Income Tax Appellate Tribunal - Jaipur
M/S Rajasthan State Mines & Minerals ... vs Deputy Commissioner Of Income Tax, ... on 12 November, 2018
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, "A" JAIPUR
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BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM
vk;dj vihy la-@ITA. No. 705/JP/2018
fu/kZkj.k o"kZ@Assessment Years : 2015-16
M/s Rajasthan State Mines & cuke The DCIT
Minerals Ltd., Vs. Circle-6,
C-89-90, Lal Kothi, Janpath, Jaipur.
Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAACR 7857 H
vihykFkhZ@Appellant izR;FkhZ@Respondent
vk;dj vihy la-@ITA. No. 773/JP/2018
fu/kZkj.k o"kZ@Assessment Years : 2015-16
The DCIT, cuke M/s Rajasthan State Mines & Minerals
Circle-6, Vs. Ltd.,
Jaipur. C-89-90, Lal Kothi, Janpath,
Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAACR 7857 H
vihykFkhZ@Appellant izR;FkhZ@Respondent
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s Assessee by : Shri P. C. Parwal (CA)
jktLo dh vksj ls@ Revenue by: Shri Varinder Mehta (CIT)
lquokbZ dh rkjh[k@ Date of Hearing : 13/08/2018
mn?kks"k.kk dh rkjh[k@Date of Pronouncement : 12/11/2018
vkns'k@ ORDER
2 ITA No. 705 & 773/JP/2018 M/s Rajasthan State Mines and Minerals Ltd., vs. DCIT PER: VIKRAM SINGH YADAV, A.M. These are cross appeals filed by the assessee and the Revenue against the order of ld. CIT(A), Jaipur dated 23.03.2018 for Assessment Year 2015-16 wherein respective grounds of appeal are as under:-
ITA. No. 773/JP/2018 ( Revenue's ground) "(i) Whether in the facts and in the circumstances of the case and in law the ld. CIT(A) was justified in deleting the disallowance of State Renewal Fund of Rs. 20,00,000/- made by the A.O. without appreciating the fact that it is application of income and not expenditure incurred for business expediency.
(ii) Whether in the facts and in the circumstances of the case and in law the ld. CIT(A) was justified in allowing deduction of Rs. 3,16,55,000/- in respect of Mines Closure plan?
(iii) Whether in the facts and in the circumstances of the case and in law, the ld. CIT(A) was justified in allowing deduction U/s 80IA of Rs. 5,25,78,000/- on liquidated damages receipts without appreciating the fact that there was no first degree nexus of the receipt with the business?
ITA. No. 705/JP/2018 (assessee's ground) "1 The ld. CIT(A) has erred on facts and in law in not allowing the deduction of amortization in respect of mining land at Rs. 4,62,14,928/- and leasehold land at Rs. 8,18,438/- by holding that the claim made during assessment proceedings without filing a revised return cannot be allowed and that the decision of the Hon'ble Supreme Court in case of 3 ITA No. 705 & 773/JP/2018 M/s Rajasthan State Mines and Minerals Ltd., vs. DCIT Goetze India Vs. CIT 284 ITR 323 do not allow the liberty to the CIT(A) to entertain a claim not made in the valid return of income.
2. The ld. CIT(A) has erred on facts and in law in confirming the action of AO of reducing the claim of deduction U/s 80IA of Rs. 15,52,27,013/- by making apportionment of total employee benefit expenses, establishment expenses, selling expenses and other miscellaneous expenses at 69,53,38,695/- to wind power generation undertakings eligible for deduction 80IA by:
a) ignoring that the entire operation and maintenance of wind plants has been given to Suzlon Energies Ltd. and therefore, the said expenditure has no relation to the undertakings eligible for deduction 80IA;
b) incorrectly determining the amount of such expenditure at Rs. 69,53,38,695/- instead of only considering the head office and corporate office expenses at Rs. 41,46,71,029/-; and
c) allocating the above expenditure in the ratio of income from eligible units to the total income instead of allocating it in the ratio of gross revenue of the eligible units to the total revenue as done by the AO himself in earlier years."
