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Income Tax Appellate Tribunal, DEHRADUN “DB” BENCH: DEHRADUN
Before: SHRI YOGESH KUMAR U.S & SHRI MANISH AGARWAL
ORDER
PER MANISH AGARWAL, AM :
1. The present appeal is filed by the assessee against the order dated 19.03.2024 by Ld. Commissioner of Income Tax (A), National Faceless Appeal Centre (“NFAC”), Delhi [“Ld. CIT(A)”] in Appeal No. NFAC/2019- 20/10183461 passed u/s 250 of the Income Tax Act, 1961 [“the Act”] arising from the assessment order dt. 27.09.2022 passed u/s 143(3) r.w.s.144B of the Act pertaining to Assessment Year 2020-21.
Brief facts of the case are that assessee company is engaged in the business of generation and supply of hydro power as well as wind power and constructed hydro power project as approved by the Government of India. The return of income was filed on 05.01.2021, declaring total income of INR 869,04,14,340/-. The case was selected for complete scrutiny under CASS and notice u/s 143(2) of the Act was issued on 29.06.2021. Thereafter notices u/s 142(1) alongwith questionnaire were issued from time to time which were duly replied by the assessee. After considering the submissions made alongwith requisite documents and details filed by the assessee, total income of the assessee stood assessed at INR 12,08,85,53,720/- vide order dated 27.09.2022 passed u/s 143(3) r.w.s. 144B of the Act.
Against the said order, assessee filed an appeal before Ld. CIT(A) who vide impugned order dated 19.03.2024, dismissed the appeal of the assessee.
Aggrieved by the order of Ld.CIT(A), assessee is in appeal before the Tribunal by taking following grounds of appeal:-
That on the facts and circumstances of the case and in law, the impugned order is based upon conjectures, surmises and assuming incorrect facts and therefore, is bad in law.
2. That on the facts and circumstances of the case and in law, the Hon'ble CIT(A) has erred in upholding the action of the Ld. AO in denying the benefit of deduction u/s 80-1A of the Act to an extent of Rs. 3,57,87,308 alleging certain incomes to be in the nature of other incomes not having direct nexus with the eligible business of the Appellant inter alia because- 2.1. The incomes are directly and inextricably linked with the power generating business and cannot be disentitled from the benefit of 80-1A deduction 2.2. The Hon'ble CIT(A) has completely ignored the detailed submissions made by the Appellant in this regard and blindly followed the orders of its predecessors.
3. That on the facts and circumstances of the case and in law, the invocation of the provisions of section 251(1)(a) of the Act by the Hon'ble CIT(A) and enhancing the income of the Appellant is invalid and contrary to the provisions of law, and the enhancement deserves to be deleted.
4. That on the facts and circumstances of the case and in law, the Hon'ble CIT(A) has erred in enhancing the income of the Appellant by Rs. 56,06,82,000 as well as in upholding the action of the Id. AO in making an addition of Rs. 280,34,10,000 on account of late payment surcharge levied on debtors outstanding as on 31.03.2020 by treating the same as income accrued to the Appellant, inter alia because: 4.1. The late payment surcharge has been consistently accounted for as income on receipt basis by the Appellant due to uncertainty of its realization, and has been so accepted by the Department. 4.2. The accounting policies followed by the Appellant are consistent with the industry/business practices. 4.3. The accounting of late payment surcharge is done in accordance with the principles of ICDS IV and IND AS 115 i.e., recognition is based on the reasonable certainty of the collection of revenue. 4.4. Rule of consistency demands that the accounting policy followed by the Appellant with regard to the recognition of income in respect of late payment surcharge ought to have been accepted. 4.5. The judgments relied upon by the Appellant have not been appreciated by the Hon'ble CIT(A).
5. That on the facts and circumstances of the case and in law, the initiation of penalty proceedings u/s 270A of the Act is grossly erroneous in as much as there has not been any under-reporting of income by the Appellant.
6. That on the facts and circumstance of the case and in law, the levy of interest under section 234A of the Act is erroneous and illegal in as much as 6.1. The return of income was filed within the due date prescribed u/s 139(1) of the Act. 6.2. The Hon'ble CIT(A) has erred in not adjudicating the ground of appeal
pertaining to levy of interest u/s 234A by holding that the Appellant has not pressed for this ground of appeal, and in not appreciating the written submissions filed by the Appellant.
7. That on the facts and circumstances of the case and in law, the levy of interest under section 234B and 234C of the Act is erroneous and deserves to be deleted.
8. The above grounds are without prejudice to each other and the Appellant craves leave to add, to amend, to delete and/or to modify all or any of the fore going ground(s) of appeal.”
Ground of appeal No.1 raised by the assessee is general in nature, needs no separate adjudication hence, dismissed.
Ground of appeal No.2 is with regard to the reduction in the deduction u/s 80IA to the extent of INR 3,57,87,308/- by holding that certain income is not derived from the undertaking and thus not eligible for deduction u/s 80IA of the Act.
