PRISM CEMENT LTD,MUMBAI vs. ASST CIT CEN CIR 34, MUMBAI

AadoSa / O R D E R महावीर स ुंह, न्याययक दस्य/ PER MAHAVIR SINGH, JM:

These cross appeals are arising out of the order of the Commissioner of Income Tax (Appeals)]-4, in short CIT(A), in appeal No. CIT(A)-41/ACCC-34/IT-181/2013-14 vide order dated 27.01.2015. The Assessment was framed by the Asst. Commissioner of Income Tax, Circle-34, Mumbai (in short ACIT/ITO/ AO) for the A.Y. 2010-11 vide order dated 28.03.2013, under section 143(3) of the Income-tax Act, 1961 (hereinafter ‘the Act’).

1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was right in holding that the reimbursement of expenses made by the assessee to an institute for running of a school at Mankahari, Satna was not hit by the provision of section 401A(9) of the Act.” &2545/Mum/2015 3 | P a g e

5. The second issue in this appeal of Revenue is against the order of CIT(A) allowing the claim of depreciation by ignoring the provisions of section 32(1) read with explanation 5 of the Act. For this Revenue has raised the following ground No. 2 - “2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was right in holding that the assessee was entitled to claim depreciation of Rs. 66,36,89,891/-, ignoring the fact that as per the provisions of section 321 read with explanation 5, the assessee was eligible to claim only a sum of Rs. 622,83,13,914/-.”

6. We have heard the rival contentions and gone through the facts and circumstances of the case. We noted that the CIT(A) has deleted the addition following his predecessors order for earlier years in present case by observing as under: - “7.3 I have considered the submissions of the appellant and perused the materials 6 | P a g e available on record including copies of the judicial decisions relied upon by the appellant. It is observed form the record that the issue under appeal is also a recurring issue covered in favour of the appellant by order of my predecessor in AY 2006-07 which has been followed while deciding the first appeals filed by the appellant for AY 2008-09 and 2009-

10. The facts and submissions made by the appellant are substantially similar to those in AY 2008-09. There being no change in the facts as well as the legal position on this issue. I have no reason to differ from the decision taken by my predecessors in AYs. 2008-09 and 2009-

10. In view of the above position, the disallowance of depreciation of ₹3,53,75,977/- made by the AO cannot be sustained and the same is deleted. Grounds bearing Nos. 5(a) to 5(d) raised by the appellant are accordingly allowed.”

7. Even we noted that the Tribunal in AYs 2008-09 and 2009-10 in ITA No. 8048/Mum/2011 and 1776/Mum/2013 has dismissed the Revenue’s appeal by observing in Para 12 as under: - ITA Nos. 1757&2545/Mum/2015 7 | P a g e

12. The last Ground in the appeal of the Revenue is with regard to assessee’s claim of depreciation which was restricted by the Assessing Officer to Rs.13,71,85,165/- from Rs.18,61,04,063/- claimed by the assessee. In this context, the relevant facts are that the Assessing Officer noted from the record that for assessment years 2000-01 and 2001-02, assessee had neither claimed and nor allowed depreciation, as a consequence of which, the written down value of the assets at the beginning of the previous year for the instant assessment year was higher. In this background, the Assessing Officer invoked Explanation -5 to section 32(1) of the Act and held that the same was clarificatory in nature and, therefore, would apply retrospectively. As a consequence, the Assessing Officer reworked the written down value of the assets assuming that the depreciation for assessment years 2000-01 and 2001-02 stood allowed, though in actuality such a claim was neither made and nor allowed by the Assessing Officer in those years. As 8 | P a g e a result, the depreciation claimed by the assessee stood reduced. The CIT(A) has since negated the action of the Assessing Officer and restored the claim of the assessee for depreciation. The decision of the CIT(A) is based on the decision of his predecessor CIT(A) in the case of the assessee for 2006-07. The decision of the CIT(A) for assessment year 2006-07 has since been affirmed by the Tribunal vide its order dated 16/05/2016(supra), wherein the decision for assessment year 2005-06 has been followed. The precedents so noted continue to hold the field and, therefore, we find no reason to interfere with the decision of the CIT(A) on this aspect. Thus, on this aspect also Revenue fails.

