GUJARAT ENERGY DEVELOPMENT AGENCY,GANDHINAGAR vs. THE DY.CIT, CIRCLE-1, EXEMP, AHMEDABAD

The Hon'ble CIT(A) further erred in law and on facts by upholding the order passed by the learned Assessing Officer despite the fact that the order passed under Section 263 of the Act, the very basis of the order passed by the Id. AO, was invalid, as it failed to comply with the requirement of including the Document Identification Number (DIN) as mandated by Circular 19/2019. Consequently, the order passed under Section 263 of the Act ought to be deemed non-existent and invalid, rendering the proceedings under Section 143(3) r.w.s. 263 also invalid and therefore, the order passed by the Ld. AO consequent to such proceedings is liable to be quashed.

Shri Sanjay R. Shah, Ld. AR of the assessee explained that the assessee had debited Rs.9,35,16,377/- to the Profit & Loss Account on account of book value of the assets (Wind Turbine Generators) written off due it to having become non-functional. He explained that the assessee had set up Wind Turbine Generators which had suffered heavy damage in the cyclone that hit Saurashtra coastal line on 09.06.1998 and that the generators were non-functional thereafter. The assessee had taken up the matter with the Ministry of New & Renewable Energy (MNRE) for disposal of Wind Turbine Generators and its spares, as those were setup with the assistance of MNRE in early nineties. The MNRE had granted approval to the assessee on 18.04.2017 for decommissioning of the demonstration wind farm and disposal of the non-performing assets. The Ld. AR submitted that as per the certificate of the Chartered Accountant, the written down value of the non-performing assets was assessed to ‘zero’, and, therefore, an amount of Rs.9,35,16,377/- was debited to the Income & Expenditure account for the year ending 31.03.2017 as “Impairment of the assets”. Further, another amount of Rs.1,07,10,358/- was also debited to Income & Expenditure Account as “Abnormal loss” in respect of the spares. The Ld. AR submitted that the assessee had suffered actual loss on account of Wind Turbine Generators and Spares/Equipments, which were decommissioned, dismantled and disposed of. Thus, the loss suffered by the assessee was genuine business loss and the same was allowable as deduction. The Ld. AR further submitted that no depreciation on Wind Turbine Generators and Spares were claimed since the time period when they became non- operational. The Ld. AR further submitted that the general provisions for & 1180/Ahd/2025 (Assessment Year: 2017-18 (for both)) Gujarat Energy Development Agency vs. DCIT Page 5 of 13 allowability of expenses applicable to business income should not be applied when income is computed under Section 11 and 12 of the Act for a public charitable trust. In this regard, he relied upon certain judicial pronouncements as referred in the paper-book.

Per contra, Shri Alpesh Parmar, Ld. CIT-DR submitted that the amount debited by the assessee in the Income and Expenditure account in respect of “Impairment of assets” and “Abnormal loss” were on capital account and were not eligible for deduction under the provisions of the Income Tax Act. He submitted that the assessee had claimed depreciation on those assets so long as the Wind Turbine Generators were operational. Once the assets were damaged and no longer in use, no depreciation could have been claimed thereon. The Ld. CIT-DR submitted that as per the provisions of the Act, the balance written down value of the assets was required to be adjusted with the “block of assets” for the purpose of computation of income as per the provisions of the Act. He submitted that the capital losses that were debited to the account of the assessee, were rightly disallowed by the Assessing Officer. The Ld. CIT-DR further submitted that the provisions of Sections 11 & 12 of the Act were not applicable at all in the present case, as apart from being a Charitable Trust, the assessee was also carrying on business activity, the income from which was offered to tax in the Income-tax return filed by the assessee.

