THE TATA POWER CO. LTD,MUMBAI vs. ACIT 2(3), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “E”, BENCH MUMBAI BEFORE SHRI M.BALAGANESH, AM & SHRI RAM LAL NEGI, JM ITA No.3452/Mum/2012 (Assessment Year :2006-07) ITA No.3453/Mum/2012 (Assessment Year :2007-08) & ITA No.5691/Mum/2013 (Assessment Year :2007-08) The Tata Power Co. Ltd Vs. The Asst. Commissioner of Corporate Center Income Tax Block B, 5th Floor Circle 2(3), 34, Sant Tukaram Road, Aayakar Bhavan Carnac Bunder Maharshi Karve Road Mumbai – 400 009 Mumbai – 400 020 PAN/GIR No. AAACT0054A (Appellant) .. (Respondent) ITA No.4058/Mum/2012 (Assessment Year : 2006-07) & ITA No.4070/Mum/2012 (Assessment Year : 2007-08) The Asst. Commissioner Vs. The Tata Power Co. Ltd of Income Tax Corporate Center Block B, 5th Floor Circle 2(3), Aayakar Bhavan 34, Sant Tukaram Road, Maharshi Karve Road Carnac Bunder Mumbai – 400 020 Mumbai – 400 009 PAN/GIR No. (Appellant) .. (Respondent)

Assessee by Shri Nitesh Joshi, Shri Milin Thakore and Shri Jayesh Desai Revenue by Shri R Manjunatha Swamy Date of Hearing 27/11/2019 Date of Pronouncement 29/11/2019

2 ITA Nos.3452/Mum/2012 & other appeals M/s. Tata Power Co. Ltd आदेश / O R D E R M BALAGANESH , AM: These cross appeals in ITA Nos.3452/Mum/2012 for A.Y.2006-07 & 2007-08 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-6, Mumbai in appeal Nos.CIT(A)-6/IT-134/2009-10, CIT(A)- 6/IT-279/2009-10, CIT(A)-6/IT.75/Rg.2(3)/12-13 respectively dated 20/03/2012, 21/03/2012 & 14/07/2013 respectively (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 12/12/2008, 24/12/2009 respectively by the ld. ACIT/DCIT 2(3), Mumbai (hereinafter referred to as ld. AO).

3.1. We have heard the rival submissions. We find that the ld. AR at the time of hearing stated that ground No.1 raised by the assessee is not pressed. The same is reckoned as statement made from the Bar and accordingly, the ground Nos.1(a) and 1(b) raised by the assessee are dismissed as not pressed.

3.2. With regard to ground No.2 of revenue appeal, we find that assessee had declared exempt income of Rs.55,59,84,589/-. The assessee did not disallow any expenses incurred for the purpose of earning such exempt income u/s 14A of the Act. We find that during the

3 ITA Nos.3452/Mum/2012 & other appeals M/s. Tata Power Co. Ltd course of assessment proceedings, the assessee had given workings for disallowance u/s 14A of the Act, on without prejudice basis, before the ld. AO by considering certain operation and administrative expenses and worked out the disallowance at Rs.59,06,284/- in the same formula as was suggested in assessee’s own case for A.Y.2001-02. We find that the ld. AO disregarded the said workings and proceeded to make disallowance under second and third limb of rule 8D(2) of the rules and arrived at the disallowance of Rs.17.44 Crores.

3.3. We find from the perusal of the balance sheet of the assessee that assessee is having own funds / interest free funds to the tune of Rs.5555.64 Crores whereas the investment that had yielded exempt income were only Rs.843 Crores. Hence, it could be safely presumed that only the own funds had been utilized for making investments that had yielded exempt income and hence, there cannot be any disallowance of interest on borrowed funds u/s.14A of the Act. Reliance in this regard was placed on the decision of Hon’ble Jurisdictional High Court in the case of Reliance Utilities and Power Ltd reported in 313 ITR 340 (Bom). We find that with regard to disallowance of indirect expenses, the Co-ordinate Bench of this Tribunal in assessee’s own case for A.Y.2001-02 vide its order dated 09/09/2011 in page 32 in para 9 had remanded this issue to the ld. AO for fresh consideration. The ld. AO vide order dated 09/01/2013 in giving effect proceedings to the said Tribunal order had followed the computation mechanism as was given by the Tribunal for the A.Y.2006-07. In other words, the computation methodology adopted by the assessee which was submitted during the course of assessment proceedings for A.Y.2006-07 i.e. the year under appeal before us before the ld. AO was practically adopted by the ld. AO in giving effect proceedings to Tribunal order for A.Y.2001-02. Hence, the workings of disallowance u/s.14A of the Act given by the assessee before the ld. AO

4 ITA Nos.3452/Mum/2012 & other appeals M/s. Tata Power Co. Ltd towards disallowance u/s.14A of the Act in the sum of Rs.59,06,284/- had become final and deserves to be upheld. We also held that the computation mechanism provided in rule 8D of the rules cannot be made applicable for the year under consideration as the same is applicable only from A.Y.2008-09 onwards. In view of the aforesaid observations, we hold that the disallowance u/s.14A of the Act should be restricted to Rs.59,06,284/- for A.Y.2006-07. We find that the very same direction has been given by the ld. CIT(A) also in his order for the A.Y.2006-07, which in our considered opinion, does not call for any interference. Accordingly, the ground Nos.1(a) and 1(b) raised by the assessee are dismissed as not pressed and ground No.2 raised by the revenue is dismissed.

