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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI VIJAY PAL RAO & SHRI B.M. BIYANI
These cross appeals and CO by the Assessee are directed against order dated 04.09.2020 of Commissioner of Income Tax (Appeals) for A.Y.2015-16.
2. The assesse is a Government company engaged in the business of power generation and has two power stations namely Indira Sagar Power Station (ISPS) and Omkareshwar Power Station (OPS). The assessee filed its return of income for year under consideration on 24.11.2015 declaring total income of Rs.99,64,25,200/- after claiming deduction u/s 80IA of Rs.981,68,80,417/-. In the scrutiny assessment completed u/s 143(3) the AO has disallowed the claim of deduction u/s 80IA in respect of following income:
A.Y.2015-16
ISPS OSPS Unit Interest from beneficiary state 22,73,82,354 52,62,61,934/- Interest on loans and advances to 1,29,92,774/- 49,22,671 employees Others 1,03,442/- Nil Liability/provision not required 38,36,017/- 23,69,161 written back Other miscellaneous income 1,82,34,177/- 1,52,00,367 & ITANo.20/Ind/2021 & CO NO.03/Ind/20219 NHDC Ltd. Page 3 of 19 Other income of Corporate Office 97,61,826 50,76,149/- Total 27,23,10,590 55,38,30,282 Grand total (ISPS & OSPS) 82,61,40,872 2.1. Thus, the AO made disallowance of deduction u/s 80IA to the tune of Rs.82,61,40,872/-. Apart from the above disallowance the AO also disallowed the deduction u/s 80IA of Rs.47,65,54,173/- on account of deferred tax liabilities which was recoverable directly from the beneficiaries and accounted for on yearly basis. The AO also made disallowance of deduction of loss on sale of asset amounting to Rs.1,31,495/-. Accordingly the AO assessed the total income of the assessee at Rs.229,92,51,740/- as against the return income of Rs.99,64,25,200/-. The assessee challenged the action of the AO before the CIT(A). The CIT(A) has allowed the claim of deduction u/s 80IA in respect of deferred tax liability to the tune of Rs.47,65,54,173/- but confirmed the disallowance of deduction u/s 80IA in respect of the other incomes as well as disallowance of loss on sale of assets. Aggrieved by the impugned order of the CIT(A) both revenue as well as assesse has filed these cross appeal. The assessee has also filed cross objection.
3. First we take up the revenue’s appeal wherein the revenue has raised following grounds:
"Whether in the facts and in the circumstances of the case, the Ld. CIT(A) is justified in deleting addition of Rs. 47,65,54,173 173 /- on account of deduction w / s 801A disallowed on deferred tax liability, without examining the facts and findings of AO and relied upon various judgement."
4. Ld. DR has submitted that the AO has disallowed the claim of the assessee by holding that the income shown by the assessee is actually not forming part of the income from eligible business of the assessee. The AO has relied upon the judgment of Hon’ble Supreme Court in case of & ITANo.20/Ind/2021 & CO NO.03/Ind/20219 NHDC Ltd. Page 4 of 19 Sterling Foods 237 ITR 53 and held that there is no direct nexus between the income and the industrial undertaking eligible for deduction u/s 80IA. Ld. DR has relied upon the order of the AO.
On the other hand, Ld. Counsel for the assessee has submitted that the CIT(A) has allowed the claim of the assessee by considering the fact that the Central Electricity Regulatory Commission (CERC) vide notification dated 19.01.2009 notified that the tariff of Central Sector Power Generating Companies are fixed and billed as per principles and mechanics defined in the regulations. He has further submitted that as per regulation no.39 of tariff regulation deferred tax liabilities for the period up to 31st March 2009 whenever materialized are recoverable directly from the beneficiaries and accounted for on yearly basis. The Ld. Counsel has further submitted that an identical issue has been considered by this Tribunal in assesse’s own case for A.Y.2013-14 & 2014-15 vide order dated 16.05. 2023. Thus, he has submitted that this issue is covered by the order of this Tribunal in assesee’s own case.
