TORRENT POWER LTD.,,AHMEDABAD vs. THE ACIT.,RANGE-8,, AHMEDABAD

आदेश/O R D E R PER WASEEM AHMED ACCOUNTANT MEMBER:

The captioned eight appeals and one cross appeal have been filed at the instance of Assessee and Revenue against the respective orders of the Learned Commissioner of Income Tax (Appeals), Ahmedabad arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act, 1961 (here-in- after referred to as "the Act") relevant to the Assessment Year as mentioned in the cause title.

First we take up the assessee’s appeal for AY 2006-07 bearing ITA No. 1577/AHD/2015.

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(b) that the Gujarat High Court had applied the above decisions of the Supreme Court even as it very well knew that the lease in the case before it was for as many as 99 years (which was also the case with the appellant's leases) 2.2 In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in failing to appreciate that facts of the appellant's case cannot be distinguished from the facts of the case before the Gujarat High Court in the manner he had done vide para 6.3 of his order and in particular, as under: "6.3 Thus what follows from the above is individual facts of the case are decisive to the issue. In none of the lease deeds filed before me, the lease rent is as low as Rs.40 per year. Thus the facts are not similar. None of the agreement is with GIDC. Hence facts cannot be said to be similar.

He ought also to have appreciated that it was only axiomatic that but for the lease taken by the assessee in the case before the Gujarat High Court, that assessee too would not have been able to carry on that particular business which it could carry on in the premises leased by it and, therefore, it could not be open to him to conclude that the appellant's expenditure was in the capital field by merely suggesting that the appellant would not have been able to carry on its power distribution business without the impugned land taken by it under the leases in question, in total disregard of the vital facts concerning the decision of the jurisdictional Gujarat High Court pointed out by the appellant, as aforesaid. 3. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in rejecting the appellant's alternative Ground for grant of depreciation on the impugned initial payments for the leaseholds which, in any case, were intangible assets as defined by the Explanation to Section 32(1). 4. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in rejecting the appellant's alternative Ground for granting deduction for the initial payments for the leaseholds In question on an proportionate basis considering the period for which the leaseholds were granted on the ground that there was no provision . in law for allowing such deduction. He ought to have appreciated, inter alia, that the appellant's claim was eminently covered by the ratio of the Supreme Court decision in Madras Industrial Investment Corporation Ltd. v. CIT(225ITR802). 5. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in omitting to consider Ground No. 5 of the appellant's appeal before him challenging initiation of penalty proceedings u/s. 271(1)(c). He ought to have appreciated, inter alia, that in the peculiar facts and circumstances of the appellant's case, there being absolutely no warrant/justification for initiating the penalty proceedings, they deserved to be dropped, thereby saving both the appellant and the Department from long drawn unnecessary litigation. 6. The appellant craves leave to add, amend and/or alter the ground or grounds of appeal either before or at the time of hearing of the appeal.

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4.1 However, the AO, in the first round of litigation in his order dated 30-12-2008 was not satisfied with the contention of the assessee on the reasoning that the lump sum payment made by the assessee represents the cost of the land and therefore the same should be treated as capital expenditure for the acquisition of the land. Under the provisions of section 32 of the Act, no depreciation is allowed on the land. The other observations made by the AO in the assessment order dated 30-12-2008 read as under: i. The lease period was for 99 years which is a substantial period of holding the rights in the land and that too was acquired on the significant lump sum payment at the time of acquiring the land on lease. After the significant lump sum payment, the negligible amount was to be paid i.e. ₹ 1 per square meter per annum. Thus, in substance and for all practical purposes, the assessee became the owner of such land. Likewise, the

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assessee by acquiring the impugned land has obtained the benefit of enduring nature with perpetual right of getting the renewal of the lease period. Thus, such payment of the premium amount towards the acquisition of land was capital in nature and the land is not subject to depreciation under the Act. Thus, the depreciation claimed by the assessee cannot be allowed as deduction. ii. The lease deed was neither entered nor any payment for the lease premium made in the year under consideration. 4.2 In view of the above, the AO disallowed the depreciation claimed by the assessee in the order dated 30-12-2008.

5.1 The assessee reiterated the submissions as made before the AO during the assessment proceedings and further contended that the amount of lease premium can be allowed as revenue expenses in the light of the judgment of Hon’ble Gujarat High Court in the case of Sun Pharmaceuticals Industries Ltd reported in 329 ITR 479.

6.1 With respect to the contention of the assessee treating the amount of lease premium as revenue in nature, the learned CIT (A) observed that the assessee has not claimed the entire expenses as revenue in nature in the Income Tax Return. As such the assessee, in the Income Tax Return has claimed depreciation treating the amount of lease premium as intangible asset based on its stand in the earlier years.

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Therefore, the same cannot be allowed as revenue expenses in the year under consideration. Furthermore, the assessee in the earlier year i.e. assessment year 2002-03 has also raised one of its ground that the amount of lease premium can be treated as revenue in nature before the ITAT. But the ITAT did not agree with the contention of the assessee.

6.2 The ITAT in the case of Sun Pharmaceuticals Industries Ltd has decided the issue in the favour of the assessee vide order dated 17-2-1999 whereas the ITAT in the own case of the assessee for the assessment year 2002-03 has decided the issue against the assessee vide order dated 23 December 2008. In other words the order of the ITAT in the case of Sun Pharmaceutical Industries Ltd was available before the ITAT while deciding the issue of the present assessee. But, the assessee has not brought to the notice of the ITAT the order in the case of Sun Pharmaceuticals Industries Ltd during the relevant time.

6.3 In view of the above the learned CIT (A) vide order dated 19 February 2009 was pleased to uphold the order of the AO.

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connected facts to apply the ratio laid in the said precedent. The said verdict is as follows, reproduced from the Head Notes (329 ITR 479):- “The assessee-company claimed deduction of a sum of Rs.48,02,616/- being payment to GIDC. It contended that the lease rent in respect of the land allotted to the assesseecompany being very nominal i.e. at Rs.40 per year,the payment was nothing else but advance rent and hence, allowable as revenue expenditure. After going through the lease agreement the A.O. disallowed the claim holding that the assessee had acquired a benefit of enduring nature in the form of use of land for a period of 99 years; that the land had been transferred through a registered deed involving transfer of immovable property and thus, the assessee had acquired a fixed asset in the form of a parcel of land. The Tribunal held that the lease rent was deductible. On appeal to the High Court: Held, dismissing the appeal, that the Tribunal had found that the land in question was not acquired by the assessee. Merely because the deed was registered the transaction in question would not assume a different character. The lease rent was very nominal. By obtaining the land on lease the capital structure of the assessee did not undergo any change. The assessee only acquired a facility to carry on business profitably by paying nominal lease rent. The lease rent paid by the assessee to GIDC was allowable as revenue expenditure.” 4. On careful reading of the judgment of Sun Pharmaceuticals Ind. Ltd. (supra), we have found that the issue was confined to the question of deductibility of the lease rent. Dismissing the appeal of the Revenue, the Court has said that the Tribunal had found that the land in question was not acquired by the assessee. Merely because the deed was registered the transaction in question would not assume a different character. By obtaining the land on lease the assessee has acquired a facility to carry on business by paying nominal lease rent, therefore, lease rent paid was held allowable as Revenue expenditure. In this context we may like to add that though the Respected Co-ordinate Bench vide an order dated 21-1-2011 for A.Y. 2005-06 has restored both the grounds for re-adjudication by A.O. but the distinction between the two grounds is that ground No.1 is about claim of depreciation on lease hold rights and ground No.2 is about the claim of expenditure pertaining to the said lease. The Hon’ble Court has decided only in respect of deductibility of lease rent but since the matter now stood restored back to the A.O., therefore, we hereby direct to keep in mind this subtle distinction and re-decide as per law. Identically, these two grounds may be treated as allowed but for statistical purposes.” 20. Since it is an undisputed fact that the facts in the present year are similar to that of earlier year, we are of the view that since for A.Y. 2004-05, the matter has been remitted back to the file of A.O. to examine and decide the issue in line with the directions contained therein, in the year under appeal also the matter be remitted back to the file of A.O. to decide the matter. We respectfully following the decision of the co-ordinate Bench remit the issue to the file of A.O. to examine the facts and decide the issue in the light of decision in the case of DCIT vs. Sun Pharmaceuticals Ind. Ltd., and after giving reasonable opportunity of hearing to assessee. Thus this ground of appeal of the assessee is allowed for statistical purposes.

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8.1 The assessee in response to such show cause notice submitted that the principles laid down by the Hon’ble Gujarat High Court in the case of Sun Pharmaceuticals Industries Ltd. (supra) are applicable to the present facts of the case. The assessee further contended that merely registration of the lease deed does not bring any change in the character of lease deed transaction. In other words, the ownership of the land was vested with the owner only which has not transferred to the assessee. It was not possible for the assessee to carry on its business without acquiring the land. Thus the assessee contended that the amount of lease premium is eligible for deduction as revenue expenses.

8.2 However, the AO disregarded the contention of the assessee by observing that the assessee has claimed the depreciation on the lease premium in the year under consideration treating the same as intangible asset which was based on the earlier year stand. Therefore, claim of the assessee treating the amount of lease premium as revenue in nature cannot be entertained. Furthermore, if the contention of the assessee is accepted by treating the impugned amount as revenue in nature but the same will disturb the income of the current year as well as the income of the earlier year which in turn will have the cascading effect.

8.3 In the case of Sun Pharmaceutical Industries Ltd, there was no issue or finding with respect to the depreciation on the amount of lease premium. As such, the issue before the Hon’ble Gujarat High Court was related to the advance rent paid by the Sun Pharmaceuticals Industries Ltd whereas the issue in the present case relates to the depreciation on the amount of lease premium paid by the assessee. Thus the AO was of the view that the principles laid down by the Hon’ble Gujarat High Court cannot be applied to the case on hand.

8.4 The AO also noted that subsequently the Hon’ble Delhi High Court after considering the judgment of the Hon’ble Gujarat High Court in the case of Sun Pharmaceuticals Industries Ltd has decided the issue against the assessee in the

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case of Gail India Ltd Vs. JCIT reported in 27 taxmann.com 97 wherein it was held that the assessee by acquiring the lease property has obtained the benefit of enduring nature by bringing into existence an asset. Accordingly, such payment of lease premium was treated as capital expenditure.

9.1 Moreover, the assessee failed to deduct the TDS under the provisions of section 194(I) of the Act on the amount of lease premium and therefore the same cannot be allowed as deduction under the provisions of section 40(a)(ia) of the Act.

11.1 The learned AR further contended that amount of depreciation was claimed in the earlier years including the year under consideration but the same was never allowed. Therefore, there cannot be any distortion in the income of the assessee for the year under consideration as well as for the earlier year if the same is allowed

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treating as revenue expenditure. Admittedly, the expense, was incurred in the earlier year but there is no prohibition for claiming the same as deduction in the year under consideration as there is no doubt on the genuineness of the expenses. Furthermore, there is no change in the rate of tax in the year under consideration viz a viz in the earlier assessment years.

11.2 The learned AR also contended that the books of accounts cannot be a decisive factor for allowing the expenses if the deduction for the same is available under the provisions of law.

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iv. Whether the principles laid down by the Hon’ble Supreme Court in the case of Enterprising Enterprises Vs. DCIT reported in 293 ITR 437 are applicable in the given facts and circumstances. 13.1 Admittedly, it is the 2nd round of litigation before us, meaning thereby, the ITAT on the earlier occasion has set aside the issue to the file of the AO for fresh adjudication with some direction which has been reproduced somewhere in the preceding paragraph.

