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Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI
Before: SHRI GEORGE MATHAN, & SHRI A. MOHAN ALANKAMONY
आदेश / O R D E R
PER GEORGE MATHAN, JUDICIAL MEMBER:
No.2199/Mds/2016 is an appeal filed by the assessee against the Order of Commissioner of Income Tax (Appeals)-17 , Chennai, in 78 & 77/14-15/CIT(A)-17 dated 30.03.2016 for the AY 2009-10.
2.0 is an appeal filed by the Revenue against the Order of Commissioner of Income Tax (Appeals)-17 , Chennai, in ITA No.21/15-16, 78 & 77/14-15/CIT(A)-17 dated 30.03.2016 for the AY 2010-11.
3.0 is an appeal filed by the Revenue and ITA No.2200/Mds/2016 is an appeal filed by the assessee against the Order of Commissioner of Income Tax (Appeals)-17 , Chennai, in ITA No.21/15-16, 78 & 77/14-15/CIT(A)-17 dated 30.03.2016 for the AY 2012-13.
4.0 As the issues in all these cases are inter-connected, common and relates to the same assessee, all these issues are disposed of by this common order.
5.0 Mrs.Ruby George, CIT represented on behalf of the Revenue and Mr.Raghavan Ramabadran, Adv. represented on behalf of the assessee.
ITA Nos.2161 to 2163/Mds/2016 & & 2200/Mds/2016 :- 3 -: for the AY 2012-13 – Assessee’s appeal:
6.0 In the assessee’s appeal the assessee has raised two issues. In regard to Ground Nos.1 & 2, the assessee has challenged the disallowance of other income from the computation of profits and gains for the purpose of deduction u/s.80IA of the Act. It was a submission that the assessee is in the business of operating mines for extraction of lignite and also in the business of generation and selling of power/electricity. It was a submission that during the relevant AY, the assessee had included the interest received from the employees, the interest received from others, miscellaneous income in the form of income from sale of tenders, income from sale of unserviceable parts, income from penalty in fines, discounts, unclaimed expenses, etc., as profits and gains for the purpose of computing the deduction u/s.80IA of the Act. It was a submission that the AO had disallowed the same on the ground that the said incomes were not derived from the business of the assessee. It was a submission that on appeal, the Ld.CIT(A) had upheld the disallowance but had granted relief to the assessee in respect of the handling charges in respect of the coal ash. It was a submission that against the relief granted by the Ld.CIT(A), the Revenue has filed an appeal. Against the confirmation of the other disallowances, the assessee is on appeal. It was a submission that the incomes which were treated as other incomes were earned by the assessee only on account of its business activities and consequently the ITA Nos.2161 to 2163/Mds/2016 & & 2200/Mds/2016 :- 4 -: same was liable to be treated as part of the business profits for the purpose of deduction u/s.80IA of the Act.
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 ITA Nos.2161 to 2163/Mds/2016 & & 2200/Mds/2016 :- 5 -:
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.
ITA Nos.2161 to 2163/Mds/2016 & & 2200/Mds/2016 :- 6 -:
6.4 Ground Nos.3 & 4 are in relation to disallowance confirmed by the Ld.CIT(A) u/s.14A. It was fairly agreed by both the sides that this issue is squarely covered by the decision of the Co-ordinate Bench of this Tribunal in the assessee’s own case referred to supra wherein Para No.6.3, the issue has been restored to the file of the AO following the decision of the Co-ordinate Bench of this Tribunal in the assessee’s own case in & 713/Mds/2010 dated 11.04.2013.
6.5 We have considered the rival submissions. As the issue is squarely covered by the decision of the Co-ordinate Bench of this Tribunal for the AYs 2007-08, 2008-09, 2009-10 & 2010-11 referred to supra wherein the Co-ordinate Bench of this Tribunal following the decision in the assessee’s own case in & 713/Mds/2010 dated 11.04.2013 wherein it has been held as follows:
We have perused the orders and heard the rival submissions. Insofar as ground of the Revenue that ld. CIT(Appeals) had not considered the decision of Special Bench of this Tribunal in the case of Daga Capital Management (P) Ltd. (supra), we find that this decision, insofar as it relates to applicability of Rule 8D for years prior to assessment year 2008-09, stands reversed by Hon’ble Bombay High Court in the case of Godrej and Boyce Mfg. Co. Ltd vs. Dy. CIT (328 ITR 81). Hon’ble Bombay High Court clearly held in the said decision that Rule 8D which came with effect from 24 th March, 2008, will be applicable only after the period 2008-09. Nevertheless, their Lordship has clearly noted that even prior to that year, A.O. was duty bound to compute disallowance under Section 14A by applying a reasonable method having regard to the facts and circumstances of the case. Therefore, despite the argument of learned A.R. that 12 712 & 713/Mds/10 electricity bonds were taken under compulsion and there was no expenses incurred for earning the interest income, we are inclined to remit the issue back to the file of A.O. for consideration afresh. We, therefore, set aside the orders of the authorities below and remit on this aspect back to A.O. for consideration afresh in accordance with law. Assessee can bring to the notice of the A.O. any case law relevant to the issue and A.O. shall proceed in accordance with law.