Having considered the rival submissions and relevant material on record, at the outset, we note that an identical issue has been considered by this tribunal in assesse’s own case for A.Ys.2013-14 & 2014-15 vide order dated 16.05.2023 in ITANo.314 & 315/Ind/2020 in para no. 14 as under:
“14. We have given our thoughtful consideration and perused the materials available on record. The solitary issue is to be decided in this case whether the Ld. CIT(A) is justified in deleting the addition of Rs. 30,58,04,134/- on account of deduction u/s. 80IA disallowed on Deferred Tax Liability. During the financial year, the assesse materialized the DTL which was duly certified by Independent Auditor appointed by the CAG. As per Regulation 39 of the Tariff Regulation issued vide Central Electricity Regulatory Commission Notification No. 1-7/145(160)/2000-CERC dated 19.01.2019 which provides that Deferred Tax Liabilities for the period up to 31st March 2009, whenever materialized are recoverable directly from the beneficiaries and accounted for on yearly basis. Accordingly, the amount of Rs. 30,58,04,134/- received as sale of Power and directly deriving its source from the operating activity of power generation. Thus no doubt the assessee is eligible for deduction u/s. 80IA of the Act. Further the amount is included in sales, this forms a part of operating Turnover. Thus the Page 4 of 19 & ITANo.20/Ind/2021 & CO NO.03/Ind/20219 NHDC Ltd. Page 5 of 19 Assessing Officer completely ignored the Tariff Regulation and the Notification issued by CERC and denied the benefit of DTL to the assessee. However the Ld. CIT(A) after considering the CERC Regulation allowed the benefit in favour of the assessee. This issue is now settled by Hon’ble High Court of Madras in the case of Neyveli Lignite Corporation Ltd. (cited supra). Thus the findings of the Ld. CIT(A) that the assessee company is eligible for deduction u/s. 80IA of the Act on account of DTL being a Revenue from operation recoverable from the beneficiary company. Thus the grounds raised by the Revenue is devoid of merits and the same is liable to be dismissed.” 6.1 The parties have fairly submitted that the issue for the year under consideration is identical and based on identical facts as it was for A.Y.2013-14 & 2014-15. Accordingly to maintain rule of consistency we follow the earlier order of this Tribunal in assesse’s own case and decided this issue against the revenue.
The assessee in the cross appeal has raised following grounds of appeal:
“1. On the facts and circumstances of the case, the order passed by the learned CIT(A) is bad both in the eye of law and on facts. 2. (i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the action of the AO in not allowing deduction amounting to Rs.82,61,40,872/- claimed by the assessee under Section 80-IA of the Act. (ii) That the abovesaid disallowance has been confirmed despite the fact that the said incomes are directly derived from the eligible business of the assessee and deduction is allowable under section 801A of the Income Tax Act. (iii) That the abovesaid disallowance has been confirmed by grossly ignoring the submissions along with the evidences brought on record by the assessee in this regard. (iv) Without prejudice to the above and in the alternative, the learned CIT(A) has erred both on facts and in law in ignoring the settled position of law that in case said incomes are held not to be eligible for deduction under Section 80-IA, corresponding relief on account of expenses related to said incomes may also be given. 3. (i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the disallowance of Rs. 1,31,495/- made by the AO on account of loss on sale of assets.
& ITANo.20/Ind/2021 & CO NO.03/Ind/20219 NHDC Ltd. Page 6 of 19 (ii) That the above said disallowance has been confirmed by rejecting the alternate contention of the assessee that the disallowance of Rs. 1,31,495/- made by the AO on account of loss on sale of the assets need to be considered while computing deduction under section 801A of the Income Tax Act. 4. That the appellant craves leave to add, amend or alter any of the grounds of appeal
.”