13.2 It is the trite law that the scope of adjudication of the issue in the set-aside proceedings is limited to the extent of the direction issued by the higher forum. In holding so we draw support and guidance from the judgment of Hon’ble Allahabad High Court in case of S.P Kochhar vs. ITO reported in 145 ITR 255, where it was held as under:

The provisions of sections 251 and 254(1) as well as the various judicial pronouncements make it clear that the powers of the AAC are wider than those of the Tribunal. The AAC, while hearing an appeal under section 251 can examine all matters covered by the assessment order and correct the assessment in respect of all such matters even to the prejudice of the assessee. When the AAC remands the case to the ITO for making a fresh assessment, the powers of the ITO while making the fresh assessment are the same as if he were making an original assessment under section 143(3) unless the AAC limits the powers of the ITO by giving suitable directions. Where the remand is made by the Tribunal, the position is different. Unlike those of the AAC, the powers of the Tribunal are confined to the subject-matter of appeal as constituted by the original grounds of appeal and such additional grounds as may be raised by the leave of the Tribunal. Thus, when the Tribunal allows the appeal and sets aside the assessment and remands the case for making a fresh assessment, the power of the ITO is confined to such subject-matter only. He cannot take up the questions which were not the subject-matter of appeal before the Tribunal. This will be so even though no specific direction has been given by the Tribunal. If a specific direction is given, then there is no scope what so ever for the ITO to travel beyond those directions or restrictions.

13.3 On a plain reading of the direction of the ITAT, it is transpired that it was to be seen whether the ratio laid down by the Hon’ble Gujarat High Court in the case of Sun Pharmaceuticals Industries Ltd (supra) are applicable to the case on hand. As per the authorities below, the facts of the case on hand were different with the facts of Sun Pharmaceutical Industries Ltd. Accordingly, the disallowance was made by the authorities below qua the lease premium paid by the assessee in the earlier

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year. For the ready reference, the relevant extract of Hon’ble Gujarat High Court in the case of Sun Pharmaceuticals Industries Ltd reported in 329 ITR 479 are extracted below: 6. The facts are not in dispute. The lease agreement entered into between the assessee and GIDC has been analyzed and relevant terms summarized by the Tribunal. It is not necessary to refer to the said terms in detail in the present proceedings. Suffice it to state that the Tribunal, on appreciation of the deed in question, has recorded following findings of fact : "It is not disputed that the land which has been leased out to the assessee did not cease to be belonging to GIDC, the lessor. The lease deed was registered because as per the Registration Act, it is compulsorily registrable, but it has not changed the ownership. It is not also disputed that the lease rent is very nominal and by obtaining this land by lease the capital structure of the company has not been changed. . . . . . Thus, by this payment the assets of the assessee company had not been increased because the land continued to be the land of GIDC. The benefit the assessee got is only of an advantage of carrying on the business more profitably by paying nominal rent on the land. The issue can be considered in another angle. It cannot be disputed that if the land is not obtained by the assessee it would not be possible for it to carry on the business........." 7. The Tribunal has thus, after referring to two decisions of Supreme Court, held that the land in question was not acquired by the assessee. That merely because the deed was registered the transaction in question would not assume a different character. The lease rent was very nominal. By obtaining the land on lease the capital structure of the assessee did not undergo any change. The assessee only acquired a facility to carry on business profitably by paying nominal lease rent.

13.4 Now, we proceed to examine the facts of the present case viz a viz the facts of the Sun pharmaceutical industries Ltd in the manner as tabulated below:

S.No. Facts in case of assessee Facts in case of Sun Comment Pharma 1. Property belong to AMC Property belong to GIDC and SMC 2. Lease period 99 year Lease period 99 year Same in both 3. Lease taken with Not known development right 4. No proof that owner ship Ownership right rest transferred with GIDC 5. Used the land for Power Used the land for Purpose is similar receiving station business purposes in both case

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13.5 On minute analysis as discussed above we note that there was no difference in the facts of the assessee with the facts of Sun Pharmaceutical Industries Ltd except the amount of yearly payment of rent. But such difference in the amount of rent cannot be a criteria distinguish the principles laid down by the Hon’ble Gujarat High Court in the case of Sun Pharmaceuticals Industries Ltd.

13.6 It is also pertinent to note that the authorities below have also given different reasoning while disallowing the claim of the assessee. But to our mind, the authorities below cannot improve the case beyond the direction of the ITAT. Without prejudice to the above, it is also pertinent to note that the entries in the books of accounts cannot be a criteria to allow or to disallow the claim of the assessee until and unless it contravenes the provisions of law. In holding so we draw support and guidance from the judgment of Hon’ble Supreme Court in case of Kedarnath Jute Mfg. Co. Ltd. vs. CIT reported in 82 ITR 363, where the Hon’ble Apex court held as under: Whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which the assessee might taken of its right nor can the existence or absence of entries in the books of account be decisive or conclusive in the matter.

13.7 Moving further, we also note that the genuineness of the expenses have nowhere been doubted by the authorities below. Thus, the claim of the assessee even pertaining to the earlier assessment year cannot be denied merely on the reasoning that such claim relates to the earlier assessment year i.e. treating as prior period items. There was no change in the rate of tax in the year under consideration viz a viz in the earlier assessment year. Accordingly, there is no loss to the revenue

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even claim of the assessee is allowed in the later assessment year. In holding so we draw support and guidance from the judgment of Hon’ble Bombay High Court in case of Nagri Mills Co. Ltd. reported in 33 ITR 681, the relevant portion of the finding is extracted herein: “We have often wondered why the Income-tax authorities, in a matter such as this where the deduction is obviously a permissible deduction under the Income-tax Act, raise disputes as to the year in which the deduction should be allowed. The question as to the year in which a deduction is allowable may be material when the rate of tax chargeable on the assessee in two different years is different; but in the case of income of a company, tax is attracted at a uniform rate, and whether the deduction in respect of bonus was granted in the assessment year 1952-53 or in the assessment year corresponding to the accounting year 1952, that is in the assessment year 1953-54, should be a matter of no consequence to the Department; and one should have thought that the Department would not fritter away its energies in fighting matters of this kind.”

13.8 Going forward, we note that the learned DR at the time of hearing has cited certain judgments in support of his contention that the amount of lease premium represents the capital expenditures and therefore the same cannot be allowed as deduction. For the sake of repetition, it is necessary to point out that it is the set- aside proceedings and the facts of the case cannot be improved by taking the recourse to examine the issue from a different dimension. However, for the sake of clarity and record, we note that there is a common thread in all the judgments referred by the ld. DR that the lease premium was paid in connection with the extraction of the minerals from the land. The relevant extract of the judgment in case of Enterprising Enterprises Vs. DCIT reported in 268 ITR 95 reads as under: In view of the decision of the Supreme Court in Aditya Minerals (P.) Ltd. v. CIT [1999] 239 ITR 817, on the facts and circumstances of the instant case, the Tribunal was right in holding that the quarry lease rent paid to the Government for acquiring the right to excavate the granite on lease was a capital expenditure.

13.9 The term mining lease includes leases of premises where mining takes place, it is not actually necessary for mining to take place at the premises for a lease to be a mining lease. In the case of expenditure in respect of mining leases, the test whether the expenditure are capital or revenue in nature is that if such expense relates the minerals which needs to be extracted and brought to surface by mining operations, the expenditure incurred for acquiring such a right would be of a capital nature. But, where the mineral has already been gotten and is on the surface, then

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the expenditure incurred for obtaining the right to acquire the raw material, that is, the mineral, would be a revenue expenditure laid out for the acquisition of stock-in- trade. Thus, the character of the payment can be determined by looking at what is the true nature of the asset which has been acquired and not by the fact whether it is a payment in a lump sum or by instalments.

13.10 However, in the case on hand we find that the assessee has taken the land for setting up power receipt station in order to further distribution of power to customers and not for the purpose of extraction of the minerals. It is also pertinent to note that Hon’ble SC in its judgment in the case of Pingle Industries Ltd reported in 40 ITR 67 held that: “A large number of decisions were cited before us, but ho infallible criterion of universal application emerges therefrom and each case must turn on its own facts, though the decisions are useful as illustrations and as affording indication of the kind of considerations which may relevantly be borne in mind in approaching the problem. I shall refer in this judgment to such decisions only as have a bearing on the real controversy between the parties.

13.11 From the above judgment it is observed that the principles laid down in a given case cannot be applied in all the cases. As such, the issue depends upon the facts and circumstances of each case. Thus the issue whether the lease premium is capital in nature depends upon the facts and circumstances of each case. Accordingly, in our humble understanding, the principles laid down by the Hon’ble SC cannot applied in each and every case without examining the necessary and relevant facts.

13.12 We also find that the Hon’ble Karnataka High Court in the case of CIT vs. H.M.T. Ltd. reported in 203 ITR 820 has allowed such lease premium as revenue expenses. In that case the land was acquired on lease for 95 years and the assessee paid upfront lease premium of ₹ 12,09,200/-. Thereafter, the assessee was liable pay lease rent at ₹1 per annum. The Hon’ble Karnataka High Court was pleased to delete the addition made by the AO by observing as under: “The agreement dated 24-11-1980 created a lease in favour of the assessee and no other legal rights in the land as such were granted to the assessee. The Tribunal had found as a

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fact that what was paid by the assessee in a lump sum to MIDC was the future rent payable by it and which the assessee had to pay periodically. This was evident from the fact that the assessee was paying Re. 1 per annum which was obviously for the purpose of retaining the character of transfer of property as a lessee and not for any other purpose. The use of the term 'premium' in the agreement in respect of the advance rent paid did not render payment anything more than rent paid in advance instead of paying the same in future periodically. There was absolutely no indication in the agreement that the amount paid by the assessee could be considered as a consideration paid by it for being let into possession of the premises while reserving a separate or economic rate of rent to be paid periodically thereafter. The rent of Re. 1 payable for the premises was only nominal which would lead to the irresistible inference that lump sum amount paid at the inception of the lessee under the agreement was nothing but rent paid in advance and to obviate the need for making periodical payments. Therefore, the Tribunal was justified in allowing the deduction of the premium paid as business expenditure.

13.13 The next question arises though not arising from the direction of the order of the ITAT as discussed above, is that the assessee failed to deduct the TDS on the amount of rent under the provisions of section 194 I of the Act. Therefore, as per the provisions of section 40(a)(ia) of the Act, the same cannot be allowed as deduction as business expenses. In this connection we find that, there was the proviso attached to section 40(a)(ia) vide finance Act 2012, which has been held as retrospective, reads as under: [Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to sub-section (1) of section 201, then, for the purpose of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso.]

13.14 It is pertinent here to refer the first proviso to section 201 of the Act which reads as under: [Provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee in default in respect of such tax if such resident— (i) has furnished his return of income under section 139; (ii) has taken into account such sum for computing income in such return of income; and (iii) has paid the tax due on the income declared by him in such return of income, and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed21a:]

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13.15 On perusal of the above provisions it is transpired that the assessee will not be penalized even in the case no tax deducted at source on the amount paid or credited to resident payees if following conditions fulfilled: (A) Payee has included the impugned amount on which tax was not deducted/short deducted by the payer in his return of income filed under section 139 and pays the taxes due on returned income and

(B) Payer produces a certificate in prescribed form i.e. form 26A from a CA to the effect that the payee has included the income in return and paid taxes thereof.

13.16 In view of the above, we note that the disallowance cannot be made without referring the provisions as discussed above.

13.17 In view of the above and after considering the facts in totality, we hold that the impugned amount of lease premium expenses are allowable deduction as revenue expenses while computing the business income of the assessee. Hence, we reverse the order of the authorities below and direct the AO to delete the addition made by him. Thus the ground of appeal of the assessee is allowed.

13.18 In the result appeal filed by the assessee is allowed.

Now coming to Assessee’s appeal bearing ITA No. 776/AHD/2012 for AY 2008-09.

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14.1 The assessee has also raised Additional ground of appeal which reads as under: "Without prejudice to all the grounds raised, in law and in the facts and circumstances of the appellant's case, the appellant requests for admission of its additional claim and for allowing deduction of Rs.1,23,32,471/- in respect of Education Cess and the Secondary and Higher Education Cess on income tax, on the ground that such expenditure is allowable business expenditure u/s 37{1) of the Act as per settled legal precedents.

