DCIT, CHENNAI vs. NEYVELI LIGNITE CORPORATION LIMITED, NEYVELI

आदेश / O R D E R

PER D.S.SUNDER SINGH, ACCOUNTANT MEMBER:

These are the cross appeals filed by the Revenue as well as the

assessee against the orders of the CIT(A) for the A.Y 2007-08,2008-

09,2009-10(By Revenue) and 2010-11(Revenue and the Assessee). Since

the common issues are involved, all the above appeals are clubbed, heard

together and disposed off in common order for the sake of the convenience

as under:

Revenue appeals:

2.0 The first issue is related to the addition relating to the

depreciation on water supply and drainage. The assessee is engaged in

the business of coal mining and electricity generation. Common issue

involved for the A.Y 2007-08 2009-10 and 2010-11 is the disallowance

made on account of excess depreciation on water suuply and drainage for

the above AYs as under:

Amount of Depreciation Assessment Year disallowed Rs. 2007-08 1,23,50,917 2009-10 2,37,05,163 2010-11 2,90,90,542

2.1 During the assessment proceedings, the Assessing Officer (in short

‘AO’) found that the assessee has claimed the depreciation @ 15% on the

assets grouped under the head water supply and Drainage in block of

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assets. The assessee grouped the assets under the head water supply and

Drainage consisting of civil construction works like storage tanks, check

dams, RCC Aprons and culverts, sewerage and drainage and large size

pipelines and bore wells etc. and treated the same as plant and claimed

the depreciation @15%. The AO was of the view that the allowable

depreciation is @10% as applicable in the case of non-residential

buildings. The AO relied on the decision of CIT vs. Anand theatres (244

ITR 192) of the Hon’ble Apex court and restricted the Depreciation to 10%

as applicable for non residential buildings and disallowed the balance

amount of 5% depreciation as per the details given above.

2.2 Aggrieved by the order of the AO, the assessee went on appeal

before the Learned Commissioner of Income Tax(Appeals) (in short

‘Ld.CIT(A)’) and the Ld.CIT(A) allowed the assessee’s appeal holding that

the assets grouped under the water supply and Drainage serves special

technical requirements and qualify for treatment of plant and accordingly

allowed the Depreciation @15%. For ready reference, we extract the

relevant paragraphs Nos.5.2 & 5.3 of the Ld.CIT(A)’s Order (AY 2007-08)

for the sake of clarity and convenience as under:

5.2 I have carefully considered the facts of the case, submissions of the appellant and the decisions relied on by the AO and the Ld.AR. The AO has restricted the depreciation on “water supply and drainage” to 10% treating it as building but not the plant citing the decision of the Hon’ble Supreme Court in the case of CIT vs. Anand Theatres (2000) (244 ITR 192). The AO has observed from the break-up details of the block of assets — “water supply & drainage” which shows that they are civil constructions like, storage tanks, check dams, RCC Aprons (Box culvert), sewerages and drainages, large sized pipelines (24 inches) and bore-wells. The position of the Rule as per note 1 to the New Appendix-I of IT Rules, stands as under,

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“Buildings” include roads, bridges, culverts, wells and tube-wells. 5.3 It is seen from the above that by seeing ordinarily the assets on which the appellant has claimed higher depreciation will sufficiently fit under the inclusive definition of “Building” mentioned at note 1 to the New Appendix-I of IT Rules. However, since it is a case of a mining, where the water supply and drainage system are associated with the excavation, generation and transmission activities as submitted by the appellant and the ‘special technical requirement’ demands such facilities as indispensible, it should be treated as “plant” and depreciation at the rate of 15% should be allowed. The case law of CIT v Karnataka Power Corporation (2001) 247 ITR 268 (SC) relied on by the appellant will come to its rescue wherein it is decided that if it serves an assessee’s special technical requirement’, it will qualify to be treated as plant. The case law relied on by the AO in the case of CIT vs. Anand Theatres (2000) (244 ITR 192) wherein the cinema theaters were not considered as “plant” was also discussed in the Supreme Court’s above decision. I accordingly direct the A.O to allow it. This issue is decided in favour of the appellant.

2.3 Aggrieved by the order of the Ld.CIT(A), the Department is on

appeal before us.