4.1. We have heard rival submissions and perused the materials available on record. We find that for the A.Y.2006-07, the assessee has claimed deduction u/s.80IA of the Act in respect of the following undertakings:- Undertaking Jojobera 67.5MW Unit 1 Jajobera 120MW Unit 2 150 MW Bhira Pumped Storage Unit (BPSU) 180 MW Trombay Unit 7 Combined Cycle Power Point (CCPP) Bhivpuri 24 MW Unit 9 Bhivpuri 24 MW Unit 10 Bhivpuri 24 MW Unit 11 Khopoli 24 MW Unit 9

5 ITA Nos.3452/Mum/2012 & other appeals M/s. Tata Power Co. Ltd 4.2. The ld. AO observed that deduction u/s.80IA of the Act could be allowed only on the income of the particular units and accordingly the brought forward depreciation of the respective units (i.e. eligible undertakings) should be reduced while computing the deduction u/s.80IA of the Act. The ld. AO observed that in respect of Jojo Bera unit, the assessee was having unabsorbed depreciation which was sought to be set off by the ld. AO while calculating the claim of deduction u/s.80IA of the Act. We find that in respect of Jojo Bera unit, the A.Y.2006-07 (i.e. year under appeal) is the first year of claim and hence it becomes the Initial Assessment Year, in terms of Section 80IA(5) of the Act. The ld. AO observed that in respect of some other eligible undertakings, similar reduction in the claim of 80IA of the Act by way of set off of brought forward losses were done in A.Yrs. 2004-05 and 2005-06 in the case of the assessee and accordingly by following the same, he proceeded to restrict the claim of deduction u/s.80IA of the Act in the A.Y.2006-07 to Rs.203,28,83,339/-. This action of the ld. AO was upheld by the ld. CIT(A).

4.3. We find that the issue under dispute is squarely covered in favour of the assessee by the decision of the Hon’ble Supreme Court in the case of ACIT vs. Velayudhaswamy Spinning Mills Pvt. Ltd reported in 244 Taxman 58 (SC) wherein the SLP filed by the revenue against the order of the Hon’ble Madras High Court was dismissed by holding that loss in years earlier to initial assessment year which were already absorbed against profit of other business cannot be notionally brought forward and set off against profits of eligible business in the Initial Assessment Year as no such mandate is provided in Section 80IA(5) of the Act. It is not in dispute that A.Y.2006-07 is the Initial Assessment Year in respect of Jojo Bera unit in terms of Section 80IA(5) of the Act. It is not in dispute that Jojo Bera Unit is an eligible undertaking and is entitled for claim of

6 ITA Nos.3452/Mum/2012 & other appeals M/s. Tata Power Co. Ltd deduction u/s.80IA of the Act. We also find that the recent Circular issued by the CBDT vide Circular No.1/2016 dated 15/02/2016 also had endorsed the view taken in the case of Velayudhaswamy Spinning Mills supra and had directed the revenue to withdraw the said ground before various appellate forums. Respectfully following the aforesaid decision of Hon’ble Supreme Court and CBDT Circular 01/2016, the ground Nos.2 (a) to 2 (c ) raised by the assessee are allowed.

5.1. We have heard rival submissions. The brief background of this issue is that the assessee prepaid debentures liability with premium in the A.Y.2004-05. The premium on prepayment of debentures was Rs.40,84,00,000/-, which was claimed as deduction while computing business income for A.Y.2004-05 by the assessee. We find that the assessee had taken conscious decision to prepay the debentures on the grounds of commercial expediency in order to terminate the high interest liability of the assessee. The ld. AO while completing the assessment for A.Y.2004-05 held that the premium paid on prepayment of debentures could not be allowable in full in A.Y. 2004-05 but the same would be allowed as deduction over the future balance life of the debentures. Accordingly, the ld. AO allowed the sum of Rs.4,74,82,120/- towards premium on prepayment of debentures (i.e. apportioned portion) as deduction in A.Y.2006-07 i.e. year under appeal. This was calculated at 70.08% of Rs.6,77,54,167/-. We find that the ld. AO had adopted 70.08% as applicable to undertakings in respect of which Section 80IA deduction is not claimed and Rs.6,77,54,167/- represented the pro-rated amount applicable for A.Y.2006-07. We find that the assessee had not

7 ITA Nos.3452/Mum/2012 & other appeals M/s. Tata Power Co. Ltd apportioned the portion of premium paid on prepayment of debentures towards eligible undertaking eligible for deduction u/s.80IA of the Act in A.Y.2004-05. But the ld. AO sought to apportion the same towards the eligible undertaking and sought to reduce the claim of deduction u/s.80IA of the Act to that extent.

