DY. C.I.T.1(2), RAIPUR (CG) vs. M/S GODAWARI POWER & ISPAT LTD.,, RAIPUR (CG)

IN THE INCOME TAX APPELLATE TRIBUNAL RAIPUR BENCH, RAIPUR BEFORE SHRI R. K. PANDA, ACCOUNTANT MEMBER AND MS. SUCHITRA KAMBLE, JUDICIAL MEMBER ITA No.365/RPR/2014 Assessment Year : 2011-12 DCIT- 1(2), Godawari Power & Ispat Ltd., Raipur (CG). Plot No.482/2, Industrial Growth Vs. Centre, Phase- 1, Siltara, Raipur (CG).

PAN : AAACI7189K (Appellant) (Respondent)

C.O. No.12/RPR/2018 (In ITA No.365/RPR/2014) Assessment Year : 2011-12 Godawari Power & Ispat Ltd., DCIT- 1(2), Plot No.482/2, Industrial Growth Raipur (CG). Centre, Phase- 1, Siltara, Vs. Raipur (CG).

PAN : AAACI7189K (Appellant) (Respondent)

Department by : Shri P. K. Mishra, CIT(DR) Assessee by : Shri R. B. Doshi, CA : 16-08-2018 Date of hearing Date of pronouncement : 01-10-2018

O R D E R PER R. K. PANDA, AM : This appeal filed by the Revenue is directed against the order dated 25.09.2014 of the ld. CIT(A), Raipur (CG) relating to assessment year 2011-12. The assessee has filed the Cross Objection against the appeal filed by

2 ITA No.365/RPR/2014 C.O. No.12/RPR/2018

the Revenue. For the sake of convenience, these were heard together and are

being disposed of by this common order.

ITA No.365/RPR/2014 (By Revenue) :

engaged in manufacture and sale of Structural Pellet, Sponge Iron, Steel Billets,

Ferro Alloys, Wire Rod, H.B. Wire and Mining & Crushing of Iron Ore. It is

also engaged in generation and sale of power. The assessee filed its return of

income on 27.09.2011 declaring total income of Rs.26,63,65,921/- which

included long term capital gain of Rs.9,88,867/-. The gross total income was

shown at Rs.46,54,65,157/- from which deduction u/s 80-IA of the I.T. Act,

1961 of Rs.19,90,99,326/- was claimed and the total income was worked out at

Rs.26,63,65,921/-. Book profit for MAT purposes was shown at

Rs.88,39,67,803/- on which the tax liability worked out to be Rs.17,61,79,203/-

which was more than the tax payable under the normal provisions of the I.T.

Act. The case was selected for scrutiny through CASS and the first notice u/s

143(2) dated 07.08.2012 was issued by Assessing Officer and duly served on

the assessee through Registered Post on 13.08.2012. Subsequently, a revised

return was filed by the assessee on 30.03.2013 declaring total income of

Rs.12,10,79,996/- which included long term capital gain of Rs.9,88,867/-. The

gross total income was shown at Rs.46,54,65,157/- from which deduction u/s

3 ITA No.365/RPR/2014 C.O. No.12/RPR/2018

80-IA of Rs.34,43,85,162/- was claimed and the total income was worked out at

Rs.12,10,79,996/-. Book profit for MAT purposes was shown at

Rs.88,39,67,803/- on which the tax liability worked out to be Rs.17,61,79,203/-

which was more than the tax payable under the normal provisions of the I.T.

Act.

dated 19.02.2014 determining the total income of Rs.50,90,06,690/- by making

the following additions :-

Amount [Rs.] Amount [Rs.] 1. Income chargeable under the head business : 49,02,98,644 and profession, as per the revised return Add: Disallowance of CSR expenses : 1,91,79,611 Disallowance of Charity / donation 10,13,489 expenses Disallowance of Pooja & Festival expenses 5,94,487 Disallowance u/s 14A of the I.T. Act 2,25,43,398 Delayed payment of Employees’ 2,10,551 contribution to the Provident Fund/ ESI Income chargeable under the head business : 53,38,40,180 and profession 2. Long term capital gain, as per the revised 9,88,867 return Short term capital gain, as per the revised 16,13,756 return Income chargeable under the head Capital 26,02,623 gains 3. Gross Total Income 53,64,42,803 Less: Set-off of unabsorbed depreciation R.R. 2,53,85,466 Ispat- A.Y. 2010-11 as per the revised return Set-off of unabsorbed depreciation Iron Ore 20,50,644 2,74,36,110 crushing Div – A.Y. 2009-10 as per the revised return Less: Deduction u/s 80IA 0 0 4. Total Income 50,90,06,693 5. Total Income [rounded off] 50,90,06,690

4 ITA No.365/RPR/2014 C.O. No.12/RPR/2018

the assessee.

before the Tribunal. The assessee has filed Cross Objection before the Tribunal.