The Ld.DR argued that as per the Appendix-I of Income Tax Rules

buildings includes roads, bridges, culverts, wells and pipelines. The Ld.DR

argued that the rate of depreciation for each type of asset has been

incorporated in the Appendix of Income Tax Rules, after getting expert

opinions emanating out of vast statistical data and services and profound

researches. The rates are to be applied as per the description and also the

nomenclature of the asset. The building and plant are treated separately

for the purpose of grant of depreciation. Higher rate of depreciation is

granted to machinery and plant as against the building which has more

durable. On the other hand, the Ld.AR argued that civil constructions in

mining works cannot be treated as mere buildings. Since they have to

construct for specific purpose in the mining where the water supply and

drainage systems are associated with the excavation, generation and

transmission activities as submitted by the assessee and the specific

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technical requirements demand such facilities as indispensable. The Ld.AR

relied on the Karnataka Power Corporation v. CIT 247 ITR 268 and argued

that the entire civil constructions made in the mines with specific technical

requirements required to be treated as plant. The Ld.AR also relied on the

following decisions: • Indo Burma Petroleum Co. Ltd.(112 ITR 755) • Indore Municipal corporation (247 ITR 803) (SC)

2.4 We have carefully gone through the submissions made by both the

parties. The civil construction in the mines cannot be treated on par with

the residential buildings or non-residential buildings used for the purpose

of residence or commercial use. They are to be constructed with a special

technical requirement for the purpose of mining activity for excavation,

generation and transmission as rightly observed by the Ld.CIT(A). The

wear and tear is also very high in the mines. The Hon’ble Karnataka High

Court‘s decision supports this view. Therefore, we hold that the civil

constructions made for the drainage and water supply in the mines are to

be treated as plant and entitled for excess depreciation. Therefore, we do

not find any infirmity in the order of the Ld.CIT(A) and the same is upheld.

The Revenue’s appeal on this ground for the A.Ys 2007-08, 2009-10 and

2010-11 is dismissed.

3.0 The next issue for the AYs 2007-08 & 2010-11 is higher rate of

depreciation on Electrical installations. For the AYs 2007-08 & 2010-11,

the AO disallowed the depreciation on electrical installations as under:

ITA No.1983/Mds/2011 & ITA Nos.2029, 855, 2077 & 2140/Mds/2013 :- 6 -: o A.Y 2007-08 - Rs.2,76,04,266/- o A.Y 2010-11 - Rs.5,29,14,848/-

The assessee claimed the depreciation @15% and the AO restricted

the same to 10% and the balance depreciation was disallowed as above.

The AO was of the view that the electrical installations made in the

mines such as panels, switch gears and various types of other cables for

transmission of power are normal Electrical installations and the

Depreciation required to be allowed at normal rates but the assessee

claimed the depreciation @15% instead of 10% as per the Income Tax

Rules. Therefore, the AO disallowed the excess depreciation.

3.1 Aggrieved by the order of the AO, the assessee went on appeal

before the Ld.CIT(A). The Ld.CIT(A) allowed the assessee’s appeal placing

reliance on the case of Karnataka Power Corporation vs. CIT 247 ITR 268

of the Hon’ble Karnataka High Court.

3.2 Aggrieved by the order of the Ld.CIT(A), the Revenue has filed the

appeal before us.

The assessee argued that the Lignite is excavated from mines and

its force will be very high at rate. The observation bore-wells are dug

around the spot of lignite excavating area and higher power submersible

motor pumps are engaged to dry up the area. The Ld.AR reiterated the

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submissions made before the Ld.CIT(A) for the AY 2007-08 which is

extracted from the order of the Ld.CIT(A) in Para No.5 as under:

a. The lignite is excavated at level of, where the water intrusion and force will be at high rate. The observation bore wells are dug around to the spot of lignite excavating area and high power submersion electric motor pumps are engaged to dry up the area. During the time of rains, mega electric motor pumps are engaged to pump out the storm water from lines and drained out. Thus, the Ground Water Control System (GWC) and Storm Water Control System (‘SWC) are engaged in mining.

b. Vvhere it is found as a fact that a building has been so planned and constructed as to serve special technical requirements, it will qualify to be treated as a plant. For the purpose of the same, following case laws were relied upon:

i. CIT v. Karnataka Power Corporation (2001) 247 ITR 268 (SC) (E-2) ii. CIT v. Indo Burma Petroleum Co.Ltd (1978) 112 ITR 755 (Cal.) (E-3) iii. CIT v. Dr. B. Venkata Rao (2000) 111 Taxmann 635 (SC) iv. Indore Municipal Corporation v. CIT (‘2001) 247 ITR 803 (SC)

c. As regards electrical installations, they are electrical equipments installed in Mines & Thermal Power Stations for the purpose of lignite excavation and generation of power.

d. In the excavation of lignite, the power supply is fed on installation of High Voltage and Low Voltage Power Lines, which are consisting of various sub-stations, transformers (120/MVA/230/ 11.55 Kv), switch yards, switch gears and various types of control panels. In the thermal power stations, the power supply is fed on installations of high voltage power lines, low voltage power lines, switch yards, switch gears and various types of control panels.

e. Further, in NLC township (employee quarters), various sub-stations switch yards, switch gears and control panels are deployed for supply of electricity power.

f. The learned AO ought to have appreciated that the rate of 10% is applicable only in respect of electrical fittings and not electrical equipment and installation.

g. The electrical installation and equipment are integral part of the power generation transforming and transmission system and cannot be equated pure electrical fittings like fans, tube light etc.

h. Considering the above facts we pray that the appeal of the assessee shall please be allowed.