6.6 Respectfully following the said decision on identical directions, the issue is restored to the file of the AO for re-adjudication.
ITA Nos.2161 to 2163/Mds/2016 & & 2200/Mds/2016 :- 7 -:
6.7 In the result, the appeal filed by the assessee is partly allowed for statistical purposes. for the AY 2012-13 – Revenue’s appeal:
7.0 In the Revenue’s appeal, in regard to Ground Nos. 2.1 to 2.3, the Revenue has challenged the action of the Ld.CIT(A) in allowing the additional depreciation in respect of the plant & machinery. It was submitted by the Ld.DR that in the course of the assessment, the AO had denied the assessee’s claim for additional depreciation on the ground that the assessee is only engaged in the business of coal mining and power generation only, which is not a manufacturing activity. It was a submission that on appeal, the Ld.CIT(A) had following the decision of the Hon’ble Supreme Court in the case of CIT v. Tara Agencies 162 Taxman 377 (SC) held that “the word ‘produce’ would also include securing certain produce from natural elements, including operation of lignite mines”. It was a submission that order of the Ld.CIT(A) was liable to be reversed.
7.1 We have considered the rival submissions. On perusal of the decision of the Hon’ble Supreme Court in the case of MP State Electricity Board reported (1970) 25 STC 188 and also the subsequent decision in ITA Nos.2161 to 2163/Mds/2016 & & 2200/Mds/2016 :- 8 -: the case of NTPC reported (2002) 127 STC 280, it has been held that electricity is goods. The Hon’ble Orissa High Court in the case of Orissa power generation Corporation Ltd. – [2015] 81 VST 138 Orissa has also held that generation of electricity is manufacture. This being so, as the assessee is in the business of manufacture of electricity and electricity are goods, we are of the view that the assessee is entitled to the claim of additional depreciation in respect of the plant & machinery. In these circumstances, we find no reason to interfere in the findings of the Ld.CIT(A) on this issue. In these circumstances, Ground Nos.2.1 to 2.3 of the Revenue’s appeal stands dismissed.
7.2 In regard to Ground Nos.3.1 to 3.3, it was submitted by the Ld.DR that the issue was against the action of the Ld.CIT(A) in allowing the expenses claimed by the assesse under the Corporate Social Responsibility. It was submitted that the breakup of expenses were as shown in the Assessment Order in Page No.23 at Para No.13. It was a submission that the said expenses were disallowed as the Explanation-2 to Sec.37(i) had been introduced which specified that the said expenditure was not for the purpose of business of the assesse and therefore, not allowable. It was a submission that the Ld.CIT(A) had allowed the expenditure holding that the said Explanation had been introduced by the Finance Act, 2014 and the same was applicable to the AY 2015-16. It was ITA Nos.2161 to 2163/Mds/2016 & & 2200/Mds/2016 :- 9 -: a submission that the order of the Ld.CIT(A) was liable to be reversed on this issue.
7.3 In reply, Ld.AR vehemently supported the order of the Ld.CIT(A).
7.4 We have considered the rival submissions. On perusal of the provisions of Explanation-2 to Sec.37(i) clearly shows that the said Explanation has been introduced by the Finance Act, 2014 w.e.f.
01.04.2015 and consequently would be applicable from AY 2015-16 onwards. In these circumstances, we find no error in the findings of the Ld.CIT(A) on this issue, consequently finding of the Ld.CIT(A) on this issue stands confirmed. In the result, Ground Nos.3.1 to 3.3 of the Revenue’s appeal stands dismissed.
7.5 In regard to Ground Nos.4.1 to 4.3, It was submitted that the issue was against the action of the Ld.CIT(A) in allowing relief to the assesse in respect of the claim of deduction u/s.80IA of the Act in respect of the handling charges. It was fairly agreed by both the sides that the issue was identical to Ground Nos.1 & 2 of the assessee’s appeal in ITA No.2200/Mds/2016.
ITA Nos.2161 to 2163/Mds/2016 & & 2200/Mds/2016 :- 10 -:
7.6 As we have already following 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 held that the other income is not eligible for deduction u/s.80IA of the Act except to the extent of 10% of the estimated expenditure, on identical findings, the order of the Ld.CIT(A) stands reversed and the Order of the AO is restored. However, the assessee would be entitled to claim 10% of the estimated expenditure in respect of the handling charges. In these circumstances, Ground Nos.4.1 to 4.3 of the Revenue’s appeal stands partly allowed.
7.7 In regard to Ground No.5, it was submitted by the Ld.DR that the issue was against the action of the Ld.CIT(A) in allowing the depreciation on UPS at 60% as against 15% allowed by the AO. It was submitted that the Ld.CIT(A) had allowed the same following decision of the Hon’ble Supreme Court in the case of CIT vs. BSES Rajdhani Power Ltd. in SLP No.1266/2010. The Ld.DR vehemently supported the order of the AO.
