Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “B” BENCH, CHENNAI
Before: SHRI GEORGE MATHANANDSHRI S. JAYARAMAN
आदेश/ O R D E R
PER S. JAYARAMAN, ACCOUNTANT MEMBER :
The assessee filed this appeal against the order of the Commissioner of Income Tax (Appeals)-17, Chennai in dated 30.03.2015 for assessment year 2011-12.
2. M/s. Neyveli Lignite Corporation Limited, the assessee, is a public sector company engaged in coal mining and power generation. While making the assessment for ay 2011-12, the A O, inter alia, found that the assessee has included the interest received from employees, interest received from others, miscellaneous income and handling charges as eligible profit for deduction u/s 80IA. But, the AO has held that the above receipts are not eligible for the purpose of claiming deduction u/s 80IA as all the these receipts have been grouped under ‘other income’. They need to be excluded from the profits for computation of deduction u/s 80IA, as they do not have direct nexus to the business of the unit. Further, the assessee had claimed additional depreciation of Rs.30,50,670/- on the assets commissioned during the FY 2009-10. The AO has disallowed it on the ground that the assets on which the additional depreciation has been claimed were not purchased and commissioned during the current year i.e. from 01.04.2010 to 31.03.2011. The AO also found that during the AY 2011-12, the assessee’s accounts shown a power sale price reduction adjustment entry of Rs.340.72 crore (being adjustment relating to earlier years) and lignite sale price reduction adjustment entry of Rs.6.15 crores (being adjustment relating to earlier years). The AO has treated the reduction of above amounts as prior period adjustments and disallowed them. Aggrieved the assessee filed an appeal before the CIT(A), who gave partial relief.
Aggrieved against the order of the CIT(A), the assessee filed this appeal.
3. On the disallowance of ‘other income’ held as not derived out of industrial activity for the deduction u/s 8OIA,the Ld.AR submitted that the issue was decided by the Co-ordinate Bench of this Tribunal in the assessee’s own case in respect of the handling charges, interest received from employees, and miscellaneous income and held against the assessee by following the decision of the Hon’ble Supreme Court in the case of M/s. Liberty India Ltd. Vs. CIT in for the AY 2010-11 dt 28.4.2017 and ITA No 2200/Mds/2016 for ay 2012-13 dt 10.8.2017, ITA Nos 1983/Mds/2011 for ay 2008-09 & No.2029, 855 & 2077/Mds/2013 for the AYs 2007-08, 2009-10 & 2010-11 vide order dated 28.04.2017. However, the assessee’s alternate prayer that the expenditure relating to the earning of the other income was liable to be excluded, had been considered by the Hon’ble ITAT and an estimated 10% of the other income had been allowed as an expenditure and hence pleaded that the same position may consistently be maintained.
3.1 We heard the rival submissions . The relevant portion of the order from for ay 2012-13 dt 10.8.2017 is extracted as under :
“6.1 In reply, the Ld.DR submitted that in view of the decision of the Hon’ble Supreme Court in the case of M/s.Liberty India Ltd. Vs. CIT reported in 317 ITR 218, the disallowance was liable to be confirmed. It was fairly agreed by both the sides that the issue was squarely covered by the decision of the Co-ordinate Bench of this Tribunal in the assessee’s own case in for the AY 2008-09 & No.2029, 855 & 2077/Mds/2013 for the AYs 2007-08, 2009-10 & 2010-11 vide order dated 28.04.2017.
6.2 It was submitted by the Ld.AR that the issue was decided by the Co-ordinate Bench of this Tribunal in the assessee’s own case in respect of the handling charges, interest received from employees, and miscellaneous income and held against the assessee by following the decision of the Hon’ble Supreme Court in the case of M/s.Liberty India Ltd. Vs. CIT referred to supra. It was a submission that the alternate prayer of the assessee that the expenditure relating to the earning of the other income was liable to be excluded, had been considered and estimated at 10% of the other income had been allowed as expenditure.
6.3 We have considered the rival submissions. On perusal of the Assessment Order and also the order of the Co-ordinate Bench of this Tribunal in the assessee’s own case referred to supra clearly shows that the issues in regard to the handling charges, interest received from employees and miscellaneous income has been held to be not interlinked with industrial activity of power generation and therefore in view of the decision of the Hon’ble Supreme Court in the case of M/s.Liberty India Ltd. Vs. CIT referred to supra, as the same did not have a direct link with the business of power generation, the deduction u/s.80IA of the Act on the said incomes were excluded. However, in Para No.10 of the Order the Co- ordinate Bench has held that 10% of the said other income could be estimated as the expenses relatable to the earning of the said income and directed the AO to exclude 10% of the other income as expenses while computing the deduction u/s.80IA of the Act. In the year under appeal, the other income includes interest on arrears from Electricity Board and interest from others. Applying the ratio of the decision of the Co-ordinate Bench of this Tribunal in the assessee’s own case for the AYs 2007-08, 2008-09, 2009-10 & 2010-11 referred to supra, the disallowance as made by the AO and as confirmed by the Ld.CIT(A) stands sustained. However, considering the alternate prayer of the assessee and also following decision of the Co-ordinate Bench of this Tribunal, the expenses in relation to the earning of the other income is estimated at 10% and the AO is directed to exclude 10% of the other income as expenses while computing the deduction u/s.80IA of the Act. In the result, Ground Nos.1 & 2 are partly allowed.”
3.2 Following the above order, the disallowances as made by the AO and as confirmed by the Ld.CIT(A) stands sustained. We have also considered the alternate prayer that the expenses in relation to the earning of the other income may be estimated at 10%.
Following decision of the Co-ordinate Bench of this Tribunal, supra, the AO is directed to exclude 10% of the other income as expenses while computing the deduction u/s.80IA of the Act. Thus, on these issues, the assessee’s corresponding appeal grounds are partly allowed.
4. On the claim of additional depreciation on the assets commissioned during the FY 2009-10, the AO has disallowed the additional depreciation claim of Rs.30,50,670/- on the ground that the assets on which the additional depreciation has been claimed were not purchased and commissioned during the current year i.e. from 01.04.2010 to 31.03.2011. In this regard, the Ld A R has submitted that the assessee has been consistently claiming the depreciation and additional depreciation only on the basis of date of commissioning of the asset. Per contra, the Ld DR supported the orders of lower authorities.
4.1 We heard the rival submissions and gone through relevant material. The Ld. CIT(A) has held that the argument of the assessee is in total violation of the provisions in Section 32(1)(iia) according to which only new plant and machinery acquired and installed during the current year i.e. from 01.04.2010 to 31.03.2011 is eligible for additional depreciation. Since the assets of the appellant under consideration were commissioned during the FY 2009-10, the appellant is prohibited from claiming additional depreciation. We find no reason to interfere with his order and hence the corresponding grounds of the assessee are dismissed.
5. On the issues of disallowance of adjustment of sales pertaining to the earlier years from the sale value pertaining to this year, the AO found that during the AY 2011-12, the assessee’s accounts shown a power sale price reduction adjustment entry of Rs.340.72 crore (being adjustment relating to earlier years) and lignite sale price reduction adjustment entry of Rs.6.15 crores (being adjustment relating to earlier years). The AO has treated the reduction of above amounts as prior period adjustments and disallowed, which was upheld by the CIT (A).
In this regard, the Ld AR submitted that in the assessee’s case, similar issue came up before this tribunal in ay 2007-08, and this tribunal considered and allowed the appeal in ITA 711, 712 & 713/2010 dt 11.04.2012. Since the facts are similar, the Ld AR pleaded that this claim be allowed.
5.1 We heard the rival submissions . The relevant portion of the order from the above is extracted as under :
“17. Coming to the other ground regarding deletion of addition made for reversal of sale figures, facts apropos are that assessee had, during the relevant previous year, reduced from its sale a sum of Rs.502,15,00,000/-. Explanation was sought by the Assessing Officer during the course of assessment proceedings. Submission of the assessee was that in the preceding years, billings were made based on power tariffs mentioned in power purchase agreement entered with various Electricity Boards. However, the authority for fixing power tariffs ultimately vested with Central Electricity Regulatory Commission (CERC). CERC had passed orders fixing such tariffs during the relevant previous year for earlier periods as well, and assessee was bound by such orders. Therefore, it had to make adjustments for differences arising out of such power tariff relating to earlier years. Such adjustment was carried out in the relevant previous year since the order from CERC was received only in the said previous year. Assessee also filed year-wise break-up of its claim. As per the assessee, in the earlier years, sales were booked based on tariffs as per power purchase agreement but, orders of CERC being binding on it, reversal made to sales account for giving effect to such orders could not be disallowed. However, the Assessing Officer did not accept this explanation. According to him, difference in tariff pertained to earlier years and not for the relevant previous year. Profits for the year under consideration could not be correctly determined if assessee was allowed to adjust difference arising in earlier year’s profits, with the profit of the relevant previous year. He, therefore, rejected the claim and made an addition of Rs. 502,15,00,000/-.