The building has been so planned and constructed as to serve special

requirement. According to the assessee, it qualifies for plant for the

purpose of depreciation. On the other hand, the Ld.DR argued that as per

the new Appendix-1 of Income Tax Rules, electrical fittings include

electrical wires, socket and phase, etc. Electrical installations should not

be classified as plant for higher depreciation. The functions of the

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electrical fittings, installations are one and the same for the buildings and

mines. Therefore, electrical fittings required to be allowed as depreciation

@10% as per new Income Tax Rules.

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

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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.

4.0 The next issue is surcharge recoverable from electricity bills:

During the assessment proceedings, the AO found from the Annual

Report that the surcharge recovered from the belated settlement of power

bills amounting to Rs.118 Cr. has not reckoned as income since there is

uncertainty in realization and the same would be accounted on realization.

The assessee is following the mercantile systems of accounting. As per the

mercantile system of accounting, all the income accrued required to be

taxed as income in the year of accrual. In the case of the assessee,

though income has been accrued since the recovery was uncertain the

same was not offered as income by the assessee. Whereas the AO held

that the income related to belated payment (i.e. surcharge) of the power

bill was accrued as per the system of accounting followed by the assessee

and the assessee did not establish the uncertainty of recovering the bills.

Therefore, the AO held that as per the tripartite agreement entered into

by the assessee with RBI, Government of India and the state governments

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on behalf of Electricity Boards. There was no uncertainty in the accrual of

surcharge and held that Rs.118 Cr. is an accrued income required to be

brought to tax for the Assessment Year under consideration. Accordingly,

added back to the income. The above issue is involved for the

Assessment Years 2007-08 to 2010-11 as under:

Assessment Year Amount in Rs. 2007-08 118.00 Crores 2008-09 15.11 Crores 2009-10 1.17 Crores 2010-11 116.83 Crores

The Ld.AO relied on the decision of Kerala High court in the case of

CIT vs Southern Cables and Engineering works 289 ITR 167.

4.1 Aggrieved by the order of the AO, the assessee went on appeal

before the Ld.CIT(A) and the Ld.CIT(A) deleted the addition following the

order of the Ld.CIT(A) for the Assessment Years 2008-09. In the

Assessment Year 2008-09, the Ld.CIT(A) relied on the Hon’ble Supreme

Court judgment in the case of Godhra Electricity Co. Ltd. Vs. CIT 225 ITR

0746 and deleted the addition and held that the improbability of

realization has to be considered in realistic manner and in practical point

of view. Since the payment has not been received till the date of the

decision, the Hon’ble Supreme Court judgment in the case of Godhra

Electricity Co. Ltd. Vs. CIT 225 ITR 0746 held to be squarely applicable

and accordingly deleted the addition.

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4.2 Appearing for the Revenue, the Ld.DR argued that the assessee is

following mercantile system of accounting and the income has been

accrued as per the system of accounting followed by the assessee. In the

case of the assessee, the improbability of recovery does not arise because

of the liability has been ascertained and the income has been accrued as

per the CERC notification. The recovery is also assured by tripartite

agreement between the RBI, Government of India and the State

Governments. It was also mentioned in the Tripartite agreement dated

17.04.2002 that the payments remaining outstanding after 90 days from

the date of billing shall be recovered on behalf of CPSUs by Ministry of

Finance, through adjustment against release due to respective state

governments on account of plan assistance of states share of central

taxes and any other grant or loan Hence the DR contended that there is

no case of uncertainty and in the real income theory also the same has

been accrued and argued that the AO has rightly brought to tax. On the

other hand, the Ld.AR argued that submitted that NLC supplies electricity

power to various electricity boards. As per CERC order, the surcharge is

recoverable from them for delay in payments of bills due. This is the past

experience of NLC that there was financial crisis among E.Bs. During the

year 2003, the surcharge accumulated for prior periods, nothing was

realized from E.Bs and an amicable settlement (Securitization by RBI)

among the State Governments (on behalf of E.Bs) and the Government of

India and the RBI, for the repayment of electricity bills (over dues), NLC

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was in position to receive back only 40% of such surcharge accumulated

up to September 2001, with the intervention of Government of India along

with other power generators vide Tripartite Agreement. As per AS-9, the

revenue which is to be recognized should be on certainty of recovery.

Since there is a clear uncertainty and complete dependence on the

Electricity Boards for payments, the assessee cannot recognize surcharge

as income and the assessee relied on the decision of the Hon’ble Supreme

Court in the case of Godhra Electricity Co. Ltd. Vs. CIT 225 ITR 0746 cited

supra.

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,

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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.

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

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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.

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• 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 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

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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

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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 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.

4.4 In the result, the ground of appeal raised by the Revenue on the

issue of surcharge recovery from Electricity Boards is allowed for the AYs

2007-08 to 2010-11.

