Income Tax Appellate Tribunal - Ahmedabad
M/S. Adani Mining Pvt. Ltd (Now ... vs The Dcit, Circle-1(1)(1), Ahmedabad on 4 October, 2023
आयकर अपीलीय अधिकरण, अहमदाबाद नयायपीी IN THE INCOME TAX APPELLATE TRIBUNAL, '' D'' BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER And SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER Sl. ITA No(s)/C.O Asset. Appeal(s) by No(s) Year(s) Appellant vs. Respondent Appellant Respondent 1-2 ITA No.521/Ahd/2020 2012-13 D.C.I.T., M/s. Adani Mining with C.O Circle-4(1)(1), Pvt. Ltd., 9th Floor, No.5/Ahd/2021 Ahmedabad. Shikhar Building, Nr.
Mithakhali Circle, Navrangpura, Ahmedabad-380009.
PAN: AAGCA5276M
3-4 ITA No.562/Ahd/2020 2013-14 D.C.I.T., M/s. Adani Mining
with C.O Circle-4(1)(1), Pvt. Ltd., 9th Floor,
No.12/Ahd/2021 Ahmedabad. Shikhar Building, Nr.
Mithakhali Circle,
Navrangpura,
Ahmedabad-380009.
PAN: AAGCA5276M
5-6. ITA No.544/Ahd/2020 2014-15 D.C.I.T., M/s. Adani Mining
with C.O Circle-4(1)(1), Pvt. Ltd., 9th Floor,
No.6/Ahd/2021 Ahmedabad. Shikhar Building, Nr.
Mithakhali Circle,
Navrangpura,
Ahmedabad-380009.
PAN: AAGCA5276M
(Applicant) (Respondent)
Revenue by : Shri Sanjeev Kumar Dev, CIT. D.R
with Shri Atul Pandey, Sr.D.R
Asessee by : Shri S.N. Soparkar, Sr. Advocate
ITA nos.521/AHD/2020 with C.O No.5/Ahd/2021
Asstt. Years 2012-13 & 4 others
2
with Shri Parin Shah & Dhrunal
Bhatt, A.Rs
सुनवाई की तारीख/Date of Hearing : 06 /0 7/2023
घोषणा की तारीख /Date of Pronouncement: 04/10/2023
आदेश/O R D E R
PER WASEEM AHMED ACCOUNTANT MEMBER:
The captioned appeals and cross objections have been filed at the instance of Revenue and the assessee against the respective orders of the Learned Commissioner of Income Tax (Appeals), Ahmedabad arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act, 1961 (here-in- after referred to as "the Act") relevant to the Assessment Years as mentioned in the cause title.
First, we take up ITA No. 521/Ahd/2020, an appeal by the Revenue for AY 2012-13
2. The Revenue has raised following grounds of appeal:
1. The ld.CIT(A) has erred in law and on facts in deleting the disallowance u/s.14A r.w.r 8D of the Act for Rs.12,264/-
2. The ld.CIT(A), has erred in law and on facts in deleting the addition of unutilized CENVAT credit of Rs.78,75,505/- u/s.145A of the Act.
3. The Ld.CIT(A) has erred in law and on facts in deleting the addition of Rs.8,266/- made u/s.41(1) of the Act.
4. The Ld.CIT(A) has erred in law and on facts in deleting the disallowance of Rs.367,88,55,328/- made on account of land development expenditure.
5. The Ld.CIT(A) has erred in law and on facts in holding that assesee would be entitled to higher deduction u/s.35E in subsequent years without appreciating that it would be a subject matter of assessment in future years, subject to the provisions of the Act.
6. The Ld.CIT(A), has erred in law and on facts in deleting the addition of Rs.1,88,50,000/-
made u/s 56 of the Act by the AO.
ITA nos.521/AHD/2020 with C.O No.5/Ahd/2021 Asstt. Years 2012-13 & 4 others 3
7. The appellant craves, to leave, to amend and/or to alter any ground or add a new ground which may be necessary.
3. The first issue raised by the Revenue is that the learned CIT(A) erred in deleting the disallowance made by the AO under section 14A read with rule 8D of Income Tax Rule for Rs. 12,264/- only.
4. The facts in brief are that the assessee company is a wholly owned subsidiary of Adani Enterprise Limited and engaged in the activities related to development or operation of mines such as development of coal blocks for the delivery of the coal.
5. The AO during the assessment proceedings noticed that during the year under consideration, the investment of the assessee was increased from Rs. 10,20,000/- to Rs. 13,20,000/- but no disallowance of expenditure in connection with the investment made, weas done by the assessee as prescribed under section 14A read with rule 8D of the Income Tax Rule. Thus, the AO invoked the provisions of Rule 8D of Income tax rule and worked out the amount of disallowance at Rs. 12,264/- which includes interest expenses of Rs. 6414 and administrative expenses of Rs. 5850.00 only. The AO accordingly made addition of Rs. 12,264/- to the total income of the assessee.
6. The aggrieved assessee preferred an appeal before the learned CIT(A) who deleted the addition made by the AO by holding no exempted income earned by the assessee from the investment made by it (the assessee). Therefore, the ld. CIT-A held that in the absence of exempted income, disallowance under section 14A of the Act cannot be made.
7. Being aggrieved by the order of the learned CIT(A), the Revenue is in appeal before us.
ITA nos.521/AHD/2020 with C.O No.5/Ahd/2021 Asstt. Years 2012-13 & 4 others 4
8. Both the learned DR and AR before us vehemently supported the order of authorities below to the extent favorable to them.
9. We have heard the rival contentions of both the parties and perused the materials available on record. From the order of the authorities below, it is undisputed that no exempt income was earned by the assessee in the year under consideration. Thus, the question arises whether the provision of section 14A of the Act can be invoked in the absence of exempted income. The question has been answered by the several Hon'ble High Courts including the jurisdictional High Court of Gujarat in the case of CIT vs. Corrtech Energy Private Limited reported in 45 taxmann.com 116. The Hon'ble Gujarat High Court in the above-mentioned case held that the provision of section 14A of the Act cannot be applied in the absence of any exempted income. The relevant observation of the Hon'ble Bench reads as under:
Section 14A(1) provides that for the purpose of computing total income under chapter IV, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. In the instant case, the Tribunal has recorded the finding of fact that the assessee did not make any claim for exemption of any income from payment of tax. It was on this basis that the Tribunal held that disallowance under section 14A could not be made. In the process tribunal relied on the decision of Division Bench of Punjab and Haryana High Court in case of CIT v. Winsome Textile Industries Ltd. [2009] 319 ITR 204 in which also the Court had observed that where the assessee did not make any claim for exemption, section 14A could have no application.
9.1 Respectfully following the order of the Hon'ble Jurisdictional High Court as mentioned above, we do not find any reason to interfere in the finding of the learned CIT(A). Therefore, we uphold the same. Accordingly, the ground of appeal of the Revenue is hereby dismissed.
10. The next issue raised by the Revenue is that the learned CIT(A) erred in deleting the addition made by the AO on account of unutilized CENVAT credit of Rs. 78,75,505/- only.
ITA nos.521/AHD/2020 with C.O No.5/Ahd/2021 Asstt. Years 2012-13 & 4 others 5
11. The assessee in its audited financial statement has shown an unutilized CENVAT Credit amounting to Rs. 78,75,505/- as on 31 March 2012. The assessee during the assessment proceedings claimed that the impugned CENVAT Credit represents against the services received by it and as such it does not pertain to the inventories as envisaged under the provisions of section 145A of the Act. Accordingly, the assessee claimed that the provisions of section 145A of the Act do not apply to it.
12. However, the AO was not satisfied with the contention of the assessee on the reasoning that as per the provisions of section 145A of the Act, the assessee is liable to include the amount of duty, cess, tax etc. in the amount of purchases, sales and the closing stock. Accordingly, the AO added the amount of CENVAT Credit as on the balance sheet date to the total income of the assessee.
