Income Tax Appellate Tribunal - Delhi
Dcit, Faridabad vs M/S. Nhpc Ltd., Faridabad on 8 May, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHE 'C', NEW DELHI
Before Sh. Bhavnesh Saini, Judicial Member
And
Sh. N. S. Saini, Accountant Member
ITA No. 3650/Del/2015 : Asstt. Year : 2010-11
Dy. Commissioner of Income Vs M/s NHPC Ltd.,
Tax, Circle-II, NHPC Complex, Sector-33,
Faridabad Faridabad
(APPELLANT) (RESPONDENT)
PAN No. AAACN0149C
ITA No. 3738/Del/2015 : Asstt. Year : 2010-11
M/s NHPC Ltd., Vs Asstt. Commissioner of Income
NHPC Complex, 4th Floor, Tax, Circle-II,
Finance Div, Sector-33, Faridabad
Faridabad-121003
(APPELLANT) (RESPONDENT)
PAN No. AAACN0149C
Assessee by : Sh. Ved Jain, Adv. &
Sh. Himanshu Aggarwal, CA
Revenue by : Sh. Amit Katoch, Sr. DR
Date of Hearing : 06.05.2019 Date of Pronouncement : 08.05.2019
ORDER
Per N. S. Saini, Accountant Member:
These are Cross appeal s fil ed by the Revenue and assessee a gai nst the orde r of C ommi ssi oner of Income Tax (Appeal s), Fari dabad dated 17.03.2013.
2. In ground nos. 1 & 2 of the appe al , the gri evance of the Revenue i s that the Commi ssi oner of Income Tax (Appeal s) 2 ITA Nos. 3650 & 3738/Del/2015 NHPC Ltd.
erred i n del eti ng the addi ti on of Rs.107,97,42,000/- made by the Assessi ng Offi cer on account of advance agai nst depreci ati on.
3. The bri ef facts of the case are that the Assessi ng Offi cer from the perusal of profi t and loss account of the assessee found that the assessee has reduce d sal es by Rs.107,97,42,000/- on the groun d that the advance agai nst depreci ati on i ncl uded i n the sal es was not a revenue recei pt. On a que ry by the Assessi ng Officer, i t was submi tted by the assessee that the company cl ai med advance agai nst depreci ati on of Rs.107.97 crore s i s not taxabl e both i n under normal i ncome as well as i ncome assessed u/s 115JB of the Income Tax Act. The assessee relied on the deci si on of Hon'bl e Supreme Cou rt i n the case of assessee i tsel f order date d 05.01.2010 wherei n it was hel d that advance agai nst depreci ati on i s not taxabl e u/s 115JB of the Act. It was further submi tted that advance agai nst depreci ati on i s bei ng added back under normal provi si on in the assessment framed u/s 143(3) of the Act, h owever, assessee i s contesti ng the same in appeal . The Commi ssi oner of Income Tax (Appeal s) has all owed the same i n appeal for the assessment years 2007-08, 2008-09 and 2009-10 and encl osed copy of orde rs before the Assessi ng Offi cer.
4. The Assessi ng Offi cer di d not accept the arguments of the assessee on the ground that the a ssessee wa s i n appeal before the Hon'bl e Supreme Cou rt agai nst the order of Authori ty for Advance Ruli ngs in respect to all owabili ty of advance depreci ati on under MAT whi ch the Hon'bl e Supreme Court has deci ded the i ssue in favour of the assessee. The deci si on of the 3 ITA Nos. 3650 & 3738/Del/2015 NHPC Ltd.
Hon'bl e Supreme Court was not for the purpose of normal computati on of i ncome under the Income Tax Act. Therefore, he made addi ti on ofRs.107,97,42,000/- to the income of the assessee.
5. On appeal , the Commi ssi oner of Income Tax (Appeal s) all owed the appeal of the assessee by observi ng as under:
"6.5 I have considered the submission s of learned counsel for the appellant an gone throu gh the documents and evidences pla ced on record as well a s the judicial rulings relied upon by the learned counsel and the AO. This issue relating to advance against depreciation came up for conside ration before the Hon'ble Su preme Cou rt against the orde r of the Authority for Advance Rul ings in appellant's own case for AY 2001-02. After going into background of this issue, it is observed that in the year 1997, the Central Government devised a mechanism to help powe r genera ting companies to raise funds for meeting loan repa yments in time and issued tariff fixation notification under section 43 A of the Electricity (Supply) Act, 1948. This notification permitted powe r gen erating companies to collect an am ount in advance in the years in which the normal depreciation (90% of the original cost of the plant spread equally over the useful life of plaint) otherwise allowed t o be recovere d was not sufficient to meet loan repayment schedule. The amount so collected was called a s "advance against depreciati on". Subsequently, the Central Electricity Regulatory Commission Act, 1999 was promulgated and the powe r to fix tariff was delegated to Central Electricity Regulatory Commission. The tariff as notified by the Central Electricity Regulatory Commission took into account and consisted of (i) Depreciati on (ii) Advance a gainst depre ciation (iii) Interest on loans (iv) Interest on working capital (v) Operati on and Maintenance expen ses (vi) Return on Equity etc. On the issue of accounting treatment of advance against depreciati on, the appellant sought clarification from the Expe rt Advisory C ommittee of Institute of Chartered Accountan ts of India, which 4 ITA Nos. 3650 & 3738/Del/2015 NHPC Ltd.