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it. Therefore, there cannot be any disallowance on account of interest expenses. Likewise, the assessee contended that it has not put any effort in earning the impugned exempted income. Therefore, there cannot be any disallowance of administrative expenses.

16.1 However, the AO disregarded the contention of the assessee by observing that there was a reduction in liquidity of funds with the assessee on account of the impugned investments. Thus, the interest on the borrowed fund needs to be disallowed.

16.2 Likewise, the AO was also of the view that there is always the involvement of the management and the employees in the process of decision-making for making the investment and maintaining the same. Thus, the AO was of the view that there should also be disallowance of the administrative expenses.

16.3 In view of the above, the AO invoked the provisions of section 14A and computed the disallowance under rule 8D of Income Tax Rules in the manner as detailed below: i. Direct expenses Nil ii. Interest expenses Rs. 20,37,001.00 iii. Administrative expenses Rs. 17,81,570.00

16.4 Thus, the AO made the disallowance of Rs. 38,18,571/- under the provisions of section 14A read with rule 8D and added the same to the total income of the assessee.

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the interest expenses in proportion to the investment in assets that give tax free income. It also works out administrative expenses in proportion to the average investment. Therefore, it takes care of the situation of availability of all types of funds and investment made by the appellant. The Assessing Officer has also considered various submissions given by the appellant during the course of assessment proceedings and after analyzing the submission, he has given a finding that no separate accounts are being kept regarding the earning of exempt income. As there is an intermingling of funds, the action taken by the A, O. by applying Rule 8D to work out the disallowance u/s. 14A was fully justified. The appellant has earned exempt dividend of Rs. 1,72,09,084/-and tax free interest on bond of Rs.2,54,110/- . It cannot be accepted that no expenditure has been incurred in earning of this income. The appellant has tried to explain the availability of funds by analysing the overall position of various funds available but it has not been able to clearly establish that the funds that have been invested in tax exempt income are in fact interest free funds. The appellant has also placed reliance on certain case laws which are related to the disallowance u7s. 14A of the Act. I have carefully perused the judgments cited by the appellant, However, it is noted that all the judgments mentioned by him are related to the provisions of the Act which are prior to A. Y. 2008-09 from which year the applicability of Rule 8D has now been judiciously settled. Therefore, the reliance placed by the appellant on various judgment is respectfully distinguished. In view of the above mentioned discussion, the disallowance made by the A. O. u7s. 14A by provisions of Rule 8D is upheld and the ground of appeal is dismissed.

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Net owned funds : Rs. 2889.76 crore Investment in securities : Rs. 61.88 crore

21.1 In view of the above, a presumption can be drawn that the owned fund of the assessee has been used in the impugned investment. Therefore, we are of the view that no disallowance of interest expenses on account of diversion of the fund is warranted. In this regard, we find support and guidance from the judgement of Hon’ble Bombay High Court in the case of Reliance Utilities and Power Ltd. reported in 313 ITR 340 wherein it was held as under:- “The principle therefore would be that if there are funds available both interest-free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest-free fund generated or available with the company, if the interest-free funds were sufficient to meet the investments. In this case this presumption is established considering the finding of fact both by the CIT(A) and Tribunal”. 21.2 Similarly, we also rely on the judgment of the Hon’ble Gujarat High Court in the case of CIT vs. India Gelatine & Chemicals Pvt. Ltd. reported in 376 ITR 553. The relevant extract of the order is reproduced below: The assessee had made investment in shares and mutual funds. It suo motu offered/ disallowed the amount of Rs. 2 lakhs on account of section 14A. The Assessing Officer, however, made further disallowance under section 14A. The Tribunal deleted the entire disallowance made by the Assessing Officer on the ground that the assessee had sufficient interest-free funds out of which investment was made. Held that there was no infirmity in the impugned order of the Tribunal. 21.3 Likewise, we also draw support from the judgment of Hon’ble Gujarat High Court in the case of UTI Bank Ltd. reported in 32 Taxmann.com 370 where the headnote reads as under : “If there are sufficient interest free funds to meet tax free investments, they are presumed to be made from interest free funds and not loaned funds and no disallowance can be made under section 14A”. 21.4 In view of the above proposition, we hold that no disallowance of interest expense claimed by the assessee can be made on account of investments made in the securities as discussed above. Hence we direct the AO to delete the addition made to the extent of interest expenses

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21.5 As regards, the administrative expenses are concern, it is the onus upon the assessee to justify that it has not incurred any administrative expenses qua the impugned exempt income. Admittedly, in the process of decision making for making any investment or disinvestment of the securities, the top management has to be involved who are assisted by their sub-ordinate staff. Accordingly, the Top Management avails the services of administrative facilities, besides using the administrative staff in the decision making process of investment and disinvestment of the securities. Thus, we are of the view that some element of the administrative expenses should be considered/ allocated against the exempted income. But the assessee has not done so. Accordingly, the AO has made the disallowance qua the administrative expenses under rule 8D of Income Tax Rules which was subsequently confirmed by the ld. CIT-A. As assessee has not made any disallowance qua the administrative expenses and also failed to justify based on the documentary evidence that it has not incurred any expense, we don’t find any reason to interfere in the finding of the ld. CIT-A. Hence, we confirm the disallowance made by the authorities below towards the administrative expenses subject to the limit of the exempted income. Thus the ground of appeal of the assessee is partly allowed.

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such, the issue raised by the assessee becomes infructuous. Accordingly, the ground of appeal raised by the assessee is dismissed as infructuous.

Insurance receipts

26.1 However, the AO was not satisfied with the claim of the assessee on the reasoning that the assessee has claimed the loss in the earlier years when the assessee was not eligible for deduction under section 80IA of the Act. But the

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insurance claim with respect to such loss was received in the year under consideration when the assessee was eligible for deduction under section 80IA of the Act. Thus, as per the AO, the assessee was claiming double benefit by claiming the loss as well as claiming the deduction on the recovery of such loss by way of insurance claim. Accordingly, the AO held that such amount of insurance claim is not eligible for deduction despite the fact that it was recognized as income as per the accounting policy adopted by the assessee but such policy cannot overrule the provisions of law as well as settled legal propositions laid down by the Hon’ble courts. Thus, the AO reduced the amount of deduction claimed by the assessee under section 80IA of the Act by the amount of insurance claim as discussed above. Thus, a sum of Rs. 3,40,16,353/- was added to the total income of the assessee.

27.1 The assessee before the learned CIT(A) submitted that the insurance claims were settled in the year under consideration with respect to the loss incurred in the earlier years. The accounting principles require that the income from the insurance claim should be recognized when its collection is reasonably certain. Furthermore, the same policy has been adopted by the assessee consistently in recognizing the insurance claim in the year in which it was received. The assessee also submitted that the insurance claim was received with respect to the eligible unit therefore it has integral nexuses with the eligible unit. Thus the same should be allowed as deduction.

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32.1 From the above, there remains no ambiguity to the fact that the assessee is eligible for deduction under section 80IA of the Act with respect to the impugned insurance receipt shown as income in the year under consideration.

32.2 However, we note that the learned CIT (A) has also given a finding in his order that there is no clarity whether the impugned insurance claim is on account of revenue loss or the capital loss. First of all, we note that the AO in his order has given very clear finding that the loss was claimed as deduction in the earlier year against which the impugned insurance receipt has been shown as income. If that be so, then in our considered view the same treatment should be given to the impugned insurance receipt. In simple words once the loss has been allowed as deduction in the earlier year, then the receipt against such loss by way of insurance claim should also be treated as income of the assessee. There cannot be different treatment for the loss claimed by the assessee and the income shown by the assessee qua such loss.

32.3 In addition to the above, we also note that the finding of the learned CIT(A) is not complete. If the learned CIT(A) had a doubt about the character of insurance receipt whether it is on revenue account or capital account, then it was his duty to find out the truth by carrying out the necessary verification. But we find that the learned CIT (A) without necessary verification had doubted on the impugned insurance receipt. In our considered view, this approach of the learned CIT(A) seems to be improper. Be that as may be, in the interest of justice and fair play, we are inclined to restore the issue to the file of the AO for limited purpose to verify whether the impugned receipt represents the capital receipt or revenue receipt. If it is of capital in nature, then the assessee should not be allowed as deduction under section 80 IA of the Act and vice-versa as per the provisions of law. Hence the issue raised by the assessee is allowed for the statistical purposes.

Streetlight maintenance

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33.1 Without prejudice to the above, the assessee also contended that if the assessee is denied the benefit of 80IA deduction from its maintenance activity, then the net amount of income should only be considered for the purpose of disallowance. Accordingly, the assessee worked out the amount of profit embedded in such activity of Rs. 1,44,61,003/- against the gross receipt of Rs. 4,51,03,426/- only.

33.2 However, the AO disregarded the contention of the assessee by observing that the income from the maintenance of streetlights activity is not derived from the power distribution activity. The maintenance activity is altogether separate and independent to the power distribution activity. It is not necessary for providing the maintenance services to AMC that the assessee should be engaged in the activity of power distribution. Accordingly, the AO excluded the amount of Rs. 1,44,61,003/- from the eligible amount of deduction under section 80IA of the Act.

34.1 The assessee before the learned CIT(A) contended that the income from the maintenance of the streetlight has direct nexuses with the business of distribution

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of power. Therefore, the same should be allowed as deduction under section 80IA of the Act.

34.1 However the learned CIT (A) disregarded the contention of the assessee by holding that the activity of maintaining the streetlight is different and independent to the activity of distribution of power. The assessee was raising the separate invoice to the AMC for maintaining the streetlight besides the bill raised for the consumption of the power. Accordingly, the learned CIT(A) was of the view that the receipt from the maintenance of streetlight is not eligible for deduction under section 80IA of the Act. Thus the ground of appeal of the assessee was rejected.

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provides the deduction to the undertaking which is engaged in generation or generation and distribution of power. The essential ingredients for claiming deduction under Section 80-IA (1) of the Act read as under: (a) the 'gross total income' of an assessee should include profits and gains; (b) those profits and gains are derived by an undertaking or an enterprise from a business referred to in sub-section (4); (c) the assessee is entitled for deduction of an amount equal to 100% of the profits and gains derived from such business for 10 consecutive assessment years; and (d) in computing the 'total income' of the Assessee, such deduction shall be allowed.

38.1 The profit derived by undertaking from the business referred under sub section (4) of the Act is eligible for deduction under section 80IA of the Act. The provisions of Section 80-IA of the Act provides for deduction of the profits derived from the business by an undertaking or enterprise, engaged inter alia, in generation or generation and distribution of power. The expression ‘derived from the business’ has generated a lot of controversy. To our understanding, it refers to the effective source from which the income arises. But to find out the effective source, the term derived from indeed demands an enquiry into the genealogy of the product which should be stopped as soon as the effective source is discovered.

38.2 At this juncture it is important to refer judgment of SC in the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 (SC) which have interpreted the term ‘derived from’. The relevant decisions of the Supreme Court

"The Legislature has deliberately used the expression ‘attributable to’, having a wider import than the expression ‘derived from’, thereby intending to cover receipts from sources other than the actual conduct of the business of the specified industry." (p.85)

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38.3 From the ratio of the aforesaid decision of the Apex Court, it is clear that the phrase ‘derived from’ covers receipts from the actual conduct of business of the specified industry as provided under section 80-IA of the Act.

38.4 Likewise, as per the Bombay High Court in the case of Hindustan Lever Ltd. v. CIT [1980] 121 ITR 951/3 Taxman 390, the word ‘derived’ as far as income- tax law is concerned, has been given a narrow meaning - a strict meaning, by the courts and has been understood in the restricted sense of a direct derivation and not understood in the broad sense as equivalent to be derived directly or indirectly. In other words, only the proximate source has to be considered and not the source to which it may ultimately be referable.