5.0 For the AYs 2008-09, 2009-10 and 2010-11, the Revenue raised the

grounds relating to the issue of deduction u/s.80IA. During the

assessment proceedings the AO found that the assessee has claimed the

deduction u/s 80IA pertaining to the Unit TPS-I expansion. AO was of the

view that the Unit TPS-I was an expansion of the existing unit and hence

not eligible for deduction u/s80IA.The AO disallowed the deduction holding

that the expansion cannot be considered as a new unit. The disallowance

made by the AO u/s.80IA for the AYs 2008-09, 2009-10 & 2010-11 is as

under:

Assessment Year Amount in Rs. 2008-09 147,36,91,926 2009-10 209,94,46,495 2010-11 246,92,76,304

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5.1 For the sake of convenience, the reasoning given by the AO is

extracted from the Assessment order made available in Page No.5 of the

A.Y.2008-09 asunder:

In the instant case also, the assessee has claimed deduction u/s 80-IA of the Income-tax Act on the profit of power generated in the TPS-l Expansion Unit by treating the same as separate unit / undertaking, even though the final product manufactured is same i.e. Power. Further, there is interconnection of management, financial, administrative and production aspects. Therefore, the above decision of the Honourable High Court is squarely applicable in the instant case. Accordingly, the TPS-l Expansion Unit cannot be considered as new/separate unit for the purpose of provision of section 80-lA of the Income-tax Act.

ii) It has been observed that, deduction u/s 80-IA of the IT Act to the tune of Rs.147.36 crores has been claimed for the Unit TPS-I Expansion. Hence, it is clear that, the assessee company itself has stated that the above unit is nothing but the expansion of the already existing TPS-I Unit. Therefore, the Unit TPS-l Expansion cannot be considered as separate undertaking for the purpose of claim of deduction u/s.801A of the Income-tax Act.

In the instant case also, the assessee’s TPS-I Expansion Unit cannot be considered as separate undertaking based on the reasons cited in the paragraph (i) & (ii) above. Accordingly, the deduction claimed by the assessee u/s.80-IA of the Income-tax Act cannot be accepted.

iv) The decision of the Supreme Court in the case of Textile Machinery Corporation Ltd Vs CIT (107 ITR 195) cannot be accepted in the assessee’s case due to the fact that the above said decision of the Honorable Supreme Court was purely related to the restructuring of the business. Hence, the facts of the said case are not applicable in the instant case.

Therefore, it is clear that the provisions of section 80-lA shall be applicable only to the assessees who have started new business of generation of power and accordingly, the said provisions of section 801A(4) of the Act is not applicable to the assessees who are expanding their business by way of establishing new Plant & machineries and also by way of introducing new techniques for enhancing its already existing productivity.

5.2 Aggrieved by the order of the AO, the assessee went on appeal

before the Ld.CIT(A) and the Ld.CIT(A) deleted the addition as under:

4.2 I have carefully considered the facts of the case and the submissions of the Ld.AR. I have also gone through the decisions relied on by the Ld.AR and the AO. The main objection of the AO is that the new unit started cannot be considered as separate undertaking because it is using the same manufacturing technology and the finished goods are also the same, i.e., power. The new unit, i.e., unit TPS-I Expansion is nothing but the expansion of the already existing TPS-l unit. He further stated that benefit of sec 80-lA shall be applicable only to the assessee who have started “new business” of generation of power and not to those expanding their business by establishing new plant and machinery and also by introducing new technology for enhancing existing productivity. But reading of the section, in my opinion, does not lead to the interpretation as expounded by the AO. Relief u/s 80-lA(1) is in respect of profits and gains derived by an undertaking from business referred to in subsection (4) of sec 80-lA. In the present case, as per clause(iv) of sub-sec (4), deduction in respect of an undertaking which is set up in any part of India for

ITA No.1983/Mds/2011 & ITA Nos.2029, 855, 2077 & 2140/Mds/2013

:- 19 -:

