ESSEL MINING & INDUSTRIES LTD.,KOLKATTA vs. DY CIT CC-1(4), MUMBAI

That without prejudice to the contention raised in Ground No. 5 above, the CIT(A) failed to appreciate that the Supreme Court decision in the case of Goetz (India) Ltd. was relevant only in relation to the Assessing Officer's power and not in respect of the power of an Appellate authority and thus he erred in applying the said decision in relation to the claim made by the appellant at the Appeal stage.

Fact in brief is that return of income declaring total income of Rs.9,33,11,95,250/- was filed on 30.11.2013. The assesse engaged in the business of manufacturing of Nitrogen Gas and Ferro Alloys, trading of iron ore and Ferro Alloys, generation of electricity (Wind Power Mill) and Railway Sidings for captive use ad operating lease of solar energy equipment’s. A search and seizure action u/s 132(1) of the Act was conducted on 16.10.2013 at the premises of M/s Aditya Birla Management Corporation Pvt. Ltd., 4th Floor, UCO Bank building, Parliament Street, New Delhi. The assessing officer passed order u/s 153C r.w.s. 143(3) of the Act on 30.12.2016 determining the total income at Rs.10,73,61,93,720/-. The further fact of the case are discussed while adjudicating the ground of appeal

Heard both the sides and perused the material on record. After considering the decision of various court’s it is settled law that disallowance u/s 14A cannot exceed the exempt income earned during the year under consideration. We have perused the decision of the ITAT in the case of the assessee itself referred by the assesse wherein vide ITA No.705/Mum/2021 dated 27.06.2022 held that disallowance u/s 14A cannot exceed the dividend income earned by the assesse. Therefore, we direct the A.O to restrict the disallowance made u/s 14A to the extent of exempt income earned by the assessee during the year under consideration. Accordingly, the ground no. 2 to 4 of the assessee are partly allowed. Ground No. 5 & 6: for not allowing deduction of Rs.20,77,90,035/- in the assessment year 2013-14 against the decision made in assessment year 2008-09 to 2011-12 on account of alleged illegal mining: 8. Heard both the sides and perused the material on record. The assesse has submitted that impugned issue has been decided against the assessee in the case of the assessee itself by the ITAT vide ITA No. 1019/Mum/2018 and vide ITA No. 1548/Mum/2018 for assessment year 2012-13 on 31.01.2023. The relevant operating part of the decision is reproduced as under: “18. As far as ground of appeal of the assessee are concerned the issue relates to allowing deduction of Rs.125,97,32,609/- against additions which were made in earlier assessment year 2008-09 to 2011-12 on account of alleged illegal mining. The facts qua the issue-in-dispute are that in the case of the P a g e | 6 & 1549/Mum/2018 296 & 297/Mum/2021 Essel Mining & industries Ltd. Vs. DCIT, CC-1(4) assessee certain sub standard ore was produced in the process of ore manufacturing which was claimed by the assessee of no use and having no value however, due to change in the standard of reporting by the Bureau of mining, the assessee was also required to report the said production of substandard ore (having low percentage of Iron). There was a difference in the ore production as reported to Bureau of mining and reported under the tax audit report for the purpose of income-tax and therefore, in earlier years additions were made by the Assessing Officer for assessment year 2008-09 to 2011-12.

Before us, the Ld. Counsel of the assessee has submitted that those additions have already been deleted by the Tribunal in assessment year 2008- 09 to 2010-11. We also note that in assessment year 2011-12, we have also deleted the addition for illegal mining in ore production following finding of the Tribunal in earlier years and therefore, addition made in all the earlier assessment year 2008-09 to 2011-12 stands deleted and therefore this claim of deduction cannot survive. The ground of appeal

Aggrieved, the assesse filed the appeal before the ld. CIT(A). The ld. CIT(A) has allowed the claim of the assesse after following the decision of Hon’ble Bombay High Court in the case of Paul Brothers (2016) ITR 548 and after following the decision of ITAT, Mumbai for the assessment year 2010-11 in the case of Ultratech Cement Group a group concern of the assesse.