7. Ld.AR for the assessee submits that assessee has claimed u/s 80- IA of the Act on interest received from advances to employees of INR 1,10,09,815/-; rent receipts of INR 30,57,729/-; sundry receipts of INR 37,77,666/- and fair value gain of INR 1,74,92,098/-, totaling to INR 3,57,87,308/-. However, the AO disallowed the deduction u/s 80IA on this income by holding that the same were not directly linked with the generation and distribution of power and therefore, were not derived from eligible undertaking. Ld. AR further submits that interest was received from the employees on the advances given to them and was in the nature of incentive to perform better and since they were directly engaged in the power generation project therefore, such interest income is derived from eligible business. Ld.AR submits that interest on fixed deposits has been allowed as part of the income derives however, the interest from employees though identical in nature but deduction u/s 80IA was not allowed on the same.
Regarding rent receipts, Ld.AR submits that the rent was received from employees residential quarters and temporary shades provided to the contractors on projects sites. Since the employees are directly and internally attached to the generation and distribution of power and the shades were provided to contractors for carrying out work on projects sites therefore, rental income is derived from eligible undertaking and eligible for deduction u/s 80IA of the Act.
Regarding Sundry receipts, Ld. AR submits that it includes charges, guest house receipts, subsidized foods and utilities and transport and other utilities receipts from the employees and contractors who all were directly engaged in power generation projects, thus such income is eligible for deduction u/s 80IA of the Act.
Regarding fair value gain, Ld. AR submits that assessee follows IND AS 113, according to which fair value of financial assets and financial liabilities was recognized on recurring basis. The fair value gain of financial assets is reported in “Note No.32” titled as “other income” and similarly in “Note No.34” under the head “finance cost”, the fair value loss on financial assets is recorded. However, the AO has failed to appreciate these facts and disallowed the deduction u/s 80 IA of the Act on the fair value credited to P&L A/c by ignoring the fact that the corresponding entry of loss is also debited in Profit & Loss Account and it is mere book entry. It is thus submitted by ld. AR that it is revenue neutral exercise and making disallowance u/s 80 IA, the same is taxed without any real income. Ld. AR thus, requests that deduction u/s 80IA of the Act on these items of income deserves to be allowed.
On the other hand, Ld.Sr.DR vehemently supported the orders of the lower authorities and submits that Ld.CIT(A) has passed a reasoned order wherein items on which the deduction u/s 80 IA of the Act is allowable have already been considered and allowed the assessee and therefore, he requested for the confirmation of the same.
Heard the contentions of both the parties and perused the material available on record. In the instant case, sole reason for making disallowance of deduction u/s 80 IA on four [04] items of other income was that such income was not derived from the eligible undertaking. We find that the rental receipts and sundry receipts are not directly related to the activity of the business of the assessee company. It is further seen that in respect of interest received from employees, rental receipts and sundry receipts, identical issue has been decided in assessee’s own case by the CO-ordinate Bench of Tribunal in AY 2014-15 & 2015-16 vide order dated 14.02.2022 wherein the deduction u/s 80 IA on these items of income was denied by Co-ordinate Bench of the Tribunal.
Therefore, in our considered opinion the AO has rightly denied the deduction u/s 80IA of the Act om these items of income.
Regarding the denial deduction u/s 80IA on the fair value gain, claim of the assessee is that the corresponding losses were debited to P&L Account and business profits stood reduced by such notional loss therefore, the notional income being a book entry without having actual income and neutral exercise deserved to be allowed as deduction.
From the perusal of the records placed before us, it is seen that assessee has not filed financial statements to verify its claim that fair value gain and fair value loss were credited and debited respective, in the Profit & Loss account thus, we direct the AO to verify whether any amount towards fair value loss is included in Note No.34 under the head “finance cost” and debited in Profit & Loss account as claimed by assessee, and the corresponding amount of fair value gain is included in the other income in Note No. 32 in financial statements and if this claim of the assessee is found correct, the amount of fair value gain is to be allowed as eligible for deduction u/s 80 IA of the Act. With these directions, Ground of appeal No.2 raised by the assessee is partly allowed.
Ground of appeal Nos. 3 & 4 raised by the assessee are with respect to the addition on account of late payment surcharge (LPSC) from debtors as well as enhancement made by Ld.CIT(A) on account of addition on late payment surcharge.
In this regard, Ld. AR made detailed written submission which is reproduced as under:
On the other hand, Ld. Sr. DR vehemently supported the orders of the lower authorities and submits that Ld. CIT(A) has rightly held that the LPSC is to be taken as income of the assessee on accrual basis. Ld. SR. DR further submits that ld. CIT(A) has enhanced the income with respect to the grace period and he requested for the confirmation of the order of ld. CIT(A).
After considering the submissions of both parties, the claim of the assessee is that it has recognized late payment charges regularly on receipt basis as there is no significant certainty as to measurability or collectivity exists. It is further claimed by the assessee that in preceding years also, assessee has accounted for LPSC on receipt basis which has been accepted by the Department however, in two [02] years i.e. 2017- 18 and the year under appeal, the same has been taxed on accrual basis. The copies of the assessment orders passed for various assessments years are placed before us wherein this income is assessed on receipt basis.