confirmed that such an advance must be reduced from the sales owing to its nature as an advance and clarified that the same should be reflected in the balance sheet as a sepa rate li ne-item appearing between 'Unsecured loans' and 'Current Liabilities and Provisions'. The Expert Committee further suggested that where revenue or a pa rt there of received/receivable during a pa rt icular period is to be adjusted in future, to that e xtent the revenue received/receivable is not conside red as ea rned, but is treated as revenue recei ved in advance. Therefore, the appellant has been consistently following the method of accounting in which the amount of extra tariff corre spondi ng to the element of advance against depreci ation and included in gross sales, is reduced f rom the sales and ta ken to the liability, side of balan ce sheet as 'advance against depreciation . The Hon'ble Supreme Court in the case of appellant for AY 2001 -02 was concurred with the accounting treatment of this advance against depreciati on and held as under:
3.4 "Section 115JB of the Income-tax Act, 1961 -
Minimum alternate tax - assessment year 2001-02
- assessee w as a G overnment C ompany - it was required t o sell electricity to State Electricity Boa rd(s) at tariff rates notified by CERC - Tariff consisted of de preciati on, AAD, i nterest on loans, interest on working capital, ope ration an d maintenance expenses and return on equity - on 26.5.1997, Government introduce d a mechanism to generate additional cash flow by allowing generating companies to collect advance against future depreciati on (AAD) by way of ta riff charge in year in which normal depreci a tion fell short of original scheduled loan repayme nt installment - once loan stood re paid, advance so collected would get reduced from normal depre ciation of later years, and such reduced de preciation would be included in tariff, in turn, lowering tariff - For relevant assessment year, a ssessee, while computing its book profit, deducted AAD component from total sale price and only balance amount net of AAD was taken int o profit and loss account and book profit - AAR rul ed that reduction 5 ITA Nos. 3650 & 3738/Del/2015 NHPC Ltd.
of AAD from 'sales' was nothing but a reserve which was to be a dded back on basis of clause (b) of Explanation - I to section 115JB - Whether, on facts AAD w as neither a re serve, n or wa s it carried through profit and loss account; rather it was timing difference and was income received in advance subje ct to adjustment in future and, therefore, clause (b) of Explanation - I to section 115JB was not applicable - Held, yes".
6.6 Though the above decisi on was in the context of the provisions of section 115 JB of the Act, the Hon'ble Apex Court has held that the advance against depreciation is income re ceived in advance subject to adjustment in future against depre ciation. The appellant has re duced gross sales by the amount of advance against depreciation and the net sales are cre dited in the profit and l oss account and book profit. The refore , the am ount of advance against depreciati on, though resulting in to correspon dingly reduced sales in the Profit and Loss account, has n ot been permitted by the Hon'ble Apex Court t o be added back under clause (b) of Explanation I to section 115JB. Hence, the same cannot be added under the regular provisi ons of the Act since the advance against depre ciation has been held to be income received in a dvance. Se condly, Schedule Xll- A to the balance sheet for the financial year 2004-05 onwards indicates recou ping and the accounting treatment of advance against de preciation as well as method of accounting regularly employed by the appellant standa rd approved by the Hon'ble Apex Court. The Ld. CIT ( Appeal) Fa ridabad vide order dated 29.4.2010 in appe al No. 1 37/2009-10 for AY 2007-08 has decided this issue in favour of appellant following his decision for ea rlier years and in the light of decisi on of Hon'ble Supreme Court in the case of appellant for AY 2001- 02. The Ld. CIT (Appeals) has elaborately discussed this issue in the orde r dated 5 .4.2010 passe d in appeal Nos. 177/03- 04, 37/04-05 and 68/06-07 for the AY 2000- 01, 2001-02 end 2003-04, respectively, observing in para 5 of the orde r as under;
6 ITA Nos. 3650 & 3738/Del/2015NHPC Ltd.
"Although the decision of the Ld. Apex Court has been given in respect of the adjustments to be made for the MAT pu rposes under clause (b) of Explanation 7 to Section 115JB, it is obse rved that the issue has been finally clinched by the Hon'ble Court, as t o its nature and taxabil ity, which would also be relevant for the comput ation of regular income as per the provisions of section 143(3) of the Income Tax Act, 1961. Since the AAD is a timing difference, it is not a reserve, it is not carrie d through P & L account and it is income received in advance subje ct to adjustment in future, it cannot be added/ disallowed also unde r the computation of normal income u/s 143(3) of the I. Tax Act, 1961. The above ratio of the Hon'ble Su preme C ourt, being e qually inviolable and applicable in the regula r a ssessments, the additions made by the AO in the orde r u/s 143(3) for these three years on accou nt of AAD stand cancelled too."
