DCIT, ROURKELA vs. M/S. SCAN STEELS LTD., SUNDERGARH

PER KULDIP SINGH, JUDICIAL MEMBER : The Appellant, Deputy Commissioner of Income-tax,

Rourkela Circle, Rourkela (hereinafter referred to as ‘the

Revenue’) by filing the present appeal sought to set aside the

impugned order dated 15.01.2015 passed by the Commissioner of

Income-tax (Appeals)-II, Bhubaneswar qua the assessment year

2010-11 on the grounds inter alia that :-

“1. Whether in the fact and circumstances of the case, the Ld. CIT (A) is correct in deleting the

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addition of Rs.16,22,836/- on account of undisclosed receipt as per 26AS when the assessee failed to reconcile it during the time of hearing.

controversy at hand are : Assessing Officer noticed difference in

depreciation claimed as deduction by the assessee as claimed under

the Income-tax Act, 1961 (for short ‘the Act’) to the tune of

Rs.26,39,93,650/- and to the tune of Rs.10,94,66,547/- under the

Companies Act leading to the difference between income returned

and income computed u/s 115JB of the Act to the tune of

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Rs.18,38,04,634/- on which the tax being MAT was levied. AO

further noticed from Schedule IX of the audit report that an amount

of Rs.83,76,882/- was disclosed as interest income/income from

other sources under the anonymous head ‘income from other

sources’. AO then constructed and displayed a table employing

data extracted from the 26AS statement showing total of the

corresponding receipts (interest income/income from other

sources) to the tune of higher value of Rs.97,29,931/- which

created an ostensibly unexplained difference of Rs.16,22,836/-. On

the failure of the assessee to reconcile the same, the AO added the

amount of Rs.16,22,836/- to the taxable income of the assessee.

off against the taxable income computed for the impugned AY

2010-11. From column no.51 of the audit report furnished by the

assessee, the AO noticed certain expenses to the tune of

Rs.35,11,779/- having been claimed by the assessee u/s 35D of the

Act. In response to the certain queries raised by the AO, assessee

stated that certain preoperative expenses were included in the

aforesaid amount and assessee submitted the presence of trial run

expenses etc. However, AO came to the conclusion that the

assessee has already claimed trial run expenses separately as

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deduction which has not been classified u/s 35D and consequently,

made an addition thereof to the total income of the assessee.

4,16,33,420 units during FY 2009-10 which was duly purchased by

the assessee being a captive unit. AO determined the incurrence of

expenses to the tune of Rs.8,90,37,630/- for generation of power as

per statement furnished to the excise department. AO held that

separate computation of profit is required to be given. So, the AO

constructed two tables employing data extracted from assessee’s

account to justify his findings which are as under :

Table 1 Value of sale of power @ Rs.8,90,37,630/- 2.14 per unit to Appellant Table 2 Value of sale of power @ Rs.14,90,47,643/- 3.58 per unit to Appellant

captive one, the sale of power generated was made to the assessee

itself and furthermore the difference of Rs.6,00,10,013/- between

two sale values above of Rs.14,90,47,643/- will be equal to the

corresponding differences between the losses of Rs.7,20,04,604/-

and consequently, held the impugned difference of

Rs.6,00,10,013/- as the taxable income of the assessee and made

addition thereof to the taxable income of the assessee.

ITA No.143/CTK./2015 5

the ld. CIT (A) who has allowed the appeal. Feeling aggrieved, the

Revenue has come up before the Tribunal by filing the present

appeal.

parties to the appeal, gone through the documents relied upon and

orders passed by the revenue authorities below in the light of the

facts and circumstances of the case.

GROUND NO.1

ground, the CIT (A) proceeded to conclude on the premise that this

addition made by the AO is the result of hasty decision without

providing an adequate opportunity to the assessee. CIT (A) in para

6(b) of the impugned order further observed as under :-

“since fresh evidence has been placed on record by the assessee in the form of explanation and documents, the AO may examine these and confirm for himself the veracity of the reconciliations offered and thereafter deleted the impugned addition which is to the tune of Rs.16,22,836/-.”

the issue in controversy leads to the conclusion that the CIT (A)

has restored the case back to the AO to decide the issue in

controversy which he is not empowered to do. CIT (A) has the

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only option to call for a remand report from the AO on the

additional evidences brought on record by the assessee and then to

decide the matter. So, in these circumstances, we are having no

option except to set aside this ground to the file of CIT (A) to

decide afresh in the light of the decisions rendered by Hon’ble

Delhi High Court in CIT vs. Manish Buildwell (P) Ltd. reported in

204 Taxman 106. So, ground no.1 is determined in favour of the

Revenue.