38.5 In the light of the aforesaid discussion, it may be safely concluded that the expression "Profit and gain derived from an Industrial undertaking" used in sections 80-IA of the Act, will include all the profits and gains earned by the Industrial undertaking by the actual conduct of its business. It would mean that all the income which has a direct nexus with the business of the Industrial Undertaking, will be includible in such profits and gains. Thus, we are of the view that profit and gain earned by the assessee from the services of maintenance of street light are not the profit and gain from the activity or undertaking of generation and distribution of power. As there is no nexus between the business of power distribution and maintenance /service of street light. Thus, we hold that profit and gains derived from street light maintenance services should not be included in amount of deduction under section 80IA of the Act. Hence we do not find any infirmity in the finding of the authority below. Accordingly the assessee’s ground of appeal is dismissed.

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Bad debts recovery

39.1 However, the AO was of the view that no benefit of such bad debts recovered can be granted by allowing deduction under section 80IA of the Act which would lead to the double deduction. Firstly, when these bad debts were written of in the books of account in the earlier year and secondly when these bad debts were recovered in the form of deduction under section 80IA(4) of the Act. However, the AO found that there were bad debts written off in the year under consideration of Rs. 2,53,15,365/- which was allowed to be net of against such bad debts recovered. Thus, the AO effectively excluded the sum of Rs. 5,32,51,168/- from the amount of deduction claimed under section 80IA of the Act and added the same to the total income of the assessee.

40.1 The assessee before the learned CIT (A) reiterated the submission as made in connection with the insurance claim which have been discussed in the preceding paragraph.

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as per provisions of section 41(1). When we examine the nexus of the profit with the industrial undertaking it is not to be seen as to from whom the profit is derived but it is to be seen whether it is derived from the business. So long money is recoverable from the parties or payable to the parties during the course of business the transactions have a direct nexus with the business and one cannot view these transactions away from the business. Such transactions include receipts and payment of money in cash or in kind immediately or on credit and are part of business activities. If the assessee has to make the payment to the above four parties, which were standing in the balance sheet as creditors and which have been claimed as business deduction in an earlier year then only course left to the assessee is either to make the payment or if no payment is legally required, to show as profit under section 41(1) which has been so done by the assessee. There is a clear and direct business connection of such cessation or remission and such profits taxable under section 41(1) can be held as derived from industrial undertaking. The arguments of the ld. DR that they are not current year's profit from manufacturing activity is devoid of any merit because deduction under section 80-IA is available only on profits derived from industrial undertaking which is carrying on manufacturing activities and it is not confined to only current year's profit as per P&L account. The deduction under section 80-IA or 80-IB is available on profits and gains computed in accordance with section 20A-43D which includes section 41(1) also. 12. Thus where Assessing Officer finds that claim has already been allowed in the earlier year then such benefit under section 80-IA should be given to the profits taxed under section 41(1). The argument of ld. AR is that once it has declared profits under section 41(1) it would mean that assessee has already claimed and allowed deduction thereof in earlier years but in our considered view it requires verification and for that matter we restore the matter to the file of Assessing Officer. Accordingly this ground of assessee is allowed for statistical purposes.

45.1 From the above, there remains no ambiguity to the fact that the assessee is eligible for deduction under section 80 IA of the Act with respect to the impugned bad debt recovery shown as income in the year under consideration. Thus the ground of appeal of the assessee is allowed.

Interest income

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46.1 However, the AO found that the amount of interest income from the fixed deposits is not arising from the activity of distribution of power. Therefore the same is not eligible for deduction under section 80-IA of the Act. Likewise, the alternate contention for netting of the interest income is not maintainable for the reason that there was no nexus brought on record by the assessee suggesting that there was the expenditure incurred by the assessee against such fixed deposit in the form of interest. Thus the AO was pleased to exclude the gross amount of interest income from the amount eligible for deduction under section 80-IA of the Act.

47.1 The assessee before the learned CIT (A) submitted that the provisions of section 80-IA of the Act are the beneficial provisions to the assessee. Therefore the same should be read, interpreted more liberally. The assessee also quoted several judgments before the learned CIT (A) in support of his contention.

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52.1 Thus, from the above it is transpired that the assessee has not made fixed deposits under any obligation in the course of carrying on the business of distribution of power. However, it is also a fact on record the impugned interest income was offered by the assessee as business income which was also accepted by the revenue in the assessment proceedings. The provisions of Section 80-IA of the Act provides for deduction of the profits derived from the business by an undertaking or enterprise, engaged inter alia, in generation or generation and distribution of power. But the interest income was not arising to the assessee from the activity of distribution of power. Thus, on the same reasoning given in the relation to streetlight maintenance activity in para no. 38 of this order, the impugned income is not eligible for deduction under section 80-IA of the Act. Therefore the authority below rightly excluded the same from the computation of deduction under section 80IA of the Act. Hence the assessee ground of appeal is dismissed.

Delayed payment interest

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53.1 However the AO disagreed with the contention of the assessee by observing that the amount of interest income on account of delay payment from the customers is not arising from the power distribution activity. Therefore the same cannot be allowed as deduction. Thus the AO excluded the sum of ₹ 93,26,357/- and Rs 6,54,475/- and Rs, 1,33,08,451/- aggregating to ₹ 2,32,89,283.00 representing the income of Ahmedabad, Surat and Bhiwandi distribution unit from the amount eligible for deduction under section 80-IA of the Act.

54.1 The assessee before the learned CIT (A) submitted that that the Hon’ble jurisdictional High Court in the case of Nirma Industries reported in 283 ITR 402 in the context of the provisions of section 80-I of the Act has held that the interest received on delayed payment is part and parcel of the sale proceeds. Accordingly the assessee contended that such amount of interest on the delay payment should be eligible for deduction under section 80-IA of the Act.

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59.1 From the preceding discussion we note that the judgment was rendered in connection with the provisions of section 80I of the Act but the principles laid down

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therein can also be adopted to the provisions of section 80-IA of the Act. In view of the above, we do not find any infirmity in the order of learned CIT (A). Hence the issue raised by the Revenue is dismissed.

Unfulfilled guarantee revenue

60.1 However the AO disregarded the contention of the assessee by observing that the impugned amount represents the recovery in the nature of penalty on account of failure for non-utilization of the minimum guaranteed units. This receipt represents the contractual income without having any nexus with the power distribution activity. Accordingly, the AO excluded the above sum of ₹ 38,32,105/- from the amount of deduction claimed under section 80-IA of the Act.

61.1 The assessee before the learned CIT (A) submitted that the impugned receipt has direct nexuses with the activity of distribution of power. Therefore the impugned receipt cannot be treated as independent from the activity of distribution of power. Therefore, the same should be eligible for deduction under section 80-IA of the Act.

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The learned CIT (A) after considering the submission of the assessee held that the impugned receipt has direct nexus with the activity of the assessee, therefore the same should be allowed as deduction under the provisions of section 80-IA of the Act.

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payment is described as sale price it would be profits derived from the industrial undertaking. This can never be, because in sum and substance these are only two modes of realising sale consideration, the object being to realise sale proceeds at the earliest and without delay. Purchaser pays higher sale price if it delays payment of sale proceeds. In other words, this is a converse situation to offering of cash discount. Thus, in principle, in reality, the transaction remains the same and there is no distinction as to the source. It is incorrect to state that the source for interest is the out-standing sale proceeds. It is not the assessee’s business to lend funds and earn interest. The distinction drawn by Revenue is artificial in nature and is neither in consonance with law nor commercial practice. 30. The Tribunal was, therefore, not justified in holding that while computing deduction under section 80-I of the Act, interest received from trade debtors towards late payment of sales consideration is required to be excluded from the profits of the industrial undertaking as the same cannot be stated to have been derived from the business of the industrial undertaking. 31. In the result, both the questions stand answered as hereinbefore. The appeal is accordingly allowed and stands disposed of.

65.1 From the preceding discussion we note that the judgment was rendered in connection with the interest income on late payment which is eligible for deduction under section 80-I of the Act but the principles laid down therein can also be adopted to the provisions of section 80-IA of the Act in the given facts and circumstances. In view of the above we do not find any infirmity in the order of learned CIT (A). Hence the issue raised by the Revenue is dismissed.

Rent income

66.1 The AO was of the view that the impugned rental income has no connection with the power distribution activity. Therefore the same cannot be allowed as

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deduction under section 80-IA of the Act. Likewise, the alternate contention of the assessee was also rejected by the AO in the absence of the necessary information about the expenditure incurred by it against such rental income. Thus the AO excluded the gross amount of rental income of ₹ 3,10,990/- from the amount eligible for deduction under section 80-IA(4) of the Act.

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73.1 Before parting a question arises what about the depreciation claimed by the assessee with respect to such building being the staff quarters. If the income is not eligible for deduction under section 80-IA of the Act then in our considered view the corresponding depreciation should also be excluded from the profit of the eligible undertaking. Likewise, the expenses incurred in connection with the maintenance of such staff quarters should also be excluded. Accordingly, we direct the AO to exclude the rental income from the amount of eligible profit net of the expenses qua to such rental income. Hence the ground of appeal of the assessee is partly allowed.

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Delayed payment charges

75.1 The assessee before the learned CIT (A) submitted that the impugned receipt was arising to the assessee in connection with the distribution of power activity. Therefore the same is eligible for the deduction under section 80-IA in view of the judgment of Hon’ble Gujarat High Court in the case of Nirma Industries Ltd (supra).

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80.1 From the preceding discussion we note that the judgment was rendered in connection with the interest income which is eligible for deduction under section 80- I of the Act but the principles laid down therein can also be adopted to the provisions

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of section 80-IA of the Act in the given facts and circumstances. In view of the above we do not find any infirmity in the order of learned CIT (A). Hence the issue raised by the revenue is dismissed.

Miscellaneous receipts

81.1 The assessee alternatively submitted that major portion of the impugned receipt i.e. an amount of Rs. 10,04,30,079/- out of the total receipt of Rs. 11,57,69,618/- represents the sale of capital goods which were shown as assets in its balance sheet. The assessee in support of its contention filed a chart showing the breakup of different assets belonging to the eligible units which is reproduced as under: The unit-wise details of component of the crap are as under: Particulars Ahmedabad Surat Bhiwandi Total Distribution Distribution Cables(15%) 18872864 14793715 0 33666579 Transformer(80%) 35700217 14298027 0 49998244 Meter(80%) 7148101 4115055 5502100 16765256 Total 61721182 33206797 5502100 100430079

81.2 Accordingly, the assessee submitted before the AO during the assessment proceedings that the amount of sale as shown income in the profit and loss account can be reduced by adjusting the same against the capital assets as discussed in the table above. Thereafter, the depreciation should be allowed on the remaining amount.

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81.3 However, the AO was of the view that there is no scrap in the power distribution activity. Therefore the impugned amount of miscellaneous income cannot be subject to deduction under section 80-IA of the Act. Accordingly the AO excluded the sum of ₹ 11,57,69,618/- from the amount eligible for deduction under section 80-IA of the Act.

81.4 However, the AO accepted the alternate plea of the assessee to the limited extent by observing that the amount of scrap sale as discussed in the table given above can be adjusted against the assets shown in the balance sheet which will reduce the amount of depreciation and simultaneously the income of the assessee will increase. Thus the assessee can claim higher amount of deduction under section 80-IA of the Act. But all these adjustments will be made only for the limited purpose of computing the deduction under section 80-IA of the Act without reducing the amount of scrap sale for ₹ 10,04,30,079/- from the total income of the assessee.

82.1 The assessee before the learned CIT (A) submitted that sale of the scrap has been generated in the course of business of carrying out the distribution of power. Therefore the same is eligible for deduction under section 80-IA of the Act.

82.2 The assessee without prejudice to the above also submitted that the amount of scrap sale of ₹ 10,04,30,079/- once has been adjusted against the respective block of assets. Then the same cannot be treated as income while working out the total income/taxable income.

82.3 The assessee without prejudice to the above also requested to reduce the amount of scrap sale of ₹ 68,57,910/- pertaining to Ahmedabad generation unit.

