions of s. 80-IA(7) for the purpose of determining quantum of deduction under sub-s. (5) of s. 80-IA. It is seen that s. 80-IA provides a special mode for computation of the profits and gains derived from eligible industrial undertaking under s. 80-IA. In other words, for the purposes of determining the quantum of deduction under sub-s. (5) of s. 80-IA, the profits and gains of an eligible business is to be computed or determined as if such business were the only source of income of the assessee during the relevant year and the assessee had no other source of income. Consequently, the total income of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt in the case of Synco Industries Ltd. v. AO, 299 ITR 444 (SC). The Assessee in that case was engaged in the business of oil and chemicals. It had a unit for oil division at Sirohi District, Rajasthan. It also had a chemical division at Jodhpur. The assessee had earned profit in the asst. y₹ 1990-91 and 1991-92 in both the units. However, the assessee had suffered losses in the oil division in earlier years. The appellant claimed deductions under ss. 80HH and 80-I of the Act, claiming that each unit should be treated separately and the loss suffered by the oil division in earlier years is not adjustable against the profits of the chemical division. The AO noticed that the gross total income of the assessee before deductions under Chapter VI-A was Nil . Therefore, he concluded that the assessee was not entitled to the benefit of deductions under Chapter VI-A. The action of the AO was confirmed by the CIT(A) as well as by the Tribunal. The Hon ble High Court also confirmed the action of the Tribunal. On further appeal by the Assessee the Hon ble Supreme Court held that deduction under that clause (5) of s. 80B defines the expression gross total income to mean the total inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itiated proceedings u/s. 263 of the Act. The aforesaid proceedings u/s. 263 of the Act was in relation to issues which did not arise out of the order of assessment passed u/s. 143(3) of the Act and were in relation to different issues which had not been considered in the order u/s. 143(3) of the Act. The order of assessment u/s. 143(3) of the Act, which order of assessment is subject matter of present appeal was passed on 15.3.2006. Against the aforesaid order, the CIT(A) passed the order dated 11.08.2006 against which the present appeal arises. The order passed u/s. 263 of the Act was dated 4.11.2009. It is the submission of the ld. counsel for the assessee that consequent to the order dated 4.11.2009 by the CIT u/s. 263 of the Act, the order of assessment u/s. 143(3) of the Act dated 15.3.2006 is deemed to have been cancelled and therefore the issues raised by the revenue in this appeal have become infructuous. 12. In our view, the facts of the present case stand on a totally different footing. It is an admitted position that the order u/s. 263 of the Act were on issues which were not considered by the Assessing Officer in the order u/s. 143(3) of the Act. The order u/s. 263 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave details of the assets that were donated and that which were written off as obsolete. The same were as follows:- The details of donation of assets: Particulars Amount (Rs.) Withdrawal of value of building in view of released materials spared to private agencies during dismantling. 7,43,177 Transfer of temporary building at Sampekatte Gram Panchayat, Sampekatte. 1,22,680 Total 8,65,857 The details of loss on obsolescence of assets is as under: Accounting Unit Particulars Amount (Rs.) Ganeshgudi Radial gates 2,91,797 Exide batteries 9,423 Pedestal fan 180 Total : 3,01,400 The Assessee contended before CIT(A) that the Assessing Officer failed to appreciate that such donations and write off of obsolete ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concerned, the break up of the sum of ₹ 19,95,80,290 claimed as deduction by the assessee under the head prior period expenses is as follows:- (a) Stores reconciliation of coal carried out during the previous year ₹ 13,70,43,439 (b) Payments made towards coal transport agency due to price escalation ₹ 2,07,60,000 (c) Differential surface transport charges to coal suppliers ₹ 70,63,081 (d) Differential sales tax reimbursement on lease rentals ₹ 2,63,72,297 (e) Others (being expenses claimed by employees and other agencies in conducting the activity of the assessee for which bills were produced by the employees and other agencies pertaining to prior period only during the previous year ₹ 82,43,612 26. The AO in the order of assessment has made no discussion on this claim of the assessee for deduction and has rejected the same by observing that prior period expenses cannot be allowed as deduction in computing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same related to lease rents payable for F.Y. 2004-05. Hence, the same were accounted under the head of account Expenses pertaining to previous period . 30. With regard to the remaining sum of ₹ 83,41,475/-, the Assessee submitted that the above sum represents expenses for which bills were produced by the agencies and staff during the year and are crystallized during the year. The Assessee argued that in the absence of contract and crystallization of the liability the same cannot be claimed. The amounts were accounted in the earlier years as advance to staff and advance to supplier/agencies and transferred to the expense account during the year as the bills have been given by them only this year. This has been a consistent practice followed by the company over the years. Hence the same is to be allowable during the year. 31. Thus the Assessee pleaded that the amount of ₹ 13,70,43,439/- is not prior period expenses but has been wrongly classified. The other expenses have crystallized during the year and under any event the claim is revenue neutral. No such disallowance was made in any of the earlier years. Taking all factors into account, the Assessee submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e s discretion to take remedial measures if it considers fit and legal and also because I have no power to set aside the present assessment not to speak of the past ones. Hence, grounds of appeal is dismissed. 