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Income Tax Appellate Tribunal, RAIPUR BENCH, RAIPUR
Before: SHRI RAVISH SOOD, JM & SHRI ARUN KHODPIA, AM
O R D E R
Per Arun Khodpia, AM :
This is an appeal filed by the assessee against the order passed by the CIT(A)-2, Raipur, dated 22.12.2016 for the assessment year 2009- 2010, on the following grounds :-
1. “Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in deleting the disallowance of Rs.54,75,392/- incurred on coal shortage?” 2. “Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in deleting the disallowance of Rs.6,08,96,17,054/- claimed u/s.80IA(4)(iv)(c) of the I.T.Act, 1961?”
3. The order of Ld. CIT(A) is erroneous both in law and facts. 4. Any other ground that may be adduced at the time of hearing 2. The ground-wise decisions are as under:-
2 Ground 1: Deleting the disallowance of Rs. 54,75,392/- by Ld CIT(A) regarding expenses incurred on coal shortage.
Ld CIT DR on this issue drew our attention to para “Deduction claimed on account of coal shortage” on page 2 of the assessment order. AO in the said para has observed as under:- Deduction claimed on account of coal shortage: The assessee is showing fuel related losses of Rs. 54,75,392/- in its account. The assessee is engaged in generation and distribution of electricity and the generation system is mainly thermal power based. Hence expenditure on account of coal purchase, handling and consumption is the major expenditure of the assessee. In the annual statement of accounts for the year ended 2008-09, the assessee has claimed expenditure on generation of power of Rs. 684,87,73,457/- and details of it is furnished in schedule 7. The actual cost of fuel consumption and operating expenses given in the schedule is Rs. 684,32,98,065/- and there is an entry of Rs. 54,75,392/- for fuel related losses classified under account code 72.1 and 72.2, which as per the ESAAR, 1985, Section-2, relate to transit loss of fuel (72.1) and loss on settlement of claims for fuel (72.2). In the schedule 26A also, particulars furnished regarding material stock shortage pending investigation report a figure of Rs. 99,23,761/-. Thus as per the accounting system prescribed for assessee under ESAAR, 1985, claim of Rs. 54,75,392/- is made in accounts for the loss of coal in transit or due to settlement of claims. The assessee is purchasing all its coal for the requirements of thermal power stations from M/. South Eastern Coalfields Limited, thus the assessee is incurring cost on procurement of coal by way of payment of purchase price as well as for incurring expenditure on transport & handling of coal. The coal being basic raw material, out of the coal purchased the part which is consumed in thermal power stations is utilized towards generation of power and directly contribute to revenue of assessee from sale/supply of electricity. Even the coal which is not consumed but is physically available at the end of accounting period is considered for its valuation as closing stock and thus indirectly add to the profit from business. But the coal which is short, for being lost in transit or due to loss on settlement, certainly do not contribute in any of the above for its value. As the said coal short is the one which assessee has purchased and incurred other expenses, it is incorrect to state that shortage is not affecting the profit. From the accounts of the assessee it is clear that coal shortage of Rs. 54,75,392/- is debited and included in the cost of generation of power in the schedule 7. The loss due to negligence on part of the assessee and neither the assessee is agitating the claim of shortage with the supplier of coal or any other intermediate party. The loss due to negligence cannot be allowed as deduction. Accordingly addition of Rs. 54,75,392/- made in computing the income of assessee.
Ld CIT DR further submitted that the AO has rightly pointed out that the loss occurred on account of negligence of the Assessee cannot be allowed as an expenditure. There was no proof or evidence brought before the AO by the assessee to show the efforts of the assessee to agitate for the claim of such shortage of coal in transit with the transporter of the coal or any intermediate party, therefore such expenses shall not be allowed to the assessee.
