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Income Tax Appellate Tribunal, DELHI BENCH: ‘E’ NEW DELHI
Before: SHRI N.K. SAINI & SHRI K.N. CHARY
Challenging the order dated 23.07.2014 in appeal no. 95/13- 14 passed by the Ld. Commissioner of Income Tax (Appeals)-XVI, Delhi (hereinafter for short called as the “Ld. CIT (A)”). Revenue filed this appeal on the following grounds:
1. “On the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in deleting the disallowance of interest during construction period amounting to Rs. 2,93,00,000/- by not considering the detailed observation of the AO that in view of the clear directions conveyed vide proviso to section 36(1)(iii) of the Income Tax Act that the interest, paid or payable on borrowings in respect of unit-II which cannot be first put to use till 31.03.2010, to be capitalized without set off of interest earned of Rs. 293 lakh from the banks even on deposit of temporarily surplus funds and is taxable under the head “income from other sources”.
2. On the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in deleting the disallowance of interest during construction period amounting to Rs. 2,93,00,000/- by not considering the observation in the assessment order that the provisions of proviso to 36(1)(iii) of the Act amended by Finance Act, 2003 w.e.f. 01.04.2004 are clearly applicable in the case of the assessee.
3. On the facts and circumstances of the case and in law, the Ld.CIT (A) is correct in deleting the disallowance of provision of other retirement benefits amounting to Rs. 72,94,614/- by holding that no restriction is there under the Act for not allowing the definite and determined liability for Long Service Awards or Post Retirement Medical Benefits by not considering the observation of the AO that amendment in clause (f) of Section 43B was introduced in AY 2002-03 with regard to allowability of leave encashment only upon payment basis which shows the intention of the legislative that retirement benefit of gratuity and leave encashment are to be allowed only on payment basis.
4. On the facts and circumstances of the case and in law, the Ld.CIT (A) has erred in deleting the disallowance of provision of other retirement benefits amounting to Rs. 72,94,614/- by not considering the detailed observation in the assessment order that provision made under the heads long service award, post retirement medical benefit, TA on retirement and social security benefit is an unascertained liability and is to be given treatment at par with other retirement benefits mentioned in AS 15.
On the facts and circumstances of the case, the appellant craves to be allowed to add any fresh grounds of appeal
and/or delete or amend any of the grounds of appeal.”
2. Briefly stated facts are that the assessee company is a JV company supplying whole of the power generated by it from its old plants to SAIL and the newly set up power plant to SAIL and the State Electricity Boards as per agreed ratios at the time of its approval. The tariff to be charged is as per the method approved by CERC – a statutory body. For the AY 2010-11 assessee filed the return of income on 01.10.2010 declaring a total loss of Rs. 6,30,03,76,000/-, paid tax of Rs. 21,48,00,023/- u/s 115JB on the declared book profits of Rs. 126,39,01,289/-. During the year under consideration, the assessee commenced power generation from newly set up generation units the profit which is eligible for deduction under Chapter VIA. The assessee has raised additional capital as well as borrowed funds for its set up. The assessee capitalized the interest paid on the borrowings for new units till the date of generation of power and it has made deposits with the banks out of borrowed funds as securities for opening letters of credit etc. or advances of setting up of new units on which the assessee earned interest. Assessee treated this interest as capital receipt and set it off against the interest paid and other expenses during construction which were capitalized and according to the assessee it is in accordance with the various accounting standards and judicial pronouncements by the Hon’ble Supreme Court and the jurisdiction High Court, in many cases including the case of the assessee. However, during scrutiny the AO made an addition of Rs. 293 lakhs towards the interest earned during the construction period which according to the assessee has to be set off against the interest that was paid on the borrowed amounts. Further the AO made an addition of Rs. 72,94,614/- on account of net provision of retirement benefits by disallowing the same. In appeal Ld. CIT (A) deleted both these additions by following the decisions reported in CIT vs. Bokaro Steels Ltd. (SC)
(1999) 236 ITR 315, CIT vs. Karnataka Power Corporation (SC)
[2001] 247 ITR 268, Indian Oil Panipat Power Consortium Ltd. vs. ITO (2009) 315 ITR 255 (Del.) and decision of Hon’ble Jurisdictional Delhi High Court in appellant’s own case of NTPC Sail Power Company (P) Ltd. vs. CIT in in decision dated 17/07/2012 for the AY 2007-08 on identical issue in respect of the addition of interest, and Calcutta Co. Ltd. vs. CIT 37 ITR 1, Metal Box Co. of India Ltd. vs. Their workmen 73 ITR 53 and Bharat Earth Movers Ltd. vs. CIT 245 ITR 428 in respect of the additions made in respect of the net provision of retirement benefits.
Aggrieved by the impugned order, the Revenue is before us in this appeal stating that the detailed observations of the AO were not properly considered by the Ld. CIT (A) and the interest paid or payable on borrowings in respect of the unit no. 2 which could not be put to use till 31.03.2010 was to be capitalized without set off of interest earned to a tune of Rs. 293 lakhs from the bank and so also the provision for retirement benefit is contingent in nature and Ld.CIT (A) erred in treating the same as definite and determined. Per contra, it is the argument of the Ld. AR that while following the binding precedents the Ld. CIT (A) reached the conclusions as to the deletion of the additions, as such they cannot be interfered with.
We have considered the contentions in the light of the record and the decisions relied upon by the assessee. In assessee’s own case relating to the AY 2007-08 the Hon’ble High Court allowed the set off of interest during the construction and the said decision is reported in NTPC SAIL Power Co. Pvt. Ltd. vs. CIT 210 Taxmann 358 (Del). Further following the said decision, a coordinate bench of this Tribunal passed the order dated 28.02.2014 in & 1495/Del/2013 for the assessment years 2008-09 & 2009-10, wherein the set off was allowed. The Hon’ble Jurisdictional High Court dismissed the appeal preferred by the Department questioning the order dated 28.02.2014 passed by this Tribunal in ITA Nos. 1494 & 1495/Del/2013. There is no dispute as to these facts and we have gone through these orders since there is no change in circumstances, and in view of the binding precedent set by the Hon’ble Jurisdictional High Court in assessee’s own case for the AY 2007-08 and followed subsequently, we do not find any illegality or irregularity in the conclusion reached by the Ld.CIT (A) that the interest during construction has to be allowed as set off and uphold the same. We, therefore, dismiss grounds no. 1 & 2.
5. Now turning to the other ground relating to the addition of Rs. 72,94,614/- on account of the provision of other retirement benefits, order of the Ld. CIT (A) clearly reads that while reaching such a conclusion the Ld. CIT (A) placed reliance on the decisions of the Hon’ble Apex Court in Calcutta Co. Ltd. vs. CIT 37 ITR 1, Metal Box Co. of India Ltd. vs. Their workmen 73 ITR 53 and Bharat Earth Movers Ltd. vs. CIT 245 ITR 428, CIT vs. Insilco Ltd. 197 Taxman 55.
In CIT vs. Insilco Ltd. 320 ITR 322/ 222 CTR 641 the Hon’ble Jurisdictional High Court on a review of a case law clearly held that the liability providing for service awards payable in future is an allowable liability. In view of this, we find that there is no illegality or perversity in the orders of the Ld. CIT (A), as such, we uphold the same and dismissed grounds no. 3 & 4.
In the result, appeal of the Revenue is dismissed.
Order pronounced in the open court on 26.09.2017