ODISHA POWER GENERATION CORPORATION LTD,BHUBANESWAR vs. CIT, BHUBANESWAR

आयकर अपील�य अ�धकरण, कटक �यायपीठ,कटक IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK BEFORE SHRI N.S.SAINI, AM & SHRI PAVAN KUMAR GADALE, JM आयकर अपील सं./ITA No.216/CTK/2014 (�नधा�रण वष� / Assessment Year :2009-2010) M/s Odisha Power Generation Vs. CIT, Bhubaneswar, 7th Corporation Ltd., Floor, Fortune Tower, Bhubaneswar- 751023 �थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AAACO 1759 R (अपीलाथ� /Appellant) (��यथ� / Respondent) .. �नधा�रती क� ओर से /Assessee by : Shri Dillip Ku. Mohanty & Shri Bhagaban Panda, AR राज�व क� ओर से /Revenue by : Shri Kunal Singh,CITDR सुनवाई क� तार�ख / Date of Hearing : 09/08/2017 घोषणा क� तार�ख/Date of Pronouncement 29/08/2017 आदेश / O R D E R Per Shri Pavan Kumar Gadale, JM: The assessee company has filed an appeal against the order of CIT, Bhubaneswar, passed u/s.263 of the Income Tax Act, 1961 for the assessment year 2009-2010, and has raised the following grounds of appeal :- 1. For that the notice issued by the commissioner of Income Tax, Bhubaneswar (CIT) under section 263 of the I.T. Act, 196l (the Act) are bad in law, void ab initio and is liable to be quashed. 2. For that the order dated 24.03.2014 passed by the learned CIT under section 263 of the Act is bad in law, void ab initio and is liable to be cancelled.. 3. For that the CIT has erred in invoking his jurisdiction under section 263 of the Act without satisfying the pre-conditions necessary for assumption of such jurisdiction & therefore the order U/s. 263 are liable to be set aside only on this ground. 4. For that the finding of the CIT in the order U /s. 263 in respect of the two issues/ grounds are nothing but a direction to the Ld. A.O. for substituting his own opinion with that of the Assessing Officer or for making a fishing and roving enquiry are not a case of erroneous order and nevertheless, it is prejudicial to the interest of revenue. The order

2 ITA No.216/CTK/2014 U/s.263 are bad in law, without jurisdiction and excess of jurisdiction and legally untenable. 5. For that when the department has examined the nature of transaction in the subsequent years and its nature remained unchanged. The department is not entitled to reopen the assessment based on the pretext of dubbing them as erroneous and as such the present order u/s. 263 without any clear finding are liable to be set aside. 6. For that the CIT has erred in setting aside and restored to the file of the Ld' AO with a direction to re-examine the issue with reference to the facts of the case and judicial decision of the issue proves beyond that the order has neither erroneous nor prejudicial to the interest of revenue and therefore the order u/s. 263 are liable to be quashed only on this ground in absence of any satisfaction of the two of the conditions primarily required to invoke the provision of Section 263. 7. For that the CIT has erred in law with regard to the second issue is concerned, ordering that since on the 1st issue is set aside, the A.O. is directed to re-examine this issue also in course of the fresh assessment, which are nothing but ex facie illegal, excessive to invoke the provision of Section 263. 8. For that the appellant craves leave to add to supplement modify the grounds herein above before or at the time of hearing of the appeal.

in number, however, the sole substantive ground raised by the assessee

is that the proceedings and order passed by the CIT u/s.263 of the Act is

bad in law.

Odisha Undertaking engaged in the business of generation and sale of

power and filed the return of income electronically for the assessment

year 2009-2010 on 29.9.2009, with total income at Nil. Subsequently, the

assessee filed a revised return of income on 7.5.2010 disclosing total

income of Rs.62,94,53,484/- and the assessment was completed

u/s.143(3) of the Act dated 29.12.2011 computing total income of

Rs.67,66,83,890/-.

revisionary powers u/s.263(1) of the Act called for the assessment records

3 ITA No.216/CTK/2014 and found that the assessment framed by the AO is erroneous and

prejudicial to the interest of revenue and issued show cause notice dated

6.2.2014 to the assessee with a direction to explain as to why the assessment order passed by the AO for A.Y.2009-10 should not be

cancelled/modified u/s.263 of the Act. In response the, ld. AR of the assessee appeared and submitted a written submissions referred at para