6.7 The AO's contention that the decision of the Hon'ble Supreme Cou rt is not f or the pu rpose of normal computation of Income is not based on any rationality since the nature and ch aracter of a dvance against depreciation has been examined and held t o be income received in advance subject to adjustment in future against the claim of depreciation. It has also been noted ITAT have decided the issue in favour of assessee in its order for AY 2000-01, AY 2001-02, AY 2002-03, AY 2003-04, AY 2004- OS, AY 2005-06 and AY 2007-08, the addition of Rs. 107,97,42,000/- made by the AO is deleted and Ground No. 4 of appeal is Allowed."
6. Both the parti es agreed before us that the i ssue was covered i n favour of the assessee by the order of the Hon'bl e Punjab & Haryana Hi gh Court i n the case of the assessee i tself for assessment year 2006-07 reported i n 408 ITR 237 (P&H).
7. We fi nd that the Hon'bl e Punjab & Haryana Hi gh Court was deci di ng the foll owi ng questi on of l aw:
7 ITA Nos. 3650 & 3738/Del/2015NHPC Ltd.
"1. Whether, on the facts and in circumstances of the case and in law, the Hon'ble ITAT was right in law in dismissing appeal of the Revenue observing that 'in view of categori cal findi ng of the Supreme Court we hold that the CIT(A) was corre ct in holding that advance against depreciation cannot be added under the computation of the normal income', whereas the Hon 'ble Supreme Court in its decisi on dated 05-01-2010 has held that the 'advance against depreciati on' is 'income received in advance', thus making the said income subject to 'Charge under Chapter-II, as business income u nder Chapter-IV-D read with sub-clause (i) of sub- section 24 of section 2 of the Income Tax Act?"
2. Whether, on the facts and in ci rcumstances of the case and in law, the Hon'ble ITAT was right in law in deleting the addition of Rs.47,88,00,000/- made by the Assessing Officer under section 143(3) (and not under section 115JB) on account of "Advance Against Depreciati on" ignoring the prov isions of section 2(24) read with section 28 of the Income Tax Act, 1961, which provides that "income" includes profits and gains and the profits and gai ns of any business or professi on carried on by the assessee at any time during the previous year is taxable?"
8. The Hon'bl e Hi gh Court in para 3 of the order hel d as under:
"3. It is agreed that question Nos.1, 2, 5, 6 and 7 are liable to be answe red i n favour of the respon dent-assessee in view of our orde r and judgment dated 28.02.2018 in the assessee 's case in ITA No.136 of 2015."
9. Therefore, the above grounds of appeal of the revenue are di smi ssed.
10. Ground No. 3 of the appeal of the Revenue i s di rected agai nst the order of Commi ssi oner of Income Tax (Appeal s) i n 8 ITA Nos. 3650 & 3738/Del/2015 NHPC Ltd.
del eti ng di sall owance of prior pe ri od expenses of Rs.3,89,59,508/- made by the Assessi ng Offi cer.
11. The bri ef facts of the case are that the Assessi ng Offi cer di sall owed the expenses of Rs.3,89,59,508/- on the groun d that Secti on 37(1) of the Act excl udes the pri or pe ri od expenses while computing the taxabl e i ncome of the assessee.
12. On appeal , the Commi ssi oner of Income Tax (Appeal s) del eted the di sall owance by observing as under:
"7.4 I have gone through a ssessment orde r an d assessee's reply reproduced by AO in the Assessment orde r. Assessee recei ved advance from REC (Rural Electrification Corporat ion) for execution of contract w ork of RGGAVY . The unutilized/ surplus money was kept in sh ort term bank de posits an d earned interest of Rs. 3,89,59,508/- in AY 2010-11 and declare d the same as income of the assessee . CAG objected to assessee 's t rea tment of interest received and recommended to pa ss on interest t o REC which assessee did during current year by net the interest income. It was contested by the assessee that interest income of Rs. 3,89,59,508/ - which in fact belonged t o REC w rongly considere d during AY 2009-10. Such treatmen t by the assessee is not hit by provision of secti on 3 7(1) of I. Tax Act as corresponding income has alre ady been wrongl y accounted for by the assessee in AY 2009-10; the addition of Rs.3,89,59,508/- is he reby deleted, an d Ground No. 5 of the appellant is Allowed."