34. Aggrieved by the order of the CIT(A), the assessee has preferred ground No.4 before the Tribunal. 35. We have heard the rival submissions. As far as the sum of ₹ 13,70,43,439 which is claimed to be relating to stores reconciliation is concerned, we find that as per the procedure in the stores department, the custodian of material maintains ledger quantity aspect and the accounts wing maintains ledger for quantity aspect with value. It was noticed that there were discrepancies in ledger quantity maintained by the custodian of materials and the accounts wing. A review of quantity balances between the custodian of materials and accounts wing was done and an appraisal note on the discrepancies found and the reason for the discrepancy was prepared as on 31.3.2006 and it was noticed that a sum of ₹ 8,45,05,557 was actually reconciliation of material of coal carried out during the previous year and in relation to quantity found short during the previous year. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion based on FO LDO as per the applicable formula. b) ₹ 20/- per MT over and above escalation on account of FO LDO. Please confirm your acceptance to the above in full final settlement of your claim relating to this contract as regards increase in Ocean Freight Charter hire Prices. 37. Based on the aforesaid letter, the transporters M/s. SICAL accepted the offer of the assessee as follows:- This has reference to your letter dated 10th February 2006 and also our letter dated 14th February 2006. Vide your letter you have informed us that based on the decision of Board of Directors in respect of ocean freight and charter hire, KPCL proposes to make a payment of ₹ 60/- pmt in respect of 3.46 lakh Mts of coal moved over and above the contacted quantity of 36 lakhs Mts. We have already explained to you in our letter that as per the contractual conditions, the escalation payable to us is much more than this amount. We have also pointed out that this decision is not as per the terms of the contract. However, as we have certain pressing commitments we are willing to receive the money approved by the Board in view of the good business relationship we had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arlier period, the same is allowable in the present assessment year as the liability had crystallised only during the previous year. We therefore direct that the claim of the assessee be allowed. 41. As far as the differential sales tax reimbursement of lease rentals is concerned, the facts are as follows. The assessee had entered into an agreement with M/s.ICICI Bank Ltd., towards sale and lease back of Boiler at Raichur Thermal Power Station - units 5 6 for which the Government of Karnataka had granted exemption from payment of sales tax on such lease rentals. However the exemption was withdrawn by the Hon ble Government of Karnataka with effect from 01/08/2004 resulting in payment of sales tax on lease rentals. As per the claims of M/s. ICICI Bank Limited the sales tax was paid at 1.50% of the lease rentals with effect from 01/08/2004. Thereupon the ICICI Bank Limited demanded and claimed that the applicable sales tax rates will be at 9.20% instead of 1.50% on such lease rentals. The assessee reimbursed the differential sales tax on lease rentals amounting to ₹ 2,63,72,297/- on 07/03/2006 to M/s. ICICI Bank Limited with retrospective effect at 7.70% (i.e., 9.20% less ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee. It was also submitted that the expenditure claimed under six heads is negligible considering the large scale operations in which the assessee is engaged. It was therefore prayed that the addition made should be deleted. 45. We are of the view that considering the explanation offered, it would be reasonable to allow the claim of the assessee. Consequently the claim of the assessee is directed to be accepted. 46. In the result, ground No.4 is partly allowed. 47. Ground Nos. 5 6 raised by the assessee reads as follows:- 5. Without Prejudice the appellant denies itself liable to be taxed under the provisions of section 115JB of the Act since the appellant is a electricity company and the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 are not applicable to the appellant. 6. The authorities below ought to have appreciated that the provisions of MAT is not applicable to the appellant since the appellant is engaged in the generation or supply of electricity and under proviso to section 211[2] of the Act,, the appellant is exempted from preparing its books of account in terms of requirements under schedule VI to the Companies Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is an electric company engaged in the generation of power. The provisions of section 115JB(2) read as under : Every assessee, being a company, shall for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 (1 of 1956). The assessee, in the case on hand, however does not have to prepare its accounts in accordance with Parts II and III of Schedule VI of the Companies Act, 1956, by virtue of proviso to section 211(2) thereto. The proviso to section 211 (2) of the Companies Act, 1956 reads as under : Provided that nothing contained in this sub-section shall apply to any insurance or banking company or any company engaged in the generation or supply of electricity, or to any other class of company for which the form of profit and loss account has been specified in or under the Act governing such class of company. 