In defence, the Ld AR of the assessee shown us para 2.3 and 3 of the order of the Ld CIT(A), wherein assessee’s submission, finding of the coordinate bench of ITAT Mumbai in ITA No. 2/NAG/2009 for AY 2005-06 in assessee’s own case and final verdict of the Ld CIT(A) was recorded, which read as under:- 2.3 The next ground of appeal reads as follows: That on facts and circumstances of the case, the Ld assessing officer erred in making addition of Rs. 54,75,392/- incurred on coal shortage. It was held by the AO that the loss claimed by the appellant is due to negligence on the part of the appellant and neither the assessee is agitating the claim of shortage with the supply of coal or any other immediate party. Accordingly the AO did not allow the loss due to negligence as deduction. It was submitted by the appellant as under: The assessee has thermal power generation stations at korba for which coal is purchased from SECL. SECL supplies coal from its mines at Kusmunda and Gevra located near power stations only. The bulk coal is transported by railway rake owned by the assessee from mines to coal yard. The coal yards are situated near the thermal power stations from where they are transported to stations through conveyer belt. A weight-meter is installed at the mouth of the conveyer belt which keep the record of consumption of coal and as per these details daily accounting of consumption of coal is done in the books of accounts. At the end of the year physical verification of coal is taken and it is compared with the stock as per books of accounts. In case there is any variation in the quantity the difference is transferred to fuel stock excess/shortage pending investigation (account code 21:200)
4 classified under the account group of current assets. Therefore the consumption of coal is accounted for in the books of accounts on actual basis and any difference in quantity is transferred to current assets and not debited to profit and loss account. This matter of discrepancy in stock is put before a committee which investigates the reasons for such difference and furnishes a report. As per this report in case it is found that there is a short supply of coal then such amount is recovered from the supplier and in case it is found that there is pilferage from appellant's own coal yards then it is debited to profit and loss account. In case there is excess stock as against book stock then reverse adjustment is made in the books of accounts. During the relevant previous year the appellant purchased 76,36,469 Mts. of coal and consumed 75,96,317 Mts. At the end of the year there was shortage of coal of 7,940 Mts when it was physically verified and compared to the books of accounts. As per the above explained practice in order to state the stock of coal as per physical verification report the appellant transferred sum of Rs.54,75,392/- (being value of 7,940 Mts of coal) to fuel stock shortage/excess pending investigation/grouped under current assets). No effect has been given in the profit and loss account of such shortage during the relevant previous year. The assessing officer disallowed the above mentioned sum of Rs.54, 75,392/- on following ground: a. That this shortage is due to the negligence of the assessed and cannot allowed as deduction. b. That loss due to negligence cannot be accepted under the Income Tax Act. c. That the result of investigating committee on such shortage normally takes a long period of time and it is also an internal process of the assessee. Point wise submission of the appellant: a. The AO while disallowing the said amount on account of negligence on the part of the appellant completely ignored the fact that disallowance could be made out of expenditure claimed in the profit and loss account for arriving 'at taxable profit. The amount which has not been claimed as expenditure in arriving the taxable profit could not be disallowed as the taxable profit has not been reduced by such amount. Further, the most important fact which though had been discussed by the AO himself, but not relied upon while making the disallowance is the quantification of negligence. The shortage "when compared to total purchases made during the year comes to meager 0.1 % i. e .. negligible and well within the acceptable limits 5 of losses in manufacturing activities. How such low shortage could be brought under the ambit of negligence has not been explained by the AO in the order. Negligence in law signifies a coming short of the performance of duty (defined in advances law lexicon by Wadhwa). The AO erred in concluding that the shortage of meager 0.16% is negligence and is failure on the part of the appellant to use the care that a reasonable and prudent person would have used under the same or similar circumstances. The arbitrary conclusion arrived by the A 0 is unreasonable, unacceptable and baseless. The appellant being a Government owned company has made an outstanding effort in limiting the shortage to such a miniscule proportion and thereby has shown their commitment in restricting waste of public money. However, the AD acted arbitrarily and disallowed an amount which has never been claimed by the assessee as expenditure in computing the taxable profit. b. The AO while concluding that loss due to negligence cannot be accepted under the Income Tax Act did not make any reference to the section of the Act which provides for such non acceptance and disallowance. Therefore, as no such provisions are there in the Act hence the disallowance is illegal and invalid. The investigating committee has not given a report on the issue of shortage during the relevant previous year and therefore the shortage has not been charged to profit and loss account and therefore no disallowance could be made. Similar addition was made by the assessing officer in AY 2005-06 and the same was deleted by the ITAT in the case of the appellant only. Copy of order of ITAT is enclosed and to the best of the information of the appellant the Department has not filed any appeal against this order of ITAT, therefore, the issue has attained finality. The AO beached the judicial discipline by not following the decision of the higher judicial forum which was passed in the case of the appellant. The Department, to the best of the knowledge of the appellant, has not filed any appeal against the order of Tribunal even than the AO did not follow the binding decision of the Tribunal. I have considered the grounds of appeal and gone through the submissions of the appellant and read the order of the AO. In the submissions made by the Id Counsel the order of the Hon'ble Tribunal 'C' Bench Mumbai in ITA No. 2/NAG/2009 for A.Y. 2005-06 was brought to my notice wherein on the impugned ground of appeal the Hon'ble Tribunal held as under:- Having given our careful consideration to the rival contentions and having perused the material on record, we see no merits in the grievances raised by the A 0. There is a categorical finding by the 6 CIT(A), which remains uncontroverted before us, that the assessee has not claimed any deduction, directly or indirectly, in respect of loss due to shortages, and as such, there cannot be any reason for disallowance. The question of admissibility of this loss due to shortages, if at all it can be challenged, can only be challenged in the relevant in the year in which the loss is recognized in financial accounts. Learned representatives do not dispute that the loss has not been recognized in the financial accounts for the present year. When the loss has not been recognized, in any manner whatsoever, in the financial accounts for the present year, there can obviously be no occasion for disallowance of such loss, in the computation oj taxable income- the starting point of which is profit or loss as per the financial accounts, either. Under these circumstances, the CIT(A) was indeed justified in deleting the disallowance. We approve his action and decline to interfere in the matter. 3 Since this ground of appeal stands covered in favour of the appellant in the appellant's own case for A.Y. 2005-06 by the Hon'ble Tribunal whose decision has been cited above this ground of appeal for A. Y. 2009-10 is allowed.
