CHHATTISGARH STATE POWER GENERATION CO. LTD.,RAIPUR vs. DY. COMMISSIONER OF INCOME TAX-1(1), RAIPUR

आदेश / ORDER

PER RAVISH SOOD, JM:

3 Chhattisgarh State Power Generation Company Ltd. ITA No.16/RPR/2 “1. That on the facts and in the circumstances of the case and in law, the CIT(A) erred in confirming disallowance of depreciation of Rs.38,06,00,357/- claimed under section 32 of the Income Tax Act, 1961.

2. That on the facts and in the circumstances of the case and in law, CIT(A) erred in confirming addition of stale cheques of Rs.9,75,363/- by relying on the Supreme Court judgment in the case of CIT Vs. Sundram Iyenger & Sons Ltd. 222 ITR 344.

3. That on the facts and in the circumstances of the case and in law, the CIT(A) erred in confirming lumpsum 2/3rd disallowance of Rs.20,31,73,159/- out of total expenses on Repair and Maintenance of plant and machinery. That the above grounds of appeal are without prejudice to each other. That the appellant reserves its right to add, alter, amend or withdraw any ground of appeal either before or at the time of hearing of this appeal.”

4 Chhattisgarh State Power Generation Company Ltd. ITA No.16/RPR/2 company was entitled for depreciation on the WDV that was lastly shown by CSEB, before its disintegration, for each block of assets, which thereafter were ultimately transferred to all the new companies formed on its disintegration, viz. CSPGCL, CSPTCL, CSPDCL and CHPHCL. In the absence of the exact figures of WDV of transferred assets, the A.O calibrated the same on a pro-rata basis, i.e. on a percentage allocation to each company that was formed pursuant to the aforesaid disintegration of CSEB, as under:

The A.O on the basis of his aforesaid observations restricted the assessee’s claim for deprecation to an amount of Rs.159,18,26679/-. Accordingly, the assessee’s claim for excess depreciation of Rs.38,06,00,357/- [Rs.1972427036/- (-) Rs.1591826679/-] was disallowed by the A.O.

5 Chhattisgarh State Power Generation Company Ltd. ITA No.16/RPR/2

6 Chhattisgarh State Power Generation Company Ltd. ITA No.16/RPR/2

SL Particulars P & M (INR) Building (INR) (a) Repair & Maintenance Exp. 29,35,52,568/- 3,49,72,224/- (b) 2/3rd of Expenditure 19,57,01,712/- 2,33,14,816/- (c) Less : Deprn. @7.5%/5% (-)1,46,77,628/- (-)11,65,741/- (d) Amount of addition 18,10,24,084/- 2,21,49,075/- Total Addition Rs.20,31,73,159/- Accordingly, on the basis of his aforesaid deliberations the A.O vide his order passed u/s.143(3) dated 30.12.2011 scaled down the loss of the assessee company to an amount of Rs.(-) 210,45,20,072/-.

7 Chhattisgarh State Power Generation Company Ltd. ITA No.16/RPR/2

11. Considering the aforesaid factual position, it was further observed by the Tribunal that the deeming section created by virtue of “Explanation 4” to Section 2(19AA) treating the reorganization of State bodies as a demerger cannot be extended to Section 43(6) of the Act so as to calculate the WDV of the successor companies as per “Explanation 2B” below Section 43(6) of the Act. In sum and substance, it was observed by the Tribunal that the provisions of “Explanation 2B” to Section 43(6) of the Act were not applicable to the case before them. On the basis of the aforesaid facts, it was observed by the Tribunal that the cost of assets acquired by the assessee company would be the consideration that was paid by it by issuing equity shares to CGSPHCL. It was further observed by the Tribunal that cost of assets in the hands of the assessee would be the value on which depreciation would be allowed as per the rates prescribed u/s.32(1)(ii) of the Act. Backed by its aforesaid observations, the Tribunal had directed the A.O to allow deprecation to the assessee on the cost of acquisition of the assets as was recorded by the assessee in accordance

9 Chhattisgarh State Power Generation Company Ltd. ITA No.16/RPR/2 with the scheme framed by the Government of Chhattisgarh. For the sake of clarity, the relevant observations of the Tribunal are culled out as under:

