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Income Tax Appellate Tribunal, DELHI BENCH ‘B’ NEW DLEHI
Before: SHRI G.S. PANNU & SHRI K. NARASIMHA CHARY
PER K. NARASIMHA CHARY, J.M. These cross appeals filed by the Department as well as assessee against the order of Learned CIT(A), Faridabad u/s 250(6)
2 ITA Nos.2786 & 3121/Del/2016 Asst. Year: 2012-13 of the Income Tax Act, 1961 (for short “the Act”) for Asst. Year: 2012-13.
Brief facts of the case are that the assessee company is a public sector undertaking and has been engaged in the business of construction of hydropower projects, generation and distribution of electricity and consultancy services. For the Assessment Year: 2012- 13 have filed their return of income on 27/9/2012 declaring an income of Rs. 3504, 50, 88, 550/- claiming deduction under section 80 G of the Income Tax Act, 1961 (for short “the Act”) of Rs. 7 crores and under section 80 IA of the Act amounting to Rs. 11 94, 93, 38, 007/-and thereby declaring total income of Rs.23,02,57,50,543/-; whereas the total income under section 115 JB of the Act was declared at Rs. 3466,72,23,316/-.
Order under section 143(3) of the Act was passed on 12/1/2015 determining the deemed income at Rs.36,76,58,16, 010/- and the regular income at Rs.23,42,34,67,310/- after making several additions/disallowances while computing the income. Assessee challenged the same before the Ld. CIT(A). Ld. CIT(A) by way of the impugned order granted relief to the assessee in respect of the disallowance under section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 (“the Rules”) to the tune of Rs.33, 46, 00,000/-, disallowance on account of provision for gratuity, leave encashment, post-retirement medical benefits, LTC, baggage allowance etc to the tune of Rs. 1,73, 03, 86, 645/- in computing the
3 ITA Nos.2786 & 3121/Del/2016 Asst. Year: 2012-13 book profits under section 115 JB of the Act and disallowance on account of amortisation of leasehold land to the tune of Rs. 3, 32, 81, 500/-in computing book profits in section 115 JB of the Act, while confirming the disallowance on account of deduction under section 80 IA of the Act to the tune of Rs.3,31,92,441/-, disallowance claimed by the assessee in respect of Teesta-V power station to the tune of Rs. 2, 52, 93, 963/- on account of depreciation and addition of Rs.3,24,551/- on account of income tax on perquisite borne by the assessee in respect of accommodation provided to its employees while computing the book profit in section 115 JB of the Act.
Challenging the above mentioned deletions Revenue preferred ITA No.2786/Del/2016 whereas aggrieved by the additions are sustained, assessee preferred ITA No. 3121/Del/2016. Now we shall proceed to deal with these issues hereunder.
In respect of the disallowance under section 14A of the Act read with Rule 8D of the Rules, it could be seen that during the Financial Year relevant for the Assessment Year: 2012-13, the assessee had earned a total exempt income of Rs.1 35, 43, 18, 540/- comprising of Rs. 1, 13, 40, 30, 550/- as income on tax free bonds and long-term advances and a sum of Rs.22,02,88,000/-as a dividend income from investments. Assessee received tax-free
4 ITA Nos.2786 & 3121/Del/2016 Asst. Year: 2012-13 interest income on bonds/LTA which was in lieu of long wall drew receivables on account of sales made to the beneficiaries.
Learned Assessing Officer disallowed a sum of Rs.33.46 crores by invoking section 14A of the Act read with Rule 8D of the Rules stating that such an amount of expenditure in the form of interest, establishment cost, Gen and administration expenses etc was bound to be incurred by the assessee to manage the investments and therefore, disallowed such sum as being non-business purposes. In appeal, Ld. CIT(A) deleted this addition on two counts. Firstly that the assessing officer had not recorded proper satisfaction while making the addition and secondly the investments were made by the assessee out of their own funds and not out of the borrowed funds. Further, Ld. CIT(A) noticed and relied upon the orders in assessee’s own case for the assessment years 18, 2010-11 and 2011-12 dealt with similar issue on identical facts.