6. Based on above submission, it was the prayer of the Ld AR that this matter is squarely covered by the order of ITAT Mumbai in assesssee’s own case for AY 2005-06 (Supra) thus order of the Ld CIT(A) is justified and shall be upheld.
7. We have considered the rival contentions, perused the material on record and order of ITAT placed on record.
8. On perusal of the order of the Ld CIT(A) it is evident that the relief granted by the Ld CIT(A) was entirely based on reliance on an order of ITAT Mumbai in assessee’s own case. While going through the said order it has been noticed that the facts of the AY 2005-06 were altogether different from that of AY 2009-10. In year 2005-06 loss on account of shortage which was discovered by the Ld AO from the internal audit report of the assessee and thus, decision of Tribunal for AY 2005-06 was based on categorical finding of the Ld CIT(A) that the assessee has not 7 claimed any deduction, directly or indirectly in respect of the loss due to such shortage and such finding of the Ld CIT(A) was not controverted by the revenue before ITAT. Facts of the case for present year are distinguishable, as on perusal of schedule 7 of the audited final accounts of the assessee placed before us in paper book page 27 expenses on “Generation of Power” has been added with an amount of Rs. 54,75,392/- under the head “15. Fuel Related losses” to total amount of the “Generation of Power” which aggregates to Rs.684,87,73,457/- and finally merged in the Total Expenditure of the assessee company in Revenue Account available at page 24 of the paper book, therefore it cannot be said that the expenditure was not claimed for deduction while computing the income offered for tax. Assessee’s claim that such expenses were not claimed for the taxable profit has not been reduced by such amount is contrary to the facts discernible from the final audited accounts. No other evidence or submission to prove the contention that such expense were not claimed while calculating the taxable income or why such expenses even if claimed should be allowed were produced / advanced before us.
9. The incurrence of expenditure is verifiable from relevant schedule of audited account submitted before us, but according to the submission of the assessee that no claim of the same was made in computing the taxable profit, needs a further verification of the records. Also such claim if made by the assessee, whether allowable under the specific business conditions for which “ESSAR” Electricity (Supply) Annual Accounts 8 Rule 1985 is available, wherein entry 72.101 and 72.102 is specifically prescribed for accounting of Transit Loss I – Coal and Transit Loss II – Coal respectively. In view of such observations, we find it fit to remit this matter back to AO for verification of two aspects of the issue (1) that no such expenditure was claimed as deduction by the assessee while computing the taxable income and (2) that the accounting was done under prescribed guidelines of “ESSAR” and whether the impugned losses are permissible under the guidelines as enumerated in “ESSAR”. If any one of these two conditions are satisfied, the addition made by the AO is directed to be deleted.
10. In view of the aforesaid observations, we are of the considered opinion that finding of the Ld CIT(A) that the issue is covered by the assessee’s own case decided by coordinate bench of the ITAT Mumbai for AY 2005-06 (supra) was on wrong footing being facts of the issue were not identical in the present year with that of AY 2005-06, thus cannot be concurred with, therefore, the issue is restored back to the files of AO for verification in terms of our observations herein above.
11. In the result, ground 1 of the revenue is partly allowed for statistical purposes. Ground 2 : Deleting disallowance of Rs. 6,08,96,17,054/- by Ld CIT(A) claimed by assessee u/s 80 IA(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 9 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.
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 ITA No 61/BLPR/2012 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 ITA No. 61/BLPRl2012 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 10 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 11 80IA(4)(iv)(c) of the Act, deduction claimed by the assessee, disallowed by the AO has rightly been deleted by the Ld CIT(A), therefore the same is liable to be upheld.
We have considered the rival contentions, perused the orders of the revenue authorities and order of the ITAT for AY 2006-07 in assessee’s own case.
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 3 of the revenue is general in nature. Regarding Ground no 4 no new ground was adduced at the time of hearing, hence no separate adjudication of these grounds is required.