8. Ground no.1 is general in nature and does not require any specific adjudication.
9. Ground no.2 is regarding disallowance of deduction u/s 80IA in respect of various items of income.
We will consider these items of income one by one as under:
(i). Income from beneficiary state
The assesse has shown income from beneficiaries states of Rs. 22,73,82,354/- in respect of ISPS and Rs.52,62,61,934/- in respect of OPS total amounting to Rs.75,36,44,288/-. The Ld. Counsel for the assesse has submitted that this income represents the interest on outstanding dues receivable from the states against sales of electricity therefore, this is income derived directly from eligible business and eligible for deduction u/s 80IA of the Act. The assessee received the interest income on trade receivable from M.P. Power Management Company Ltd. on the outstanding dues arising out of sales of electricity. Therefore, these are income directly derived from the eligible business for deduction u/s 80IA of the Act. He has relied upon the judgment of Hon’ble Delhi High Court in case of CIT vs. Advance Detergent Ltd. & Bharat Rasayan Ltd. 339 ITR 81 wherein it was held that the interest on delayed payment becomes part of the sale proceeds and consequently an income derived from the business eligible for deduction u/s 80IA. He has also relied upon the judgment of Hon’ble Gujarat High Court in case of Nirma Industries Ltd vs. DCIT 283 ITR 402 which has been upheld by the Hon’ble Supreme Court as SLP filed by the revenue was dismissed reported in 2007 (4) TMI 727. Thus, Ld. AR has submitted that the interest on outstanding dues for Page 6 of 19 & ITANo.20/Ind/2021 & CO NO.03/Ind/20219 NHDC Ltd. Page 7 of 19 sale of electricity is part and parcel of the sale proceeds and eligible for deduction u/s 80IA.
10.1 On the other hand, Ld. DR has relied upon the orders of the authorizes below and submitted that there is no first degree nexus between the interest income and eligible business of the assessee and therefore, the interest on the outstanding dues is not eligible for deduction u/s 80IA.
10.2 We have considered rival submissions as well as relevant material on record. There is no dispute on the point that the interest income which has no direct nexus with the industrial undertaking or business activity of the assessee then the same would not be regarded as income derived from the eligible business for the purpose of deduction u/s 80IA of the Act. However, the interest on outstanding dues for sale of electricity is part and parcel of the sale proceeds as this is not surplus fund parked by the assessee with the bank for earning interest. The Hon’ble Delhi High Court in case of CIT vs. Advance Detergent Ltd. and Bharat Rasayan Ltd. (supra) has considered this issue in para 12 to 18 as under:
“12. We now proceed to determine the question posed before us applying the principle laid down by the Supreme Court in the aforesaid case.
13. The respondent-assessee, which is an industrial undertaking, had supplied goods to its various customers which had been manufactured by it. Some of these customers did not make payment in time. The dues which were payable by those buyers attracted interest on late payment charges. In this manner, ultimately, the payments which were received by the assessee against the supply of goods also included interest on overdue payments.
14. Precisely, this very issue came up for consideration before the Gujarat High Court in the case of Nirma Industries Ltd. v. Deputy CIT [2006] 283 ITR 402 (Guj). That was also a case where interest was received by the assessee from the debtors for late payment of the sale proceeds and the question was as to whether this interest can be treated as the income derived from the business for the purpose of section 80-1 of the Act. Answering the question in favour of the assessee, the Gujarat High Court relied upon the judgment of the apex court in the case of CIT v. Govinda Choudhury and Sons [1993] Page 7 of 19 & ITANo.20/Ind/2021 & CO NO.03/Ind/20219 NHDC Ltd. Page 8 of 19 203 ITR 881 (SC) in which case the Supreme Court had held that interest was of the same nature as other trading receipts in the following manner: "The assessee is a contractor. His business is to enter into contracts. In the course of the execution of these contracts, he has also to face disputes with the State Government and he has also to reckon with delays in payment of amounts that are due to him. If the amounts are not paid at the proper time and interest is awarded or paid for such delay, such interest is only an accretion to the assessee's receipts from the contracts. It is obviously attributable and incidental to the business carried on by him. It would not be correct, as the Tribunal has held, to say that this interest is totally de hors the contract business carried on by the assessee. It is well settled that interest can be assessed under the head 'Income from other sources' only if it cannot be brought within one or the other of the specific heads of charge. We find it difficult to comprehend how the interest receipts by the assessee can be treated as receipts which flow to him de hors the business which is carried on by him. In our view, the interest payable to him certainly partakes of the same character as the receipts for the payment of which he was otherwise entitled under the contract and which payment has been delayed as a result of certain disputes between the parties. It cannot be separated from the other amounts granted to the assessee under the awards and treated as 'income from other sources'."