13. The l d. Departmental Representati ve relied on the order of the Assessi ng Offi cer.
14. On the other hand, the Authori zed Repre sentati ve relied on the order of Commi ssi oner of Income Tax (Appeal s).
9 ITA Nos. 3650 & 3738/Del/2015NHPC Ltd.
15. After consi deri ng the rival submissi ons and perusi ng the orde rs of the l ower authori ti es and materi al s avail abl e on record. We fi nd that the l d. Departmental Representati ve si mpl y reli ed on the order of the Assessi ng Offi cer. He coul d not poi nt out any speci fi c error in the order of the Commi ssi oner of Income Tax (Appeal s). In the ci rcumstances, we fi nd no good rea son to i nterfere wi th the order of Commi ssi oner of Income Tax (Appeal s) whi ch is hereby confi rmed and the ground of appeal of the revenue is di smi ssed.
16. Ground No. 4 of the appe al of the revenue i s di rected agai nst the order of Commi ssi oner of Income Tax (Appeal s) i n del eti ng the addi ti on of Rs.10,53,30,844/- made by the Assessi ng Offi cer on repai r of capi tal assets by treating the expenses incurred as capi tal expendi ture as it will give enduri ng benefi t to the assessee.
17. The Assessi ng Offi cer observed that from the thorough anal ysi s of bill s submi tted by the assessee, i t i s concl uded that the expenses are capi tal i n nature and needs to be capi tali zed.
18. On appeal , the Commi ssi oner of Income Tax (Appeal s) del eted the addi ti on by observi ng as under:
"9.4 The appellant has contested that the project are quite old and require both type of maintenance viz; preventive and break-down during operation . It submitted that Hydro-Electric power projects are capital intensive and heavy equipment have been installed. Repair cost of such equipment is high and sud repairs need to be carried out by equipment supplier say by BHEL, L&T, Alstom etc., and only specified contra ctor/people are needed to handle such repairs. Keeping in view the repair expense s 10 ITA Nos. 3650 & 3738/Del/2015 NHPC Ltd.
claimed and the capital cost of the projects and that repair expenses resulted no addition in capacity, the addition of Rs. 10,53,30,844/- is deleted and Ground No. 7 of the appeal is Allowed."
19. The l d. Departmental Representati ve relied on the order of the Assessi ng Offi cer.
20. On the other hand, the Aut hori zed Representati ve supported the order of the Commi ssi oner of Income Tax (Appeal s).
21. After consi deri ng the ri val submissi ons and perusi ng the orde rs of the l ower authori ti es and materi al s avail abl e on record. We fi nd that the l d. Departmental Representati ve si mpl y reli ed on the order of the Assessi ng Offi cer. He coul d not poi nt out any speci fi c error in the order of the Commi ssi oner of Income Tax (Appeal s). In the ci rcumstances, we fi nd no good rea son to i nterfere wi th the order of Commi ssi oner of Income Tax (Appeal s) whi ch is hereby confi rmed and the ground of appeal of the revenue is di smi ssed.
22. Ground Nos. 5 & 6 of the a ppeal are di rected a gai nst the orde r of Commi ssi oner of Income Tax (Appeal s) i n del eting addi ti on of Rs.78,70,22,900/- made by the Assessi ng Offi cer by invoki ng provi si ons of Secti on 14A of the Act.
23. The bri ef facts of the case are that the Assessi ng Offi cer made the i mpugned addi ti on appl yi ng the provi si ons of Rul e 8D of the Income Tax Rul es rejecti ng the assessee's cl ai m that no expendi ture has been i ncurred by the assessee t o ea rn exempt i ncome. The Assessi ng Offi cer observed that after havi ng 11 ITA Nos. 3650 & 3738/Del/2015 NHPC Ltd.
consi dered the facts of the case, it woul d be reasonabl e to add back the expendi ture rel ati ng to income to whi ch Secti on 10 of the Act appli es. Therefore, an amount of Rs.78,70,22,900/- was added t o the book profi t u/s 115JB of the Act f or the purpose of MAT.