“10. We have carefully considered the rival submission. The question before us is whether the acquisition of assets by the assessee was pursuant to demerger within the meaning of Explanation 4 to section 2(19AA) of the Act so as to invite the provisions of Explanation 2B to section 43(6) of the Act in order to restrict the depreciation to the WDV of the erstwhile entity. At the outset, we refer to Explanation 4 to section 2(19AA) of the Act, which reads as under: “2(19AA)… “demerger”, in relation to companies, means the transfer, pursuant to a scheme of arrangement under sections 391 to 394 77 of the Companies Act, 1956 (1 of 1956), by a demerged company of its one or more undertakings to any resulting company in such a manner that— (i) all the property of the undertaking, being transferred by the demerged company, immediately before the demerger, becomes the property of the resulting company by virtue of the demerger; (ii) all the liabilities relatable to the undertaking, being transferred by the demerged company, immediately before the demerger, become the liabilities of the resulting company by virtue of the demerger; Explanation 4.—For the purposes of this clause, the splitting up or the reconstruction of any authority or a body constituted or established under a Central, State or Provincial Act, or a local authority or a public sector company, into separate authorities or bodies or local authorities or companies, as the case may be, shall be deemed to be a demerger if such split up or reconstruction fulfils [such conditions as may be notified in the Officer Gazette, by the Central Government”]. (Underlined for emphasis by us) 10.1 The Explanation 4 to section 2(19AA) of the Act was inserted vide Finance Act, 1999 which was subsequently amended by Finance Act, 2000 to provide that reconstruction will be deemed demerger subject to fulfilment of conditions as may be specified by the Central Government. The effect of amendment has been 10 Chhattisgarh State Power Generation Company Ltd. ITA No.16/RPR/2 explained in the CBDT Circular No. 794 dated 9.8.2000, which reads as under: “6.1 Explanation 4 of section 2(19AA) as inserted by the Finance Act of 1999 provided that the splitting up or reconstruction of any authority or body constituted under a Central, State or Provincial Act or a local authority or a public sector company into separate bodies or authorities shall be deemed to be demerger on fulfilling the conditions specified in sub-clauses (i) to (vii), to the extent possible. It was pointed out that in case of spitting of these authorities, boards or companies, the conditions specified in the section may not be relevant in relation to such authorities or boards, inasmuch as all properties and liabilities may not be transferred; there may not be any consideration for demerger by way of issue of shares; the transfer may not be on going concern basis, etc. **** 6.2 The Act, therefore, amends Explanation 4 to provide that such splitting up or reconstruction shall be subject to conditions as may be specified by the Central Government. 6.3 This amendment takes effect retrospectively from the 1st day of April, 2000. (Underlined for emphasis by us) As can be seen from above, Explanation 4 to section 2(19AA) of the Act creates deeming fiction to cover within its ambit even the cases of splitting up or the reconstruction of any authority or body constituted under a Central, State or Provincial Act into separate company provided the split up or reconstruction fulfils the conditions notified by the Central Government. Thus, in order to fall within the deeming fiction, twin conditions need to be satisfied, namely, (a) there should be splitting up or reconstruction of any authority or body, etc.; and (b) such spilt up or reconstruction shall fulfil the conditions notified by the Central Government. Further, in cases wherein Explanation 4 is applicable, the other conditions of demerger as stated on earlier part of the section will not be applicable as is evident from the above Circular explaining the rationale behind amendment in Explanation 4 to section 2(19AA). 10.2 In exercise of the power conferred under Explanation 4 to section 2(19AA) of the Act, the Central Government has issued Notification No. 11576/F.No.149/133/2000-TPL(Pt.) dated 26.12.2000 wherein it laid down following two conditions to be fulfilled for treating the reconstruction as demerger, namely,

11 Chhattisgarh State Power Generation Company Ltd. ITA No.16/RPR/2

(i) splitting up or reconstruction is effected through a notification in the Official Gazette by the Central or the State. Government; and, (ii) assets of the split up or reconstructed authority or body, are transferred to one or more resulting companies on a going concern basis. 10.3 In the present case, the CSEB, being a body established under state law, was split up/ reorganized into separate companies. The State Government notified the scheme of reorganization known as 'CSEB Transfer Scheme Rules, 2010 according to which as per the provisions of section 131 of the Electricity Act, 2003, all the assets of the erstwhile CSEB were transferred and stood vested in the State Government, The State Government after acquiring the assets, transferred these assets to all the companies at the value determined on the basis of the earning potential of the assets. 10.4 We find that admittedly there was reconstruction of body established by the State Government, namely CSEB, into separate companies through a notification in the Official Gazette of Government of Chhattisgarh, being State Government. Thus, first condition laid down by the Central Government in the above notification is fulfilled. 10.5 The second condition is that assets of the reconstructed body should be transferred to one or more resulting companies on 'going concern basis. We find that the assets and liabilities of the power distribution activities were very much transferred in favour of the assessee company by the State Government as is evident from the Notification dated 29.10.2010 dated No. 202/F-21/13/09/13/2/ED notifying the opening balance sheet of successor company which, inter alia, included the liabilities. 10.6 Thus, we find that all the conditions of section 2(19M) of the Act are fulfilled in this case and, therefore, the above transaction clearly falls within the meaning of provisions of Explanation 4 to section 2(19AA). We may hasten to note here that the aforesaid finding is not enough to uphold the stand of the Assessing Officer in altering the depreciation claimed by the assessee. The next, and the more pertinent, question to examine is as to whether or not Explanation 2B to section 43(6) of the Act which provides for depreciation on WDV of the assets in the hands of resulting company under demerger is applicable in this case or not? Explanation 2B to section 43(6) of the Act reads as under: “Explanation 2B.-Where in a previous year, any asset forming part of a block of assets is transferred by a demerged