The grounds raised by the Revenue and the assessee are as under:-

ITA No.365/RPR/2014 (Revenue) : “a. Whether in law and on facts & circumstances of the case, for the purpose of calculation of deduction u/s.80IA of the I.Tax Act, 1961 the ld. CIT(A) has erred in i) Not allowing set off of losses of one eligible unit from profit of another eligible unit. ii) Not agreeing with the Assessing Officer who has held that the value of power sufficient to its own unit for captive consumption has been over stated. iii) Not agreeing with the A.O. that sale proceeds of carbon credit is not income derived from business of power generations and there by deleting disallowance of Rs.37,56,76,933/- out of deduction claimed u/s 80IA of the I.T. Act, 1961. b. Whether in law and on facts & circumstances of the case, the learned CIT(A) has erred in deleting the disallowance of Rs.1,91,79,611/- on account of CSR expenses which have not been laid out wholly and exclusively for the purpose of business? c. Whether in law and on facts & circumstances of the case, the learned CIT(A) has erred in restricting the addition to Rs.12,57,976/- out of disallowance made by the A.O. on account of charity/Pooja and Festival expenses their by giving relief of Rs.3,50,000/-? d. Whether in law and on facts & circumstances of the case, the learned CIT(A) has erred in deleting the disallowance of Rs.2,25,43,398/- u/s 14A of the IT Act, 1961? e. Whether in law and on facts and circumstances of the case, the learned CIT(A) has erred in deleting the addition of Rs.2,10,551/- made by the A.O. on account of delayed payment of employees contribution to PF and ESI which were deemed as income U/s 2(24)(x) of IT Act, 1961 read with section 36(1)(va) of IT Act, 1961? f. The order of the Ld. CIT(A) is erroneous both in law and on facts? g. Any other ground that may be adduced at the time of hearing?” C.O. No.12/RPR/2018 (Assessee) : “On the facts and in the circumstances of the case, receipt of Rs.67,18,544/- on account of carbon credit is a capital receipt in view of judgment of Hon’ble Jurisdictional ITAT in ACIT vs. Shree Nakoda Ispat Ltd. – I.T.A. No.109/BLPR/2011,

5 ITA No.365/RPR/2014 C.O. No.12/RPR/2018

and therefore, not liable to tax. The A.O. has erred in holding it and thereby taxing it as revenue receipt.”

the case, in brief, are that the Assessing Officer, in the assessment order relying

on the provisions of section 80-IA and the decision of the Hon’ble Supreme

Court in the case of Liberty India vs. CIT reported in 317 ITR 218 and various

other decisions, held that the loss of an eligible industrial unit is required to be

set off against profit of other eligible industrial unit since the deduction u/s 80-

IA(1) is allowed to the profit and gains derived from “business” referred to in

section 80-IA and not to the undertaking.

80-IA has been claimed in respect of its units (Unit-1 & Unit-2) separately

which are generating power. It was submitted that the ‘profit and gains of an

undertaking’ shall be computed as if such undertaking was the only source of

income of the assessee during the previous year relevant to the initial

assessment year and to every subsequent assessment years up to and including

the impugned assessment year for which the determination of deduction is to be

made and, therefore, each undertaking has to be treated as a separate source of

income. Hence, the loss of one eligible undertaking cannot be set off against

the profits of another eligible undertaking and also against non-eligible

6 ITA No.365/RPR/2014 C.O. No.12/RPR/2018

undertaking. The decision of the Ahmedabad Special Bench of the Tribunal in

the case of Goldmine Shares and Finance (P) Ltd. reported in 302 ITR 208 and

the various other decisions were brought to the notice of the ld. CIT(A).

that the Assessing Officer is not justified in making the adjustment of profit of

eligible undertaking with losses of other eligible undertaking by observing as

under :-

“5. I have carefully gone through the assessment order and submissions of the appellant. The A.O. has relied on the decision of Liberty India vs. CIT (2009) 183 Taxman 349 (SC) and stated that the provision of section 80-IA(5) of the Act is applicable to the profit from the eligible business as a whole and the eligible undertaking has not to be seen on a standalone basis of non-eligible business. However, I am in agreement with the submissions of the appellant that on a conjoint reading of sub-sections (1), (4) and (5) of section 80-IA of the Act, it is clear that the deduction under section 80-IA of the Act shall be allowed to an undertaking, which is engaged in the eligible business and the aforesaid deduction shall be computed as if the eligible business of the undertaking is the only source of income of the assessee. 5.2 The appellant has elaborately differentiated in the submission the following judicial pronouncements relied upon by the A.O. CIT vs. Him Teknoforge Ltd. (2013) 256 CTR 393 (HP-HC); IPCA Laboratory Ltd. vs. DCIT (2004) 266 ITR 521 (SC); ITO vs. Induflex Products (P) Ltd. (2006) 280 ITR 1 (SC); A.M. Moosa vs. CIT (2007) 294 ITR 1 (SC) CIT vs. Shirke Construction Equipments Ltd. (2007) 291 ITR 380 (SC) and Synco Industries Ltd. vs. Assessing Officer & ANR (2008) 299 ITR 444 (SC). 5.3 In view of the above, I am of the considered opinion that the A.O. has erred in netting off the profits & losses of two eligible units and allowing the deduction thereon, in spite of the fact that the deduction under section 80-IA of the Act is available to the each of the undertaking, considering the same as the only source of income as per section 80-IA(5) of the Act. Accordingly, the adjustment of profits is eligible undertaking with losses of other eligible undertaking made by the A.O. is deleted.”

before the Tribunal.

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of the Bangalore Bench of the Tribunal in the case of Jindal Aluminium Ltd. vs.