24. On appeal , the Commi ssi oner of Income Tax (Appeal s) vacated the di sall owance by observing as under:
"5.3 I have considered submissi ons of learned counsel of the appellant and gone through the documents and assessment orde r. The appellant has challenged the addition of Rs.78,70,22,900/- made by invoking the provisions of se ction 14A of the Act while computing regular income of the assessee. There is no dispute to the fact that the appellant has declared dividend income of Rs. 25.02 crores which has been claimed exempt. The said dividend income has been earned from the investment in shares of the entities as under:
1. NH DC Rs.1 0 0 2 .4 2 crores
2. Lok t ak Down st ream H y dro Corpn . Lt d. Rs.4 4 .4 0 crores
3. Power Tradi n g Corporat i on Rs.1 2 .0 0 crores
4. I n di an Ov erseas B an k Rs.0 .3 6 croes
5. Nat i on al Power E xch an ge Lt d. Rs.0 .8 3 crores
6. Nat i on al Hi gh Power Testi n g Laborat ory Rs.8 8 .0 0 crores Rs.1 06 0 .8 9 crores 5.4 Perusal 6f the su bmissions m ade by the appellant show that the NHDC is a subsidiary company of the assessee in which investment has been made as 'pe r the sanction orde r of Govt. of India, Ministry of Power, vide DO No. 22/3/2000/28.3.2002 and order No. 34/1/2003/DO/NHPC dated 29 .5.2003, out of budgetary support and equity capital invested by the Govt. to the extent of Rs. 772.42 crores. The balance investment of Rs. 312.4 2 crores has been made in the shares of subsi diary company out of funds raised from the issue of 'O' series bonds. The Investment in Loktak Downst ream Hydro Corpn Ltd.
of Rs. 44.40 crores, Nati onal High Power Testing 12 ITA Nos. 3650 & 3738/Del/2015 NHPC Ltd.
Laboratory of Rs. 0.88 crores in the shares of PTC, Rs. 12.00 crores in the shares of Indian Overseas Bank and Rs. 36.00 lacs in the shares of National Power Exchange Rs. 83.00 lacs ha s been stated to be out of internal accrual s. The necessary details and submissions in this rega rd we re filed by the assessee but the AO did n ot conside r t he same. The AO therefore, a pplied Rule 8D and worked out the disallowance aggregating to Rs. 7 8.70 crores, under clause (i), (ii) and (iii) of Sub-Rule (2) of Rule 8D, respectively. The fact that the investment of Rs. 772.42 crores made by the a ppella nt in the shares of subsidiary company NH DC was out of budgeta ry support and equity contribution by the Govt. of India has not been di sputed by the AO. The admitted fact therefore, remains that the investment of Rs. 772.42 crores was directly from interest free funds contributed by the Govt. of India. If that being so, this amount cannot go into the working of 'disallowance of interest even if Rule 80 is applied. Clause (ii) of Sub-Rule (2) of Rule 8D provides for working of di sallowa ble interest i n a case where the assessee has incurred expendi ture /by way of interest during the previous y ear which is not directly attributable to any particular income or receipt, thus, there" is no direct interest expenditure for the investment of Rs. 772 .42 crores and also no direct interest expenditure pertaining to investment of Rs. 281.80 crores involved as such amount represent redumption procee ds of SEB Power Bonds/L oan Term Advances (Tax Free). The Hon'ble ITAT, Bench "F' Delhi in the case of Priya Exhibitors Pvt. Vs. ACIT (27 taxmann.com 88 ) has held that the disallowance unde r section 14 A requires a clear finding of incurring of expenditure and in absence of same, no disallow ance could be m ade. Similarly, the Hon'ble ITAT, Bench 'G ' Delhi in the case of ACIT vs. SIL Investment Ltd. (26 taxmann.com 78) has held that where Assessing Officer did not bring any evidence on re cord t o esta blish that any expenditure had been incurred by assessee f or e arning exempt income, it was wrong on part of Assessing Officer to proceed to compute disall owance of expenses under section 14A by merely applying rule 8D(2)(iii). The legal implications of sub-se ction (2) and (3) of 13 ITA Nos. 3650 & 3738/Del/2015 NHPC Ltd.
section 14A have been examined by the Hon'ble Delhi High Court in Maxcopp Investment Ltd. vs. CIT (347 ITR 272) and it has been held that the AO has to record cogent reasons to reject the claim of the assessee that n o expenditure has been incurred by him for earning the exempt income.
5.5 It is however, observed from the assessment orde r that the AO has not assigned any reason while finding the submissions of the appellant as unsatisfactory. The identical issue was also involved in the case of appellant for A.Y. 2 008-09 and as per the detailed discussion vide para 6.4 of order date d 2.1.2012 in appeal No. 276/2010-1 after considering the provisions of law and legal position emerging from relied upon judicial rulings, this issue has been decided in favour of the appellan t by CIT(Appeals). Following the orde r of my predece ssor in A.Y. 2009- 10 which is squarely applica ble this year also the addition of Rs.78,20 ,22,900/- m ade by the AO by invoking section 14A of the Act is directed to be deleted. The ground No. 3 of appe al is Allowed."