Heard both the sides and perused the material on record. The assessee had set up Railway Siding Unit after receiving approval from Railway Authority. This is undisputed fact that assessee has been claiming deduction u/s 80IA since 2006-07 in respect of profit derived from the aforesaid railway system. In the assessment year 2006-07 to 2012-13 the claim of deduction was allowed after detailed verification as per order passed u/s 143(3) of the Act by the A.O. The assessee has categorically submitted before the A.O that there was no requirement u/s 80IA that infrastructure should be used for public at large. The deduction u/s 80IA was available to an enterprise carrying on the business of specified infrastructure facility. The assessee has also submitted that the Indian Railway had invited private participation in the setting up of the business of railway siding and the assessee company had set up the Railway Siding/Railway system for dispatch of iron ore to different parts of the country and even for export purpose. For making disallowance the assessing officer has relied on the decision of CIT(A)-5, Mumbai in the case of Ultratech Cement Ltd. a group concern for the AY 2010-11, however, the ld. CIT(A) has referred at para P a g e | 9 & 1549/Mum/2018 296 & 297/Mum/2021 Essel Mining & industries Ltd. Vs. DCIT, CC-1(4) 25.2 of his findings that ITAT Mumbai has adjudicated the identical issue on similar facts in the case of Ultratech Cement Ltd. vide ITA No. 7631/Mum/2014 in favour of the assessee. The ld. CIT(A) has also incorporated the finding of ITAT in the case of Ultratech Cement Ltd. in his findings the relevant part of the operating para of CIT(A) is reproduced as under: (C) page 53 -59 paper book “25.2 For disallowing the claim of the appellant company u/s 801A in the proceedings u/s 153C of the Act, the AO has mainly relied on the finding given by the Ld. CIT(A) -5, Mumbai, in the case of M/s Ultratech Cement Ltd., a group concern for the A.Y. 2010-11. During the course of the appellate proceedings, the appellant has filed a copy of the order dated 05/04/2017 of the Hon'ble Mumbai ITAT in ITA No. 7631/MUM/2014 in the case of M/s Ultratech Cement Ltd., wherein the findings of the CIT(A) has been reversed. The relevant excerpts of the said order of the Hon'ble ITAT are reproduced hereunder: “46. Therefore the agreements as entered into by the assessee with Indian Railways are as envisaged u/s 80 IA(4)(i) and in no case it can be inferred that they are not the required agreements under section 80- IA.

We also found that no siding charges are levied by Indian Railways for the rail systems developed by the assessee. The assessee has developed, operates and maintains the rail systems. The systems are being operated by the assessee as permitted under the agreements entered into with Indian Railways and under the rules and regulations of Indian Railways from time to time. The entire cost was borne by the assessee and is appearing in the balance sheet of the assessee as placed on record. We have also verified the same and found it correct...

From the record we found that the rail systems were developed under the agreements entered into with Indian Railways and assessee operates and maintains the same in accordance with terms and conditions of the Agreements, under the supervision and as per guidelines of Indian Railways. We have carefully gone through the relevant clauses of the agreements substantiating the same which reads as under. a) Clause No. 2, Agreement to Construct Siding Wherein it is mentioned that "the Railway administration will at the cost and the expenses of the applicant, in all respect, construct the railway sidings Further kindly be informed that, for construction of the siding under the supervision of the Railways, the contract for construction and supervision has been awarded by the applicant and the entire cost has been borne by the applicant. b) Clause no. 6-Payment by Applicant against the total estimated cost wherein it is mentioned that, The applicant will pay in advance to the railway administration the total estimated cost of the work consisting of the estimated costs of work done by the party and those by the railway administration c) Clause no. 7(a) Permanent way materials "The applicant will provide and deliver at site the permanent way and other materials (which includes Girders, Rails, P a g e | 10 & 1549/Mum/2018 296 & 297/Mum/2021 Essel Mining & industries Ltd. Vs. DCIT, CC-1(4) Sleepers, fastenings, points, crossings, fencings, signals and overhead structures and any other things connected therewith for electric tractions and other machinery and equipments necessary for working of the sidings) in accordance with the Railway administration's standards and specifications. All charges incurred in laying and fitting the permanent way materials and all other equipments which may be provided shall entirely be borne by the applicant." d) Clause No. 17 Working of the Siding wherein it is mentioned that the applicant shall provide labour for and bear the cost of all Operations on the siding. The applicant shall be responsible for the strict compliance by himself and his employees and agents of all rules, regulations and standing orders made by the railway administration from time to time for the working of sidings and for all accidents, loss or damage that may be ensured or be caused by reasons of negligence or non-observance of such rules, regulations and orders..... Further, the appellant carries out all the operations for smooth movement of its goods, viz. Shunting of the Wagons, placing of the wagons at appropriate locations, Loading/Unloading of Wagons within the stipulated time and stipulated methods of Indian Railways through Wagon Loading Machines and Wagon Tipplers, Weighing of Wagons on Motion Weigh Bridges, Maintaining signaling systems, Wagons, Couplings, Rake formation for dispatch, hauling of Wagons through its own locomotives, etc. Further, in Clause No. 14 Traffic on Siding - it is mentioned that applicant undertakes to shunt the wagons from such point to his premises and back with his own labour and the railway administration would not be responsible for any delay, loss and damages caused in consequence of the failure of the applicant to arrange for such shunting." Thus, the rail system is being operated by the appellant and the cost of above operations is borne by appellant. e) Clause No. 8(b) - Wherein it is mentioned that, Maintenance and other Charges for the portion of the sidings- The applicant will at their own cost and expenses in all things and to the satisfaction of the railway administration and if required by the railway administration under its supervision maintains in good order and repair the said portion of the siding. Such charges as may be fixed by the railway for the supervision rendered shall be paid by the applicant. There are other various clauses wherein it is evident that the Development, Operation and Maintenance is done by the appellant and the entire cost for the same is borne by the appellant.