13. Aggrieved assessee preferred an appeal to the learned CIT (A) who deleted the addition made by the AO by following the order of this tribunal in own case of the assessee for A.Y. 2011-12 in ITA No. 1972/Ahd/2015.
14. Being aggrieved by the order of the learned CIT-A, the Revenue is in appeal before us.
15. Both the learned DR and the AR before us relied on the order of the authorities below to the extent favourable to them.
16. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, we find that there was identical addition made by the AO in the own case of the assessee for AY 2011-12 and the dispute travelled up to this Tribunal in revenue's appeal bearing ITA No. 1972/AHD/2015 wherein the coordinate bench vide order dated 25th September 2019 decided the issue against the Revenue by observing as under:
ITA nos.521/AHD/2020 with C.O No.5/Ahd/2021 Asstt. Years 2012-13 & 4 others 6
9. We have heard the rival contentions of both the parties and perused the materials available on record. The allegation of the Assessing Officer in the instant case is that the assessee while valuing the closing stock of its goods as on 31/03/2011 has not included the amount of CENVAT which is contrary to the provisions of section 145A of the Act.
Therefore, the closing stock of the assessee was enhanced by the amount of CENVAT credit of Rs.29,60,018/- as attributable to the closing stock of the assessee. 9.1 However, the Ld. CIT(A) deleted the addition made by the Assessing Officer by observing that the assessee has been following its method of valuation consistently and there was no dissatisfaction of the Assessing Officer about the correctness/completeness of the books of accounts of the assessee.
9.2 From the preceding discussion, we note that the assessee has been recording its transactions of purchase, sales, and valuation of inventories, net of CENVAT consistently. Thus, if the inventory of closing stock is enhanced by the amount of CENVAT credit attributable to it, then the amount of corresponding purchases should also be increased by the said amount which will result in tax neutral exercise. Thus, in our considered view, the Assessing Officer erred in enhancing the value of the closing stock without giving effect to the purchases. In this regard, we find support and guidance from the judgment of Hon'ble Gujarat High Court in the case of Pr.CIT vs. Gujarat Gas Company Ltd. In Tax Appeal No.90 of 2017 vide order dated 07/02/2017, wherein it was held as under:
"3.03. Now, so far as question No. [B] i.e. with respect to addition made by the A.O. on account of unutilized modvat/cenvat credit of Rs. 56,08,089/- is connected, it is required to be noted that the learned tribunal has taken note that with respect to modvat receivable account, there is corresponding less debit to the purchase account and hence to that extent there is already income offered for tax. If that be so, there was no question of further adding modvat/cenvat credit to the income of the assessee for the year under consideration. Under the circumstances, we see no reason to interfere with the impugned judgement and order passed by the learned tribunal so far as confirming the order passed by the learned CIT(A) deleting the addition made by the A.O. on account of unutilised modvat/cenvat credit of Rs. 56,08,089/-. We are in complete agreement with the view taken by the learned tribunal."
9.3 There is no ambiguity that the assessee has been following the exclusive method of accounting. In view of the above, we concur with the view of the Ld. CIT(A) and accordingly decline to interfere in his order. Hence, the ground of appeal of the Revenue is dismissed.
16.1 Before us, no material has been placed on record by the Revenue demonstrating that the decision of the Tribunal as discussed above has been set aside/ stayed or overruled by the Higher Judicial Authorities. Before us, Revenue has not placed any material on its record pointing out any distinguishing feature in the facts of the case for the year under consideration and that of earlier year nor has placed any contrary binding decision in its support. Thus, respectfully following the order of this tribunal in the own case of assessee, we do not find any infirmity in the finding of the learned CIT(A). Hence the ground of appeal of the Revenue is hereby dismissed.
ITA nos.521/AHD/2020 with C.O No.5/Ahd/2021 Asstt. Years 2012-13 & 4 others 7
17. The next issue raised by the Revenue is that the learned CIT(A) erred in deleting addition of Rs. 8,266/- made by the AO under section 41(1) of the Act.
18. The AO during the assessment proceedings found that there was trading liability for Rs. 8266/- from 2 parties outstanding for more than 3 years i.e. beyond limitation period as provided under Limitation Act 1963. Therefore, the AO proposed to treat the same liability as ceased to exist as per the provision of section 41(1) of the Act.
19. The assessee submitted that the provision of section 41(1) of the Act cannot be invoked merely since certain liability is outstanding beyond the limitation period. If the assessee continues to treat a liability as payable and does not write off the same in the books of account, the same cannot be presumed as cease to exist. The assessee in support of its contention relied upon the different judgments of Hon'ble Gujarat High Court detailed as under:
1. CIT vs. Bhogilal Ramjibhai Atara 43 taxmann.com 55
2. CIT vs. Mira Processor Pvt Ltd [2012] 208 Taxman 93
3. CIT vs. Nitin S Garg [2012] 208 Taxman 16
20. However, the AO disagreed with the contention of the assessee and held that as per the provision of Part-1 of Division -I of the Limitation Act 1963 a liability pertaining to the current account ceases to exist after the completion of 3 years from end of the year in which last of item admitted into the account. In the case of the assessee, the trading liability from which benefit arises to the assessee is outstanding for more than 3 years and therefore, the same is liable to be taxed under the provisions of section 41(1) of the Act. Thus, the AO added the same to the total income of the assessee.
21. The aggrieved assessee preferred an appeal before the learned CIT(A) and reiterated its contention as made before the AO.
ITA nos.521/AHD/2020 with C.O No.5/Ahd/2021 Asstt. Years 2012-13 & 4 others 8
22. The learned CIT(A) concurred with the submission of assessee and deleted the addition made by the AO by holding that the assessee continues to show liability in the books of account as payable. Further there is no material on record which could suggest that the parties have waived off right to recover such outstanding amount from the assessee.
23. Being aggrieved by the order of the learned CIT-A, the Revenue is in appeal before us.
24. Both the learned DR and the AR before us relied on the order of the authorities below to the extent favourable to them.
25. We have heard the rival contentions of both the parties and perused the materials available on record. Admittedly, the assessee has shown a certain trading liability amounting to Rs. 8,266/- which were outstanding for more than 3 years. The AO, by referring to the provision of Limitation Act 1963, held that liability has ceased to exist. Thus, the AO, by invoking the provision of section 41(1) of the Act, treated the same as income of the assessee.
25.1 The provision of section 41(1) of the Act states that deduction or allowances on account of trading liability incurred by the assessee made in any year but the assessee subsequently in any previous year derive any benefit be it in cash or in other manner in respect of such trading liability by way of remission or cessation then the value of such benefit shall be deemed as income of the assessee in that previous year. Thus, the core to tax the trading liability under section 41(1) of the Act is that there must be remission or cessation of the liability in the previous year. It has nothing to do with the provision of limitation. An amount will be taxed under section 41(1) of the Act only in the case where the condition prescribed in the said section is fulfilled. In the case on hand, the assessee is still showing the amount as payable, the creditor has nowhere stated that they have waived off the right to claim recovery and also there is no material ITA nos.521/AHD/2020 with C.O No.5/Ahd/2021 Asstt. Years 2012-13 & 4 others 9 on record brought by the AO which could suggest that the trading liability shown by the assessee has ceased to exist and that too in the year under consideration. Thus, in absence of any material that the liability has ceased to exist in the year under consideration, the same cannot be taxed under section 41(1) of the Act. In holding so, we draw support and guidance from the judgment of Hon'ble Gujarat High court in case of CIT vs. Bhogilal Ramjibhai Atara reported in 43 taxmann.com 55 wherein it was held as under:
8. We are in agreement with the view of the Tribunal. Section 41(1) of the Act as discussed in the above three decisions would apply in a case where there has been remission or cessation of liability during the year under consideration subject to the conditions contained in the statute being fulfilled. Additionally, such cessation or remission has to be during the previous year relevant to the assessment year under consideration. In the present case, both elements are missing. There was nothing on record to suggest there was remission or cessation of liability that too during the previous year relevant to the assessment year 2007-08 which was the year under consideration. It is undoubtedly a curious case. Even the liability itself seems under serious doubt. The Assessing Officer undertook the exercise to verify the records of the so called creditors. Many of them were not found at all in the given address. Some of them stated that they had no dealing with the assessee. In one or two cases, the response was that they had no dealing with the assessee nor did they know him. Of course, these inquiries were made ex parte and in that view of the matter, the assessee would be allowed to contest such findings. Nevertheless, even if such facts were established through bi-parte inquiries, the liability as it stands perhaps holds that there was no cessation or remission of liability and that therefore, the amount in question cannot be added back as a deemed income under section 41(c) f the Act. This is one of the strange cases where even if the debt itself is found to be non-
genuine from the very inception, at least in terms of section 41(1) of the Act there is no cure for it. Be that as it may, insofar as the orders of the Revenue authorities are concerned, the Tribunal not having made any error, this Tax Appeal is dismissed.