2. In Ground No. 1 of the Revenue's appeal, it has challenged the deletion of addition of Rs. 20,00,000/- made by the AO by disallowing contribution to State Renewal Fund.
3. At the time of hearing, both the parties fairly submitted that the issue is covered by the decision of the Co-ordinate Bench in assessee's 4 ITA No. 705 & 773/JP/2018 M/s Rajasthan State Mines and Minerals Ltd., vs. DCIT own case for AY 2011-12 in ITA No. 298/JP/2015 dated 30.05.2017 wherein it was held as under:-
"78. Ground no. 1 is against deleting the addition of Rs. 20 lakhs in respect of contribution made by assessee towards State Renewal Fund. At the outset, the Ld. Counsel submitted that this issue is covered in favour of the assessee by the judgment of the Hon'ble Rajasthan High Court rendered in the case of CIT vs. Jodhpur Co-operative Marketing Society (2005) 275 ITR 372(Raj.)"
"78.2 We have heard the rival contentions, we find that the Ld. CIT(A) has decided the issue in para 2.1 and 2.2 by following the judgments of the Hon'ble High Court as under:-
"2.1. In this year, the assessee has claimed expenditure of Rs. 20,00,000/- in respect of contribution to State Renewal Fund. This issue also arose in the case of appellant in AY 2010-11 and earlier years. The main points of the Assessment Order, on this issue, have been narrated in the appeal order of CIT(A)-II, Jaipur (Appeal no. 325/12-13, dated 05.12.2013) for A.Y. 2010-11. The main points of the submissions of the appellant, on this issue, have been narrated the above appeal order. Therefore, the assessment order and the submissions of the appellant are not being again narrated in this order for the sake of brevity. In AY 2010-11, the CIT(A)-II, Jaipur, has held as under-
"Assessing Officer disallowed contribution made to State Renewal Fund by treating the same as diversion of income. However, appellant submitted that this issue is covered in its favour by the order of ITAT. It is seen that similar addition was made in AY 2006-07 in the case of 5 ITA No. 705 & 773/JP/2018 M/s Rajasthan State Mines and Minerals Ltd., vs. DCIT the appellant, but it was decided by Hon'ble ITAT Bench 'A' Jaipur in ITA No. 783/JP/2009 & 740/JP/2009 in AY 2006-07 through order dated 31.03.2010 in favour of the appellant, where in para 15 Hon'ble Tribunal relied upon its decision dated 22.05.2009 in case of Rajasthan State Seeds Corporation Ltd, wherein relying upon Hon'ble Rajasthan High Court decisions in the case of CIT Vs. Rajasthan Spinning and Weaving Mills Ltd. 274 ITR 465 and CIT vs. Shri Rajasthan Syntex Ltd. 221 CTR 410 held that the contribution made by the assessee to a Public Welfare Fund which is connected or related with his business is an allowable deduction u/s 37 as it was provided for the benefit of the employees. Hon'ble Tribunal distinguished the decision of Hon'ble Rajasthan High Court in the case of CIT Vs. Jodhpur Co-operative Marketing Society 275 ITR 372 (Raj) stating that in that case the amount was set apart for the shareholders of the society whereas in the present case amount was provided for the benefit of the employees and the contribution made to State Renewal Fund was found allowable u/s 37(1). Respectfully following the decision of ITAT in appellant's own case, addition made by the AO is deleted.
2.2 Following the above order of the CIT(A)-II, Jaipur and the order of ITAT, Jaipur in the case of the assessee, the disallowance made by the AO is directed to be deleted. This ground is allowed."
78.3 Since the Ld. CIT(A) rightly followed the judgment of the Rajasthan High Court in the case of CIT vs. Jodhpur Co-operative Marketing Society(2005) 275 ITR 372 (Raj.). We do not see any reason to interfere into the order of the Ld. CIT(A), same is hereby affirmed. This ground is dismissed."
