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Income Tax Appellate Tribunal, “B” BENCH KOLKATA
Before: SHRI SANJAY GARG & SHRI GIRISH AGRAWAL
Present for: Appellant by : Shri Siddarth Agarwal, Advocate Respondent by : Shri P. P. Barman, Addl. CIT, Sr. DR Date of Hearing : 14.12.2023 Date of Pronouncement : 19.02.2024 O R D E R
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
This appeal filed by the assessee is against the order of Ld.CIT(A), National Faceless Appeal Centre (NFAC), Delhi, vide order No. ITBA/NFAC/S/250/2023-24/1054712178(1) dated 28.07.2023 passed against the Assessment order by Assessment Unit, Income Tax Department u/s.143(3) read with section 144B of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated.12.09.2022 for AY 2020-21.
The issue in the present appeal contested by the assessee is in respect of disallowance of claim u/s. 80IA of the Act of Rs.95,61,844/- out of common expenses by holding that the said amount is attributable to income received from wind power units despite the fact
Hi-Tech Systems & Services Ltd., AY 2020-21 that assessee had already offered Rs.9,19,534/- from the said amount as expenses attributable to the said wind power units.
Brief facts from the records are that assessee is in the business of manufacturing of mechanical and electronic instruments and its accessories, dealing in instruments, equipments, spares to utilities companies and power plants, installation, commissioning and engineering services, leasing of plant and machineries and equipments to utility companies under operation lease and generation of renewal power from wind turbine generators during the year under consideration. 3.1. During the relevant year, the assessee had claimed deduction u/s 80lA from the income derived from wind power project running at five places viz., Dhule, Sangli, AP1-Vajrakarur, Jaisalmer- Rajasthan, Tamil Nadu of Rs.3,85, 82,538/-. Computation of Income from Wind Power Plants and respective Form 10CCB were furnished. During the course of assessment proceedings, on perusal of the consolidated profit and loss account of the assessee which related to all the business segments of the assessee, Ld. AO observed that there was debit of total expenses of Rs. 112.46 crores. He also found from the details submitted that the expenses debited and claimed in respect of gross revenue from the aforesaid five units eligible for deduction u/s 80lA aggregated to Rs. 2,08,11,517/-. Ld. AO issued a show cause notice (SCN) dated 29.08.2022 wherein it was proposed that the common expenses for the relevant year debited to consolidated P&L A/c are to be proportionately divided in the ratio of the revenue generated and some as per the nature of the expenses claim. In response to the said notice, assessee duly submitted its reply dated 05.09.2022. However, Ld. AO did not consider the contention of the Hi-Tech Systems & Services Ltd., AY 2020-21 assessee and proceeded to make an estimated disallowance of common expenses of Rs.95,61,844/-. 3.2. The disallowance was computed as tabulated below:
3.3. Aggrieved, assessee went in appeal before the Ld. CIT(A).
Hi-Tech Systems & Services Ltd., AY 2020-21
Assessee submitted that it is having wind power projects in various states of India through which the company generates clean energy and sells power to the State Electricity Board. During the relevant year, assessee earned a total revenue of Rs.9,57,45,214/- on account of sale of electricity. Assessee paid comprehensive and exclusive operation and maintenance (O&M) charges to the O&M Service provider, who takes due care of maintenance of Windmill, which are necessary to run the operation. The O&M charges were duly reduced against the revenue received towards sale of electricity. Therefore, the assessee does not have any other obligation of incurring administrative expenses or to depute any manpower since 0&M service provider is taking care of the Windmill. As regard the contention of the Ld. AO that common expenditure debited to the consolidated P & L A/c. are also attributable to the units eligible to claim deduction u/s. 80lA, it was submitted that assessee has maintained separate audited books of accounts for each unit eligible for claim of deduction u/s. 80lA of the Act. Apart from the expenditure of Rs.2,08,11,517/- debited in the profit and loss account of the respective unit, assessee did not incur any expenditure in connection with such activities out of the common expenses. The total expenses claimed in the profit and loss of Rs.112.46 Crore were primarily relating to expenses which had no nexus with the said wind power projects. 4.1. The assessee claimed net deduction u/s. 80IA i.e. after meeting all the related and applicable expenditure incurred in the wind power project of Rs.2,08,11,517/- and depreciation on the wind mills of Rs.1,90,61,314/-, resulting into total claim of expenditure of Rs.3,98,72,831/-. Total revenue from the sale of electricity generated from wind power project was Rs.9,57,45,214/-. Accordingly, the net amount of Rs.3,85,82,538/- was claimed as deduction u/s. 80IA.
Hi-Tech Systems & Services Ltd., AY 2020-21 4.2. The total expenses of Rs.112,46,10,925/- as per the audited P&L Account comprised of the following items:
4.3. In respect of the above tabulated items, assessee submitted that cost of material was incurred directly for the business segments other than wind power projects. For running wind power project, there is no requirement of any input or raw material to run it other than O&M service. For the common employees, it was submitted that they had no effective and operative role in generation of income from wind power units as the assessee had paid comprehensive and exclusive operation and maintenance charges to O&M service provider. In this respect, copy of relevant O&M Agreement for each of the wind power generating units was placed on record. On the finance cost, it was submitted that no interest application towards the wind power project was incurred since there was no outstanding loan for the said wind power project. In respect of depreciation, it was stated that depreciation is related to exclusive and specific assets only and for wind power project it has been charged separately, duly shown in the computation sheet of income from wind power project. For the other expenses of Rs.14,81,26,437/-, details of which is tabulated below. It was submitted that 7% of these common administrative and infrastructure expenses may be taken up for the purpose of disallowance.