15. The Gujarat High Court approached the issue from another angle for arriving at the same conclusion. It observed that when the assessee enters into a contract for sale of its products it could either stipulate (a) that interest at the specified rate would be charged on the unpaid sale price and added to the outstanding till the point of time of realisation, or (b) that in case of delay the payment for sale of products worth Rs. 100 to carry the sale price of Rs. 102 for the first month's delay, Rs. 104 for the second month's delay, Rs. 106 for the third month's delay and so on. If the contention of the Revenue is accepted merely because the assessee has described the additional sale proceeds as interest in the case of contract as per illustration (a) above, such payment would not be profits derived from the industrial undertaking, but in the case of illustration (b) above, if the payment is described as sale price it would be profits derived from the industrial undertaking. This can never be, because in sum and substance, these are only two modes of realising the sale consideration, the object being to realise the sale proceeds at the earliest and without delay. Purchaser pays higher sale price if it delays payment of sale proceeds. In other words, this is a converse situation to offering of cash discount. Thus, in principle, in reality, the transaction remains the same and there is no distinction as to the source. It is incorrect to state that the source for interest is the outstanding sale proceeds. & ITANo.20/Ind/2021 & CO NO.03/Ind/20219 NHDC Ltd. Page 9 of 19 16. Thus, according to the Gujarat High Court, when interest is paid on delayed payment, it can be treated as higher sale price which is converse situation to offering of cash discount because the transaction remains the same and there is no distinction as to the source. Looking from this angle, the interest becomes part of the higher sale price and is clearly derived from the sales made and is not divorced therefrom. It is, thus, the direct result of the sale of goods and the income is derived from the business of industrial undertaking.
The same view is expressed by the various other High Courts in the following judgments: (i) Phatela Cotgin Industries (P) Ltd. v. CIT [2008] 303 ITR 411 (P&H); (ii) CIT v. Flender Macneill Gears Ltd. [1984] 150 ITR 83 (Cal); (iii) Tata Sponge Iron Ltd. v. CIT [2007] 292 ITR 175 (Orissa); and (iv) CIT v. Indo Matsushita Carbon Co. Ltd. [2006] 286 ITR 201 (Mad).
18. There is no reason to depart from the aforesaid view taken consistently by various High Courts, which is in tune with the principle laid down by the Supreme Court in Liberty India [2009] 317 ITR 218 (SC). We answer this question in favour of the assessee and against the Revenue.” 10.3 The Hon’ble High Court has relied upon the judgment of Hon’ble Gujarat High Court in case of Nirma Industries Ltd vs. DCIT (supra). Thus a consistent view has been taken by the Hon’ble High Courts on this issue. The SLP filed by the department against the judgment of Hon’ble Gujarat High Court in case of Nirma Industries Ltd vs. DCIT (supra) was dismissed vide order dated 05.04.2017. We further note that even in the other cases as relied upon by the Ld. Counsel of the assessee in case of Phatela Cotgin Industries P. Ltd. vs. CIT 303 ITR 411 (P & H) as well as in case of CIT vs. M/s. Translam Ltd. (All) the Hon’ble High Courtd have taken the same view and decided this issue in favour of the assesse. For the sake of brevity the other decisions relied upon by the assesse are not being reproduced by us. Accordingly by following the judgment of Hon’ble Gujarat High Court in case of Nirma Industries Ltd vs. DCIT (supra) as well as Hon’ble Delhi High Court in case of CIT vs. Advance Detergent Ltd. and Bharat Rasayan Ltd. (supra) we hold that the interest received by the assessee on the outstanding dues against sale of electricity is in the Page 9 of 19 & ITANo.20/Ind/2021 & CO NO.03/Ind/20219 NHDC Ltd. Page 10 of 19 nature of sale proceeds and therefore, the same would be regarded as income derived from the eligible business of the assesse and consequently eligible for deduction u/s 80IA of the Act.
