MESERS STATE ELECTRICITY BOARD,RAIPUR vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 4(1), RAIPUR

ननधााररती की ओर से /Assessee by : Shri Madhur Agrawal, Adv. & Shri Praveen Khandelwal, CA राजस्व की ओर से /Revenue by : Shri Debashish Lahiri, CIT-DR सुनिाई की तारीख / Date of Hearing : 05/01/2023 घोषणा की तारीख/Date of Pronouncement : 27/03/2023 आदेश / O R D E R

Per Arun Khodpia, AM :

1.1 That on the facts and in the circumstances of the case and in law, the CIT (A) erred in disallowing deduction of Rs. 190,00,27,686/- claimed u/s 80IA(4)(iv)(c ) of the Act. 1.2 That the CIT (A) erred in not following the decision of ITAT passed in the case of appellant itself for the AY 2007-08, wherein the deduction u/s 80IA(4)(iv) has been allowed.

2. That on the facts and in the circumstances of the case and in law, the CIT(A) erred in confirming the disallowances of Rs. 74,05,37,325/- made by the assessing officer on account of repairs & maintenance of plant & machinery on lump sum/ estimated basis.

3. That the CIT(A) erred in not following the decision of ITAT, Mumbai in the case of appellant itself for the AY 2005-06 and 2004-05, wherein the lump sum addition of repair and maintenance has been deleted by the Hon’ble Tribunal.

3.1 That the CIT (A) erred in treating the expenditure of Rs. 1,15,64,588/- incurred on repair and replacement of Circuit Breakers as capital expenditure. 3.2 That the CIT (A) erred in treating the expenditure of Rs. 7,21,13,684/- incurred on repair and replacement of turbine rotor as capital expenditure. 3.3 That the CIT (A) erred in treating the expenditure of Rs. 20,68,134/- incurred on repair and replacement spider assembly as capital expenditure. 3.4 That the CIT (A) erred in treating the expenditure of Rs. 1,37,19,081/- incurred on repair and replacement spider grinding elements as capital expenditure. 3.5 That the CIT(A) erred in treating the expenditure of Rs. 33,10,811/- incurred on repair and replacement impeller assembly as capital expenditure. 3.6 That the CIT(A) erred in treating the expenditure of Rs. 37,42,274/- incurred on repair and replacement of shaft of ID fan as capital expenditure. 3.7 That the CIT(A) erred in treating the expenditure of Rs. 50,43,105/- incurred on repair and maintenance of work of reclamation of ash bund as capital expenditure. 3.8 That the CIT(A) erred in treating the expenditure of Rs. 58,06,336/- incurred on repair and maintenance of ash bund as capital expenditure. 3.9 That the CIT(A) erred in treating the expenditure of Rs. 7,30,66,604/- incurred on repair and maintenance of ash bund as capital expenditure. 3.10 That the CIT(A) erred in treating the expenditure of Rs. 1,36,19,687/- incurred on repair and replacement of economizer element as capital expenditure. 3.11 That the CIT(A) erred in treating the expenditure of Rs. 5,90,68,941/- incurred on repair and replacement of raw coal feeder as capital expenditure. 3.12 That the CIT(A) erred in treating the expenditure of Rs. 2,06,78,145/- incurred on repair and replacement of tubes of condenser as capital expenditure. 3.13 That the CIT(A) erred in treating the expenditure of Rs. 1,00,80,000/- incurred on repair and replacement of heat ignition system as capital expenditure. 3.14 That the CIT(A) erred in treating the expenditure of Rs. 18,96,861/- incurred on repair and replacement of current measuring transformer as capital expenditure. 3.15 That the CIT(A) erred in treating the expenditure of Rs. 1,24,85,846/- incurred on repair and replacement of elements installed at waste heat recovery system as capital expenditure. 3.16 That the CIT(A) erred in treating the expenditure of Rs. 72,72,000/- incurred on repair and replacement of control panels installed in power station as capital expenditure. 3.17 That the CIT(A) erred in treating the expenditure of Rs. 7,11,79,780/- incurred on repair and replacement of tubes installed at waste heat recovery system as capital expenditure.