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Therefore the impugned amount of sale from the scrap should be adjusted against the block of assets appearing in the schedule of the assets. Accordingly, the amount of depreciation will be allowed to the assessee after the adjustment of sale proceeds of the scrap against the relevant block of asset. It was also observed by the learned CIT (A) that the amount of profit of the assessee will get reduced by the amount of sale proceeds of the scrap which is to be adjusted against the relevant block of assets. Hence, the ground of appeal of the assessee was partly allowed.

86.1 The assessee also submitted that the amount of scrap sale of ₹ 10,04,30,079/- out of the total scrap sales of ₹11,57,69,618/- represents the sales

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of those items which were classified as fixed assets in the balance sheets which were pertaining to different block of assets. Thus, the assessee alternatively contended that the amount of the scrap sale of ₹ 10,04,30,079/- representing the scrap sales of fixed assets should be adjusted against the relevant block of assets and on the remaining amount the depreciation should be allowed. In effect, it was alternatively submitted by the assessee to reduce the amount of sale of the scrap to the tune of ₹ 10,04,30,079/- and adjust the same against the relevant block of assets. In other words, the amount of eligible profit will come down if the scrap sales of fixed assets of ₹ 10,04,30,079/- is reduced but simultaneously the amount of depreciation shall also reduce which will result in the enhancement of eligible profit to some extent.

86.2 However, the AO did not allow the deduction with respect to the scrap sale from the eligible profit. But the AO agreed with the alternate contention to the limited extent by holding that the adjustments in the block of assets with the amount of ₹10,04,30,079/- will be done but the same shall not be reduced from the income shown by the assessee by treating the same as income from non-eligible activity i.e. the amount of sale of ₹ 10,04,30,079/- shall not be considered as eligible profit. However, the learned CIT (A) accepted the alternate contention of the assessee by holding that the amount of scrap sale of ₹ 10,04,30,079/- shall be reduced from the income shown by the assessee and the same will be adjusted against the respective block of assets.

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Now coming to additional ground of appeal filed by the assessee

90.1 It was pleaded by the assessee in the application filed for the admission of the additional ground of appeal that the issue raised in the additional ground of appeal go to the root of the matter and the necessary facts are available on record. Accordingly, it was prayed by the learned AR for the assessee that the same should be admitted for adjudication.

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92.1 The view that the Tribunal is confined only to issues arising out of the appeal before Commissioner (Appeals) is too narrow a view to describe the powers of the Tribunal. Undoubtedly, the Tribunal has the discretion to allow or not to allow a new ground to be raised. But where the Tribunal is only required to consider the question of law arising from facts which are on record in the assessment proceedings, there is no reason why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee.

92.2 Since the claim of the assessee is purely legal claim and entire facts are available on record. Thus it is not justified in not admitting the purely legal ground raised by the assessee for the first time. As the assessee has not claimed this expenditure before the lower authorities, they have not got opportunity to examine the same as per the provisions of Act, thus In the interest of justice, the ground is restored back to the file of the Assessing Officer with a direction to examine assessee's eligibility to claim of deduction of the items raised in the ground of appeal de novo afresh after providing an opportunity of being heard to the assessee and

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as per the provisions of law. Thus the additional ground of appeal raised by the assessee is allowed for statistical purposes.

92.3 In the result the appeal of the assessee is partly allowed for statistical purposes.

Coming to the Revenue’s appeal in ITA No. 738/AHD/2012 for the assessment year 2008-09

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5) The Ld. Commissioner of income-Tax (Appeals)-XiV, Ahmedabad erred in law and on facts in aliowiny the appeal of the Assessee on the issue of gxclusior, of amount of Rs.10,04,30,079/-, being sale of scrap and Rs.68,57,910/-being sale of scrap of Ahmedabad Generation Unit, from the total income of the Assessee. 6) The Ld. Commissioner of Income-Tax (Appeals)-XlV, Ahmedabad erred in law and on facts in holding that the disallowance of Rs.38,18,571/-made u/s.14A of the Act is not to be added while computing Book profit u/s.115JB of the Act. 7). On the facts and in the circumstances of the case, the Ld. Commissioner of Income- Tax (Appeals)-XIV, Ahmedabad ought to have upheld the order of the Assessing Officer.

8). It is therefore, prayed that the order of the Ld. Commissioner of Income-Tax (Appeals)- XIV, Ahmedabad may be set-a-side and that of the order of the Assessing Officer be restored.

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I have carefully perused the assessment order and the submissions given by the appellant. The appellant company had made the payment for feasibility studies for new project which was considered to be capital expenditure by the A, O. The appellant has submitted that the project for which the studies were conducted was in the same line of business. The appellant had no intention to start a new line of business and the fees were paid for study work, setting up new project for the same & business activity. I dim (inclined to; accept the submission made by the appellant, even if the studies were made by the appellant for a new business, it was for the same line of business and not for any new type of business, It was, therefore, for the expansion of the existing business of the appellant and therefore the same should be treated deductible as revenue expenditure. The ground of appeal is accordingly allowed.

98.1 Being aggrieved by the order of the learned CIT-(A), the Revenue is in appeal before us.

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of business. The assessee, during the course of its business, might incur expenditure for obtaining a project report or legal opinion regarding the validity of such project. This could not, be considered as capital expenditure as, in that case, any legal expenses incurred by an assessee for taking any opinion on the desirability or feasibility of expansion of the business would not be allowable as deduction. Such expenditure was unmistakably connected with the running of the business. Therefore, the Tribunal was justified in allowing the miscellaneous expenses and law charges incurred for assessee’s proposed cement factory project as business expenditure even when the project had not come into operation.”

100.1 we also refer the Judgment of Hon’ble Gujarat High Court in case of DCIT Vs. Gujarat Narmada Valley Fertilizers Co. Ltd. reported in 57 Taxmann.com 250 wherein it was held as under: “ Aforesaid order in Income-tax Appeal Nos. 1350 and 1351/Ahd/2005 was the subject matter of Tax Appeal No. 2033 of 2009, whereby the tribunal itself allowed these expenses. However, the tribunal has taken a different view in the present matter. Upholding the order of tribunal which was under challenge in Tax Appeal No. 2033 of 2009, we are reversing the view taken by the tribunal in this appeal. Therefore, in view of above, this appeal is allowed. Accordingly, we hold that the expenditure incurred on the feasibility report is to be treated as revenue expense and the Income Tax Appellate Tribunal has committed an error in law in holding the expenditure incurred on the feasibility report to be capital expenditure.”

100.2 In view of the above, we hold that the expenditure incurred by the assessee on the study and preparation of the feasibility are allowable expenses under the provisions of section 37(1) of the Act. Thus we do not find any infirmity in the order of the learned CIT-(A). Hence the ground of appeal of the revenue is dismissed.

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102.1 As per the assessee, it has started the renovation and modernization of the existing network of transmission/distribution lines from the financial year 2004-05 for its Ahmedabad and Surat distribution undertaking which substantially got completed in the year under consideration. Thus the assessee submitted that it has started claiming the deduction under section 80IA of the Act from the year under consideration upon the fulfilment of the condition specified under section 80 IA(4) of the Act i.e. 50% increase in the plant and machinery in the network of transmission/distribution lines of the book value as on 1st April, 2004.

102.2 Likewise, it has started the renovation and modernization of the existing network of transmission/distribution lines from the financial year 2006-07 for its Bhiwandi Distribution undertaking which substantially got completed in the year under consideration. Thus, the assessee has started claiming the deduction under section 80IA of the Act from the year under consideration upon the fulfilment of the condition specified under section 80IA of the Act i.e. 50% increase in the plant and machinery in the network of transmission/distribution lines of the book value as on 1st April, 2004.

102.3 However, the AO was dissatisfied with the contention of the assessee on the reasoning that the year under consideration was the 1st year for claiming the deduction under section 80 IA of the Act. The AO was of the view that the activity of renovation and modernization in the network of transmission/distribution lines has begun from the financial year 2004-05 in case of Ahmedabad and Surat undertaking which is spreading up to the financial year under consideration. As such, the condition of increase by 50% in the value of plant and machinery as specified under section 80IA of the Act gets fulfilled in the financial year 2004-05 only with respect to Ahmedabad and Surat undertaking as the activity for renovation and modernization in the network of transmission/reception has begun from the financial year 2004-05 corresponding to assessment year 2005-06.

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102.4 Likewise, the activity of renovation and modernization in the network of transmission/distribution lines the case of Bhiwandi Undertakings has begun from the financial year 2006-07. Thus, the assessee is eligible for deduction under section 80IA of the Act with effect from assessment year 2007-08.

102.5 The AO based on the above has held as under:

Distribution Units Assessment Year to be treated as first year for deduction u/s.80IA Ahmedabad AY 2005-06 Surat AY2005-06 Bhiwadi AY 2007-08

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108.1 A bare reading of the above provision reveals that the deduction is available to the assessee at its option for 10 consecutive assessment years out of a block of 15 years effective from the year in which the undertaking begins the activity of renovation and modernization of the existing transmission/distribution lines. It was the 1st time i.e. the year under consideration when the assessee exercised its option for claiming the deduction under section 80IA of the Act. Thus, the period of 10 years shall begin from the year under consideration for which the assessee is entitled for deduction. We also note that this ITAT in case of Vodafone Essar Gujarat Limited Vs. ITO bearing ITA no 1361 & 1878/AHD/2009 vide order dated 29-01- 2010 held as under:

“Adverting to the facts of the case the initial assessment year in this case starts from 2004- 05. Since the assessee has opted to claim this deduction only in this assessment year, the initial assessment year cannot be the year in which the undertaking commenced its operations and in this case the initial assessment year is the assessment year in which assessee has chosen to claim deduction under section 80-IA............". 12.61 As observed by the ITAT in the aforecited decisions, we are of the opinion that section 80-IA(2) of the Act nowhere provides that first year of 10 consecutive assessment years

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should be always the first year when the assessee starts providing telecommunication services. If that were so, then the words used in sec. 80IA(4)(ii) 'has started" become otiose. We may point out that the provisions of sec. 80IA of the Act are beneficial provisions and these have to be construed in such a manner so as to advance the objects of the provisions and not to frustrate it. If the intention of the Legislature was that the first year of start of telecommunication services is the initial assessment year to claim deduction under section 80-IA of the Act, then the provision of option to the undertakings which had already started providing telecommunication services, would be meaningless.” 108.2 We also find pertinent to refer the CBDT circular No. 1 of 2016 dated 15th February 2016 which reads as under: SECTION 80-IA OF THE INCOME-TAX ACT, 1961 - DEDUCTIONS - PROFITS AND GAINS FROM INFRASTRUCTURE UNDERTAKINGS - CLARIFICATION OF TERM 'INITIAL ASSESSMENT YEAR' IN SECTION 80-IA(5) CIRCULAR NO.1/2016 [F.NO.200/31/2015-ITA-I], DATED 15-2-2016 Section 80-IA of the Income-tax Act, 1961 ('Act'), as substituted by the Finance Act, 1999 with effect from 1-4-2000, provides for deduction of an amount equal to 100 % of the profits and gains derived by an undertaking or enterprise from an eligible business (as referred to in sub-section (4) of that section) in accordance with the prescribed provisions. Sub-section (2) of section 80-IA further provides that the aforesaid deduction can be claimed by the assessee, at his option, for any ten consecutive assessment years out of fifteen years (twenty years in certain cases) beginning from the year in which the undertaking commences operation, begins development or starts providing services etc. as stipulated therein. Sub- section (5) of section 80-IA further provides as under— "Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under that sub- section for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made". In the above sub-section, which prescribes the manner of determining the quantum of deduction, a reference has been made to the term 'initial assessment year'. It has been represented that some Assessing Officers are interpreting the term 'initial assessment year' as the year in which the eligible business/ manufacturing activity had commenced and are considering such first year of commencement/operation etc. itself as the first year for granting deduction, ignoring the clear mandate provided under sub-section (2) which allows a choice to the assessee for deciding the year from which it desires to claim deduction out of the applicable slab of fifteen (or twenty) years. The matter has been examined by the Board. It is abundantly clear from sub-section (2) that an assessee who is eligible to claim deduction u/s 80-IA has the option to choose the initial/ first year from which it may desire the claim of deduction for ten consecutive years, out of a slab of fifteen ( or twenty) years, as prescribed under that sub-section. It is hereby clarified that once such initial assessment year has been opted for by the assessee, he shall be entitled to claim deduction u/s 80-IA for ten consecutive years beginning from the year in respect of which he has exercised such option subject to the fulfilment of conditions prescribed in the section. Hence, the term 'initial assessment year' would mean the first year opted for by the assessee for claiming deduction u/s 80-IA. However, the total number of years for claiming deduction should not transgress the prescribed slab of fifteen or twenty years, as the case may be and the period of claim should be availed in continuity.