5.2. The action taken by the ld. AO in A.Yrs 2004-05 and 2005-06 on the subject mentioned issue under dispute was challenged by the assessee before this Tribunal , among other issues, and this Tribunal vide its order dated 04/09/2019 had quashed the assessment orders on the ground that the Additional Commissioner who framed the assessment did not possess the valid jurisdiction in as much as notification u/s.120(4)(b) of the Act was absent in the case. By this process, the claim of deduction of Rs.40.84 Crores in A.Y.2004-05 would get restored. Accordingly, the adjudication of this issue for the A.Y.2006-07 would become redundant as assessee had been granted deduction for the full amount in A.Y.2004-05 itself pursuant to the order of this Tribunal for the A.Yrs 2004-05 and 2005-06 dated 04/09/2019. But since the orders passed by this Tribunal has been subjected to further appeal by the revenue before the Hon’ble High Court, the ld. AR argued that though this issue would be academic in nature at present, but if the revenue succeeds in High Court for A.Yrs 2004-05 and 2005-06, then adjudication of allowability of premium on prepayment of debentures in A.Y.2006-07 would become relevant. Hence, the ld. AR fairly pleaded only for a finding / direction in this regard in this year. The ld DR also fairly agreed in this regard for issuance of the said direction / finding in this order. We find lot of force in the fairness exhibited by both the parties before us that the issue under dispute before us would resume its life, in case if the revenue succeeds in its appeal before the Hon’ble High Court. Hence, we direct the ld. AO accordingly to give life to the issue of allowability of deduction towards

8 ITA Nos.3452/Mum/2012 & other appeals M/s. Tata Power Co. Ltd premium on prepayment of debentures based on the final outcome of the appeals of the revenue for the Asst Years 2004-05 and 2005-06. The ground Nos. 3(a) to 3(d) raised by the assessee are disposed off subject to the directions mentioned hereinabove.

6.1. We have heard rival submissions. We find that there is no dispute that assessee had made certain payments to local schools in the locality in which the hydro generating stations of the assessee is situated and in the said school, the children of the employees of the assessee are studying. Since the unit is situated in remote location and the employees had to be stationed in the said remote locality and in view of the fact that the employees had to stay with family, the assessee took up the moral responsibility of making some contributions to the schools in that said locality so that the children of the employees of the assessee could study. So this is more of staff welfare measure contributed by the assessee. The ld. AO had applied the provisions of Section 40A(9) of the Act and disallowed the sum of Rs.38,85,333/-. We find that this issue has been considered by the Hon’ble Jurisdictional High Court in the case of PCIT vs State Bank of India reported in 109 Taxmann.com 11 dated 18/06/2019 wherein it was held as under:- 4. Question No.ii relates to the revenue’s objection to the assessee’s claim of deduction of expenditure of Rs.50 lakhs towards contribution to a fund created for the health care of the retired employees. The revenue argues that such fund not being one recognized under Section 36(1)(iv) or (v), claim of expenditure was hit by the provisions of Section 40A(9) of the Income Tax Act, 1961 (“the Act” for short).

9 ITA Nos.3452/Mum/2012 & other appeals M/s. Tata Power Co. Ltd 5. The Tribunal while accepting such claim of the assessee observed that the assessee had made such contribution to the medical benefit scheme specially envisaged for the retired employees of the bank. Sub-section (9) of Section 40A of the Act, in the opinion of the Tribunal was inserted to discourage the practice of creation of bogus funds and not to hit genuine expenditure for welfare of the employees. The Tribunal also noted that the Assessing Officer had not doubted the bonafides of the assessee in creation of fund and that such fund was not controlled by the assessee-bank. The Tribunal proceeded on the basis that the Assessing Officer and the CIT (Appeals) had not doubted the bonafides in creation of the Trust or that the expenditure was not incurred wholly must exclusively for the employees. The Tribunal thus allowed the assessee’s appeal on this ground and deleted the disallowance. 6. Sub-section (9) was inserted to Section 40A of the Act by Finance Act, 1984 with the retrospective effect from 1st April, 1985 and reads as under:- “(9) No deduction shall be allowed in respect of any sum paid by the assessee as an employer towards the setting up or formation of, or as contribution to, any fund, trust, company, association of persons, body of individuals, society registered under the Societies Registration Act, 1860 (21 of 1860), or other institution for any purpose, except where such sum is so paid, for the purposes and to the extent provided by or under clause (iv) (or clause (iva) or clause (v) of subsection (1) of section 36, or as required by or under any other law for the time being in force.” 7. In plain terms, sub-section (9) of section 40A disallows deduction of any sum paid by an assessee as an employer towards setting up of or formation of or contribution to any fund, trust, company etc. except where such sum is paid for the purposes and to the extent provided under clauses (iv) or (iva) or (v) of subsection (1) of Section 36 or as required by or under any other law for the time being in force. It is undoubted that the instance of the assessee does not fall in any of the above mentioned clauses of sub-section (1) of Section 36. However, the question remains whether the purpose of inserting sub-section (9) of section 40A of the Act was to discourage genuine expenditure by an employer for the welfare activities of the employees. This issue has been examined by this Court on multiple occasions. Before taking note of such decisions, we may notice that the explanatory notes on the provisions contained in the Finance Act, 1984, in the context of insertion of subsection (9) to Section 40A of the Act records as under:- “(ix) Imposition of restrictions on contributions by employers to non-statutory funds. 16.1 Sums contributed by an employer to a recognised provident fund, an approved superannuation fund and an approved gratuity fund are deducted in computing his taxable profits. Expenditure actually incurred on the welfare of employees is also allowed as deduction. Instances have come to notice where certain employers have created irrevocable trusts, obstensibly for the welfare of employees, and transferred to such trusts substantial amounts by way of contribution. Some of these