ACIT reported in 54 SOT 283, decision of the Mumbai Bench of the Tribunal in

the case of Meera Cotton & Synthetic Mills (P) Ltd. vs. ACIT reported in 29

SOT 177 and the decision of the Delhi Bench of the Tribunal in the case of CIT

vs. Sona Koyo Steering Systems Ltd. reported in 321 ITR 463. Referring to the

above decisions, he submitted that while computing the deduction u/s 80-IA

loss of one eligible unit is not to be set off or adjusted against the profit of

another eligible unit.

concerned, he submitted that all these decisions are either distinguishable or not

application to the facts of the present case.

perused the orders of the authorities below. We find the Assessing Officer in

the instant case while computing the deduction u/s 80-IA held that the loss of

the eligible industrial unit is required to be set off against the profit of other

eligible industrial unit. We find the ld. CIT(A) rejected the finding of the

Assessing Officer by holding that the Assessing Officer is not justified in

netting off of the profit and losses of the two eligible units and allowing

8 ITA No.365/RPR/2014 C.O. No.12/RPR/2018

deduction thereon. The relevant finding of the ld. CIT(A) has already been

reproduced in the preceding paragraph. It has been held in various decisions

that while computing the deduction u/s 80-IA, loss of one eligible unit is not to

be set off or adjusted against the profit of another eligible unit. Since the order

of the ld. CIT(A) is in consonance with the law laid down by various High

Courts and various Benches of the Tribunal, therefore, we find no infirmity in

the order of the ld. CIT(A). Accordingly, the same is upheld and the ground

raised by the Revenue on this issue is dismissed.

brief, are that the power generating eligible units of the assessee company

namely, the Unit-1 & Unit-2 sell the electricity to outside parties as well as

transfer the electricity to their other divisions for captive consumption. From

the various details furnished by the assessee, the Assessing Officer observed

that the assessee has shown profit at the rate of 58.9% of Unit-1 and 45.7% in

Unit-2 on which deduction u/s 80-IA has been computed. He observed that if

the results of the Unit-1 & Unit-2 are compared with that of the Government

owned PSUs, it will be found that such high net profit is not prevalent in this

line of business. He, therefore, came to the conclusion that the consideration

recorded in the books of account by the assessee company for the transfer of

goods (electricity) from the eligible units to its other divisions does not

9 ITA No.365/RPR/2014 C.O. No.12/RPR/2018

correspond to the market value of such goods (electricity) as on the date of the

transfer. He, therefore, confronted the same to the assessee. Rejecting the

various explanations given by the assessee and relying on various decisions, the

Assessing Officer held that the market value for sale of electricity by a private

generating unit based in Chhattisgarh (including the eligible units of the

assessee company) for assessment year 2011-12 is Rs.2.84 per unit which is the

average purchase rate of CSPDCL, which is also based in Chhattisgarh. The

Assessing Officer accordingly disallowed the deduction claimed u/s 80-IA by

holding that value of power supplied to its own unit for captive consumption at

Rs.4.28 per unit has been overstated. He accordingly reduced the deduction

claim u/s 80-IA of the I.T. Act.

as under :-

“7. I have carefully gone through the assessment order and submissions of the appellant. It is seen that the appellant set up the Captive Power Plants for meeting the requirement of electricity of steel and other division (being non-eligible units). The electricity generated by the Captive Power Plant is, therefore, a substitute for the electricity which the Steel Division would have procured from the CSPDCL (State Electricity Company). Thus, looked at from the stand point of Steel Division it can be said that the Steel Division receives electricity at the same price as it pays to the CSPDCL to achieve its business plans. Therefore, the price that the Steel Division would otherwise have paid to the CSPDCL, would be the price that it would be willing to pay to the captive power plant and the same should be considered as the transfer price from the eligible unit to the Steel Division. The above contextual interpretation is further reinforced if one considers the fact that when the captive power generators such as the appellant supply surplus electricity to the CSPDCL, it cannot be ignored that CSPDCL purchases such power as trader / distributor of electricity. It is imperative to appreciate the different capacity and role played by CSPDCL while buying and selling electricity, for the purposes of giving a correct contextual meaning to the term "market value" appearing in section 80- IA of the Act.

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When the captive power plant directly transfers electricity to the Steel Division and other division, the captive power plant is doing so as a generator and distributor and not as a simple generator of electricity. Hence, it is clear that the market value for the transaction of sale of power from the captive power plant to the Steel Division shall be sale price of CSPDCL to the Steel Division. Further, the appellant in its submission has also relied on various judicial decisions wherein it is stated that the rate at which power was sold by State Electricity Boards should be considered as the market value for the purpose of section 80-IA(8) of the Act. 7.2 Further, in the appellant's own case on identical facts in the AYs 2004-05 to 2006-07 such claim was also accepted by the Hon'ble High Court of Chhattisgarh. In the case of the appellant (Tax Case No.32 of 2012) the Hon'ble High Court has held that:- "The market value of the power supplied to the Steel Division should be computed considering the rate of power to a consumer in the open market and it should not be compared with the rate of power when it is sold to a supplier as this is not the rate for which the consumer or the Steel Division could have purchased power in the open market. The rate of power to a supplier is not the market rate to a consumer in the open market. In our opinion, the AO committed an illegality in computing the market value by taking into account the rate charged to a supplier; it should have been compared with the market value of power supplied to a consumer. It is admitted by the department that in Chhattisgarh the power was supplied to the industrial consumers at the rate of R3.20/- per unit for the A.Y. 2004-05 and R 3.75/- per unit for the AY's 2005-06 and 2006-07. It was this rate that was to be considered while computing the market value of the power. The CIT-A and the Tribunal had rightly computed the market value of the power after considering it with the rate of power available in the open market namely the price charged by the Board. There is no illegality in their orders". 7.3 Looking to the facts and circumstances of the case as also decision of the Hon'ble Jurisdictional High Court cited supra, the AO is directed to re-compute the eligible profits by applying the market value of power at the rate of sale to Steel Division by the State Electricity Company. Thus, this ground of appeal is allowed.”