25.2 In view of the above detailed discussion, we do not find any infirmity in the order of the learned CIT(A). Hence the ground of appeal of the revenue is hereby dismissed.
26. The next issue raised by the Revenue is that the learned CIT(A) erred in deleting the addition made by the AO on account of land development expenditure for Rs. 367,88,55,328/- and further erred in holding that the assessee would be entitled to higher deduction under section 35E of the Act in the subsequent years.
27. The necessary facts are that the Government of India (Ministry of coal) allotted coal mine to Rajasthan Rajya Vidhyut Utpadan Nigam Ltd (RRVUNL) in ITA nos.521/AHD/2020 with C.O No.5/Ahd/2021 Asstt. Years 2012-13 & 4 others 10 Parsa Kente coal block Chhattisgarh in the year 2007. The RRVUNL form a joint venture with M/s Adani Enterprise Ltd (AEL) under the name and style M/s Parsa Kente Colleries Ltd (PKCL). RRVUNL awarded the contract to develop and operate the coal mines to PKCL. Subsequently, the assessee company (a wholly owned subsidiary of AEL) entered into an agreement with PKCL to develop and operate the said coal mines on a sub-contract basis. As per the agreement, the assessee undertakes the following responsibilities:
3.2.1 Scope of Work The contractor shall perform the scope of work and undertake the obligations set out herein below (the Works) The scope of work of the contractor would be to carry out all works stated hereunder:
Fixing of the Block Boundary Obtaining of prospecive licence Exploring & Geological Report Land Acquisition Preparation and approval of mining plan Obtainng clerances/approvals from the Ministry of Environment and Forest Execution of mining lease Preparation of DRP Obtaining Licenses/permissions required commencing mining operations Setting up of coal washery and washing of coal of the required specifications required by RVUNL thermal power stations and Coal mining and delivering Coal to RVUNL''s Thermal Power Stations. Setting up Railway siding by itself or under a special purpose vehicle/joint Venture All expenses incurred for the works shall be borne by the Contractor, including all expenses in relation to the cost of acquisition of land/lease of land, rehabilation and resettlement; fees and arranging all clearances, reports and licenses for the Term of Agreement and no expense/liabilities shall be borne/shares by PKCL/RVUNL at any stage.
27.1 From the above, the job of the assessee comprises work starting from prospecting/ exploration of coal block, acquisition of land, development for mining, mining/extraction of coal, washing of coal in required specification of RRVUNL and delivery of coal. The assessee from such mines will generate revenue based on per ton of coal extracted.
27.2 The assessee in relation to such coal mines incurred various expenses on account of land acquisition, different compensation to forest department, development of plan and their approval etc. which were described as "Land development expenses". As such, the assessee during the year claimed land development expenses of Rs. 367,88,55,328/- which were shown as capital work ITA nos.521/AHD/2020 with C.O No.5/Ahd/2021 Asstt. Years 2012-13 & 4 others 11 in progress in the books of accounts. However, the assessee in the return of income filed for the year under consideration claimed land development expenses to the tune of Rs. 366,89,51,134/- out such land development expenses as business expenses under section 37 of the Act.
27.3 The assessee during the assessment proceeding contended that coal block is its business unit from which it will generate revenue on basis of per ton of coal extracted. As such, it takes the responsibility of series of work essential for extraction of coal. Any activity carried out which is essential to be taken out before commercial extraction will amount to business activity or commencement of business activity. As such, the business in relation to such coal mines started in the year 2009 when it carried the activity likes exploratory drilling, preparation of geological report, submission of mining plant to Ministry of Coal which ultimately approved in month of July 2009. Activities such as exploration of land and exploratory drilling and based on which the preparation of geological report of the land are very essential to extract the coal. Thus, expenditure on development of such coal block which mainly comprises of the expenses incurred on geological report, compensation paid to Ministry of Environment and Forest and amount paid for land acquisition etc. are liable to be allowed as business expenses in the year under consideration on the ground of commercial expediency. The assessee referred to the provision of section 3(1) of the Act where the previous year has been defined for newly set up business or profession vide proviso to said section.
The assessee according to said provision contended that the commencement of business shall be considered from the point of setup of the business but not from the date of first commercial sale. As such, business is a continuous course of essential activities which goes to establish the source of income. The assessee regarding the treatment of land development expenditure in the books of account submitted that the treatment given of certain transactions in the books of account is not conclusive evidence with regard to allowances/claim of deduction under the Act. As such, the allowability of such a claim shall be considered in relation to the provisions of the Income Tax Act.
ITA nos.521/AHD/2020 with C.O No.5/Ahd/2021 Asstt. Years 2012-13 & 4 others 12
28. However, the AO disagreed with the contention of the assessee. The AO found that the assessee in the audited books of account treated the land development expenditure as capital work in progress and note (12) to balance sheet clearly shows the assessee's intention that the expenses incurred were meant for capitalization. The Auditor also in note 32(a) of the report also reported that said expenditure on project development is to be capitalized and will be apportioned to the assets on the start of business. The comment made by the auditor has been duly approved by the management. The AO further found that the assessee in the immediately preceding assessment year also treated the expenses incurred in relation development of coal mine as capital work in progress in the books. The expenditures incurred in the immediately preceding assessment year were treated as CWIP in the return of income. The assessee cannot give different treatment of the same transaction under different Act as per its convenience. The method or principle adopted by the assessee in accountancy should be consistent.
28.1 The AO without prejudice to above further found that the assessee has not recognized any income from the coal mine project till the year under consideration. Therefore, any claim under section 37 of the Act cannot be allowed unless business operation starts. The applicability of section 35E of the Act shall also be examined in the year in which commercial production commences. As such, commercial production is the precondition under the provisions of section 35E of the Act. Thus, the AO in view of the above disallowed the claim of the assessee for land development expenditure amounting to 3,67,88,55,328/- and added the same to the total income.
29. Aggrieved assessee preferred an appeal before the learned CIT(A) and made similar contentions as made during the assessment proceedings.
ITA nos.521/AHD/2020 with C.O No.5/Ahd/2021 Asstt. Years 2012-13 & 4 others 13
30. The learned CIT(A) after considering the facts in totality deleted the addition made by the AO. The relevant finding of the learned CIT(A) in this regard are contained at page 51 to 71 vide paragraphs Nos. 9.5 to 9.13 of his/her order. The finding of the learned CIT(A) can broadly be summarized as under:
(a) The assessee company was incorporated with object to exploring and mining and the business activity in connection with extraction and supply of coal & related minerals.
(b) The assessee has carried out the work in relation to exploration of mines, various types of approvals etc. were obtained which were essential for development of mines and extraction of minerals. The law has been fairly settled by the various Court that for the commencement of business it is not necessary that entire business should got setup and commercial production started. As such, it shall be considered from the point where the essential activity got started. Therefore, the expenditure incurred in setting up the business is an allowable deduction.