10 ITA Nos.3452/Mum/2012 & other appeals M/s. Tata Power Co. Ltd trusts have been set up as discretionary trusts with absolute discretion to the trustees to utilize the trust property in such manner as they may think fit for the benefit of the employees without any scheme or safeguards for the proper disbursement of these funds. Investment of trust funds has also been left to the complete discretion of the trustees. Such trusts are, therefore, intended to be used as a vehicle for tax avoidance by claiming deduction in respect of such contributions, which may even flow back to the employer in the form of deposits or investment in shares, etc. 16.2 With a view to discouraging creation of such trusts, funds, companies, association of persons, societies, etc. the Finance Act has provided that no deduction shall be allowed in the computation of taxable profits in respect of any sums paid by the assessee as an employer towards the setting up or formation of or as contribution to any fund, trust, company, association of persons, body of individuals, or society or any other institution for any purpose, except where such sum is paid or contributed (within the limits laid down under the relevant provisions) to a recognized provident fund or an approved gratuity fund or an approved superannuation fund or for the purposes of and to the extent required by or under any other law. 16.3 With a view to avoiding litigation regarding the allowability of claims for deduction in respect of contributions made in recent years to such trusts, etc., the amendment has been made retrospectively from 1st April, 1980. However, in order to avoid hardship in cases where such trusts, funds, etc. had before , 1st March 1984, bonafide incurred expenditure (not being in the nature of capital expenditure) wholly and exclusively for the welfare of the employees of the assessee out of the sums contributed by him, such expenditure will be allowed as deduction in computing the taxable profits of the assessee in respect of the relevant accounting year in which such expenditure has been so incurred, as if such expenditure had been incurred by the assessee. The effect of the under-lined words will be that the deduction under this provision would be subject to the other provisions of the Act, as for instance, section 40A(5), which would operate to the same extent as they would have operated had such expenditure been incurred by the assessee directly. Deduction under this provision will be allowed only if no deduction has been allowed to the assessee in an earlier year in respect of the sum contributed by him to such trust, fund, etc.” 8. The very purpose of insertion of sub-section (9) of section 40A thus was to restrict the claim of expenditure by the employers towards contribution to funds, trust, association of persons etc. which was wholly discretionary and did not impose any restriction or condition for expanding such funds which had possibility of misdirecting or misuse of such funds after the employer claimed benefit of deduction thereof. In plain terms, this provision was not meant to hit genuine expenditure by an employer for the welfare and the benefit of the employees. 9. In case of Commissioner of Income Tax Vs. Bharat Petroleum Corporation Limited1 , Division Bench of this Court considered a similar

11 ITA Nos.3452/Mum/2012 & other appeals M/s. Tata Power Co. Ltd issue when the assessee had claim deduction of contribution towards staff sports and welfare expenses. The revenue opposed the claim on the ground that the same was hit by section 40A(9) of the Act. The High Court allowed the assessee’s appeal making following observations :- “For the aforestated assessment year 1985- 86, the Assessing Officer disallowed Rs.2,60,283 under section 40A(9) paid by the assessee for staff welfare activities. The assessee claimed that the entire amount was for staff welfare activity. That, the said amount was a grant for staff welfare activity and that the entire amount was for the benefit of the employees and, therefore, the assessee claimed deduction as business expenditure under section 28. However, the Department rejected the assessee’s claim on the ground that a club known as Trombay Club was incorporated by the assessee for social, cultural and recreational activities of its members who were required to pay subscription fees. Hence, the Assessing Officer as also the Commissioner of Income-tax (Appeals) came to the conclusion that the said amount constituted contribution to the club and, therefore, under section 40A(9), the claim for deduction was disallowed. Being aggrieved, the assessee went in appeal to the Tribunal which took the view that the aforestated amount represented reimbursement of expenses incurred by a society and, therefore, it did not constitute contribution under section 40A(9). Being aggrieved by the decision of the Tribunal, the Department has come in appeal. Findings on question No. 2: Bharat Petroleum Corporation is a Central Government undertaking. It has incorporated a club, essentially to carry on staff welfare activities. Under clause 28, Bharat Petroleum Corporation Limited had a right to issue directives to the club which were binding on the club. At times, the members of the club, who were the employees of Bharat Petroleum Corporation, took part in tournaments held outside the club premises like Times shield in cricket. On such occasions, the assesseeCorporation used to reimburse expenses incurred by the club. This is the finding of fact recorded by the Tribunal. In the circumstances, section 40A(9) is not applicable. No substantial question of law arises. Hence, our answer to the aforestated question No.2 is in the negative, i.e. in favour of the assessee and against the Department.” 10. In case of Commissioner of Income-tax-LTU Vs. Indian Petrochemicals Corporation Limited, Division Bench of Bombay High Court considered the case where the assessee-employer had contributed to various clubs meant for staff and family members and claimed such expenditure as deduction. Once again the revenue had resisted in the expenditure by citing section 40A(9) of the Act. This Court confirmed the view of the Tribunal and dismissed the revenue’s appeal, in which the Tribunal had allowed the expenditure claimed by the assessee. 11. Once again in case of The Principal Commissioner of Income-Tax-14 Vs. Indian Oil Corporation reported in Income Tax Appeal No. 1765 of