12 Chhattisgarh State Power Generation Company Ltd. ITA No.16/RPR/2 company to the resulting company, then, notwithstanding anything contained in clause (1), the written down value of the block of assets in the case of the resulting company shall be the [written down value of the transferred assets [***] of the demerged company immediately before the demerger" It is evident from the above that for applicability of the above provision, there ought De transfer of assets by the demerged company to the resulting company. In the =sent case, the assets have been transferred by the State Government to the assessee and admittedly, the State Government has not demerged its undertaking art thus, it cannot be said to be demerged company; the assets belonged to CSEB, fetich were transferred to the State Government, who in turn transferred the assets the assessee-company. The Explanation 2B to section 43(6) of the Act provides for situation wherein there are only two parties i.e. demerged company and resulting company, whereas in the present case three parties are involved namely (i) CSEB, (ii) State Government; and, (iii) assessee. Thus, the above Explanation 26 does not govern the present situation, as ostensibly, the deeming fiction created by virtu; of Explanation 4 to section 2(19AA) treating the reorganization of state bodies as demerger cannot be extended to section 43(6) of the Act so as to calculate the WDV of the successor companies as per Explanation 28 below section 43(6) of the Act. Thus, the provisions of section Explanation 2B to section 43(6) of the Act are not applicable in the present case. The aforesaid legal position is also fortified by the fact the WDV of the assets as per the Act which were transferred to the assessee are also not available, on account of the fact that all assets classifiable under one block sets formed part of that block of assets and thus, the WDV of each individual asset was un-determinate. Thus, the stand of the Assessing Officer is liable to be vacated. 10.7 We may now examine the approach of the assessee while making the claim of depreciation. In this context, we may refer to the provisions of section 32(1)(ii) of the Act which provides for allowance and rate of depreciation. It has been pointed out that as per section 32(1)(ii) of Act, the deprecation is allowable on the WDV of the block of asset and in case the asset is acquired during the year, it will be actual cost of asset on which depreciation is to be allowed. 10.8 In this regard, it is pertinent to note here that the scheme notified by the State Government, namely 'CSEB Transfer Scheme Rules, 2070, for reorganization of CSBE, which at Rule 7(g) states that the value of the assets to be transferred to the transferees shall be the fair value determined in any one or more of the following 13 Chhattisgarh State Power Generation Company Ltd. ITA No.16/RPR/2 basis namely, (a) revenue earning potential, (b) depreciation replacement value or (c) book value. Further Rule 7(j) states that opening balance sheet of the transferee companies may be notified by the State Government. Accordingly, in terms of Rule 7(j) of the Transfer Rules, Government of Chhattisgarh vide notification dated 29.10.2010 No. 202/F-21/13/09/13/2/ED notified the opening balance sheet of successor companies which included the opening balance sheet of the assessee company as on 01.01.2009, being one of the successor company. Based on the values assigned in the said opening balance sheet, assessee-company recorded the value of assets and liabilities in its books of account and also for the purpose of income tax it reported the addition to the fixed assets based on the same value. In consideration for the transfer of these assets, assessee issued equity shares to the CGSPHCL. As such, the cost of the assets acquired by the assessee corresponds to the consideration paid by the assessee by way of issue of shares. The fact that assessee has issued shares to the extent of value of the assets acquired by it, as above, is consideration of transfer of assets in its favour has not been controverted by the Revenue at any stage. Thus, the cost of assets in the hands of the assessee will be the value on which depreciation is to be allowed as per the rates prescribed in section 32(1)(ii) of the Act. 10.09 In view of the above discussion, we set aside the order of CIT(A) and direct the Assessing Officer to allow depreciation to the assessee on the cost of acquisition of the assets as recorded by the assessee in accordance with the Scheme framed by the Government of Chhattisgarh. Thus, Ground of appeal no. 2 is allowed.”

As the facts involved in the case before us remains the same as were there before the Tribunal in the aforementioned case of Chhattisgarh State Power Distribution company Ltd. (supra), therefore, we respectfully follow the same. Accordingly, we set-aside the order of the CIT(Appeals) and direct the A.O to allow depreciation to the assessee company on the cost of acquisition of the assets as recorded by the assessee in accordance with the scheme framed by the Government of Chhattisgarh. Thus, the Ground of appeal No.1 is allowed in terms of our aforesaid observations.

14 Chhattisgarh State Power Generation Company Ltd. ITA No.16/RPR/2

“32. Ground of appeal no. 4 relates to addition of Rs. 19,98,021/- on account of remission and cessation of liability. The Assessing Officer relied on the judgment of CIT Vs. Sundaram lyengar and 15 Chhattisgarh State Power Generation Company Ltd. ITA No.16/RPR/2 Sons Ltd, 222 ITR 344 and held that as the cheque had become stale and the parties have not encashed the same, therefore, they are not payable and, hence, shall be treated as income of the assessee. The CIT(A) accepted the contention of the assessee, that as the liability is still standing in the balance sheet, therefore, it cannot be assumed that it had ceased to exist for the reason that the cheques have become stale. The CIT(A) held that there is nothing on record to prove that the opposite parties have given up their claims and therefore, the same cannot be treated as a ceased liability. The CIT(A) relied on the decision of the Hon'ble Calcutta High Court in the case of Goodricke Group Limited Vs. CIT, 338 ITR 116 to decide the issue in favour of the assessee.

33. In our considered view, merely because the cheque issued by the assessee was not enchased by the creditor cannot be treated as a cessation of liability. The non-presentation of cheque could be due to any reason and cannot ipso facto lead to an inference that creditor has agreed to waive his right to claim the amount in future. It is not a case wherein there was bilateral agreement for cessation of liability or assessee has suo-moto written back the amount in its books of account. Accordingly, we uphold the decision of CIT(A) and the Ground of appeal No.4 raised by the revenue is hereby dismissed.”

As the facts involved in the present appeal remains the same as were there before the Tribunal, therefore, we respectfully follow the same. Accordingly, we uphold the order of the CIT(Appeals) and vacate the addition of Rs.9,75,363/- made by the A.O. Thus, the Ground of appeal No.2 raised by the assessee company is allowed in terms of our aforesaid observations.

15. We shall now deal with the grievance of the assessee that the CIT(Appeals) had erred in confirming the lumpsum disallowance of 2/3rd of the assessee’s claim for deduction on account of repair and maintenance of plant and machinery.