(c) The assessee during the assessment proceedings explained and established that there were various essential activities in relation to the development of mine which have been carried out. Such activities were also not doubted by the AO.
(d) In the immediate previous year, the assessee claimed expenditure on development of such coal project for Rs. 99.04 lacs relating to exploration, prospecting, and mining. The issue of claim has been discussed by the predecessor AO in the assessment order under section 143(3) for A.Y. 2010-11 dated 19th March 2013 and after elaborated discussion, the AO accepted the claim of the assessee by holding that the business of the has been setup. Thus, once the AO in earlier year accepted the claim of the assessee after detailed discussion and application of mind, the same cannot be changed in subsequent assessment years. The finding of the AO in the current assessment order that the assessee has not claimed development expenditure as revenue in earlier year is factually incorrect.
ITA nos.521/AHD/2020 with C.O No.5/Ahd/2021 Asstt. Years 2012-13 & 4 others 14
(e) The AO mainly disallowed the claim of the assessee based on the presentation made in the financial statement. As such, no doubt raised by the AO about genuineness of the expenditure incurred. As per the principle laid down by the Hon'ble Supreme Court in the case of M/s Sutlej Cotton Mills Ltd reported in 116 ITR 1 and other series of judgment, the treatment given in books of account is immaterial.
(f) The assessee during the assessment proceedings explained the nature of expenses, submitted relevant documents, and relied upon various case laws. The AO neither rebutted the contention made and material supplied by the assessee nor pointed out how the case laws relied on by the assessee were not applicable.
(g) Once it has been held that business of the assessee has already commenced, therefore the provision of section 35E of the Act also became applicable in the given facts and circumstances.
31. Being aggrieved by the order of the leaned CIT(A), the Revenue is in appeal before us.
32. The learned DR before us referred to the assessment order and reiterated the findings of the AO contained therein.
33. On the other hand, the learned AR before us filed a note on the setup of the business activities vide letter dated 13-07-2023, inter-alia contending that the assessee has already started its major activities and this fact was also admitted by the Revenue in the earlier assessment order. The ld. AR also relied on various judicial pronouncements in support of his contentions which are available on record. The ld. AR vehemently supported the order of the ld. CIT-A.
34. We have heard the rival contentions of both the parties and perused the materials available on record. In the present case, the assessee has claimed a deduction on account of an expenditure of ₹ 366,89,51,134/- under the head land ITA nos.521/AHD/2020 with C.O No.5/Ahd/2021 Asstt. Years 2012-13 & 4 others 15 development expenditure in the computation of income which were classified as capital work in progress in the books of accounts. First, we note that the amount of expenditure is ₹ 366,89,51,134/- but the AO inadvertently has made the disallowance of ₹ Rs. 367,88,55,328/- only. As per the assessee, the amount of ₹99.04 lakhs being the difference in the amount as discussed above represents the amount claimed as deduction in the previous assessment year which was also allowed by the AO in the assessment framed under section 143(3) of the Act. Thus, according to our understanding the amount which is in dispute stands at ₹ 366,89,51,134/- and not Rs. 367,88,55,328/- only challenged by the revenue in the ground of appeal.
34.1 The 1st controversy relates whether the entries recorded in the books of accounts can be considered for the purpose of the disallowance of the claim made by the assessee. It has been judicially pronounced time and again by the various Hon'ble Courts that the entries recorded in the books of accounts cannot be taken as conclusive evidence for deciding whether the assessee is eligible for deduction. As such, whether the assessee is eligible for deduction or not, it must be tested in accordance with the provisions of law and not as per the books of accounts until and unless it is provided so under the specific provisions of the Act. There is no dispute that the assessee has classified land development expenditure as capital in nature in its financial statement. But the assessee has claimed the same as revenue expenditure return of income filed under the Act. To our understanding, the claim of the assessee cannot be denied merely on the reasoning that the assessee has recorded the transactions in the books of accounts in a particular or different manner. It is because accounting entries are not the parameter for drawing any inference about the expenses or the deduction claimed by the assessee whether allowable or not. In holding so, we draw support and guidance from the judgement of Hon'ble Supreme Court in the case of M/s Sutlej Cotton Mills Ltd reported in 116 ITR 1 wherein it was held as under:
"It is now well settled that the way in which entries are made by an assessee in his books of account is not determinative of the question whether the assessee has earned any profit or suffered any loss. The assessee may, by making entries which are not in conformity ITA nos.521/AHD/2020 with C.O No.5/Ahd/2021 Asstt. Years 2012-13 & 4 others 16 with the proper accountancy principles, conceal profit or show loss and the entries made by him cannot, therefore, be regarded as conclusive one way or the other."
34.2 The next controversy relates to whether the business of the assessee has commenced in the year under consideration or not. As per the revenue, the assessee has not commenced its business activities in the year under consideration. However, the finding of the AO on this issue is contrary to the facts available on record. The AO in the assessment order under section 143(3) of the Act for A.Y. 2010-11 dated 19th March 2013 has held that the business activity of the assessee has commenced. Thus, there remains no ambiguity to the fact that the AO in the own case of the assessee in the earlier assessment year has admitted that the assessee has commenced its business. In our considered view once the AO himself has admitted the commencement of the business of the assessee then the revenue cannot take a different stand in the later year.
34.3 We also note that the Hon'ble Gujarat High Court involving identical facts and circumstances in the case of Commissioner of Income-tax, Gandhi Nagar v. Gujarat Ports Infrastructure and Development Co. Ltd. reported in 20 Taxmann.com 10 has held as under:
14. On the basis of such materials, if we revert back to the decision of the Tribunal under challenge we notice that the Tribunal had come to the conclusion that the assessee had set up its business. We are of the opinion that the Tribunal committed no error. As already noted, the main objects of the company included wide variety of subjects principally concerned with the development of minor ports in and outside State of Gujarat. This could be done by acting as promoters, organizers, managers and developers of the ports or also through entering into joint venture undertaking. The subsidiary objective, incidental to the main objects also envisaged the company to work and act as agent of the Government, Municipal Local Boards, Railway Contractors etc.
15. In furtherance of such objects, principal as well as ancillary, the assessee company having entered into a joint venture with another company, which was developing ports at Mundra, it cannot be stated that the business of the company was not set up.
16. It is not in dispute that any expense incurred prior to the setting up of a business would not be a permissible deduction. In the case of Prem Conductors Pvt.
Ltd. v. CIT [1977] 108 ITR 65, the Division Bench of this Court relying on and referring to the decision of the Bombay High Court in the case of Western India Vegetable Products Ltd. v. CIT [1954] 26 ITR 151 observed that for deciding when ITA nos.521/AHD/2020 with C.O No.5/Ahd/2021 Asstt. Years 2012-13 & 4 others 17 a company could be said to have set up its business, what the Court has to consider is whether the business of the assessee consists of different categories and whether the activity, which was started earlier is said to have been the essential part of the business activity of the assessee. The Court held and observed as under:-
"Thus, it is clear in the light of the decisions of this High Court in Saurashtra Cement and Chemical Industries' case [1973] 91 ITR 170 (Guj) and Sarabhai Management corporation Ltd.'s case [1976] 102 ITR 25 (Guj) that what the court has to consider is, whether the business of the assessee consists of different categories and whether the activity which was started earlier than the actual commencement of the production in the instant case could be said to have been an essential part of the business activity of the assessee. The company can be said to have set up its business from the date when one of the categories of its business activity is started and it is not necessary that all the categories of its business activities must start either simultaneously or that the last stage must start before it can be said that the business was set up. Again, as Bhagwati C.J. Has emphasized in Saurashtra Cement and Chemical Industries' case [1973] 91 ITR 170 (Guj), the test to be applied is as to when a businessman would regard a business as being commenced and the approach must be from a commonsense point of view."