before the Tribunal.

perused the material available on record. We find the Hon’ble Chhattisgarh

High Court in assessee’s own case for assessment years 2004-05 to 2006-07 has

decided identical issue in favour of the assessee by observing as under :-

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“22. The Assessee had sold power to the Steel-Division at the rate of Rs.3.30/- per unit for AY 2004-05 and Rs.3.75/- per unit for AYs 2005-06 and 2006-07. 23. The AO computed the market value of power under section 80-IA (8) read with its proviso and the explanation. He considered the rate charged by the Chhattisgarh Electricity Company Limited, Raipur (the Chhattisgarh-Company) for supply of electricity to the Board and held the market value of the power to be Rs.2.25/- per unit for the AY 2004-05 and 2005-06; and Rs.2.32/- per unit for the AY 2006-07. 24. The market value computed by the AO was less than the value claimed by the Assessee, he (the AO) dis-allowed the difference and added it in the income of the Assessee. 25. In Chhattisgarh, a consumer can utilise the power produce by its own captive power generating unit or it can buy power from the Board. No other entity can supply power to any consumer in the State: a consumer cannot purchase electricity from any other person. 26. The Board was charging @ Rs.3.30/- per unit in the AY 2004-05 and @ Rs.3.75/- per unit in the AYs 2005-06 and 2006-07 from industrial units. The CPP of the Assessee also charged the same amount from its Steel Division. As both were same, the CIT-A held this is to be the market value. The Tribunal has upheld this finding. 27. The counsel for the Department submits that: • The Chhattisgarh-Company is situate in the same area and the price for which it sold power to the Board was relevant; • The AO rightly compared it for calculating the market value of the power supplied to the Steel-Division; • The rate charged by the Board cannot be taken into account as it includes wheeling and transmission charges. 28. The Chhattisgarh-Company is a company which is generating power. It is neither consumer of the electricity, nor it is supplying power to a consumer. It also cannot sell power to any consumer directly: it has to compulsorily sell it to the Board. 29. The power sold by the Chhattisgarh-Company to the Board is a sale to a company which itself supplies power to the consumers. It is not sale of power to the consumer. 30. The Steel-Division of the Assessee is a consumer. The CPP of the Assessee supplies electricity to the Steel-Division. Had the Steel-Division not taken power from the CPP then it had to purchase power from the Board. The CPP has charged the same rate from the Steel-Division that the Steel-Division had to pay to the Board if the power was purchased from the Board. 31. The market value of the power supplied to the Steel-Division should be computed considering the rate of power to a consumer in the open market and it should not be compared with the rate of power when it is sold to a supplier as this is not the rate for which a consumer or the Steel Division could have purchased power in the open market. The rate of power to a supplier is not the market rate to a consumer in the open market. 32. In our opinion, the AO committed an illegality in computing the market value by taking into account the rate charged to a supplier: it should have been compared with the market value of power supplied to a consumer.

12 ITA No.365/RPR/2014 C.O. No.12/RPR/2018

Ferro Alloys Ltd. vide ITA No.358 to 360/RPR/2014 order dated 18.01.2018

for assessment years 2009-10, 2010-11 and 2012-12 has also decided identical

issue by upholding the decision of the ld. CIT(A) wherein the ld. CIT(A) has

deleted the disallowance made by the Assessing Officer u/s 80-IA by holding

that the assessee has not overstated the price of power supplied to its divisions.

Further, we find the Assessing Officer in subsequent assessment years i.e. for

assessment years 2009-10, 2010-11 and 2012-13 has not made any such

disallowance u/s 80-IA on account of power tariff charged to other units of the

assessee. Under these circumstances, we do not find any infirmity in the order

of the ld. CIT(A) on this issue. The ground raised by the Revenue is

accordingly dismissed.

of assessment proceedings observed that the assessee company has shown

13 ITA No.365/RPR/2014 C.O. No.12/RPR/2018

receipt of Rs.0.67 crores on account of carbon credit. On being questioned by

the Assessing Officer, it was submitted that an amount of Rs.67,18,544/- has

received on account of carbon credit has rightly been credited as income of

power unit-1. It was submitted that the ld. CIT(A) has allowed similar claim for

the purpose of deduction u/s 80-IA for assessment year 2008-09 in assessee’s

own case. Without prejudice to the above, it was alternatively argued that the

Hyderabad Bench of the Tribunal in the case of My Home Power Ltd. vs. DCIT

(2012) has decided the issue of carbon credit entitlement in favour of the

assessee and held the sale of carbon credit certificates as capital receipt not

chargeable to tax. It was accordingly argued that the amount of Rs.67,18,544/-

received during the year on sale of carbon credit is not at all taxable. The

assessee also stated that it has incurred an expenditure of Rs.31,23,279/- which

has been debited under the head “CDM Expenses” and shown as Operating

Expenses. Thus, the net receipt of carbon credit is Rs.35,95,265/- during the

year.

advanced by the assessee and held that the income from sale of carbon credit

being income received from a source beyond the first degree does not constitute

profit and gains derived by the eligible undertaking or enterprise from any

14 ITA No.365/RPR/2014 C.O. No.12/RPR/2018

business referred to in sub-section (4) of section 80-IA of the I.T. Act. Further,

he held that the receipt of such carbon credit is taxable as revenue receipt.