the generation or generation and distribution of power if it begins to generate power at any time during the period beginning on the 1st day of April, 1993 and ending on 31st day of March, 2011 shall be 100% of the profit for a period of ten consecutive assessment years out of fifteen years beginning from the year in which the undertaking or the enterprise generates power or commences transmission or distribution of the power. Therefore, deduction is clearly for the profits of an undertaking and not for an undertaking engaged in a new business. Similar expressions as found in sec 80-IA are found in sections 80HH, 80I and 80J. For example, in section 80J, deduction is in respect of new undertaking and the section also has similar proviso referred to by the AO. The Supreme Court while interpreting the Section 80J in the case of Textile Machinery Corporation Ltd v. CIT, 107 ITR 195 (SC) has held that expansion of the existing business will also be entitled to relief under section 80J. In the case of CIT v. Ganga Sugar Corporation Ltd, 92 ITR 173 (Del.), it was pointed out that the concept of reconstruction of business is not attracted when a company which is already running one industrial unit sets up another industrial unit. The industrial unit, it was pointed out, would not lose its separate and independent identity even though it has been set up by a company which is already running an industrial unit. It was further pointed out that the object of the section was to provide an incentive for selling up of new industries so as to accelerate the process of industrialization and that it does not appear or to have been the intention of the legislature that the benefit of the section would be confined only to parties who had not already set up such industrial undertakings and not to parties who had past experience of running similar industrial undertaking. This principle has since been approved by the Supreme Court in the case of Textile Machinery Corporation Ltd(supra). Applying the principles of the above decision of the Hon’ble Supreme Court, it has been held that mere fact that the second unit manufactured some of the items which were manufactured by the first, did not make it an integral part of the first unit as it could survive independently of the first unit. Reference may be made to (the decision in CIT v. Indian Aluminium Co Ltd, 108 ITR 367(SC), CIT v. Gedore Tools (India) P. Ltd, 126 ITR 673, CIT v. Ambur Cooperative Sugar Mills Ltd, 127 ITR 495(Mad.), CIT v. Hutti Gold Mines Co.Ltd, 128 ITR 476(Kar). In the case of the appellant, the main section grants relief in respect of profits and gains of an undertaking. Explanation 2 under sub- section (3) of sec 80-IA cannot govern or restrict the relief available under the main section. It is not correct to interpret the relief that can be granted u/s.80-IA on the basis of a wording in an Explanation to a sub-section concerned only with regard to transfer of machinery previously used for any other purpose to a new business. Various Hon’ble Courts including the Hon’ble Supreme Court, on issues relating to deductions u/s. 80HH, 80I and 80J, have consistently held that expansion in production of the existing product in a geographically separate and independent undertaking will be entitled to relief under those sections. In fact, the heading of these section as well as 80-lA is “Deduction in respect of profits and gains from industrial undertakings or enterprise engaged in infrastructure development, etc..” and not “profits and gains from certain new business”. In these circumstances, I am of the considered opinion that the appellant is entitled to relief under section 80-lA in respect of TPS-l Expansion. The requirement regarding investment in the plant and machinery and other conditions for availing benefit of deduction u/s.80-IA have also been satisfied and the AO has not raised any other objection regarding these conditions. In view of the above factual position and authoritative precedents, the deduction claimed by the appellant us 80-IA is allowed. Accordingly, the ground is allowed.

5.3 The issue is squarely covered by this Tribunal order in the

assessee’s own case for the AY 2001-02 in ITA No.2315/Mds/2003 dated

18.08.2004. Respectfully following the decision of Co-ordinate Bench, we

dismiss the appeal of the Revenue for the AYs 2008-09, 2009-10 and

2010-11.

ITA No.1983/Mds/2011 & ITA Nos.2029, 855, 2077 & 2140/Mds/2013

:- 20 -:

6.0 The next issue in this appeal is disallowance u/s.14A. The AO during

the course of assessment proceedings disallowed the expenditure u/s.14A

r.w.r.8D as under:

Assessment Year Amount in Rs. 2008-09 11,09,71,085 2009-10 18,34,49,174 2010-11 4,64,08,250

6.1 The AO brought out the facts clearly in the Assessment Order page

No.10 Para No.5 of the AY 2008-09 which is extracted as under:

The assessee has reduced in the statement of Income, an amount of Rs.76,75,18,764/- on account of income from Tax free bonds. The assessee was asked to explain as to why the expenditure related to the above exempt income should not be disallowed in view of provisions of Section 14A of the IT Act read with rule 8D of the l.T. Rules. The assessee’s representative has stated that this amount represents 8.5% tax free interest from tax free bonds. These bonds were issued by respective State Governments. The interest thereon is being credited directly and no expenditure has been incurred thereon. Therefore, it was argued that as there was no expenditure incurred in relation to this income, no disallowance is called for u/s.14A of the Income-tax Act. The above referred arguments of the assessee are not acceptable in view of Rule 8D introduced in the l.T. Rules. As per provisions of Section 14A(1), for computing total income under Chapter-IV, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of total income. As per provisions of Section 14A(2), the Assessing Officer is empowered to determine the amount of expenditure incurred as per Rule 8D of the l.T. Rules, having regard to the accounts of the assessee, if he is not satisfied with the correctness of the amount claimed by the assessee in respect of such expenditure. Further, the law has not distinguished whether the investment for the purpose of earning the exempted income was made by way of compulsory investment or by way of parking the surplus funds available with the assessee. As per provisions of Section 14A(3), the provisions of sub-section (2) shall not apply in relation to a case where in the assessee claims that no expenditure has been incurred by him in relation to such income. Considering the huge amount of interest income involved, I am not satisfied with the correctness of the claim of the assessee and the claim of the assessee that no expenditure has been incurred in relation to income which does not form part of the total income.