6 ITA No. 705 & 773/JP/2018M/s Rajasthan State Mines and Minerals Ltd., vs. DCIT
4. Further, the ld. AR also submitted that the issue is now covered by the decision of Hon'ble Rajasthan High Court in case of Principal CIT vs. Rajasthan State Seed Corporation Ltd. in D.B. Appeal No. 4/2016 dated 29.04.2016 wherein it was held as under:-
"9. In sofar as the expenditure incurred on State Renewal Fund is concerned, said expenditure also goes to show that the renewal fund was set up by the State Government and was created with the object of providing a safety net for the workers likely to be effected by restricting in the State Public Enterprise and that a finding of fact has been recorded that the contribution made to the State Renewal fund is solely for the purposes of the welfare and benefit of the employees. In our view, it is for the assessee to decide whether any expenditure should be incurred in the course of business and expenditure of this nature being for business expediency is certainly allowable deduction under Section 37(1) of the Act. In our view any normal expenditure for the welfare and benefit of employees is allowable expenditure under Section 37(1), the Tribunal has come to a finding of fact that it was a legal obligation of the respondent-assessee towards contribution of the said amount to the State Renewal Fund and there being a legal obligation as well in our view the Tribunal has come to a correct conclusion."
5. Undisputedly, there are no changes in the facts and circumstances of case. Following the consistent position in earlier years and the decision of the Hon'ble Rajasthan High Court in case of Pr. CIT vs. Rajasthan State Seed Corporation Ltd (supra), we upheld the order 7 ITA No. 705 & 773/JP/2018 M/s Rajasthan State Mines and Minerals Ltd., vs. DCIT of the ld. CIT(A). Hence, the ground so taken by the Revenue is dismissed.
6. In Ground No. 2, the Revenue has challenged allowance of deduction of Rs. 3,16,55,000/- in respect of provision for mines closure Expenses.
7. At the time of hearing, both the parties fairly submitted that the issue is covered by the decision of Co-ordinate Bench in assessee's own case for AY 2011-12 in ITA No. 256 and 298/JP/2015 dated 30.05.2017 wherein it was held as under:-
"70. Ground no. 4 is confirming the action of the AO disallowed the claim of deduction of Rs. 4,69,61,000/- in respect of mine closure expenses made in course of assessment proceedings. The Ld. Counsel for the assessee reiterated the submission as made in the written submissions. The Ld. Counsel for the assessee submitted that as per this guidelines the assessee was fastened a liability of Rs. 4,69,61,000/- such liability which is an ascertained liability is allowable under the mercantile system of accounting followed by the assessee. For allowability of claim of expenditure, there is no requirement that it should be debited in the books of accounts for this proposition the Ld. Counsel for the assesssee relied upon the judgment of the Hon'ble Supreme Court rendered in the case of Satluj Cotton Mills vs CIT 116 ITR
1. He submitted that the Tribunal in assessee's own case pertaining to the AY 2010-11 has decided the issue in favour of the assessee."8 ITA No. 705 & 773/JP/2018
M/s Rajasthan State Mines and Minerals Ltd., vs. DCIT 70.2 We have heard the rival contention, perused the material available on record. The Ld. CIT(A) has rejected the claim by following the decision of his predecessor pertaining to the AY 2010-11. The Co-ordinate Bench in assessee's own case has held as under:-
"30.5 Further the judgment in the matter of Bharat Earth Movers Ltd Vs. CIT, 112 Taxman 61 (SC) and Calcutta Company Ltd, 37 ITR are applicable. Beside, in the said judgment it was categorically held that the mines closure liability is a ascertained liability. As per matching principle as well as the mercantile system of accounting, the liability is allowable in principle under section 37 of the Act. In view of the above, the ground of the assessee is allowed and the AO is directed to give the benefit of deduction of Rs. 2,94,04,000/- towards mines closure expenses in the A.Y. 2010-11."