17. In view of the above judicial pronouncement, the findings of the Tribunal and our observations made hereinabove, we see no reason to interfere. We may also notice that in the earlier years, the case of the assessee that it had set up the business was not questioned by the Assessing Officer.
34.4 Besides the above, we note that the learned CIT-A appeal has given detailed and reasoned finding that the activity of the assessee has commenced which has not been controverted by the learned DR appearing on behalf of the revenue.
34.5 Regarding the ground of appeal raised by the revenue concerning to the provisions of section 35E of the Act, we note that we have already treated the expenditure of ₹366,89,51,134.00 as revenue in nature and allowed the deduction of the same under the provisions of section 37 of the Act. Therefore, the issue raised by the revenue concerning the provisions of section 35E of the Act becomes infructuous. As such, no separate adjudication is required.
34.6 Thus, in view of the above we refrain ourselves from interfering in the finding of the learned CIT-A. Accordingly, we uphold the finding given by the ITA nos.521/AHD/2020 with C.O No.5/Ahd/2021 Asstt. Years 2012-13 & 4 others 18 learned CIT-A. Hence, the ground of appeal of the revenue is hereby dismissed.
35. The next issue raised by the assessee is that the learned CIT(A) erred in deleting the addition of Rs. 1,88,50,000/- made under section 56 of the Act.
36. At the outset, we note that the issue raised by the revenue relates to the issue raised by the assessee vide ground No. 2 of CO No. 05/AHD/2021 for the AY 2012-13, therefore the same has been adjudicated along with the ground of objection raised by the assessee by us vide paragraph No. 46 of this order in the favour of the Revenue. For detailed discussion, please refer to the aforesaid paragraph of this order. Hence, the ground of the Revenue's appeal is hereby allowed.
37. In the result, the appeal of the Revenue is hereby Partly allowed.
Coming to CO No. 05/AHd/2021 by the assessee for A.Y. 2012-13
38. The assessee has raised following grounds of objections:
1. On the facts and in the circumstances of the case, the Ld.CIT(A) erred in upholding disallowance of employees contribution to provident and ESIC for Rs.6,01,071/- u/s.36(1)(va) of the Act without appreciating the fact that payment was already made before due date of filing of return of income.
2. On the facts and in the circumstances of the case, the Ld.CIT(A) erred in upholding interest income of Rs.10.28,54,901/- as income from other sources when such income ought to have been reduced from project development expenditure.
3. On the facts and in the circumstances of the case, the land development expenditure held to be capital expenditure by the Assessing Officer as against claim of appellant for treating it as revenue expenditure and held to be by CIT (Appeals), in case is eligible for deduction under Section 35E of the Act.
4. The appellant craves leave to add, alter or amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal.
39. The first objection raised by the assessee is that the learned CIT(A) erred in confirming the addition of Rs. 6,01,071/- made on account of late deposit of employee's contribution towards EPF & ESI.
ITA nos.521/AHD/2020 with C.O No.5/Ahd/2021 Asstt. Years 2012-13 & 4 others 19
40. At the outset, we note that the learned AR for the assessee at the time of hearing before us submitted that he was instructed by the assessee not to press the issue raised in the captioned ground of objection. Hence, the same is hereby dismissed as not pressed.
41. The next issue raised by the assessee is that the learned CIT(A) erred in confirming the addition of interest income for Rs. 10,28,54,901/- only.
42. The necessary facts are that the AO during the assessment proceedings found that the assessee has earned interest income for Rs. 16,01,70,492/- only. However, such interest income was adjusted with capital work in progress. Accordingly, the AO sought clarification, but the assessee failed to reply. The AO further found that in the immediate previous assessment year also, the assessee adjusted interest income with the capital work in progress which was disallowed and added to the total income as income from the other sources. Hence, the AO added the interest income of Rs. 16,01,70,492/- to the total income of the assessee.
43. Aggrieved, assessee preferred an appeal before the learned CIT(A).
43.1 The assessee before the learned CIT(A) submitted that interest income Rs. 16,01,70,492/- added by the AO include income from following sources:
Particulars Amount(In Rs.)
Interest income on Security deposit for 9,02,46,575
Coal Washery Agreement (Chendipada
coal block)
Interest Income on fixed Deposits with 13,29,978
Axis bank which had to be made for
obtaining a Bank Guarantee in favour of
Gujarat Mineral Development
Corporation Ltd.
Interest income on fixed Deposit under 1,01,77,234
Trust and Retention account in liue of
borrowing made from ICICI bank (Parse
Kante Coal block)
ITA nos.521/AHD/2020 with C.O No.5/Ahd/2021
Asstt. Years 2012-13 & 4 others
20
Other interest income 11,01,114
Unrealised Foreign Exchange Gain 1,88,50,000
Total Interest income earned during the 12,17,04,901
year (A)
Error in taxing earlier year(s) interest 3,84,65,592
income(B)
Total (A) + (B) 16,01,70,492
43.2 The assessee before the learned CIT-A further submitted that the interest
income for the year under consideration from different sources was Rs. 12,17,04,901/- only. As such, the AO also included the opening amount of Rs. 3,84,65,592/- only. The assessee further made submission regarding each source of interest income mentioned in above table in the following manner:
Interest income of Rs. 9,02,46,575/- From security deposit for Coal washery contract.
43.3 It was submitted that the holding company of the assessee company namely, Adani Enterprises Ltd ('AEL) was awarded a contract for development and operation of Chindipada coal block situated in Odisha. Thereafter, such a contract was assigned to it (assessee) by the parent company AEL. Subsequently it (assessee) entered in a coal washery agreement with M/s GVI Infosolutions Pvt Ltd (GVI) wherein the GVI was to perform following activities:
(i) Construct, operate and manage the coal washery with 40MT per annum capacity at mine head within timeline to enable AML to deliver coal under the Contract to UCM. The total capacity of the coal washery shall be required under the Contract.
(ii) Transport of coal from Mine to Washery through belt conveyor system.
(iii) The washing technology, other equipment technology and cost shall be mutually discussed and finalized by AML and GVL in concurrence.
(iv) To make available for dispatch with the agreed quantity of washed coal parameters.
ITA nos.521/AHD/2020 with C.O No.5/Ahd/2021 Asstt. Years 2012-13 & 4 others 21
(v) To operate and maintain the washery as per the best standards in the industry.
(vi) GVI shall maintain all the requisite records properly for the inspection by Government agencies concerned with respect to the details of running of mine coal, washed coal and rejects etc. 43.4 In pursuance to such washery agreement, it made security deposit of ₹ 150 crore with GVI and earned interest income at the rate of 6% per annum amounting to ₹ 9,02,46,575/- on the same. In the books of account, such interest income has been adjusted against the project development expenses. The assessee accordingly claimed that impugned interest income of ₹ 9,02,46,575/- directly related to development of Chindipada coal block and rightly adjusted with the value of capital work in progress.
Interest income of Rs. 13,29,978/- From fixed deposit with Axis Bank.
43.5 The assessee claimed that it has also entered into an agreement with Gujarat Mineral Development Corporation Ltd (for short GMDCL) for carrying out the activity of core drilling, non-core drilling and well logging for all exploration at Morga-II in Chattisgarh. As per the agreement, it has provided a security deposit of ₹ 1,25,00,000/- for due performance in favor of GMDCL by way of furnishing the bank guarantee. The assessee further claimed that to obtain a bank guarantee it made a fixed deposit with the bank and earned interest on the impugned deposit with the bank. Thus, the earnings of interest are inextricably linked with the impugned project and the commercial operation in respect of such a project which has not commenced in the year under consideration. Therefore, the interest earned on bank deposit of ₹13,29,978/- was rightly reduced from the project development expenditure.