25. Before us, both the parti es agreed the i ssue i s covered i n favour of the assessee and agai nst the revenue by the deci si on of the Tri bunal i n the case of assessee i tsel f for assessment year 2009-10 vi de order dated 26.08.2015 pa ssed i n ITA No. 424/Del /2013 where it was hel d as under:
"17. We have heard both the parti es and pe rused the records. We find that the assessee has earned exempt income to the tune of Rs.51,75,50,800/- and has suo motu disallowe d Rs.13 .78 crores under section 14A of the Act. We find that the AO has invoked Rule 8D without spelling out the reason for not being satisfied with the com putation made by the assessee in respect to expenditure incurred for earning the exempt income . Without recording the objective satisfaction a s re quired under su b-section (2) to section 14A that he is not satisfied with the correctness of the claim of the assessee in respect of expenditure in respect to exempt income, the AO cannot invoke Rule 8D to comput e the disallowance 14 ITA Nos. 3650 & 3738/Del/2015 NHPC Ltd.
under the said Rule. The Hon'ble jurisdictional High Court in the case of CIT vs. Ta ikisha Engineering India Limited reported in 370 ITR 338 (Del.) has held as under :-
"Section 14A of the Act postulates and states that no deduction shall be all owed in respect of expenditure incurred by an a ssessee in relation to income which does not form part of the t otal income under the Act. Unde r su b Section (2) to Section 14A of the Act, the Assessing Officer i s required to examine the accounts of the assessee and only when he is not satisfied with the correctness of the claim of the assessee in respect of expenditure in relation t o exe mpt income, the Assessing Officer can determine the amount of expenditure which should be disallowed in accordance with such method as prescribe d, i .e. Rule 8D of the Rules (quoted and elucidated below). Theref ore, the Asse ssing Officer at the first instance must examine the disallowance made by the assessee or the claim of t he assessee that no expenditure was incurred t o earn the exempt income. If and only if the Assessi ng Officer is not satisfied on this count after making reference t o the accounts, that he is entitle d to a dopt the method as pre scribe d i.e . Rule 8D of the Rules.
Thus, Rule 8D is not attracted and applicable to all assessee who have exempt income and it is not compulsory and necessary that an assessee must voluntarily compute disallowance as per Rule 8D of the Rules. Where the disallowance or "nil" disallowance made by the assesse e is found to be unsatisfactory on examination of accounts, the assessing officer is entitled an d authorise d to compute the deduction under Rule 8D of the Rules. This precondition and stipulation as noticed below is also mandated in sub Rule (1) to Rule 8D of the Rules."
After going th rough the other case s also, relied upon by the ld. AR, we find that the AO has not recorded the satisfaction envisaged by the statute before invoking the computati on provided for under Rule 8D, which 15 ITA No.424/Del./ 2013 vitiates the 15 ITA Nos. 3650 & 3738/Del/2015 NHPC Ltd.
impugned orde r. We also find that in assessee's own case for the previous year also, the Tribunal has deleted the addition made by the AO on this account. Therefore, we uphold the orde r of the CIT (A) on this issue. This ground of revenue's appeal is dismissed."
26. In vi ew of the above, we di smi ss thi s ground of appeal of the revenue.
27. Ground No. 7 of the appeal i s di rected agai nst the order of Commi ssi oner of Income Tax (Appeal s) del eti ng the addi ti on of Rs.51,74,19,109/- made by the Assessi ng Offi cer whil e computi ng book profi t for MAT u/s 115JB of the Act.
28. The bri ef facts of the case are that the Assessi ng Offi cer made di sall owance of provi si ons for gratui ty, l eave encashment, post reti rement benefits, LTC, baggage al l owance, MC on l eave encashment whil e computi ng book profi t u/s 115JB of the Act on the ground that they are not an ascertai ned li ability and accordi ngl y had made addi ti on of Rs.51,74,19,109/- to the i ncome of the assessee.
29. On appeal , the Commi ssi oner of Income Tax (Appeal s) del eted the di sall owance by observing as under:
"10.3 I have pursued the assessment order, the submission of the appellant, orders of my predecessors, orde r of ITAT and orde r of Hon'ble High Court in the appellant's own case on these issues i.e. relating to a djustment and increase of the book profit computed under the C ompanies Act, by a sum of Rs. 51,74,19 ,109/- on account of the Provisi on for gratuity, leave encashment, post- retirement medical benefit, LTC, baggage allowed and Matching Contribution on leave encashment etc., for the pu rpose of com puting tax liability u/s 115JB of the Act. As discusse d in para 3 of the assessment orde r, the AO has adde d the a bov e provisions f or the 16 ITA Nos. 3650 & 3738/Del/2015 NHPC Ltd.
purpose of com puting book profit u/s 115JB following the decision of Hon'ble Supreme C ourt in the case of Shree Sajjan Mills vs. CIT (156 ITR 585) after holding the said provisions t o be only contingent and unascertained. In Shree Sa jjan Mi lls case, the claim for deduction was set up on the ground that amount of gratuity payable to its employees!?was worked out actuarially, which was ascert ained by virtue of actuarial valuation an d .wa s de ductible under secti on 37(1) of the Act.