It is the submission of the Ld. AR before us that there is no proper satisfaction recorded by the learned Assessing Officer before proceeding to invoke the provisions of section 14A of the Act read with Rule 8D of the Rules. He further submitted that the assessee had not purchased the bonds on their own and they had to acquire them by virtue of sovereign decision of the government that is repatriate agreement between the assessee, state electricity boards and reserve bank of India to ensure timely payments to the assessee of the modules; that the investment in NHDC, namely, subsidiary of
5 ITA Nos.2786 & 3121/Del/2016 Asst. Year: 2012-13 the assessee, the same was made out of equity capital and internal accruals/equity/reserves. According to him the learned Assessing Officer ignored the submissions of the assessee that the assessee had not incurred any further expenditure to earn exempt income. He submitted that the Ld. CIT(A) on verification of record found that the investments were made out of the own funds of the assessee and therefore no disallowance could be made. He placed reliance on the decisions of the Hon’ble Delhi High Court in the case of HT Media Limited vs. PCIT in ITA No. 548 and 549/2015 by order dated 23/8/2017, PCIT vs. UK paints (India) Private Limited, Ld. CIT(A) vs. Taikisha Engineering India Ltd (2015) 370 ITR 338 in support of his contentions.
Though the Ld. DR placed reliance on the assessment order there is no denial of the fact that the assessee submitted before the assessing officer that the investments were made even out of assessee’s own funds or out of interest free funds provided by the government and no part of the borrowed funds were utilised for investment. Further it could be seen from the assessment order, on a perusal of the computation of income, learned Assessing Officer noticed that no disallowance was made by the assessee under the provisions of section 14A of the Act read with Rule 8D of the Rules and without having regard to the accounts of the assessee, learned Assessing Officer straightaway proceeded under section 14A of the Act read with Rule 8D of the Rules, without recording any reason for
6 ITA Nos.2786 & 3121/Del/2016 Asst. Year: 2012-13 not agreeing with the assessee not making any disallowance in this regard. 9. When the assessee received tax-free investment income on bonds/LTA which was in lieu of long overdue is receivable on account of sales made to the parties and pursuant to the drive-by trade agreement between the assessee, state electricity boards and reserve bank of India the assessee acquired the bonds to ensure timely payment of the warrant use and the investment in NHDC a subsidiary of the assessee, for out of the equity capital and internal accruals/equity/reserves the investment was made, it was necessary for the learned Assessing Officer to record as to why he reached a conclusion that the assessee must have incurred some expenditure that too having regard to the accounts of the assessee. Law laid down by the Hon’ble Delhi High Court on this aspect in the decisions relied upon by the assessee is clear that is only after arriving at the dissatisfaction as to the correctness of the claim of the assessee in respect of expenditure incurred in relation to exempt income, learned Assessing Officer can resort to the provisions of section 14A of the Act read with Rule 8D of the Rules and any contravention in this regard would enure to the benefit of the assessee.
Furthermore, there is no denial of the fact that the investments made by the assessee were even out of its own funds or out of the interest free funds provided by the government and in
7 ITA Nos.2786 & 3121/Del/2016 Asst. Year: 2012-13 view of the decisions of the Hon’ble Punjab and Haryana High Court in the case of CIT vs. Max India Ltd in ITA No. 186 of 2013 by order dated 6/9/2016 and CIT vs. winsome textile industries Ltd 319 ITR 204 and Bombay High Court in the case of CIT vs. HDFC bank Ltd in ITA No. 330 of 2012 by order dated 23/7/2014, no addition could be made by invoking Rule8D (2) (ii) of the Rules.
It is an admitted fact that a similar question in had arisen and was decided in favour of the assessee in assessee’s own case for the assessment year 89, 2010-11 and 2011-12 in assessee’s own case, as was noticed by the Ld. CIT(A) in the impugned order. Further the facts of this issue are covered by the decision of the Hon’ble Punjab and Haryana High Court in assessee’s own case for the assessment year 2006-07 also.
In the circumstances we are of the considered opinion that the addition made by the assessing officer by invoking section 14A of the Act read with Rule 8D of the Rules cannot be sustained and the Ld. CIT(A) rightly deleted the same. No reasons to interfere with the reasoning given and conclusions reached by the Ld. CIT(A) on this aspect and therefore, the same is appended. Ground No. 1 of Revenue’s appeal is, accordingly, dismissed.
Coming to the disallowance of Rs. 1 73, 03, 86, 645/-made in completing the book profit under section 115 JB of the Act on account of provision for gratuity, leave encashment, post-
8 ITA Nos.2786 & 3121/Del/2016 Asst. Year: 2012-13 retirement medical benefits, LTC, baggage allowance etc., It was disallowed by the learned Assessing Officer on the ground that the said provision was not ascertained. Ld. CIT(A) while following the addition of the Hon’ble Punjab and Haryana High Court for the Assessment Year:2002-03 and also his own orders for the Assessment Year: 2010-11 and 2011-12 deleted the same.