16 Chhattisgarh State Power Generation Company Ltd. ITA No.16/RPR/2

17 Chhattisgarh State Power Generation Company Ltd. ITA No.16/RPR/2 dated 20.08.2010, wherein the Tribunal after deliberating at length on the issue of recharacterizing of the assessee’s claim for deduction of repair and maintenance expenditure as a capital expenditure by the A.O, had restored the matter to the file of the A.O for fresh adjudication on merits, observing as under:

“10. We have noted that the impugned disallowance proceeds on the basis that the assessee did not produce the requisite details before the Assessing Officer, but, as stated in the affidavit filed before us, the assessee's representative did produce as Many as 131 files before the Assessing Officer and the Assessing Officer did not even examine these files. The assessee had brought large number of files, which he were claimed to be containing copies of requisitioned vouchers, to our court as well. The assessee is a public sector undertaking and subjected to various audits and internal control measures. It cannot, therefore, be said that the assessee does not have any vouchers in support of the expenses claimed, or that he is not in a position to furnish the same. We have also noted that the time granted to the assessee, whether in assessment proceedings or in remand proceedings, was merely eight and seven days respectively. In these circumstances, resorting to a, disallowance only on the basis of sample study of three vouchers, which is clearly an inadequate size of sample anyway — to be truly representative of all the vouchers , is totally devoid of any legally sustainable merits. In any case, the admissibility of repairs and maintenance expenses is to be examined on the merits and not on the, basis of inferences. In view of these discussions and having regard to assessee's assurance that the requisitioned details will be duly furnished before the Assessing Officer in remanded proceedings, we deem it fit and, proper to remit the matter to the file of the Assessing Officer for fresh adjudication after giving a fair and reasonable opportunity of hearing to the assessee. We also direct the assessee to scrupulously comply with all the requisitions of the Assessing Officer, in a fair and reasonable manner, and not to resort to any dilatory tactics. As we are remitting the matter to the file of the Assessing Officer for fresh adjudication on merits, we refrain from making any observations on merits of the admissibility of the claim. That aspect of the matter is to examined by the Assessing Officer in the limits of the submissions of the cases and on specific facts of the claims. With these observations, the matter stands restored to the file of the Assessing Officer.”

18 Chhattisgarh State Power Generation Company Ltd. ITA No.16/RPR/2

19 Chhattisgarh State Power Generation Company Ltd. ITA No.16/RPR/2

“1). On the facts and in the circumstances of the case, CIT(A) erred in confirming action of Assessing Officer in assessing total income as per normal provisions of the Income-tax Act' 1961 at Rs.4,29,50,20,023/- as against returned income of Rs. Nil and raising demand of Rs.1,39,66,64,313/- in spite of AO's specific relevant observation in assessment order that "no addition is made and sum payable is determined as per return" as assessee company had paid due income-tax of Rs.45,76,20,500/-, surcharge of Rs.5,49,14,460/-, education cess of Rs.1,53,76,049/- and interest u/s 234A/B/C of Rs.4,02,13,333/- on the returned income as per section 115JB on or before filing of revised return. 2). On the facts and in the circumstances of the case, CIT(A) erred in confirming action of Assessing Officer in making disallowance of Rs.4,44,59,090/- by alleging that employees contribution to "Employee Provident Fund (EPF)" paid after the due date specified in the "Employees' Provident Funds and Miscellaneous Provisions Act, 1952" but on or before the due date specified u/s.139(1) of the Income-tax Act, 1961 is not allowable in view of provision of section 36(1)(va) in spite of the fact that said contribution was paid on 16.04.2018 because on the due date of payment, i.e. on 15.04.2018 and a day before it, there was bank holiday and there are so many judicial pronouncements, including of hon'ble Jurisdictional ITAT' Raipur Bench, in which it is held in clear terms that payment of employees contribution to EPF made on or before the due date of filing of return/s 139(1) is allowable in view of the provisions of Section 43B, as amended vide Finance Act, 2003. 3). On the facts and in the circumstances of the case, CIT(A) erred in confirming action Assessing Officer in making disallowance of Rs.26,01,340/-by alleging that employees contribution to "Employee State Insurance Corporation (ESIC)" paid after the due date specified in the "Employment State Insurance Act, 1948" but on or before the due date specified u/s.139(1) of the Income-tax Act, 1961 is not allowable in view of provision of section 36(1)(va) in spite of the fact that said contribution was paid on 23.03.2018 as against due date of 21.03.2018 due to some unavoidable circumstances and 20 Chhattisgarh State Power Generation Company Ltd. ITA No.16/RPR/2 there are so many judicial pronouncements, including of hon'ble Jurisdictional ITAT' Raipur Bench, in which it is held in clear terms that payment of employees contribution to ESIC made on or before the due date of filing of return/s.139(1) is allowable in view of the provisions of Section 43B, as amended vide Finance Act, 2003. 4). On the facts and in the circumstances of the case, CIT(A) erred in confirming action of Assessing Officer in making addition of "Interest on IT Refund" of Rs.3,34,68,556/- under the head "Profits & gains of business or profession" in spite of the fact that said income was already offered for taxation under the head "Income from other sources" while filing revised return of income for the year under consideration. 5). On the facts and in the circumstances of the case, CIT(A) erred in confirming action of Assessing Officer in determining book profit as per section 115JB of the Income-tax Act' 1961 at Rs. 2,99,36,24,326/-as against returned book profit of Rs. 2,47,36,24,326/- by making double addition of Rs.52,00,00,000/- under clause (i) of Explanation 1 of section 115JB in spite of AO's specific relevant observation in assessment order that "no addition is made and sum payable is determined as per return" as assessee company had paid due income-tax of Rs.45,76,20,500/-, surcharge of Rs.5,49,14,460/-, education cess of Rs.1,53,76,049/- and interest u/s 234A/B/C of Rs.4,02,13,333/- on the returned income as per section 115JB on or before filing of revised return. 6) The appellant reserves the right to add, amend or alter any ground or grounds of appeal at the time of hearing.”