The question of allowability of the deduction u/s. 801A in respect of rail systems has been settled in earlier years by the Hon'ble ITAT in assessee's own case. The facts and the agreements were also placed before authorities in those years. Therefore, the claim based on same facts needs to be allowed following the principle of Consistency in assessment proceedings. Even though the 'principles of res judicata' do not apply to income tax proceedings and each assessment year being a separate unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be appropriate to allow the position to be changed in a subsequent year. The above principles have been accepted in the undernoted case: Shah & Co (HA) v. CIT (1956) (30 ITR 618) (Bom).

We have also verified the calculation of revenue from rail system, filed before the lower authorities and found that the basis adopted for calculating the revenue from rail system is, lower of the Freight chargeable through Road and Rail. The Rail Freight being lower is considered after discounting it further by 50% based on the Circular of Indian railways for the freight chargeable upto the nearest railway station. Freight Rates are considered as per the Freight Rate chart & Freight Circulars issued from time to time by Indian Railways, based on the classification of the goods transported. The Railway freight rates are uniformly charged to everyone by Indian Railways. The copies of Form 10CCB mcluding the Profit and loss account, Balance sheet along with Schedules, giving therein the basis for calculation of revenue has been submitted before the lower authorities and had been duly examined by us and found to be correct.

We also found that the loading and unloading of goods is being done by the integrated Rail system set up by the assessee and expenses which were incurred earlier for loading and unloading of materials at the plant as well as the nearest Indian Railway station have been avoided and saved and are considered as income of the rail system arising due to setting up of such integrated rail system. The assessee has already submitted for all the Rail Systems form 10CCB duly certified and audited by M/s. GP Kapadia & Co. Chartered Accountants, along with Balance Sheet, P&L Account, Schedules forming part of Balance sheet and P&L Account. We have also checked the amount eligible for deduction as furnished in form 10 CCB and found the same as correct.

We have carefully gone through the terms and conditions of the agreement entered by the assessee with the railway authority, a perusal of clause 19 of the Railway Siding agreement entered into by the assessee with the Railway authorities, clarifies that construction and operation of the railway siding was not merely for the purpose of the business of the assessee, but was with a long term perspective to create an infrastructure facility which could, at a future point of time and in case a need arise, potentially confer benefit to the public at large. The agreement with the Railway authorities, provided that the facility so created could be made available to others with the discretion and prior permission of the railway authorities thereby rendering the facility open for general public at large. Hence, such a facility is in fact a public utility.......

As far as operations is concerned, we found that the assessee carries out all the following operations for smooth movement of its goods, viz. shunting of the wagons, placing of the wagons at appropriate locations, loading/unloading of wagons within the stipulated time and stipulated methods of Indian Railways through Wagon Loading Machines and Wagon Tipplers, weighing of wagons on Motion Weigh Bridges, wagon couplings and decouplings, rake formation for dispatch, hauling of P a g e | 12 & 1549/Mum/2018 296 & 297/Mum/2021 Essel Mining & industries Ltd. Vs. DCIT, CC-1(4) wagons through its own locomotives within the factory premises, etc. Thus, the rail system is being operated by the assessee and the cost of above operations is borne by assessee.

As per materials placed on record, all the railway systems are established and owned by the assessee which is a Company as defined under the Income tax Act. This is an undisputed fact and there is no adverse remark by the AO or CIT(A) in this regard.

As per clause (b)of Section 801A (4)(1) an agreement has to be entered with the Central Government or a State Government or a Local Authority or any other statutory body for (1) developing or (ii) Operating and maintaining or (ii) Developing, Operating and Maintaining the infrastructure facility. The Indian Railways, with whom the assessee has entered into an agreement, is the statutory body designated under the Indian Railways Act.

