ACIT, CIRCLE, SHIMLA vs. M/S SATLUJ JAL VIDYUT NIGAM LIMITED, SHIMLA

आदेश/ORDER

Per Annapurna Gupta, Accountant Member

The captioned cross appeals, by the assessee and the Revenue, have been filed against the consolidated order of the Ld. Commissioner of Income Tax (Appeals), Shimla(in short referred to as CIT(A),passed u/s 250(6) of the Income Tax Act,1961,(hereinafter referred to as “Act”) dated 23.3.2018 and relates to Assessment Years(A.Y) 2013-14 and 2014-15.

ITA No.834/Chd/2018(Assessee’s Appeal):

5 . G r o u n d N o . I ( 1 ) r a i s e d b y t h e a s s e s s e e r e a d s a s u n d e r :

ITA No.826,827,834 & 835/Chd/2018 3 A.Ys.2013-14 & 2014-15

“ I . C o m p u t a t i o n o f G r o s s T o t a l I n c o m e a s p e r n o r m a l p r o v i s i o n s . 1 . C S R E x p e n s e s R s . 1 6 , 0 3 , 0 1 , 4 3 1 / - T h e c l ar if ic a to r y e x p l an a t io n N o . 2 ad d e d to s e c t io n 2 7 was in s e r te d b y F in an c e B il l ( N o . 2 ) A c t, 2 0 1 4 an d wa s ap p l ic a b l e w. e . f . 0 1 . 0 3 . 2 0 1 5 a n d as s u c h wa s n o t ap p l ic ab l e f o r th e r e l e v an t A Y 2 0 1 3 - 1 4 . T h e g e n u in e e x p e n d i tu r e in c u r r e d as p e r s t a tu t o r y d ir e c t i u o n s h as a c l e ar n e x u s wi t h t h e e ar n in g s . ” 6 . T h e a b o v e g r o u n d r a i s e d r e l a t e s t o d i s a l l o w a n c e o f

C S R e x p e n s e s a m o u n t i n g t o R s . 1 6 , 0 3 , 0 1 , 4 3 1 / - . T h e

f a c t s r e l a t i n g t o t h e s a m e a r e t h a t t h e a s s e s s e e h a d

i n c u r r e d t h e i m p u g n e d C S R e x p e n s e s , b e i n g c o r p o r a t e

s o c i a l r e s p o n s i b i l i t y e x p e n s e s , b y p a y i n g t o S J V N C S R

T r u s t a n d t h e s a m e w a s d i s a l l o w e d b y t h e A . O . h o l d i n g

t h a t i t h a d n o t b e e n i n c u r r e d f o r t h e p u r p o s e o f

c a r r y i n g o n b u s i n e s s . T h e L d . C I T ( A ) u p h e l d t h e o r d e r o f

t h e A . O . s t a t i n g t h a t t h e L e g i s l a t u r e h a d b r o u g h t a n

a m e n d m e n t t o s e c t i o n 3 7 o f t h e A c t b y i n s e r t i n g

E x p l a n a t i o n . 2 t h e r e i n , d i s a l l o w i n g C S R e x p e n s e s w . e . f .

1 . 4 . 2 0 1 5 . T h e L d . C I T ( A ) s t a t e d t h a t t h i s E x p l a n a t i o n

w a s c l a r i f i c a t o r y a m e n d m e n t b r o u g h t o n t h e S t a t u t e

o n l y f o r r e m o v a l o f d o u b t s a n d , t h e r e f o r e , h e l d t h e

s a m e t o b e r e t r o s p e c t i v e i n i t s o p e r a t i o n .

7 . B e f o r e u s , L d . c o u n s e l f o r t h e a s s e s s e e p o i n t e d

o u t t h a t t h e E x p l a n a t i o n 2 t o s e c t i o n 3 7 o f t h e A c t

w h i c h w a s n o t e f f e c t i v e f o r t h e i m p u g n e d a s s e s s m e n t

y e a r , c o u l d n o t b e h e l d t o b e c l a r i f i c a t o r y i n n a t u r e a n d

w a s o n l y p r o s p e c t i v e i n i t s a p p l i c a t i o n a n d f u r t h e r t h a t

e v e n o t h e r w i s e t h e e x p e n s e s h a d b e e n i n c u r r e d f o r t h e

ITA No.826,827,834 & 835/Chd/2018 4 A.Ys.2013-14 & 2014-15

p u r p o s e o f b u s i n e s s a n d w e r e h e n c e a l l o w a b l e u / s 3 7 ( 1 )

o f t h e A c t . T h e L d . c o u n s e l f o r a s s e s s e e s t a t e d t h a t

i d e n t i c a l i s s u e h a d c o m e u p f o r c o n s i d e r a t i o n b e f o r e

t h e I . T . A . T . i n a n u m b e r o f c a s e s w h e r e i n t h e e x p e n s e s

h a d b e e n h e l d a l l o w a b l e u / s 3 7 ( 1 ) o f t h e A c t a n d t h e

i m p u g n e d E x p l a n a t i o n h a d b e e n h e l d t o b e p r o s p e c t i v e

i n i t s o p e r a t i o n . I n t h i s r e g a r d o u r a t t e n t i o n w a s d r a w n

t o t h e d e c i s i o n o f t h e I . T . A . T . , R a i p u r B e n c h i n t h e c a s e

o f A C I T , C i r c l e - 1 ( 1 ) , B i l a s p u r V s . J i n d a l P o w e r L i m i t e d

i n I T A N o . 9 9 / B L P R / 2 0 1 2 d a t e d 2 3 . 6 . 2 0 1 6 a n d t h e I T A T

D e l h i B e n c h , i n t h e c a s e o f N a t i o n a l S e e d s C o r p o r a t i o n

L t d . V s . A d d l . C I T i n I T A N o s . 6 7 9 4 & 6 9 7 0 / D e l / 2 0 1 4

d a t e d 4 . 4 . 2 0 1 8 . T h e L d . c o u n s e l f o r a s s e s s e e ,

t h e r e f o r e , c o n t e n d e d t h a t t h e i s s u e w a s s q u a r e l y

c o v e r e d i n f a v o u r o f t h e a s s e s s e e a n d , t h e r e f o r e ,

r e q u e s t e d t h a t t h e o r d e r o f t h e L d . C I T ( A ) b e s e t a s i d e

o n h i s a c c o u n t .

8 . T h e L d . D R , o n t h e o t h e r h a n d , r e l i e d u p o n t h e

o r d e r o f t h e C I T ( A ) .

9 . W e h a v e c o n s i d e r e d t h e r i v a l c o n t e n t i o n s , p e r u s e d

t h e o r d e r s o f t h e a u t h o r i t i e s b e l o w a n d g o n e t h r o u g h

t h e c a s e l a w s r e f e r r e d t o b e f o r e u s . T h e i s s u e b e f o r e u s

r e l a t e s t o a l l o w a b i l i t y o f C S R e x p e n s e s a s b u s i n e s s

e x p e n s e s u / s 3 7 o f t h e A c t . T h a t s u c h e x p e n s e s a r e

n o t a l l o w a b l e w . e . f . 1 . 4 . 2 0 1 5 o n a c c o u n t o f t h e

i n s e r t i o n o f E x p l a n a t i o n . 2 t o s e c t i o n 3 7 o f t h e A c t , i s

n o t d i s p u t e d . T h e d i s p u t e i s w h e t h e r t h e n a t u r e o f t h e

ITA No.826,827,834 & 835/Chd/2018 5 A.Ys.2013-14 & 2014-15

e x p e n s e i s f o r t h e p u r p o s e o f b u s i n e s s a n d w h e t h e r t h e

e x p l a n a t i o n 2 t o s e c t i o n 3 7 o f t h e A c t , i s r e t r o s p e c t i v e

i n i t s a p p l i c a t i o n a s c o n t e n d e d b y t h e R e v e n u e o r

p r o s p e c t i v e a s a r g u e d b y t h e L d . C o u n s e l f o r t h e

a s s e s s e e .