1. (a) The learned Commissioner of Income Tax (Appeals) erred in upholding the action of the learned Assistant Commissioner of income tax, Central Circle-34, (hereinafter referred to as the Assessing Officer) in disallowing a sum of ₹1,83,50,404/- under section 14A while computing the total income of the appellant under normal provisions as well as book profit under section 115JB. (b) Without prejudice to what is stated above, the appellant submits that Commissioner of Income tax (Appeals) erred in upholding the action of Assessing Officer in considering interest expenses for the purpose of calculation under Rule 8D(ii) as the entire interest paid was for the purpose of its business and for working capital requirements of the appellant and no borrowed funds were utilized for the purpose of investments.” &2545/Mum/2015 10 | P a g e

5.3.1………………………Thus, all the essential elements for invoking the provisions of Section 14A are present in this case. It is observed that the appellant had suo moto disallowed Rs.20,44,907/- u/s.14A as per the tax audit report u/s.44AB. In this connection, I find merit in the plea of the 12 | P a g e appellant that the A.O. has not given any cogent reasons for rejecting the working of disallowance u/s.14A amounting to Rs.20,44,907/- made by the appellant and resorting to the provisions of Section 14A(2) r.w.Rule 8D. 5.3.2 A perusal of the impugned order reveals that the A.O. has not properly examined the working of disallowance of Rs.20,44,907/- u/s.14A suo moto made by the appellant. Nor has the A.O. expressed any opinion on the correctness or otherwise of the appellant's claim in respect of aforesaid expenditure, having regard to the accounts of the appellant. However, such lapse or omission on part of the A.O. is at best a procedural lapse and it cannot be said to be fatal. It is not a defect affecting the fundamental jurisdiction of the A.O. to make the assessment but one which can be cured at the stage of first appeal. It is also well- established that the powers of CIT(A) are co-terminus with those of the Assessing Officer and that the former can do what the latter can do [CIT v. Kanpur Coal ITA Nos. 1757&2545/Mum/2015 13 | P a g e Syndicate 53 ITR 225 (SC)]. There is no conflict between the powers of the Assessing Officer and those of the CIT(A) and the latter can always correct the error committed by the former 133 ITR 182 (SC) and 159 ITR 801 (Cal). In light of this background, it is now proposed to examine the working of disallowance of Rs.20,44,907/- made by the appellant. In the first place, no working of the aforesaid amount of disallowance has been furnished either in the tax audit report u/s.44AB or as part of the return of income filed by the appellant. No such working has been submitted either before the A.O. or even at the appellate stage. The appellant has till date not provided the basis and calculation for arriving at the said amount of disallowance of Rs.20,44,907/-.

Aggrieved assessee is in appeal before Tribunal.

16. The assessee has also raised additional grounds in the assessee’s appeal against the order of CIT(A) confirming the order of AO under section 143(3) of the Act. The First ground raised

by assessee are on the following issues. “(i) The claim of sale tax exemption availed during the year under consideration is to be treated as capital receipt not taxable. (ii) The second issue raised is that the receipt from sale of carbon credit earned during the year under consideration is to be treated as capital receipt not taxable.” For this assessee has raised the following additional ground No. 1 and 2: - “1. That on the facts and in circumstances of the case, sales tax 17 | P a g e exemption of ₹15,02,80,412/- availed during the year under consideration be treated as a capital receipt and hence not taxable in computing total income under the normal provisions of the Income Tax Act, 1961 (‘the Act’).

2. That on the facts and in circumstances of the case, income from sale of carbon credit of ₹ 1,14,34,760/- earned during the year under consideration be treated as a capital receipt and hence not taxable in computing of total income under the normal provisions of the Act.”

17. Similarly, in consequence to the above two grounds the assessee also claimed that the sale tax exemption and receipt on account of sale of carbon credit cannot be treated as income while computing book profit under section 115JB of the Act. For this assessee has raised the following grounds No. 4 & 5: - “4. That on the facts and in circumstances of the case, sales tax exemption of ₹ 15,02,80,412/- availed during the year under consideration be treated as a capital receipt and hence be ITA Nos. 1757&2545/Mum/2015 18 | P a g e excluded in computing book profit under section 115JB of the Act.