We also observe that the agreements entered into by the assessee are for the development, operation and maintenance of the Railway siding. Thus this fulfills the requirement in clause (b)……… 70. As per our considered view, the operation of Rail System is not simply running of goods train. Operation of Railway Systems comprises of various activities viz. shunting of the wagons, placing of the wagons at appropriate locations, loading/unloading of wagons within the stipulated time and stipulated methods of Indian Railways through Wagon Loading Machines and Wagon Tipplers, weighing of wagons on Motion Weigh Bridges, wagon couplings and de-couplings, rake formation for dispatch, hauling of wagons through its own locomotives within the factory premises, etc. Thus, the rail system is being operated by the assessee and the cost of above operations is borne by assessee..............

After verifying the computation of income eligible for deduction u/s.801A, as filed by assessee, we found that the CIT(A) has misunderstood the working of the revenue calculation and alleged that such working is ill-conceived as the actual transportation of materials on the siding is carried out by the railway authorities. Based on such misunderstanding, he further alleged that assessee has claimed deduction for notional profits whereas section 801A allows deduction for profits derived from actual operations............

In view of the above discussion, the explanation given by the CIT(A) and the tabular representation of the computation of revenue of rail system in Table F, has no relevance since it is merely based on his incorrect assumption.

Further, we found that observation of CIT(A) with respect to the freight rate is also not correct in so far as for comparison, he has considered the rate per quintal as against per Metric Ton adopted by the assessee which can be observed from the calculation submitted by assessee before the lower authorities. Without any evidence in hands, the CIT(A) has merely stated that crucial facts were not disclosed by the P a g e | 13 & 1549/Mum/2018 296 & 297/Mum/2021 Essel Mining & industries Ltd. Vs. DCIT, CC-1(4) assessee without referring to any specific facts which were not disclosed. Perhaps he is indicating about the operations of railway siding being carried out by the railways and not by the assessee. However, as aforesaid, he is comparing the operation of railway siding with merely hauling of wagons. The operations of railway siding involves various activities other than the hauling of wagons. Mere haulage of wagons cannot be equated with operations of railway siding. We found that assessee has filed reports in Form 10CCB from M/s G. P. Kapadia & Co., Chartered Accountant. The CIT(A) himself has allowed the deduction in AY 2009-10 based on the similar facts available on records but changed his decision merely based on the replies to questionnaire from various Railway Department. ………… 95. Section 80IA(2) further provides that the deduction is available at the option of the assessee for any ten consecutive assessment years out of twenty years beginning from the year in which the undertaking or enterprise develop and operate any infrastructure facility. UTCL has started to claim deduction within the prescribed period of twenty years. The claim is thus legitimately made by assessee complying the requirements mentioned under section 80IA.

In view of the above discussion and respectfully following the order of the Tribunal in assessee's own case for the A.Y.2004-05 to 2008-09, we do not find any merit in the action of the Revenue authorities declining the claim of deduction u/s.80IA(4). Accordingly AO is directed to allow the deduction as claimed by the assessee with respect to its rail system. We direct accordingly." 25.3 During the course of the appellate proceedings, the appellant has also stated that there is no provision for withdrawal of deduction u/s 801A for the subsequent year ie. AY 2013-14 under appeal, unless the deduction granted in initial year i.e. AY 2006-07 is withdrawn. In this regard, reliance is placed on the judgment of the Hon'ble Bombay High Court's Order in the case of Paul Brothers (216 ITR 548), the relevant excerpts of which are reproduced hereunder. "6. Either in section 80HH or in section 80J, there is no provision for withdrawal of special deduction for subsequent years for breach of certain conditions. Hence unless the relief granted for the assessment year 1980-81 was withdrawn, the Income Tax Officer could not withheld the relief for the subsequent years.” 25.4 In view of these facts and circumstances and following the order of the Hon'ble ITAT, Mumbai for the A.Y. 2010-11 in the case M/s Ultratech Cement Ltd, a group concern, the AO is directed to allow the claim of the Appellant u/s 80IA(4) of the Act. Accordingly, this Ground of Appeal No. 5 of the appellant company is allowed.” The ld. Counsel also referred the decision of Hon’ble Supreme Court in the case of Radhasoami Satsang V. CIT (1992) 193 ITR (SC) on the P a g e | 14 & 1549/Mum/2018 296 & 297/Mum/2021 Essel Mining & industries Ltd. Vs. DCIT, CC-1(4) principle of consistency stating that A.O had allowed the 80IA in respect of rail system claim from AY. 2006-07 to A.Y. 2012-13. Following the decision of coordinate bench of the ITAT in the case of Ultratech Cement Ltd. Vs. ACIT-2(2) (2017) 88 taxmann.com 907 (Mumbai Tribunal) as referred supra we don’t find any infirmity in the decision of ld. CIT(A) therefore this appeal of the revenue stand dismissed. Ground No. 3 & 4: Disallowance made towards sale of carbon credit: 16. During the course of assessment the A.O noticed that assessee company had received Rs.5,84,53,107/- against the sale of carbon credit. The assessee company has treated this receipt as capital receipt. However, the AO was of the view that the same was a revenue receipt has held by the ITAT cochin in the case of Appollo Tyres Ld. Vs. ACIT (2014) 149 ITD 756. The A.O stated that certified emission reduction/carbon credit was given to the assesse in the course of business activity, therefore, the same would fall within the definition of income u/s 2(24)(vd) of the Act. Therefore, the same was treated as revenue receipt and added to the total income of the assesse.