21. Succinctly stated, the assessee company had e-filed its original return of income for A.Y. 2018-19 on 30.03.2019 declaring an income of Rs. Nil under the normal provisions of the Act a/w. book profit u/s.115JB of Rs.43,33,74,802/-. Thereafter, the assessee revised its return of income, wherein the income under normal provisions was disclosed at Rs. Nil a/w. book profit u/s.115JB of the Act at Rs.56,81,24,342/-.

21 Chhattisgarh State Power Generation Company Ltd. ITA No.16/RPR/2

22. Return of income filed by the assessee was processed vide intimation issued u/s.143(1)(a) of the Act dated 16.10.2019, wherein its claim for deduction of delayed deposit of employee’s share of contributions towards Employee’s Provident Fund (EPF) and Employee’s State Insurance Corporation (ESIC) of Rs.4,44,59,090/- and Rs.26,01,340/-, respectively, were disallowed u/s.36(1)(va) r.w.s. 2(24)(x) of the Act.

23. Case of the assessee was, thereafter, selected for scrutiny assessment u/s.143(2) of the Act, wherein, no further addition was made by National e-Assessment Centre (NeAC) vide its order passed u/s.143(3) of the Act dated 09.03.2021.

24. Aggrieved, the assessee carried the matter in appeal before the CIT(Appeals) on a very peculiar ground, which reads as under:

“1) That Assessing Officer erred in raising demand of Rs.1,39,66,64,313/- while passing assessment order u/s.143(3) in spite of his observation in assessment order that “no addition is made and sum payable is determined as per return” as assessee company had paid due income tax of Rs.45,76,20,500/-, surcharge of Rs.5,49,14,460/-, education cess of Rs.1,53,76,049/- and interest u/s.234A/B/C of Rs.4,02,13,333/- as on the returned income as per section 115JB on or before filing of revised return.”

However, the aforesaid ground did not find favour with the CIT(Appeals), who observed that as the demand in question was raised on the basis of adjustments that were made earlier by CPC at the time of processing the assessee’s return of income, therefore, there was no substance in the claim

22 Chhattisgarh State Power Generation Company Ltd. ITA No.16/RPR/2 of the assessee that the demand was wrongly raised in its hand. In sum and substance, the CIT(Appeals) was of the view that the observation of the A.O that no additions were being made, was only to convey that no further addition was made in the regular assessment as the prima facie adjustments that were already made at the time of processing the return of income have to be retained. For the sake of clarity the relevant observation of the CIT(Appeals) is culled out as under:

“…….. To sum up, the appellant has argued that since no addition has been made in the regular assessment, the demand raised in the computation of income, on the basis of adjustments made earlier by the CPC at the time of processing of return, was uncalled for, and hence, should be deleted. 7.3. This argument of the appellant, however, is based on the incorrect appreciation of facts available on record. The regular assessment order u/s. 143(3) dated 09.03.2012 has been passed by the A.O, after the issuance of the intimation under section 143(1) dated 16.10.2019. In the body of the regular assessment order, it is mentioned that no addition is being made in view of the material available on record, and that assessment of income is made as per the computation sheet. It is however, noticed from the computation sheet, annexed to the regular assessment order under section 143(3), that the total income has been /computed therein at Rs 4,29,50,20,023/-, as against the total income at Rs Nil, reported in the return. It is also noticed that the computation of income in the regular assessment order under section 143(3), is on similar lines as the computation of income made in the intimation order under section 143(1). In other words, the adjustments made to total income under section 143(1)(a) at the time of processing of return, towards disallowance of employees' contribution to the provident fund and ESI, and provision for gratuity, have not been interfered with in the regular assessment order, i.e. the respective additions have been repeated in regular assessment. It is a matter of general practice that the computation of income, while making a regular/revised assessment, starts from the total income as 23 Chhattisgarh State Power Generation Company Ltd. ITA No.16/RPR/2 determined in the earlier assessment order which existed as on date. i.e. in the instant case, the total income as determined in the intimation order under section 143(1). The remarks in the body of the regular assessment to the effect that no addition is being made, when appreciated in this context, only convey that no further addition is being made in the regular assessment; but the prime facie adjustments already made at the time of processing of return have to be retained, unless there is any specific discussion and direction to the contrary, in the body of the regular assessment order.

Accordingly, the CIT(Appeals) after deliberating on certain other issues, partly allowed the appeal of the assessee.

25. The assessee being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us.

Nos. 4 &

5. Accordingly, as per concession of the Ld. AR the Grounds of appeal Nos. 4 & 5 are dismissed as not pressed.

28. We shall now deal with the grievance of the assessee that the CIT(Appeals) had erred in confirming the action of the A.O in assessing the 24 Chhattisgarh State Power Generation Company Ltd. ITA No.16/RPR/2 total income of the assessee company as per the normal provisions of the Act at Rs.429.50 crore (approx.), as against its returned income of Rs. Nil and had wrongly raised a demand of Rs.139.66 Crore (approx.) despite specifically observing in the body of the assessment order that “no addition is made and sum payable is determined as per return”. It was stated by the Ld. AR that now when the assessee had duly paid taxes on the returned income as per Section 115JB of the Act, therefore, in light of the specific observation of the A.O that no addition was being made and sum payable was being determined as per return, there was no basis for him to have assessed its income at Rs.429.50 crore (approx.) and raised a consequential demand in its hand.