ITA No.1983/Mds/2011 & ITA Nos.2029, 855, 2077 & 2140/Mds/2013

:- 21 -:

6.2 The assessee went on appeal before the Ld.CIT(A) and the

Ld.CIT(A) allowed the assessee’s appeal as per the discussion made in

para No.8.2 of the Ld.CIT(A)’s Order for the AY 2008-09 as under:

8.2 I have carefully considered the facts of the case and the submissions of the Ld.AR. I have also gone through the decisions relied on by the Ld.AR. There is no dispute regarding the fact that Rule 8D is applicable for the subject asst.year. The method for allocating expenditure in relation to exempt income is prescribed in rule 8D and sec.14A(2). Where the AO, having regard to the accounts of the assessee, is satisfied with the correctness of the claim of expenditure or he is satisfied that no expenditure has been incurred for such exempt income, no further action is needed by the AO in this regard. On the other hand, if the AO is not satisfied as regards the above conditions, he shall determine the quantum of expenditure as per the method prescribed under rule 8D. Let us now examine the facts of the appellant against the above statutory background.

8.2.1 The bonds were automatically issued pursuant to Government order during the previous year relevant to the assessment year 2004-05 and they were held in dematerialized form. Interest on the same is automatically credited to the bank account of the appellant. The loans on which the interest have been paid are not general purpose loans. All these loans are specific to various projects and hence the question of allocating interest for any other investment does not arise.

8.2.2 It is clear from the above that no expenditure has been incurred by the appellant to earn such exempt income. The bonds were automatically issued in F.Y.2003-04 by state governments to discharge the power bills due and surcharge dues from the Electricity Boards. The bonds were received in dematerialized form in F.Y.2003-04 and accounted as investment in that year. No fresh investment was made in the subject assessment year. Moreover, the investment is being held with Indian bank free of cost. Interest is automatically credited to the bank account. The loans are also not general purpose loans. They are specific to various projects and hence the question of allocating interest does not arise. In view of the above, I am of the considered opinion that there was no objective reason for non-satisfaction of the AO to invoke rule 8D. On similar facts, additions made in AYs 2006-07 and 2007-08 were deleted by CIT(A). The decisions relied on by the appellant in the cases of CIT v. Hero Cycles Ltd, 323 ITR 518 (P&H) and CIT v. Reliance Utilities and Power Ltd, 221 CTR 435(Bom) also supports the case of the appellant. In view of the above factual and legal positions, the addition is deleted and the ground is allowed.

6.3 Both the Ld.AR and the Ld.DR brought to our notice that on the

same facts in the assessee’s own case in ITA Nos.712 & 713/2010 dated

11/04/2013 the issue was remitted back to the file of the AO to re-

compute the disallowance. The relevant part of the decision of the

coordinate bench is extracted as under:

ITA No.1983/Mds/2011 & ITA Nos.2029, 855, 2077 & 2140/Mds/2013

:- 22 -:

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 I.T.A. Nos.711, 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.

Respectfully following the decision of the Co-ordinate Bench, we

remit the matter back to the file of the AO to decide the issue afresh on

merits as per the directions given in the order cited. The appeals of the

Revenue on this issue of disallowance u/s14A for the Assessment years

2008-09 to 2010-11 are allowed for statistical purposes.

7.0 The next issue in the revenue appeal for the AY 2008-09 is

disallowance of pre-paid expenditure:

For the AY 2008-09, the AO noticed that the assessee has debited

the pre-paid expenditure of Rs.1,31,16,000/- to the Profit & Loss A/c

which was disallowed by the AO stating that the expenditure was not

ascertained. The facts are extracted from the order of the Ld.AO in page

No.9 para No.3 as under:

It has been observed that during the current year, the assessee has claimed an amount of Rs.131.60 lakhs of prepaid expenditure related to the insurance premium as the expenditure of the current year. Since the above expenditure is related to the future liability, the assessee was show caused to explain why the same should not be disallowed and added to the total income. In response to the same, the assessee has submitted its reply vide letter dated 12.10.2010, which is as under: “Insurance premium Expenses are accounted under prepaid expenses only where the amounts relating to unexpired period exceed Rs.1 Crore in each case.

ITA No.1983/Mds/2011 & ITA Nos.2029, 855, 2077 & 2140/Mds/2013 :- 23 -:

Accordingly, during the previous year relevant to the AY 2008-09, insurance premium paid less than 1 crore has been debited to the profit and loss account which is amounting to Rs.131.60 Lakh on payment basis. Considering the volume of business, the charged amount is insignificant, hence the same may be allowed as deduction. In the event of continuing the same stand, which the department took in the AY 2007-08, and disallowed Rs.131.60 Lakh, it is requested that the amount disallowed in the AY 2007-08 amounting to Rs.231.52 Lakh may please be allowed”.

7.1 The Ld.CIT(A) allowed the appeal of the assessee placing the

reliance on the order of the ITAT,Chennai in assessee’s own case in ITA

No. 482 & 483/Mds/2010 dated 30/06/2011. Both the Ld.DR and the

Ld.AR accepted during the appeal hearing that the assessee’s case

covered by this Tribunal order ITA No.482 & 483/Mds/2010. Since the

issue is covered by this Tribunal order and the Ld.CIT(A) followed the

order this tribunal we do not find any infirmity in the order of the

Ld.CIT(A) and the appeal of the revenue on this issue is dismissed.