We have carefully considered the rival submissions. From the copy of Income Tax return filed by the assessee, it is found that the assessee has disclosed business income of Rs.6,09,65,537/- in its return. Apart from this business income, the assessee had also claimed deduction & 1180/Ahd/2025 (Assessment Year: 2017-18 (for both)) Gujarat Energy Development Agency vs. DCIT Page 6 of 13 under Section 11 of the Act in respect of voluntary contribution in the form of “Grants from Government” and “Other donations”, which were applied for charitable purpose. It is found that the assessee had disclosed total voluntary contribution of Rs.1,17,18,89,144/- during the year which was applied towards charitable purpose and no taxable income was reported in this respect. From the disclosure as made by the assessee in the return of income, it is evident that the business income of Rs.6,09,65,537/- disclosed in the return was not subject to deduction under Sections 11 & 12 of the Act. Therefore, the contention of the assessee that the general provisions for allowability of expenses applicable to business income should not be applied, where income is computed under Section 11 and 12 of the Act for a public charitable trust, is found to be misleading. The assessee had not claimed any deduction u/s 11 or 12 of the Act in respect of business income earned by it. Therefore, the reliance of the assessee on various judicial pronouncements in respect of its contention that the claim in respect of impairment of asset and abnormal loss should have been computed as per the provisions of Sections 11 & 12 of the Act, has become otiose. The claim for deduction on account of impairment of assets and abnormal loss was not in respect of any charitable activity but it pertained to the business activity of the assessee, the income of which was offered to tax by the assessee itself. Therefore, the claim of deduction is required to be examined in accordance with the provisions of the Act as applicable to the business income.

The contention of the assessee is that the amount of Rs.9,35,16,377/- on account of impairment of assets of Rs.1,07,10,358/- in respect of abnormal loss on write off of assets, were genuine business & 1180/Ahd/2025 (Assessment Year: 2017-18 (for both)) Gujarat Energy Development Agency vs. DCIT Page 7 of 13 loss and were correctly debited to the Income & Expenditure account in order to correctly work out the commercial income of the Trust. The Assessing Officer has not disputed that the amounts debited in respect of impairment of assets and write off of spares were not genuine business loss. The precise question to be considered is whether these losses were eligible for deduction under the provisions of the Income Tax Act. The assessee might have rightly debited these amounts to the Income and Expenditure account in order to correctly work out the book profit or commercial business income. However, the provision of section 37 of the Act specifically debars deduction of any expenditure of capital nature. Therefore, we have to examine whether these amounts debited to the Income & Expenditure account were in the nature of capital expenditure and were debarred from being claimed as deduction under the provisions of the Act.

It is found from the Schedule-H “Notes to the Accounts” that the Auditor had given following observation: - 2) During the Financial Year 2016-17 on the basis of Certificate received from Ravi Energie Pvt. Limited & on the basis of certificate given by Pipara & Company Chartered Accountants (Statutory Auditors) Agency had reclassified Fixed Assets amounting to Rs.9,35,16,377/- of Renewable Energy Division located at Lamba, okha- Madhi, Dhak & Tuna controlled & supervised by GEDA as Scrap and book value of the same had been written down to NIL by creating depreciation fund against fixed assets & writing off balance of spares amounting to Rs.1,07,10,358/- classified as currents assets as on 31.07.2016. [Emphasis supplied] It is evident from above Notes that the amount of Rs.9,35,16,377/- debited in the Income & Expenditure Account as impairment of assets was actually fixed assets written off during the year as scrap. The balance of & 1180/Ahd/2025 (Assessment Year: 2017-18 (for both)) Gujarat Energy Development Agency vs. DCIT Page 8 of 13 spares amounting to Rs.1,07,10,358/- debited to the account as abnormal loss, was also on account of fixed assets only. These claims pertaining to the fixed assets were clearly capital in nature. The assets were acquired in the nineties and the assessee had already claimed depreciation thereon, till the time they were operational. The assessee did not claim any depreciation since the time they were damaged in the cyclone, as they were no longer in use. As per the provisions of the Act, any asset on which depreciation has been claimed by the assessee, cannot be claimed as deduction as revenue expenditure. The assessee was required to adjust the written down value of the “fixed assets written off” in the “Block of Assets” only. These losses could not have been claimed as business expense under the provisions of the Act. Even the Auditor had certified that the impairment of loss of Rs.9,35,16,377/- was required to be written down by creating depreciation fund against the fixed assets and this was not required to be debited to the Income & Expenditure Account. Further that the spares written off were also in respect of fixed assets only.

In view of the above facts, the claim for deductions in respect of the “Impairment of Assets” and write off of “Abnormal loss” on account of spares, pertained to fixed assets, and being inadmissible were rightly disallowed by the Assessing Officer. The assessee, however, was eligible to adjust these amounts in the block of assets, which should be allowed by the Assessing Officer. The Assessing Officer is directed to allow the depreciation to the assessee after adjusting these amounts in the block of assets. The disallowance of “Impairment of Assets” of Rs.9,35,16,377/- and “Abnormal loss” on account of the spares of Rs.1,07,10,358/-, as made by the AO, is upheld. The grounds raised by the assessee in this respect are accordingly dismissed.

Now we will take up the appeal filed by the assessee against the penalty order. The assessee has taken the following grounds in this appeal: -

Without prejudice to the above, the learned CIT(A) erred in law and on facts by confirming the penalty on the wrong premise that the appellant had not filed any appeal against the quantum order passed u/s.143(3) r.w.s.263 of the Act thereby implying that it had accepted addition made in the quantum orders so passed without appreciating the fact that the appellant had in fact preferred an appeal against the order passed under section 143(3) r.w.s. 263 of the Act on 16.12.2023 and the same was duly intimated to the learned CIT(A) during the course of the proceedings before him. Thus, the order u/s.250 has been passed without consideration of the submission filed by the appellant as well as on wrong assumption of facts that the quantum appeal is not filed and without affording opportunity to the Appellant to file submissions on merits of the case, and thus, passing the order in violation of principles of natural justice.

Your Appellant reserve the right to add, alter, amend and/or withdraw any of the above Grounds of Appeal.”

Per contra, Shri Alpesh Parmar, Ld. DIT-DR supported the orders of the lower authorities.

We have considered the rival submissions. The Assessing Officer in the assessment order under Section 143(3) read with Section 263 of the Act had initiated penalty proceedings under Section 270A for “under- reporting of income which is in consequence of misreporting of income”. In the penalty order under Section 270A of the Act also, the Assessing Officer had levied penalty for “under-reporting of income which is in consequence of misreporting thereof”. As per the provisions of Section 270A(7) of the Act, penalty is required and levied at the rate of 50% for underreporting of income. However, in the case of misreporting of income, the penalty is imposed at the rate of 200% of the underreported income. In the present case, the Assessing Officer had computed the penalty at the rate of 200%. Thus, the penalty was imposed in the present case for misreporting of income and not for underreporting of income. As per the provisions of Section 270A(9) of the Act, misreporting of income is attracted in the following cases :-

In view of the above specific provision, the Assessing Officer, while imposing the penalty under Section 270A of the Act for misreporting of income, was duty bound to specify as to which specific clause of Section 270A(9) of the Act was attracted in the present case. The Assessing Officer had not given any finding in this regard either in the assessment order or in the penalty order. From the facts of the case as already discussed earlier, we do not find that any of the above clauses were attracted in the present case. The assessee had neither misrepresented or suppressed any fact nor claimed any expenditure which was not supported by any evidence. There was no record of any false entry in the books of account. Considering the specific facts of the case as already discussed earlier, none of the clauses of Section 270A(9) of the Act are found attracted in the present case and we do not find it to be a case of misreporting of income. Therefore, the penalty imposed by the Assessing Officer under Section 270A of the Act for misreporting of income, is cancelled.

In the result, the appeal of the assessee in is allowed.