29. We have given a thoughtful consideration to the issue in hand in the backdrop of the contentions advanced by the ld. authorized representatives of both the parties. In our considered view, the aforesaid claim of the assessee is absolutely misconceived and in fact misleading. As observed by the CIT(Appeals), and, rightly so, though the A.O while framing the assessment u/s.143(3) dated 09.03.2021, had observed that no addition was being made and assessment of income was done as per computation sheet and sum payable is determined as per return of income, but by so stating, he had considered the prima facie adjustments that were already made at the time of processing the return of income of 25 Chhattisgarh State Power Generation Company Ltd. ITA No.16/RPR/2 the assessee that had been retained and no further additions were made in the regular assessment. We are unable to fathom as to how the assessee can claim to be so naive while trying to impress upon us that he was oblivion of the adjustments and consequential tax demand that had earlier been made/raised in its hands u/s.143(1)(a) of the Act. Apart from that, we are of the considered view that there is no justification for the assessee to divorce the assessment order from the notice of demand issued u/s.156 of the Act, which forms an integral part of the assessment order itself. Our aforesaid view is fortified by the judgment of the Hon’ble Supreme Court in the case of Kalyankumar Roy Vs. Commissioner of Income Tax, (1991) 191 ITR 634 (SC). The Hon’ble Apex Court in its aforesaid order had, inter alia, observed that I.T.N.S 150 is a form for determination of tax payable and when it is signed or initialed by the Income-tax Officer, it is certainly an order in writing by the Income-tax Officer determining the tax payable within the meaning of Section 143(3) of the Act which has received the imprimatur of the Income-tax Officer and is to be treated as part of the assessment order.

26 Chhattisgarh State Power Generation Company Ltd. ITA No.16/RPR/2 therefore, no infirmity did arise from his well-reasoned order, is approved on our part. Thus, the Ground of appeal No.1 raised by the assessee is dismissed in terms of our aforesaid observations.

31. We shall now deal with the grievance of the assessee that the CIT(Appeals) had erred in confirming the action of the A.O in disallowing the assessee’s claim for deduction of delayed deposit of employee’s share of contribution towards Labour Welfare Funds, viz. (i) EPF : Rs.4,44,59,090/- ; and (ii) ESIC : Rs.26,01,340/-.

32. Admittedly, it is a matter of fact borne from record that the Hon’ble Apex Court in the case of Checkmate Services Pvt. Ltd. Vs. Commissioner of Income Tax-I, Civil Appeal No.2833 of 2016 dated 12.10.2022, while clarifying the position of law, had held that the delayed deposit of employee’s share of contribution towards labour welfare funds, viz. Employee’s Provident fund (EPF) and Employee’s State Insurance (ESI) is liable to be disallowed as per the mandate of Section 36(1)(va) r.w.s 2(24)(x) of the Act.

33. Considering the law laid down by the Hon’ble Apex Court in the case of Checkmate Services P. Ltd. Vs. Commissioner of Income Tax-I (supra), we are of the considered view that the delayed deposit of employee’s share of contribution towards EPF & ESI is liable to be disallowed as per the 27 Chhattisgarh State Power Generation Company Ltd. ITA No.16/RPR/2 mandate of Section 36(1)(va) r.w.s. 2(24)(x) of the Act. The Hon’ble Apex Court had observed that the employee’s share of contribution towards ESI & EPF deposited by the assessee beyond the due dates prescribed under the said respective Acts, would by virtue of Section 36(1)(va) r.w.s. 2(24)(x) of the Act constitute the income of the assessee. It was observed by the Hon’ble Apex Court as under:

“Analysis and Conclusions 30. The factual narration reveals two diametrically opposed views in regard to the interpretation of Section 36(1)(va) on the one hand and proviso to Section 43(b) on the other. If one goes by the legislative history of these provisions, what is discernible is that Parliament’s endeavour in introducing Section 43B [which opens with its non-obstante clause] was to primarily ensure that deductions otherwise permissible and hitherto claimed on mercantile basis, were expressly conditioned, in certain cases upon payment. In other words, a mere claim of expenditure in the books was insufficient to entitle deduction. The assessee had to, before the prescribed date, actually pay the amounts – be it towards tax liability, interest or other similar liability spelt out by the provision.

28 Chhattisgarh State Power Generation Company Ltd. ITA No.16/RPR/2 enumeration of deductions, dependent upon fulfilment of particular conditions, would qualify as allowable deductions: failure by the assessee to comply with those conditions, would render the claim vulnerable to rejection. In this scheme the deduction made by employers to approved provident fund schemes, is the subject matter of Section 36 (iv). It is noteworthy, that this provision was part of the original IT Act; it has largely remained unaltered. On the other hand, Section 36(1)(va) was specifically inserted by the Finance Act, 1987, w.e.f. 01-04-1988. Through the same amendment, by Section 3(b), Section 2(24) – which defines various kinds of “income” – inserted clause (x). This is a significant amendment, because Parliament intended that amounts not earned by the assessee, but received by it, - whether in the form of deductions, or otherwise, as receipts, were to be treated as income. The inclusion of a class of receipt, i.e., amounts received (or deducted from the employees) were to be part of the employer/assessee’s income. Since these amounts were not receipts that belonged to the assessee, but were held by it, as trustees, as it were, Section 36(1)(va) was inserted specifically to ensure that if these receipts were deposited in the EPF/ESI accounts of the employees concerned, they could be treated as deductions. Section 36(1)(va) was hedged with the condition that the amounts/receipts had to be deposited by the employer, with the EPF/ESI, on or before the due date. The last expression “due date” was dealt with in the explanation as the date by which such amounts had to be credited by the employer, in the concerned enactments such as EPF/ESI Acts. Importantly, such a condition (i.e., depositing the amount on or before the due date) has not been enacted in relation to the employer’s contribution (i.e., Section 36(1)(iv)).