1 0 . B o t h t h e s e a s p e c t s , w e f i n d , h a v e b e e n d e a l t w i t h

i n t h e o r d e r o f t h e I . T . A . T . i n t h e c a s e o f N a t i o n a l

S e e d s C o r p o r a t i o n L t d . ( s u p r a ) a n d J i n d a l P o w e r

L i m i t e d ( s u p r a ) , r u l i n g i n f a v o u r o f t h e a s s e s s e e . T h e

T r i b u n a l , w e f i n d , h a s c a t e g o r i c a l l y h e l d t h a t t h e C S R

e x p e n s e s a r e t o b e t r e a t e d a s i n c u r r e d f o r t h e p u r p o s e

o f b u s i n e s s o f t h e a s s e s s e e a n d t h a t t h e E x p l a n a t i o n

d i d n o t h a v e a r e t r o s p e c t i v e a p p l i c a t i o n a n d w a s t o b e

a p p l i e d p r o s p e c t i v e l y o n l y . R e l e v a n t f i n d i n g s o f t h e

I . T . A . T . i n t h e c a s e o f J i n d a l P o w e r L i m i t e d ( s u p r a ) a t

p a r a s 1 7 t o 1 9 o f t h e o r d e r i s a s u n d e r :

“17. The next issue is whether it is for the purposes of business or not. We may, in this regard, usefully refer to the observations of a coordinate bench of this Tribunal, speaking through one of us (i.e. the Accountant Member) and in the case of Hindustan Petroleum Corporation Ltd Vs DCIT [(2005) 96 ITD 186 (Bom)], as follows: 7. We find that as hold by Hon'ble Karnataka High Court in the case of Mysore Kirloskar Ltd. v. CIT [1987] 166 ITR 836 1, while 'the basic requirements for invoking sections 37(1) and 80C are quite different', 'but nonetheless the two sections are not mutually exclusive'. Thus, there are overlapping areas between the donations given by the assessee and the business expenditure incurred by the assessee. In other words, there can be certain amounts, though in the nature of donations, and nonetheless, these amounts may be deductible under section 37(1) as well. Therefore, merely because an expenditure is in the nature of donation, or. to use the words of the CIT(A), 'promoted by altruistic motives', it does not cease to be an expenditure deductible under sect/on 37(1). In Mysore Kirloskar

ITA No.826,827,834 & 835/Chd/2018 6 A.Ys.2013-14 & 2014-15

Ltd.'s case the contributions by the assessed is in the forms of donations but if it could be termed as expenditure of the category falling in section 37(1), then the right of the assessee to claim the whole of it as a deduction under section 37(1) cannot be declined. What Is material in this context is whether or not the expenditure in question was necessitated by business considerations or not. Once it is found that the expenditure was dictated by commercial expediencies, the deduction under section 37(1) cannot be declined As to what should be relevant for examining this aspect of the matter, we may only refer to the observations of Hon'ble Supreme Court in the case of Sri Venkata Satyanarayna Rice Mill Contractors Co. v. C/T [1997] 223 ITR 101 2: . . . any contribution made by an assessce to a public welfare fund . which is directly connected or related with the carrying on of the assessee's business or which results in the benefit to the assessee's business has to be regarded as an allowable deduction under section 37(1) of the Act. Such a donation, whether voluntary or at the instance of the authorities concerned, when made to a Chief Minister's Drought Relief Fund or a District Welfare Fund established by the District Collector or any other fund for the benefit of the public and with a view to secure benefit to the assesses's business, cannot be regarded as payment opposed to public policy. It is not as if the payment in the present case had been made as an illegal gratification, (here is no law which prohibits the making of such a donation. The mere fact that making of a donation for charitable or public cause or in public interest results in the Government giving patronage or benefit can be no ground to deny the assessce a deduction of that amount under section 37(1) of the Act when such payment had been made for the purpose of assessee's business. 8. In the case of CIT v. Madras Refineries Ltd. [2004] 266 ITR 170 1, Hon'ble Madras High Court has upheld deducibility of the amount spent by the assessee even on bringing drinking water to locality and in aiding local school. While doing so, Their Lordships observed as follows: The concept of business is not static. It hs evolved over a period of time to include within its fold the concrete expression of care and concern for the society at large and the locality in which business is located in particular. Being a good corporate citizen brings goodwill of the local community as a/so with the regulatory agencies and society at large thereby creating an atmosphere in which the business can succeed in a greater measure with the aid of such goodwill. . . .

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ITA No.826,827,834 & 835/Chd/2018 8 A.Ys.2013-14 & 2014-15

ITA No.826,827,834 & 835/Chd/2018 9 A.Ys.2013-14 & 2014-15

135 of Companies Act 2013, and there is thus now a line of demarcation between the expenses incurred by the assessee on discharging corporate social responsibility under such a statutory obligation and under a voluntary assumption of responsibility. As for the former, the disallowance under Explanation 2 to Section 37(1) comes into play, but, as for latter, there is no such disabling provision as long as the expenses, even in discharge of corporate social responsibility on voluntary basis, can be said to be "wholly and exclusively for the purposes of business". There is no dispute that the expenses in question are not incurred under the aforesaid statutory obligation. For this reason also, as also for the basic reason that the Explanation 2 to Section 37(1) comes into play with effect from 1st April 2015, we hold that the disabling provision of Explanation 2 to Section 37(1) does not apply on the facts of this case.” 1 1 . I n v i e w o f t h e a f o r e s a i d t w o d e c i s i o n s o f t h e

I . T . A . T . h o l d i n g t h e C S R e x p e n s e s t o b e i n t h e n a t u r e o f

b u s i n e s s e x p e n s e s a n d E x p l a n a t i o n - 2 t o s e c t i o n 3 7 o f

t h e A c t a s b e i n g p r o s p e c t i v e i n n a t u r e a n d t h e L d . D R

n o t h a v i n g b r o u g h t o u r n o t i c e a n y d i v e r g e n t v i e w o f t h e

I . T . A . T . , n o r a n y d i s t i n g u i s h i n g f a c t s , t h e d e c i s i o n

r e n d e r e d i n t h e a b o v e t w o c a s e s w i l l s q u a r e l y a p p l y t o

t h e p r e s e n t c a s e a l s o , f o l l o w i n g w h i c h w e h o l d t h a t t h e

C S R e x p e n d i t u r e i n c u r r e d b y t h e a s s e s s e e a m o u n t i n g t o

R s . 1 6 , 0 3 , 0 1 , 4 3 1 / - w e r e a l l o w a b l e f o r t h e i m p u g n e d

y e a r . T h e d i s a l l o w a n c e s o m a d e i s t h e r e f o r e d i r e c t e d t o

b e d e l e t e d .

T h i s g r o u n d o f a p p e a l N o . I . ( 1 ) r a i s e d b y t h e

a s s e s s e e i s , t h e r e f o r e , a l l o w e d .

1 2 . G r o u n d o f a p p e a l N o . I ( 2 ) r a i s e d b y t h e a s s e s s e e

r e l a t e s t o t a x a b i l i t y o f i n t e r e s t o f i n c o m e t a x r e f u n d

a m o u n t i n g t o R s . 2 , 1 6 , 0 5 , 3 4 0 / - a n d t h e s a m e r e a d s a s

u n d e r :

10 ITA No.826,827,834 & 835/Chd/2018 A.Ys.2013-14 & 2014-15

2 . I n t e r e s t o n I n c o m e T a x R e f u n d R s . 2 , 1 6 , 0 5 , 3 4 0 / - . In t e r e s t u / s 2 4 4 A was f o r th e A Y 2 0 0 9 - 1 0 an d a s s u c h th e a mo u n t b e ig a p as th r o u g h i te m wa s p as s e d o v o e r to th e b e n e f ic i ar ie s as p e r C E R C R e g u l a t i o n N o . L - 7 / 2 5 ( 5 ) / 2 0 0 3 d a te d 2 6 . 0 3 . 2 0 0 4 . ” 1 3 . T h e f a c t s r e l a t i n g t o t h e i s s u e a r e t h a t t h e

a s s e s s e e , d u r i n g t h e i m p u g n e d a s s e s s m e n t y e a r , h a d

r e c e i v e d a n a m o u n t o f R s . 2 , 1 6 , 0 5 , 3 4 0 / - a s i n t e r e s t o n

i n c o m e t a x r e f u n d w h i c h w a s n o t o f f e r e d f o r t a x a t i o n .

W h e n c o n f r o n t e d w i t h t h e s a m e , t h e a s s e s s e e s t a t e d

t h a t a s p e r C E R C T a r i f f R e g u l a t i o n s , t a x w a s a p a s s

t h o u g h i t e m a n d r e c o v e r a b l e a s a s e p a r a t e i t e m f r o m

t h e b e n e f i c i a r y S t a t e s a n d a n y i n t e r e s t p a y a b l e o n

s h o r t f a l l o f t a x w a s r e c o v e r a b l e f r o m t h e b e n e f i c i a r y

a n d s i m i l a r l y a n y i n t e r e s t r e c e i v e d o n e x c e s s t a x

d e p o s i t e d w a s t o b e r e f u n d e d t o t h e b e n e f i c i a r y .

