ADITYA BIRLA REAL ESTATE LIMITED (FORMERLY KNOWN AS CENTURY TEXTILES AND INDUSTRIES LIMITED),MUMBAI vs. COMMISSIONER OF INCOME TAX, CIRCLE 6(1)(1), MUMBAI, MUMBAI

On the facts and in the circumstances of the case and in law, the Hon'ble CITIA erred in not quantifying the amount of intra head adjustment amounting to INR 29,63,83,924 in the computation sheet annexed to the Assessment Order but has considered the impact of the intra head adjustment of INR 29,63,83,924 while computing the gross total income.

The assessee is a company engaged in the business of manufacturing of diversified products in various segments such as textiles, pulp, paper, cement, cotton, chemical etc. It is also engaged in power generation and building activities. The assessee filed the original return of income on 26.10.2018 declaring income at Nil under the normal provisions of the Act and at Rs. 443,45,93,477/- under the provisions of section 115JB of the Act. The return was processed u/s 143(1) on 21.02.2020 and the total income of the assessee was computed at Rs. 15,01,07,130/-. The case was selected for scrutiny under CASS and the notice u/s 143(2) was issued on 22.09.2019 which was duly served on the assessee. The AO through notice u/s. 142(1) called on the assessee to file details from time to time.

The revenue in its appeal has raised a legal contention that the appeal of the assessee filed before the CIT(A)is not maintainable since in the order u/s. 143(3)

The ld. AR on the other hand submitted that the regular assessment in assessee's case was initiated on 22.09.2019 by issue of notice u/s. 143(2) well before passing of intimation u/s. 143(1) on 21.02.2020. The ld. AR therefore argued that the additions made u/s. 143(1) would automatically get merged with the order u/s. 143(3) which was concluded on 09.04.2020. Without prejudice the ld. AR submitted that the order has been passed u/s. 143(3) r.w.s. 143(3A) and 143(3B) of the Act which would mean that the assessment should have followed the NFAC Scheme. The ld. AR in this regard drew our attention to the procedure under the Scheme where it is specifically mentioned as under: (viii) the assessment unit shall, after taking into account all the relevant material available on the record, make in writing, a draft assessment order either accepting the returned income of the assessee or modifying the returned income of the assesse, as the case may be, and send a copy of such order to the National e-assessment Centre, & 4359/Mum/2025 Aditya Birla Real Estate Ltd. (x) the National e-assessment Centre shall examine the draft assessment order in accordance with the risk management strategy specified by the Board, including by way of an automated examination tool, whereupon it may decide to- (a) finalise the assessment as per the draft assessment order and serve a copy of such order and notice for initiating penalty proceedings, if any, to the assessee, alongwith the demand notice, specifying the sum payable by, or refund of any amount due to, the assessee on the basis of such assessment, or (b) provide an opportunity to the assessee, in case a modification is proposed, by serving a notice calling upon him to show cause as to why the assessment should not be completed as per the draft assessment order; or (c) assign the draft assessment order to a review unit in any one Regional e- assessment Centre, through an automated allocation system, for conducting review of such order; (xviii) The assessment unit shall, after taking into account the response furnished by the assessee, make a revised draft assessment order and send it to the National e- assessment Centre;”

The ld. AR argued that the additions made in the intimation u/s. 143(1) are modification to the income returned by the assessee and therefore the AO should have issued a show-cause notice with the draft adjustments to the assessee calling for its objections. The ld. AR further argued that the AO did not issue any show- cause notice to the assessee and simply proceeded to assess the income including the additions made u/s. 143(1). The ld. AR also drew our attention to the order of the AO u/s. 143(3) for AY 2020-21 wherein the AO with regard to an identical addition towards depreciation issued a show-cause notice and after perusing the details furnished did not make the addition (page 150 and 153 of PB). The ld. AR in this regard placed reliance on the decision of the Hon'ble Delhi High Court in the case of Rmsi Pvt. Ltd. vs. National E-assessment Centre, Delhi [2021] 129 taxmann.com 170 (Del.)