35. It is instructive in this context to note that the Finance Act, 1987, introduced to Section 2(24), the definition clause (x), with effect from 1 April 1988; it also 29 Chhattisgarh State Power Generation Company Ltd. ITA No.16/RPR/2 brought in Section 36(1)(va). The memorandum explaining these provisions, in the Finance Bill, 1987, presented to the Parliament, is extracted below: “Measures of penalising employers mis-utilising contributions to the provident fund or any funds set up under the provisions of the Employees State Insurance Act, 1948, or any other fund for the welfare of employees - 12.1. The existing provisions provide for a deduction in respect of any payment by way of contribution to the provident fund or a superannuation fund or any other fund for welfare of employees in the year in which the liabilities are actually discharged (Section 43B). The effect of the amendment brought about by the Finance act, is that no deduction will be allowed in the assessment of the employer, unless such contribution is paid into the fund on or before the due date. “Due date” means the date by which an employer is required to credit the contribution to the employees account in the relevant fund or under the relevant provisions of any law or term of the contract of service or otherwise. (Explanation to Section 36 (1) of the Finance Act) 12.2. In addition, contribution of the employees to the various funds which are deducted by the employer from the salaries and wages of the employees will be taxed as income within brackets insertion of new [clause (x) in clause (24) of Section 2] of the employer, if such contribution is not credited by the employer in the account of the employee in the relevant fund by the due date. Where such income is not chargeable to tax under the head “profits and gains of business or profession” it will be assessed under the head “income from other sources.”

30 Chhattisgarh State Power Generation Company Ltd. ITA No.16/RPR/2

31 Chhattisgarh State Power Generation Company Ltd. ITA No.16/RPR/2 liability relating to labour should be allowed in the year of payment like delayed taxes and interest." Based on the report, the Union introduced amendments to the IT Act, including an amendment to Section 43B; the memorandum explaining the provisions in the Finance Bill, 2003 in the matter of Section 43B. inter alia, reads thus: "The Bill also proposes to provide that in case of deduction of payments made by the assessee as an employer by way of contribution to any provident fund or superannuation fund or any other fund for the welfare of the employees shall be allowed in computing the income of the year in which such sum is actually paid. In case the same is paid before the due date of filing the return of income for the previous year, the allowance will be made in the year in which the liability was incurred. These amendments will take effect from 1st April, 2004 and will accordingly apply in relation to the assessment year 2004-05 and subsequent years.”

32 Chhattisgarh State Power Generation Company Ltd. ITA No.16/RPR/2 employees as contributions to any provident fund/superannuation fund or any fund set up under the Employees’ State Insurance Act, 1948, or any other fund for the welfare of such employees constituted income. This is the reason why every assessee(s) M.M. Aqua Technologies Ltd. vs. Commissioner of Income Tax, Delhi, 2021 SCC OnLine SC 575. [employer(s)] was entitled to deduction even prior to 1-4-1984, on mercantile system of accounting as a business expenditure by making provision in his books of accounts in that regard. In other words, if an assessee(s) [employer(s)] is maintaining his books on accrual system of accounting, even after collecting the contribution from his employee(s) and even without remitting the amount to the Regional Provident Fund Commissioner (RPFC), the assessee(s) would be entitled to deduction as business expense by merely making a provision to that effect in his books of accounts. The same situation arose prior to 1-4-1984, in the context of assessees collecting sales tax and other indirect taxes from their respective customers and claiming deduction only by making provision in their books without actually remitting the amount to the exchequer. To curb this practice, Section 43- B was inserted with effect from 1-4-1984, by which the mercantile system of accounting with regard to tax, duty and contribution to welfare funds stood discontinued and, under Section 43-B, it became mandatory for the assessee(s) to account for the aforestated items not on mercantile basis but on cash basis. This situation continued between 1-4-1984 and 1-4-1988, when Parliament amended Section 43-B and inserted the first proviso to Section 43-B.

33 Chhattisgarh State Power Generation Company Ltd. ITA No.16/RPR/2 *** 18. However, as stated above, the second proviso resulted in implementation problems, which have been mentioned hereinabove, and which resulted in the enactment of the Finance Act, 2003, deleting the second proviso and bringing about uniformity in the first proviso by equating tax, duty, cess and fee with contributions to welfare funds. Once this uniformity is brought about in the first proviso, then, in our view, the Finance Act, 2003, which is made applicable by Parliament only with effect from 1-4-2004, would become curative in nature, hence, it would apply retrospectively with effect from 1-4-1988.

19. Secondly, it may be noted that, in Allied Motors (P) Ltd. v. CIT [(1997) 3 SCC 472 : (1997) 224 ITR 677] , the scheme of Section 43-B of the Act came to be examined. In that case, the question which arose for determination was, whether sales tax collected by the assessee and paid after the end of the relevant previous year but within the time allowed under the relevant sales tax law should be disallowed under Section 43-B of the Act while computing the business income of the previous year? That was a case which related to Assessment Year 1984-1985. The relevant accounting period ended on 30-6-1983. The Income Tax Officer disallowed the deduction claimed by the assessee which was on account of sales tax collected by the assessee for the last quarter of the relevant accounting year. The deduction was disallowed under Section 43-B which, as stated above, was inserted with effect from 1-4-1984 *** 22. It is important to note once again that, by the Finance Act, 2003, not only is the second proviso deleted but even the first proviso is sought to be amended by bringing about a uniformity in tax, duty, cess and fee on the one hand vis-à-vis contributions to welfare funds of employee(s) on the other. This is one more reason why we hold that the Finance Act, 2003 is retrospective in operation. Moreover, the judgment in Allied Motors (P) Ltd. [(1997) 3 SCC 472 : (1997) 224 ITR 677] was delivered by a Bench of three learned Judges, which is binding on us. Accordingly, we hold that the Finance Act, 2003 will operate retrospectively with effect from 1- 4-1988 (when the first proviso stood inserted).