The facts are identical in this year, as well taking a consistent view, the AO is directed to given benefit of deduction of Rs. 4,69,61,000/- in respect of mine closure expenses. This ground of the assessee's appeal is allowed."
8. The ld AR further submitted that the matter is now covered in assessee's own case by the decision of Hon'ble Rajasthan High Court in case of Pr. CIT vs. Rajasthan State Mines & Minerals Ltd., in DB Appeal No. 151/2016 dated 13.10.2017 for AY 2010-11 wherein the relevant findings are as under:-
9 ITA No. 705 & 773/JP/2018M/s Rajasthan State Mines and Minerals Ltd., vs. DCIT "5. Regarding issue no. 5, counsel for the appellant has relied upon the observations made by the AO which reads as under:-
3.10 Provision for Mines Closure F.Y 2009-10:-
During the assessment proceedings the assessee claimed as under:
"In compliance to guidelines dated 27.08.2009, as amended from time to time, by Ministry of Coal, Government of India, for preparation of Final Mine Closure, company has provided sum of Rs. 2,49,04,000/- towards proportionate mines closure expenses for the financial year 2009-10 in the books of accounts prepared for financial year 2009-10 in the books of accounts prepared for Financial Year 2011-12 as prior period expenses of Rs. 2,49,04,000/- while making computation of total income for the assessment year 2012-13. As the assessment proceedings for the year are under progress, it is requested to allow the claim of the assessee while passing the assessment order u/s 143(3). Copy of Income Tax Return Acknowledgement, computation of total income and notes to the computation are enclosed for the ready reference."
I have gone through the claim made by the assessee in respect of towards proportionate mines closure expenses for the financial year 2009-10 amounting to Rs. 2,49,04,000/-. As the assessee itself mentioned in his reply that the expenditure has not been debited in the books of accounts for the assessment year under consideration therefore no question of its allowability arises. Even otherwise, legally also the claim of the assessee is not valid in 10 ITA No. 705 & 773/JP/2018 M/s Rajasthan State Mines and Minerals Ltd., vs. DCIT view of the decision of Hon'ble Supreme Court in the case of Goetze (India) Ltd. vs. CIT 284 ITR 323, that claim of deduction not made in the return cannot be entertained by AO otherwise than by filing revised return."
"6.1 Regarding issue no. 5, it is not reflected in the books of accounts without taking closure of a mining is a statutory liability and the same is for the subsequent year reflected, therefore, in view of the decision rendered by the Tribunal, we are of the opinion that the tribunal has not committed any error."
9. Undisputedly, there are no changes in the facts and circumstances of case. Following the consistent position in earlier years and the decision of the Hon'ble Rajasthan High in assessee's own case, we hereby affirm the order of ld. CIT(A). Hence, the ground so taken by the Revenue is dismissed.
10. In Ground No. 3, the Revenue has challenged allowing deduction U/s 80IA of Rs. 5,25,78,000/- on liquidated damages receipts without appreciating the fact that there was no first degree nexus of the receipt with the business.
11. At the outset, the ld. AR of the assessee has submitted that the matter is covered in assessee's favour by the decision of the Coordinate Bench in assessee's own case for A.Y. 2008-09 in ITA No. 254/JP/2015 dated 30.05.2017 wherein it was held in para 35.3 which is reproduced as under:-
"35.3 We have heard the rival contentions and perused the material available on record. The ld CIT(A) disallowed the claim on the basis that 11 ITA No. 705 & 773/JP/2018 M/s Rajasthan State Mines and Minerals Ltd., vs. DCIT the first degree nexus with the operation of the undertaking is missing. The Ld. CIT(A) has followed the decision of his predecessor pertaining to the A.Y. 2010-11. Admittedly, this payment is related to the contract between the assessee and the supplier. The contract is related to the wind mill independent of operation of the wind mill the payment of liquidated damages would not arise. It is only on the operation of the wind mill and the output of the equipment so installed this liability of the payment of damages arises.
In the absence of operation, the issue of payment of such damages would not arise. It is only when the wind mill becomes operational on short fall on the production such payment is made. Hon'ble Madhya Pradesh High Court in the case of CIT vs. Prakash Oils Ltd. (supra) held that the payment made as an liquidated damages for not honouring the contract for sale of oil and deoiled cake, such income is directly derived from industrial undertaking, hence eligible deduction u/s 80IA. In our view, the Ld. CIT(A) erred in holding that such income is not derive from the business of the undertaking. Therefore, we direct the Assessing Officer to allow deduction u/s 80IA on this receipt. This ground of the assessee's appeal is allowed."
12. It was further submitted that the matter is covered in assessee's favour by the decision of the Hon'ble Rajasthan High Court in assessee's own case for A.Y. 2010-11 vide DBITA No. 146/2016 dated 13.12.2017 wherein it was held in para 15 which is reproduced as under:-
"15. On issue No. 4 regarding liquidated damages which are given are business losses which the undertaking ought to have done, if the machines which were delivered to the assessee would have performed 12 ITA No. 705 & 773/JP/2018 M/s Rajasthan State Mines and Minerals Ltd., vs. DCIT very well, therefore, damages which were given for loss of business which was guaranteed by the supplier, Madhya Pradesh High Court Judgment will not apply in the present case. This is not damages for compensation for business loss. In that view of the matter, this issue is also answered in favour of the assessee and against the department."
13. The ld. DR is heard who has relied on the order of the Assessing officer.
14. We have heard the rival contentions and perused the material available on record. Following the decision of the Hon'ble Rajasthan High Court, the ld CIT(A) has allowed the relief to the assessee. We therefore donot find any infirmity in the order of the ld CIT(A) and the same is hereby confirmed. In the result, the ground of appeal is dismissed.
15. Now coming to assessee's appeal. In Ground No. 1, the assessee has challenged the action of the ld. CIT(A) in confirming the disallowance of amortization of mining land of Rs. 4,62,14,928/- and leasehold land of Rs. 8,18,438/- by treating it as capital expenditure.
16. Briefly stated, the facts of the case are that during the course of assessment proceedings, the AO observed that the claim was not made in the original return of income and the return was not revised on time. Further, the claim of amortization of mining land is not eligible u/s 35D(2) and the assessee could not justify its allocation in the year under consideration to claim deduction u/s 37(1). Accordingly, he disallowed the claim of amortization of land amounting to Rs. 4,62,14,928/-which on appeal was confirmed by the ld CIT(A).
13 ITA No. 705 & 773/JP/2018M/s Rajasthan State Mines and Minerals Ltd., vs. DCIT
17. During the course of hearing, the ld AR submitted that the Hon'ble Rajasthan High Court in its order for AY 2010-11 in DB ITA No.146/2016 dt. 13.12.2017 after referring to the definition of intangible asset held that the rights which are given to the assessee are commercial rights which are akin to license for mining. Accordingly, it was submitted that the Hon'ble High Court accepted the contention of assessee for allowing depreciation u/s 32(1)(ii) on such right in the mining land. In view of above, it was submitted that the AO be directed to allow the claim of depreciation u/s 32(1)(ii) of the Act. Regarding decision of the Hon'ble Supreme Court in case of Goetze India relied upon by the ld CIT(A), it was submitted that the said decision nowhere states that the CIT(A) has no power to entertain the claim which is not made in the return of income and thus, the ld CIT(A) has erred in not allowing the same which is otherwise permissible as per the order of the Hon'ble Rajasthan High Court in assessee's own case.
18. We now refer to the decision of the Hon'ble Rajasthan High Court in DB ITA No.146/2016 dt. 13.12.2017 where while admitting the appeal, the Hon'ble High Court has framed the substantial question of law as under:
"(ii) Whether on the facts and circumstances of the case, the licence to use the land for mining is covered by the definition of intangible assets u/s 2(11) of the Act entitling depreciation allowance u/s 32(1)(ii) of the Act."
And thereafter, at Para 13 to 13.2 of its judgment, the Hon'ble High Court has held as under:
14 ITA No. 705 & 773/JP/2018M/s Rajasthan State Mines and Minerals Ltd., vs. DCIT "13. However, on the second issue, on a close scrutiny of Sub section 32(ii) of the Income Tax Act which reads as under:-
Section 32, (1) In respect of depreciation of-
(ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1988.
13.1 In our consideration opinion the rights which are given to the assessee are of commerce rights which are akin to license for mining.
13.2 In that view of the matter, the contention of the assessee regarding depreciation u/s 32(ii) is required to be accepted, therefore, the second issue is answered in favour of the assessee and against the department."
19. It is not in dispute that the matter is now covered on merits in favour of the assessee by the decision of the Hon'ble Rajasthan High Court where the assessee has been held eligible to claim depreciation under section 32(1)(ii) of the Act. Regarding the fact that the said claim was not made in the original return of income but by way of a letter dated 6.12.2017 during the course of assessment proceedings, we find that the decision of the Hon'ble Supreme Court in case of Goetze India was in context of power of the Assessing officer to entertain a fresh claim without filing a revised return of income. However, when the matter was taken up in appeal before the ld CIT(A), we find that so long as the claim is legally tenable more so by the decision of the Hon'ble High Court in assessee's own case and all 15 ITA No. 705 & 773/JP/2018 M/s Rajasthan State Mines and Minerals Ltd., vs. DCIT material facts are on record, the assessee should not be denied such a claim which it is eligible otherwise. Respectfully following the decision of the Hon'ble Rajasthan High Court, the AO is directed to allow depreciation under 32(1)(ii) of the Act. The ground of assessee's appeal is thus partly allowed.
20. In ground No. 2, the assessee has challenged the confirmation of the action of the AO of reducing the claim of deduction u/s 80IA of Rs.15,52,27,013/- by apportioning establishment and financial expenses at Rs. 69,53,38,695/- to wind power generation undertakings eligible for deduction u/s 80IA ignoring that the entire operation and maintenance of wind plants has been given to Suzlon Energies Ltd. and therefore, the said expenditure has no relation to the undertakings eligible for deduction u/s 80IA.
21. In this regard, the ld. AR submitted that the AO observed that in working out the claim of deduction u/s 80IA, assessee has not apportioned establishment & other miscellaneous expenses, employees benefit expenses, selling expenses, packing charges and business promotion expenses amongst the units eligible for deduction u/s 80IA. The assessee has only considered the direct operation and maintenance expenses for working out the profits of wind power projects as if these projects were automatically set up and were running without any strategic planning, management, directions, etc. Accordingly, AO worked out such expenses at Rs.69,53,38,695/- calculated in the following manner:-
a) Establishment & other miscellaneous expenses - Rs.113,24,29,832/-
Less:- Donation - Rs.90,00,00,000/- Rs.23,24,29,832/-
16 ITA No. 705 & 773/JP/2018M/s Rajasthan State Mines and Minerals Ltd., vs. DCIT
b) Employees benefit expenses (28% of Rs.144,07,96,406/-) Rs.40,34,22,994/-
c) Selling expenses Rs.4,11,36,421/-
d) Business promotion expenses Rs.41,09,876/-
e) Packing expenses (55% of Rs.2,58,90,131/-) Rs.1,42,39,572/-
Total Rs.69,53,38,695/-
The above expenditure was allocated in the ratio of income from eligible units to the total income and accordingly deduction u/s 80-IA is reduced by Rs.15,52,27,013/-.
22. It was further submitted that the Ld. CIT(A) held that on perusal of the agreement with M/s Suzlon Energy Ltd., it can be noted that only the operational part is being handled by M/s Suzlon Energy Ltd. Thus, even the monitoring of these agreements and facilitating the terms and conditions of the agreement and monitoring of the operations would require management, direction, supervision and control and therefore, it cannot be said that expenditure under the head of establishment and financial expenses have no nexus with the running of the power projects. Accordingly, she confirmed the allocation of expenditure as made by the AO.
23. It was further submitted that none of the above expenditure which is considered for allocation pertain to the 80IA undertakings in as much as the entire operation and maintenance of the plant has been given to Suzlon Energies Ltd. Therefore, assessee has not to incur any expenditure on salary/ employees benefit, travelling, conveyance and other expenses debited under the various heads of expenses in Corporate Office/ head office. No strategic planning, day to day management and supervision, financial management, marketing management, tendering, work allocation, contract awarding, control etc. 17 ITA No. 705 & 773/JP/2018 M/s Rajasthan State Mines and Minerals Ltd., vs. DCIT is required for operating these power plants by the Corporate Office/ head Office. Therefore, no part of these expenses more particularly expenses on repairs, rates and taxes, land tax, insurance, travelling, conveyance, financial expenses, consultancy charges, etc. can be allocated to the income derived from these power generating units. Hence, withdrawal of deduction u/s 80IA to the extent of Rs. 15,52,27,013/- is grossly unjustified.
24. It was further submitted that similar disallowance was made in AY 2006-07 to 2009-10 & 2011-12 to 2013-14 wherein the Hon'ble ITAT vide order dated 30.05.2017 set aside the order to the files of the AO to verify the claim of the assessee that the entire expenditure related to operation & maintenance was born by Suzlon Energies Ltd. It may be noted that the assessee has filed the relevant extract of the terms and conditions on which the installation of wind power generating units was given to M/s Suzlon Energy Limited. As per the scope of work, the operation and maintenance of the wind farm for 20 years from the date of acceptance of the wind power project is awarded to M/s Suzlon Energy Limited for which it is to be paid at the rate of Rs.0.40/kwh in the first year and thereafter, with escalations as per Para 5 of the agreement. Thus, it is on record that the entire expenditure relating to operation and maintenance is borne by M/s Suzlon Energy Limited. On this account for the year under consideration, the assessee has incurred expenditure of Rs.10,29,61,955/- in respect of the wind power generating units on which deduction u/s 80IA is claimed. Therefore, the reduction in the claim of deduction u/s 80IA is unjustified and uncalled for.
18 ITA No. 705 & 773/JP/2018M/s Rajasthan State Mines and Minerals Ltd., vs. DCIT
25. Without prejudice to above, it was further submitted that the AO has considered the employees benefit and establishment and other miscellaneous expenses for proportionate allocation against the Wind power plant. This is incorrect for the reason that whatever expenditure is relatable to the income from the said industrial undertaking has been debited for working out the income of the said units. The lower authorities have not considered this factual aspect. In fact, the assessee maintains the unit wise details of the expenditure of the head office and various mining units. Therefore, the expenditure incurred on administration at these mining units cannot be allocated towards the power generating units.
26. It was further submitted that the total expenditure considered by the AO for allocation is Rs.69,53,38,695/-. This allocation itself is faulty. It may be noted that out of employees benefit expenses of Rs.144,07,96,406/-, the expenditure at corporate office is only Rs.19,93,68,866/-. The remaining expenditure is on mining units. Therefore, allocation of such expenses at Rs. 40,34,22,994/- is incorrect. Similarly, the expenditure on establishment & other expenses at Corporate Office after excluding donation is Rs.19,05,74,459/-. Further, in AY 2010-11, the AO himself in order u/s 143(3) /147 dt. 29.12.2017 has excluded the selling expenses, business promotion expenses and packing charges for allocating the same for working out the income from the windmill by holding that the same has no nexus with the windmill. Thus, assuming the stand of the AO to be correct, only an amount of Rs.38,99,43,325/- (19,93,68,866 + 19,05,74,459) can be allocated towards the power generating units.
19 ITA No. 705 & 773/JP/2018M/s Rajasthan State Mines and Minerals Ltd., vs. DCIT
27. It was further submitted that the AO has allocated the expenditure in the ratio of income of eligible unit to the total income. However, in all earlier years such allocation is made on the basis of turnover of the eligible business to the total turnover. The total turnover is Rs.8,99,03,63,357/- whereas the turnover of power generating unit is Rs.45,62,99,513/-. Thus, the percentage of turnover of the eligible unit to the total turnover works out at 5.07%. Therefore, even if any part of indirect expenditure is allocated against the profit of the eligible units, it can be only Rs.1,97,70,126/- (38,99,43,325*5.07%). Even otherwise, if any indirect expenditure is assumed to be against the profits of eligible undertaking, it can be only on lump sum basis and not on percentage basis as done by the lower authorities.
28. The ld. DR is heard who has relied on the order of the lower authorities.
29. We have heard the rival contentions and perused the materials available on record. Regarding the first contention of the ld AR that none of the expenses at the corporate office pertain to the 80IA undertakings in as much as the entire operation and maintenance of the plant has been given to Suzlon Energies Ltd, it is no doubt true that the operation and maintenance activities are handled by Suzlon Energy and the ld CIT(A) has returned a finding which has not been disputed by the Revenue. However, the fact remains that the assessee activities are still guided towards overall supervision and management of these activities at the strategic and managerial level and to safeguard the interest of the shareholders and the assessee still remains responsible for the activities of these eligible undertakings to the outside world even 20 ITA No. 705 & 773/JP/2018 M/s Rajasthan State Mines and Minerals Ltd., vs. DCIT though at the operational level, the whole of its activities have been outsourced to Suzlon Energies Ltd. Therefore, the contention of the ld AR cannot be accepted that no expenses in furtherance and support of what we have stated above has been incurred by the assessee and which has no nexus with the eligible undertakings. To our mind, the activities at the strategic, managerial, regulatory and overall oversight level definitely have a nexus with the eligible undertakings and the expenses incurred in relation thereto needs to be allocated to the eligible undertakings.
30. Now, coming to the specifics of the expenditure incurred at the corporate and head office level, on perusal of the details available in assessee's paper book, we find that the employee benefit expenses of Rs 54,16,363 have been incurred at head office and Rs 19,93,68,866 at the corporate office which needs to be considered for allocation. Further, expenditure on establishment and other expenses at the head office and corporate office has been shown as Rs 1,34,221 and Rs 109,05,74,459 respectively. Out of which, donations amounting to Rs 90 crores, selling expenses of Rs 1,51,40,735 and business promotion expenses of Rs 40,36,383, and advertisement and publication expenses of Rs 1,71,76,305 needs to be excluded and remaining expenses need to be considered for allocation. The expenses in the nature of employee costs and other establishment expenses so worked out needs to be allocated in the ratio of turnover for the purposes of determining the eligible profits under section 80IA of the Act. The matter is accordingly set-aside to the file of the AO to verify these figures and recalculate the eligible profits for the purposes of 21 ITA No. 705 & 773/JP/2018 M/s Rajasthan State Mines and Minerals Ltd., vs. DCIT section 80IA of the Act. In the result, the ground is partly allowed for statistical purposes.
In the result, both the appeals are disposed off with above directions.
Order pronounced in the open Court on 12/11/2018.
Sd/- Sd/-
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(Vijay Pal Rao) (Vikram Singh Yadav)
U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member
Tk;iqj@Jaipur
fnukad@Dated:- 12/11/2018
*Santosh
vkns'k dh izfrfyfi vxzfs 'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- M/s Rajasthan State Mines & Minerals Ltd., Jaipur.
2. izR;FkhZ@ The Respondent- DCIT, Circle-6, Jaipur.
3. vk;dj vk;qDr@ CIT
4. vk;dj vk;qDr@ CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur.
6. xkMZ QkbZy@ Guard File { ITA No. 705 & 773/JP/2018} vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar.