M/S RAJASTHAN STATE MINES & MINERALS LIMITED,JAIPUR vs. DEPUTY COMMISSIONER OF INCOME TAX, JAIPUR

In ground No. 1, the assessee has challenged the issuance of notice u/s 148 and the consequent order passed under section 147 of the Act. In this regard, the ld. AR submitted that the assessee had filed its return declaring income of Rs. 81,41,70,667/- on 14.10.2010 after claiming deduction of Rs.14,96,10,989/- u/s 80IA of the Act. The return of income was subsequently revised on 23.03.2012 declaring income of Rs.77,61,60,827/-. It was submitted that in course of assessment proceedings, the assessee vide letter dated 11.05.2012 filed the copy of audit report in Form No. 10CCB as required u/s 80IA(7). Thereafter, the the Assessing officer vide letter dated 25.09.2012 required the assessee to furnish the justification for claiming deduction u/s 80IA. The assessee filed the reply dated 08.10.2012 justifying the claim of deduction u/s 80IA. Thereafter, vide letter dated 05.02.2013, the assessee explained as to why deduction u/s 80IA should be allowed to it with reference to the liquidated damages received from M/s Suzlon Energy Limited and sale of CERs.

It was further submitted by the ld AR that the Assessing officer completed the assessment u/s 143(3) on 27.02.2013 at income of Rs. 85,17,09,380/- where he examined the claim of deduction u/s 80IA and allowed the same at Rs.11,15,66,435/- by not allowing the deduction with reference to the liquidated damages and sales of CERs. Against this, the assessee filed an appeal before the Ld. CIT(A) who vide order dated 05.12.2013 affirmed the order of AO. The assessee

It was further submitted by the ld AR that the AO, after four years from the end of the relevant assessment year, issued notice u/s 148 dated 31.03.2017 for the reason that while claiming deduction u/s 80IA, assessee had only considered direct operation and maintenance expenses for working out the deduction without charging proportionate head office expenses on turnover ratio and therefore, the allowance of deduction to the extent of Rs.1,47,82,534/- has escaped assessment which is on account of failure on part of the assessee to disclose all material facts.

It was further submitted by the ld AR that the assessee filed its objection to the issuance of notice u/s 147 vide letter dated19.06.2017 specifically pointing out that in course of the original assessment proceedings, the report of Chartered Accountant for claim of deduction u/s 80IA was furnished. After examining the same, the AO discussed the allowability of deduction u/s 80IA and reduced the claim of deduction to the extent of Rs.3,80,44,554/-. However, the AO rejected the objection of the assessee vide letter dated 04.07.2017.

It was further submitted by the ld AR that before the ld. CIT(A), the assessee pleaded that reopening of assessment after four years when the original assessment is framed u/s 143(3) and the issue of deduction u/s 80IA was examined, is illegal and bad in law. However, the Ld. CIT(A) observed that though the assessee has objected to the reopening of assessment but no ground has been taken before her.

In light of above factual matrix, it was further submitted before us that the original assessment in this case was completed u/s 143(3). The assessment is reopened after the expiry of four years from the end of relevant AY. Hence, the assessee’s case falls in proviso to section 147 wherein the assessment cannot be reopened after the expiry of four years from the end of relevant AY unless any income chargeable to tax has escaped assessment for such assessment year by reason of failure on the part of assessee to disclose fully and truly all material facts necessary for assessment for that assessment year. It may be noted that in course of original assessment proceedings, assessee filed detailed working of claim of deduction u/s 80IA along with audit report in Form No. 10CCB as required u/s 80IA(7). After considering the same, the AO disallowed the claim of deduction to the extent of Rs.3,80,44,554/- in respect of liquidated damages received from M/s Suzlon energy Limited and sale of CERs. Thus, all the material facts necessary for claim of deduction u/s 80IA was disclosed fully and truly by the assessee. Therefore, it is incorrect on part of the lower authorities to hold that assessee has not disclosed fully and truly all material facts necessary for its assessment on the issue of allowance of deduction u/s 80IA of the Act. Hence, reopening of assessment after the expiry of four years, only on change of opinion is illegal and bad in law.

Regarding the decision of the Hon’ble Gujarat High Court in case of Ajanta Pvt. Ltd. vs. ACIT 78 Taxmann.com 48 relied upon by the ld CIT(A) where the assessment for AY 2008-09 was reopened for the reason that assessee has not allocated the common expenditure towards its windmill division in claiming deduction u/s 80IA and the reopening was upheld by the Hon’ble High Court, it was submitted by the ld AR that in the subsequent decision by the Hon’ble Gujarat High Court (referred supra) in case of the same assessee for AY 2011-12, the reopening of the assessment framed u/s 143(3) for the reason of non- allocation of common expenditure was held invalid. Therefore, this being the subsequent decision, it would prevail over the earlier decision.

We have heard the rival contentions and purused the material available on record. Undisputedly, the assessment was initially completed u/s 143(3) vide order dated 27.02.2013 and the same was reopened by issuance of notice u/s 148 dated 31.03.2017 after the expiry of four years from the end of the relevant assessment year 2010-11. The proviso to section 147 is thus clearly attracted and it therefore needs to be examined whether the income which is sought to be brought to tax by the Assessing officer and which has thus escaped assessment is on account of failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of assessment.

In this regard, firstly, we refer to the reasons recorded by the AO before issuance of notice u/s 148 which reads as under:

As per the Assessing officer, the material facts therefore relates to not charging the proportionate head office expenses on account of establishment & financial expenses on windmills for the purposes of computation of deduction u/s 80IA of the Act. As per Assessing officer, there is a failure on part of the assessee to disclose fully and truly such material facts which has resulted in escapement of income whereby the claim of deduction u/s 80IA has been allowed at a higher figure as against the figure which would have been arrived at after apportionment of head office expenses.

As per the ld AR, during the course of assessment proceedings, the assessee vide letter dated 11.05.2012 filed a copy of audit report in Form No. 10CCB as required u/s 80IA(7). Thereafter, the Assessing officer vide letter dated 25.09.2012 required the assessee to furnish the justification for claiming deduction u/s 80IA. The assessee filed the reply dated 08.10.2012 justifying the claim of deduction u/s 80IA. Thereafter, vide letter dated 05.02.2013, the assessee explained as to why deduction u/s 80IA should be allowed to it with reference to the liquidated damages received from M/s Suzlon Energy Limited and sale of CERs.

We have gone through the audit report in Form No. 10CCB as well as other submissions filed by the assessee during the course of original assessment proceedings completed u/s 143(3) of the Act and find that there is no disclosure or discussion regarding the apportionment of any head office expenses while computing the deduction u/s 80IA of the Act. It is a fact that the assessee has wind power generating undertakings which are eligible for claim under section 80IA and various mining units which are not eligible for such tax holiday. It is also a fact that there are head office establishment and financial expenses. It is therefore reasonable on part of the Assessing officer to hold a prima facie belief that such head office expenses incurred at the entity level should be allocated between the two set of activities – the activities which are eligible for tax holiday and those which are not eligible for tax holiday. At the same time, it could be position of the assessee that certain expenses though incurred at the head office level are not incurred in relation to or have no nexus with

We have also gone through the various decisions relied upon by the ld AR and find that those decisions have been rendered in peculiar facts and circumstances of the relevant case and are thus distinguishable and doesn’t support the case of the assessee. In case

In light of above discussions and in the entirety of facts and circumstances of the case, we doesn’t see any infirmity in AO’s exercising his jurisdiction under section 147 of the Act by issuance of

In ground No. 2, the assessee has challenged the confirmation of the action of the AO of reducing the claim of deduction u/s 80IA of Rs. 1,47,82,535/- by apportioning establishment and financial expenses at Rs. 36,83,29,248/- to wind power generation undertakings eligible for deduction u/s 80IA ignoring that the entire operation and maintenance of wind plants has been given to Suzlon Energies Ltd. and therefore, the said expenditure has no relation to the undertakings eligible for deduction u/s 80IA.

In this regard, the ld. AR submitted that the AO observed that in working out the claim of deduction u/s 80IA, assessee has not apportioned the head office expenses & other day-to-day management and supervision charges amongst the units eligible for deduction u/s 80IA. The assessee has only considered the direct operation and maintenance expenses for working out the profits of wind power projects as if these projects were automatically set up and were running without any strategic planning, management, directions, etc. Accordingly, the AO allocated the indirect expense claimed under the head establishment and financial expenses proportionately to all units and thereby, disallowed the claim of deduction u/s 80IA at Rs.1,47,82,535/-.

It was further submitted by the ld AR that the Ld. CIT(A) held that on perusal of the agreement with M/s Suzlon Energy Ltd., it can be noted that only the operational part is being handled by M/s Suzlon

It was further submitted by the ld AR that the AO has considered the employees benefit and establishment and financial expenses and other miscellaneous expenses for proportionate allocation against the Wind power plant. This is incorrect for the reason that whatever expenditure is relatable to the income from the said industrial undertaking has been debited for working out the income of the said units. The lower authorities have not considered this factual aspect. In fact, the assessee maintains the unit wise details of the expenditure of the head office and various mining units. Therefore, the expenditure incurred on administration at these mining units cannot be allocated towards the power generating units.

It was submitted by the ld AR that the total expenditure considered by the AO for allocation is Rs.46,57,18,479/- and out of it, the expenditure exclusively in relation to mining units is Rs.23,10,05,852/-. Therefore, this expenditure cannot be allocated to the power generating units. The expenditure at the corporate office is Rs. 23,47,12,627/-. Out of it, the AO himself has considered donation of Rs. 5,12,84,990/- and business promotion expenses of Rs.51,63,000/- debited in corporate office as not relating to power generating units. After excluding the same, the remaining expenditure at corporate office is Rs.17,82,64,637/-. It may be noted that none of these expenses

It was further submitted by the ld AR that similar disallowance was made in AY 2006-07 to 2009-10 & 2011-12 to 2013-14 wherein the Co-ordinate Bench of the Tribunal vide order dated 30.05.2017 set aside the order to the files of the AO to verify the claim of the assessee that the entire expenditure related to operation & maintenance was born by Suzlon Energies Ltd. It may be noted that the assessee has filed the relevant extract of the terms and conditions on which the installation of wind power generating units was given to M/s Suzlon Energy Limited. As per the scope of work, the operation and maintenance of the wind farm for 20 years from the date of acceptance of the wind power project is awarded to M/s Suzlon Energy Limited for which it is to be paid at the rate of Rs.0.40/kwh in the first year and thereafter, with escalations as per Para 5 of the agreement (PB 14).

We have heard the rival contentions and perused the materials available on record. Regarding the first contention of the ld AR that none of the expenses at the Corporate office pertain to the 80IA undertakings in as much as the entire operation and maintenance of the plant has been given to Suzlon Energies Ltd. It is no doubt true that the operation and maintenance activities are handled by Suzlon Energy and the ld CIT(A) has returned a finding which has not been disputed by the Revenue. However, the fact remains that the assessee activities are still guided towards overall supervision and management of these activities at the strategic and managerial level and to safeguard the interest of the shareholders and the assessee still remains responsible for the activities of these eligible undertakings to the outside world even though at the operational level, the whole of its activities have been outsourced to Suzlon Energies Ltd. Therefore, the contention of the ld AR cannot be accepted that no expenses in furtherance and support of what we have stated above has been incurred by the assessee and

Now, coming to the specifics of the expenditure incurred at the corporate level, on perusal of the details available at the APB 15-16, we find that the establishment expenses at the Corporate office has been shown as Rs 23,47,12,627. The AO has however wrongly took the total establishment expenditure at the entity level at Rs.46,57,18,479/- which includes establishment expenditure incurred in relating to various mining activities. What therefore has to be considered is the establishment expenditure at the corporate office level which comes to Rs 23,47,12,627. Further, on perusal of the said expenditure, we find that expenditure on rates and taxes, land tax, insurance, interest on debentures, business promotion expenses and advertisement expenses cannot be said to have any nexus with the eligible undertakings engaged in generation of energy and thus, these expenses needs to be excluded. Further, the AO has himself excludes the donations while working out the eligible deductions. The remaining expenses in the nature of employee costs and other establishment expenses etc therefore needs to be allocated in the ratio of turnover for the purposes of determining the eligible profits under section 80IA of the Act. The matter is accordingly set-aside to the file of the AO to verify these figures and recalculate the eligible profits for the purposes of section 80IA of the Act. In the result, the ground is partly allowed for statistical purposes.