3.18 That the CIT(A) erred in treating the expenditure of Rs. 1,12,21,545/- incurred on repair and replacement of ash bund as capital expenditure. 4 Without prejudice to above grounds of appeal

, the CIT (A) ought to have considered the expenses treated as capital expenditure as per ground no. 3.1 to 3.18 for the purpose of treating the same as expenditure for expansion and renovation of plant & machinery as per provisions of u/s 80IA(4)(iv)(c ) of the Act. 5 The appellant craves to add, alter or delete any of the grounds of appeal during the course of appellate proceedings.

2. Brief facts of the case are that the assessee carries on its activities through a Board constituted under Electricity Act, 1948 and the multifarious activities, include management of manpower, infrastructure and commerce, the primary activity being generation as well as procurement of power and its transmission and distribution. The assessee is an autonomous body fully owned by the State Government and governed by Board consisting of Members. The assessee filed its return of income for assessment year 2008-09 electronically vide acknowledgement number 39793010260908 on 26/09/2008 declaring total income of Rs.52,97,52,197/-. Subsequently, the assessee revised its returned income and two revised returns of income were e-filed on 26/03/2010 vide e-filing acknowledgement number 1149243402603010 and 114949260260310 wherein a total income of Rs 40,93,31,460/- was shown in both the returns. As the case was selected for scrutiny, notice u/s 143(2) was issued on 11/09/2009 and subsequent notices were also issued for change in incumbent. In response to the notices, the assessee along with Shri Arvind Chandrakar, D.G.M. (Finance) attended from time to time and explained the return.

4. Against the above additions made by the AO, the assessee preferred appeal before the ld. CIT(A) and the ld. CIT(A) partly allowed the appeal of the assessee. 5. Now, the assessee is in further appeal against order of CIT(A). 6. As per the submission of the Ld. AR before us, two main issues are raised by this appeal: (1) Whether profits of assessee company, as claimed are eligible for deduction u/s 80IA(4)(iv) and (2) Whether disallowances of Rs. 74,05,37,325/- made by the assessing officer and confirmed by the Ld CIT(A) on account of repairs & maintenance of plant & machinery on lump sum/ estimated basis is erroneous or not.

Ground No 1.1 and 1.2: On 1st issue with respect to availability of deduction u/s 80IA(4)(iv), 7. Ld AR submitted that the same very issue has already been adjudicated by the coordinate bench of the ITAT, Mumbai in assessee’s own case in ITA 61/BLPR/2012 for the AY 2007-08. The findings of the ITAT Mumbai were recently referred to and followed by the ITAT Raipur in ITA 18/RPR/2017 for AY 2009-10 dated 31.10.2022, wherein it has been held as under:- Ground 2 : Deleting disallowance of Rs. 6,08,96,17,054/- by Ld CIT(A) claimed by assessee u/s 80IA(4)(iv)(c) of the IT Act 1961 12. On this issue, before us, Ld CITDR has relied on the order of Ld AO, wherein the disallowance was made based on the observation by the AO that expenditure claimed has not been incurred towards substantial renovation and modernization, hence the claim for deduction u/s 80IA(4)(iv)(c) was not allowable. It was thus the prayer that Ld CIT(A) erred in deleting the disallowance rightly made by the AO and therefore deserves to be reversed.