Commissioner of Income Tax-III v Calcutta Knitwears, Ludhiana 2014 (6) SCC 444.

Union of India & Ors. vs. Exide Industries Limited & Ors., 2020 (5) SCC 274.

36 Chhattisgarh State Power Generation Company Ltd. ITA No.16/RPR/2 consciously earmarked certain deductions from time to time and included them in the ambit of Section 43B so as to subject such deductions to conditionality of actual payment. Such conditionality may have the inevitable effect of being different from the theme of mercantile system of accounting on accrual of liability basis qua the specific head of deduction covered therein and not to other heads. But that is a matter for the legislature and its wisdom in doing so.

24. In our view, an exception or an exempting provision in a taxing statute should be construed strictly and it is not open to the court to ignore the conditions prescribed in the industrial policy and the exemption notifications.

26. Whenever the statute prescribes that a particular act is to be done in a particular manner and also lays down that failure to comply with the said requirement leads to severe consequences, such requirement would be mandatory. It is the cardinal rule of interpretation that where a statute provides that a particular thing should be done, it should be done in the manner prescribed and not in any other way. It is also settled rule of interpretation that where a statute is penal in character, it must be strictly construed and followed. Since the requirement, in the instant case, of obtaining prior permission is mandatory, therefore, non-compliance with the same must result in cancelling the concession made in favour of the grantee, the respondent herein.” See for e.g., Eagle Flask Industries Ltd. v. Commissioner of Central Excise, 2004 Supp (4) SCR 35. State of Jharkhand v Ambay Cements, (2005) 1 SCC 368. This was also reaffirmed in a number of judgments, such as Commissioner of Income Tax v. Ace Multi Axes Systems Ltd.22 50. The Constitution Bench, in Commissioner. of Customs v. Dilip Kumar & Co. 23 endorsed as following: “24. In construing penal statutes and taxation statutes, the Court has to apply strict rule of interpretation. The penal statute which tends to deprive a person of right to life and liberty has to be given strict interpretation or else many innocents might become victims of discretionary decision-making. Insofar as taxation statutes are concerned, Article 265 of the Constitution [ “265. Taxes not to be imposed save by authority of law.—No tax shall be levied or collected except by authority of law.”] prohibits the State from extracting tax from the citizens without authority of law. It is axiomatic that taxation statute has to be interpreted strictly because the State

38 Chhattisgarh State Power Generation Company Ltd. ITA No.16/RPR/2 cannot at their whims and fancies burden the citizens without authority of law. In other words, when the competent legislature mandates taxing certain persons/certain objects in certain circumstances, it cannot be expanded/interpreted to include those, which were not intended by the legislature. *** 34. The passages extracted above, were quoted with approval by this Court in at least two decisions being CIT v. Kasturi & Sons Ltd. [CIT v. Kasturi & Sons Ltd., (1999) 3 SCC 346] and State of W.B. v. Kesoram Industries Ltd. [State of W.B. v. Kesoram Industries Ltd., (2004) 10 SCC 201] (hereinafter referred to as “Kesoram Industries case [State of W.B. v. Kesoram Industries Ltd., (2004) 10 SCC 201]”, for brevity). In the later decision, a Bench of five Judges, after citing the above passage from Justice G.P. Singh's treatise, summed up the following principles applicable to the interpretation of a taxing statute: ‘(i) In interpreting a taxing statute, equitable considerations are entirely out of place. A taxing statute cannot be interpreted on any presumption or assumption. A taxing statute has to be interpreted in the light of what is clearly expressed; it cannot imply anything which is not expressed; it cannot import provisions in the statute so as to supply any deficiency; (ii) Before taxing any person, it must be shown that he falls within the ambit of the charging section by clear words used in the section; and (iii) If the words are ambiguous and open to two interpretations, the benefit of interpretation is given to the subject and there is nothing Commissioner of Income Tax v. Ace Multi Axes Systems Ltd., 2018 (2) SCC 158 Commissioner. of Customs v. Dilip Kumar & Co, 2018 (9) SCC 1. unjust in a taxpayer escaping if the letter of the law fails to catch him on account of the legislature's failure to express itself clearly.’”

40 Chhattisgarh State Power Generation Company Ltd. ITA No.16/RPR/2 by Explanation to Section 36(1)(va) are satisfied i.e., depositing such amount received or deducted from the employee on or before the due date. In other words, there is a marked distinction between the nature and character of the two amounts – the employer’s liability is to be paid out of its income whereas the second is deemed an income, by definition, since it is the deduction from the employees’ income and held in trust by the employer. This marked distinction has to be borne while interpreting the obligation of every assessee under Section 43B.

As the issue involved in the present appeal is no more res-integra pursuant to the aforesaid judgment of the Hon’ble Apex Court, therefore, in terms of our aforesaid observations we respectfully follow the same. We,

41 Chhattisgarh State Power Generation Company Ltd. ITA No.16/RPR/2 thus, uphold the order of the CIT(Appeals) and sustain the disallowance towards Labour Welfare funds, viz. (i) EPF : Rs.4,44,59,090/-; and (ii) ESIC : Rs.26,01,340/- made by the A.O u/s.36(1)(va) r.w. Sec.2(24)(x) of the Act. Thus, the Grounds of appeal Nos. 2 & 3 raised by the assessee are dismissed in terms of our aforesaid observations.

34. Ground of appeal No.6 being general in nature is dismissed as not pressed.

36. In the combined result, appeal of the assessee in for A.Y.2009-10 is partly allowed for statistical purposes while for, the appeal of the assessee in A.Y.2018- 19 is dismissed in terms of our aforesaid observations without cost.

Order pronounced in open court on 15th day of June, 2023.