M/S R.R.ISPAT LTD,RAIPUR vs. C.I.T-1, RAIPUR

IN THE INCOME TAX APPELLATE TRIBUNAL RAIPURBENCH, RAIPUR

BEFORE SHRI PRADIP KUMAR KEDIA, HON'BLE ACCOUNTANT MEMBER & SHRIN.K. CHOUDHRY, HON’BLE JUDICIAL MEMBER I.T.A. No. 71/RPR/2015 (Asst. Year : 2010-11)

M/s. R.R. Ispat Limited, vs. CIT-1, Raipur 490/1, Urla Industrial Area, Raipur. PAN No. AABCR 6219 C (Appellant) (Respondent)

Assessee by : ShriR.B. Doshi, CA. Department by : Shri P.K. Mishra, CIT DR Date of hearing : 27/07/2021. Date of pronouncement : 28/09/2021.

O R D E R PER N.K. CHOUDHRY, JUDICIAL MEMBER

This appeal has been preferred by the Assessee against the order dated 24/03/2015 impugned herein passed by the Ld. Commissioner of Income Tax -1 [for short, „ld. Commissioner], Raipur u/sec. 263(1) of the Income Tax Act, 1961 (hereinafter referred to as the "Act") for the A.Y. 2010-11.

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“4.1 I have gone through the submissions made by the Assessee and various case laws relied upon by the Assessee and found it to be not satisfactory. The law prohibits claiming CSR expense as a deduction from income. Under the new Companies Act, certain class of profitable entities is required to shell out at least two per cent of their three year average annual net profit towards Corporate Social Responsibility (CSR) activities. The CSR expense is treated as application of income. As the application of income is not allowed as deduction, amount spent on CSR cannot be allowed as deduction for computing taxable income of the company. The assessing officer should have disallowed the entire CSR expense instead of disallowing only Rs. 5,00,000/- out of CSR expense. Since the assessing officer has not disallowed the entire CSR expense it renders the assessment order as erroneous in so far as it is prejudicial to the interest of the revenue. 4.2 So far as claim of 50% depreciation on wind mill is concerned, the assessing officer has not done any enquiry as to whether the wind mill was put to use before 31/03/2010. At the time of proceedings under section 263, the Assessee has produced certain evidence that the wind mill was commissioned before 31/03/2010 but the claim of Assessee requires verification. Lack of inquiry by the assessing officer renders the assessment order as erroneous.

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4.3 Regarding claiming additional depreciation on power generation, the Assessee has admitted that the amendment brought about in section 32(1)(iia) by the Finance Act, 2012 to include the business of generation and distribution of power to the benefit of additional depreciation is applicable for the next A.Y. 2013-14. In the absence of clear provision in the I.T. Act, a plain reading of section 32(iia) indicated that the benefit of additional depreciation is available to those undertakings which are engaged in the business of manufacture of production of an article or thing. Wrongly allowing additional depreciation on power generation has rendered the assessment order as erroneous in so far as it is prejudicial to the interest of the revenue. 5. In view of the facts discussed above, it is clear the AO has failed to examine these issues at the time of assessment proceedings, the assessment order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of revenue. The AO has not applied his mind. Non-application of mind leads to order passed by the Assessing Officer being erroneous in so far as it is prejudicial to the interest of revenue. In the case reported in [2012] 24 taxmann.com 215 (Gauhati), the Commissioner of Income-tax v. Jawahat Bhattacharjee, the Hon'ble High Court of Gauhati has held: “The object of section 263is to correct erroneous order prejudicial to the interest of revenue, as the Department has no right to file an appeal against the order of the Assessing Officer. While the power is not meant to be substitute for the power of the Assessing Officer to make assessment, the same can certainly be exercised when order of the Assessing Officer is erroneous and prejudicial to the interest of the revenue. In Daga Entrade (P) Ltd.’s case (2010) 327 ITR 467, the Hon'ble Gauhati hg held that if the order of the Assessing officer was passed ignoring relevant material, causing prejudice to the interest of the revenue, suo motu revisional jurisdiction could be exercised by the Commissioner. I, accordingly set aside the assessment order on the limited issues discussed in para 4.1 to 4.3.