10.4 The appellant has contended that the these provisi ons were created in accordance with accounting principles and standards; the valuation of liability was based on compilati on of various details and by adopting actuarial valuation; the liabilities were 'asce rtained' and the Profit & loss account was prepa red in accordance pa rt II an d III of Schedule - VI of the Companies Act. Therefore, the book profit declared as pe r the Profit and Loss account should have not been disturbed in view of decision of Hon'ble Apex court in the case of Apollo Tyres Ltd. Vs. CIT (255 ITR 273). The reliance has also been placed on the decision of Hon'ble Supreme Court in the case of Bharat Earth Movers Li mited vs. CIT (112 Taxman 61) and the decision of H on'ble Mumbai High Court in the case of CIT vs. Echja y Forging Pvt. Ltd. (116 Taxman 322) in support of contention that when the liabilities were determined on the basis of actuarial calculations, the same represented ascertain liabilities. In this regard, the order of my predecessor dated 29 .10.2012 for appeal No. 446/11-12 relevant to issue has been reproduce d below:
"The identical issue was also involved in the case of appellant for A.Y. 2008-09 and as per the detailed discussion vide para 6 .1 of my order dated 02.01.2012 in appeal No. 2 76/2010-11 after considering the provisions of la w, legal position on this issue emanating from relie d upon judicial rulings and the decisi on of L d. CIT(Appeals) Faridaba d vide order dated 29 .0 4.2010 in appeal No. 137/2009-10 for A.Y. 2007-08, this issue was decided in favour of the appellant. Since the issue 17 ITA Nos. 3650 & 3738/Del/2015 NHPC Ltd.
is already covered by the decision for earlier years, the AO is directed to compute the book profit without making any additi on for aforesaid provisi ons. The addition of R s.82,57,10,238/- made by the AO for the purpose of determining book profit u/s 115JB of the Act is deleted. The ground No. 2 of appeal is allowed."
10.5 The view of the CIT(A) has bee n upheld by the Hon'ble Delhi ITAT in the case of the appellant himself in ITA No. 2509, 2618 & 3681/Del/2008 for Asstt. Year 2005-06, vide orde r da ted 30.09.2014.
10.6 In this regard it shall be pertinent to quote from the orde r of the Hon'ble ITAT's order vide IT A No. 1402/Del/2012 & 1956/Del/2 009 for Asstt. Yea r 2008-09 & 2006-07 as below:
"7. After conside ring the rival submissions an d perusing the relevant material on record, it is noticed that the H on'ble Supre me Court in the aforenoted case of Bha rat Ea rth Movers (supra) has held that the liability incurred by the assessee under the Leave Encashment Sch eme determined on actuarial valuation is an ascertained liability and cannot be considere d as a contingent liability. However, it is significant to note that the legislature has steppe d in by inserting clause (f) to Section 43B mandating that any sum payable by the assessee as an employer in lieu of any leave at the credit of his employee cann ot be all owed as deduction unless this amount is paid by the assessee on or bef ore the due da te for furnishing the return of income u/s 139(1) of the Act. In view of this legislative amendment nullifying the ratio of the decision in the case of Bha rat Earth Movers (supra), the amount of such provision can be claimed as deduction only on act ual payment and not on the simple creation of provision. However, when we peruse the mandate of Explanation 1 to section 115JB, it becomes clea r that clause (c) talks of making addition to book profit for 'the amount or am ounts set aside t o provisi ons made for meeting liabilities, other t han ascertained liabilities; or'. If we conside r the judgment of the 18 ITA Nos. 3650 & 3738/Del/2015 NHPC Ltd.
Hon'ble Supreme C ourt holding su ch a provision as an ascertained liability and clause (f) of section 43B on one hand and clause (c) of Explanation 1 to section 115JB on the othe r, it becomes ITA No. 1402/D/2012,1956/Del/2009 & 1437/Del/2009 5 vivid that computation of income under the normal provisi ons debars deduction for the ascertained liability towards provision for le ave encashment etc., unless the amount is a ctually paid before the due date. However, in the computation of book profit u/s 115JB, deduction is a vailable for such provisi on of asce rtained liability. The Id. DR has not drawn ou r attention t owards any part of the provisi ons of section 115JB, which makes the provisi ons of section 43B(f) a pplicable to the computation of book profits. As t he ground raised by the Revenue is only against the deletion of addition in the computation of book profit u/s 115JB, the impugned orde r needs to be upheld. It is however, made clear that if the income under the normal provisi ons of the Act turns out to be more than the book profit u/s 115JB and the total income is to be computed as per the normal provisi ons, then no deduction for such provisi on would be admissi ble unless the amount of such provisi on is paid before the due date u/s 139(1) of the Act."