19. Before us, the learned Counsel for the assessee argued issue wise on the above additional grounds and narrated the 19 | P a g e facts. The learned Counsel for the assessee stated the first issue of sale tax exemption under package scheme of incentives, 1993 is capital receipt. He stated the facts that the assessee is an integrated building materials company having following three divisions: a) Prism Cement - engaged in manufacturing of cement. b) RMC Ready mix - engaged in manufacturing of ready mix concrete C) H & R Johnson ('HRJ) - engaged in manufacturing of ceramic tiles, sanitary-ware, bath fittings, kitchens and engineered marble.

20. HRJ division has manufacturing units at various Locations. One of the said manufacturing units of HRJ division at Pen, Dist. Raigad, Maharashtra, due to its Location, has enjoyed Sale Tax incentive from the State Government of Maharashtra in the form of Sales Tax exemption under the Package Scheme of Incentives, 1993. The said incentive is declared with an objective of dispersal of industry outside Mumbai, Thane and Pune belt and attracts them to underdeveloped E developing areas of Maharashtra. The said incentive is available to new units as well as units undertaking expansion. During the previous year relevant to the AY 2010-11, the assessee had availed sales tax exemption amounting to Rs. 15,02,80,412/- under the above scheme. Since the aforesaid incentive has been granted for setting up of new units and expansion of existing 20 | P a g e units in the backward areas, the same is capital in nature and hence liable to be excluded in the computing total income both under the normal provisions of the Act and in computing book profit under section 115JB of the Act. It is submitted that while filing income tax return for the AY 2010-11, the aforesaid sales tax exemption was not considered as a capital receipt in the computing total income both under the normal provisions of the Act and in computing book profit under section 115JB of the Act. Accordingly, the assessment was completed taxing the said amount of sales tax exemption. The assessee has now been advised that as per the various judicial pronouncements on the issue, such sales tax exemption being a capital receipt is not subject to tax. As advised, the assessee intends to take up additional grounds of appeal

seeking to exclude the said sates tax exemption in computing total income both under the normal provisions of the Act and in computing book profit under section 115JB of the Act. For AYs 2005-06 to 2009-10, the assessee had filed similar additional ground of appeal before the Hon'ble ITAT in respect of treatment of sales tax subsidy as capital in nature. The Hon'ble ITAT was pleased to admit the said additional ground of appeal and sent the issue to file of the Assessing Officer to examine the claim of the assessee and decide in accordance with law. The copies of the orders of the Hon'ble ITAT for AY 2005-06 to AY 2007

08. ITA No.5957/Mum/2009, 3275/Mum/2010, 8049/Mum/2010, order dt. 1605-2016] and AY 2008-09 to AY 2009-10 [ITA No. 8554/Mum/2011 965/Mum/2013, Order dt. 16-06-2017 are ITA Nos. 1757&2545/Mum/2015 21 | P a g e enclosed herewith as Annexure-A and Annexure-B respectively.