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Assessee vide column No.14 of its reply (page No. 48 of the paper book filed before the ITAT) submitted that the corporate social responsibility expenses have been claimed as business expenses allowable u/sec. 37 of the Income-tax Act, 1961. Further, the Assessee Company has given its contribution mainly to “Akansha Lions School for Mentally Handicapped”, a institute which is established for growth, development, care and education of mentally handicapped and poor and needy children based in Raipur. The Assessee Company has incurred this expenditure as approved by its Board of Directors after visiting the activities of the institution being an corporate citizen of the State. This institution is working for helping mentally handicapped and poor children in a unique manner. 5.2 The Assessee relied upon the order dated 18/01/2018 passed by the Co-ordinate Bench at Raipur in the case of DCIT vs. Godawari Power & Ispat Limited (ITA Nos. 363 & 364/RPR/2014) dated 18/01/2018 wherein at para 47, the Co-ordinate Bench dealt with an identical issue and deleted the addition made by the AO qua CSR expenses. For the sake of ready reference, the relevant part of the order is reproduced herein below:- “47. We have heard the rival submissions and perused the record of the case. We find that the CIT(A) has relied on the decision in the case of Modi Industries (supra) and Hon'ble Karnataka High Court in the case of CIT vs. Infosys Technologies Ltd. (supra), wherein, it has been held that the expenditure incurred on social responsibility was laid out or expended wholly and exclusively for purposes of business. The CIT(A) has referred to the amendment made in Finance Act (No.2) 2014 w.e.f 01/04/2015 in Section 37, wherein it is declared that for the purposes of sub-section (1) any expenditure incurred by an Assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to be an expenditure incurred by the Assessee for the purposes of the business or

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profession. The CIT(A) has held that there was no such embargo for the preceding years. In view of the above, the CIT(A) held that the disallowance cannot be sustained. In the instant case, it is submitted that CSR expenses are incurred for the welfare of local community and thereby improve corporate image of thecompanies incurring such expenditure. We are of the considered opinion that the CIT(A) has rightly considered the decision and deleted the addition made by the Assessing Officer and ground No.4 of appeal of the revenue is dismissed.”

5.3 We have considered the facts and circumstances of the case The amendment was made to Section 37 by Finance Act (No.2) 2014 which came into effect from 01/04/2015 wherein it is declared that for the purposes of sub-section (1) any expenditure incurred by an Assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to be an expenditure incurred by the Assessee for the purposes of the business or profession, however this case pertains to AY 2010- 11 when there was no such embargo. Even the Assessing Officer, raised the specific query qua issue in hand which was replied by the Assessee and the AO formed his opinion based on the material available on record, law applicable to the particular AY and judgments applicable to the facts of the case, hence the same cannot be reviewed. May be the AO done inadequate enquiry, that also cannot be attributable to assessment order as erroneous in so far as it is prejudicial to the interest of the revenue. In our considered view the presumption and assumption of the ld. Commissioner is contrary to the facts and hence not tenable in the

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eyes of law, consequently, the same is unsustainable with regards to the instant issue. 6. Second issue pertains to the claim of 50% of depreciation on wind mill. It was claimed by the Assessee by filing reply to the notice U/s 263 of the Act, before the ld. Commissioner that in Schedule-20 of the Audited balance sheet under point No.18, it is clearly mentioned that the installed capacity of wind mill has been increased from 1.2 MW to 2.7 MW during this year and the letter issued by the TNEB certifying the commissioning of a wind mill and the generation of electricity there from, which are duly recorded in the books of account and shown in the audited balance sheet are valid and sufficient evidence of the date of putting the wind mill to use and the generation of electricity from the same. It was further submitted that wind mill has been put to use during the F.Y. 2009-10 and depreciation of half year has been claimed by the Assessee. However, the Assessee did not find favour from the ld. Commissioner and the ld. Commissioner held that so far as claim of 50% of depreciation on wind mill is concerned, the AO has not done any enquiry as to whether the wind mill was put to use before 31/03/2010. At the time of proceedings u/sec. 263, the Assessee has produced certain evidence that the wind mill commissioned before 31/03/2010 but the claim of the Assessee requires verification. Lack of enquiry by the AO renders the assessment order as erroneous.

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6.1 We have considered the peculiar facts to the effect that it is undisputed fact that by raising specific query vide column No.8 of notice dated 17/12/2012, the AO asked the Assessee that there is huge investments in fixed assets specially plant & machinery. Despite this fact your turnover has decreased then what use has been put to new assets. The said query was replied by the Assessee vide column No.8 of the its reply (Pg no. 47 of PB) wherein it was replied by the Assessee that during the year under consideration the Assessee company started its commercial production in Block Mill since December, 2009 and also set up another Wind Mill installed in the month of March. The said query and its reply goes to show that the AO has made the requisite enquiry, therefore the assumption of the Ld. CIT is wrong and contrary to the facts. 6.2 The Hon'ble Delhi High Court in the case of Pr.CIT vs. Delhi Airport Metro Express Pvt. Ltd. has held that for the purpose of exercising jurisdiction under section 263 of the Act, the conclusion of the ld. Commissioner has to be preceded by some minimal inquiry before coming to the conclusion that the order of the AO is erroneous and prejudicial to the interests of the revenue and once the PCIT is of the view that the AO did not undertake any inquiry, it becomes incumbent on the PCIT to conduct such inquiry. In this case before the ld. Commissioner a certificate dated 03/04/2010 issued by the TNEB to the Assessee (available at page No.32 of the paper book) was produced before the ld. Commissioner wherein clearly mentioned by the authority that 1500 KW capacity wind electric generator of M/s. R.R. Ispat Ltd., Raipur has been

