DCIT, NEW DELHI vs. M/S. MAITHON POWER LTD., NEW DELHI

PER BEENA A PILLAI, JUDICIAL MEMBER

ITA 2318/Del/2015 A.Y.: 2011-12 DCIT, Circle 16(1) vs. Maithon Power Ltd., New Delhi “1. Whether on the facts and circumstances of the case and in law the Ld.CIT(A) has erred in deleting the addition of Rs.25,81,79,070/- made in the assessment order u/s 5 read with section 28(iii c) of the Income Tax Act, 1961.

2. Whether Ld.CIT(A) has erred in not appreciating the fact that setting up of business and commencement of commercial operation are two distinct concepts and that the assessee itself has claimed depreciation during the year which could not have been claimed without the setting up of the business.

3. That the order of Ld.CIT(A) is erroneous and is not tenable on facts and in law.”

ITA 2318/Del/2015 A.Y.: 2011-12 DCIT, Circle 16(1) vs. Maithon Power Ltd., New Delhi Assessment was completed u/s 143(3) vide order dated 31.01.2014 by the Ld.AO at an income of Rs.29,64,33,170/- making addition of Rs.25,81,79,070/-. 2.1. Aggrieved by the order of Ld.AO assessee preferred appeal before Ld.CIT(A), who allowed the appeal.

ITA 2318/Del/2015 A.Y.: 2011-12 DCIT, Circle 16(1) vs. Maithon Power Ltd., New Delhi "The appellant company is a power generation company that was incorporated on 26.07.2000 to operate and maintain electric power generating stations based on conventional/non-conventional resources, tie-lines, substations and transactions lines connected therewith. During the current assessment year the company was setting up a thermal power generation plant at Maithon, Jharkhand. The project was started on 25.10.2007. The plant consists of two independent units of 525 MW each. The construction activity for power plant of such scale takes 4 to 5 years for completion. Subsequently the company has commissioned the commercial operation of Unit-1 on 1st September 2011 and that of Unit-2 on 24th July 2012.During the previous year relevant to assessment year 2009-10, the project was under construction phase. " 5.3 The appellant explained that it had applied to the Ministry of Power, GOI, for grant of Mega Power Status. The proposal of the assessee was under consideration during the relevant A.Y. Pending the same, the assessee remained liable to pay excise and custom duty wherever applicable. Accordingly, the assessee has paid excise duty of Rs.26,06,45,349/- to its vendors on the supplied materials used for the construction, erection of the project. Of the above, the company has lodged a claim of RS.12,46,29,0001- with the Director General of Foreign Trade (DGFT). DGFT vide letter dated 24 Feb., 2009 had admitted the claim of RS.1 0,59,34,9301- which was to be reimbursed to the company only after funds are received by the DGFT by the concerned Department. 6.1. Later at para 5.8 it is held as follows. “5.8 As per the Notification No L-7/145(160/200B of Central Electricity Regulatory Commission (CERC) dated 19th January 2009 (relevant extract of the notification is mentioned below), definition of date of commercial operations is given as under: a) In relation to a unit or block of the thermal generating station, the date declared by the generating company after demonstrating the maximum continuous rating (MCR) of the installed capacity (lC) through a successful trial

ITA 2318/Del/2015 A.Y.: 2011-12 DCIT, Circle 16(1) vs. Maithon Power Ltd., New Delhi run after notice to the beneficiaries, from 0000 hours of which scheduling process as per the Indian Electricity Grid Code (IEGC) is fully implemented, and in relation to the generating station as a whole, the date of commercial operation of the last unit or block of the generating station. b) As per this definition the date of commercial operations of the appellant were when the company has commissioned its units, these were as under: 2. The commercial operation of Unit-1 on 1st September 2011 3. The commercial operation of Unit-2 on 24th July 2012. In a letter filed by the appellant company to CERC it was stated that commercial production of the unit was declared to be 1st September 2011. This has been accepted by CERC.” 6.2. Based on these facts the Ld.CIT(Appeals) held that when the business of the assessee is not yet set up then the question on assessing income of the assessee company to the Previous Year does not arise. Even otherwise the excise duty on the question was of material used for construction/erection of the project, which is in the capital filed and the refund of the same goes to reduce the cost of the assessee. Hence we uphold the order of the First Appellate Authority and dismiss this appeal by the Revenue.” 8.1. Further, afore stated view of this Tribunal has been upheld by Hon’ble Jurisdictional High Court vide order dated 21.07.2015 in by holding as under.

“8. Consequently, the finding of CIT(A) that the business of assessee had yet not been set up during the A.Y. 2009-10 and that all the costs incurred by it would have to be taken as capital work in progress cannot be faulted. Where there is a refund of excise duty it would go to reduce the project cost/capital work in progress

ITA 2318/Del/2015 A.Y.: 2011-12 DCIT, Circle 16(1) vs. Maithon Power Ltd., New Delhi since it is relatable only to the capital assets. Even for purpose of S.28(iiic) of the Act, the excise duty repaid to the assessee as draw back would have to relate to the business income of the assessee in order to be chargeable to tax under the head of ‘profits and gains of business’. In the present case, however, it relates to the cost of acquisition of a capital asset which forms part of overall project cost incurred in the pre-commissioning phase of the project. The duty draw back would therefore to that extent reduce the project cost and therefore cannot, in the A.Y. in question, be treated as business income.” 8.2. Further, on perusal of order of Ld.CIT(A), it is observed that appeal of the assessee has been allowed by placing reliance upon the order of this Tribunal in assessee’s own case for A.Y. 2009- 10(supra). We, therefore, do not find any infirmity in the decision of Ld.CIT(A), and the same is upheld. 8.3. Accordingly, grounds raised by Revenue stand dismissed. In the result appeal filed by the Revenue stands 9. dismissed. Order pronounced in the Open Court on 07th June, 2018.