13. Contrary to submissions of the Ld CITDR, Ld AR of the assessee drew our attention to the order of CIT(A), wherein on this ground Ld CIT(A) has elaborately discussed and concluded that the issue is already covered by the decision of ITAT “C” bench Mumbai, in for AY 2007-08 in assessee’s own case. Findings of the Ld CIT(A) are reproduced here under : I have considered the grounds of appeal, read the assessment order of the ld AO and perused the submissions of the appellant. 2.2 The assessee-company was created and came to existence with effect from 01.12.2000 vide order no. 232-233/CHM/2000 after spitting the erstwhile Madhya Pradesh State Electricity Board into two entities of the respective states following carving out of new State of Chhatttigarh out of Madhya Pradesh. All the assets and the liabilities of the erstwhile board were too divided as per the Govt. of India order dated 04.11.2004. Thus the assessee is a state owned board which came into existence after split of the old Madhya Pradesh State Electricity Board which means that it is not a new entity. The appellant is a State owned Board deriving its income from generati5n, transmission and distribution of electricity. The Id. Counsel appearing on the behalf of the appellant submitted that for the A. Y. 2007-08 the CIT (A) vide his order dated 15.03.2012 in appeal no. 0530/09-10 allowed the appeal on this ground. It was further submitted by the appellant that the Hon'ble IT AT 'C' Bench, Mumbai, in for A.Y. 2007-08 has upheld the decision of the CIT (A) on this ground by holding as under: After hearing the rival parties and perusal of relevant material placed before us including the impugned orders of authorities below, we find that the claim of the assessee was u/s 80AI(4)(iv)(c) of the Act was misunderstood by the AO and accordingly presumed the same to be a claim filed u/s 80AI(4)(iv)(b) and (c) of the Act. The Id. Counsel for the assessee brought to our attention the audit report filed in From No. 10CCB qua the claim of the assessee u/s 80AI(4)(iv)(c) of the Act in which at serial no. 7 it has been specifically stated that the assessee's claim of the deduction u/s 80AI(4)(iv)(c) of the Act and at page 2 sr. No.17 it was also stated in the audit report of the assessee that the assessee has undertaken substantial renovation and modernization to its existing net work and transmission lines. In the said report at Sr. No. 7, it has also been mentioned that the assessee started substantial renovation of the transmission and distribution lines from A. Y 2004- 05. The total value of new plant and machinery as on 31.03.2007 was at Rs. 403,35,40,6901- in the transmission and distribution lines which was not in dispute. We find from the rival submissions of the parties that the AO has wrongly presumed the deduction u/s 80AI(4)(iv)(c) of the Act as deduction u/s 80AI(4)(iv)(b)and (c) whereas, in our opinion, the Id. CIT(A) has gone into facts of the case in detailed manner and rightly held by passing a reasoned order that the assessee was entitled to deduction u/s 80AI(4)(iv)(c) of the Act qua profit earned b, the assessee after substantial renovation and modernization of existing transmission and distribution lines which was undertaken during the period commencing from 01.04.2004 to 31.03.2010 by brushing aside the observations of the AO that the no extra profits were derived from substantial renovation. We are therefore, inclined to uphold the same by dismissing the appeal on this ground. I find from the submission of the appellant that this ground of appeal

is covered in his favour in the appellant's own case by the Hon'ble ITAT 'C' Bench Mumbai cited above. Respectfully following the decision, this ground of appeal is allowed.

14. Ld AR further drew our attention to 10CCB report of the assessee regarding its claim for deduction u/s 80IA(4)(iv)(c) for the AY 2006-07, 2007-08, 2008-09 and 2009-10 placed on page 72 to 103 of the paper book dated 07/04/2022. On perusal of these 10CCB reports for the relevant AY, it was noticed that the report 10CCB signed by a chartered accountant has a mention of claim of assessee u/s. 80IA(4)(iv)(c) at Sr No 7 of the said report and also has the mention that this claim was on account of eligibility of the assessee undertaking on account of substantial modernization and renovation of the existing transmission and distribution lines from FY 2004-05. Thus it was the submission that the assessee is are eligible enterprise or undertaking within the meaning of section 80IA(4)(iv)(c) of the Act, deduction claimed by the assessee, AO has rightly been deleted by the Ld CIT(A), therefore the same is liable to be upheld.