7.8 In reply, Ld.AR vehemently supported the order of the AO.
7.9 We have considered the rival submissions. UPS being the integral part of the computer system, admittedly, is eligible for higher rate of ITA Nos.2161 to 2163/Mds/2016 & & 2200/Mds/2016 :- 11 -: depreciation at 60%. It is noticed that the Ld.CIT(A) had decided the issue by following the decision of the Hon’ble Supreme Court in the case of CIT vs. BSES Rajdhani Power Ltd. referred to supra. This being so, we find no reason to interfere in the findings of the Ld.CIT(A) on this issue.
Consequently, Ground No.5 of the Revenue’s appeal stands dismissed.
7.10 In regard to Ground Nos.6.1 & 6.2, it was submitted by the Ld.DR that the issue was against the action of the Ld.CIT(A) in allowing the assessee’s claim of depreciation at 15% in respect of the civil structures.
It was a submission that the AO had restricted the depreciation to 10%.
It was a submission that the Ld.CIT(A) had allowed the claim of the assessee by following his predecessors orders. It was fairly agreed by both the sides that this issue is squarely covered by 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 wherein Para No.2.4, the Co-ordinate Bench of this Tribunal has held that the civil structures made for drainage and water supply in the mines are to be treated as plant and entitled for higher rate of depreciation. In these circumstances, respectfully following the decision of the Co-ordinate Bench of this Tribunal in the assessee’s own case, findings of the Ld.CIT(A) stands confirmed. In the result, Ground Nos.6.1 & 6.2 of the Revenue’s appeal stands dismissed.
ITA Nos.2161 to 2163/Mds/2016 & & 2200/Mds/2016 :- 12 -:
7.11 In regard to Ground No.7, it was submitted by the Ld.DR that the issue was against the action of the Ld.CIT(A) in allowing the depreciation at 15% on building and electrical installations instead of 10% as applicable to buildings. 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 for the AYs 2007-08, 2008-09, 2009-10 & 2010-11 referred to supra wherein Para No.3.3, the issue has been restored to the file of the AO with the following directions:
3.3 We heard the rival submissions and perused the material placed before us. As per the Assessment Order and breakup of the block of assets, there are two types of electrical installations. Electrical installations installed in mines for the purpose of excavation, generation and transmission activities and the electrical installations installed in the building, godown, bus station, etc. We agree with the Ld.CIT(A) that the electrical installations installed for the purpose of excavation, transmission of mining activities required to be considered as a plant as per the decisions relied upon by the assessee. Whereas, the electrical installations installed in the administrative buildings, bus stations, etc., perform the functions of normal transmission of electricity cannot be held as a plant. The assessee also relied on the decision of Kutti Spinners Pvt Ltd 34 ITR 0470. The Co- ordinate Bench of ITAT, Chennai held in the cited case that the electrical cables, fittings and other electrical works connected with the wind mill considered as a single capacity unit and eligible for depreciation @80%. Our view is supported by the Co-ordinate Bench decision cited supra. Therefore, the issue is remitted the matter back to the file of the AO and to examine the electrical installations for the purpose of mining activity and installed for the purpose of normal electricity supply such as administrative buildings, canteen and bus stations, etc., and allow the depreciation @15% in respect of the installations made in the mines and 10% in respect of the buildings, Canteen, Bus Station, etc. The Revenues’ appeal on this issue for the A.Ys 2007-08 and 2010-11 is partly allowed for statistical purposes.
7.12 We have considered the rival submissions. As this issue has been restored to the file of the AO for the earlier Assessment Years for re- adjudication on identical findings, the issue in this appeal also restored to the file of the AO for re-adjudication. In the result, Ground No.7 of the Revenue’s appeal is partly allowed for statistical purposes.
ITA Nos.2161 to 2163/Mds/2016 & & 2200/Mds/2016 :- 13 -:
7.13 In regard to Ground No.8, it was submitted that the issue was against action of the Ld.CIT(A) in allowing the assessee’s claim of treating the spares valued at more than Rs.50.00 lakhs as Revenue expenditure instead of a capital. It was fairly agreed by both the sides that the issue was squarely covered by the decision of the Hon’ble jurisdictional High Court of Madras in the assessee’s own case for the AYs 1993-94 to 1999- 2000 in [2016] 69 taxmann.com 174 Madras wherein it has been held that the said spares were to be treated as the Revenue expenditure.
7.14 We have considered the rival submissions. As it is noticed that the Ld.CIT(A) has followed the decision of the Co-ordinate Bench of this Tribunal in the assessee’s own case, which has been upheld by the Hon’ble jurisdictional High Court, we find no reason to interfere in the findings of the Ld.CIT(A) on this issue, consequently, the findings of the Ld.CIT(A) on this issue stands confirmed. In the result, Ground No.8 of the Revenue’s appeal stands dismissed.