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The Assessing Officers are, therefore, directed to allow deduction u/s 80-IA in accordance with this clarification and after being satisfied that all the prescribed conditions applicable in a particular case are duly satisfied. Pending litigation on allowability of deduction u/s 80 IA shall also not be pursued to the extent it relates to interpreting 'initial assessment year' as mentioned in sub-section (5) of that section for which the Standing Counsels/D.R.s be suitably instructed. The above be brought to the notice of all Assessing Officers concerned.

108.3 From the perusal of above circular it become clear that the assessee has option to choose initial year or first year out of the block of 15 or 20 years as case may be to claim deduction for 10 consecutive years but not the year in which the assessee becomes first time eligible to claim deduction.

108.4 In view of the above detailed discussion and after considering the facts in totality, we are of the view that there is no infirmity in the order of the learned CIT(A). Accordingly we decline to interfere in his order. Hence, the ground of appeal of the revenue is dismissed

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Accordingly, the AO issued a show cause notice to the assessee proposing to disallow the deduction claimed under section 80G/GGB of the Act.

110.1 The assessee in response thereto submitted that the deduction under section 80G/80GGB of the Act is eligible/allowed from the Gross Total Income where the payment is made to certain organizations specified therein. On the contrary the deduction under section 80-IA of the Act is provided for the specified business carried on by the assessee. Thus, the deductions under section 80G//80GGB of the Act and 80-IA of the Act are mutually exclusive and independent to each other. The assessee while claiming the deduction under section 80-IA of the Act against the profit of the specified business can also claimed the deduction under section 80G/80GGB of the Act separately.

110.2 However, the AO disregarded the contention of the assessee by observing that there remained no taxable profit after claiming the deduction under section 80- IA of the Act in the specified undertaking. Accordingly, the AO disallowed the deduction of ₹ 96,37,500/- and 1,00,00,000/- claimed under the provisions of section 80G and 80GGB of the Act respectively.

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aside and the addition made is directed to be deleted. The ground of appeal is accordingly allowed.

114.1 Now coming to the case on hand the donations paid by the assessee against the eligible undertaking which is qualified for deduction under section 80G/80GGGB of the Act, the same cannot be considered as an expense/payment against the specific business/undertaking eligible for deduction under section 80-IA of the Act. It is for the reason that the donation under section 80G/80GGB of the Act does not relate to the activity of eligible undertaking. In other words, the payment under

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section 80G/80GGB of the Act is eligible for deduction on account of the payment made to the specific institution irrespective of the business whether it is eligible or non-eligible carried on by the assessee.

114.2 There is no dispute to the fact that the amount of donation was claimed by the assessee in the profit and loss account of the eligible undertaking which has been disallowed while computing the eligible profit. Certainly, the profit of the eligible undertaking will increase by the amount of disallowance made by the assessee on account of the donations paid to the institutions which is entitled for deduction under section 80G/80GGB of the Act. It has to be disallowed/added back while computing the eligible profit of the business referred therein under section 80-IA of the Act. It is for the reason that this donation does not relate to the business referred under section 80-IA of the Act which is eligible for deduction. But the same can be claimed as deduction by virtue of the provisions of section 80G/80GGB of the Act separately subject to the conditions specified therein. Hence, we do not find any infirmity in the order of learned CIT (A). Thus, the ground of appeal of the Revenue is dismissed.

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5) The Ld. CIT-(A) erred in allowing the reduction of sale of scrap from the total income and WDV.

116.1 with respect to the other issues, at the outset we note that, these issues raised by the Revenue have already been adjudicated along with the appeal of the assessee bearing ITA No. 776/AHD/2012 where the grounds raised by the Revenue were dismissed vide paragraph No. 59, 65, 80 and 86 of this order. For the detailed discussion, please refer the relevant paragraph. Accordingly, the grounds of appeal raised by the Revenue are dismissed.

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u/s 14A r.w.r. 8D of the Income Tax Rules for Rs. 38,18,571/- while determining the income under normal computation of income. Further, the AO while determining the income under Minimum Alternate Tax (MAT) as per the provisions of section 115JB of the Act, has added the disallowance made under the normal computation of Income under section 14A r.w.r. 8D of Income Tax Rule for Rs. 38,18,571/- to the book profit in pursuance to the clause (f) of explanation 1 to section 115JB of the Act.

124.1 However, we note that in the recent judgment of Special Bench of Hon’ble Delhi Tribunal in the case of ACIT vs. Vireet Investment Pvt. Ltd. reported in 82 Taxmann.com 415 has held that the disallowances made u/s 14A r.w.r. 8D cannot be the subject matter of addition while determining the net profit u/s 115JB of the Act. The relevant portion of the said order is reproduced below: “In view of above discussion, the computation under clause (f) of Explanation 1 to section 115JB(2), is to be made without resorting to the computation as contemplated under section 14A, read with rule 8D of the Income-tax Rules, 1962.”

124.2 The ratio laid down by the Hon’ble Tribunal is squarely applicable to the facts of the case on hand. Thus it can be concluded that the disallowance made under section 14A r.w.r. 8D cannot be resorted while determining the expenses as mentioned under clause (f) to explanation 1 to section 115JB of the Act.

124.3 However, it is pertinent to note that the disallowance needs to be made with respect to the exempted income in terms of the provisions of clause (f) to section 115JB of the Act while determining the book profit. In holding so, we draw support from the judgment of Hon’ble Calcutta High Court in the case of CIT Vs. Jayshree Tea Industries Ltd. in GO No.1501 of 2014 (ITAT No.47 of 2014) dated 19.11.14 wherein it was held that the disallowance regarding the exempted income needs to be made as per the clause (f) to Explanation-1 of Sec. 115JB of the Act independently. The relevant extract of the judgment is reproduced below:- “We find computation of the amount of expenditure relatable to exempted income of the assessee must be made since the assessee has not claimed such expenditure to be Nil. Such computation must be made by applying clause (f) of Explanation 1 under section 115JB of the Act. We remand the matter for such computation to be made by the learned Tribunal.

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We accept the submission of Mr. Khaitan, learned Senior Advocate that the provision of section 115JB in the matter of computation is a complete code in itself and resort need not and cannot be made to section 14A of the Act.” 124.4 Given above, we hold that the disallowances made under the provisions of Sec. 14A r.w.r. 8D of the IT Rules, cannot be applied to the provision of Sec. 115JB of the Act as per the direction of the Hon'ble Calcutta High Court in the case of CIT Vs. Jayshree Tea Industries Ltd. (Supra).

124.5 Now the question arises to determine the disallowance as per the clause (f) to Explanation-1 of Sec. 115JB of the Act independently. In this regard, we note that there is no mechanism/ manner given under the clause (f) to Explanation-1 of Sec. 115JB of the Act to workout/ determine the expenses with respect to the exempted income. Therefore in the given facts & circumstances, we feel that ad- hoc disallowance will serve the justice to the Revenue and assessee to avoid the multiplicity of the proceedings and unnecessary litigation. Thus we direct the AO to make the disallowance of 1% of the exempted income as discussed above under clause (f) to Explanation-1 of Sec. 115JB of the Act. We also feel to bring this fact on record that we have restored other cases involving identical issues to the file of AO for making the disallowance as per the clause (f) to Explanation-1 of Sec. 115JB of the Act independently. But now we note that there is no mechanism provided under the clause (f) to Explanation-1 of Sec. 115JB of the Act to make the disallowance independently. Therefore our action for restoring back the issue to the file of AO would unnecessarily cause further litigation. Thus we limit the disallowance on an ad-hoc basis @ 1 % of the exempted income as per the clause (f) to Explanation-1 of Sec. 115JB of the Act. Thus the ground of appeal of the Revenue is partly allowed.

124.6 The issue raised by the Revenue in ground Nos. 7 and 8 are general in nature which do not require any separate adjudication. Hence we dismiss the same being infructous.

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124.7 In the result the appeal of the Revenue is partly allowed.

Coming to ITA No. 1581/AHD/2012, an appeal by the Assessee corresponding to A.Y. 2009-10

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3.2 Without prejudice to the foregoing, in law and in the facts and circumstances of the appellant's case, the learned CIT(A) has further grossly erred in omitting to adjudicate upon the appellant's alternative claim made vide Ground No, 4.2 of the its appeal before him even as he had noticed such claim (as can be seen from para 4 of his impugned order). The learned CIT(A) ought to have appreciated, inter alia,: (a) that the appellant's alternative claim had been based on the ratio of the decision of the jurisdictional Gujarat High Court in Sun Pharmaceutical Ltd. v. DCIT (227 CTR 206); (b) that, as elaborately explained at para 13 of the Statement of Facts accompanying the appellant's appeal, this alternative claim of the appellant had been rejected by the learned Assessing Officer in a rather summary and arbitrary manner. 4.1 In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred, even while partly allowing the appellant's claim for a higher quantum of deduction u/s. 80IA than granted by the learned Assessing Officer, in upholding the learned Assessing Officer's action of reducing the following items of income while arriving at the quantum of that deduction;

Rs. in Crore Ahmedabad Bhiwandi Unit Unit (a) Streetlight maintenance income from Ahmedabad Municipal Corporation which was directly related to the appellant's supplying power to the said Ahmedabad Municipal Corporation in the course of appellant's power distribution business 2.64 - (b) Recovery of bad debts written off earlier 0.85 - (c) Other interest income 0.98 - (d) Provision of earlier years written back as no longer required 0.59 - (e) Miscellaneous Receipts 6.64 1.44 (f) Rent from employees 0.02 4.2 The learned CIT(A) ought to have appreciated, inter alia (a) that unlike Sections 80H, 80HH and 80-I which provided for deduction in respect of profits and gains derived from an undertaking, Section 80-IA provided for deduction in respect of profits and gains from the business of an undertaking and that, therefore, the scope of income eligible to deduction u/s. 80-IA was broader than that under Sections 80H, 80HH and 80-I; (b) that by its very nature, the Street Light Maintenance Income clearly formed part of the income from the appellant's Power Distribution Business; (c) that recovery of Bad Debts was very much in respect of debts arising on the sale of power in the course of the appellant's Power Distribution Business; (d) that, as he had himself appreciated, Miscellaneous Receipts were in respect of sale of different types of scrap such as cable scrap, metal scrap, sale of waste oil, rubber,

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wooden scrap etc. and rightly credited to the appellant's Profit and Loss Account as income and being an integral part of the appellant's business of distribution of power, deduction u/s. 80-IA in respect thereof could not be denied on the ground that the appellant had not established that the scrap in question was in respect of items debited as revenue and not capital when purchased; (e) that income by way of rent being rent received from employees to whom residential accommodation had been provided, it was an integral part of the appellant's Power Distribution Business. 5. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in upholding what clearly was an omission on the part of the learned Assessing Officer, while computing the quantum of deduction u/s. 80-IA, to add the disallowance of Rs. 77, 95, 686 made u/s. 14A while computing the appellant's normal total income even though the same ought to have been added while computing the quantum of deduction u/s. 80-IA on the learned Assessing Officer's own stand. 6. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in setting aside the issue raised by the appellant vide Ground No, 8 of its appeal reading as under instead of himself deciding it on merits: "8. In law and in the facts and circumstances of theappellant's case, the learned Assessing Officer has grossly erred in adding Rs.75,00,000 to the appellant's returned book profit u/s. 115JB by refusing to grant deduction on that account claimed by the appellant on the ground that it represented credit to the appellant's Profit and Loss Account in respect of write back of provision for doubtful debts no longer required which was eligible to be reduced in the computation of book profit U/S.115JB in pursuance of the retrospectively amended provision of clause (i) of Explanation 1 below Section 115JB(2)." 7. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in dismissing Ground No. 10 of the appellant's appeal challenging levy of interest u/s. 234C and 234D on the ground that the levy was consequential in nature, instead of ordering • for the deletion thereof. He ought to have appreciated, inter alia, that the appellant had challenged the very levy of interest under those provisions and, in the peculiar facts and circumstances of its case, even if the additions to its returned income came to be ultimately sustained, the ratio of the decision of the Gujarat High Court in Bharat Machinery and Hardware Mart's case (136 ITR 875) and of the decision of the ITAT, Delhi Bench in Haryana Warehousing Corporation v. DCIT [252 ITR (AT.) 34] was attracted and the levy deserved to be cancelled. 8. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in dismissing Ground No. 11 of the appellant's appeal before him challenging the initiation of penalty proceedings u/s. 271(1)(c), as premature. He ought to have appreciated, inter alia, that in the peculiar facts and circumstances of the appellant's case, there being absolutely no warrant/justification for initiating the penalty proceedings, he ought to have ordered for their being dropped, thereby saving both the appellant and the Department from long drawn unnecessary litigation. 9. The appellant craves leave to add, amend and/or alter the ground or grounds of appeal either before or at the time of hearing of the appeal.