Interest income of Rs. 1,01,77,234/- from fixed deposit under trust and retention account and Unutilized foreign exchange gain of Rs. 1,88,50,000/-
ITA nos.521/AHD/2020 with C.O No.5/Ahd/2021 Asstt. Years 2012-13 & 4 others 22 43.6 The assessee about the above interest income submitted that to develop and operate the "Parsa East and Kente Basin Coal Block", it obtained foreign currency term loan from ICICI Bank Limited. As per the loan agreement with ICICI Bank Limited, the assessee was required to open "Trust and Retention Account"
(TRA). TRA is a tool used by the bank in the financing of high scale infrastructure projects. As per TRA, the unutilized amount of borrowed fund must be parked in certain permitted investment. As such, the amount of unutilized borrowing was invested, and interest income accrued on same was not the choice of the assessee, but it was for abiding the compelling requirement of financing bank. The assessee further submitted that no expenditure was incurred (except land development) regarding "Parsa East and Kente Basin Coal Block" which has been claimed as revenue expenditure. Therefore, the income derived from parking of utilized borrowed fund directly relates to impugned project which will go to reduce the capital expenditure.
43.7 Likewise, the outstanding balance of impugned foreign currency loan was marked to market as per the requirement of accounting standard -11 and accordingly earned forex gain of Rs. 1,88,50,0000/- and such gain was adjusted against the project development expenses.
44. The learned CIT(A) after considering facts in totality deleted the addition made by the AO on account of opening balance of Rs. 3,84,65,592/- and gain of foreign currency exchange for Rs. 1,88,50,000/- and confirmed the remaining addition of Rs. 10,28,54,901/- only. The relevant finding of learned CIT(A) is extracted as under:
10.4 On perusal of relevant facts on records, it is observed that in audited annual accounts, appellant has reduced interest income from Schedule of Capital WorK In Progress for Rs 3,84,65,5927- upto 31st March 2011. During the year under consideration , appellant has earned interest income of Rs 12,17,04,9017- as tabularized herein above and even such amount is reduced from Capital Work In progress. The audited annual accounts reflects cumulative figure of cost and interest income reduced from such cost hence figure of Rs 16,01,70,4927- considered by AO as income of year under consideration is actual cumulative interest income earned by appellant and reduced from capital work in progress.
ITA nos.521/AHD/2020 with C.O No.5/Ahd/2021 Asstt. Years 2012-13 & 4 others 23 The contention of appellant that interest income of Rs 3,84,65,5927- is not earned in year under consideration is found acceptable as it pertains to earlier year and same is already considered as income by AO in earlier assessment years hence on this ground, addition made by AO to the extent of Rs 3,84,65,592/- is deleted.
10-5 So far as addition made by AO for treating interest income as Income from Other sources for Rs 10,28,54,901/-(9,02,46,575+13,29,978+ 1,01,77,234+11,01,114} is concerned, it is observed that in preceding ground while deciding issue of allowability of land development expenditure as revenue expenditure, it was already held that business of appellant company is set up and once business is :;et up, interest income cannot be reduced from Capital Work In Progress but same is required to be taxed as income from other sources. Though in preceding assessment years, identical issue was decided in favour of appellant by appellate authority, but ratio of said decisions cannot be made applicable in current year as there was no issue of whether business is set up or not vis a vis interest income earned during preconstruction period. As per decisions referred in preceding paras while deciding issue whether business is set up or no!, it is observed that once it is held that business is set up and any interest income earned by appellant is required to be taxed as income from other sources. On this fact, addition made by AO for Rs 1Q,28,54,901/- is confirmed. It is observed that appellant has reduced interest income from gross amount of Capital Work in Progress and such net amount may be considered for claiming deduction u/s 35E of the Act in subsequent years. Once interest income is considered as income of year under consideration, appellant would tae entitled to higher deduction u/s 35E of the Act in subsequent years if such deduction is claimed en net expenditure. Subject to this observation, addition made by AO to the extent of interest income of Rs 10,28,54,901 is confirmed.
10.6 So far as addition of Unrealised Foreign Exchange Gain for Rs 1,88,50,000 is concerned, it is observed that such gain is M2M gain earned by appellant on outstanding foreign currency loan as at year end. The appellant has already capitalized interest income pertaining to such expenditure as part of Capital Work in Progress and considered as part of deduction u/s. 35E in subsequent assessment years, unrealized foreign exchange gain is capital receipt as held by Jurisdictional High court in case of ..Garden Silk Mills Ltd. 320 ITR 720 [2010] and Hon'ble Ahmedabad ITAT in case of Essar Steel ltd. 97 ITD 125(supra). It is also observed that during the year under consideration, appellant has already capitalized unrealized foreign exchange loss of Rs 1,38,19,000 from similar transaction for aforesaid loan taken from ICjCI Bank limited which is accepted by AO to be correct hence on same ground, unrealized foreign exchange gain cannot be taxed as taxable income in year under consideration. On this fact, addition made by AO for Rs 1,88,50,000 is deleted.
10.7 In nutshell, addition made by AO for Rs 16,01,70,492 is restricted to Rs 10,28,54,901. This ground of appeal is partly allowed.
45. Being aggrieved by the order of the learned CIT(A), both the assessee and the Revenue are in appeal/cross objection before us. The assessee is in cross against the confirmation of addition of interest income for Rs. 10,28,54,901/- whereas the revenue is in appeal against the deletion of addition of forex gain of 1,88,50,000/- only.
ITA nos.521/AHD/2020 with C.O No.5/Ahd/2021 Asstt. Years 2012-13 & 4 others 24 45.1 The learned AR before us submitted that in the event the assessee is allowed the deduction on account of land development expenditure, then the issue for treating the interest expenditure as capital in nature on the reasoning that the business has not commenced would stand dismissed. Otherwise, the same cannot be treated as income under the head income from other sources. As such interest should be allowed to be set off against the capital work-in- progress.
45.2 On the other hand, the learned DR before us submitted that interest income and income from the forex exchange should be treated as income from other sources under the provisions of section 56 of the Act.
45.3 Both the learned AR and the DR before us vehemently supported the order of the authorities below as favourable to them.
46. We have heard the rival contentions of both the parties and pursued the materials available on record. Admittedly, the issue raised by the revenue concerning the land development expenditure has been decided in favour of the assessee and against the revenue vide paragraph number 34 of this order. For the detailed discussion, please refer to the relevant paragraph. Once it has been held that business of the assessee has commenced, the assessee is not entitled to set off the interest income and foreign exchange gain as discussed above to be adjusted against the capital working progress. Hence, the ground of appeal of the assessee is hereby dismissed whereas the ground of appeal of the revenue is allowed.
47. The last objection raised by the assessee is that in case, the land development expenditure held as capital in expenditure then deduction under section 35E of the Act should be provided to it.
ITA nos.521/AHD/2020 with C.O No.5/Ahd/2021 Asstt. Years 2012-13 & 4 others 25
48. At the outset, we note that the learned AR for the assessee at the time of hearing before us submitted that he was instructed by the assessee not to press the issue raised in the captioned ground of objection in event if the assessee succeeds on the issue of land development expenditure raised by the Revenue in ITA No. 521/Ahd/2020. The assessee has certainly succeeded by paragraph No. 34 of this order. Hence, the same is hereby dismissed as not pressed.
49. In the result, the cross objection filed by the assessee is hereby dismissed.
Coming to ITA No. 562/Ahd/2020, an appeal by the revenue for AY 2013-14
50. The Revenue has raised following grounds of appeal:
1. The ld. CIT(A) has erred in law and on facts in deleting the disallowance u/s.14A r.w.r 8D of the Act for Rs. 4,67,859/-
2. The Ld. CIT(A) has erred in law and on facts in deleting the disallowance of Rs.
106,92,68,808/- made on account of land development expenditure.
3. The Ld. CIT (A) has erred in law and on facts in deleting the disallowance of Rs. 3,89,60,631/-
4. The Ld. CIT(A) has erred in law and on facts in holding that assesee would be entitled to higher deduction u/s.35E in subsequent years without appreciating that it would be a subject matter of assessment in future years, subject to the provisions of the Act.