2010-11, the assessee company has received Verified Emission Reduction

Credit (‘VER Credit’) of Rs.67,18,544/-. The aforesaid sum received from the

sale of VER Credit forms part of eligible unit- 1 of the assessee and the same

has been included after deducting the expenses of Rs.31,23,279/- as eligible

profit of unit- 1 for the claim of deduction u/s 80-IA of the Act. It was

submitted that the assessee company has earned the VER Credit (hereinafter

referred to as “Carbon Credit”) from the installation of the Waste Heat

Recovery Boiler (‘WHRB’) in eligible unit- 1 for use in the generation of

Power. The assessee is engaged in the production of the sponge iron through

rotary kiln. The fuel gases from the sponge iron kiln constitute a tremendous

amount of waste heat energy which is absorbed by the WHRB to an extent of

75%. The fuel gases are utilized to produce steam and the steam is utilized to

generate electricity. Accordingly, it was argued that the VER Credit received

by the assessee pertains to the power generating unit (Unit- 1) of the company.

accrues in the hands of the company in the course of generation of power itself

and it satisfies the criteria of the first degree nexus as laid down by the Apex

15 ITA No.365/RPR/2014 C.O. No.12/RPR/2018

Court in Liberty India (supra). The various decisions relied on by the Assessing

Officer were distinguished.

the carbon credit could be earned if power is generated and not otherwise and,

therefore, gain from sale of carbon credit is a gain derived from the business of

generation of power and consequently, eligible for deduction u/s 80-IA(4) of the

I.T. Act. Relying on various decisions including the decision of the Hon’ble

Madras High Court in the case of Fenner (India) Ltd. vs. CIT reported in 241

ITR 803, decision of the Hon'ble Supreme Court in the case of B. Desraj vs.

CIT reported in 301 ITR 439, he allowed the ground raised by the assessee

before him.

before the Tribunal.

under Rule 27 of the Income Tax (Appellate Tribunal) Rules, 1963 and

submitted that the issue relating to the taxability of receipts on account of

carbon credit was a highly contentious issue and the law relating to the same has

been settled in favour of assessee by the decision of the Hon’ble Andhra

Pradesh High Court in the case of CIT vs. My Home Power Ltd. reported in 365

16 ITA No.365/RPR/2014 C.O. No.12/RPR/2018

ITR 82. Following such decision, the issue has been settled in favour of the

assessee by jurisdictional Tribunal in the case of Shree Nakoda Ispat Ltd. in

ITA No.109/BLPR/2011. Subsequently, an amendment has also been brought

by enacting section 115BBG by Finance Act, 2017 providing that w.e.f.

01.04.2018 the receipts from sale of carbon credits would be taxable @ 10%.

Thus, by this amendment, the uncertainty prevailing in taxation of receipts from

carbon credits has been settled. The above amendment is prospective and

therefore as a necessary corollary such receipt prior to the amendment are not

taxable and are capital in nature.

adjudication. Since this ground was neither raised before the Assessing Officer

nor before the ld. CIT(A) for which there is no adjudication, therefore,

considering the totality of the facts of the case and in the interest of justice, we

deem it proper to restore this issue to the file of the Assessing Officer with a

direction to adjudicate the issue afresh. While doing so, he shall give due

opportunity of being heard to the assessee and decide the issue as per fact and

law. We hold and direct accordingly. The ground raised by the assessee is

allowed for statistical purposes.

17 ITA No.365/RPR/2014 C.O. No.12/RPR/2018

disallowance of Rs.1,91,79,611/- on account of CSR expenses.

proceedings the Assessing Officer observed that the assessee has incurred an

amount of Rs.1,91,79,611/- on account of Corporate Social Responsibility

(CSR), the details of which are as under :-

S.No. Unit Amount in Rs. 1 CPIL-Siltara 1,19,34,381 GPIL-RR Ispat 11,45,230 GPIL-IOCD 61,00,000 Total 1,91,79,611

assessment proceedings in earlier years. Further, the payment of

Rs.1,19,34,381/- relating to GPIL-Siltara includes payments of Yagyashala,

Drinking water hut, purchase of PC for Rajnandgaon Collectorate, donation to

NGO, expenses for eye camp, donation/ expenses for Gram Panchayat, payment

for supply of drinking water payment to Gram Vikas Samiti, development of

village pond, beautification of pond and expenses of similar nature. On perusal

of the Ledger Account, he observed that the sum of Rs.11,45,230/- relating to

GPIL-RR Ispat includes payments relating to construction expenses for similar

work. Similarly, on perusal of Ledger Account, he observed that out of

Rs.61,00,000/- relating to GPIL-IOCD, a sum of Rs.55,00,000/- represents

18 ITA No.365/RPR/2014 C.O. No.12/RPR/2018

donation to Akasnsha Lion School for physically handicapped and

Rs.6,00,000/- represents donation to ISKCON. Relying on various decisions,

he observed that the above expenses were incurred by the assessee company

without any legal obligation and purely as an act of good citizenship and,

therefore, it cannot be said to have been laid out wholly and exclusively for the

purpose of its business. He accordingly disallowed a sum of Rs.1,91,79,611/-

debited to the Profit & Loss Account.

addition. While doing so, he observed that the genuineness of the claim of

expenditure i.e. incurrence of expenditure and payment thereof has not been

doubted. Further, the Finance Act, 2014 brought an amendment in section 37

and the legislature intended to put an embargo on the admissibility of expenses

and to achieve the purpose, therefore, there was no such embargo for the

preceding years.

before the Tribunal.

the Tribunal in assessee’s own case for assessment year 2009-10 and 2010-11.

We find the Tribunal vide ITA Nos.358 to 360/RPR/2014 order dated

19 ITA No.365/RPR/2014 C.O. No.12/RPR/2018

18.01.2018 has decided the issue at para 47 of the said order by observing as

under :-

“47. We have heard ld. D.R. and perused the record of the case. We find that the CIT(A) has relied on the decision in the case of Modi Industries (supra) and Hon’ble Karnataka High Court in the case of CIT vs. Infosys Technologies Ltd. (supra), wherein, it has been held that the expenditure incurred on social responsibility was laid out or expended wholly and exclusively for purposes of business. The CIT(A) has referred to the amendment made in Finance Act (No.2) 2014 w.e.f. 1.4.2015 in Section 37, wherein, it is declared that for the purposes of sub-section (1) any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession. The CIT(A) has held that there was no such embargo for the preceding years. In view of the above, the CIT(A) held that the disallowance cannot be sustained. In the instant case, it is submitted that CSR expenses are incurred for the welfare of local community and thereby improve corporate image of the companies incurring such expenditure. We are of the considered opinion that the CIT(A) has rightly considered the decision and deleted the addition made by the Assessing Officer and Ground No.1 of appeal of the revenue is dismissed.”

case and in absence of any contrary material brought to our notice, the order of

the ld. CIT(A) is upheld on this issue. The ground raised by the Revenue is

accordingly dismissed.

restricting the addition to Rs.12,57,976/- on account of charity/pooja and

festival expenses to Rs.3,50,000/-.

course of assessment proceedings, observed that the assessee has debited an

amount of Rs.5,94,487/- on account of Pooja & Festival expenses in respect of

20 ITA No.365/RPR/2014 C.O. No.12/RPR/2018

GPIL-Siltara – Rs.513184/-, GPIL-RR Ispat – Rs.65,130/- and GPIL-IOCD –

Rs.16,175/-. He observed that such expenses are regularly being disallowed by

the Assessing Officer. Relying on the decision of the Hon’ble Jurisdictional

High Court in the case of Hira Ferro Alloys Ltd. reported in 227 CTR 508

(which is a sister concern of the assessee) wherein it has been held that the

expenditure incurred on Pooja/Vishwakarma Pooja by a company cannot be

treated as expenditure incurred wholly and exclusively for purposes of business

or profession of a company, he disallowed the entire sum of Rs.5,94,487/-.

Similarly he noted that the assessee has debited an amount of Rs.10,13,489/- on

account of charity and donation. Since such type of expenses are regularly

being disallowed in the assessment proceedings in earlier years, he asked the

assessee to substantiate the claim. From the details submitted by the assessee,

he observed that these expenses are in nature of :-

- payments of Bastar Rajmistri Kalyan Singh, Chhattisgarh Kisaan Sangh, - donation for Navratri, Engineers day celebration, Janmashtamai, - donation to Rotary club, Nav Durga Samiti, Shiv Sena, Durgotsava Samiti, Corporation Bank, Sangit Samiti, - donation to Chhattisgarh Cricket Association (Rs.5,00,000/-), - donation to World Renewal Spiritual Trust (Rs.51,000/-).

the entire sum of Rs.10,13,489/- on the ground that the same has not been

incurred wholly and exclusively for the purpose of business.

21 ITA No.365/RPR/2014 C.O. No.12/RPR/2018

and allowed relief of Rs.3,50,000/-. While doing so, he observed that except

Rs.3,50,000/- incurred towards purchase and distribution of sweets, the balance

amount does not relate to the business.

before the Tribunal.

perused the material available on record. We find identical issue had come up

before the Tribunal in assessee’s own case wherein the Tribunal, considering

the CBDT Circular No.17(F.No.27(2)-IT/43) dated 06.05.1983 and another

CBDT Circular No.13A/20/68-IT(A-II) dated 03.10.1968 wherein it has been

held that the expenses incurred on the occasion of Deepawali and Mahurat are

in the nature of business expenditure had allowed and granted relief to

Rs.6,54,900/-. Since in the instant case such relief granted by ld. CIT(A) is only

Rs.3,50,000/- towards purchase and distribution of sweets, therefore, following

the order of the Tribunal in assessee’s own case for the preceding assessment

years 2009-10 and 2010-11 respectively, we do not find any infirmity in the

order of the ld. CIT(A). Accordingly, the same is upheld and the ground raised

by the Revenue is dismissed.

22 ITA No.365/RPR/2014 C.O. No.12/RPR/2018

of Rs.2,25,43,398/- made by the Assessing Officer u/s 14A of the I.T. Act.

course of assessment proceedings, observed that the disallowance of

Rs.4,57,029/- was made u/s 14A in assessment year 2008-09 which was

confirmed by the ld. CIT(A). Similarly, in assessment year 2010-11 an amount

of Rs.2,03,73,385/- was disallowed u/s 14A of the I.T. Act. He, therefore,

asked the assessee to explain as to why the provisions of section 14A should not

be applicable in this year also since the secured loan has increased from

39,14,988/- as on 31.03.2010 to Rs.607,78,962/- as on 31.03.2011 and the

unsecured loan has increased from Nil as on 31.03.2010 to Rs.36,45,41,838/- as

on 31.03.2011 which shows that major part of investment had been made out of

borrowed funds. Similarly, the total investment has increased at

Rs.7,15,41,58,000/- as against Rs.1,20,449/-.

earned cash profit of Rs.114.96 crores (excluding amalgamating companies) and

the net increase in the investment is of Rs.116.74 crores (excluding

amalgamating companies). Therefore, it is evident that the investment made

during the year under assessment is out of owned fund. It was further submitted

23 ITA No.365/RPR/2014 C.O. No.12/RPR/2018

that the loans obtained during the year has been utilized towards fixed assets

and capital work in progress.

given by the assessee on the ground that the assessee miserably failed to

discharge the primary onus cast upon it. The method of apportionment or

allocation of expenses as adopted by the assessee for determining the expenses

relatable to the exempt income is not correct. Since the assessee has failed to

establish that no part of interest bearing funds was utilized for making such

investments, the income from which was not taxable, therefore, the Assessing

Officer rejected the correctness of the claim of the assessee that no interest

expenditure is relatable to making such investments, the income of which was

not taxable. Applying the provisions of section 14A read with Rule 8D and

relying on various decisions, the Assessing Officer disallowed an amount of

Rs.2,25,43,398/-.

disallowance has been made without establishing any nexus between the interest

bearing funds and exempted income yielding investment and non-interest

bearing advances. He further noted that the assessee has sufficient non-interest

bearing funds for making the investment in shares as it has sufficient net worth

of its own. The Assessing Officer has not disputed the submission of the

24 ITA No.365/RPR/2014 C.O. No.12/RPR/2018

assessee that no expenditure was incurred for making investment. Relying on

various decisions, he held that the disallowance made by the Assessing Officer

cannot be sustained.

before the Tribunal.

CIT(A) submitted that the assessee had sufficient interest free funds of its own

which was stated before the Assessing Officer. It was submitted that share

capital and reserves of the assessee was at Rs.559.11 crores whereas investment

was only Rs.212.09 crores. Thus, there were sufficient interest free funds for

making investment. Referring to the decision of the Hon’ble Gujarat High

Court in the case of Pr.CIT vs. Sintex Industries Ltd. in Tax Appeal No.268 of

2017 dated 04.05.2017, he submitted that the Hon'ble High Court in the said

decision has held that where the assessee had sufficient interest free fund to

cover investment, disallowance u/s 14A for interest and administrative expenses

is not justified.

of CIT vs. Reliance Utilities & Power Ltd. reported in 313 ITR 340, he

submitted that the Hon'ble High Court in the said decision has held that where

25 ITA No.365/RPR/2014 C.O. No.12/RPR/2018

interest bearing funds are available and the interest free funds are more than

investments made, the presumption is that the investment in the tax free

securities would have been made out of the interest free funds with the assessee.

case of JCIT vs. Beekay Engineering Copr. reported in 325 ITR 384, he

submitted that the Hon'ble High Court in the said decision has held that when

there was sufficient funds in the account of HUF partner and substantial profit

had accrued to the assessee firm in the relevant year, findings of the Tribunal

that the borrowed funds were not diverted as interest free advances to the

members of the HUF and thus there was no justification for making part

disallowance out of interest paid on borrowed funds are findings of fact and the

same did not warrant any interference.

had sufficient own capital and free reserves which is more than investment

made, the income of which is exempt from tax, no disallowance is called for.

Referring to the decision of the Hon’ble Punjab & Haryana High Court in the

case of CIT vs. Abhishek Industries Ltd. reported in 380 ITR 652 and the

decisions of the Kolkata Bench of the Tribunal in the case of Damodar Valley

Corporation vs. Addl.CIT reported in 66 taxmann.com 25, he submitted that the

initial burden was on the Assessing Officer to establish that borrowed funds

26 ITA No.365/RPR/2014 C.O. No.12/RPR/2018

were used for making investments, the income of which exempt. However,

such initial burden was not discharged by the Assessing Officer. In his alternate

submission, he submitted that the disallowance cannot exceed the exempt

income. For the above proposition, he relied on various decisions.

perused the orders of the authorities below. We find the Assessing Officer in

the instant case disallowed an amount of Rs.2,25,43,398/- u/s 14A on the

ground that similar disallowance u/s 14A was made by the Assessing Officer in

assessment year 2008-09 which was confirmed the ld. CIT(A) and disallowance

of Rs.2,03,73,385/- was made by the Assessing Officer u/s 14A for assessment

year 2010-11. We find the ld. CIT(A) deleted such disallowance on the ground

that the assessee had sufficient own funds for making investment and, therefore,

no disallowance is called for. We find in the immediately preceding assessment

year the issue relating to section 14A was restored to the file of the Assessing

Officer since the assessee had argued that the investments made by the assessee

company were for strategic investments and were not for earning the exempt

income. However, for the impugned assessment year, the ld. counsel for the

assessee argued that its own capital and free reserves of Rs.559.12 crores is

much more than the investment of Rs.212.09 crores, the income on which is

exempt from tax. Thus since the assessee has sufficient own capital and free

27 ITA No.365/RPR/2014 C.O. No.12/RPR/2018

reserves to meet the investment, therefore, no disallowance u/s 14A is called

for.

assessee. It is an admitted fact that the own capital and free reserves of the

assessee company at 559.12 crores is much more than the investment of

Rs.212.09 crores, the income of which is exempt from tax. The Hon’ble

Bombay High Court in the case of Reliance Utilities & Power Ltd. reported in

313 ITR 340 has held that if there were funds available both interest free and

overdraft and/or loans taken then a presumption would arise that investments

would be out of the interest free funds generated or available with the company,

if interest free funds were sufficient to meet the investments.