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125.1 The assessee vide letter dated NIL has filed the additional ground of appeal for allowing the deduction of Rs. 1,54,56,655/- and 28,06,343/- representing the education cess paid on income tax and dividend distribution tax under section 37(1) of the Act.

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the findings given in ITA No. 776/AHD/2012 shall also be applicable for the year under consideration i.e. AY 2009-10. The appeal of the assessee for the assessment 2008-09 has been decided by us vide paragraph No. 23 of this order in its favour. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2008-09 shall also be applied for the year under consideration i.e. AY 2009-10. Hence, the ground of appeal filed by the Assessee is dismissed as infructuous.

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accordingly get increased. However the claim of the assessee was rejected by the learned CIT (A) by holding that there is no dispute that the disallowances under section 14A will increase the business profit. But the profit includes both eligible and non-eligible undertaking and expenditure are incurred for earning both eligible and non-eligible profit. Further disallowances under section 14A is specific disallowances. Hence, the same cannot be allowed for deduction under section 80 IA of the Act. The 1st question that arises for our consideration whether the expenses disallowed under section 14A of the Act were attributable to the eligible undertaking or not. But the assessee before us has not brought anything on record suggesting that such expenses which was disallowed under the provisions of section 14 A of the Act were pertaining to the eligible undertaking. Accordingly, we are of the view that no benefit can be extended to the assessee on account of the enhanced profit which is deductible under the provisions of section 80 IA of the Act on account of the disallowance of the expenses under the provisions of section 14A of the Act. Hence, the ground of appeal of the assessee is dismissed.

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the Act, the amount written back out of such provision is eligible for reduction from book profit when the same is written back.

145.1 However the AO was of view that assessee can only reduce the book profit by the amount of provision written back if the same is added in the profit in the year in which such provision was made. Thus, the amount of Rs. 12,93,52,069/- was reduced by the AO as the same was added to book profit in the AY 2008-09, but there was no evidence brought on record to prove that Rs. 75 lakh was also added in the book profit in the year when such provision was made. In fact such amount can only be added back in the book profit by revising the return of income of respective assessment years. However, no evidence has been brought on record suggesting that the assessee has revised the return of income. Therefore, the AO disallowed the same and added to the book profit of the year under consideration.

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I have carefully perused the findings of the assessing officer and submissions made by the Id.AR. It is observed from the assessment records that the appellant has not made any such claim in the return of income. However, the amendment which has been referred by the appellant has come into effect after the return was filed by the appellant and, therefore, the appellant might have been prevented by a genuine reason for not making such claim in the return. The A, O. is, therefore, directed to examine the matter in accordance with the law and records. The ground of appeal is, therefore, partly allowed.

150.1 From perusal of para 40.2 of CBDT Circular dated 3-6-2010, it is evident that clause (i) in Explanation after Section 115JB(2) has been inserted so as to provide that if any provision for diminution in the value of any asset has been debited to the profit and loss account, it shall be added to the net profit as shown in the profit and loss account for the purpose of computation of book profit. It is well settled in law

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that, law does not contemplate or require the performance of an impossible act as held by the Hon’ble SC in the case of Life Insurance Corporation of India Vs. CIT reported in 219 ITR 410 where it was held as under: By virtue of section 9(2) of the LIC Act, if any amount remained due towards taxes to be recovered from the predecessor, it was a liability transferred to LIC and the LIC became liable to discharge the same. It was obvious that in the surplus or deficit in any inter- valuation period relating to the LIC, which came to be formed only on 1-9-1956, any surplus or deficit made in any earlier inter-valuation period, as provided for in rule 2(1)(b), could not be reflected since it related to a period prior to the formation of LIC. The law does not contemplate or require the performance of an impossible act. The legal fiction enacted in section 7(2) must be taken to its logical conclusion. For this reason, the amount of refund made to the LIC because of the excess tax paid by the predecessor prior to 1-9-1956, on which date the LIC was formed, must form a part of the assets of the predecessor which came to be transferred and vested in the LIC on 1-9-1956 on the formation of LIC. For the same reason, this amount of refund, even though made later, must also be deemed to be included in the inherited opening balance shown by the LIC in the earlier inter-valuation period which undisputedly had to be deducted under rule 2(1)(b). It followed that because of the legal fiction being required to be taken to its logical conclusion, the amount so refunded to the LIC must be deemed to be included in the earlier inter-valuation period of the LIC. Thus, the requirement of rule 2(1)(b) was satisfied since the amount was deemed to be included in the earlier inter-valuation period of the LIC itself.

150.2 The assessee could not have added back the provision for doubtful debts to the net profit for the purpose of computation under section 115JB of the Act in the years prior to insertion of clause (i) as those years had already elapsed and the assessee could not have given effect to the provision, which was inserted at a later point of time. The assessee therefore, could not have added back the provision for bad and doubtful debts to the net profit due to reasons beyond its control. Therefore, no adverse inference could have been drawn against the assessee. In view of preceding analysis, the assessee cannot be penalized for not adding the provisions for bad debts on account of retrospective amendment as discussed above. Hence, the ground of appeal of the assessee is allowed whereas ground of the revenue is dismissed.

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151.1 Coming to the additional ground of appeal filed by the assessee seeking the deduction of Rs. 1,54,56,655/- and 28,06,343/- representing the education cess paid on income tax and dividend distribution tax under section 37(1) of the Act.

154.1 The view that the Tribunal is confined only to issues arising out of the appeal before Commissioner (Appeals) is too narrow a view to describe the powers of the Tribunal. Undoubtedly, the Tribunal has the discretion to allow or not to allow a new ground to be raised. But where the Tribunal is only required to consider the question of law arising from facts which are on record in the assessment proceedings, there is no reason why such a question should not be allowed to be raised when it is

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necessary to consider that question in order to correctly assess the tax liability of an assessee.

154.2 Since the claim of the assessee is purely legal claim and entire facts are available on record. Thus it is not justified in not admitting the purely legal ground raised by the assessee for the first time. As the assessee has not claimed this expenditure before the lower authorities, they have not got opportunity to examine the same as per the provisions of Act, thus In the interest of justice, the ground is restored back to the file of the Assessing Officer with a direction to examine assessee's eligibility to claim of deduction of the items raised in the ground of appeal de novo afresh after providing an opportunity of being heard to the assessee. Thus the additional ground of appeal raised by the assessee is allowed for statistical purposes.

154.3 In the result, the appeal filed by the assessee is partly allowed for statistical purposes.

Coming to ITA No. 1669/Ahd/2012 an appeal by Revenue corresponding to AY 2009-10

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3). The Ld Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the addition made of amount disallowed u/s.14Aof the Act while computing Book Profit / income u/s.115JB of the Act. 4). The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in set-aside the matter & directing the Assessing Officer to examine the matter of addition of Rs. 75, 00, 000/- u/s.1 15JB of the Act which is not permitted under provision of Section 251(1)(a) of the Act as amended w.e.f. 01/10/1998. 5) On the facts and in the circumstances of the case, the Ld. Commissioner of Income- Tax (Appeals)-XIV, Ahmedabad ought to have uphold the order of the Assessing Officer. 6). It is therefore, prayed that the order of the Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad may be set-a-side and that of the order of the Assessing Officer be restored.

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assessment year 2008-09 shall also be applied for the year under consideration i.e. AY 2009-10. Hence, the grounds of appeal filed by the Revenue is dismissed.

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164.1 In the result appeal filed by the Revenue is partly allowed.

Coming to ITA No. 1977/AHD/2013, an appeal by the Assessee corresponding to AY 2010-11

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3.1 In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred, even while partly allowing the appellant's claim for a higher quantum of deduction u/s. 80IA than granted by the learned Assessing Officer, in upholding the learned Assessing Officer's action of reducing the following items of income while arriving at the quantum of that deduction:

Amounts ( in Rs) Ahmedabad Dist. Surat Dist. Unit Bhiwandi Dist. Unit Unit (a) Streetlight 2,33,84,425 maintenance income from Ahmedabad Municipal Corporation which was directly related to the appellant's supplying power to the said Ahmedabad Municipal Corporation in the course of appellant's power distribution business (b) Recovery of bad 19,37,493 31,97,045 - debts written off earlier (c) Interest income - 5,95,532 - from FD (d) Other interest - 61,525 - income (e) Rent 1,22,084 7,41,337 -

3.2 In law and in the facts and circumstances of the appellant's case, the learned CIT(A) ought to have allowed deduction u/s. 80IA in respect of entire miscellaneous income earned on account of sale of cable scrap, metal scrap, waste oil, rubber and wooden scrap; amounting to Rs 5,79,19,199/-, Rs 3,31,73,7121- and Rs 1,53,67,149/- pertaining to Ahmedabad Distribution unit, Surat Distribution unit and Bhiwandi Distribution unit, respectively; instead of allowing the deduction u/s 80IA only in respect of income from sale of waste oil. 4. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in upholding what clearly was an omission on the part of the learned

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Assessing Officer, while computing the quantum of deduction u/s. 80-IA, to add the disallowance of Rs.1,19,69,133 made u/s. 14A while computing the appellant's normal total income even though the same ought to have been added while computing the quantum of deduction u/s. 80-IA on the learned Assessing Officer's own stand.

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180.1 The view that the Tribunal is confined only to issues arising out of the appeal before Commissioner (Appeals) is too narrow a view to describe the powers of the Tribunal. Undoubtedly, the Tribunal has the discretion to allow or not to allow a new ground to be raised. But where the Tribunal is only required to consider the question of law arising from facts which are on record in the assessment proceedings, there is no reason why such a question should not be allowed to be raised when it is

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necessary to consider that question in order to correctly assess the tax liability of an assessee.

180.2 Since the claim of the assessee is purely legal claim and entire facts are available on record. Thus it is not justified in not admitting the purely legal ground raised by the assessee for the first time. As the assessee has not claimed this expenditure before the lower authorities, they have not got opportunity to examine the same as per the provisions of Act, thus In the interest of justice, the ground is restored back to the file of the Assessing Officer with a direction to examine assessee's eligibility to claim of deduction of the items raised in the ground of appeal de novo afresh after providing an opportunity of being heard to the assessee. Thus the additional ground of appeal raised by the assessee is allowed for statistical purposes.