21. The next issue is sale of carbon credit earned during the year under consideration is to be treated as capital receipt. He stated the facts that the assessee has undertaken a Clean Development Mechanism ('COM') project by utilization of waste gases emitted from gas based power generating system for spray drying and vertical drying application at HRJ unit in Dewas, Madhya Pradesh. The project for utilization of waste gases generated has been registered under IJNFCCC as CDM Project. The assessee received Carbon Emission Reductions (CER5') for utilization of waste gases. During the previous year relevant to AY 2010-11, the assessee has earned Rs. 1,14,34,760/- on account of income from sale of CERs. The same was credited to the profit & loss account of the assessee company. Carbon credit being in the nature of an entitlement' received to improve atmosphere and environment reducing carbon, heat and gas emissions, it is arising out of environmental concerns and not as part of the business of the assessee. Hence, in the absence of any element of profit or gain, income from sale of carbon credit should be treated as a capital receipt and should be excluded in computing total income both under the normal provisions of the Act as well as in computing book profit under section 115JB of the Act. It is submitted that while filing income tax return for the AY 2010- 11, the aforesaid income from sale of carbon credit was not considered as a capital receipt in the computing total income 22 | P a g e both under the normal provisions of the Act and in computing book profit u/s 115JB of the Act. Accordingly, the assessment was completed taxing the said amount of income from sale of carbon credit. Subsequently, the assessee came across the decision of the Hon'ble Karnataka High Court in the case o CIT - vs.- Subhash Kabini Power Corporation Ltd. [2016] 69 taxmann.com 394 (order dt. 29-03-2016) wherein it was held that income from sale of carbon credit should be treated as a capital receipt. Based on the said decision, the assessee sought advice from its consultants and the assessee was advised that such a claim can be made. Accordingly, as advised, the assessee intends to take up additional grounds of appeal

seeking to exclude the said income from sale of carbon credit in the computing total income both under the normal provisions of the Act and in computing book profit under section 115JB of the Act.

22. The next issue is infrastructure facility. The facts are that the Infrastructure facility developed, operated and maintained by the assessee. The assessee has its cement manufacturing units at Satna, Madhya Pradesh. As a part of cement manufacturing process, the assessee has developed and has been operating and maintaining the following infrastructure facility:

Rail System 23 | P a g e The assessee has developed an integrated Rail System between its cement manufacturing plant and the nearest railway station of the Indian Railways for inward and outward movement of goods for efficient and cost effective transportation to/from various destinations. The assessee fulfills the prescribed conditions in order to claim deduction u/s 80-IA in respect of the aforesaid infrastructure facility. However, the assessee was neither aware of the fulfillment of the said eligibility conditions nor any judicial precedents in this regard. As such, no claim of deduction u/s 80-IA in respect of the aforesaid infrastructure facility was made white filing the income tax return, during the course of assessment as well as during the appellate proceedings before the CIT(A).

seeking to claim deduction u/s 80-IA in respect of the Rail System.

24. The learned Counsel for the assessee before us relied on the decision of Hon’ble Bombay High Court (Full Bench) in the ITA Nos. 1757&2545/Mum/2015 24 | P a g e case of Ahmedabad Electricity Co. Ltd. vs. CIT (1993) 199 ITR 351 (Bom) and he drew our attention at para 18 and 19 of the judgement of Hon’ble Bombay High Court wherein the Full Bench has considered this issue and held that the Tribunal has power under section 254(1) of the Act to admit the additional grounds as raised for the first time before it, so long as the additional grounds were the subject matter of the proceedings. The learned Counsel referred to the ratio of Hon’ble Bombay High Court and stated that the words mentioned in section 254(1) of the Act pass such orders as Tribunals “thinks fit” includes all the powers (accept possibly the power of enhancements) which are conferred upon the CIT(A) by section 254 of the Act. He referred to Para 18 and 19 which read as under: - “18. In the case of Hukumchand Mills Ltd. v. CIT [1967] 63 ITR 232 , the Supreme Court was required to consider the powers of the Tribunal under old section 33(4) of the 1922 Act which is equivalent to the present section 254 of the 1961 Act. In the case before the Supreme Court the assessee-company was incorporated in the then native State of Indore. It was assessed in British India, except for the assessment year 1948-49, as a non-resident on such income as fell ITA Nos. 1757&2545/Mum/2015 25 | P a g e with section 4(1)(a ) or (c) read with section 42 of the 1922 Act. After the Constitution of India came into force Indore became a part B State and the 1922 Act was brought into force in Part B States with effect from 1-4-1950. For the assessment year 1950-51 the assessee became assessable as a resident. The Tribunal in that case had permitted the department to raise for the first time the contention that the ITO had not considered the provisions of paragraph 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950 and remanded the matter back to the ITO to ascertain whether any depreciation was allowed under the Indore Industrial Tax Rules and, if he was of opinion that these rules related to income-tax or super tax or any law relating to tax on profits of business, to take into consideration such depreciation actually allowed under these rules also for the purpose of computing the written down value. The assessee contended that the Tribunal should not have allowed the department to raise the contention for the first time before it and 26 | P a g e remanded the case. The Supreme Court held that the Tribunal had sufficient power under section 33(4) to entertain the contention of the department and to remand the case to the ITO.