ii) Interest on Loans and Advances to Employees
The assesse received interest on employee loans and advances total amounting to Rs.1,29,92,774/-. Ld. Counsel for the assesse has submitted that interest on loans and advances given to the employees as per the terms and conditions of the employment. The loans and advances were given to the employees posted and working in the Power station and hence eligible for deduction u/s 80IA of the Act. In support of his contention he has relied the judgment of Hon’ble Orissa High Court in case of Odisha Power Generation Corporation Ltd. vs. ACIT 456 ITR 495 and submitted that the Hon’ble High Court has held that interest received on advances and loans given to employees are receipts in the normal course of carrying its business and should be considered as income derived from its essential business activities. This was for the purpose of employing for overall efficiency of the undertaking which is devoted to the single purpose of generation of power. Thus, Ld. Counsel has submitted that the interest received on loans and advances given to the employees is an income having direct nexus with the business undertaking of the assesse eligible for deduction u/s 80IA of the Act. He has relied upon the decision of Delhi Benches of the Tribunal in case of DCIT vs. M/s NHPC Ltd in ITANo.3650, 3738/Del/2015 which is parent company of the assesse wherein the tribunal has decided this issue including the other income in the nature of interest on the advance paid to contractors liability, provision written back, Miscellaneous income represents township recoveries from employees, guesthouse recovery, electricity recovery from employees etc. Thus, Ld. AR has submitted that this issue is covered by the orders of Delhi Tribunal in case of M/s NHPC Ltd.(supra) wherein the tribunal has taken a consistent view for the several assessment years. The Latest decision of the Tribunal in case of NHPC Ltd. vs. ACIT in ITANo.4915/Del/2019 is dated 14.09.2023. Page 10 of 19 & ITANo.20/Ind/2021 & CO NO.03/Ind/20219 NHDC Ltd. Page 11 of 19 11.1 On the other hand, Ld. DR has submitted that loans and advances given to the employees have no nexus much less direct nexus with the activity of the assessee and therefore, it does not fall in the ambit of the income derived from eligible undertaking. Ld. CIT-DR has relied upon the order of the AO and Ld. CIT(A) and submitted that the AO has relied upon the judgment of Hon’ble Supreme Court in case of Pandian Chemicals Ltd. 262 ITR 278, Sterling Foods 237 ITR 53 as well as Cambay Electrical Supply Co. Ltd. 113 ITR 84. Ld. DR has further submitted that even in case of Liberty India Ltd. vs. CIT 183 taxman 349 (SC) the Hon’ble Supreme Court has made a fine distinction between profit linked incentives and investment linked incentives and the concept of first degree source “derived from” against “attributable” has been taken into consideration. Thus, ld. DR has submitted that the interest on the loan given to the employees has no direct nexus with the business undertaking.
11.2. We have considered rival submissions as well as relevant material on record. The AO has denied the claim of deduction u/s 80IA in respect of all the items of income which are shown under the head other income including interest on loans and advances to employees. The AO has discussed the legal proposition as laid down by various judgment of Hon’ble Supreme Court as well as High Courts and finally arrive to the conclusion that interest income in question is not allowable for deduction u/s 80IA as it does not fall in the ambit of income derived from eligible business. The CIT(A) has upheld the order of the AO on the similar reasoning as given by the AO that these incomes are derived from ancillary activities and not part of operating activities. The Ld. Counsel for the assessee has relied upon the judgment of Hon’ble Orissa High Court in case of Odisha Power Generation Corporation Ltd. vs. ACIT 456 ITR 495 as well as decision of the Delhi Bench of the Tribunal in case of NHPC Ltd. vs. ACIT (supra). It is pertinent to note that the decision of Hon’ble Supreme Court in case of Pandian Chemicals Ltd.(supra) still holds the field on this point. Further in case of Liberty India Ltd. vs. CIT(supra) the & ITANo.20/Ind/2021 & CO NO.03/Ind/20219 NHDC Ltd. Page 12 of 19 Hon’ble Supreme Court has also examined the first degree nexus between the income and eligible undertaking. By considering these judgments the Hon’ble Delhi High Court in case of Krishak Bharati Co-operative ltd. vs. JCIT 360 ITR 219 has considered an identical issue regarding interest income on advances to employees in para 2 & 3 as under:
“2. The said order dated September 6, 2011, records that in an earlier decision dated November 15, 2006, in the case of the appellant, reported as Krishak Bharati Co-operative Ltd. v. Jt. CIT [2008] 300 ITR 92/[2007] 164 Taxman 406 (Delhi), service charges, equipment hire charges and interest on loans to employees, it was held would not be entitled to special deduction under section 80-1 of the Income-tax Act, 1961 ("the Act", for short). On an appeal filed by the appellant-assessee, the Supreme Court remanded the case to the Tribunal in respect of service charges. In so far as equipment hire charges and interest on loan to the employees were concerned, the same were not pressed having regard to the small amount involved. The order dated September 6, 2011, records: whether earlier decision reported in Krishak Bharati Co-operative Ltd. (supra) would be applicable or not, was a question, which would be examined at the time of final arguments.
