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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
First we take up assessee's appeal. Though the
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.
The first ground/issue is relating to the disallowance
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).
Before us, ld. counsel for the assessee, though could
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.
Vide ground No. 2, the assessee has agitated the action
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.
Second issue is regarding income from machinery hire
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.
We do not find any reason to interfere in the order of
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
The next contention raised by the assessee is regarding
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.
The next issue raised by the ld. counsel for the
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.
After considering rival contentions, in our view the
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.
The next issue is relating to the addition of a sum of
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.
Now the contention of the ld. counsel for the assessee
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.
We have considered the rival contentions. In our view,
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.
The next issue raised by the assessee is regarding
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
Now coming up to the Revenue’s appeal. Revenue has
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 :
On consideration of the rival submissions, we find that CAT payments were made for maintaining the environment and afforestation of the catchment area of the project, which is an operational project, to minimize silt erosion. The expenditure is vital for the continued power-generation by any hydro-power generating company. It is incurred on land not owned by the assessee and is incurred every year. No tangible or intangible asset comes into existence by virtue of this expenditure. All these facts are undisputed and have not been rebutted by the Revenue. It is evident from the above facts that the CAT expenditure is related to carrying on of the business operations of the assessee. It is an integral part of the profit earning process. Moreover the expenditure has not resulted in the acquisition of any tangible/ intangible asset. The expenditure therefore is revenue in nature. Merely because the expenditure results in ending benefit is not enough to categorize it is capital in nature. This issue has been settled by the Supreme Court in Empire Jute Co. Ltd, Vs. CIT 124 ITR 1 (SC) wherein the Court has held : “ ii. There may be cases where expenditure, even if incurred for obtaining an advantage of enduring benefit, may, none the les, be on revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessee’s trading operations or enabling the management and conduct of the assessee’s business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. The test of enduring benefit is, therefore, not a certain or conclusion test and it cannot be applied blindly
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.
Since the issue is squarely covered by the decision of
the Tribunal, hence we do not find any reason to interfere in
the order of the CIT(A) on this issue.
Ground No. 2
In ground No. 2, the Revenue has agitated the issue in
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.
Ground No. 3 is relating to the excess provisions
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.
No other point or ground is pressed. In view of this, we
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
In view of our findings, appeal of the assessee is partly allowed whereas appeal of the Revenue is dismissed.
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