19. After referring to section 33(4) which gave to the Tribunal power to pass 'such order thereon as it thinks fit', the Supreme Court said: "The word 'thereon', of course, restricts the jurisdiction of the Tribunal to the subject-matter of the appeal. The words 'pass such orders as the Tribunal thinks fit' include all the powers (except possibly the power of enhancement) which are conferred upon the Appellate Assistant Commissioner by section 31 of the Act. ..." (p. 237) And a little later, the Court explained: "In the present case, the subject- matter of the appeal before the Tribunal was the question as to what should be the proper written down value of the buildings, machinery, ITA Nos. 1757&2545/Mum/2015 27 | P a g e etc. of the assessee for calculating the depreciation allowance under section 10(2)(vi) of the Act. ..." (p. 237). Therefore, the Supreme Court clearly said that the Tribunal could permit additional grounds to be raised for the first time before it so long as these additional grounds were the subject-matter of the proceedings; because quite clearly the Court has interpreted the subject-matter of the appeal widely as covering the various issues arising in the proceedings whether raised earlier or not.”

25. Finally, the Full Bench of Hon’ble Bombay High Court has directed in Para 39 as under: - “39. In view of the above decisions it is quite clear that the Tribunal has jurisdiction to permit additional grounds to be raised before it even though these may not arise from the order of the AAC, so long as these grounds are in respect of the subject-matter of the entire tax proceedings.”

26. When these were confronted to the learned CIT ITA Nos. 1757&2545/Mum/2015 28 | P a g e Departmental Representative, he only opposes the admission of additional grounds. The assessee has filed following additional grounds of appeal:

a) Sales tax exemption of Rs. 15.02 crore availed during the year under consideration be treated as capital receipt. b) Income from sale of carbon credit of Rs. 1.14 crore be treated as a capital receipt and hence not taxable. c) Deduction u/s 801A certified in Form 1000B amounting to Rs. 32.01 crore be allowed in respect of Rail system developed, operated and maintained by it.

27. The learned CIT DR stated on the issue of Sales tax exemption, the assessee has claimed that its manufacturing unit at Pen, Raigad District of Maharashtra has enjoyed the above sales tax incentive from Government of Maharashtra under Package Scheme of Incentives, 1993 for setting up of new units and expansion of existing units in backward areas and hence the same is capital in nature. The reasons given for making this fresh claim is as under: The appellant has now been advised that as per the various judicial pronouncements on the issue, such sales tax exemption being a capital receipt is not subject to tax"

28. The assessee has also claimed that the Tribunal in AY 2005-06 to 2009-10 in its own case has admitted the said 29 | P a g e additional ground and sent the issue to the file of the AO to examine the claim and decide in accordance of law.

29. On the issue of sale of carbon credit, the reasons given by the assessee for making the fresh claim is the decision of the Hon'ble Karnataka High Court in case of CIT vs. Subhash Kabini Power Corporation Ltd. [2016] 69 taxmann.com 394 [order dated 29.03.2016]

30. On the issue of deduction u/s 801A, the reasons given by the assessee for making the fresh claim before the Tribunal is as under: Subsequently, the appellant noticed that Hon'ble Mumbai ITAT in the case of MIs. Ultratech Cement Ltd. vs DCIT ITA No. 5107 & 76141Mum12014. order dated 05- 04-2017] dealing with similar facts as that of the appellant's case has granted deduction u/s 80IA in respect of Rail System. Submission of The Department Filed by Learned CIT DR “5. Decision of Hon'ble Bombay High Court in the case of Ultratech Cement Limited reported in [2017] 81 taxmann.com 74 (Bom) [date of order: 18.04.2017] is the latest decision of the ITA Nos. 1757&2545/Mum/2015 30 | P a g e jurisdictional High Court dealing with the power of the ITAT to admit additional ground. The said decision is related additional ground claiming deduction u/s 801A on infrastructure facility namely Jetty/Port. But the principles enunciated therein applies to additional ground on any issue.