Having heard learned counsel for the appellant, we feel that the aforesaid decision in the case of the assessee, which pertains to the assessment year 1994-95, squarely applies as far as equipment hire charges and interest on loan to the employees are concerned. It has been held in the said decision in Krishak Bharati Co-operative Ltd. (supra) that the two amounts do not constitute profits and gains "derived from" the industrial undertaking as mentioned in sub-section (1). Section 80-1 stipulates that the profit and gains derived by an assessee must directly relate to gains/income of an industrial undertaking engaged in manufacture or production of articles or things. The said decision of the Division Bench is binding on us and the issue raised is squarely covered. The same question/issue raised was considered and the claim/contention of the appellant-assessee was rejected. We accordingly following the said judgment reject the said claim. We also record that crane hire charges would be also covered by the aforesaid decision, which refers to equipment hire charges.” 11.3 The Hon’ble Delhi High Court again in case of Krishak Bharati Cooperative ltd. vs. JCIT 142 taxmann.com 331 has considered an identical issue in para 3 & 4 as under:
& ITANo.20/Ind/2021 & CO NO.03/Ind/20219 NHDC Ltd. Page 13 of 19 “3. The issue raised by the appellant-assessee relates to deduction or coverage under section 80-IA of the Income- tax Act, 1961 (Act, in short) in respect of the following incomes: i. Interest Income from employees on advances ii. Equipment Hire charges iii. Crane Hire charges iv. Ammonia Tank Wagon Hire Charges. v. Interest Income from Banks and Financial institutions vi. Interest income earned by the Appellant -from investment deposit under section 32AB of the Act in IDBI Bank.
In respect of the claims/incomes under Serial No. (i) to (v) above, the issue stands decided by this Court against the appellant- assessee in favour of the revenue in Krishak Bharati Co-operative Ltd. v. Jt. CIT [2014] 46 taxmann.com 445/224 Taxman 139 (Mag.)/360 ITR 219 (Delhi) and Krishak Bharati Co-operative Ltd. v. CI [2012] 21 taxmann.com 518/208 Taxman 37 (Mag.)/[2014] 360 ITR 209 (Delhi). The aforesaid factual position and that the amounts/income mentioned in Serial No. (i) to (v) are covered by the said decisions, is accepted b the counsel for the appellant-assessee, who states that appeals are preferred and pending before the Supreme Court. Following the aforesaid orders, the present appeal in respect of serial nos. (i) to (v) has to be dismissed and is accordingly so ordered. 11.4 The said decision of the Hon’ble Delhi High Court was challenged before the Hon’ble Supreme Court but the SLP filed by the assesse was dismissed vide judgment reported in 289 taxman 75 as under:
“1.Having heard Learned counsel for the petitioner, we do not find any reason to interfere with the order under appeal.
The special leave petition is accordingly dismissed.” 11.5 Thus in view of the judgment of Hon’ble Supreme Court in case of Pandian Chemicals Ltd. vs. CIT (supra), Sterling Foods (supra), Liberty India Ltd. vs. CIT (supra) and Krishak Bharati Cooperative ltd. vs. JCIT (supra) we hold that the interest received from employees on advances does not constitute the income derived from the eligible business for the purpose of section 80IA of the Act.
& ITANo.20/Ind/2021 & CO NO.03/Ind/20219 NHDC Ltd. Page 14 of 19 (iii) Interest on other of Rs.1,03,442/-
Ld. Counsel for the assessee has submitted that this interest income was received on the advances paid to the contractors for execution of work at site. Hence the same is eligible for deduction u/s 80IA of the Act.
12.1 On the other hand, Ld. DR has relied upon the orders of the authorities below.
12.2 Having considered the rival submissions and careful perusal of the relevant material on record we find that the claim of the assessee has to be considered in the light of the terms and conditions of the contract under which advance were given. In case the advance was required to be given as per the terms and conditions of the agreement then it is nothing but would reduce expenditure incurred by the assessee on execution of work at site and consequently eligible for deduction u/s 80IA. Since the relevant details and the contract/agreement between the parties if any is not before us therefore, in the facts and circumstances of the case and in the interest of justice we set aside this issue to the record of the AO for re- adjudication of the same after considering terms and conditions of the contract under which the advance was given by the assessee.