12 ITA Nos.3452/Mum/2012 & other appeals M/s. Tata Power Co. Ltd 2016, revenue had raised such an issue when the assessee had spent certain amounts in either setting up or providing grant-in-aid made to Kendriya Vidyalaya Schools where the students of the assessee-Indian Oil Corporation would receive education. This Court referred to a judgment of Kerala High Court in case of P. Balakrishnan, Commissioner of Income- Tax Vs. Travancore Cochin Chemicals Ltd.1 and of the decision of this Court in case of Bharat Petroleum Corporation Limited (supra) held that the Tribunal had correctly allowed the assessee’s claim of expenditure. In view of this discussion, this question is not entertained.”

6.2. Respectfully following the aforesaid decision, we hold that the assessee is entitled for deduction in the sum of Rs.38,85,333/- in respect of payments made to schools in which children of the employees of the assessee are studying, among others. Accordingly, ground Nos.4(a) and 4(b) raised by the assessee are allowed.

7.1. We find that this issue is covered in favour of the assessee in its own case by the orders of this Tribunal from A.Yrs. 1999-2000 to A.Yrs. 2003-04. We find that the ld. CIT(A) had placed reliance on the decision of this Tribunal in assessee’s own case for A.Y.2001-02 and 2005-06 and granted relief to the assessee. Since the issue is already covered in favrour of the assessee by the orders of this Tribunal for various years commencing from A.Yrs 1999-00 to A.Yrs 2003-04, the operative portion of the said judgement are not reiterated herein for the sake of brevity. We do not find any infirmity in the order passed by the ld. CIT(A) in this regard. Accordingly, the ground No.1 raised by the revenue is dismissed.

13 ITA Nos.3452/Mum/2012 & other appeals M/s. Tata Power Co. Ltd 8. Disallowance of discount on issue of Euro Bonds – Rs.18,88,103/- Ground No.3 for A.Y.2006-07 in revenue appeal

8.1. We have heard rival submissions and perused the materials available on record. We find that the assessee had issued 7.875% Euro notes (2007) and 8.500% Euro notes (2017) at a discount in A.Y.1998-99. The assessee has been consistently writing off the discount on issue of Euro notes over the period of the Euro notes in accordance with the decision of the Hon’ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd. vs. CIT reported in 225 ITR 802 and the same has been consistently allowed by the revenue from A.Yrs 1998-99 to 2003-04 under scrutiny assessment proceedings. However, we find that the ld. AO had disallowed the same during the year under consideration on the ground that the assessee in earlier year, when it had earned surplus from the same activity, the surplus was not offered for taxation stating that it is not in the nature of income. Hence, on the same analogy the discount incurred will not be revenue loss also. We find that the ld. CIT(A) had granted relief to the assessee by placing reliance on the order passed by his predecessor for A.Y.2005-06 and the order passed by his predecessor for A.Y.2005-06 and the order passed by this Tribunal in assessee’s own case for A.Y.2000-01 on the same ground. We find that the assessee has been consistently claiming the write off on account of discount on issue of Euro notes commencing from A.Yrs 1998- 99 onwards which has been rightly allowed as deduction by the ld. AO up to A.Y.2003-04. Though for A.Yrs 2004-05 and 2005-06, this claim of deduction was not allowed by the ld. AO, the said assessments have quashed by this Tribunal vide its order dated 04/09/2019 on completely technical ground without going into the merits of the addition / disallowance. The ld. AO had observed that in earlier year, the assessee

14 ITA Nos.3452/Mum/2012 & other appeals M/s. Tata Power Co. Ltd had earned some gain out of this transaction and the same had not been offered to tax as it is notional in nature. We are unable to persuade ourselves to accept to the contentions of the ld. AO that assessee had made certain foreign exchange fluctuation gain in the earlier year which was not offered to tax by the assessee on a totally different footing, whereas the subject mentioned issue in dispute being liability of discount on issue of Euro notes, which has got absolutely nothing to do with the foreign exchange gain which arose in earlier years. Hence, we hold that the ld. AO had grossly erred in disallowing the said sum of Rs.18,88,103/- towards discount on issue of Euro notes. We find that the action of the assessee is exactly in line with the ratio laid down by the Hon’ble Supreme Court in the case of Madras Industrial Investment Corporation reported in 225 ITR 802. Accordingly, ground No.3 raised by the revenue is dismissed.