Engineering Corporation reported in 325 ITR 384 has held that when there were

sufficient funds in account of the HUF partners and substantial profit had

accrued to the assessee firm in the relevant year, findings of the Tribunal that

the borrowed funds were not diverted as interest free advances to the members

of the HUF and thus there was no justification for making part disallowance out

of interest paid on borrowed funds are finding of fact and the same did not

warrant any interference.

28 ITA No.365/RPR/2014 C.O. No.12/RPR/2018

Industries Ltd. in Tax Appeal No.291 of 2017 order dated 04.05.2017 has also

decided identical issue and held that the disallowance u/s 14A is not justified

when the assessee had sufficient interest free funds out of which concerned

investment had been made. The relevant observation of the Hon’ble High Court

at para 9 of the order reads as under :-

“9. Considering the aforesaid facts and circumstances, more particularly the fact that the assessee was already having its own surplus fund and that too to the extent of Rs.1981.55 Crores against which investment was made of Rs.144.51 Crores, there was no question of making any disallowance of expenditure in respect of interest and administrative expenses under Section 14A of the Act, therefore, there was no question of any estimation of expenditure in respect of interest and administrative expenses of Rs.24,37,500/- under rule 8D of the Rules. Under the circumstances and in the facts of the case, narrated hereinabove, it cannot be said that the learned Tribunal has committed any error in deleting the disallowance of expenditure of Rs.24,37,500/- incurred in respect of interest and administrative expenses under Section 14A of the Act. We are in complete agreement with the view taken by the learned Tribunal. At this stage, decision of Division Bench of this Court in the case of Principal Commissioner of Income-tax vs. India Gelatine & Chemicals Limited, reported in [2015] 376 ITR 553 [Gujarat] needs a reference. In the said decision, it is observed and held by the Division Bench of this Court that when the assessee had sufficient interest-free funds out of which concerned investments had been made, disallowance under Section 14A is not justified.”

dismissed by the Hon’ble Supreme Court vide SLP (Civil) Diary

No.39602/2017 order dated 23.03.2018. Since admittedly the assessee in the

instant case has sufficient own capital and free reserves of Rs.559.12 crores

which is much more than the investments of Rs.212.09 crores, therefore,

respectfully following the decisions cited above, we hold that no disallowance

29 ITA No.365/RPR/2014 C.O. No.12/RPR/2018

of interest is called for. However, since the assessee is holding huge

investments, the income of which is exempt from tax, therefore, some

disallowance towards administrative expenses is required to be made.

Considering the totality of the facts of the case, we are of the considered opinion

that 2% of the dividend income received during the year may reasonably be

estimated towards administrative expenses for earning such exempt income.

The Assessing Officer is directed to compute the same and the order of the ld.

CIT(A) is accordingly modified to this extent. The ground raised by the

Revenue is accordingly partly allowed.

ld. CIT(A) in deleting the addition of Rs.2,10,551/- made by the Assessing

Officer on account of delayed payment of employees’ contribution to PF and

ESI.

amount of Rs.2,10,551/- being delayed payment of employees’ contribution to

PF and ESI under the provisions of section 2(24)(x) r.w.s. 36(1)(va) of the I.T.

Act. We find the ld. CIT(A) deleted the disallowance made by the Assessing

Officer on the ground that such payments were before the due date of filing of

the return of income u/s 139(1) and, therefore, cannot be disallowed u/s 43B and

u/s 36(1)(va) of the I.T. Act. We find identical issue had come up before the

30 ITA No.365/RPR/2014 C.O. No.12/RPR/2018

Raipur Bench of the Tribunal in the case of DCIT vs. Hira Ferro Alloys Ltd.

vide ITA Nos.358 to 360/RPR/2014 order dated 18.01.2018 wherein the

Tribunal has dismissed the ground raised by the Revenue on the ground that

employees’ contribution to PF and ESI although deposited after the due date

prescribed under the relevant date, however, were deposited before the due date

of filing of the return u/s 139(1) of the I.T. Act. The various Benches of the

Tribunal are also taking the consistent view that employees’ contribution to PF

and ESI cannot be disallowed u/s 2(24)(x) r.w.s. 36(1)(va) if such deposits are

made before the due date of filing of the return. Since in the instant case the

assessee has deposited the employees’ contribution to PF and ESI before the

due date of filing of the return u/s 139(1) of the I.T. Act, 1961, therefore,

following the consistent view of the various Benches of the Tribunal on this

issue, we hold that the ld. CIT(A) is justified in deleting such disallowance

made by the Assessing Officer. The ground raised by the Revenue is

accordingly dismissed.

C.O. No.12/RPR/2018 (By Assessee) :

assessee. However, the ld. counsel for the assessee could not explain

satisfactorily the reasons for such long delay in filing of this Cross Objection by

31 ITA No.365/RPR/2014 C.O. No.12/RPR/2018

the assessee. In absence of any satisfactory explanation regarding delay in

filing of the Cross Objection, such delay in filing of the Cross Objection cannot

be condoned. The Cross Objection is, therefore, dismissed being barred by

limitation.

statistical purposes and the Cross Objection filed by the assessee is dismissed. Order pronounced in the open Court on this 01st October, 2018.

Sd/- Sd/- (SUCHITRA KAMBLE) (R. K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 01-10-2018. Sujeet Copy of order to: - 1) The Appellant 2) The Respondent 3) The CIT 4) The CIT(A) 5) The DR, I.T.A.T., Raipur. By Order //True Copy// Sr. Private Secretary ITAT, Raipur