11.2.2. As contended by the learned Authorised Representative the newly inserted Explanation - 3 to section 115JB of the Act is clear that the assessee is given an option to prepare its profit and loss account for the relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act, they need to be challenged before the Tribunal. It was also pointed out that the assessee s total income was computed under the provisions of section 115JB of the Act as the tax payable was more than the total income computed under the normal provisions of the Act. 54. We have considered the submissions of the ld. counsel for the assessee and the reasons given in the affidavit for condonation of delay of 31 days in filing the appeal. We are satisfied that the delay in filing the appeal was occasioned due to sufficient cause and we accordingly condone the delay in fling the appeal. 55. As far as this appeal is concerned, ground Nos.1, 11 12 are general in nature and call for no specific adjudication. 56. Grounds 6 7 raised by the assessee read as follows:- 6. Without prejudice the learned authorities below failed to appreciate the fact that by virtue of additions and disallowances made to the reported income, the gross total income increases and even after such additions, the income of the appellant will be Rs.NIL since the appellant had an eligible claim of deduction under section 80IA of the Act amounting to sum of ₹ 249,82,55,108/- and the same wil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prove that the expenditure is allowable only during the assessment year 2008-09. Therefore, the AO is justified in making the disallowance, which is upheld. 62. We have considered the rival submissions. From a perusal of the order of the AO as well as CIT(Appeals), it is clear that the revenue authorities have not denied the fact that the expenditure crystallised during the previous year, though they related to a period earlier to the previous year. In our view, under the mercantile system of accounting it is the crystallization of liability that will decide as to allowability of an expenditure. Since, admittedly, crystallization of expenses in question had happened during the previous year, the expenditure claimed by the assessee has to be allowed. Accordingly, the AO is directed to allow the claim of the assessee for deduction. 63. Ground No.4 raised by the assessee reads as follows:- 4. The learned CIT[A] is not justified in law in confirming the disallowance made by the learned assessing officer on account of expenditure claimed by the appellant under the head expenditure on establishment and general expenses of ₹ 61,21,109/- as against the original addition ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crystallized only during the previous year relevant to the assessment year under consideration. In the absence of any liability incurred during the year under consideration, the expenditure cannot be allowed. The appellant has failed to prove that the expenditure is allowable during the assessment year 2008-09. Therefore, the AO is justified in making the disallowance of ₹ 61,21,109/-, which is upheld. 67. In our view, the CIT(A) in enhancing the disallowance made by the AO has overlooked the fact that the liability of the assessee to pay DA had crystallised only during the previous year. Accordingly, the addition made by way of enhancement by the CIT(A) is directed to be deleted. 68. With regard to the remaining sum of ₹ 38,55,151, the ld. counsel for the assessee submitted before us that the necessary evidence to prove crystallization of liability during the previous year can be produced by the assessee and for this purpose, pleaded for a fresh opportunity before the AO. We are of the view that the request made is reasonable and accordingly we set aside the order of the CIT(A) insofar as the addition of ₹ 38,55,151 is concerned and direct the assessee to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd, disallowed the same, brought to tax the sum of ₹ 6,53,49,424/-. On appeal by the Assessee, the CIT(A) confirmed the order of the AO. Before CIT(A), the Assessee had submitted that short provisions made towards power charges and electricity tax of colony consumption relating to the period prior to the previous year in question was liable to be allowed during this year in view of the order dated 9/6/2005 passed by the Karnataka Electricity Regulatory Commission (KERC), whereby the actual liability got crystallized. The CIT(A) however noticed that the Assessee did not accept the order of KERC and therefore the said liability is not ascertained yet and, therefore, cannot be allowed. Therefore, the AO is justified in making the disallowance of ₹ 6,53,49,424/-. 73. Aggrieved by the order of the CIT(Appeals), the assessee has raised ground No.5 before the Tribunal. 74. We have heard the rival submissions. It is not in dispute before us that that the liability of the assessee to pay the aforesaid sum arose only during the previous year. It is also not in dispute before us that the total demand insofar as the power charges are concerned is much more than the sum of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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