(iv) Liability/Provision not required written back total of Rs.62,05,178/-
13. Ld. Counsel for the assessee has submitted that this represents the expenditure which was accounted based on the certain estimation in the preceding years and was adjusted to the current year to the extent it was excess booked. All the relevant expenses which were claimed in the earlier year are solely for the industrial undertaking and any reverse of such expenditure is income derived from industrial undertakings is eligible for deduction u/s 80IA. & ITANo.20/Ind/2021 & CO NO.03/Ind/20219 NHDC Ltd. Page 15 of 19 13.1 On the other hand, ld. DR has relied upon the orders of the authorities below.
13.2 We have considered rival submissions as well as relevant material on record. The AO has not examined the factual aspect of each and every item but only on the legal point has disallowed the claim of the assesse. If the amount is written back by the assessee towards the excess provision made in the preceding years which were allowed as deduction against the business profit of the assessee then the said amount would be eligible for deduction u/s 80IA in the year of written back of the said provision. Therefore, on principal this claim of the assesse is allowable being an expenditure already claimed resulting reduction in the claim of benefit u/s 80IA and consequently when the said provision is reversed to the extent of excess booked the same is eligible for deduction u/s 80IA of the Act. The AO is directed to verify the relevant facts and then allowed the claim of the assesse.
(v.) Other Miscellaneous income of Rs.3,34,34,544/-
14. Ld. Counsel for the assessee has submitted that this represent township recoveries from employees, guest house recovery, electricity recovery from employees, rent/hire charges etc. None of the activities are carried out with a view to earn revenue and corresponding expenditure is directly attributable to the industrial undertaking like township maintenance expenses etc. He has further submitted that this is in fact no income but reduction of expenses. The facilities were given to its employees for better condition of employment and to improve the overall efficiency of the undertaking which is devoted to the single purpose of generation of power hence is derived from industrial undertaking and eligible for deduction u/s 80IA of the act.
14.1 He has relied upon the judgment of Orissa High Court in case of Odisha Power Generation Corporation Ltd. vs. ACIT(supra) as well as decision of the Delhi bench of the Tribunal in case of DCIT vs. M/s NHPC Ltd (supra). Page 15 of 19 & ITANo.20/Ind/2021 & CO NO.03/Ind/20219 NHDC Ltd. Page 16 of 19 14.2 On the other hand, Ld. DR has relied upon the orders of the authorities below and submitted that the amounts received from the employees on account of guest house recovery, electricity recovery from employees, rent/hire charges etc. do not form part of the business income of the assessee eligible for deduction u/s 80IA of the Act.
14.3 We have considered rival submissions as well as relevant material on record. At the outset, we note that an identical issue has been considered by the Hon’ble Orissa High Court in case of Odisha Power Generation Corporation Ltd. vs. ACIT(supra) wherein the Hon’ble High Court has held in para 12 to 15 as under:
“12. The Assessee offered an explanation regarding interest income earned by it, from advances given to its employees as well as provision of electricity and water charges collected from water through its employees and contractors for facilities in the township, receipt from transit hostel, sale of scrap, insurance claim etc. The facilities were given to its employees for better conditions of employment. This was to improve the overall, efficiency of the undertaking which is devoted to the single purpose of generation of power. The Court, therefore, has no difficulty in accepting the submission of the Assessee that the interest received on advances and loans given to its employees are receipts in normal course of carrying its business and should be considered as income derived from its essential business activities. Likewise, the late payment by GRIDCO for the electricity supplied, is sought to be made up by GRIDCO by issuing bonds on which the Assessee earns interest. This also therefore, has a direct nexus with the essential business activity of the Assessee.
In CIT v. Meghalaya Steels Ltd. (supra), the Respondent there was engaged in manufacturing steel and ferro silicon. The interest earned on the subsidies were treated as not income derived from business of the Assessee and therefore, not having a close and direct nexus with the business of the Assessee. The subsidies, according to the Department, did not qualify for deduction. The Assessee's argument on the other hand was that the subsidies were given only in order that the cost of manufacture would be reduced. These subsidies were reimbursement for either the entire or partial costs incurred towards transporting raw materials to the Assessee's factory or finished products to its dealers, who then sell the finished products. Further, power subsidy, interest subsidy and insurance subsidy were also reimbursed, either wholly or partially, power being & ITANo.20/Ind/2021 & CO NO.03/Ind/20219 NHDC Ltd. Page 17 of 19 a necessary element of the cost of manufacture of the Respondent's products.
