THE COMMISSIONER OF INCOME-TAX vs M/S KARNATAKA POWER CORPORATION LTD

1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 9TH DAY OF JUNE 2021 PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND THE HON’BLE MR. JUSTICE HEMANT CHANDANGOUDAR I.T.A. NO.424 OF 2014 BETWEEN: 1. THE COMMISSIONER OF INCOME-TAX

C.R. BUILDING, QUEENS ROAD

BANGALORE. 2. THE ASSISTANT COMMISSIONER

OF INCOME TAX, CIRCLE-11(5)

RASHTROTHANA BHAVAN

NRUPATHUNGA ROAD

BANGALORE-560001. ... APPELLANTS (BY SRI. K.V. ARAVIND, ADV.,) AND: M/S. KARNATAKA POWER CORPORATION LTD., SHAKTHI BHAVAN, NO.32 RACE COURSE ROAD BANGALORE. ... RESPONDENT (BY SRI. A. SHANKAR, SR. COUNSEL FOR SRI. V. CHANDRASHEKAR, ADV.) - - - THIS I.T.A. IS FILED UNDER SEC. 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 09.05.2014 PASSED IN ITA NO.323/BANG/2012 FOR THE ASSESSMENT YEAR 2006-07, PRAYING TO:

2 (i) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE. (ii) ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT, BANGALORE IN ITA NO.323/BANG/2012, DATED 09-05-2014 AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-11(5), BANGALORE. THIS I.T.A. COMING ON FOR FINAL HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING: JUDGMENT This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) has been preferred by the revenue. The subject matter of the appeal pertains to the Assessment year 2006-07. The appeal was admitted by a bench of this Court on the following substantial questions of law: "(i) Whether on the facts and in the circumstances of the case, the Tribunal was correct in holding that section 115JB was not applicable to the assessee in view of Explanation-3 to section 115JB without appreciating that the amendment is applicable only with effect from 01.04.2013 relevant Assessment Year 2013-14?

3 (ii) Whether on the facts and in the circumstances of the case the Tribunal was correct in accepting the additional ground raised regarding applicability of section 115JB without appreciating that the assessee has neither raised the issue before the Assessing officer or before the Appellate Commissioner and the assessee itself in it's return of income has admitted the applicability of section 115JB of the Act? (iii)Whether on the facts and in the circumstances of the case, the tribunal was correct in allowing prior period expense of Rs.2,07,60,000/- made towards coal transport agency due to price escalation and Rs.70,63,081/- being the differential surface transport charges to coal suppliers without appreciating that the assessee has not made any submission on this issue either before the Assessing Officer or before the appellate commissioner and with providing opportunity to examine the issue and recorded perverse finding? (iv) Whether on the facts and in the

4 circumstances of the case, the tribunalw as correct in directing to accept the claim of Rs.82,43,612/- in respect of expenses claimed by the assessee's employees and other agencies by accepting the explanation offered by the assessee that it books were audited and that the vouchers were voluminous to e produced before the Assessing Officer, without appreciating that the onus is on the assessee to prove it's claim of crystallization of liability and recorded perverse finding?

Facts leading to filing of this appeal briefly stated are that the respondent is a public limited company engaged in the business of power generation. The respondent filed the return of income for the Assessment Year 2006-07 and declared the income after claiming deduction under Section 80IA of the Act. The return was selected for scrutiny and a notice under Section143(2) of the Act was issued on 04.10.2007. The Assessing Officer by

5 an order dated 31.12.2008 made additions under the normal provisions of the Act viz., prior period expenditure, capital expenditure and disallowance of set off, brought forward loss as the same was set off in earlier years. However, deduction under Section 80IA of the Act was increased to the extent of disallowance. The Assessing Officer also disallowed the provision for leave encashment and pension for the purposes of computation of book profit under Section 115JB of the Act.

Being aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) who by an order dated 30.11.2011 after obtaining remand report from the Assessing Officer, dismissed the appeal with regard to additions made under the normal provisions of the Act, whereas, the same was allowed in respect of additions under

6 Section 115JB of the Act. The assessee thereupon filed an appeal before the Income Tax Appellate Tribunal (hereinafter referred to as 'the tribunal' for short). The tribunal by an order dated 09.05.2014 partly allowed the appeal preferred by the assessee. In this factual background, this appeal has been filed.