7.15 In regard to Ground No.9, it was submitted against the action of the Ld.CIT(A) in allowing the assessee’s claim of the surcharge recoverable from the State Electricity Board. It was a submission that the assessee had not offered the surcharge recoverable by the assessee from the Electricity Board during the relevant AY on the belated settlement of ITA Nos.2161 to 2163/Mds/2016 & & 2200/Mds/2016 :- 14 -: power bill as such income. The AO held that there was no uncertainty in the accrual of the surcharge to the assessee’s company on the belated settlement of the power bills. Consequently, he had brought to tax to the surcharge receivable. It was a submission that the Ld.CIT(A) had allowed the same by following his predecessors orders. 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 for the AYs 2007-08, 2008-09, 2009-10 & 2010-11 referred to supra, wherein Para No.4.3, it has been held as follows:
4.3 We heard the rival submissions and perused the material placed before us. In this case there is provision for levy of surcharge in delayed payments and the assessee has not reckoned the surcharge as income. The assessing officer has assessed the surcharge on the basis of the accounting system followed by the assessee. The tariff in respect of NLC which is central generating station is governed by the Central Electricity Regulation Commission (in short ‘CERC’) which is generally notifies once in three years. Accordingly, CERC has notified tariff regulations 2001 for the period 2001-04, Tariff regulations-2004 for the period 2004-09 and tariff regulations 2009 for the period of 2009- 14 and presently tariff regulations 2014 is valid till 31.03.2019. In all the above notification CERC has provided late payment surcharge and the assessee has levied surcharge, but could not recover from the Electricity Boards. According to the tariff regulations of the CERC, the powers are conferred u/s.178 of Electricity Act, 2003 r.w.s.61. The CERC has to fix the tariff accordingly and the CERC notified the regulations as under:
In exercise of powers conferred under section 178 of the Electricity Act • 2003 read with section 61 thereof CERC notifies (Terms and conditions of Tariff) Regulations. • These regulations apply in cases where tariff for a generating station or a unit thereof is required to be determined by the Commission under Section 62 of the Act read with section 179 thereof. The relevant extracts attached. c) How tariff for supply to electricity board is fixed:
Steps involved: • Plant specific Tariff petition / application is prepared based on the capital cost of the plant and norms of Operation of the applicable CERC (Terms & Conditions of the Tariff Regulations) and is filed before CERC as per the stipulated procedures. • Copies of the petitions filed are sent to the Respondent beneficiaries. • Any additional information sought by CERC is filed with a copy to the Respondents. • CERC issues Record of proceedings and directs respondents to file their replies and petitioner to file rejoinder if any. • Thereafter CERC will schedule hearing for hearing the arguments of both parties (petitioner and respondents) and issue tariff order. • If parties are aggrieved over the tariff order parties can file for review of order before CERC or challenge the impugned order before APTEL/Supreme Court.
ITA Nos.2161 to 2163/Mds/2016 & & 2200/Mds/2016 :- 15 -: d) Whether surcharge is levied under the statute as it is only broad guideline: • CERC Tariff Regulations which is notified in exercise of the power given under the Electricity Act 2003 stipulate levy of late payment surcharge.
From the above, it is seen that CERC is empowered to fix the tariff as per the Electricity Act and the regulations of the CERC has provided for late payment surcharge beyond the period of 60 days from the date of billing @ 1.5% per month. The regulations of the Central Electricity Regulatory Commission are binding on the Electricity Boards as well as the assessee’s company. Accordingly, the assessee has raised the bills for surcharge but not accounted/offered for the purpose of income on the plea that the past experience shows the non-payment of electricity bills which is untenable. The assessee is following mercantile system of accounting and as per the system of accounting followed by the assessee, the income is accrued. Now the question is whether the recovery of surcharge levied or leviable by the assessee is uncertain or certain? Is there any uncertainty in accrual or collecting the surcharge? In this connection, the AO brought out the list of conditions, stipulations and strict guidelines to the Electricity Boards in Para No.8.3 to 8.6 from the tripartite agreement in the Assessment Order which is extracted as under: 8.3 However, the tripartite agreement also stipulates strict guidelines to the Electricity Boards for making payment of current dues, i.e., dues payable on or after 1st October 2001. For ready reference, list of such conditions and guidelines given in the tripartite agreement dated 17.04.2002 are given below. • “12. All CPSUs ( viz., assessee company and other power suppliers) will continue to raise and collect their current bills against the SEBs or their successor entities in accordance with the existing practice or such other arrangement as may be mutually determined. Notwithstanding any mutual arrangement, payment of such bills shall be made no later than 60 days from the date of billing, or within 45 days of their receipt, whichever is later. • 13.1 SEBs or their successor entities shall open and maintain irrevocable Letter of Credits (L.Cs) that are equal to 105 percent of their average monthly billing for the preceding 12 months. The amount shall be revised once in six months, based on the said average. • 13.2 The requisite L.Cs shall be opened no later than 30.09.2002 and failure to do so shall attract reduction in supplies from all CPSUs equal to 2.5 percent of the average daily supply for the preceding 90 days, in addition to the suspension of APDRP as mentioned in paragraph 16 below. These penal provisions shall also apply if the L.Cs are not maintained in future. • 14. Payments made after the period specified in paragraph 12 above, shall attract interest at the rate of 15 percent per annum, compounded quarterly. • 15.1 In the event that payments are not made within the period specified in paragraph 13 above, the supply of electricity shall be reduced forthwith by 5 percent (inclusive of the reduction, if any, under the provisions of paragraph 13 above) as compared to the average daily supply for the preceding 90 days. The reduction in supply shall be increased to 10 percent and 15 per cent after 75 and 90 days of billing respectively. Supplies of coal, lignite, etc., shall also be reduced in a similar manner. • 15.2 In case supplies are made by a CPSU without making the aforesaid reductions, payments in respect of the supplies that are equivalent to the specified reduction shall be computed separately, and shall not qualify for the measures stipulated in this scheme. Such payments would have to be recovered by the respective CPSUs entirely on their account and no intervention either from the Central Government or from the respective State Governments shall be sought for this purpose. • 16. Suspension of APDRP: Defaults in making current payments shall attract suspension of Accelerated Power Development & Reforms Programme (APDRP). As such, any CPSU facing a payment default beyond 90 days from the date of billing shall request the Ministry of Power to suspend APDRP disbursements to the defaulting State, whereupon the ITA Nos.2161 to 2163/Mds/2016 & & 2200/Mds/2016 :- 16 -:
Central Government shall withhold any further releases until the default is cured. • Recovery of overdues from the State Governments: Payments that remain outstanding after 90 days from the date of billing shall be recovered on behalf of the CPSUs by the Ministry of Finance through adjustment against releases due to the respective State Government on account of plan assistance. States share of Central taxes and any other grant or loan.”