4 page 2 of the order. Ld. CIT was not satisfied with the submissions of assessee and observed that the AO has not examined or ignored whether

the claim of expenditure is capital or revenue because of enduring benefit

and in the annual report the of C&AG of India has observed on expenses

referred at para 5 of the order and ld. CIT found the expenditure as

perpetual benefit and restored the disputed issue to the AO for re-

examination with facts and judicial decisions and on the second disputed

issue the CIT observed that the liability so created by the assessee does

not satisfy the criteria of Accounting Standard (AS-29) and whether such

liability is ascertained or unascertained liability and lacks the degree of

measurement, accordingly, directed to AO to verify in the fresh

assessment proceedings and passed order u/s.263 of the Act, dated

24.3.2014.

assessee has filed an appeal before the Tribunal. Before us, ld. AR of the

assessee submitted that the order passed by the CIT u/s.263 of the Act is without application of mind as there has been absolutely no issue and

much less prejudicial to the interest of revenue. Ld. AR of the assessee

4 ITA No.216/CTK/2014 further submitted that the two pre-conditions necessary to invoke the

provisions of Section 263 of the Act do not exist in the present case and

also expenditure debited to the profit and loss account in the financial year 2008-09 for upgradation of Controller with advanced technology

have been subsequently capitalized in the financial year 2009-10 and the tax liability has been discharged by the assessee for A.Y.20010-2011 and

placed reliance on the judicial decisions and prayed for allowing the appeal.

incurred by the assessee is the nature of long term benefit for the future

years and is capital in nature, which should be added to the total income

of the assessee. Further, ld. DR submitted that the AO has not examined

as to whether the claim of expenditure is capital or revenue though it was

mentioned in the annual report the C&AG of India on existence and

prayed to sustain the order of CIT.

the instant case, the CIT observed that the assessee has debited the

disputed amount of Rs.1.65 crore to profit and loss account for F.Y.2008-

09 relevant to A.Y.2009-2010 which was subsequently rectified by

crediting the said amount to the profit and loss account for the financial

year 2009-10 relevant to the assessment year 2010-2011. The CIT further

observed that when the assessee has claimed deduction of expenditure u/s.37(1) of the Act, the AO ought to have conducted an enquiry as to

whether the assessee has satisfied all the requirement of the provisions,

5 ITA No.216/CTK/2014 therefore, the CIT has restored the matter to the file of AO to re-examine

the issue with reference to the facts of the case and judicial decisions on

the issue. Secondly, the assessee has created a provision and require

verification of facts whether such liability is ascertained liability or

unascertained liability and the assessee has not filed these. The basis on

which such a provision was created is not ascertainable from the records.

Further, on perusal of provisions and guidelines of Accounting Standard

(As-29) of the ICAI “provisions contingent liabilities and contingent assets

is a liability which can be measured only by using a substantial degree of

estimation. A liability is a present obligation of the enterprise arising from

past events, the settlement of which is expected to result in an outflow for

the enterprise of recourses embodying economic benefit. The liability so

created fails to the criteria of accounting standard (AS-29) as the

estimation lacks the degree of measurement.” Such provisions cannot be

allowed u/s.37 of the I.T.Act. The expenditure should not have been

allowed by the AO as revenue expenditure for the assessment year under

consideration. In the instant case, the provision for variable pay was made

for the first time in the FY 2008-09 relevant to AY 2009-10.The basis on

which such a provision has been made has not been examined by the AO

in course of assessment proceedings. We would like to place reliance on

the decision of Hon’ble Allahabad High Court in the case of CIT Vs.

Bhagwan Das, 272 ITR 367, wherein it is held as under :-

HELD It was found that in the assessment order, there was no discussion regarding the question as to whether the amount of income shown by the assessee which was being claimed to be exempt, had

6 ITA No.216/CTK/2014 actually been earned by him or not and, further, whether the entire amount of income from agriculture and poultry farming was exempt from tax. The Commissioner had rightly initiated proceedings under section 263 as exemption had been granted without any application of mind. [Para 4] An order, which has been passed without application of mind, will fall under the expression ‘erroneous and prejudicial to the interest of the revenue’. Since the ITO had granted exemption to the assessee in respect of income from agriculture and poultry farming without any discussion and without any application of mind, the Tribunal had committed error in holding that the assessment order, insofar as it granted exemption to income from agriculture and poultry farming, was not erroneous or prejudicial to the interests of the revenue. [Para 5] We rely on the judicial decisions and fact discussed above and accordingly, we see no reason to interfere in the just and proper order passed by the CIT u/s.263 of the Act and the same is hereby upheld.