ACIT-6(1)(1),MUMBAI, MUMBAI vs. ADITYA BIRLA REAL ESTATE LIMITED(FORMERLY KNOWNS AS CENTURY TEXTILES AND INDUSTRIES LIMITED), MUMBAI

The Hon'ble CIT(A) issued only a single notice under section 250 of the Income-tax Act, 1961 (the Act) dated 15 June 2022, which was issued more than a year after the filing of the appeal on 7 May 2021, and no further notice or hearing opportunity was provided to clarify issues or respond to any queries.

The Hon'ble CIT(A) failed to consider the Appellant's specific request for a personal hearing via video conference to explain the facts and arguments of the case, thereby denying the appellant a fair hearing.

The Hon'ble CIT(A) did not take the documents and submissions filed by the Appellant on record, nor did he deal with the grounds raised effectively, indicating non-application of mind and procedural negligence.

The order was passed on 4 March 2025, nearly three years after the lest served notice (which was on 15 June 2022), which is contrary to the CBDT Instruction No 20/2003 mandating that appellate orders by Hon'ble CIT(A) to be passed within 15 days of the last hearing, thus causing undue delay and hardship to the Appellant.

The impugned order, being passed in breach of procedural fairness and natural justice, is bad in law and liable to be quashed. Aditya Birla Real Estate Ltd.

Hon'ble CIT (A) erred in upholding addition of INR 12,34,21,645 on assets used for generating power/ electricity made by the Learned Assessing Officer (L'd AO) alleging that the Appellant is not engaged in the business of generating power/electricity.

Hon'ble CIT(A) erred in law and on facts in holding that depreciation on the power generation assets is allowable only to the division consuming the power (Cement division) and not to the Appellant company as a whole.

While the Hon'ble CIT(A) rightly accepted that the appellant is generating power for captive consumption and is entitled to depreciation under section 32(1)(i) of the Act, the conclusion that the claim must be restricted to a specific division is incorrect and contrary to law.

Hon'ble CIT(A) has failed to appreciate that the Appellant company, being the legal owner of the power plant and using the electricity generated for its business, is entitled to claim depreciation on the asset, irrespective of internal divisional usage, and such restriction imposed by the Hon'ble CIT(A) is untenable in law.

Hon'ble CIT(A) failed to appreciate the fact that in the previously concluded assessments, the claim of depreciation on assets used for generating power/electricity has always been accepted.

Hon'ble CIT(A) erred in not following the Principle of Consistency, which requires that when the facts & circumstances continue to remain the same, then there should not be any variation in the treatment from earlier year.

In view of the above, the Appellant prays that the depreciation amounting to INR 12.34,21,645 be allowed.

Both the Ld. AO and Hon'ble CIT(A) failed to appreciate that the Appellant had suo moto disallowed 30% of the payment amounting to INR 80,01,819 (being 30% of INR 2,66,72,729) in accordance with the provisions of section 40(a)(ia) of the Act. and that no further disallowance was warranted.

Erred in not considering the fact that 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) pertains to disallowance under section 40(a)(i) of the Act of the Form instead of Clause 21(b)(ii) of the Form which pertains to disallowance under Section 40(a)(ia) of the Act. However, the Appellant correctly disallowed the amount (INR 80,01,819 being 30% of INR 2,66,72,729) as per the applicable section i.e., section 40(a)(ia) in its return of income.

Erred in not considering the fact that there are no foreign payments on which the Appellant has not withheld tax at source.

The Hon'ble CIT(A), despite acknowledging that the payments were made to resident contractors, erred in upholding the applicability of section 40(a)(i), which squarely applies only to non-resident payments.

In view of the above grounds of appeal, the Appellant prays that the disallowance amounting to INR 2,66,72,729 under Section 40(a)(i) of the Act be deleted.

That the Hon'ble CIT(A) failed to appreciate that the entire disallowance of INR 26,745 as per section 36(1)(va) was already made, though inadvertently classified in Aditya Birla Real Estate Ltd. the return as-INR 649 under section 36(1)(iv) and INR. 26,096 under "contribution to any other fund"

The Hon'ble CIT(A) further failed to appreciate that INR 12,742, being the amount considered for disallowance u/s 36(1)(va) by the Ld AO, already forms part of the total disallowance of INR 26,745 made by the Appellant in the return of income.

The Hon'ble CIT(A) failed to take on record or considering the submissions and documentary evidence furnished by the Appellant during the appellate proceedings, leading to an erroneous confirmation of the disallowance.

That the disallowance sustained by the Hon'ble CIT(A), despite full and proper disallowance already being made by the Appellant, is unjustified both on merits and on account of procedural infirmity

In view of the above grounds of appeal, the Appellant prays that the disallowance amounting to INR 12,742 under Section 36(1)(va) of the Act be deleted.

On the facts and in the circumstances of the case and in law, the Ld AO and the Hon'ble CIT(A) erred in non-grant of TDS credit amounting to INR 2,36,103 reflecting in Form 26AS of the Appellant.

In view of the above grounds of appeal, the Appellant prays that the short TDS credit amounting to INR 2,36,103 be granted to the Appellant.

On the facts and in the circumstances of the case and in law, the L'd. AO erred in non quantification of carry forward of unabsorbed depreciation

In view of the above grounds of appeal, the Appellant prays that the Lis AO be directed to quantify the amount of unabsorbed depreciation that can be carry forward to the subsequent Assessment Years.

In view of the above, the Appellant prays that the amount of intra head adjustment of INR 29,63,83,924 be quantified and the Appellant be issued a revised computation sheet for its records.”

On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing depreciation on power generation assets for in house consumption without giving a detailed computation of same and thus failed to appreciate the actual amount of depreciation.

On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred and did not provide clear findings on whether the power generation assets are integral to the taxpayer's business operations.

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. Aditya Birla Real Estate Ltd. The AO completed the assessment vide order dated 09.04.2021 by making the following observations:

The assessee company is engaged in the business of manufacturing of diversified products in various segments such as textiles, pulp and paper, cement, cotton, chemicals etc. It is also engaged in Power Generation and Building activities.

Aggrieved the assessee filed further appeal before the CIT(A) who partly allowed the appeal. Both the assessee and the revenue are in appeal against the order of the CIT(A).

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) Aditya Birla Real Estate Ltd. the AO has not made any addition. Therefore before proceeding further we will first consider the contention of the revenue.

The ld. DR submitted that the additions towards which the CIT(A) has given partial relief is arising out of intimation u/s. 143(1) and not arising from order u/s. 143(3). The ld. DR further submitted that the AO has not verified the additions made u/s. 143(1) and therefore mere assessment of same income as assessed u/s. 143(1) will not make the additions as part of the regular assessment. The ld. DR also submitted that the AO has clearly mentioned that no addition is made during the course of assessment and accordingly the assessee is not aggrieved by the order u/s. 143(3). Accordingly, the ld. DR argued that the CIT(A) should not have entertained the appeal filed against 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, 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-

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.) Aditya Birla Real Estate Ltd. 8. The ld. DR while countering the above argument submitted that the assessee is raising the above legal contention for the first time before the Tribunal and therefore cannot be entertained.

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- 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 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. Aditya Birla Real Estate Ltd. Disallowance of Depreciation on assets used for power generation

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 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 –

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 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. No TAN Section Amount on which tax was required to be Amount on which tax was actually Amount on which tax required to Cross reference in TAR 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

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.

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

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 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.