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:

ITA No.1983/Mds/2011 & ITA Nos.2029, 855, 2077 & 2140/Mds/2013

:- 24 -:

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:

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

ITA No.1983/Mds/2011 & ITA Nos.2029, 855, 2077 & 2140/Mds/2013 :- 25 -:

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 ITA No.198/Mds/2008 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)”.

8.2 Following the order of the Co-ordinate Bench, we dismiss the

Revenue’s appeal on this ground.

9.0 AY 2010-11 Assessee’s appeal:

Ground Nos.1 & 2 is related to the exclusion of other income

a) Interest income received from employees : Rs.33.57 lacs

b) Handling charges received for flyash : Rs.252.02 lacs

c) Misc Income : Rs.35.69 lacs

For the purpose of deduction

9.1 During the assessment proceedings, the AO found that the assessee

has received Rs.33.57 lakhs from the interest on loan given to employees

and Rs.35.69 lakhs miscellaneous income and fly ash of Rs.2,25,02,000/-

which was not considered for the deduction u/s.80IA by the AO. The AO

disallowed the deduction claimed by the assessee as per the discussion

made in the Assessment Order in Para No.2.9 to 2.10 as under:

2.9 The assessee’s reply is carefully considered but not found to be acceptable. As per sec.80-IA, deduction of an amount equal to hundred percent of the profits and gains derived from business referred in subsection (4) is allowable for ten consecutive years.

ITA No.1983/Mds/2011 & ITA Nos.2029, 855, 2077 & 2140/Mds/2013

:- 26 -:

Under sec.80-lA(4)(iv) of the Act, generation or generation and distribution of power is mentioned as one of the eligible business. It cannot be said that the interest Income derived from advances given to employees is also eligible for deduction uls 80-IA. The assessee itself had classified this receipt as part of ‘Other Income’. The hon’ble Supreme court, in the case of Liberty India v. CIT-317 ITR 218, held that profits from sale of duty drawback are not eligible for deduction u/s.80-IA. The Apex Court held that the expression ‘derived from industrial undertaking’ used in sec.80-lA is narrower in connotation and intends to cover source not beyond the first degree. The relevant portion of the decision are given below:

“Analysing Chapter Vl-A, one may find that sections 80-lB and 80-IA are the Codes by themselves as they contain both substantive as well as procedural provisions. It is evident that section 80-lB provides for allowing of deduction in respect of profits and gains derived from the eligible business. The words ‘derived from’ are narrower in connotation as compared to the words ‘attributable to’. In other words, by using the expression ‘derived from the Parliament intended to cover sources not beyond the first degree. [Para 14]

Further, sub-section (13) of section 80-lB provides for applicability of the provisions of subsection. (5) and sub-sections (7) to (12) of section 80-lA, so far as may be applicable to the eligible business under section 80-lB. Therefore, one needs to read sections 80-I, 80-IA and 804B as having a common scheme. On perusal of sub-section (5) of section 80-lA, it may be noticed that it provides for manner of computation of profits of an eligible business. Accordingly, such profits are to be computed as if such eligible business is the only source of income of the assessee. Therefore, the devices adopted to reduce or inflate the profits of eligible business have got to be rejected in view of the overriding provisions of sub-section (5) of section 80-lA, which are also required to be read into section 80-IB. Sections 80-I, 80-IA and 80-lB have a common scheme and if so read, it is clear that the said sections provide for incentives in the form of deduction(s) which are linked to profits and not to investments. On analysis of sections 80-lA and 80-IB it becomes clear that any industrial undertaking, which becomes eligible on satisfying subsection (2), would be entitled to deduction under sub-section (1) only to the extent of profits derived from such industrial undertaking after specified date(s). Hence, apart from eligibility, sub-section(1) purports to restrict the quantum of deduction to a specified percentage of profits. This is the importance of the words ‘derived from industrial undertaking’ as against words ‘profits attributable to industrial undertaking.”

2.10 Going by the above principles laid down by the Hon’ble Supreme Court, the interest income of Rs.33.57 lakhs earned out of advances given to employees is treated as not derived from the industrial undertaking. The assessee had utilized the funds available with it to give interest bearing advance to the employees and had earned interest income. This interest income is beyond the first degree of nexus with the profit derived from the activity of the industrial undertaking, viz., generation of power. Hence, the same is excluded from the profits for computation of deduction u/s 80-IA. On similar analogy, receipts from Handling Charges i.e, sale of fly ash (Rs.225.02 lakhs), is treated as a source of income beyond the first degree (as held by hon’ble Supreme Court) and excluded from the profits for computation of deduction u/s 80-IA. The assessee has not given any submission as to how miscellaneous income of Rs.35.69 lakhs would be eligible for deduction u/s.80-IA. In view of the discussion on non-eligibility of handling charges and interest income for deduction u/s.80-IA, the miscellaneous income, grouped under ‘Other income’ is also excluded from profits for computation of deduction u/s.80-IA. To summarise, the following receipts are excluded from the profits of TPS I Expansion unit, for computation of deduction u/s.80-lA.