6. Decision of Hon'ble Bombay High Court in case of Ultratech Cement Limited [supra] has considered all the landmark judgements. delivered so far on the subject matter and it is requested that the aforesaid decision of the jurisdictional High Court should be followed to decide all the three issues in the present case including the issue of admitting addl. ground related to Sales Tax exemption claimed to have been covered by the ITAT's order in the case of the assessee for the earlier years because the decision of the High Court in case of Ultratech Cement Ltd. is subsequent to the decisions of the Tribunal in case of appellant and hence not considered by the Hon'ble ITAT. &2545/Mum/2015 31 | P a g e

7. In the case of Ultratech Cement Limited reported in [2017] 81 taxmann.com 74 (Bom), the additional ground was not admitted because relevant facts which would entitle the assessee to claim the benefit of section 80-IA were not part of record for assessment year under consideration. This was so held in spite of the fact that the assessee claim u/s 80 IA on jetty/port was already allowed by the Department for Subsequent assessment year.

8. The Tribunal in case of Ultratech Cement Ltd. did not permit the assessee to raise additional ground for the reason that material facts to support such claim for subject assessment year was not on record before the Assessing Officer. 9. Hon’ble Bombay High Court also affirmed the decision of the Hon'ble ITAT and did not allow the additional ground holding that" In the present facts, as pointed out above and being reiterated once more, the additional ground, which is raised, is not a pure question of law, but would depend upon the satisfaction of 32 | P a g e the authority as to the facts existing in the subject assessment year for allowing the benefit of Section BOIA of the Act. The additional ground is being raised for the first time before the Tribunal without relevant evidence being on record.' 10. In no uncertain terms, the Bombay High Court has held that claim u/s 801A in not a pure question of law. 11. It is also clear from the aforesaid decision that record means record before assessing officer. 12. In the present case also, the assessee has claimed deduction u/s 80IA on Rail siding which is not a pure question of law as held by jurisdictional High Court in case of Ultratech Cement Ltd. and material facts to support such claim was not on record before the Assessing Officer. 13. In the present case, the assessee is for the first time filing form no. 1OCCB and agreements with Railway authorities in support of its claim under section 801A. Obviously, these are fresh evidences not ITA Nos. 1757&2545/Mum/2015 33 | P a g e existing on record before the lower authorities. 14. The interpretation that record means record before the Assessing officer will be clear beyond doubt if we see the land mark decision of the Supreme Court in case of NTPC Ltd. though it was in favour of the assessee. 15. The decision of the Supreme Court in case of National Thermal Power Co. Ltd. Vs. CIT [1998] 229 ITR 383 (SC)] also deals with the power of the Appellate Tribunal u/s 254. In that decision, the supreme Court held as under: 1. --------Undoubtedly, the Tribunal will have the discretion to allow or not allow a new ground to be raised. But where the Tribunal is only required to consider a question of law arising from the facts which are on record in the assessment proceedings, we fail to see why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess that tax liability of an assessee ITA Nos. 1757&2545/Mum/2015 34 | P a g e The reframed question, therefore, is answered in the affirmative, i.e., the Tribunal has jurisdiction to examine a question of law which arises from the facts as found by the authorities below and having a bearing on the tax liability of the assessee.

ITA Nos. 1757&2545/Mum/2015 35 | P a g e In case of Addl. CIT Vs. Gurjargravures (P.) Ltd. [1978] 111 hR 1(SC) dealing with power of CIT(A) u/s 251, the Honble Apex Court decided the issue in favour of revenue holding as under: In the present case neither any claim was made before the Income-tax Officer, nor was there any material on record supporting such a claim. We, therefore, hold that, on the facts of this case, the question referred to the High Court should have been answered in the neagative" In the aforesaid decision of the Gurjargravures (P.) Ltd. Honbie Supreme Court has also reiterated its own decision in case of Rai Bahadur Hardutroy Motilal Chamaria.