We heard the parties and perused the material on record. In assessee's case, in the intimation u/s.143(1), the AO made (i) disallowance of depreciation, (ii) disallowance u/s.40(a)(i) and (iii) disallowance u/s.36(1)(va). Meanwhile, the regular assessment proceedings were initiated and the AO while completing the assessee u/s.143(3) did not make any addition. However, from the perusal of the AO's order we notice that the AO is very much aware of the disallowances made in the intimation u/s.143(1) and has made a specific observation in the assessment order that the income determined by the CPC u/s. 143(1) of the Act, amounting to Rs. 15,01,07,130/- is assessed u/s. 143(3) of the Act. Considering this peculiar fact, in our considered view the doctrine of merger would apply to the present case and accordingly we are unable to agree with the contention of the revenue that the CIT(A) should not have admitted the appeal against order u/s.143(3). The ground raised by the revenue in this regard is dismissed. Ground No.2 of the revenue is with regard to disallowance of depreciation and the same would be considered along with assessee's ground on the same issue.

With regard to the contention of the ld AR that the AO has not followed the procedure under the NFAC Scheme, we notice that as per the scheme if the AO is making any modification to the returned income, then a draft assessment order is required to be sent to e-assessment unit. In the present case the AO though has not made any adjustment to the returned income, by stating that adjustment made in the intimation u/s.143(1) is the income assessed u/s.143(3) has indeed modified the returned income and therefore as per the Scheme should have issued a show- & 4359/Mum/2025 Aditya Birla Real Estate Ltd. cause notice to the assessee. It is relevant to mention here that the AO in the subsequent AY while making an identical disallowance towards depreciation has issued a show-cause notice to the assessee. Accordingly there is merit in the contention that the assessment completed u/s.143(3) is not in accordance with the procedure notified under NFAC Scheme. Having held so, we notice that the assessee in response to the show-cause issued u/s.143(1) has filed the response and further the ld AR during the course hearing presented arguments on merits. Accordingly we proceed to consider the impugned disallowances on merits in the ensuing paragraphs.

The ld. AR submitted that the Capital Gain offered for AY 2019-20 where the cost of acquisition as declared by the assessee is not accepted by the AO and in case the said issue is confirmed, then same would have a consequential effect in the Capital Gain offered for the year under consideration. The ld. AR submitted that the assessee in this regard has raised an additional ground which reads as under – “1. ADDITIONAL GROUND NO. 2: MODIFICATION IN THE AMOUNT OF FULL VALUE OF CONSIDERATION ON SALE OF LAND: 1.1 On the facts and circumstances of the case and in law, the id. Assessing Officer be directed that the sale consideration of land which is offered to tax as Long Term Capital Gains be taken as a figure corresponding to the cost of Transferable Development Right actually allowed in AY 2018-19 and AY 2019-20 while computing Short Term Capital Gains on sale of Transferable Development Right.”

From the perusal of the above we notice that the additional grounds raised now does not require investigation of any new facts. Hence, placing reliance on the judgment of the Hon’ble Apex Court in the case of National Thermal Power Co. Ltd. v. CIT (1998) 229 ITR 383 (SC), we admit the additional grounds.