8.4 From the above guidelines and conditions as given in the tripartite agreement, particularly in Para 14 (highlighted) it is amply clear that interest (or surcharge) becomes payable from Electricity Boards if payments due to the assessee company are not made within 60 days from the date of billing or within 45 days of receipt of bill, whichever is later. It is also provided in Para 17 of the agreement that payments that remain outstanding after 90 days from the date of billing shall be recovered, on behalf of the assessee company, by the Ministry of Finance through adjustment against releases due to the respective State Government on account of plan assistance, States’ share of Central taxes and any other grant or loan. This tripartite agreement would be in force till 31.10.2006 and hence, the year under consideration is covered by this agreement.
8.5 In view of the above, it cannot be said that there is uncertainty in recovery of surcharge. Even assuming that the Electricity Boards defaults in making payments due to the assessee company, the tripartite agreement provides for recovery of the same through adjustment by Ministry of finance. Thus, there is no reason for the assessee company in not recognizing the surcharge on accrual basis. After recognizing the surcharge on accrual basis, if for some genuine reason the same could not be realized, then the assessee can write off the same as bad debt. But even for making such a claim, sec.36(2) stipulates a condition that the corresponding income should have been offered to tax.
8.6 In view of the above discussion, the surcharge recoverable by the assessee company from Electricity Boards during the relevant year on the belated settlement of the power bill, amounting to Rs.118 crores, is treated as income accrued to the assessee and added to the total income.
From the discussion of the AO, as per Clause-16 of the guidelines of the tri-partite agreements payments remained outstanding after 90 days from the date of billing require to be recovered through adjustment the from the plan assistance of respective state governments, hence, there was an assurance created through the tri-partite agreement and the Government of India has to recover the amount by adjustment and remit the same to the CPSUs. Hence, the assessee’s contention that there was no certainty in recovery of the dues is ill-founded and the quantum of interest is also fixed in Para No.14 in tri-partite agreement entered into between the Government of India and RBI and state governments on behalf of the Electricity Boards. Therefore, there is no doubt regarding the payment of dues when there is binding tri-partite agreement. Some sanctity and credence has to be given to the tripartite agreement. Therefore, we are unable to accept the contention of the assessee that there is no certainty in accrual of surcharge to the assessee company. The assessee has not demonstrated with the facts that recovery through Ministry of Finance is unenforceable. The assessee relied on the judgment of the Hon’ble Apex Court in the case of Godhra Electricity Co. Ltd. Vs. CIT 225 ITR 0746 cited supra. The facts of the case are clearly distinguished by the AO in his Assessment Order. In the cited case law as stated in the Assessment Order, the consumers have gone to the court and the Hon’ble Court has decreed in favour of the consumers against the increase of Electricity Charges on account of Electricity dues. The tariff could not be realized either by Court orders or Government Orders, since there was a decree granted by the Trial Court which was affirmed by the Appellate Court and there was an uncertainty in releasing the dues in the case of Godhra Electricity Co. Ltd. There was no tri-partite agreement, as if, in the case of the assessee to ensure recovery by Ministry of Finance through adjustment in the case of Godhra Electricity Co. Ltd.. Therefore, the case law relied upon by the assessee cannot come to help of the assessee. The tripartite agreement entered in to with the Government of India, Reserve Bank of India and the state Governments has to be given due credence and simply cannot be brushed aside. Considering all the facts and merits of the case we hold that there was no uncertainty in realizing the tariff or surcharge by the assessee company and ITA Nos.2161 to 2163/Mds/2016 & & 2200/Mds/2016 :- 17 -: accordingly we hold that the income is accrued and the assessing officer has rightly brought to tax. Therefore we set-aside the orders of the Ld.CIT(A) and restore the Assessment Order.
7.16 It was submitted by the Ld.AR that the assessee during the subsequent period offered the surcharge to tax. It was a prayer that the AO may be directed to verify the same and delete the same from the year in which the assessee has offered the said surcharge as income, as income can be taxed only once. To this submission, the Ld.DR did not raise any objection.