It is argued before us that the provision towards meeting definite liability to be discharged on a future date in respect of the present employees and the quantification of such liability on the basis of actuarial valuation and basing on the report is ascertained liability and not covered under explanation 1 (c) of second proviso to section 115 JB of the Act is further submitted that this issue has been covered by the addition of the Hon’ble Punjab and Haryana High Court for the Assessment Year 2002-03 in assessee’s own case which has been followed consistently both by the Tribunal and the Ld. CIT(A) all through these years.
There is no dispute that the decision of the Hon’ble Punjab and Haryana High Court for the Assessment Year: 2002-03 in assessee’s own case covers this issue and such view of the Hon’ble High Court has consistently been followed by the Tribunal and the Ld. CIT(A). Unless and until there is change of circumstances, is not possible to take a different view on an issue covered by the decision of the Hon’ble High Court and also the Tribunal for earlier years.
9 ITA Nos.2786 & 3121/Del/2016 Asst. Year: 2012-13 Respectfully following the same we uphold the finding of the Ld. CIT(A) on this aspect and dismiss ground No. 2.
Now coming to the last ground of Revenue’s appeal, in respect of the disallowance of Rs.3,32, 81, 500/- made in computing book profits under section 115 JB of the Act on account of amortisation of leasehold land, learned Assessing Officer disallowed the same stating that no rate of depreciation was prescribed either in the companies act or in the Income Tax Act, 1961 (for short “the Act”) in respect of land, and the claim of the assessee is not in accordance with law and therefore it is liable to be disallowed. Ld. CIT(A) deleted the same by relying upon his own orders for the Assessment Years: 2010-11 and 2011-12. 17. It is the submission of the Ld. AR before us that the amortisation of leasehold land was made as per their accounting standard 10 of ICAI amortisation of leasehold land classified as per accounting standards 6 of ICAI and the same has been done to meet the requirement of Companies Act and as such amortisation is permissible under section 115 JB of the Act as the same is in accordance with the provisions of Companies Act. Further it is submitted that this issue has been covered by the addition of the Hon’ble Punjab and Haryana High Court in assessee’s own case for the Assessment Year: 2006-07 and followed by the Tribunal in assessee’s own case for the earlier and subsequent years.
10 ITA Nos.2786 & 3121/Del/2016 Asst. Year: 2012-13 18. We have gone through the record in the light of the submissions made on either side. The submissions made before us could not be contradicted by the Revenue and more particularly the fact that this issue has been covered by the addition of the Hon’ble Punjab and Haryana High Court in assessee’s own case for the Assessment Year: 2006-07 in ITA No. 136/2015 by order dated 28/02/2018. Further it is also not in dispute that a view in consonance with the decision of the Hon’ble High Court has been taken by the Tribunal for the Assessment Years: 2004-05 to 2011- 12. In the circumstances since it is an issue covered by the decision of the Hon’ble High Court and also the Tribunal for earlier years, respectfully following the same we uphold the finding of the Ld. CIT(A) on this aspect and dismiss ground No. 3. Now coming to the appeal of the assessee, 1st and 5th grounds 19. are general in nature. Second-round relates to the addition of Rs. 3, 31, 92, 441/-on disallowance of direction under section 80 IA of the Act, which the assessing officer made on the ground that the assessee is eligible for deduction under section 80 IA of the Act only from adopted from generation and distribution of power and not from other income.
It could be seen from the record that the assessee company had climbed deduction under section 80 IA of the Act in respect of Uri Power Station Stage-1, Champera Power Station Stage-2 and Ranjit Power Station by submitting the copies of project wise
11 ITA Nos.2786 & 3121/Del/2016 Asst. Year: 2012-13 auditors certificate certifying the deduction under section 80 IA of the Act, but the AO held that the assessee is eligible for deduction under section 80 IA of the Act only from profit uptrend from the generation and distribution of power and not from other income.