A c c o r d i n g l y , i t w a s c o n t e n d e d t h a t t h e i n t e r e s t o n

i n c o m e t a x r e f u n d d i d n o t f o r m p a r t o f t h e i n c o m e o f

t h e a s s e s s e e . T h e A . O . d i d n o t a c c e p t t h e c o n t e n t i o n o f

t h e a s s e s s e e a n d t r e a t i n g t h e s a m e a s i n c o m e o f t h e

a s s e s s e e m a d e a d d i t i o n o f R s . 2 , 1 6 , 0 5 , 3 4 0 / - t o t h e

i n c o m e o f t h e a s s e s s e e .

1 4 . B e f o r e t h e L d . C I T ( A ) , t h e a s s e s s e e r e i t e r a t e d h i s

c o n t e n t i o n . T h e L d . C I T ( A ) r e j e c t e d t h e s a m e s t a t i n g

t h a t t h e R e g u l a t i o n o f C E R C r e l i e d u p o n b y t h e

a s s e s s e e w a s a p p l i c a b l e f o r t h e p e r i o d o f 2 0 0 5 t o 2 0 0 9

a n d t h u s d i d n o t a p p l y f o r t h e i m p u g n e d y e a r , i . e .

A . Y 2 0 1 3 - 1 4 . H e f u r t h e r p o i n t e d o u t t h a t a s p e r

11 ITA No.826,827,834 & 835/Chd/2018 A.Ys.2013-14 & 2014-15

t h e a p p l i c a b l e r e g u l a t i o n / N o t i f i c a t i o n N o . L -

7 / 1 4 5 ( 1 6 0 ) 2 0 0 8 - C E R C d a t e d 1 9 - 0 1 - 2 0 0 9 , t h e t a x w a s

n o t a p a s s t h r o u g h a r r a n g e m e n t . H e , t h e r e f o r e , u p h e l d

t h e o r d e r o f t h e A . O .

1 5 . B e f o r e u s , t h e L d . c o u n s e l f o r a s s e s s e e r e i t e r a t e d

t h e c o n t e n t i o n s m a d e b e f o r e t h e L d . c o u n s e l f o r

a s s e s s e e w h i l e t h e L d . D R r e l i e d u p o n t h e o r d e r o f t h e

L d . C I T ( A ) .

1 6 . W e h a v e h e a r d t h e c o n t e n t i o n s o f b o t h t h e p a r t i e s .

1 7 . T h e i s s u e i n d i s p u t e r e l a t e s t o t h e t a x a b i l i t y o f

i n c o m e t a x r e f u n d o f R s . 2 , 1 6 , 0 5 , 3 4 0 / - r e c e i v e d b y t h e

a s s e s s e e d u r i n g t h e i m p u g n e d y e a r . T h e u n d i s p u t e d

f a c t i s t h a t t h e a s s e s s e e h a d s h o w n t h e s a i d t a x r e f u n d

a s o t h e r i n c o m e i n i t s p r o f i t a n d l o s s a c c o u n t , b u t a t

t h e s a m e t i m e h a d r e d u c e d i d e n t i c a l a m o u n t a s

r e f u n d a b l e t o b e n e f i c i a r i e s . T h e d i s c l o s u r e m a d e b y t h e

a s s e s s e e i n S c h e d u l e 2 . 2 2 o f i t s a u d i t e d f i n a n c i a l

s t a t e m e n t s f o r t h e i m p u g n e d y e a r , c o p y o f w h i c h w a s

p l a c e d b e f o r e u s , a s u n d e r :

“2.22 Other Income Year Ended 31st March, 2013 Interest From:- Banks 21,026 Employees 247 Contractors 6 Beneficiaries 211 21,490 Interest on Income Tax Refund 216 Less: Refundable to Beneficiaries 216 Surcharge on late payment

12 ITA No.826,827,834 & 835/Chd/2018 A.Ys.2013-14 & 2014-15

From customers 983 Receipt of Maintenances of ICF 159 Sale of Scrap 43 Miscellaneous Income # 279 Foreign Currency Fluctuation Adjustment(Credit) 335 Total 23,289 Prior Period Income 163 Total Other Income 23,452 # Details of Miscellaneous Income: Hire Rental Charges from Contractor - Profit on Sale of Fixed Assets - Rent Recovery from Staff/Others 62 Excess Provision Written Back 140 Liquidated Damages recovered 49 Other Misc. Receipts 28 Total 279

1 8 . T h e c o n t e n t i o n o f t h e a s s e s s e e f o r n o t i n c l u d i n g

i n c o m e t a x r e f u n d i n i t s i n c o m e , a s a b o v e , i s t h a t t h e

s a m e h a s t o b e p a s s e d o n t o b e n e f i c i a r y s t a t e s a s p e r

C E R C g u i d e l i n e s , w h i c h g o v e r n i t .

1 9 . T h e L d . C I T ( A ) , w e f i n d , h a s g i v e n a f a c t u a l f i n d i n g

t h a t t h e g u i d e l i n e r e l i e d u p o n b y t h e a s s e s s e e w a s n o t

a p p l i c a b l e f o r t h e i m p u g n e d y e a r a n d a s p e r t h e

a p p l i c a b l e g u i d e l i n e / n o t i f i c a t i o n , t a x w a s n o t a p a s s

t h r o u g h i t e m T h e s a m e i s r e p r o d u c e d a t p a r a 5 . 3 . 4 &

5 . 3 . 5 o f h i s o r d e r a s u n d e r :

“5.3.4 The contention of the appellant appears to be totally misplaced. The appellant has relied on the CERC regulations placed on record No.L-7/25(5)/2003-CERC dated 26.03.2004. The same are applicable for the period 2005 to 2009. The year in consideration is assessment year 2013-14 and the same are clearly not applicable. Even otherwise a perusal of the said regulations at point 8 requires the appellant to maintain a tax escrow account in a schedule bank to which all amounts of interest were required to be credited. The appellant has thus failed to comply with even the regulations being relied on by him. The arguments of the appellant thus fail. 5.3.5 However, the notification applicable for the year under consideration is No.L-7/145(160)2008-CERC dated 19.01.2009 which is applicable for a period of 5 years starting from

13 ITA No.826,827,834 & 835/Chd/2018 A.Ys.2013-14 & 2014-15

01.04.2009 and hence are applicable for the year under consideration. The misc. provisions contained in Chapter -6 relevant to the issue at hand in Para 39 is reproduced as under:– Tax on income. Tax on the income streams of the generating company or the transmission license, as the case may be, shall not be recovered from the beneficiaries, or the long term transmission customers, as the case may be: Provided that the deferred tax liability, excluding Fringe Benefit Tax, for the period upto 31st March, 2009 whenever it materializes, shall be recoverable directly for the beneficiaries and the long-term customers; 5.3.6 A perusal of the same, shows that the contention of the appellant that the tax on income is a pass through item and hence interest received by him u/s 244A of the Income Tax Act is not his income cannot be accepted. The act of the A.O. is upheld and this ground of the appeal is dismissed.” 2 0 . T h e L d . c o u n s e l f o r a s s e s s e e h a s b e e n u n a b l e t o

c o n t r o v e r t t h i s f a c t u a l f i n d i n g o f t h e L d . C I T ( A ) . N o

o t h e r a r g u m e n t s h a v e b e e n m a d e b e f o r e u s . I n v i e w o f

t h e s a m e , w e d o n o t f i n d a n y m e r i t i n t h e c o n t e n t i o n o f

t h e L d . C o u n s e l f o r t h e a s s e s s e e a n d s e e n o r e a s o n t o

i n t e r f e r e i n t h e o r d e r o f t h e L d . C I T ( A ) i n t h i s r e g a r d .

T h e a d d i t i o n m a d e o f R s . 2 , 1 6 , 0 5 , 3 4 0 / - o n a c c o u n t o f

i n c o m e t a x r e f u n d i s t h e r e f o r e u p h e l d .

2 1 . T h i s g r o u n d o f a p p e a l i s , t h e r e f o r e , d i s m i s s e d .