7.17 We have considered the rival submissions. As it is noticed that this issue was squarely covered by the decision of the Co-ordinate Bench of this Tribunal, respectfully following the decision of the Co-ordinate Bench of this Tribunal in the assessee’s own case, the findings of the Ld.CIT(A) on this issue stands reversed.
7.18 However, as it has been submitted by the Ld.AR that the assessee has offered the said surcharge during the subsequent period to tax, the AO shall examine the assessee’s claim as to whether the said surcharge has been offered to tax for the subsequent years and if it is found to have been offered to tax, the same is to be excluded from the income declared
ITA Nos.2161 to 2163/Mds/2016 & & 2200/Mds/2016 :- 18 -: for these relevant Assessment Years. In the result, Ground No.9 of the Revenue’s appeal stands partly allowed for statistical purposes.
7.19 In the result, the appeal of the Revenue is partly allowed for statistical purposes. for the AY 2009-10 – Assessee’s appeal:
8.0 In the assessee’s appeal, in regard to Ground No.1(a & b), it was submitted by the Ld.AR that the issue was re-opening of the assessment.
It was a submission that the original assessment came to be completed u/s.143(3) on 23.12.2011. It was a submission that the notice u/s.148 came to be issued on 08.01.2014 (within the 4 year period of limitation from the end of the relevant Assessment Year) on the ground that the deduction u/s.80IA of the Act was not allowable to the assessee in respect of the other income. It was a submission that when the original assessment was done, though the Assessment Order was non-speaking order, the issue of deduction u/s.80IA has been examined by the AO. It was a submission that the re-assessment was on a change of opinion.
ITA Nos.2161 to 2163/Mds/2016 & & 2200/Mds/2016 :- 19 -:
8.1 In reply, Ld.DR submitted that the issue of deduction u/s.80IA had not been examined in its entirety and there was no opinion itself formed and therefore, there was no change of opinion. It was a submission that the re-opening was valid.
8.2 We have considered the rival submissions. On perusal of the reasons recorded shows that the re-opening is on two grounds. The first one in respect of the advance over burden removal expenditure and the second one in respect of the deduction u/s.80IA of the Act on the other incomes. The Ld.AR has not been able to show as to how both the issues had been examined by the AO in the course of the original Assessment Order. In any case, the denial of the deduction u/s.80IA of the Act in respect of the other incomes is the consequence of the decision of the Hon’ble Supreme Court in the case of Liberty India Ltd. and consequently, we find no error in the re-opening. Consequently, Ground No.1(a & b) stands dismissed.
8.3 In regard to Ground Nos.2 & 3, it was submitted that the issue was against the claim of deduction u/s.80IA of the Act in respect of the other incomes. This issue is identical to Ground Nos.1 & 2 of the assessee’s appeal in for the AY 2012-13, wherein we have upheld the findings of the Ld.CIT(A) on this issue following the decision of ITA Nos.2161 to 2163/Mds/2016 & & 2200/Mds/2016 :- 20 -: the Hon’ble Supreme Court in the case of Liberty India Ltd. referred to supra. However, following the decision of the Co-ordinate Bench of this Tribunal in the assessee’s own case, we have already held that the assessee is entitled for deduction u/s.80IA of the Act of 10% as the estimated expenditure in respect of the other incomes. On identical findings, Ground Nos.2 & 3 of the assessee’s appeal stands disposed of.
8.4 In the result, Ground Nos.2 & 3 of the assessee appeal is partly allowed.
8.5 In the result, the appeal of the assessee is partly allowed. for the AY 2009-10 – Revenue’s appeal:
9.0 In regard to Ground Nos.2.1 to 2.3 of the Revenue’s appeal, it was submitted that the issue against the action of the Ld.CIT(A) in allowing the assessee’s claim in respect of the expenses on removal of the advanced over burden expenses. It was submitted that the Ld.CIT(A) had followed the decision of the Co-ordinate Bench of this Tribunal in the assessee’s own case for the AY 2002-03. It was a submission that the said decision
ITA Nos.2161 to 2163/Mds/2016 & & 2200/Mds/2016 :- 21 -: was not in respect of the advanced over burden. It was a submission that the advanced over burden was an expenditure and the provisions of Sec.35E applied.
9.1 In reply, Ld.AR submitted that the issue is squarely covered by 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, wherein in Para No.8 at Page Nos.23. It was submitted that the issue was in respect of the same mine at Rajasthan and it was the advanced over burden expenditure itself. The Co-ordinate Bench of this Tribunal as held as follows:
8.0 The Next issue of Revenue’s appeal for the A.Y.2010-11 is over Burden removal of Rajasthan Mine amounting to Rs.43,93,11543/-.The assessee claimed expenditure of Rs.43,93,11,543/- in the memo of income towards advance OB removal — Rajasthan. Further, it is seen from Sch.12A to balance sheet- miscellaneous expenditure that such expenses were capitalized in the books. The AO asked the assessee to explain the nature of expenditure and the submitted the reply. The submissions made by the assessee in this regard are given below:
Disallowance of Advance Overburden removal of Rajasthan Mine: The assessee claimed expenditure of Rs.43,93,11,543 in the memo of income towards advance OB removal — Rajasthan. Further, it is seen from Sch.12A to balance sheet- miscellaneous expenditure that such expenses were capitalized in the books. The assessee was asked to explain why part of such capitalized expenses is claimed in the memo of income and show cause why the claim should not be disallowed. The submissions made by the assessee in this regard are given below: “Mine development Expenditure: Over Burden removal cost are classified under mine development account till achievement of quantity parameters as approved for each project, classified as Mine Development expenditure and capitalized in the books of accounts. The same will be amortized over the period of life of the Mines at the rate arrived on the basis of estimated reserve of lignite (Refer page 52 of annual report). This amount will be qualified for deduction under section 35E from the year of commercial commissioning of the project subject to the provisions of section 35E.