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commissioned satisfactorily on 20/03/2010 and tied up with TNEB 33 KV Grid. From the said certificate and submission of the Assessee before the ld. Commissioner to the effect that in Schedule 20 of the Audited balance sheet under point No.18, it is clearly mentioned that the installed capacity of wind mill has been increased from 1.2 MW to 2.7 MW during this year, and therefore goes to show that relevant materials have been produced not only before the AO but also before the ld. Commissioner, however, still the ld. Commissioner opined that claim of the Assessee requires verification. Even it is not the case here that no enquiry has been done by the AO qua issue in hand, therefore the conclusion drawn by the ld. Commissioner on the issue under consideration is unsustainable. 7. Third issue relates to the additional depreciation of power generation. The Assessee has submitted in its reply before the ld. Commissioner that the Assessee is also engaged in the generation of power and as per section 32(1)(iia) as amended by the Finance Act, 2005 permits an Assessee “engaged in the business of manufacture or production of any article or thing”, to claim additional depreciation @ 50% on the cost of new plant & machinery, acquired and installed on or after 31/03/2005. It was further submitted that since section 32(1)(iia) is an incentive provided to promote industrialization, the same should be liberally construed. 7.1 The ld. Commissioner held that regarding claim of additional depreciation on power generation, the Assessee has admitted that the amendment brought out in section 32(1)(iia) by the Finance Act, 2012 to include the business of generation and distribution of power

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to the benefit of additional depreciation applicable for the next A.Y. 2013-14. In the absence of clear provision in the I.T. Act, a plain reading of section 32(1)(iia) indicated that the benefit of additional depreciation is available to those undertakings which are engaged in the business of manufacture of production of an article or thing. The ld. Commissioner further held that wrongly allowing additional depreciation on power generation has rendered the assessment order as erroneous insofar as it is prejudicial to the interest of the revenue. 7.2 We may observe that the Hon'ble Apex Court in the case of State of Andhra Pradesh vs. National Thermal Power Corporation Ltd. [(2002) 5 SCC 203] held the electricity as “GOODS” which can be transmitted, transferred, delivered, possessed. The amendment was brought out in section 32(1)(iia) by Finance Act 2012 to include the business of generation and distribution of power for the benefit of additional depreciation which was held by the various Co-ordinate Benches as clarificatory in nature, specifically in the case of ACIT vs M. Satish Kumar in ITA No. 718/MDS/2012 decided on 28/09/2012 by holding as under:- “8. We have heard the submissions made by the respective parties and have also examined the judgments orders relied on by the A.R. of the Assessee. A perusal of the judgmentsclearly show that generation of electricity is akin to manufacturing of a new product. In the instant case, electricity which may not be seen with the eyes, however, its effect can be seen and felt. The electricity can be transmitted, transferred, delivered, stored, possessed etc. The Hon'ble Supreme Court in the case of CST vs. Madhya Pradesh Electricity Board (supra) has held that electricity

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falls within the definition of goods under the provisions of Sale of Goods Act, 1930. The Delhi Bench of the Tribunal in the case of NTPC Ltd. (supra) after a detailed examination of several judgment, Acts, Constitution of India, has concluded that the process of generation of electricity is akin to manufacture of an article or thing. 10. In view of the above, we are of the considered opinion that generation of electricity is a manufacturing activity. The Assessee is involved in the manufacturing activity and fulfills the conditions as laid down under section 32(1)(iia). The Government vide Finance Act, 2012 has amended the provisions of section 32(1)(iia) to include the business of generation or generation or generation and distribution of power, eligible for benefit under section 32(1)(iia). Although the said amendment is with effect from 01/04/2013 but it gives impetus to the view that generation of electricity is a manufacturing process and qualifies for the benefits under section 32(1)(iia). In view of the above, the order of the CIT(A) is upheld and the appeal of the Revenue is dismissed being devoid of merit.”