9.1. We have heard rival submissions. The ld. AO had observed that assessee had retained certain amount out of the amount paid to various contractors as retention money on which tax had not yet been deducted tax at source. The ld. AO observed that the amount retained by the assessee tantamounts to accrual of income in the hands of the payee and hence, assessee ought to have deducted tax at source on the same in terms of Section 194C of the Act. The ld. AO took the figure of sundry deposits that had been reflected in the page 20 of the paper book being the annual report of the assessee company wherein the figure of Rs.18.31 Crores was reflected and the ld. AO adopted 50% of the said value as the amount retained by the assessee on which tax has not been deducted at

15 ITA Nos.3452/Mum/2012 & other appeals M/s. Tata Power Co. Ltd source and accordingly, he made disallowance of Rs.9.15 Crores u/s.40(a) (ia) of the Act in the assessment.

9.2. We find that the assessee had pleaded that the amount retained as retention money does not accrue to the payee in the year of retention. Since the amount is not taxable in the year of retention, there is no obligation on the part of the assessee to deduct tax thereon. We find that the assessee had further submitted that despite this view, the assessee had been generally deducting tax at source even on the retention amounts. The comments made by the Tax Auditors in the tax audit report that tax has not been deducted at source by the assessee at the time of payment of retention amount was in respect of a solitary case of payment made to United Shippers Ltd, where payments were made during the year by the assessee without deduction of tax at source since adhoc payments were made without reconciliation of the amount finally payable to the party. The assessee had even submitted evidence that even in this case i.e. United Shippers Ltd, the short fall of tax amounting to Rs.11,21,342/- was indeed remitted to the account of Central Government on 07/03/2006 which is before the end of the previous year relevant to A.Y.2006-07. We find that in any case, the ld. AO is absolutely not justified to take the figure of sundry deposits from the balance sheet and treat the same as retention money and thereafter treat 50% of the said sum as retention money. The entire exercise of the ld. AO is absolutely without any basis. We hold firstly that there is absolutely no default committed by the assessee in accordance with provisions of Chapter XVIIB of the Act in the instant case. Secondly, the figures taken by the ld. AO are totally incorrect. Hence, by all force, the disallowance u/s.40(a)(ia) of the Act deserves to be deleted which has been rightly done by the ld. CIT(A) on which action, we do not find any infirmity. Accordingly, the ground No.4 raised by the revenue is dismissed.

16 ITA Nos.3452/Mum/2012 & other appeals M/s. Tata Power Co. Ltd

10.1. We have heard the rival submissions and perused the materials available on record. We find that the ld. AO had observed that assessee had paid an amount of Rs.5.03 Crores to various parties out of India without deduction of tax at source claiming the same as exempt in DTAA between India and the respective Country where the payment is made. He further observed that the payments made include for various parties including professional charges, due diligence study, assistance in due diligence work, annual maintenance charges etc., He identified the list of parties as tabulated below and proceeded to disallow a sum of Rs.3,13,01,840/- u/s.40(a)(i) of the Act for payments made without deduction of tax at source in terms of Section 195 of the Act:-

Name of the Amount Nature of Remittance beneficiary (Rs.) Rehman Rehman & 148964 Professional charges Hnq Standard & Poor Intl 573250 Annual surveillance fees Daniele Thripp & 3218000 Arbitration cost Hailary Deloitte & Touche 1 60930 Professional service charges Rehman Rehman & 38477 Professional fees Hng Deloiffe 9006180 Tax due deligence service Moft McDonald Ltd. 1385663 Due deligence service The Energy 550000 Partial support in due

17 ITA Nos.3452/Mum/2012 & other appeals M/s. Tata Power Co. Ltd Consulting deligence service The Energy 627524 Partial support in due Consulting deligence service Mott McDonald Ltd. 2667930 Technical due deligence service Mody's Invetor 1880200 Annual maintenance Service fees Daxia Banque Intl 137150 Annual maintenance fees Delotilte 4523724 Fees for due deligence Mott McDonald Ltd. 437875 Fees for due deligence Mott McDonald Ltd. 226629 Reimbursement of expenses Delotitte 3762183 Fees for due deligence Freehills 957161 Professional fees Total 31301840

10.2. We find that during the course of the proceedings before the ld. CIT(A), the assessee had made various submissions and the same were remanded to the ld. AO with a direction to refer the matter to ITO International Transaction, TDS Range-2, Mumbai to examine the claim of the assessee. We find that the ITO International Transaction, TDS, Range-2, Mumbai had submitted his report vide letter dated 03/03/2011 after examining the entire materials on record and had given party wise comments wherein ITO International Transaction, TDS Range-2, Mumbai had categorically mentioned that the payments made by the assessee to certain parties are not taxable in India and hence, no tax need to be