Learned Senior counsel for the assessee at the outset submitted that substantial questions of law Nos.3 and 4 have already been answered against the revenue by this court in 'COMMISSIONER OF INCOME TAX, BANGALORE VS. ING VYSYA BANK LTD.', (2020) 114 TAXMANN.COM 506 (KARNATAKA) and vide judgment dated 17.03.2020 in I.T.A.No.143/2014 passed in the case of assessee itself for Assessment Year 2013-14. The aforesaid submission has not

7 been fairly disputed by learned counsel for the revenue. Therefore, for the reasons assigned in the aforesaid judgments, the substantial questions of law Nos.3 and 4 are answered against the revenue and in favour of the assessee.

Learned counsel for the revenue submitted that the tribunal grossly erred in allowing prior period expenses of Rs.2,07,60,000/- without appreciating the fact that the assessee did not make any submissions on the said claim either before the Assessing Officer or before the Commissioner of Income Tax (Appeals). It is further submitted that the tribunal grossly erred in accepting the claim of the assessee for a sum of Rs.82,43,612/- in respect of expenses claimed by the assessee for payment to its employees and the agencies, which were crystallized. It is submitted that the finding in this

8 regard recorded by the tribunal is perverse. It is also submitted that the findings recorded by the tribunal on substantial question of law Nos.1 and 2 is contrary to the law laid down by the Supreme Court in 'ROTORK CONTROLS INIDA (P.) LTD. VS. COMMISSIONER OF INCOME-TAX, CHENNAI', (2009) 314 ITR 62 (SC).

On the other hand, learned Senior counsel for the assessee submitted that the claim with regard to the expenditure of Rs.2,07,60,000/- and a sum of RS.70,63,081/- were made before the Assessing Officer as well as Commissioner of Income Tax (Appeals) and a remand report was also sought for by the Commissioner of Income Tax (Appeals) which was submitted by the Assessing Officer. In this connection, our attention has been invited to the documents on record and it has been

9 urged that the tribunal has rightly held that the liability has crystallized during the relevant year and the expenditure has to be allowed as deduction in computing the total income. It is also urged that the aforesaid finding is a finding of fact, which is not demonstrated to be perverse. It is contended that the first substantial question of law in fact, does not arise for consideration in this appeal. It is also urged that the issues raised by the revenue in this appeal are revenue neutral. In this connection reference has been made to Circular dated 02.11.2016 passed by the Central Board of Direct Taxes (CBDT). In support of aforesaid submissions, reliance has been placed on decisions of Supreme Court in 'CIT VS. EXCEL INDUSTRIES LTD', 358 ITR 295 (SC), and 'CIT VS. BIHARI INVESTMENT (P) LTD', 299 ITR 1 (SC).

We have considered the submissions made by learned counsel for the parties and have perused the record. From perusal of the record, it is evident that the assessee has furnished the details of prior period expenses incurred by it during the Assessment Year 2005-06. From communication dated 19.10.2010 addressed to the Assessing Officer, it is evident that the claim was made with regard to prior period expenses before the Assessing Officer again. The assessee had filed the written submissions before the Commissioner of Income Tax (Appeals) in which claim with regard to prior period expenses was made. The Commissioner of Income Tax (Appeals) had passed the Assessing Officer to submit a remand report, which was submitted by the Assessing Officer. On the basis of material available on record, the Commissioner of Income Tax (Appeals) as well as the tribunal have allowed

11 the claim with regard to the assessee's prior period expenses. The first substantial question of law is therefore, answered against the revenue and in favour of the assessee.

So far as second substantial question of law is concerned, it is pertinent to note that on the submissions made by the assessee on the aforesaid claim of Rs.82,43,612/- in relation to prior period expenditure, the Commissioner of Income Tax (Appeals) had obtained a remand report and the books of accounts of the assessee have been audited. A finding of fact has been recorded by the tribunal, which could not be said to be perverse. Therefore, the second substantial question of law is also answered against the revenue and in favour of the assessee.

In the result, we do not find any merit in this appeal, the same fails and is hereby dismissed. Sd/- JUDGE Sd/- JUDGE ss

THE COMMISSIONER OF INCOME-TAX vs. M/S KARNATAKA POWER CORPORATION LTD