180.3 In the result, the appeal filed by the assessee is partly allowed for statistical purposes.

Coming to ITA No. 2025/Ahd/2013 of the Revenue corresponding to A.Y. 2010-11

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account of miscellaneous receipts of scrap sales ,from sale of waste oil which is income not having first degree nexus & not derived from Assessee's business of power generation. 2d). The Ld. Commissioner of Income-Tax (Appeals)-XlV, Ahmedabad has erred in .law and on facts in deleting the disallowance of claim of deduction u/s.80IA of the Act made on account of delayed payment charges of Rs.7,37,40,408/- which is income not having first degree nexus & not derived from Assessee's business of power generation . • 2e). The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the disallowance of claim of deduction u/s.80IA of the Act made on account of other income of Rs.5,56,489/- which is income not having first degree nexus to not derived from Assessee's business of power generation. 3). The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the addition made on account of apportioning one half on the contribution of Rs.3,00,00,0007- since Assessee has failed to prove that the benefit of the contribution to research was derived only by the Ahmedabad Distribution Unit (not eligible for claim of .deduction u/s.BOlA of the Act). 4). The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the, disallowances made u/s.80G of the Act amounting to Rs.2,22,80,500/-and U/S.80GGB of ^he Act amounting to Rs.10,25,00,000/-. 5). The. Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in set-aside the addition of Rs.75,00,401/- made on account of book profit u/s.14A , r.w.r. 8D which isn’t permitted u/s.251(1) of the Act. 6). The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the addition of Rs. 1,19,69,133/- made on account of book profit u/s.14A r.w.r. 8D. 7). On the facts and in the circumstances of the case, the Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad ought to have upheld the order of the Assessing Officer. 8). It is therefore, prayed that the order of the Ld. Commissioner of Income-Tax (Appeals)- XlV, Ahmedabad may be set-a-side and that of the order of the Assessing Officer be restored..

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the proportionate amount of interest of ₹ 1,36,01,980/- attributable to such loan and disallowed the same by adding to the total income of the assessee.

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Therefore, the findings given in ITA No. 738/AHD/2012 shall also be applicable for the year under consideration i.e. AY 2010-11. The appeal of the Revenue for the assessment 2008-09 has been decided by us vide paragraph Nos. 59, 65, 86, 80, of this order against the Revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2008-09 shall also be applied for the year under consideration i.e. AY 2010-11. Hence, the grounds of appeal filed by the Revenue is hereby dismissed.

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deduction under Section 80IA, the same cannot be apportioned to such unit. The Hon'ble High Court has further held as under: "Section 80-IA, read with sections 80HH and 80-1, of the Income-tax Act, 1961 - Deductions - Profit and gains from infrastructure undertakings [Computation of deduction] - Assessment year 1993-94 - Assessee, engaged in manufacturing ayurvedic products, had a head office and four units in different cities - While computing deduction under sections 80HH, 80-1 and 80-IA available to assessee's units, Assessing Officer allocated research and development (R&D) expenses debited to head office to units proportionate to turnover of units - Whether R&D activities were in relation to new drugs and there was nothing to indicate that in event of assessee deciding to commercially exploit benefits of R&D work, products would be manufactured by said units - Held, yes - Whether since presumption of a nexus between R&D activities and units in question was not well founded, impugned allocation of R&D expenses to units was not justified - Held, yes" [Paras 17 & 18][ln favour of assessee] Respectfully following the aforesaid decision and facts of the present case, the Assessing Officer was not justified in apportioning contribution made under Section 35(1)(ii) for Research & Development to Ahmedabad Distribution Unit and thereby disallowing deduction under Section 80IA to that extent. In view of the above, the ground of appeal is allowed.

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with the business referred under the provisions of section 80-IA of the Act, the same expenses/payment has to be excluded for determining the eligible profit. Thus, the amount eligible for deduction under section 80-IA of the Act is determined from the business referred therein only.

197.1 Now coming to the case on hand the contribution under section 35 (1)(ii) of the Act was paid by the assessee against the against the non-eligible undertaking which is not qualified for deduction under section 80-IA of the Act, the same cannot be considered as an expense/payment against the specific business/undertaking eligible for deduction under section 80 IA of the Act. It is for the reason that the contribution under section 35(1)(ii) of the Act does not relate to the eligible undertaking. In other words, the payment under section 35(1)(ii) of the Act is eligible for deduction on account of the payment made to the specific institution irrespective of the business whether it is eligible or non-eligible carried on by the assessee. In holding so we draw support and guidance from the judgment of Hon’ble Bombay High Court in the case of Zandu Pharmaceuticals Works Ltd. vs. CIT reported in 31 taxman.com 191 wherein it was held as under: While computing the profits and gains of the concerned undertaking, only expenses relating thereto can be deducted. In other words, the expenses must be incurred, for and on behalf of the concerned undertaking. The expenses attributable to any other unit or the head office expenses which have no relevance to the industrial undertaking, cannot be deducted in respect of the said undertaking while computing the profits and gains of the undertaking. [Para 10]

It is also a fact on record that the amount of contribution was claimed by the assessee in the profit and loss account of the non-eligible undertaking. Hence, we do not find any infirmity in the order of learned CIT (A). Hence the ground of appeal of the Revenue is dismissed.

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In the result, the appeal filed by the Revenue is partly allowed.

Coming to ITA No. 3178/Ahd/2016, an appeal by the Revenue corresponding to AY 2011-12

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209.1 On the contrary, the learned DR contended that the assessee has made suo- moto disallowance in the income tax return under the provisions of section 14A read with rule 8D of Income Tax Rule. Therefore, the assessee cannot raise such issue by way of additional ground of appeal to get the benefit of disallowances made by it.

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read with rule 8D of Income Tax Rule in view of the judgment of Hon’ble Gujarat High Court in the case of Corrtech Energy Ltd reported in 372 ITR 97 wherein it was held as under: Section 14A(1) provides that for the purpose of 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 the total income under the Act. In the instant case, the Tribunal has recorded the finding of fact that the assessee did not make any claim for exemption of any income from payment of tax. It was on this basis that the Tribunal held that disallowance under section 14A could not be made. In the process tribunal relied on the decision of Division Bench of Punjab and Haryana High Court in case of CIT v. Winsome Textile Industries Ltd. [2009] 319 ITR 204 in which also the Court had observed that where the assessee did not make any claim for exemption, section 14A could have no application.

210.1 In view of the above, there is no dispute to the fact that the assessee was not supposed to make any disallowance in the return of income under the provisions of section 14A read with section rule 8D of Income Tax Rule.

210.2 Now the question arises, whether the assessee can claim the benefit of the disallowance made by the assessee in the income tax return before the judicial forum. It is the trite law that the income tax has to be levied on the income which is determined under the provisions of the Act. The assessee for any reason has offered any income which was not chargeable to tax, the revenue is not expected to deny the benefit to the assessee for which it was entitled.

210.3 It is also pertinent to note that the assessee has filed the return of income for the year under consideration dated 29-9-2011 wherein the disallowance of ₹ 1,57,95,815/- was made under the provisions of section 14A read with rule 8D. At that point of time, there was no clarity on the issue whether there will not be any disallowance under the provisions of section 14A read with rule 8D of Income Tax Rule if there was no exempted income. However this clarity was brought on a later date by the Hon’ble Gujarat High Court in the case of Corrtech Energy Ltd (Supra) vide order dated 24-3-2014. The contents of the order has already been reproduced in the preceding paragraph. Thus, there remains no ambiguity that the assessee was not aware of the provisions of law at the time of filing the return of income.

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210.4 Be that as may be, the assessee cannot be deprived from the benefits provided under the provisions of law more particularly in a situation where the proceedings of the assessee for the year under consideration were pending before the higher authorities on same issues.

210.5 In view of the above and after considering the facts in totality, we hold that the disallowance under section 14A read with rule 8D of Income Tax Rule was not warranted. Hence the ground of appeal of the assessee is allowed whereas ground of appeal of the Revenue is dismissed in view of above discussion.

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In the result, the appeal filed by the Revenue is dismissed.

Coming to CO No. 25/Ahd/2017 by the assessee corresponding to A.Y. 2011-12

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(a) Street-light maintenance income; (b) Bad debt recovery; • (c) Interest Income; (d) Miscellaneous receipts other than income from sale of waste oil; (e) Other income; (f) AMC Store billing Income; (g) Rent. 4. On the facts and in the circumstances of the case, the CIT(A) erred in not dealing with and deciding Ground No. 7.3 and 7.4 of the Respondent's appeal, which read as under:- "7.3 In law and in the facts and circumstances of the appellant's case, the learned Assessing Officer has grossly erred in arbitrarily and without any basis apportioning of the contribution of Rs.2,00,00,000 on turnover basis paid by the appellant's Ahmedabad and Surat Generation Unit to another of the appellant's business units viz., Ahmedabad Distribution and Surat Distribution Units (which were eligible to deduction u/s. 80-IA) and thereby in short computing the quantum of deduction to which the Ahmedabad and Surat Distribution Units were eligible and thereby leading to a disallowance of deduction u/s 80IA of Rs. 1,74,75,619/- in case of Ahmedabad Distribution Unit and of Rs. 85,01,194/-in case of Surat Distribution Unit.. 7.4 In law and in the facts and circumstances of the appellant's case, the learned Assessing Officer has grossly erred in setting off of entire carry forward loss of Surat Distribution Unit in respect of A.Y.2009-10 (as per the Assessment Order of A.Y.2010-11) while calculating income eligible for deduction under Section 80IA for the year under consideration. However, he ought to have appreciated, inter alia, the decisions in favour of the appellant by the first appellate authority in respect of various claims of eligible income u/s 80IA for the assessment year 2010-11; and should have set off the loss against eligible profits to that extent in A.Y. 2010-11 itself: thereby reducing the carry forward of loss for A.Y.2010-11 and consequently, the set off of loss in respect of Surat Distribution Unit for the year under consideration ought to have been reduced by that very extent." 5. On the facts and in the circumstances of the case, the CIT(A) erred in confirming the Assessing Officer's action restricting the grant of deductions u/s.80G and u/s.80GGB of the IT. Act, in spite of the fact that for earlier years similar issue was decided by the CIT(A) in Respondent's favour. 6. On the facts and in the circumstances of the case, the Assessing Officer had erred in not allowing credit for TDS amounting to Rs. 13,54,520V-, which includes an amount of Rs. 8,53,244/-, being claim made in the return of income and Rs. 5,01,276/-, being claim made before him during the course of assessment proceedings. 7. The respondent craves leave to add, alter, amend and/or withdraw any ground or grounds of cross objections either before or during the course of hearing of the same.

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222.1 Before parting, we note that the AMC store billing activity of the assessee was not connected with the distribution of power. Therefore the same was not allowed by the learned CIT (A) while computing the deduction under section 80 IA of the Act. At the time of hearing the learned AR has not brought anything on record contrary to the finding of the learned CIT (A). Hence, we do not find any reason to

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interfere in the order of learned CIT (A). Hence, the grounds of cross objection filed by the Assessee is partly allowed.

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231.1 We have heard both the parties and perused the materials available on record. The Hon’ble Supreme Court in the case of National Thermal Power Co. Limited vs. CIT, reported in 229 ITR 383, has held as under :- “ Under section 254 of the Income-tax Act, 1961, the Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. The power of the Tribunal in dealing with appeals is thus expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, there is no reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of the item. There is no reason to restrict the power of the Tribunal under section 254 only to decide the grounds which arise from the order of the Commissioner of Income-tax (Appeals). Both the assessee as well as the Department have a right to file an appeal/cross-objections before the Tribunal. The Tribunal should not be prevented from considering questions of law arising in assessment proceedings, although not raised earlier.

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S. No. ITA No. A.Y Appeal By Result

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Order pronounced in the Court on 09/12/2021 at Ahmedabad.

Sd/- Sd/- (RAJPAL YADAV) (WASEEM AHMED) VICE PRESIDENT ACCOUNTANT MEMBER T (True Copy) Ahmedabad; Dated 09/12/2021 Manish