18 ITA Nos.3452/Mum/2012 & other appeals M/s. Tata Power Co. Ltd deducted thereon. However, in respect of certain parties, the ITO International Transaction, TDS Range-2, Mumbai had categorically stated that tax is to be deducted while making payments to those parties. The relevant report of ITO International Transaction, TDS Range-2, Mumbai is enclosed in pages 79-84 of the paper book filed before us. Thereafter, the assessee had filed its comments vide its letter dated 14/02/2012 before the ld. CIT(A). The ld. CIT(A) had merely directed ld. AO to exclude those payments for which ITO International Transaction, TDS Range-2, Mumbai had held that tax need not be deducted in respect of payments made to certain parties. We find that the ld. AO cannot have any grievance on this direction as admittedly the ld. AO had been merely directed to follow the order passed by ITO International Transaction, TDS Range-2, Mumbai. It is also pertinent to note that the ld. AO had passed an order dated 13/05/2013 giving effect to the order of the ld. CIT(A) wherein he had merely followed the directions of ITO International Transaction, TDS Range-2, Mumbai and granted some relief to the assessee u/s.40(a)(i) of the Act. We find that assessee had not preferred further appeal to this Tribunal against the findings of International Transaction, TDS Range-2, Mumbai. Hence, we do not find any merit in the ground No.5 raised by the revenue and hence, the same is dismissed.

ITA No.3453/Mum/2012 (Assessee Appeal) (A.Y.2007-08)

19 ITA Nos.3452/Mum/2012 & other appeals M/s. Tata Power Co. Ltd

ITA No.4070/Mum/2012 – Revenue Appeal for A.Y.2007-08

20 ITA Nos.3452/Mum/2012 & other appeals M/s. Tata Power Co. Ltd

20.1. We have heard rival submissions. We find that the ld. AO from perusal of Annexure 10 to Clause 22(b) of tax audit report in form 3CEB had noted that the assessee had debited a sum of Rs.2,65,43,335/- under the head prior period expenses (net). The said figure is arrived after adjusting the prior period income of Rs.3,21,58,498/- from the prior period expenses of Rs.5,87,01,833/-. When query was raised in this regard, the assessee vide letter dated 30/10/2009 submitted as under:-

''In accordance with the method of accounting regularly followed by the appellant items of expenditure / income of earlier years are debited / credited to separate accounts and disclosed as "Net adjustments in respect of previous years" in the profit and loss account. These items include normal under / over accruals and items which, although they relate to an earlier year, materialised or crystallised during the year or which arose on account of an event during the year. It may be clarified that though for the year under reference, the net adjustments result in a debit amount which has been claimed as a deduction, in years where the net adjustments result in a credit amount, the same has also been offered for tax. In fact, there are credit items during the year under reference pertaining to prior years. This method has been consistently followed over the years and has been accepted at the assessment stage itself. Such adjustments are inevitable in a mercantile system of accounting. Hence, it is submitted that such expenses / income be treated as expenses I income of the year in which they ore incurred.

21 ITA Nos.3452/Mum/2012 & other appeals M/s. Tata Power Co. Ltd In fact upto A.Y. 1996-97, such expenses / income were being treated as expenses / income of the year in which they were incurred. For A.Y. 1997- 98 to A.Y. 2000-01, where prior year expenses had been disallowed at the assessment stage, the Tribunal, in the appellant's own case has held in favour of the appellant. Subsequently, from A.Y. 2001-02 onwards, prior year expenses are being allowed as a deduction at the assessment stage Itself.”

20.2. We find that the assessee has also placed reliance on various decisions of various High Courts and the Tribunals to support its contention of allowability of deduction for prior period expenses in the facts and circumstances of the assessee. The ld. AO disregarded the entire contentions of the assessee and merely observed that the expenses of Rs.5,87,01,833/- as not related to the year under consideration and accordingly, the same is to be disallowed irrespective of the fact that similar claim was allowed in the past to the assessee. We find that the ld. CIT(A) had granted relief to the assessee by observing as under:-

“4.3 I have gone through the order of the AO and submission of the appellant. Considering the nature and volume of the business of the appellant, which involves generation and distribution of power, certain bills are received after the end of previous year and certain income are also received after the end of previous year and the appellant followed the consistent accounting policy of showing such income and expenditure in the subsequent year. The expenditure has been incurred is not a matter of dispute. If it is not allowable in the present year, it is required to be allowed in the earlier years which it pertain and that would lead to a very tedious -and cumbersome process and no gainful purpose is gained by tinkering with the settle accounting policy consistently followed by the appellant, Ground 4 is, therefore, allowed.”

20.3. We also find that the Hon’ble Jurisdictional High court in the case of CIT vs. Mahanagar Gas Ltd. reported in 221 Taxman 80 wherein the question raised before the Hon’ble High Court is as under:-

“B. Whether on the facts and in the circumstances of the case and in law, the Tribunal was correct in confirming the order of CIT(A) in deleting the

22 ITA Nos.3452/Mum/2012 & other appeals M/s. Tata Power Co. Ltd disallowance of Rs.92,91,343/- made by the Assessing Officer on account of prior period expenses?”