2 2 . G r o u n d N o . I ( 3 ) & G r o u n d N o . I I w e r e n o t p r e s s e d

b e f o r e u s . T h e s a i d g r o u n d s r e a d a s u n d e r :

“3. Income Set off against expenditure during construction period treated as regular income a) interest from bank FDR Rs 2,71,493/- b) interest from employees Rs 53,99,144/- c) Misc Income Rs 91,74,647/- The above income being of capital nature needs to be set off against incidental expenditure during construction period.” “II. Computation of deduction u/s 80IA Income considered ineligible for deduction u/s 80IA a) Interest received from staff of Rs 2,46,77,323/-. (i) Miscellaneous income derived from licence fee from quarters, recovery of private use of vehicles, income from

14 ITA No.826,827,834 & 835/Chd/2018 A.Ys.2013-14 & 2014-15

transit camps, forfeiture of security, post retirement medical scheme, receipts from buses Rs.88,49,579/-.” 2 3 . T h e a b o v e g r o u n d s a r e t h e r e f o r e d i s m i s s e d a s

n o t p r e s s e d

2 4 . G r o u n d N o . I I I ( 1 ) r a i s e d b y t h e a s s e s s e e r e a d s a s

u n d e r :

“III. INCOME AS PER PROVISIONS PF 115JB. 1. Interest on Income Tax Refund Rs.2,16,05,340/- The interest earned on income tax refund has been already added to the book profit worked out as per prescribed accounting standard and which has been duly approved and adopted in the Annual General Meeting. The ratio of Appolo Tyres 255 ITR 273 needs to have been followed.” 2 5 . T h e a s s e s s e e b y w a y o f t h e a b o v e g r o u n d h a s

c h a l l e n g e d t h e a c t i o n o f t h e L d . C I T ( A ) i n a d d i n g t h e

i n t e r e s t e a r n e d o n I n c o m e T a x r e f u n d o f R s . 2 . 1 6 c r o r e s ,

t o i t s B o o k P r o f i t s , f o r t h e p u r p o s e s o f d e t e r m i n i n g

M i n i m u m A l t e r n a t e T a x ( M A T ) p a y a b l e a s p e r t h e

p r o v i s i o n s o f s e c t i o n 1 1 5 J B o f t h e A c t .

2 6 . B e f o r e u s L d . c o u n s e l f o r a s s e s s e e c o n t e n d e d t h a t

t h e a d d i t i o n h a d b e e n m a d e o n t h e b a s i s t h a t t h e

a s s e s s e e h a d n o t i n c l u d e d t h e s a i d i n c o m e i n i t s b o o k

p r o f i t s , w h i l e t h e f a c t w a s t h a t i t h a d i n c l u d e d t h e

s a m e , r e f l e c t i n g i t a s O t h e r I n c o m e i n S c h e d u l e 2 . 2 2 o f

t h e a u d i t e d f i n a n c i a l s t a t e m e n t s . I t w a s t h e r e f o r e

c o n t e n d e d t h a t t h e a c t i o n o f t h e L d . C I T ( A ) w a s i n g r o s s

m i s a p p r e c i a t i o n o f t h e f a c t s o f t h e c a s e a n d n e e d e d t o

b e s e t a s i d e .

15 ITA No.826,827,834 & 835/Chd/2018 A.Ys.2013-14 & 2014-15

2 7 . T h e L d . D R w a s u n a b l e t o c o n t r o v e r t t h e a b o v e

f a c t u a l c o n t e n t i o n o f t h e L d . C o u n s e l f o r t h e a s s e s s e e

t h o u g h o t h e r w i s e h e r e l i e d o n t h e o r d e r o f t h e

L d . C I T ( A ) .

2 8 . W e h a v e h e a r d b o t h t h e p a r t i e s . A d m i t t e d l y t h e

a d d i t i o n , o f i n t e r e s t o n i n c o m e t a x r e f u n d o f R s . 2 . 1 6

c r o r e s r e c e i v e d b y t h e a s s e s s e e , t o t h e B o o k P r o f i t s o f

t h e a s s e s s e e f o r t h e p u r p o s e s o f M A T u / s 1 1 5 J B o f t h e

A c t , h a s b e e n m a d e o n c o n s i d e r a t i o n o f t h e f a c t u a l

m a t r i x t h a t t h e s a m e w a s n o t i n c l u d e d i n i t . T h i s f a c t

h a s b e e n d e m o n s t r a t e d b y t h e L d . C o u n s e l f o r t h e

a s s e s s e e a s b e i n g i n c o r r e c t , w h i c h h a s n o t b e e n

c o n t r o v e r t e d b y t h e R e v e n u e . F u r t h e r e v e n w e h a v e

n o t e d t h a t i n t e r e s t o n i n c o m e t a x r e f u n d r e c e i v e d b y

t h e a s s e s s e e w a s r e f l e c t e d a s o t h e r i n c o m e i n i t s P r o f i t

a n d L o s s a c c o u n t a s p a r t o f S c h e d u l e 2 . 2 2 , i n p a r a 1 4

a b o v e .

2 9 . I n v i e w o f t h e s a m e , w e h o l d , t h a t t h e a d d i t i o n t o

t h e B o o k P r o f i t s o f t h e a s s e s s e e o f t h e I n c o m e T a x

R e f u n d w a s w r o n g l y m a d e a n d d i r e c t d e l e t i o n o f t h e

s a m e . T h e o r d e r o f t h e L d . C I T ( A ) i n t h i s r e g a r d i s

t h e r e f o r e s e t a s i d e .

3 0 . G r o u n d o f a p p e a l N o I I I r a i s e d b y t h e a s s e s s e e i s

a l l o w e d

3 1 . I n e f f e c t a p p e a l o f t h e a s s e s s e e i s p a r t l y a l l o w e d .

16 ITA No.826,827,834 & 835/Chd/2018 A.Ys.2013-14 & 2014-15

3 2 . W e s h a l l n o w t a k e u p t h e a p p e a l o f t h e R e v e n u e i n

I T A N o . 8 2 6 / C h d / 1 8 f o r A . Y 2 0 1 3 - 1 4 .

3 3 . T h e s o l e i s s u e r a i s e d , r e l a t e s t o a l l o w a n c e o f

d e d u c t i o n u / s 8 0 I A o f t h e A c t o n s c r a p s a l e s . T h e f a c t s

r e l a t i n g t o t h e s a m e a r e t h a t t h e a s s e s s e e h a d c r e d i t e d

a n a m o u n t o f R s . 4 3 , 0 6 , 0 7 5 / - u n d e r t h e h e a d s c r a p

s a l e s . T h e A O d e n i e d t h e c l a i m o f d e d u c t i o n u / s 8 0 I A

o n t h e s a i d i n c o m e b y h o l d i n g t h a t t h e i n c o m e w a s n o t

d e r i v e d f r o m t h e m a n u f a c t u r i n g a c t i v i t y o f t h e

I n d u s t r i a l u n d e r t a k i n g . T h e L d . C I T ( A ) a l l o w e d t h e c l a i m

o n f i n d i n g t h a t t h e a s s e s s e e h a d c l e a r l y b r o u g h t o u t

t h e n a t u r e o f s c r a p g e n e r a t e d a n d t h e l i n k a g e s t o t h e

m a n u f a c t u r i n g a c t i v i t y . A g g r i e v e d b y t h e s a m e t h e

R e v e n u e h a s c o m e u p i n a p p e a l b e f o r e u s r a i s i n g t h e

f o l l o w i n g e f f e c t i v e g r o u n d :

“1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 43,06,075/- made by the A.O. by disallowing the deduction claimed by the assessee u/s 80IA on the income earned from sales of scrap, ignoring the fact that the assessee has not earned the same from the manufacturing activities, but from the unserviceable/damages spares retrieved from the plant, which is capital in nature, not in the nature of scrap generated from normal wear and tear.” 3 4 . B e f o r e u s L d . D R c o n t e n d e d t h a t t h e s c r a p s o l d

r e l a t e d t o u n s e r v i c e a b l e / d a m a g e d s p a r e s r e t r i e v e d f r o m

t h e p l a n t a t t h e t i m e o f r e p a i r a n d m a i n t e n a n c e a n d t h e

i n c o m e g e n e r a t e d f r o m t h e s a l e t h e r e o f h a d t h e r e f o r e

n o c o n n e c t i o n w i t h t h e m a n u f a c t u r i n g a c t i v i t y o f t h e

a s s e s s e e s o a s t o q u a l i f y f o r d e d u c t i o n u / s 8 0 I A o f t h e

A c t . L d . D R h e a v i l y r e l i e d o n t h e d e c i s i o n o f t h e H o n ’ b l e

17 ITA No.826,827,834 & 835/Chd/2018 A.Ys.2013-14 & 2014-15

a p e x c o u r t i n t h e c a s e o f L i b e r t y I n d i a 3 1 7 I T R 2 1 8 a n d

P a n d i a n C h e m i c a l s L t d . F o r t h e p r o p o s i t i o n t h a t n o

d e d u c t i o n u / s 8 0 I A w a s a l l o w a b l e i n t h e a b s e n c e o f

f i r s t d e g r e e n e x u s b e t w e e n t h e i m p u g n e d i n c o m e a n d

t h e m a n u f a c t u r i n g a c t i v i t y .