The assessee is into manufacturing of cotton piece goods, denim, yam, viscose rayon yarn, viscose tyre cord, caustic soda, carbon-disulphide, sulphuric acid, salt and by products, cement, pulp and paper etc., and also renders engineering services and engaged in Floriculture business. The assessee has, among various other locations, set-up power generation units at Raipur, Chhattisgarh and Satna, Madhya Pradesh viz. Century Cement Thermal Power Plant ("CCTPP") and Maihar Cement Thermal Power Plant ("MCTPP"), respectively. Entire power generated at CCTPP and MCTPP is captively consumed by the cement plants located in Baikhunt/Raipur and Satna, respectively. Since the total power consumption of the cement plants is greater than the total power generated by the units, the excess requirement is purchased by the cement plant from Chhattisgarh State Power Distribution Company Limited ("CSPDCL") and Madhya Pradesh Poorv Kshetra Vidyut Vaitaran Company Limited ("MPPKVVCL"), respectively. Thus the power plants owned and maintained by the assessee is being used for captive consumption for meeting requirements of Cement Division and the entire power produced is being consumed captively. In response to the proposal to disallow the depreciation on the assets of the power plant the assessee submitted that the assessee produces electricity for captive consumption which is used for the business of the assessee and therefore the depreciation claimed on the plant and machinery being used for generating power/electricity cannot be disallowed on the grounds that the assessee is not in business of power. The assessee further submitted that the assessee has been claiming depreciation in preceding previous years and the claim of depreciation on the plant and machinery used for generation and captive consumption of power/electricity has been allowed. Accordingly, the assessee submitted that & 4359/Mum/2025 Aditya Birla Real Estate Ltd. revenue cannot change its stand. However, the CPC proceeded to make the disallowance towards depreciation. On further appeal the CIT(A) held that – “II. FINDINGS OF THE CIT(APPEALS) - The appellant has set-up power generation units at Raipur, Chhattisgarh and Satna, Madhya Pradesh viz. Century Cement Thermal Power Plant ("CCTPP") and Maihar Cement Thermal Power Plant ("MCTPP"), respectively. Entire power generated at CCTPP and MCTPP is captively consumed by the cement plants located in Baikhunt/Raipur and Satna, respectively. Since the total power consumption of the cement plants is greater than the total power generated by the units, the excess requirement is purchased by the cement plant from Chhattisgarh State Power Distribution Company Limited ("CSPDCL") and Madhya Pradesh Poorv Kshetra Vidyut Vaitaran Company Limited ("MPPKVVCL"), respectively. Thus, the power plants owned and maintained by the appellant is being used for captive consumption for meeting requirements of Cement Division and the entire power produced is being consumed captively. Thus, the appellant, while not in business of generating and distributing power/electricity, the appellant does produce electricity for captive consumption which is used for the business of the appellant and therefore the depreciation claimed on the plant and machinery being used for generating power/electricity cannot be disallowed on the grounds that the appellant is not in business of power. Apparently it is the cement division which has to claim depreciation not the taxpayer. Coming to the question of taxpayer being in the business of generating power, the assessing officer’s stand is correct. The taxpayer do not produce power, it produces cement, viscose, yarn etc. For its own in house consumption, power is generated. So claim of depreciation has to be restricted to those businesses which utilizes the power produced by the taxpayer.”

We heard the parties and perused the material on record. From the above observations of the CIT(A), we notice that the CIT(A) has admitted that the assets of the power generation unit have been utilised for generation of power for internal business purposes. We further notice that the CIT(A) has held that disallowance cannot be made on the ground that the assessee is not engaged in the business of power generation. We also notice that the CIT(A) however has held that the division which produced the power only can claim depreciation. We are unable to agree with the said finding of the CIT(A), for the reason that the power generating & 4359/Mum/2025 Aditya Birla Real Estate Ltd. unit is a business division of the assessee and is not a separate taxable entity. Therefore in our view the power generation unit is part of the assessee's overall business structure and therefore the depreciation on the assets used for power generation which is utilised for internal consumption, is an allowable claim. In this regard it is relevant to consider that the revenue has been allowing the claim of depreciation in earlier years and in AY 2019-20, the AO has dropped the disallowance proposed in the draft assessment order after considering the submissions of the assessee. In view of this discussion we are of the view that the depreciation claimed by the assessee cannot be denied and the disallowance made in this regard is directed to be deleted. Ground No.2 in assessee's appeal is allowed and Ground No.2 in revenue's appeal is dismissed.