20.4. The Hon’ble High Court held as under:-

“4) Regarding Question B : (a) In its return of income for assessment year 2004-05 while declaring total income of Rs.100.76 crores the Respondent- assessee claimed an expenditure of Rs.92.81 lacs as prior period expenses. The Assessing Officer disallowed the expenditure relating to prior period on the ground that as the respondent followed mercantile system of accounting expenditure relatable to an earlier year cannot be allowed as deduction in the assessment year under consideration. Thus an amount of Rs.92.81 lacs was added to the income of the Respondent-assessee. b) In appeal, the CIT(A) held that the method of accounting consistently followed since many years by the respondent was that expenses were claimed as a liability as and when the bills were received even though the work was done in earlier year and not in the assessment year under consideration. The liability to make payment for work and services received in an earlier year was crystallized only in current assessment year when the bills were received by the respondent assesses from the person who did the work and/or rendered services. The CIT(A) also noted that the Assessing Officer had taxed income attributable to work rendered in the earlier years in the year under consideration depending upon the time when the amounts were crystallized. On the same principle, the expenses attributable to earlier years but crystallized in the year under consideration ought to be allowed. In view of the above, the CIT(Appeals) held that in view of the consistent practice followed by the Respondent- assessee and accepted by the Revenue the prior period expenses which were crystallized during the assessment year under consideration, on receipt of the bills are to be allowed as an expenditure. (c) On further appeal by the revenue the Tribunal upheld the finding of fact arrived at by the CIT(Appeals) and held that prior period expenditure was claimed in respect of the bills received during the assessment year 2004-05, even though the work/services was received in an earlier year. This has been consistent practice followed by the respondent-assesses according to which the liability is to be accounted when the bills are received and the payments made in the subsequent year. Thus the appeal of the Respondent-assessee was allowed. (d) The Revenue's grievance is that in mercantile system of accounting the respondent assessee has to account for the expenditure in the year in which the work/service was received by them and not when the bills were received by the respondent assesses.

23 ITA Nos.3452/Mum/2012 & other appeals M/s. Tata Power Co. Ltd

(e) We find that the liability in respect of work/services rendered in earlier year was crystallized only on receipt of the bill in the current assessment year. Moreover, the method adopted by the respondent assesses has been accepted by the revenue for the earlier assessment year and also while accounting for the income earned in respect of the work done in earlier years. In the circumstances, the Revenue is required to adopt consistent approach and allow the expenditure which was crystallized during the assessment year under consideration as done in the earlier years. This finding of fact has not been shown to be perverse. In view of the above we see no reason to entertain question B as the same does not raise any substantial question of law as it is essentially a finding of fact arrived at by two authorities concurrently.”

20.5. In the instant case also there is no dispute that the entire expenses got crystallized during the year under consideration and hence, we do not find any infirmity in the order of the ld. CIT(A) granting deduction towards prior period expenses to the assessee. Accordingly, ground No.3 raised by the revenue is dismissed.

21.1. We have heard rival submissions. We find that this issue arises with regard to reduction of a sum of Rs.2,44,86,356/- being the amount of premium on prepayment of debentures attributable to the eligible undertaking according to the ld. AO, which was reduced by the ld. AO while computing the deduction u/s.80IA of the Act while framing the assessment. We find that the ld. CIT(A) had rightly observed that there is double disallowance of Rs.2,44,86,356/- pursuant to the said action of the ld. AO in view of the fact that the ld. AO had granted deduction towards premium on prepayment of debentures of Rs.4,32,67,811/- only while

24 ITA Nos.3452/Mum/2012 & other appeals M/s. Tata Power Co. Ltd framing assessment and had further reduced this sum of Rs.2,44,86,356/- from the claim of deduction u/s.80IA of the Act. We find that the ld. CIT(A) had directed the ld. AO to verify the record in this regard and rectify the mistake. We are not able to appreciate the grievance, if any, for the revenue in this regard. Accordingly, the ground No.6 raised by the revenue is dismissed.

ITA No.5691/Mum/2013 (A.Y.2007-08) – Assessee Appeal 22. Both the parties at the time of hearing before us stated that this appeal is exactly similar to ground No.6 of revenue appeal. Hence, the decision rendered for ground No.6 of revenue appeal hereinabove would apply with equal force for this appeal also.

Order pronounced in the open court on this 29/11/2019 Sd/- Sd/- (RAM LAL NEGI) (M.BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated 29/11/2019 KARUNA, sr.ps

25 ITA Nos.3452/Mum/2012 & other appeals M/s. Tata Power Co. Ltd

Copy of the Order forwarded to : The Appellant 1. The Respondent. 2. The CIT(A), Mumbai. 3. CIT 4. DR, ITAT, Mumbai 5. 6. Guard file. //True Copy//

BY ORDER,

(Asstt. Registrar) ITAT, Mumbai