3 5 . L d . C o u n s e l f o r t h e a s s e s s e e o n t h e o t h e r h a n d

d r e w o u r a t t e n t i o n t o t h e c o n t e n t i o n m a d e b e f o r e t h e

L d . C I T ( A ) a s r e p r o d u c e d a t p a r a 5 . 5 . 7 o f t h e o r d e r a s

u n d e r :

“5.5.7 Sale of scrap: The A.O. has disallowed the benefit of deduction u/s 80IA on the sale of scrap at Rs.43,06,075/-. The appellant has argued that Sale of scrap is mainly from the unserviceable/damaged spares retrieved from the plant at the time of repair and maintenance. He further argued that the total cost of new spares replaced in place of damaged/unserviceable spares is fully charged to Profit and Loss a/c instead of reducing the repair and maintenance charges from the amount received from sale of unserviceable/damaged spares. The sale of scrap is a part and parcel of income derived from industrial undertaking. Income from sale of scrap is generated out of the manufacturing activities of industrial unit and is directly attributable to the activities of the industrial unit. The generation of scrap had direct link with the manufacturing process carried out by the assessee and therefore income arising from sale of scrap is eligible for deduction u/s 80 IA of the Act. Further reliance was placed on the decision of Delhi High Court reported in 336 ITR 444 in the case of CIT vs. Sadhu Forging Ltd.” 3 6 . R e f e r r i n g t o t h e s a m e i t w a s p o i n t e d o u t t h a t t h e

n e x u s o f t h e i n c o m e f r o m s c r a p s a l e w i t h t h e

m a n u f a c t u r i n g a c t i v i t y h a d b e e n d u l y d e m o n s t r a t e d b y

p o i n t i n g o u t t h a t t h e c o s t o f s p a r e s w a s c h a r g e d f u l l y

t o t h e P r o f i t a n d L o s s a c c o u n t , a n d t h e i n c o m e

g e n e r a t e d f r o m t h e s a l e o f t h e s e s p a r e s a c t u a l l y o n l y

r e d u c e d t h e c o s t o f s p a r e s b o o k e d . T h e i n c o m e f r o m

s a l e o f s c r a p s p a r e s , s h o w n s e p a r a t e l y w a s t h e r e f o r e

18 ITA No.826,827,834 & 835/Chd/2018 A.Ys.2013-14 & 2014-15

n o t h i n g b u t p a r t a n d p a r c e l o f t h e i n c o m e d e r i v e d f r o m

m a n u f a c t u r i n g a c t i v i t y . O u r a t t e n t i o n w a s d r a w n t o t h e

f i n d i n g s o f t h e L d . C I T ( A ) a p p r e c i a t i n g t h i s c o n t e n t i o n

o f t h e a s s e s s e e a t p a r a 5 . 5 . 8 - 5 . 5 . 1 0 o f t h e o r d e r a s

u n d e r :

“5.5.8 The submissions of the appellant, the order of the A.O. and the facts of the case have been carefully considered. To decide the issue whether the sale of scrap is eligible for deduction u/s 801A or not, it is material to see as to how the scrap is being generated. In case the scrap is generated out of the manufacturing activity, the same is to be taken as derived from industrial undertaking and will be eligible for deduction u/s 80IA. In case, the scrap is not generated out of the manufacturing activity, the deduction u/s 80IA is ineligible. The order of the AO does not state as to how the scrap is not generated from the manufacturing activity. No details or mention of the sale bills or any factual information has been brought out in the order to substantiate the disallowance of the scrap for claim of deduction u/s 80IA,. The A.O is first required to give a finding that the scrap generated is not derived from manufacturing activity before disallowing deduction u/s 80IA. 5.5.9 In this case, the appellant has clearly brought out the nature of scrap being generated and the linkages to the manufacturing activity. 5.5.10 The issue under appeal has been considered and decided by the Hon'ble Punjab & Haryana High Court in 17 taxmann.com 253 in the case of Commissioner of Income Tax – 1 vs. M/s. Micro Turners for A.Y. 2006- 07.Whiledisallowingtheappealofthe revenue on this issue, the Hon'ble High Court has held as under: - "In the present case, the assessee is engaged in the manufacturing of automobile shafts' accessories. In such process, scrap is generated. Such scrap has direct link with the manufacturing process, i.e., manufacturing of shafts is bound to be generated. Therefore, in view of the judgment of the Madras High Court, with which we respectfully agree, no substantial question of law arises for our consideration. 6. Learned counsel for the revenue relied upon another judgment of Madras High Court in Pandian Chemicals Ltd. v. C/T [2002] 254 ITR 562 /[2003] 128 Taxman 126 (Mad.). But in the said judgment, a finding was recorded that there is no detail in respect of scraps, gunny bags for which assessee has claimed deduction. The judgment in Fenner India's case (supra) is applicable to the facts of the present case and not the one in Pandian

19 ITA No.826,827,834 & 835/Chd/2018 A.Ys.2013-14 & 2014-15

Chemicals' case. In view thereof, no substantial question of law arises for consideration of this court. 7. Consequently, the present appeal is dismissed. The appellant has also placed on record copy of bills of sale of scrap which clearly shows that the appellant has sold unserviceable bronze scrap of turbine etc. which is directly related to the business undertaking of the appellant. Accordingly, considering the judgment referred supra and the various judgments relied on by the appellant and also considering the facts of the case, the contention of the appellant for claim of deduction u/s 80IA on sale of scrap is allowed.” 3 7 . I t w a s t h e r e f o r e c o n t e n d e d t h a t t h e L d . C I T ( A ) h a d

r i g h t l y a l l o w e d t h e c l a i m o f t h e a s s e s s e e .

3 8 . W e h a v e h e a r d t h e r i v a l c o n t e n t i o n s . W e h a v e a l s o

g o n e t h r o u g h t h e o r d e r o f t h e L d . C I T ( A ) . W e d o n o t f i n d

a n y i n f i r m i t y i n t h e s a m e . T h e f a c t t h e s c r a p s o l d

r e l a t e d t o u n s e r v i c e a b l e / d a m a g e d s p a r e s r e t r i e v e d f r o m

t h e p l a n t i s n o t d i s p u t e d . T h a t t h e c o s t o f n e w s p a r e s

r e p l a c e d i n p l a c e o f t h e d a m a g e d s p a r e s w a s b e i n g

c h a r g e d f u l l y t o t h e P r o f i t a n d L o s s a c c o u n t h a s a l s o

n o t b e e n c o n t r o v e r t e d b y t h e R e v e n u e . T h e s c r a p s o l d

t h e r e f o r e , w e a g r e e w i t h t h e L d . C I T ( A ) r e s u l t e d i n

r e d u c t i o n i n t h e c o s t o f n e w s p a r e s p u r c h a s e d , a n d

t h u s h i g h e r m a n u f a c t u r i n g p r o f i t s t o t h e a s s e s s e e . A n d

m e r e l y b e c a u s e t h e s c r a p s a l e w a s s h o w n s e p a r a t e l y , i t

d i d n o t t a n t a m o u n t t o a n e w s o u r c e o f i n c o m e . T h e r e a l

a n d u l t i m a t e i m p a c t o f t h e s c r a p s o l d w a s r e d u c t i o n i n

c o s t o f s p a r e s p u r c h a s e d d u r i n g t h e y e a r . T h e r e f o r e , w e

a g r e e w i t h t h e L d . C I T ( A ) t h a t t h e p r o f i t s c o m m e n s u r a t e

w i t h t h e s c r a p s o l d w a s d i r e c t l y e a r n e d f r o m t h e

m a n u f a c t u r i n g a c t i v i t y o f t h e a s s e s s e e a n d t h e a s s e s s e e

20 ITA No.826,827,834 & 835/Chd/2018 A.Ys.2013-14 & 2014-15

w a s e n t i t l e d t o c l a i m d e d u c t i o n u / s 8 0 I A o f t h e A c t o n

t h e s a m e .

3 9 . G r o u n d o f a p p e a l N o . 1 r a i s e d b y t h e R e v e n u e i s

t h e r e f o r e d i s m i s s e d .

4 0 . I n e f f e c t t h e a p p e a l o f t h e R e v e n u e i s d i s m i s s e d .