Hi-Tech Systems & Services Ltd., AY 2020-21
Sl. Particulars Amount (Rs.) No. 1. Directors’ Remuneration 72,60,000/- 2. Audit Fees 2,03,000/- 3. Subscription 7,18,406/- 4. Books and periodicals 28,003/- 5. Filing Fees 50,442/- 6. Management performance based bonus 6,00,000/- 7. Printing & Stationery 6,06,729/- 8. Office Expenses 30,22,416/- 9. Telephone Expenses 6,47,210/- Total 1,31,36,206/- 4.4. It was also submitted that no defects were pointed in the books of account of the assessee which were duly audited and placed on record. According to assessee, books of account maintained and duly audited have been accepted as such and, therefore, Ld. AO could not have validly allocated expenses from non-eligible unit to the eligible units. According to assessee, the conclusions arrived at by Ld. AO in allocation of expenses is based on conjectures and surmises. Ld. CIT(A) after considering the submission made by the assessee did not find any infirmity in the order of Ld. AO in making addition of Rs.95,61,844/- and dismissed the appeal. Aggrieved, assessee is in appeal before the Tribunal.
Before us, ld. Counsel for the assessee filed an application for admission of additional ground dated 13.12.2023. The additional ground raised
is as follows:
1. For that the Ld. CIT(A) was not justified in confirming the action of the AO in denying the benefit of deduction u/s. 80IA to the tune of Rs.3,85,82,538/- while computing the assessed income.”
5.1. For the admission of this additional ground, assessee submitted that while filing appeal before the Ld. CIT(A), this ground was missed out inadvertently. Ld. AO had made a computational error in the tax computation sheet annexed to the assessment order, though no Hi-Tech Systems & Services Ltd., AY 2020-21 adverse inference was drawn in the assessment order in this regard. The mistake was perpetuated by filing appeal before the Tribunal. In this respect, the computation sheet annexed to the impugned assessment order was perused. At Sl. No. 12 of the computation sheet under the heading deductions under Chapter VIA, the amount mentioned is Rs.1,53,86,525/-. However, the claim of assessee is Rs.5,39,69,063/-. The column heading for the deductions under Chapter VIA at Sl. No. 12 in the computation sheet is stated as “Amount as per current order”. Ld. Counsel in this respect submitted that in the assessment order, there is no adverse inference by the Ld. AO for restricting the claim of Rs.5,39,69,063/- made by the assessee to an amount of Rs.1,53,86,525/- in the computation sheet. Thus, the difference between the two of Rs.3,85,82,538/- is an inadvertent mistake while computing the assessed total income and tax thereon while completing the assessment. 5.2. On confrontation of these facts to the Ld. Sr. DR, nothing objectionable was placed before us except for the disallowance made by the Ld. AO towards allocation of common expenses amounting to Rs.95,61,844/-. Accordingly, we allow the admission of additional ground raised by the assessee in this respect. We will adjudicate on this ground along with the original grounds taken by the assessee in the Memorandum of Appeal in Form 36.
6. Before us, ld. Counsel for the assessee reiterated the above narrated facts which are not repeated for the sake of brevity. Admittedly, it is a fact on record that assessee had furnished Form 10CCB for all the five wind power generating units. Also, assessee has entered into O&M Agreement for each of the five units with the O&M service provider and placed them in the paper book containing total
Hi-Tech Systems & Services Ltd., AY 2020-21 210 pages. Assessee has also furnished computation of Income of the wind power project for each of the unit which is tabulated as under:
6.1. We have perused one of the O & M Agreement from the paper book placed at page 53. The said agreement is dated 15.04.2013 entered into between assessee and Suzlon Energy Ltd. who is the O&M service provider. The scope of work under the said agreement is contained in annexure which is extracted below:
Hi-Tech Systems & Services Ltd., AY 2020-21 6.2. From the above scope of work, Ld. Counsel for the assessee asserted that O&M services are comprehensive which includes routine operational services, security services, management services, technical
Hi-Tech Systems & Services Ltd., AY 2020-21 services and crane services. Therefore, employees of the assessee had no effective and operative role in generation of revenue from wind power projects as the operation and maintenance was taken due care of by the said service provider for the running and maintenance of wind mills. Ld. Counsel also submitted that assessee had suo moto offered 7% of the common expenses which comes to Rs.9,19,534/- in addition to what it has already reported while computing the claim u/s. 80IA of the Act. He thus, submitted that ground nos. 1 and 2 taken by the assessee for deleting the allocation of Rs.95,61,844/- out of common expenses and considering the offer made by assessee of Rs.9,19,534/- as additional expenses attributable to the wind power unit out of the common expenses be allowed. He also submitted that the additional ground taken by the assessee be allowed so as to take into account the correct amount of claim u/s. 80IA in the computation sheet. 6.3. Per contra, Ld. Sr. DR submitted that Ld. AO has not acted arbitrarily since a show cause notice was issued seeking explanation on allocation of common expenses on the wind power project. According to him, Ld. AO has followed the same method which is in consonance with what is submitted by the assessee of adopting 7% of the common expenses and, therefore, there is no infirmity in the findings arrived at by the Ld. AO.
We have heard the rival contentions and perused the material available on record. We have also gone through the O&M Agreement of one of the units and taken note of the scope of work under the said agreement which is comprehensive. Computation of income from wind power projects comprising of five units has already been extracted above. From the said chart, we take note of facts that assessee had attributed expenses relating to each of the units in the said
Hi-Tech Systems & Services Ltd., AY 2020-21