Overburden removal expenditure:
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The above expenditure incurred after commissioning of Mines is called Overburden removal expenditure and the same has been claimed as revenue. Sometimes, the connected thermal project is not ready to take lignite, due to delay in commissioning of the project. At that time, the overburden removal activities are carried out continuously, for future operations. Such expenditures are kept as advance overburden removal expenditure in the accounts and it will be written off over the period of 3 years from the date of excavation of lignite or commissioning of thermal project.
As such there is no provision in the Income Tax Act, with regard to Deferred revenue expenditure, hence the advance OB removal amounts are claimed as expenditure, during the period of incurrence and the same will be deducted from the income.
Mine development of Barsingsar Mines completed during No.2008 and advance OB removal expenditure booked up to Nov’2009. Hence, advance OB removal accounted during the period 2008-09 and 2009-10 had been claimed as revenue expenditure.
In the financial year 2008-09 relevant to the Assessment year 2009-10 an amount of Rs.18.26 Cr had been claimed as revenue expenditure and in the financial year 2009-10 an amount of Rs.43.93 Cr had been claimed as revenue expenditure. Detailed submission had also been made during the assessment proceeding for the AY 2009-10 vide letter dated 18/10/2011.
In the financial year relevant to the Assessment year 2010-11, an amount of Rs.6.91 Crore charged in the Profit and loss account had been offered as income in the computation statement. Balance amount of Rs.55.27 cores is shown in the balance sheet as advance overburden removal expenditure under schedule 12A to be charged in the subsequent years. Expenditure of Rs.50.18 Crores shown as overburden removal expenditure in the schedule 19 are as under:
Expenditure incurred for Mine I overburden removal outsourced- 6,32,456.001 existing operation
Expenditure incurred for barsingsar mine during the period of 43,93,11,542.00 advance overburden removal stage- transferred to deferred expenditure (included in the expenditure capitalized —vide page no.57 of Annual report) Expenditure incurred for barsingsar mine after 1-12-2009 6,18,27,485.00
Total 50,17,71,483.00
8.1 Aggrieved by the order of the AO, the assessee went on appeal before the Ld.CIT(A) and the Ld.CIT(A) allowed the appeal placing reliance on ITAT Order for the AY 2002-03 in in assessee’s own case. The Hon’ble ITAT held as under:
“Expenditure on removing overburden in the continuous process of mining lignite from an old open cast mine is not expenditure for prospecting, etc. of minerals within the meaning of s.35E and also not capital expenditure but same is allowable revenue expenditure under s.37(1)”.
9.2 We have considered the rival submissions. As it is noticed that the issue is squarely covered by the decision of the Co-ordinate Bench of this Tribunal in the assessee’s own case for the AYs 2007-08, 2008-09, 2009-
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10 & 2010-11 referred to supra, on identical findings, the finding of the Ld.CIT(A) on this issue stands affirmed. In the result, Ground Nos.2.1 to 2.3 of the Revenue’s appeal stands dismissed.
9.3 In regard to Ground Nos.3.1 to 3.3, it was submitted by the Ld.DR that the issue was in respect of the additional depreciation. It was fairly agreed by both the sides that the issue was identical to Ground Nos.2.1 to 2.3 of the Revenue’s appeal in for the AY 2012-13.
9.4 We have considered the rival submissions. In regard to Ground Nos.3.1 to 3.3 of the Revenue’s appeal in the order of the Ld.CIT(A) has been upheld on this issue of additional depreciation on identical grounds. The findings of the Ld.CIT(A) stands confirmed. Consequently, Ground Nos.3.1 to 3.3 of the Revenue’s appeal stands dismissed.
9.5 In regard to Ground Nos.4 & 4.1, it was submitted by the Ld.DR that the issue was against the action of the Ld.CIT(A) in treating the handling charges as eligible for deduction u/s.80IA of the Act. It was fairly agreed by both the sides that the issue was identical to Ground Nos.4.1 to 4.3 of the Revenue’s appeal in for the AY 2012-13. As ITA Nos.2161 to 2163/Mds/2016 & & 2200/Mds/2016 :- 24 -: we have already reversed, the findings of the Ld.CIT(A) on this issue for the AY 2012-13 and Ground Nos.4.1 to 4.3 of the Revenue’s appeal also in for the AY 2012-13 on identical reasoning, the findings of the Ld.CIT(A) on this issue stands reversed. However, the assessee is entitled the claim of deduction u/s.80IA of the Act at 10% as estimated expenditure in respect of the handling charges. In the result, Ground Nos.4 & 4.1 of the Revenue’s appeal stands partly allowed.