The Hon’ble Supreme Court in the case of Radhasoami Satsang vs CIT [1992] 193 ITR 321 (SC) has held that the principal of consistency should be maintained. Further, the Hon’ble Supreme Court in the case of CIT vs Excel Industries Ltd. [2013] 358 ITR 295 (SC) has held as under:- 31. “It appears from the record that in several assessment years, the Revenue accepted the order of the Tribunal in favour of the assessee and did not pursue the matter any further but in respect of some assessment years the matter was taken up in appeal before the Bombay High Court but without any success. That being so, the Revenue cannot be allowed to flip-flop on the issue and it ought let the matter rest rather than spend the tax payers' money in pursuing litigation for the sake of it."
19.1. The same view is expressed by the Hon’ble Supreme Court in the case of CIT vs Bilahari Investment P.Ltd. [2008] 299 ITR 1 (SC) wherein it is held as under:- 19. “In the judgment of the Bombay High Court in Taparía Tools Ltd.'s case (supra) it has been held that in every case of substitution of one method by another method, the burden is on the Department to prove that the method in vogue is not correct and it distorts the profits of a particular year. Under the mercantile system of accounting based on the concept of accrual, the method of accounting followed by the assessees is relevant. In the present case, there is no finding recorded by the Assessing Officer that the completed contract method distorts the profits of a particular year. Moreover, as held in various judgments, the Chit Scheme is one integrated scheme spread over a period of time, sometimes exceeding 12 months. We have examined computation of tax effect in these cases and we find that the entire exercise is revenue neutral, particularly when the scheme is read as one integrated scheme spread over a period of time.
20. As stated above, we are concerned with assessment years 1991-92 to 1997-98. In the past, the Department had accepted the completed contract method and because of such acceptance, the assessees, in these cases, have followed the same method of accounting, particularly in the context of chit discount. Every assessee is entitled to arrange its affairs and follow the method of accounting. which the Department has earlier accepted. It is only in those cases where the Department records a finding that the method adopted by the assessee results in distortion of profits, the Department can insist on substitution of the existing method. Further, in the present cases, we find from the various statements produced before us, that the entire exercise, arising out of change of method from completed contract method to deferred revenue expenditure, is revenue neutral. Therefore, we do not wish to interfere with the impugned judgment of the High Court."
It is also a matter of facts that the assessee has regularly declared LPSC on receipt basis and if the said income is taxed on accrual basis in the year under appeal, there might be a possibility that the income has been taxed twice, firstly, on accrual basis in the year under appeal and secondly, in subsequent year when the amount is received, it is again taxed on receipt basis. Thus, in order to avoid any such situation, the Hon’ble Courts have held that the principal of consistency is to be followed.
It is further seen that when the income is offered for tax in subsequent year on receipt basis as against accrual basis as has been considered by the AO, there is no loss of revenue as in both the years, assessee is subject to tax at similar rate of tax and thus the entire exercise is revenue neutral. The Hon’ble Supreme Court in the case of Excel Industries Ltd. (supra) has held that if the Revenue has not been deprived of any tax, the dispute raised by the Revenue is entirely academic or at best made for a minor tax, therefore, no need for the Revenue to continue with this litigation when it was concluded clear that not only was it fruitless (on merits) but also had made not added anything much to the public coffers.
In view of the above discussion and by respectfully following the judgments of Hon’ble Supreme Court on the principal of consistency and revenue neutral exercise, we hereby hold that AO as well as Ld. CIT(A) has erred in including the LPSC on accrual basis to the total income of the assessee as against on receipt basis as declared by assessee. Therefore, we direct the AO to delete the addition made towards the LPSC on accrual basis and further direct to delete the enhancement made by Ld. CIT(A). Accordingly, Ground of appeal Nos. 3 & 4 raised by the assessee are allowed.
Ground of appeal No.5 raised by the assessee is with respect to initiation of penalty proceedings u/s 271(1)(c) of the Act which is premature at this stage and thus, dismissed.
24 Ground of appeal No.6 raised by the assessee is with respect to charging of interest u/s 234A whereas the assessee though the return of income was filed within the extended due date.
Heard both the parties. As per the press release dated 30.12.2020 due to Covid-19 Pandemic, the due date of filing of return was extended upto 15.02.2021 and admittedly, assessee had filed its return of income on 05.01.2021 which is well within the extended due date of 15.02.2021, therefore, interest u/s 234A should not be levied as there is no delay in filing the return of income u/s 139(1) of the Act. Accordingly, we direct the AO not to charge interest u/s 234A of the Act. Thus, Ground of appeal No.6 raised by the assessee is allowed.
Ground of appeal No.7 raised by the assessee is regarding charging of interest u/s 234B & 234C of the Act.
Heard the parties. The AO is directed to charge interest u/s 234B of the Act om the income computed after giving effect to the order of Tribunal and interest u/s 234C is to be charged on the income declared in the return of income filed. With these directions, Ground of appeal No.7 raised by the assessee is partly allowed for statistical purposes.
In the result, appeal of the assessee is partly allowed.
Order pronounced in the open Court on 24.12.2025.