• Handling charges :: Rs.225.02 lakhs • Interest received from employees Rs. 33.57 iakhs • Miscellaneous income :: Rs. 35.69 lakhs ------------------- TOTAL :: Rs.294.28 lakhs -------------------

ITA No.1983/Mds/2011 & ITA Nos.2029, 855, 2077 & 2140/Mds/2013 :- 27 -:

9.2 Since the AO has disallowed the entire deduction claimed by the

assessee u/s.80IA, no separate disallowance was made by the AO towards

other income. The AO commented in the Assessment Order that in the

event of allowing the deduction u/s 80IA subsequently consequent to

appeals, the necessary adjustments required to be made for quantifying

the deduction u/s.80IA by excluding amounts relating to other income i.e.

handling charges, interest received from employees and miscellaneous

income.

9.3 The Ld.CIT(A) dismissed the assessee’s appeal as per the reasoning

given in Para 5.2 which is reproduced as under:

5.2 I have carefully considered the facts of the case and the submissions of the Ld.AR. I have also gone through the decision relied on by the AO and the stand of the Law. I fully agree with the reasoning of the AO that 80-IA is a special provision and the deduction will be possible only when the profits are ‘derived from’ the industrial undertaking. The ‘other income’ shown by the appellant goes beyond any stretch of imagination that they have been derived from the industrial activity from the point of view of the existing provisions and the judicial rulings. Therefore, those receipts are to be excluded from the profits of TPS-l expansion unit for computation of deduction u/s.80-IA. The AO is directed accordingly. Disallowance made by The AO is upheld and the ground raised by the appellant is dismissed.

9.4 We heard the rival submissions and perused the material placed

before us.

The interest received from the employees and miscellaneous income

cannot be held to be derived from industrial entity for the purpose of

deduction u/s.80IA. The assessee is eligible for deduction u/s.80IA only on

power project TPS-I. Handling charges, interest received from employees

ITA No.1983/Mds/2011 & ITA Nos.2029, 855, 2077 & 2140/Mds/2013 :- 28 -:

and miscellaneous income is not inter linked to the industrial activity of

power generation Therefore, we do not find any infirmity in the order of

the AO and the same is confirmed. The Hon’ble Supreme Court in the

case of Liberty India vs. 317 ITR 218 held that the profits on sale of duty

drawback are not eligible for deduction u/s.80IA. The word used in

Sec.80IA for deduction of the profits and gains derived from undertaking

or enterprise from any business referred to Sec.4 of 80IA is used in

narrower, connotation and intend to cover not beyond the first degree of

the source. Handling charges, interest received from employees and

miscellaneous income are not the direct source of income from Power

generation. Therefore, we are unable to accept the contention of the

assessee to allow the deduction u/s.80IA on the other income.

Accordingly, the assessee ground on allowing deduction u/s.80IA on the

other income is dismissed.

10.0 The next ground raised by the assessee on this appeal is

alternatively to exclude the expenditure relating to earning the other

income for the purpose of computing the deduction u/s 80IA. Though, the

assessee has argued that expenditure related to other income required to

be excluded. The Ld.AR of the assessee has not furnished the details of

expenditure for earning the other income. The entire expenditure has

been debited to the Profit & Loss A/c relating to the earning of Gross total

Income. Unless a specific details are furnished relating to the expenditure

ITA No.1983/Mds/2011 & ITA Nos.2029, 855, 2077 & 2140/Mds/2013 :- 29 -: of other income. The assessee request cannot be acceded to. However, the fact cannot be denied that there would be expenses relatable to the earning of income especially in handling charges and other miscellaneous income. Considering the facts and merits of the case, we are inclined to

estimate the expenses @10% of other income and direct the AO to exclude 10% of other income as expenses while computing the deduction u/s.80IA.

11.0 In the result, the appeals of the Revenue as well as the appeal of the assessee are partly allowed.

Order pronounced in the Open Court on 28th April, 2017, at Chennai.

Sd/- Sd/- (एन.आर.एस. गणेशन) ("ड.एस. सु�दर %संह) (N.R.S. GANESAN) (D.S.SUNDER SINGH) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER

चे�नई/Chennai, 5दनांक/Dated: 28th April, 2017. TLN

आदेश क/ -�त%ल6प अ7े6षत/Copy to: 1. अपीलाथ,/Appellant 4. आयकर आयु8त/CIT 5. 6वभागीय -�त�न�ध/DR 2. -.यथ,/Respondent 6. गाड< फाईल/GF 3. आयकर आयु8त (अपील)/CIT(A)