GROUND NO.2

ground that same is part of the losses amounting to

Rs.5,50,32,664/- brought forward from AY 2008-09, a portion of

which i.e. Rs.4,46,81,769/- was set of in AY 2009-10. In case, due

to mistake of the AO while passing assessment order for AY 2009-

10, there was omission to mention the losses totaling to

Rs.1,03,50,895/- allowed to be carried forward to the succeeding

year i.e. AY 2010-11, the same cannot be exercised to the

prejudice of the assessee because once the amount o Rs.41,12,422/-

is found to be part and parcel of the brought forward losses of AY

2008-09, the same cannot be added to the income of the assessee.

So, ld. CIT (A) has rightly deleted the addition of Rs.41,12,422/-,

hence ground no.2 is determined against the Revenue.

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GROUND NO.3

Rs.35,11,779/- by directing the AO to confirm and verify the

explanation and document placed on record by the assessee during

appellate proceedings and thereafter delete the impugned addition

by making following observations :-

(e) It is clear that the kind of expenses claimed by the Appellant (trial run expenses and share issue expenses) fall within the ambit of the above section. The AO has clearly not bothered to check on: a) the facts of the case on what kind of investments or outflows the claims of amortisation made by the Appellant u/s 35D related to; b) the fact that such claims had been made by the Appellant in more than one Assessment Year after commencement of its business on other extensions made of its undertakings (or in connection with his setting up units), etc., which claims had also been accepted by Revenue; as well as c) the requirements and conditions provided u/s 35D on what kind of expenses could be legitimately allowed as deductions and when. The dispute on the claim made is seen to be resolved through a straightforward examination of the explanations and data available and placed on record. The AO could have arrived at the same conclusions had he exercised caution, patience and due diligence. However, as fresh evidence has been placed on record by the Appellant in the form of the explanations and documents, the AO may examine these and confirm for himself the veracity of the Appellant's position and thereafter delete the additions made totaling Rs.35,11,779/-. The Appeal on the said count is allowed.”

irresistible conclusion that CIT (A) again allowed the appeal

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without providing an opportunity of being heard to the AO by

calling remand report rather directed AO to consider the

explanations and documents brought on record by the assessee

during appellate proceedings which amounts to remanding the case

to AO to which he is not empowered to. So, this ground is also

restored to the CIT (A) to decide afresh in view of the guidelines

issued by the Hon’ble Delhi High Court in case of Manish

Buildwell (P) Ltd. (supra)

GROUND NO.4

ground that same is made on the surmises and conjectures and

resultant conceptualizations of taxable income and computation

that are without foundation, logic or law and primarily the claim is

allowed because no claim of deduction has been made u/s 80IA

and therefore no separate computation of profit is necessary and

also no question can arise on any notional compensation payable to

the society.

power generated by the captive unit and the entire power generated

is used for own consumption, the entire capital incurred on the

upgradation of the unit is to be treated as capital expenditure. The

contention raised by the ld. AR is sustainable because,

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undisputedly, the assessee is a captive power plant and has

generated 4,16,33,420 units which have been consumed by itself

and in these circumstances, the only issue was to be determined by

AO/CIT (A) if the expenditure on erecting the captive power plant

is capital expenditure or not. Both AO as well as CIT (A) have

maintained silence on this issue. So, in these circumstances, we

consider it necessary to restore the issue to the file of CIT (A) to

decide afresh after providing an opportunity of being heard to the

parties if amount of Rs.6,00,10,013/- is capital expenditure or not.

So, Ground No.4 is determined in favour of the Revenue.

by the Revenue is partly allowed for statistical purposes and the

file is restored back to the file of CIT (A) for deciding afresh after

providing an opportunity of being heard to the parties Order pronounced in open court on this 29th day of May, 2017.

Sd/- sd/- (N.S. SAINI) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated the 29th day of May, 2017 TS

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Copy of the order forwarded to: 1.Appellant - M/s. Scan Steels Limited, Main Road, Rajgangpur, Distt. Sundergarh. 2.Respondent - DCIT, Rourkela Circle, Rourkela. 3.CIT 4.CIT (A)-II, Bhubaneswar. 5.DR(ITAT), Cuttack. 6.Guard File //True Copy// BY ORDER

SR. PRIVATE SECRETARY, ITAT, CUTTACK