Interpreting the similar expression contained in Section 80 IB, the Supreme Court in CIT v. Meghalaya Steel Ltd. (supra) referred to the decisions in Cambay Electric Supply Industrial Co. Ltd. v. CIT (1978) 2 SCC 644; CIT v. Sterling Foods (1999) 4 SCC 98 and Pandian Chemicals Ltd. (supra) and observed as under: "18......What is to be seen for the applicability of Sections 80-IB and 80- IC is whether the profits and gains are derived from the business. So long as profits and gains emanate directly from the business itself, the fact that the immediate source of the subsidies is the Government would make no difference, as it cannot be disputed that the said subsidies are only in order to reimburse, wholly or partially, costs actually incurred by the assessee in the manufacturing and selling of its products. The "profits and gains spoken of by Sections 80-1B and 80-IC have reference to net profit. And net profit can only be calculated by deducting from the sale price of an article all elements of cost which go into manufacturing or selling it. Thus understood, it is clear that profits and gains are derived from the business of the assessee, namely profits arrived at after deducting manufacturing cost and selling costs reimbursed to the assessee by the Government concerned."
15. Extending the same analogy and reasoning to the interpretation of Section 80-1A, this Court is satisfied that on the netting principle, since there is no other activity of the Assessee except power generation, the AO, the CIT(A) and the ITAT, were in error in disallowing the aforementioned sum as deduction under 80-IA of the IT Act. There is merit in the contention of the Assessee that the interest received from the bonds issued by GRIDCO have a direct nexus with its essential business activity and therefore, was income derived from it, thus, making it eligible for such deduction.” Following the judgment of Hon’ble Orissa High Court we decide this issue in favour of the assessee and the claim of the assessee u/s 80IA is allowed.
(vi) Other income of Corporate Office
The Ld. Counsel for the assessee has submitted that this includes the interest on employees advances and corporate office written back of the provision and other miscellaneous income. & ITANo.20/Ind/2021 & CO NO.03/Ind/20219 NHDC Ltd. Page 18 of 19 15.1 We have considered rival submissions as well as relevant material on record. So far as the interest on advances to employees is concerned this issue has been considered and decided by us against the assessee and in favour of the revenue. Accordingly the interest on advance to employees is not eligible for deduction u/s 80IA of the Act. The provision written back during the year is an identical issue as already considered and decided that if the provision is already allowed in the preceding year against business income eligible for deduction u/s 80IA then the written back of the provision would be eligible for deduction u/s 80IA. Since the relevant facts have not been examined by the authorities below therefore, the AO is directed to verify these facts and then allowed the claim. Other Miscellaneous income and profit on sale of asset would not constitute the income derived from eligible business undertaking of the assessee and accordingly the same is not eligible for deduction u/s 80IA of the Act.
Ground no.3 is regarding disallowance of claim of deduction on account of loss on sale of assets. Ld. Counsel for the assessee has submitted that after making disallowance of this claim of expenditure/deduction on account of loss of sale of asset the business income of the assessee would be increased and the deduction u/s 80IA of the Act be allowed on the enhanced income consequential to this disallowance. Ld. CIT-DR has relied upon the order of the authorities below.
16.1 Having considered the rival submissions and careful perusal of the relevant material on record we find that the AO has disallowed the claim of deduction of Rs.1,31,495/- by considering the same as not a business expenditure being loss on sale of asset. Thus, consequential effect of disallowance of this amount would be enhancement of the business income of the assessee eligible for deduction u/s 80IA of the Act. However, the AO has not given benefit of deduction u/s 80IA after the said amount is added back to the total income of the assessee. Accordingly the AO is directed to give effect to the disallowance for the purpose of deduction u/s & ITANo.20/Ind/2021 & CO NO.03/Ind/20219 NHDC Ltd. Page 19 of 19 80IA of the Act which would be calculated on the enhanced income of the assessee.
CO No. 03/Ind/2023
17. The assessee has not raised any new ground but repeated the grounds as raised in the cross appeal. In view of our finding on the ground of the appeal of the assessee the grounds raised in the cross objection becomes infructuous.
In the result, the appeal of the revenue is dismissed, Cross appeal of the assesse is partly allowed for statistical purposes and CO is dismissed being infructuous.
Order pronounced in the open court on 11 .12.2023