The ld. AR submitted that the assessee during the year under consideration has made to resident contractors covered under Section 194C of the Act. The ld. AR further submitted that the assessee wherever the TDS is not deducted, has disallowed 30% of the contract payments under Section 40(a)(ia) of the Act (page 1 of paper book). The ld AR also submitted that however, the tax auditors at the time of preparing and filing the tax audit report inadvertently reported the payments pertaining to residents on which taxes were not withheld at source under Clause 21(b)(i) of the Form instead of Clause 21(b)(ii) of the Form which pertains to payments to non-residents where disallowance under Section 40(a)(i) is made. The ld AR during the course of hearing took the bench through the breakup of the payments covered under the said clause as tabulated below (page 131, 154 & 155 of paper book) Sr. TAN Section Amount on Amount on Amount on Cross No which tax was which tax was which tax reference required to be actually required to in TAR & 4359/Mum/2025 Aditya Birla Real Estate Ltd. deducted deducted be deducted but not deducted 1 MRTC00260B 194C 2,96,14,89,765 2,93,96,01,352 2,18,88,413 Sr. No. 57 2 BRDB01824E 194C 30,35,61,224 29,87,76,908 47,84,316 Sr. No. 49 TOTAL 3,26,50,50,989 3,23,83,78,260 2,66,72,729

We heard the parties and perused the material on record. From the perusal of the above table, it is clear that the assessee has short deducted tax on the payments made to contractors u/s.194C and has disallowed 30% of the amount of expenditure as per the provisions of section 40(a)(ia). We further notice that the tax auditors have erroneously reported the amounts as pertaining to payments made to non-residents under Clause 21(b)(i) which pertains to disallowance under Section 40(a)(i) of the Act. Considering these facts and the fact that the assessee has rightly disallowed 30% we are of the view that no further disallowance is required to be made and accordingly we direct the AO to delete the disallowance made in this regard. Ground No. 3 of assessee’s appeal is allowed. Disallowance u/s. 36(1)(v)(a)

In the intimation u/s. 143(1) disallowance of Rs. 12,792/- u/s. 36(1)(v)(a) was made. The assessee submitted before the CIT(A) the following table to submit that the assessee has already disallowed a higher amount in the return of income

We heard the parties and perused the material on record. The contention of the assessee is that the wherever there is a delay in remittance, the assessee has already made a disallowance u/s.36(1)(va) and that no additional disallowance is warranted. Since whether the claim of the assessee that amount disallowed in the intimation u/s.143(1) is part of the amount already disallowed by the assessee needs factual examination, we are remitting the said issue back to the AO. The AO is directed to verify the claim of the assessee on merits and allow the claim in accordance with law after giving a reasonable opportunity of being heard to the assessee. It is ordered accordingly.

Ground No.5 raised by the assessee is with regard to non-grant of TDS, Ground No.6 pertain to non-quantification of carried forward of unabsorbed depreciation and Ground No. 7 pertain to non-quantification of the amount of intra head adjustment in the computation-sheet to the assessment order. In this regard, we direct the AO to consider these contentions afresh based on documentary evidences keeping in mind the directions given in this order with regard to the disallowances made. Needless to say that the assessee be given a reasonable opportunity of being heard.

The additional ground of the assessee pertains to the consequential effect in the year under consideration towards cost of acquisition of transferable development right which denied to the assessee by AO in AY 2019-20. The ld. AR submitted that the assessee has sold a portion of the right in current year and the balance in next year towards the same land. Accordingly, the ld. AR prayed that if the cost of acquisition is denied or modified in AY 2019-20 the same would have consequential impact in capital gain working of the year under consideration. In this regard we direct the AO to verify the impact if any as a result of the & 4359/Mum/2025 Aditya Birla Real Estate Ltd. assessment of AY 2019-20 pertaining to capital gains and give effect of the same in the year under consideration as per law. Needless to say that the assessee be given a reasonable opportunity of being heard. It is ordered accordingly.

In result, appeal of the revenue is dismissed and the appeal of the assessee is allowed for statistical purposes.