4 1 . W e s h a l l n o w t a k e u p c r o s s a p p e a l s r e l a t i n g t o

a s s e s s m e n t y e a r 2 0 1 4 - 1 5 , t a k i n g f i r s t t h e a p p e a l o f t h e

a s s e s s e e i n I TA N o . 8 3 5 / C h d / 1 8 f o r A . Y 2 0 1 4 - 1 5 . T h e

g r o u n d s o f a p p e a l r a i s e d a r e a s u n d e r :

“I. Computation of Gross Total Income as per normal provisions. 1. Income Set off against expenditure during construction period treated as regular income a) interest from bank FDR Rs 2,07,742/- b) interest from employees Rs 59,84,547/- The above income being of capital nature needs to be set off against incidental expenditure during construction period. II. Computation of deduction u/s 80IA Income considered ineligible for deduction u/s 80IA) a) Interest received from staff of Rs 2,60,00,000/- b) interest from bank FDR Rs 2,07,742/- c) interest from employees Rs 59,84,547/- d) Misc. income (i) Sundry Creditors written back 48,38,281/- (ii) Disallowance of Insurance receipts from repairs 1,64,46,808/- Insurance claim received against damages for plant and machinery needs to be allowed. Ratio of CIT vs Gangotri Textiles Ltd. 40 Taxmann 399 is not applicable (ii) Miscellaneous income derived from license fee from quarters, recovery of private use of vehicles, income from transit camps, forfeiture of security, post retirement medical scheme, receipts from buses and profit from sale of fixed assets Rs 1,15,65,350/-

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The above incomes are directly related to the main activity and constitute eligible business. The nature of such income is directly related to business and the ratio of the judgment of Bokaro Steel Ltd. can be applied in this case as well. Further, the AO has ignored the fact that if the expenditure which is directly attributable to such so called income will be deducted from this income, the net result as per specific head of account will be negative. III) INCOME AS PER PROVISIONS OF 115JB. Addition to book profit Rs. 61,92,289/- Ld. A.O has erred in fact and law by adding Interest received from bank (EDC) to the tune of Rs. 2,07,742/- and interest from employees (EDC) to the tune of Rs. 59,84,547/- to the book profit which was worked out as per prescribed accounting standard and which has been duly approved and adopted in the Annual General Meeting. The ratio of Appolo Tyres 255 ITR 273 needs to have been followed. This issue has not been adjudicated by CIT(Appeals) in his orders.” 4 2 . G r o u n d N o . 1 a n d g r o u n d N o . I I ( a ) , ( b ) , ( c ) & ( d ) ( i i i )

w e r e n o t p r e s s e d b e f o r e u s a n d t h e s a m e a r e , t h e r e f o r e ,

d i s m i s s e d a s n o t p r e s s e d .

4 3 . G r o u n d N o . 2 ( d ) ( i ) & ( i i ) r e l a t e d i s a l l o w a n c e o f

d e d u c t i o n u / s 8 0 I A o f t h e A c t o n s u n d r y c r e d i t o r s

w r i t t e n b a c k a n d i n s u r a n c e c l a i m r e c e i v e d f r o m r e p a i r s .

T h e A . O . h a d d i s a l l o w e d t h e s a i d c l a i m h o l d i n g t h a t t h e

i n c o m e w a s n o t d e r i v e d f r o m t h e m a n u f a c t u r i n g a c t i v i t y

o f t h e i n d u s t r i a l u n d e r t a k i n g .

4 4 . B e f o r e t h e L d . C I T ( A ) t h e a s s e s s e e c o n t e n d e d t h a t

t h e a m o u n t o u t s t a n d i n g w i t h t h e s e c u r i t y c r e d i t o r s

c o n s i s t e d o f u n c l a i m e d s e c u r i t y d e p o s i t s , t h e

e x p e n d i t u r e o f w h i c h h a d b e e n d e b i t e d i n e a r l i e r y e a r s

a n d a c c o r d i n g l y , t h e c l a i m o f d e d u c t i o n u / s 8 0 I A o f t h e

A c t h a d b e e n r e d u c e d w i t h t h a t a m o u n t i n t h o s e y e a r s .

V i s - à - v i s t h e i n s u r a n c e c l a i m r e c e i v e d , i t w a s

c o n t e n d e d b y t h e a s s e s s e e t h a t t h e c l a i m h a d b e e n

22 ITA No.826,827,834 & 835/Chd/2018 A.Ys.2013-14 & 2014-15

r e c e i v e d a g a i n s t d a m a g e s c a u s e d t o s e c u r i t y b r e a k e r s

o f t h e m a c h i n e r i e s o f t h e p l a n t , t h e r e p a i r e x p e n d i t u r e

o n w h i c h h a d a l r e a d y b e e n d e b i t e d t o t h e P r o f i t & L o s s

A c c o u n t a n d c l a i m u / s 8 0 I A r e d u c e d w i t h t h a t a m o u n t .

T h e a s s e s s e e c o n t e n d e d t h a t b o t h t h e c l a i m s w e r e

d i r e c t l y a n d i n e x t r i c a b l y l i n k e d a n d d e r i v e d f r o m t h e

m a i n b u s i n e s s o f t h e a s s e s s e e a n d t h e a s s e s s e e ,

t h e r e f o r e , w a s e l i g i b l e f o r d e d u c t i o n u / s 8 0 I A o f t h e

A c t . T h e L d . C I T ( A ) d i s m i s s e d t h e c o n t e n t i o n o f t h e

a s s e s s e e c o n t e n d i n g t h a t t h e a s s e s s e e h a d b e e n u n a b l e

t o e s t a b l i s h t h a t t h e s e a m o u n t s w e r e r e c e i v e d w h i l e

c a r r y i n g o u t t h e b u s i n e s s o f t h e a s s e s s e e . R e l e v a n t

f i n d i n g s o f t h e C I T ( A ) a t p a r a s 8 . 2 . 1 a n d 8 . 2 . 4 o f t h e

o r d e r a r e a s u n d e r :

“8.2.1 (a) Sundry Creditors written back of Rs.48,38,281/- The appellant has claimed that the sundry creditors written back mainly consists of unclaimed security deposits the expenditure on which have debited in earlier years and accordingly the claim of section 80 IA has been reduced with that amount. Hence it was argued that the sundry creditors written back is directly related in generation of electricity. I have perused the facts of the case, the action of the A.O. and the submissions of the appellant. A perusal of the copy of accounts of sundry creditors balances written back shows that these are mainly on account of security deposits lying unclaimed with the appellant. The appellant has not been able to establish that the receipts of these deposits was while carrying out the business of the assessee and are related to the business transaction. Making a sweeping statement without any corroborative evidence cannot be given any weight age during the appeal proceedings . The appellant is making a claim for deduction u/s 801A on these incomes. The appellant has to discharge the onus which rests on him to be eligible far the said deduction. Having failed to do so, the action of the A.O. is upheld and this ground of appeal is dismissed.” Disallowance of insurance receipts for repairs of Rs. 1,64,46,803 /-:

23 ITA No.826,827,834 & 835/Chd/2018 A.Ys.2013-14 & 2014-15

The appellant claimed that the Insurance claim has been received against the damages caused to the circuit breakers of the machineries of the plant the repair expenditure on which had already been debited to the P&L a/c and accordingly the claim of section 80 IA has been reduced with that amount. He argued that the nature of claim is directly linked and inextricably derived from the main business i.e. for putting the assets of the generating station back to working condition, Hence the receipt is directly related with the running and maintenance of the Plant engaged in generation of electricity. Accordingly, the insurance receipts for repair is rightly claimed by the company u/s 80 IA and needs to be allowed. I have perused the facts of the case, the action of the A.O. and the submissions of the appellant. This contention of the appellant cannot be accepted. The issue is squarely covered by the decision reported at [2013] 40 taxmann.com 399 (Madras) in the case of Commissioner of Income-tax Vs. Gangothri Textiles Ltd. Wherein the following question of law was raised before the High Court:— 8. "Whether the insurance money received on loss of production is entitled for deduction under Section 80IA " 9. The High Court while allowing the appeal of the Revenue held that in the absence of any nexus shown between the compensation received and the business activities of the industrial undertaking, the compensation could not be held as derived from the undertaking for the purpose of inclusion under Section 80-IA of the Act. Even otherwise, the issue is squarely covered by the decisions of the Apex Court relied on by the A.O. in his order. This contention of the appellant is accordingly rejected and appeal of the assessee on this issue is dismissed. Accordingly, these grounds of appeal are dismissed except for on the issues mentioned in Para 8.2.2 to 8.2.3. Considering the detailed discussion above, this apeal of the assessee is partly allowed. To conclude, appeal for the A.Y. 2013-14 is dismissed and appeal for the A.Y. 2014-15 is partly allowed.” 4 5 . B e f o r e u s , t h e L d . c o u n s e l f o r a s s e s s e e c o n t e n d e d

t h a t t h e i d e n t i c a l i s s u e h a d a r i s e n i n t h e c a s e o f t h e

a s s e s s e e f o r A . Y 2 0 0 8 - 0 9 , v i d e o r d e r i n I T A

N o . 5 8 3 / C h d / 2 0 1 2 d a t e d 1 9 - 0 2 - 1 9 , w h e r e i n t h e i s s u e

h a d b e e n r e s t o r e d b a c k t o t h e A O t o v e r i f y w h e t h e r t h e

c l a i m s o f t h e a s s e s s e e a n d a l l o w t h e s a m e i f f o u n d t o

24 ITA No.826,827,834 & 835/Chd/2018 A.Ys.2013-14 & 2014-15

b e r e l a t i n g t o t r a d i n g a s s e t s a n d e x p e n d i t u r e

p e r t a i n i n g t o w h i c h w a s c l a i m e d i n e a r l i e r y e a r s . C o p y

o f t h e o r d e r w a s p l a c e d b e f o r e u s a n d o u r a t t e n t i o n w a s

d r a w n t o p a r a 7 o f t h e o r d e r .

4 6 . T h e L d . D R , o n t h e o t h e r h a n d , r e l i e d u p o n t h e

o r d e r o f t h e C I T ( A ) t h o u g h f a i r l y c o n c e d e d t h a t

i d e n t i c a l i s s u e h a d b e e n d e c i d e d i n p r e c e d i n g y e a r .

4 7 . C o n s i d e r i n g t h e s a m e , w e r e s t o r e t h e i s s u e o f

c l a i m o f d e d u c t i o n u / s 8 0 I A o f t h e A c t o n s u n d r y

c r e d i t o r s w r i t t e n b a c k a n d i n s u r a n c e c l a i m r e c e i v e d

, b a c k t o t h e A . O t o a d j u d i c a t e t h e s a m e i n a c c o r d a n c e

w i t h t h e d i r e c t i o n g i v e n b y t h e I T A T i n t h e c a s e o f t h e

a s s e s s e e i n A . Y 2 0 0 8 - 0 9 , i n I T A N o . 5 8 3 &

5 9 6 / C h d / 2 0 1 2 ( s u p r a ) .

4 8 . T h e s e g r o u n d s a r e a c c o r d i n g l y a l l o w e d f o r

s t a t i s t i c a l p u r p o s e s .

4 9 . I n g r o u n d N o . I I I , t h e a s s e s s e e h a s a g i t a t e d t h e

a d d i t i o n o f i n t e r e s t r e c e i v e d f r o m b a n k a n d i n t e r e s t

f r o m e m p l o y e e s t o t h e b o o k p r o f i t o f t h e a s s e s s e e f o r

t h e p u r p o s e o f M i n i m u m A l t e r n a t e t a x ( M A T ) a s p e r t h e

p r o v i s i o n s o f s e c t i o n 1 1 5 J B o f t h e A c t .

5 0 . B r i e f l y s t a t e d , t h e A . O . h a d n o t e d t h a t t h e

a s s e s s e e h a d a d j u s t e d t h e i m p u g n e d r e c e i p t s o f i n c o m e

w i t h i n t e r e s t a n d f i n a n c e c h a r g e s p a i d . T h e A . O .

d i s a l l o w e d t h e s e t o f f o f t h e s e r e c e i p t s o f i n c o m e s

a g a i n s t t h e e x p e n s e s a n d t r e a t e d t h e s a m e a s i n c o m e

25 ITA No.826,827,834 & 835/Chd/2018 A.Ys.2013-14 & 2014-15

a n d b o o k p r o f i t o f t h e a s s e s s e e f o r t h e p u r p o s e o f M A T

u / s 1 1 5 J B o f t h e A c t . T h e a s s e s s e e a g i t a t e d t h e s a m e

b e f o r e t h e L d . C I T ( A ) i n g r o u n d N o . 4 ( a ) & ( b ) r a i s e d

b e f o r e i t b u t t h e s a m e w a s n o t a d j u d i c a t e d u p o n b y t h e

L d . C I T ( A ) .

5 1 . B e f o r e u s t h e L d . c o u n s e l f o r a s s e s s e e c o n t e n d e d

t h a t a s p e r t h e f a c t s o f t h e c a s e a s e n u m e r a t e d i n t h e

a s s e s s m e n t o r d e r a l s o , t h e s a i d r e c e i p t s h a d b e e n

r e f l e c t e d i n t h e P r o f i t & L o s s A c c o u n t b u t i n s t e a d o f

s h o w i n g t h e m s e p a r a t e l y , t h e y h a d b e e n s e t o f f a g a i n s t

e x p e n s e s o f i n t e r e s t . T h e r e f o r e , i t c o u l d n o t b e s a i d

t h a t t h e y d i d n o t f o r m p a r t o f t h e b o o k p r o f i t f o r t h e

p u r p o s e o f s e c t i o n 1 1 5 J B o f t h e A c t .

5 2 . T h e L d . D R w a s u n a b l e t o c o n t r o v e r t t h i s f a c t u a l

c o n t e n t i o n o f t h e a s s e s s e e . F u r t h e r , w e f i n d t h a t t h i s

f a c t c l e a r l y e m a n a t e s f r o m p a r a 7 o f t h e a s s e s s m e n t

o r d e r w h e r e i n t h e A . O . h a s m e n t i o n e d t h a t a s p e r N o t e -

2 . 1 1 o f t h e A u d i t e d A c c o u n t s r e l a t i n g t o “ e x p e n d i t u r e

d u r i n g c o n s t r u c t i o n ” , i t w a s f o u n d t h a t t h e a s s e s s e e

h a d a d j u s t e d t h e f o l l o w i n g r e c e i p t s a g a i n s t i n t e r e s t a n d

f i n a n c i a l c h a r g e s w h i c h t h e A . O . h a d d i s a l l o w e d a n d

h e l d t h a t n o a d j u s t m e n t o f t h e s a m e w a s a l l o w a b l e a n d

h a d t a x e d t h e e n t i r e i n c o m e r e c e i v e d . T h e r e l e v a n t

p o r t i o n o f t h e a s s e s s m e n t o r d e r a t p a r a s 7 a n d 8 . 1 o f

t h e a s s e s s m e n t o r d e r i s a s u n d e r :

“7. The assessee was confronted that in note 2.11.1. (Expenditure during construction) of audited accounts, it is found that the assessee has adjusted "Interest and Finance

26 ITA No.826,827,834 & 835/Chd/2018 A.Ys.2013-14 & 2014-15

charges" of Rs. 4,10,98,7297- for which the assessee was requested to submit ledger & detailed break up of each of the above figures and explain with evidence why such receipts will not be taken separately as the income of the assessee. The assessee explained that: "In note no. 2.11.1. Expenditure during construction the following receipts have been adjusted against interest and financial charges. Receipts & Recoveries Interest From : Rupees Bank 2,07,742 Employees 59,84,547 Contractors 3,49,06,440 Total 4,10,98,729 During the previous year interest from contractor was allowed to be set off against interest expenses in the light of judgment of Hon'ble Supreme Court in the case of CIT Vs Bokaro Steel Ltd. and no other income was allowed to be set off and added to the income." 8.1. The submission made by the assessee has been considered in the light of the judgment of the Hon'ble Supreme Court in the case of CIT V. Bokaro Steel Ltd. relied upon by the assessee. As held in the assessment year 2013-14 that except for the interest received from contractors, no other income was held to be eligible for set off in the said judgment. Since, nature of income is similar as discussed at Para 5 & 6 (supra), these incomes are also not inextricably linked to assessee's electricity generation activity and as such, no deduction u/s 80IA is allowed on these expenses. However, additional expenses on such adjustment amount are allowed to be capitalized. Keeping in view these facts, income on a/c of interest from bank and interest from employees amounting to Rs. 61,92,2897- is added back to the income of the assessee. The same is also added to the "book profit" for determining tax liability as per the provisions of section 115JB of the Income Tax Act, 1961.” 5 2 . S i n c e i t i s a n a d m i t t e d f a c t t h a t t h e i m p u g n e d

i n c o m e s w e r e d i s c l o s e d i n t h e P r o f i t & L o s s A c c o u n t , i t

i s b u t o b v i o u s t h e y f o r m p a r t o f t h e b o o k p r o f i t o f t h e

a s s e s s e e a l s o . T h e a d d i t i o n m a d e b y t h e A . O . ,

t h e r e f o r e , i s n o t h i n g b u t a d o u b l e a d d i t i o n a n d t h e

s a m e i s , t h e r e f o r e , d i r e c t e d t o b e d e l e t e d . G r o u n d

N o . I I I r a i s e d b y t h e a s s e s s e e i s a l l o w e d .

27 ITA No.826,827,834 & 835/Chd/2018 A.Ys.2013-14 & 2014-15

5 3 . I n e f f e c t t h e a p p e a l o f t h e a s s e s s e e i s p a r t l y

a l l o w e d f o r s t a t i s t i c a l p u r p o s e s .

5 4 . T a k i n g u p a p p e a l o f t h e R e v e n u e i n I T A

N o . 8 2 7 / C h d / 2 0 1 8 t h e s o l e g r o u n d i n v o l v e d i n t h i s

a p p e a l r e a d s a s u n d e r :

“1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 1,83,00,000/- and Rs. 17,63,383/- made by the A.O. by disallowing the deduction claimed by the assessee u/s 80IA on the income earned from recovery from M/s JP Power Ventures and M/s Karcham Wangtoo, ignoring the fact that prior period income was rightly added to the income by the AO, as the expense to this extent was claimed by the assessee in the P & L account of previous assessment year.” 5 5 . B r i e f f a c t s r e l a t i n g t o t h e s a m e a r e t h a t t h e

a s s e s s e e h a d r e c e i v e d r e c o v e r y f r o m M / s J P P o w e r

V e n t u r e s a n d M / s K a r c h a m W a n g t o o a m o u n t i n g t o

R s . 1 . 8 3 c r o r e s a n d R s . 1 7 , 6 3 , 3 8 3 w h i c h w a s s h o w n a s

m i s c e l l a n e o u s i n c o m e d u r i n g t h e y e a r a n d d e d u c t i o n

c l a i m e d u / s 8 0 I A o f t h e A c t o n t h i s r e c e i p t s . T h e s a m e

w a s d e n i e d b y t h e A . O . h o l d i n g t h a t t h e i n c o m e w a s n o t

d e r i v e d f r o m t h e m a n u f a c t u r i n g a c t i v i t y o f t h e

i n d u s t r i a l u n d e r t a k i n g . T h e L d . C I T ( A ) a l l o w e d t h e

s a m e o n n o t i n g t h a t a s p e r t h e f a c t s o f t h e c a s e t h e

s a i d r e c o v e r i e s r e l a t e d t o t h e b u s i n e s s u n d e r t a k i n g o f

t h e a s s e s s e e . Th e r e l e v a n t f i n d i n g s o f t h e L d . C I T ( A ) a t

p a r a 8 . 2 . 2 & 8 . 2 . 3 o f t h e o r d e r i s a s u n d e r : 8.2.2 (b)Recovery from JP Power Ventures of Rs. 1,83,00,000/-

It was argued that the said amount of Rs. 1,83,00,000/- has beenreimbursed by M/s JP Power Ventures Ltd towards cost of repair of R Phase Circuit Breakers at Baspa-ll Project. The expenditure of which already stands debited to Profit & Loss a/c which entails that if the above receipts was credited to the said expenditure the profit would be more resulting in similar deduction u/s 80IA. I have perused the facts of the case, the action of the A.O. and the submissions of the appellant. The A.O. has not mentioned any facts with

28 ITA No.826,827,834 & 835/Chd/2018 A.Ys.2013-14 & 2014-15

respect to receipt of this income in his assessment order while holding that the same is not eligible for deduction u/s 80IA of the Act. The appellant on further query during the appeal proceedings has submitted as under:

Insurance claim and recovery from JP Power Ventures has been, received against the damages caused to the Circuit Breaker which was used for evacuation of power of Nathpa Jhakri Hydro Power Plant and JP hydro power plant. The expenditure and cost of maintenance of pot head yard is shared by the company and JP power as the evacuation of power of both the companies is carried out from the same pot head yard. The expenditure on repair of circuit breaker was initially made by the company from the year 2008-09 onwards (ledger copies enclosed) and booked to the repair and maintenance expenditure in those years and claim was filed with the insurance company. During the year insurance claim amounting to Rs. 1,64,46,808/-was received and recovery from JP Power Ventures of Rs. 1,83,00,000/- was received as their share of expenditure already debited to Profit and Loss a/c in earlier years. The nature of claim is directly linked and inextricably derived from the main business i.e. for putting the assets of the generating station back to working condition. Hence the receipt is directly related with the running and maintenance of the Plant engaged in generation of electricity. Accordingly, the insurance receipts for repair and recovery from JP Power Ventures towards expenditure of repairs is rightly claimed by the company u/s 80 IA and needs to be allowed. Once it is held that the receipts of Rs.1,83,00,000/- from M/s. JP Power Ventures is on account reimbursement of expenses, the same is directly linked to the business and is derived from business undertaking. The argument of the appellant that in the preceding year the amount stands debited in the P & L account as repair and maintenance expense which reduced his eligible income will have to be increase on receipt of reimbursement for the same. Considering the facts of the case, this contention of the appellant is accepted and this receipt of Rs.1,83,00,000/- is directed to eligible for deduction u/s 80IA of the I.T.Act, 1961. 8.2.3 (c) Recovery from Karcham Wangtoo of Rs. 17,63,383/-

With respect to these receipts it was argued by the appellant that this amount of Rs. 17,63,383/- was recoverable from Karcham Wangtoo for water discharge data. The appellant incurs expenditure towards recording the water discharge and shares the data with other companies in similar lines. The expenditure on collection of data is debited to P& L a/c. I have perused the facts of the case, the action of the A.O. and the submissions of the appellant. The observations made for the receipt of Rs.1,83,00,000/- from M/s. JP Power Ventures are applicable here also. Following the same, this receipt of Rs.17,63,383/- is directed to be held as eligible for deduction u/s 80IAofthe I.T.Act, 1961. 5 6 . B e f o r e u s t h e L d . D R r e l i e d u p o n t h e o r d e r o f t h e

A . O . w h i l e t h e L d . C o u n s e l f o r t h e a s s e s s e e r e l i e d o n t h e

o r d e r o f t h e L d . C I T ( A ) .

5 7 . W e h a v e h e a r d t h e r i v a l c o n t e n t i o n s a n d p e r u s e d

t h e o r d e r s o f t h e a u t h o r i t i e s b e l o w . W e f i n d n o r e a s o n t o

29 ITA No.826,827,834 & 835/Chd/2018 A.Ys.2013-14 & 2014-15

i n t e r f e r e i n t h e o r d e r o f t h e L d . C I T ( A ) . T h e f a c t u a l f i n d i n g s o f t h e L d . C I T ( A ) t h a t b o t h t h e r e c o v e r i e s w e r e r e c e i v e d o n a c c o u n t o f d a m a g e s / e x p e n s e s i n c u r r e d b y t h e a s s e s s e e o n i t s p r o j e c t s , w h i c h h a d b e e n d e b i t e d t o t h e p r o f i t a n d l o s s a c c o u n t o f t h e a s s e s s e e , h a s n o t b e e n c o n t r o v e r t e d b y t h e R e v e n u e . W e t h e r e f o r e f i n d n o i n f i r m i t y i n t h e c o n c l u s i o n o f t h e L D . C I T ( A ) , b a s e d o n t h e s e f a c t s , t h a t t h e r e c o v e r i e s w e r e d i r e c t l y r e l a t e d w i t h t h e r u n n i n g o f p r o j e c t s / p l a n t s o f t h e a s s e s s e e a n d a r e t h e r e f o r e e l i g i b l e f o r d e d u c t i o n u / s 8 0 I A o f t h e A c t .

5 8 . T h e g r o u n d r a i s e d b y t h e R e v e n u e i s t h e r e f o r e d i s m i s s e d

5 9 . I n t h e r e s u l t a p p e a l o f t h e R e v e n u e i s d i s m i s s e d .

Order pronounced in the Open Court.

Sd/- Sd/- संजय गग� अ�नपूणा� गु�ता (ANNAPURNA GUPTA) (SANJAY GARG) �याय�क सद�य/Judicial Member लेखा सद�य/Accountant Member �दनांक /Dated: 29th March, 2019 *रती* 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