The assessee filed appeal before the ld. CIT(A). The assesse has placed reliance on the decision of Hon’ble High Court of Andhra Pradesh in the case of CIT Vs. My Home Power Ltd. 46 taxmann.com 314 and decision of ITAT, Chennai in the case of India Dying Mills Pvt. Ltd. Vs. ACIT vide ITA No. 498/Mum/2014 dated 08.10.2014. The assesse has also placed reliance on the decision of ITAT, Mumbai in the case of Ultratech Cement Ltd. Vs. ACIT (2015) – TIOL-989- ITAT Mumbai. After considering the aforesaid decision and decision of ITAT, Mumbai ld. CIT(A) has allowed the claim of the assesse.

During the course of appellate proceedings before us the ld. Counsel contended that the issue on sale of carbon credit is covered in the case of the assesse by the decision of ITAT, Mumbai in the case of P a g e | 15 & 1549/Mum/2018 296 & 297/Mum/2021 Essel Mining & industries Ltd. Vs. DCIT, CC-1(4) the assessee itself for assessment year 2015-16 vide ITA No. 602/Mum/2021. With the assistance of the ld. Representative we have perused the aforesaid decision of ITAT as supra the relevant operating part of the decision is reproduced as under: “9. Next ground of appeal

Following the order passed by Co-ordinate Bench of Tribunal in case of M/s Dawarkesh Sugar Industry Ltd. (supra) which is based upon the decision rendered by Hon’ble Andhra Pradesh High Court in case of My Home Power Ltd. (supra), we are of the considered view that sale of Renewable Energy Certificate (Carbon Credit) of income received by the assessee is a capital receipt and could not be business receipt or income nor it is directly linked with the business of the assessee nor any asset is generated in the course of business but it is generated due to environmental concern. So the addition of Rs.10,20,587/- by the AO from the sale of Carbon Credit and confirmed by the ld. CIT(A) is not sustainable, hence, ordered to be deleted.”

The ld. CIT(A) has allowed the appeal of the assessee after following the decision of his predecessor on the similar issue for the earlier years and held that the assesse had properly maintained and allocated the expenses in the profit and loss account.

Heard both the sides and perused the material on record. During the course of appellate proceedings before us the ld. Counsel submitted that identical issue on similar facts has been adjudicated by the ITAT vide ITA No. 602/Mum/2021 for the AY 2015-16. We have perused the decision of ITAT in the case of the assessee itself as referred supra. The relevant part of the decision is reproduced as under: 6. The ld. CIT (A) while dealing with disallowance of Common Expenses against deduction claimed under section 80IA of Rs. 5, 92, 7000/- held as under: “12.0 Ground no.7 deals with deductions claimed by the assessee u/s.80IA in respect of common expenses of Rs.59, 27,000/-. It is seen that while completing the assessment, the Assessing Officer held that profits shown in S8OIA units appears to be higher than actual profit on account of not debiting of expenses in respect of travelling and conveyance amounting to Rs.59,27,000/- to the -Units claimed deduction u/s.80IA is disallowed to the extent of Rs.59,27,000/-. He therefore allocated additional travelling expenses of Rs. 59, 27,000/- to the 80IA Units, in the ratio of their turnover to the total turnover and thus reduced deduction u/s 80IA by equivalent amount.

Following the decision of the ITAT the issue of allocation of common expenses while claiming deduction u/s 80-IA is remanded back to the A.O for examination and to follow on the basis of earlier settled cases in the case of the assessee itself. Therefore, this ground of appeal