5. The appellant craves, to leave, to amend and/or to alter any ground or add a new ground which may be necessary.
51. The first issue raised by the Revenue is that the learned CIT(A) erred in deleting the disallowance made under section 14A read with rule 8D of Income Tax Rule for Rs. 4,67,850/- only.
52. At the outset, we note that the issue raised by the revenue in the above ground of appeal is identical to the issue raised by the revenue in its grounds of appeal for the AY 2012-13 in ITA No. 521/AHD/2020. Therefore, the findings ITA nos.521/AHD/2020 with C.O No.5/Ahd/2021 Asstt. Years 2012-13 & 4 others 26 given in ITA No. 521/AHD/2020 shall also be applicable for the year under consideration i.e. A.Y. 2013-14. The appeal of the revenue for the A.Y. 2012-13 has been decided by us vide paragraph No.9 of this order against the revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2012-13 shall also be applied for the assessment year 2013-14. Hence, the ground of appeals filed by the revenue is hereby dismissed.
53. The next issue raised by the Revenue vide ground Nos. 2 & 4 is that the learned CIT(A) erred in deleting the addition made on account of land development expenditure for Rs. 106,92,68,808/- and further erred in holding that the assessee would be entitled to higher deduction under section 35E of the Act in the subsequent years.
54. At the outset, we note that issues raised by the revenue in the above grounds of appeal are identical to the issue raised by the revenue in its grounds of appeal for the AY 2012-13 in ITA No. 521/AHD/2020. Therefore, the findings given in ITA No. 521/AHD/2020 shall also be applicable for the year under consideration i.e. A.Y. 2013-14. The appeal of the revenue for the A.Y. 2012-13 has been decided by us vide paragraph No. 34 of this order against the revenue. The learned DR and the AR also agreed that whatever will be the findings for the assessment year 2012-13 shall also be applied for the assessment year 2013-14. Hence, the grounds of appeals filed by the revenue are hereby dismissed.
55. The next issue raised by the assessee vide ground No. 3 is that the learned CIT(A) erred in deleting the disallowance of depreciation for Rs. 3,89,60,631/- only.
56. The AO found that the assessee has claimed depreciation allowance for Rs. 3,89,60,631/- only. However, the business of the assessee has not commenced. Therefore, the AO disallowed the same and added to the total income of the assessee.
ITA nos.521/AHD/2020 with C.O No.5/Ahd/2021 Asstt. Years 2012-13 & 4 others 27
57. On appeal by the assessee, the learned CIT(A) deleted the disallowance made by the AO by observing as under:
8.3 Decision: I have carefully considered the Assessment Order and the submission made by the Appellant. The AO has mainly • disallowed depreciation on the ground that business of appellant has not commercial commenced. It is observed that while adjudicating the issue of whether land development expenditure is revenue expenditure or not, I have already referred assessment order passed in appellant's own case for A.Y. 2010-11 wherein AO himself has accepted the fact that business of appellant is already commenced. In view of detailed discussed made in preceding grounds, I have already accepted contention of appellant that business of appellant has already commenced and allowed land development expenditure as revenue expenditure. On perusal of Profit & loss account, it is apparent that appellant has claimed employees benefit expenses and various other expenditure including rent, professional fees, travelling expenditure as revenue expenditure and such claim is accepted by AO as such while passing the assessment order itself. It is observed that similar claim -of depreciation is allowed by AO while passing the assessment order-for A.Y. 2012-13. and 2014-15. Once AO himself has allowed depreciation in earlier year and appellant has claimed depreciation on opening WDV of assets as increased by additions made during the year, AO was not justified in disallowing depreciation on the ground that business has not commercially begun. Hon'ble Bombay High Court in the case of PCIT Vs. Quest Investment Advisors Ltd. reported in 96 taxmann.com 157 held as under:
"Once this principle was accepted and consistently applied ;md followed, the revenue was bound by it. Unless of course it wanted to change the practice without any change in law or change in facts therein, the basis for the change in practice should have boen mentioned either in the assessment order or atleast pointed out to the Tribunal when it passed the impugned order. None of this has happened. In fact, all have proceeded on the basis that there is no chango in the. principle which has boon consistently nppliod for the earlier assessment years and also for the subsequent assessment years. Therefore, the view of the Tribunal in nllowing thts respondent's appeal on the principle of consistency cannot in the present facts bu faulted with, as it is in accord with the Apex Court decision in Bharat Sanchar Niqam Ltd. v. Union of India [2006] 282 ITR
273. [Para 9]'.' Even on perusal of Profit & loss account, it is apparent that appellant has disclosed labour income of Rs 33.52 lacs and Rs 62.67 lacs being drilling income which proves that appellant has even earned income in year under consideration. Considering the facts discussed herein above, disallowance of depreciation made by AO for Rs.3,89,60,631/- is deleted. This ground of appeal is allowed.
58. Being aggrieved by the order of the learned CIT(A) the Revenue is in appeal before us.
ITA nos.521/AHD/2020 with C.O No.5/Ahd/2021 Asstt. Years 2012-13 & 4 others 28 58.1 The learned DR before us submitted that the assessee cannot claim the depreciation as the business has not been commenced. The ld. DR vehemently supported the order of the AO.
58.2 On the other hand, the learned AR submitted that the activity of the assessee has already commenced which was also accepted by the Revenue in the earlier year. Therefore, the depreciation cannot be disallowed due to non- commencement of commercial activity of the assessee. The ld. AR vehemently supported the order of the ld. CIT-A.
59. We have heard the rival contentions of both the parties and perused the materials available on record. Admittedly, the AO disallowed the claim of depreciation by holding that the business of the assessee has not been commenced. On the other hand, the learned CIT(A) has given categorical finding that the business of the assessee has already been started in earlier assessment year and this fact has been accepted by the AO while framing the assessment order under section 143(3) of the Act for A.Y. 2011-12. Before us, the finding given the by the learned CIT(A) has not been controverted by the learned DR. The AO has nowhere doubted the genuineness of claim. Therefore, in the given facts we do not find any infirmity in the order of the learned CIT(A). Hence, the ground of appeal raised by the revenue is hereby dismissed.
60. In the result, the appeal filed by the Revenue is hereby dismissed.
Coming to CO No. 12/Ahd/2021 filed by the assessee for the A.Y. 2013- 14
61. The assessee has raised following ground of objections:
1. On the facts and in the circumstances of the case, the Ld.CIT(A) erred in upholding disallowance of employees contribution to provident and ESIC for Rs.23,62,571/- u/s.36(1)(va) ITA nos.521/AHD/2020 with C.O No.5/Ahd/2021 Asstt. Years 2012-13 & 4 others 29 of the Act without appreciating the fact that payment was already made before due date of filing of return of income.
2. On the facts and in the circumstances of the case, the Ld.CIT(A) erred in upholding interest income of Rs.12,21,61,133/- as income from other sources when such income ought to have been reduced from project developemtn expenditure.
3. On the facts and in the circumstances of the case, the land development expenditure held to be capital expenditure by the Assessing Officer as against claim of appellant for treating it as revenue expenditure and held to be by CIT (Appeals), in case is eligible for deduction under Section 35E of the Act.
4. The appellant craves leave to add, alter or amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal.
62. The first objection raised by the assessee is that the learned CIT(A) erred in confirming the addition of Rs. 23,62,571/- made on account of late deposit of employee's contribution towards EPF & ESI.
63. At the outset, we note that the learned AR for the assessee at the time of hearing before us submitted that he was instructed by the assessee not to press the issue raised in the captioned ground of objection. Hence, the same is hereby dismissed as not pressed.
64. The next issue raised by the assessee is that the learned CIT(A) erred in confirming the addition of interest income for Rs. 12,21,61,133/- only.