16. Admittedly, the facts and circumstances of the present case are since identical to the facts of the AY 2006-07, wherein this issue was duly dealt with and a considered opinion on the same has already been offered by the coordinate bench of this tribunal Mumbai Benches in the assessee’s own case for AY 2006-07. Ld CIT(A) has appreciated the facts of case properly and decided the issue which was squarely covered by the ITAT Mumbai benches order, wherein it was held that the assessee is eligible for deduction u/s 80IA(4)(iv)(c). No new fact or submission to counter this finding was brought to our notice by the revenue, thus, respectfully following the same, we are of the considered opinion that the order of the Ld CIT(A) deleting the disallowance made by Ld AO on this issue was justified, which deserves to be upheld and we do so. Consequently appeal of revenue on this ground no 2 is dismissed.

Ground no. 2, 3 (including 3.1 to 3.18) and 4 Regarding 2nd issue with respect to disallowances of Rs. 74,05,37,325/- 10. on account of repairs & maintenance expenses.

8. Shri H J Lal, learned Commissioner- Departmental Representative, vehemently relies upon the orders of the authorities below, and submits that the assessee having failed to avail the opportunities afforded by the authorities below, does not deserve yet another opportunity of hearing before any of the authorities below. However, when his attention was invited to the manner in which disallowance has been quantified and in which the authorities below have proceeded with sweeping generalizations about nature of expenses, he submitted that he has no objection to the matter being restored to the file of the CIT(A) for fresh adjudication in the light of the submission's and details as the assessee may furnish.

9. In rejoinder, learned counsel for' the assessee once again submitted that he is willing to produce all the details requisitioned by the Assessing Officer, and that he has even brought these files to the court room so that, should we so wish, we may, inspect the same. We are once again urged to remit the matter to the file of the Assessing Officer for adjudication de novo, and for giving a fair and reasonable, opportunity of hearing to the assessee, 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 observation 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.

. The appellant will produce details of these items before the AO and expenses on these items will be allowed. Balance addition is hereby sustained.

14. It is further submitted by the Ld CITDR that the possible allowable expenditure under the head repair and maintenance were very judiciously already allowed by the LD CIT(A), thus there is no further scope for any allowance to the assessee on this count. It is thus prayed to upheld the order of the Ld CIT(A).

15. We have heard the contentions of both the parties. Perused the material placed before us. Have analysed the orders of the ITAT Mumbai (supra) in the assessee’s own case. By going through the facts and legal matrix of the issue, it is observed that the Ld AO has examined only top 50 entries consisting of expenditure incurred above Rs. 15 Lacs, in aggregate for Rs. 61,70,08,468/- out of total expenditure of Rs. 179,15,46,012/- i.e., 37.35%. Ld AO found that out of expenditure of Rs.61,70,08,468/-, expenditure to the extent of Rs.

48,33,92,363/- is found fit in classification of capital expenditure. It is also the facts that the assessee has shown its inability to furnish complete details, thus Ld AO demarcated the nature of expenses based on these limited entries under capital and revenue. Ld AO also noted that from his analysis more that 75% of the expenditure claimed are not found allowable as revenue expenditure, being capital in nature. Finally, the AO had disallowed 50% of the expenditure claimed treating the same as capital expenditure. On perusal of the order of Ld CIT(A), it is very much discernible that some of the items categorised as spare parts such as grinding elements, high chrome grinding element shaft bevel wheel, parts of boiler feed pumps, spare of pumps, electrodes of ESP, spare of conveyer belts, cartridges of coal mill etc should be allowed at Repair and maintenance. From the analysis of the Ld CIT(A) and directions to the Ld AO to examine the expense incurred on spare parts and to allow the same, this itself shows that the analysis done by the AO was not foolproof or reliable in all respect. The assessee, being a Public Sector Undertaking, has already gone though the test of various Audits and was also subjected to follow accounting manual of instructions on Commercial Accounting System as well as Electricity (Supply) Annual Accounts Rules, 1985 [ESSAR], thus must be having all the vouchers to show in support of its claim. We have also seen a statement showing synopsis of repair and maintenance expense submitted by the assessee which shows that nature of expenses shown might be of revenue in nature but the same could be established only after examining and analyse the same on merits.