In its appeal before ld. CIT(Appeals), argument of the assessee was that CERC was a statutory authority established under Electricity Act and therefore, it was obliged to give effect to its orders. Order by CERC was binding and power tariffs were determined starting from 2001-04 and for the five year period starting from 2004-09. The submission of the assessee before ld. CIT(Appeals) are summarized hereunder:- “1. The appellant has been entering into power purchase agreement (PPA) with various electricity Boards.
The power tariff that is fixed under the PPA was subject to revision by the Central Electricity Regulatory Commission (CERC) formed under the Electricity Act 2003. The power tariff is finalized based on petitions filed before the CERC and are subject to revision in regard to prior periods as well.
The power tariff for NLC project was revised by the CERC as follows:-
Project Period Date of CERC order
TS-I 2004-09 26.09.2006 TPS-I 2004-2009 23.03.2007 Expansion TPS-II 2001-2004 23.03.2007
According to the CERC order a reduction was made in respect of power income that has been already billed, accounted and also taxed in prior years to the extent of Rs.502.15 crores. The order having been received during the previous year relevant to the AY 2007-08, the amount of Rs.502.15 crores was written off in the books of accounts by adjustment against sales. The ld. A.O. disallowed the same on the ground that the reversal relates to prior years.
The appellant submits that the profits and gains of the business will have to be measured in accordance with the normal system of accounting regularly followed. The stand taken by the A.O. would tantamount to a reasoning that were incomes are determined pursuant to PPA, the entire accounts are to be kept open till disposal by CERC of the issues relating to the final determination or purchase price. This is not the law. Accounts are to be closed every year and profits are taxed based on the accounts finalized. 6. It is not the stand of the A.O. that the assessee was aware of the impending reduction in the respective years; not it was a situation that the prices charged in the earlier years were erroneous, in that there were computational errors. The sales adjustment was only pursuant to determination by a statutory authority of the final purchase price pursuant to applications filed before the same. 7. The A.O. ought to have noted that prior items are covered by Accounting Standard 2 notified u/s 145(2) of the Act, which only covers errors and omissions and not cases of genuine redetermination of final price by a higher statutory authority.
The order of the ld. A.O. is therefore patently against the Accounting Standard 2 (AS 2) notified by the Board.
The Accounting Standard (AS) 5 (E 10) notified by the Central Government u/s 209 of the Companies Act 1956 also is to identical effect. There is no specific provision of law dealing with the situations like this in the computation scheme enacted for business income. Hence the normal method of accounting governing the issue will have to be applied for determination of taxable income. 10. The appellant accordingly submits that its case is explicitly covered by the Accounting Standard notified under the Income-tax Act.” 19. Therefore, as per the assessee, it had to be either allowed as bad debts since amounts were irrecoverable or as business loss. Ld. CIT(Appeals) was appreciative of these contentions. He held that assessee having already accounted and offered to tax the amounts as per the tariff in the power purchase agreement, it could claim as a bad debt the excess billings which it came to know, only on determination of tariff by CERC. 20. Now before us, learned D.R., strongly assailing the order of ld. CIT(Appeals), submitted that the profits of the impugned assessment year was disturbed by the change in tariff. According to her, effect on profit for the earlier year tariff change, could not be given in the impugned assessment year and assessee was obliged to treat each assessment year as separate and income had to be taxed considering each assessment year separate. The claim of bad debt could not have been allowed since bills were raised as per power purchase agreements and not according to tariff determined by CERC. 21. Per contra, learned A.R. strongly supported the order of ld. CIT(Appeals). 22. We have perused the orders and heard the rival submissions. It is not disputed that CERC is the authority for determining power tariff. It is also not disputed that power tariffs were determined by the CERC in the relevant previous year for earlier years as well.
Assessee had in the earlier years billed according to power purchase agreement with its respective customers. Even if we consider that the adjustment pertained to income relatable to earlier years, it still remains a fact that assessee could not recover such amount from the concerned customers since the customers were bound to pay only as per the tariff determined by CERC. This being so, if it is not allowed as bad debt, it is surely a business loss of the assessee. As held by the Hon’ble Apex Court in the case of CIT v. Woodward Governor India Pvt. Ltd. (312 ITR 254), even business loss incurred in normal course of business is eligible for deduction under Section 37 of the Act. We are, therefore, of the opinion that ld. CIT(Appeals) was justified in allowing the claim. No interference is called for.
Appeal of the Revenue for assessment year 2007-08 is party allowed for statistical purposes. ”
5.2 Following the above order, the assessee’s corresponding appeal grounds are allowed.
In the result, the assessee’s appeal is partly allowed .
Order pronounced in the open court on 18th December, 2018 at Chennai.