65. At the outset, we note that the issue raised by the assessee in the above ground of objection is identical to the issue raised by the assessee in its grounds of objection for the AY 2012-13 in CO No. 05/AHD/2021. Therefore, the findings given in CO No. 05/AHD/2021 shall also be applicable for the year under consideration i.e. A.Y. 2013-14. The objection raised by the assessee for the A.Y. 2012-13 has been decided by us vide paragraph No. 46 of this order against the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2012-13 shall also be applied for the assessment ITA nos.521/AHD/2020 with C.O No.5/Ahd/2021 Asstt. Years 2012-13 & 4 others 30 year 2013-14. Hence, the ground of objection filed by the assessee is hereby dismissed.
66. The last objection raised by the assessee is that in case, the land development expenditure held as capital expenditure, then deduction under section 35E of the Act should be provided.
67. At the outset, we note that the learned AR for the assessee at the time of hearing before us submitted that he was instructed by the assessee not to press the issue raised in the captioned ground of objection in event if the assessee succeeds on the issue of land development expenditure raised by the Revenue in ITA No. 562/Ahd/2020. The assessee has certainly succeeded by paragraph No. 54 of this order. Hence, the same is hereby dismissed as not pressed.
68. In the result, the cross objection filed by the assessee is hereby dismissed.
Coming to ITA No. 544/Ahd/2020, an appeal by the revenue for A.Y. 2014-15
69. The Revenue has raised following grounds of appeal:
1. The ld.CIT(A) has erred in law and on facts in deleting the disallowance u/s.14A r.w.r 8D of the Act for Rs.27,82,900/-
2. The Ld.CIT(A) has erred in law and on facts in deleting the disallowance of Rs.1,16,53,200/- made on account of land development expenditure.
3. The Ld.CIT(A) has erred in law and on facts in holding that assesee would be entitled to higher deduction u/s.35E in subsequent years in respect of interest income deducted from Capital WIP appreciating that it would be a subject matter of assessment in future years, subject to the provisions of the Act.
4. The appellant craves, to leave, to amend and/or to alter any ground or add a new ground which may be necessary.
ITA nos.521/AHD/2020 with C.O No.5/Ahd/2021 Asstt. Years 2012-13 & 4 others 31
70. The first issue raised by the Revenue is that the learned CIT(A) erred in deleting the disallowance made under section 14A read with rule 8D of Income Tax Rule for Rs. 27,82,900/- only.
71. At the outset, we note that the issue raised by the revenue in the above ground of appeal is identical to the issue raised by the revenue in its ground of appeal for the AY 2012-13 in ITA No. 521/AHD/2020. Therefore, the findings given in ITA No. 521/AHD/2020 shall also be applicable for the year under consideration i.e. A.Y. 2014-15. The appeal of the Revenue for the A.Y. 2012-13 has been decided by us vide paragraph No. 9 of this order against the Revenue. The learned DR and the AR also agreed that whatever will be the findings for the assessment year 2012-13 shall also be applied for the assessment year 2014-15. Hence, the ground of appeal filed by the revenue is hereby dismissed.
72. The next issue raised by the Revenue vide ground Nos. 2 & 3 is that the learned CIT(A) erred in deleting the addition made by the AO on account of land development expenditure for Rs. 1,16,53,200/- and further erred in holding that the assessee would be entitled to higher deduction under section 35E of the Act in the subsequent years.
73. At the outset, we note that the issues raised by the revenue in the above grounds of appeal are identical to the issue raised by the revenue in its grounds of appeal for the AY 2012-13 in ITA No. 521/AHD/2020. Therefore, the findings given in ITA No. 521/AHD/2020 shall also be applicable for the year under consideration i.e. A.Y. 2014-15. The appeal of the revenue for the A.Y. 2012-13 has been decided by us vide paragraph No. 34 of this order against the revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2012-13 shall also be applied for the assessment year 2014-15. Hence, the grounds of appeal filed by the revenue are hereby dismissed.
74. In the result appeal filed by the revenue is hereby dismissed.
ITA nos.521/AHD/2020 with C.O No.5/Ahd/2021 Asstt. Years 2012-13 & 4 others 32 Coming to CO No. 6/Ahd/2021 filed by the assessee for the A.Y. 2014-15
75. The assessee has raised following ground of objections:
1. On the facts and in the circumstances of the case, the Ld.CIT(A) erred in upholding disallowance of employees contribution to provident and ESIC for Rs.14,69,278/- u/s.36(1)(va) of the Act without appreciating the fact that payment was already made before due date of filing of return of income.
2. On the facts and in the circumstances of the case, the Ld.CIT(A) erred in upholding interest income of Rs.9,89,85,073/- as income from other sources when such income ought to have been reduced from project development expenditure.
3. On the facts and in the circumstances of the case, the land development expenditure held to be capital expenditure by the Assessing Officer as against claim of appellant for treating it as revenue expenditure and held to be by CIT (Appeals), in case is eligible for deduction under Section 35E of the Act.
4. On the facts and in the circumstances of the case, the Departmental appeal is not maintainable in view of CBDT Circular No.17/2019 dated 8th August, 2019, as tax appeal effect involved in such appeal is less than Rs.50 lacs.
The appellant craves leave to add, alter or amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal.
76. The first objection raised by the assessee is that the learned CIT(A) erred in confirming the addition of Rs. 14,69,278/- made on account of late deposit of employee's contribution towards EPF & ESI.
77. At the outset, we note that the learned AR for the assessee at the time of hearing before us submitted that he was instructed by the assessee not to press the issue raised in the captioned ground of objection. Hence the same is hereby dismissed as not pressed.
78. The next issue raised by the assessee is that the learned CIT(A) erred in confirming the addition of interest income for Rs. 9,89,85,073/- only.
79. At the outset, we note that issue raised by the assessee in the above ground of objection is identical to the issue raised by the assessee in its ground of ITA nos.521/AHD/2020 with C.O No.5/Ahd/2021 Asstt. Years 2012-13 & 4 others 33 objection for the AY 2012-13 in CO No. 05/AHD/2021. Therefore, the findings given in CO No. 05/AHD/2021 shall also be applicable for the year under consideration i.e. A.Y. 2014-15. The objection raised by the assessee for the A.Y. 2012-13 has been decided by us vide paragraph No. 46 of this order against the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2012-13 shall also be applied for the assessment year 2014-15. Hence, the ground of objection filed by the assessee is hereby dismissed.
80. The last objection raised by the assessee is that in case, if the land development expenditure is held as capital expenditure, then a deduction under section 35E of the Act should be provided.
81. At the outset, we note that the learned AR for the assessee at the time of hearing before us submitted that he was instructed by the assessee not to press the issue raised in the captioned ground of objection in event if the assessee succeeds on the issue of land development expenditure raised by the Revenue in ITA No. 544/Ahd/2020. The assessee has certainly succeeded by paragraph No. 73 of this order. Hence, the same is hereby dismissed as not pressed.
82. In the result cross objection filed by the assessee is hereby dismissed.
83. In the combined Results, Sr Appeal A.Y Appeal By Result No. 1 ITA No. 2012-13 Department Partly 520/Ahd/2020 allowed 2 CO No. 2012-13 Assessee Dismissed 05/Ahd/2021 3-4 ITA No. 2013-14 Department & Dismissed 562/Ahd/2020 & Co Assessee No 12/Ahd/2021 ITA nos.521/AHD/2020 with C.O No.5/Ahd/2021 Asstt. Years 2012-13 & 4 others 34 5-6 ITA No. 2014-15 Department & Dismissed 544/Ahd/2020 & CO Assessee No. 06/Ahd/2021 Order pronounced in the Court on 04/10/2023 at Ahmedabad.
Sd/- Sd/-
(SIDDHARTHA NAUTIYAL) (WASEEM AHMED)
JUDICIAL MEMBER ACCOUNTANT MEMBER
(True Copy)
Ahmedabad; Dated 04/10/2023
Manish