A similar question had arisen in assessee’s own case for the Assessment Year: 2010-11 and 2011-12 and by orders dated 8/5/2019 and 26/7/2019 for those years respectively the Tribunal had taken a view in favour of the assessee. Ld. CIT(A) followed the decision of the Tribunal and granted relief to the assessee. Assessee further places reliance on the addition of the Hon’ble Delhi High Court in the case of Pr. CIT vs. Bharat Sanchar Nigam Ltd 388 ITR 371. 22. Since the Ld. CIT(A) followed the binding precedent covering the issue, in the absence of any other decision to the contrary, it is difficult to find that the conclusions reached by the Ld. CIT(A) are neither illegal or irregular. We therefore respectfully following the view taken by the Tribunal in assessee’s own case for the Assessment Years: 2010-11 and 2011-12, uphold the findings of the Ld. CIT(A) and answer ground No. 2 of assessee’s appeal in favour of the assessee. 23. Ground No. 3 of assessee’s appeal is in relation to the addition of Rs.2,52,93,963/- on account of disallowance of depreciation claimed by the assessee in respect of Teesta-V power station. Assessee claims to have submitted the complete details of
12 ITA Nos.2786 & 3121/Del/2016 Asst. Year: 2012-13 project wise addition to the fixing assets, namely, Plant and Machinery and building vide letter dated 12/1/2015 whereunder the additions of Rs.39,43,84,559/-was made in respect of Plant and Machinery whereas Rs. 1, 38, 19, 242/-was made to the buildings, in respect of which the assessee claimed depreciation to the tune of Rs.2,99,24,323/-for this year. According to the assessee the addition to Plant and Machinery includes the amount of Rs.33,72,52,844/- paid as the sales tax demand in respect of the Teesta-V project for the Financial Years 1998-99 to 2007-08 and was capitalised in the assessment year 2012-13. 24. Ld. CIT(A) held that the assessee had capitalised Rs.33,72,52,844/- on account of payment of sales tax demand in respect of the Teesta-V plant, the liability for which was crystallised in the assessment year 2016-17 only, because the capitalisation of payment of sales tax was challenged by the assessee before the Hon’ble High Court of Sikkim and was decided against the assessee on 3/6/2015 and therefore the liable to was crystallised only in the Assessment Year: 2016-17. 25. Ld. AR by placing reliance on the decision of the Hon’ble Delhi High Court in the case of CIT vs. Noida Medicare Centre Ltd (2015) 378 ITR 65 (Del) and submitted that the amounts should be capitalised in the year in which the obligation to pay tax and interest arise for the 1st time and therefore, the cost of equipment should be taken into consideration from that year.
13 ITA Nos.2786 & 3121/Del/2016 Asst. Year: 2012-13 26. On this aspect, both the Ld. AR and the Ld. DR submitted that remanding the issue to the file of the learned Assessing Officer to follow the decision of the Hon’ble Noida Medicare Centre limited (supra) would meet the ends of Justice. Recording the same we set aside the finding of the Ld. CIT(A) on this issue and remit the same to the file of the assessing officer to take a view in the light of the decision of the Hon’ble Apex Court in the case of Noida Medicare Centre limited (supra). The 3rd and last issue in the assessee’s appeal relate to the 27. addition of Rs. 3, 24, 551/-on account of income tax on perquisite borne by the assessee in respect of accommodation provided to its employees while computing the book profit under section 115 JB of the Act. At the outset, we Ld. AR submitted that this issue has clearly been covered by the decision of the Tribunal in assessee’s own case for the Assessment Years: 2010-11 and 2011-12 besides being covered by the decision of the Mumbai Tribunal in the case of Rashtriya Chemicals and Fertilisers Ltd vs. CIT (2018) 91 taxman.com 104, in favour of the assessee. Ld. Counsel submitted that the deletion of the Tribunal was rendered in May, 2019 whereas the Ld. CIT(A) decided this issue way back on 14/3/2016 and therefore the Ld. CIT(A) had no benefit of the view taken by the Tribunal on this aspect. 28. Considering the fact that under identical facts and circumstances the Tribunal had taken a view in favour of the
14 ITA Nos.2786 & 3121/Del/2016 Asst. Year: 2012-13 assessee in assessee’s own case for the Assessment Year: 2010-11 and 2011-12 while following the decision of the Mumbai Tribunal in the case of Rashtriya Chemicals and Fertilisers limited (supra), in the absence of any decision to the contrary by any higher forum, we hold the issue in favour of the assessee and direct the deletion of the addition of Rs.3, 24, 551/-made by the learned Assessing Officer on account of income tax on perquisite borne by the assessee in respect of accommodation provided to its employees while computing the book profit under section 115 JB of the Act. Ground No. 4 is accordingly allowed.
In the result and appeal of the assessee is allowed in part and for statistical purpose. Pronounced in open court on this the 20th March, 2020.
Sd/- Sd/- (G.S. PANNU) (K. NARASIMHA CHARY) VICE PRESIDENT JUDICIAL MEMBER Dated: 20/3/2020 ‘VJ’ Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI