S.J.V.N. LTD.,SHIMLA vs. ADDL. CIT, SHIMLA

आदेश/Order

Per Sanjay Garg, Judicial Member :

These are the cross-appeals, one by the assessee and

the other by the Revenue preferred against the order of ld. Commissioner of Income Tax (Appeals), Shimla (hereinafter

referred to as CIT[A] )dated 22.03.2012 for assessment year

2008-09. Since common issues are involved in both the

appeals, hence, these were heard together and are being

disposed of by this common order.

ITA-583 & 596/CHD/2012 A.Y. 2008-09 Page 2 of 11

assessee in its appeal has taken so many grounds and sub-

grounds, out of which following issues arise:

I. Computation of Gross total income as per normal provisions

II Denial of Deduction u/s 80IA of the Act on the following – (i) Interest from employees and contractors – Rs. 5763604/- (ii) Machinery hire charges of Rs. 2989865/- and rent recovered from staff Rs. 2404593/- (iii) Profit on sale of assets Rs. 1115530/- (iv) Miscellaneous income derived from rents from transit camps, other recoveries from employees, receipts from buses Rs. 1397668/- (v) Insurance claim Rs. 231898830/- (vi) Sale of forms – Rs. 8 lacs

III Incidental expenditure allowed only @ 2% as against 5% claimed on interest income

IV. Computation of income as per provisions of section 115JB on – a) Advance against deduction depreciation b) Addition of 8.57 crores and 50.13 crores to the book profits on account of unascertained liability. c) Addition of Rs. 46089897/- to book profits on account of interest on arbitration awards.

u/s 40(a)(ia) of the Income Tax Act, 1961 ( hereinafter

referred to as 'the Act'). In respect of the interest and other

expenses incurred by the assessee, the assessee did not

deduct tax at source while making/crediting the aforesaid

payments to payees. Therefore, the disallowance of

ITA-583 & 596/CHD/2012 A.Y. 2008-09 Page 3 of 11

expenditure u/s 40(a)(ia) of the Act has been made by the

Assessing Officer (hereinafter referred to as AO) which has

been further confirmed by the CIT(A).

not convince us about the non-deduction of TDS on the

aforesaid amount, however, the only submission of the ld.

counsel for the assessee in this respect is that the assessee

may be given the benefit in the shape of allowance of the said

expenditure in the year in which the TDS has been deducted

on the aforesaid payments. The ld. DR has also fairly agreed

that the assessee is entitled to the allowance of expenditure

in the year in which TDS has been deducted. In view of this,

this ground of appeal is dismissed with the observation that

the assessee will be at liberty to claim the aforesaid

expenditure in the year in which the TDS has been deducted.

of the lower authorities in denying the benefit of exemption

u/s 80IA of the Act in respect of income received on various

counts. First is the interest from employees and Directors of

Rs. 5763604/-. The ld. Counsel has fairly admitted that this

income has not accrued from the manufacturing/generation

of electricity activity of the assessee so this allowance has

rightly been made by the lower authorities.

charges and rent recovered from staff. This income is also

apparently not related to manufacturing/generation of

electricity activity of the assessee. Hence, no interference is

ITA-583 & 596/CHD/2012 A.Y. 2008-09 Page 4 of 11

required on this issue also. Similarly the profit from sale of

assets of Rs. 11,15,530/- is not linked to the

manufacturing/generation of electricity activity of the

assessee. The same has also been rightly disallowed by the

lower authority.

the lower authorities in respect of denial of claim u/s 80IA of

the Act in respect of miscellaneous income from rent from

transit camps and other recoveries from employees and

receipts from buses etc., the same does not link to the

manufacturing activity of the assessee. The sole issue

pressed upon by the counsel under this head is regarding the

insurance claim of Rs. 23,18,98,830/-. The ld. Counsel has

submitted that the aforesaid claim received from insurance

company was in view of the compensation received on

account of loss of assets. That the aforesaid loss has already

been booked as expenditure in the earlier years, therefore,

the amount received as compensation to indemnify the loss is

business income of the assessee. We restore this issue for

the limited purpose to the AO to verify whether the insurance

claim received by the assessee is on account of loss of

trading assets and the same has been booked as an

expenditure in the earlier years. If it is found so, then to

allow the insurance claim to be included into the income for

the purpose of benefit u/s 80IA of the Act. This ground is,

accordingly, partly allowed in favour of the assessee.

ITA-583 & 596/CHD/2012 A.Y. 2008-09 Page 5 of 11

income from sale of forms which admittedly is not related to

the manufacturing activity of the assessee and we do not find

any reason to interfere in the orders of the lower authorities

in denying the aforesaid claim.

assessee in respect of incidental expenditure incurred for the

purpose of earning of interest income from the banks. The

ld. counsel for the assessee has submitted that the assessee

generates huge interest income from the banks for which

certain administrative expenses such as employment of full

time employees etc. is incurred, therefore, a reasonable

expenditure incurred for the purpose of

investment/generating interest income from the banks is

required to be allowed as an expenditure. Ld. Counsel has

further submitted that the assessee has been allowed 5% of

the total income as incidental expenditure in the previous

and subsequent assessment year, however, in the year under

consideration only 2% of the interest income has been

allowed as expenditure.

allowing of expenditure on certain percentage of bank

interest does not seem to be a correct and proper method for

the same. We are of the view that if investment or deposit is

made to the bank, same effort is to be made irrespective of

the quantum of the investment i.e. whether it is regarding

the deposit of Rs. 1 lac or Rs. 10 Crores, subject to a very few

ITA-583 & 596/CHD/2012 A.Y. 2008-09 Page 6 of 11

additional formalties. Under the circumstances, we restore

this issue to the AO to examine the calculations given by the

assessee in respect of expenditure incurred for making

deposits with the bank and to decide the issue a fresh

having regard to the accounts of the assessee, the manpower

and the administrative infrastructure used for the same and

also the direct and indirect expenditure being incurred in

this respect.

Rs. 515.45 Cr into the book profits and thereby assessing the

same as per the provisions of Section 115JB of the Act. The

ld. counsel for the assessee has submitted that the aforesaid

amount of Rs. 515.45 Cr was infact ‘advance against

depreciation’ which the assessee in the earlier years had

booked under the head ‘Sales’. However, subsequently in the

light of the decision of the Hon'ble Supreme Court in the case

of NHPC Vs CIT 320 ITR 374 wherein it has been held that

the same is not a reserve or income accrued, rather the

advance against depreciation is the income received in

advance which is subject to adjustment in future. The

assessee rectified its accounts and accordingly,

deleted/taken back the same from the head income/sales

income and claimed that the same is not income of the

assessee in the light of the decision of the Supreme Court in

the case of NHPC. However, the AO was of the view that

since the aforesaid amount has been debited from the book

profits which had already been booked as sales in the earlier

years which was not allowable, hence he taken up this

ITA-583 & 596/CHD/2012 A.Y. 2008-09 Page 7 of 11

amount as income of the assessee for computing the book

profits u/s 115JB of the Act.

before us is that since assessee has wrongly booked the

aforesaid amount as income of the assessee in the earlier

years, hence, by way of an accounting entry for the year

under consideration, the said amount has been reduced from

the book profits as the taxes have already been paid by the

assessee on the aforesaid amount. It is pertinent to mention

here the ld. CIT(A), however, has made some observations

that the assessee has tried to take undue benefit of the

decision of the Hon'ble Supreme Court in the case of NHPC

(supra) by stating that the assessee was required to rectify

entries in the respective years in which sales were booked

and that the act of the assessee in revising the entire amount

during the current year’s book profit was not justified.

even if we go by the analogy adopted by the CIT(A), it will

result into complicated and multiplied assessment of

different years whereas the net effect for the year under

consideration will remain the same. Admittedly, the assessee

has already booked the aforesaid amount as income in the

earlier years and has paid the due taxes; if the same is

reduced in the respective year, same will have bearing on the

next year. Hence, instead of making adjustment one by one

in each of the year, the assessee made the requisite entry in

the current year. However, the question of allowability of the

ITA-583 & 596/CHD/2012 A.Y. 2008-09 Page 8 of 11

aforesaid claim in respect of ‘advance on depreciation’, in our

view is required to be looked into by the AO. We, therefore,

restore this issue to the file of the AO to examine the nature

of the income received and apply the decision of the Hon'ble

Supreme Court in the case of ‘NHPC’ or any other case law as

may be available at that time. However, if the claim of the

assessee is found allowable, then to reduce the income from

the book profits of the current year as per our observations

made above.

addition of Rs. 8.57 Cr, Rs. 50.13 Cr and Rs. 4.60 Cr made

by the AO on account of unascertained liability. The ld.

Counsel, in this respect has submitted dispute was going on

of the assessee with the other parties before the arbitrator.

There were ascertained liabilities of the assessee to pay the

amounts in question, however, the exact quantum was not

determined. Therefore, assessee booked the said amounts as

liability in the books of account. The ld. counsel for the

assessee has submitted that after the Award of the

Arbitrator, the aforesaid amounts had been adjusted in the

books of account as paid by the assessee as per the

Arbitration Award. We restore this issue to the file of the AO

to verify whether the aforesaid liability has been

paid/adjusted in the subsequent years, if found correct, then

to allow claim of the assessee in the year under

consideration.

ITA-583 & 596/CHD/2012 A.Y. 2008-09 Page 9 of 11

taken three effective grounds of appeal. The first ground is

against the action of the CIT(A) in directing the AO to treat

Rs. 1.62 Crores on account of Catchment Area Treatment

Expenditure as revenue expenses. The ld. counsel for the

assessee has invited our attention to the order of the

Tribunal dated 04.08.2015 in ITA 1309/2012 for assessment

year 2009-10 wherein the said issue has been dealt with and

the Tribunal after relying upon various decisions including

the decision of the Hon'ble Supreme Court in the case of

Empire Jute Co. Vs CIT 124 ITR 1, the Supreme Court did

not find reason to interfere in the order of the CIT(A) in

identical facts in earlier assessment year. The relevant part

of the order of the Tribunal is reproduced as under :

ITA-583 & 596/CHD/2012 A.Y. 2008-09 Page 10 of 11

and mechanically without regard to the particular facts and circumstances of a given case. We do not therefore find any reason to interfere with the order of the CIT(A) on this issue. Accordingly, this ground of appeal filed by the revenue is dismissed.

the Tribunal, hence we do not find any reason to interfere in

the order of the CIT(A) on this issue.

Ground No. 2

directing the AO to treat Rs. 1,19,62,353/- on account of

“write back of provisions of leave salary and pension” as

income eligible u/s 80IA of the Income Tax Act. We find that

the leave salary and pension etc. are the expenditures

incurred by the assessee which are directly relating to the

running of the business operations. Therefore, ld. CIT(A)

has rightly allowed the write back of the provisions for the

same as income of the assessee as eligible for deduction u/s

80IA of the I.T. Act.

written back for stores of Rs. 398,890/-. Provisions for

stores is relating to the trading assets of the assessee hence,

any excess provisions written back will also constitute

income of the assessee relating to the business operations of

the assessee.

do not find any merit in the appeal of the Revenue and the

same is dismissed.

ITA-583 & 596/CHD/2012 A.Y. 2008-09 Page 11 of 11

Order dictated and pronounced in the Open Court immediately on completion of hearing on 19/02/2019.

Sd/- Sd/-

( अ�नपूणा� गु�ता ) (संजय गग�) ( ANNAPURNA GUPTA) (SANJAY GARG ) लेखा सद�य/ Accountant Member �याय�क सद�य/ Judicial Member ‘Poonam’ आदेश क� ��त�ल�प अ�े�षत/ Copy of the order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent 3. आयकर आयु�त/ CIT 4. आयकर आयु�त (अपील)/ The CIT(A) 5. �वभागीय ��त�न�ध, आयकर अपील�य आ�धकरण, च�डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड� फाईल/ Guard File

आदेशानुसार/ By order सहायक पंजीकार/ Assistant Registrar