7.3 Bangalore Bench in the case of DCIT vs. Hutti Gold Mines Co. Ltd. (ITA No.832/BANG/2012) decided on 02/08/2013, endorsed the view of the Tribunal in the case of ACIT vs M. Satish Kumar (supra). For ready reference, the conclusion drawn by the Co-ordinate Bench is reproduced herein below:- “7. We have heard the rival contentions and perused the relevant material on record. As rightly pointed out by the CIT (A), on perusal of the object of the company, it is clear that the power generated through windmill is second line of business of the assessee company. The power generated by the windmill is a product of the assessee company and it is covered under the words “article” or “thing” which is tradable/identifiable. In other words, electricity falls within the definition of sale of Goods Act, 1930 and process of generation of electricity is akin to manufacture or production of an “article” or “thing”. The power generated need not necessarily be used in the production of assessee’s own products namely mining and extraction of gold. The use of electricity in the manufacturing activity of the core business of the

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assessee is not a precondition for the grant of additional depreciation under the statue. 7.1 The amendment brought about in section 32(1)(iia) by the Finance Act, 2012 to include the business of generation and distribution of power to the benefit of additional depreciation is only clarificatory. A similar view has been held by the Hon'ble Chennai Bench of the Tribunal in the case of ACIT vs. M Satish Kumar in ITA No.718/Mds/2012 dated 28th September, 2012. The relevant findings of the Tribunal read as follows: “9. We have heard the submissions made by the respective parties and have also examined the judgments orders relied on by the A.R. of the assessee. A perusal of the judgments 7 ITA No. 718 /Mds/2012 clearly show that generation of electricity is akin to manufacturing of a new product. In the instant case, electricity which may not be seen with the eyes, however, its effect can be seen and felt. The electricity can be transmitted, transferred, delivered, stored, possessed etc. The Hon'ble Supreme Court in the case of the CST vs. Madhya Pradesh Electricity Board (supra) has held that electricity falls within the definition of goods under the provisions of Sale of Goods Act, 1930. The Delhi Bench of the Tribunal in the case of NTPC Ltd. (supra) after a detailed examination of several judgments, Acts, Constitution of India, has concluded that the process of generation of electricity is akin to manufacture of an article or thing. 10. In view of the above, we are of the considered opinion that generation of electricity is a manufacturing activity. The assessee is involved in the manufacturing activity and fulfills the conditions as laid down under section 32(1)(iia). The Government vide Finance Act, 2012 has amended the provisions of section 32(1)(iia) to include the business of generation or generation and distribution of power, eligible for 8 ITA No. 718/Mds/2012 benefit under section 32(1)(iia). Although the said amendment is with effect from 1.4.2013 but it gives impetus to the view that generation of electricity is a manufacturing process and qualifies for the benefits under section 32(1)(iia). In view of the above, the order of the CIT(A) is upheld and the appeal of the Revenue is dismissed being devoid of merit. 7.2 The plea of the Revenue raised in Ground No.3 is also devoid of merits, since in the relevant previous year (the year in which the windmills were installed), Assessee was entitled to depreciation only at the rate of 80%. The Assessee would not have been entitled to additional depreciation, if the Assessee was eligible for 100% depreciation.

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7.4 Coming to the instant case, as clarified by the Co-ordinate Benches of the Tribunal the electricity has been considered as “goods” and amendment brought out in section 32(1)(iia) by the Finance Act, 2012 to include the business of generation and distribution of power to the benefit of additional depreciation is only clarificatory, hence deserves additional depreciation. Even the AO while allowing the additional depreciation on power generation used his own wisdom and followed the dictum of the Hon‟ble Courts, therefore his action cannot be faulted. On the aforesaid analyzations it is clear that the assumption of the ld. Commissioner to the effect that allowing additional depreciation on power generation as rendered the assessment order as erroneous insofar as it is prejudicial to the interest of the revenue, is wrong and contrary to the facts and judgments on the issue. Before coming to the conclusion that the order of the AO is erroneous and prejudicial to the interest of the revenue, the Ld. Commissioner ought to have conducted some minimal enquiry, which in the instant case qua the issue under consideration also, the ld. Commissioner failed to do and consequently the conclusion drawn by the ld. Commissioner is also unsustainable.

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Order Pronounced on dated 28-09-2021 as per Rule 34(5) of the IT (Appellate Tribunal) Rules.

Sd/- sd/- (PRADIP KUMAR KEDIA) (N.K. CHOUDHRY) Accountant Member Judicial Member

vr/- Copy to: 1. The Assessee - M/s. R.R. Ispat Limited, 490/1, Urla Industrial Area, Raipur. 2. The Revenue – CIT -1, Raipur 3. The D.R., Raipur. 4. Guard file. By order

Sr. Private Secretary, ITAT, Raipur (on tour).