9.6 In regard to Ground Nos.5 to 5.3, it was submitted that the issue was against the action of the Ld.CIT(A) in allowing the expenses claimed for mine closure. It was a submission that the AO had disallowed the same as the said expenditure was only an estimated expenditure as also a provision made. It was a submission that no scientific method had been adopted for determining the provision. It was a submission that in any case, the said expenditure being only a provision, the same was not allowable. It was a submission that the order of the Ld.CIT(A) was liable to be reversed.
9.7 In reply, the Ld.AR submitted that the closure of mine was certainty and as per the direction of the Government of India, Ministry of Coal dated 31.03.2011, the assessee had to take all necessary pre-cautions and make financial provision for the mine closure. The Ld.AR placed before us
ITA Nos.2161 to 2163/Mds/2016 & & 2200/Mds/2016 :- 25 -: a copy of the guidelines for the preparation of the final mine closure plan wherein at Para No.7, the financial assurance has been called for from the mine operators.
Financial Assurance
i. All coal mine owners shall strictly adhere to the following: ii. For financial assurance the mining company shall open a Escrow Account with any Scheduled Bank, with the Coal Controller Organization (on behalf of the Central Government) as exclusive beneficiary. The mining company shall cause payments to be deposited in such Escrow Account at the rate computed as indicated at 6.3 above. The amount being deposited will be reviewed with such periodicity as deemed fit by the Coal Controller. iii. When implementation of the final mine closure scheme is undertaken by the mine owner starting five years before the scheduled closure of mining operations, the Coal Controller may permit withdrawals (four years before final mine closure date) from the Escrow Account proportionate to the quantum of work carried out, as reimbursement. The withdrawn amount each year shall not exceed 20% of the total amount deposited in the account. iv. An agreement, outlining detailed terms and conditions of operating the Escrow Account, shall be executed amongst the mining company, the Coal Controller and the concerned bank in order to give effect to this. The agreement shall be executed before the grant of permission by the Coal Controller to open the mine, 9.8 It was a further submission that during the subsequent Assessment Years the assessee has written back this expenditure and also offered the same to tax. It was a submission that the findings of the Ld.CIT(A) may be sustained.
9.9 We have considered the rival submissions. On perusal of the guidelines more specifically in Para No.7 which has been extracted above
ITA Nos.2161 to 2163/Mds/2016 & & 2200/Mds/2016 :- 26 -: clearly shows that for financial assurance, the mining company is to open an Escrow with schedule bank with the Coal Controller Organization as the exclusive beneficiaries. This has not been examined by the AO. This being so, we are of the view that this issue to be restored to the file of the AO for re-adjudication and we do so. The AO shall examine and verify as to whether the said amount has been deposited in such Escrow account as has been prescribed in the guidelines. If there is such deposit in the Escrow account, then admittedly, the same is liable to be allowed.
Further, also considering the submission of the Ld.AR that the assessee has offered this amount subsequently as its income in the subsequent Assessment Years, the AO is to verify as to whether any part of the balance expenditure claimed has been offered to tax in the subsequent years. If the assessee is able to show that the amounts have been offered to tax in the subsequent years, then to such extent the addition stands deleted. Thus, on two accounts, verification is called for - (i) As to whether the amount has been kept in Escrow as required under the guidelines. If yes, to such extent relief is due to the assessee. (ii) In respect of the balance, if any, if the amount has been offered to tax, in any of the subsequent years and it is shown to have been offered that to such extent also no addition is called for. In the result, Ground Nos.5 to 5.3 of the Revenue’s appeal stands partly allowed for statistical purposes.
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9.10 In the result, appeal of the Revenue is partly allowed for statistical purposes. for the AY 2010-11 – Revenue’s appeal:
10.0 In regard to Ground Nos.2.1 to 2.3, it was submitted by the Ld.DR that the issue was against the action of the Ld.CIT(A) in allowing the additional depreciation. As we have already dismissed this issue and upheld the findings of the Ld.CIT(A) on this issue in the Revenue’s appeal in in Ground No.2.1 to 2.3, on identical findings, the order of the Ld.CIT(A) for the relevant Assessment Year stands confirmed. Consequently, Ground Nos.2.1 to 2.3 of the Revenue’s appeal stands dismissed.
10.1 In regard to Ground No.3 to 3.2 of the Revenue’s appeal, it was submitted by the Ld.DR that the issue was against the action of the Ld.CIT(A) in allowing the expenditure on Corporate Social Responsibility.
As we have already confirmed the order of the Ld.CIT(A) on this issue for the AY 2012-13 by dismissal of the Revenue’s appeal in Ground Nos.3.1 to 3.3 in for the AY 2012-13, on identical findings, the findings of the Ld.CIT(A) on this issue for the relevant Assessment
ITA Nos.2161 to 2163/Mds/2016 & & 2200/Mds/2016 :- 28 -: Year stands confirmed. Consequently, Ground Nos.3 to 3.2 of the Revenue’s appeal stands dismissed.
10.2 In the result, the appeal filed by the Revenue is dismissed.