10.7 Thus following the orde r of my predecessor and the Hon'ble IT AT (supra) a nd in view of the judicial rulings cited (supra) I hol d that, the AO was not justified in law to ma ke a djustment to book profit by adding the am ount of various provisions aggregating to Rs. 26,84,24 ,1 89/-. The AO is therefore, directed t o compute the book profit without making any adjustment of aforesaid provisi ons. However if the income under normal provisi ons of the Act turn out to be more than the book profit u/s 115JB and the total income is to be computed as per normal provisions, then no deduction for such provision would be admissi ble unless the amount of such provision is paid for before the due date u/s 139(1) of the Act. With these comments Ground No. 8 of a ppeal is allowed."
19 ITA Nos. 3650 & 3738/Del/2015NHPC Ltd.
30. Both the parti es agreed that the i ssue i s covered i n favour of the assessee by the decisi on of the Hon'bl e Punjab & Haryana Hi gh Court in the case of the assessee i tsel f reported i n 408 ITR 237.
31. We fi nd that the Hon'bl e Hi gh Court wa s deci di ng the foll owi ng questi on no. 5 whi ch reads as under:
"5. Whether, on the facts and in circumstances of the case and in law, the Hon'ble ITAT was right in law in deleting disallow ance of Rs.27,05,83,117/- made by the AO in computing book profit u/s 115 JB on a/c of provisions provision made for gratuity, leave encashment, post retirement medical benefits, LTC, Ba ggage allowance and Mat ching Contribution on Leave Encashment even when the assessee has failed to establish these prov isions to be of ascertained in nature."
32. The Hon'bl e Hi gh Court hel d as under:
"3. It is agreed that question Nos.1, 2, 5, 6 and 7 are liable to be answe red i n favour of the respon dent-assessee in view of our orde r and judgment dated 28.02.2018 in the assessee 's case in ITA No.136 of 2015."
33. Respectfully foll owi ng the same, w e di smi ss the ground of appeal of the revenue.
34. Ground No. 8 of the appeal i s that the Commi ssi oner of Income Tax ( Appeal s) erred in del eti ng the addi ti on of Rs.2,50,00,425/- made by the Assessi ng Offi cer while computi ng book profi t for MAT u/s 115JB of the Act.
35. The bri ef facts of the case are that the Assessi ng Offi cer observed that the assessee has cl ai med an amount of Rs.4,85,86,995/- as pe r schedul e 5 of the bal ance sheet as depreci ati on on l and uncl assi fi ed and l easehol d l and. He 20 ITA Nos. 3650 & 3738/Del/2015 NHPC Ltd.
observed that the assessee has cl ai med an amount of Rs.4,85,86,995/- i n the bal ance sheet as depreci ati on on l and uncl assi fi ed and l easehol d l and. Out of the total depreci ati on on l and of Rs.4,85,86,995/-, an amount of Rs.2,50,00,425/- has been debi ted to profi t and l oss account and bal ance amount of Rs.2,35,86 ,570/- has been added to the cost of capi tal work-i n-progress. He observed that the depreci ati on on l and i s not all owabl e as per Compani es Act and therefore, he made addi ti on of Rs.2,50,00,425/- to the i ncome of the assessee.
36. On appeal , the Commi ssi oner of Income Tax (Appeal s) del eted the di sall owance by observing as under:
"11.4 I have carefully considered the submissions of the Ld. ARs', and perused the order of asse ssment and counter-comments alongwith the ITAT order and do not find any substance in the orde r of the AO. The Ld. ARs have sufficiently explained their position regarding amortization of land amounting to Rs. 6 .12 crores during the FY 2003-04 relevant to the AY 2004-05.
11.5 Since the contention of the a ppell ant has been accepted by the Hon 'ble ITAT in AY 2004-05, 2005- 06 & 2007-08 and the issue, being a covered one, is being decided in favour of appella nt, the addition of Rs.2,50,00,425 /- made by the AO to the book profit is directed to be deleted. Ground No. 9 of appeal is Allowed."
37. Before us, both the parti es agreed that the i ssue i s covered i n favour of the assessee and agai nst the revenue by the deci si on of the Tri bunal i n the case of the assessee i tsel f for assessment year 2009-10 vi de order dated 26.08.2015 i n ITA No. 424/Del /2013 wherei n i t was hel d as under:
21 ITA Nos. 3650 & 3738/Del/2015NHPC Ltd.
"11. While allowing this issue in favour of the assessee, Ld. CIT (A) held as under:-
"6.1. The ground No. 3 of appeal has been ta ken against the disallowance of Rs.l ,80,79,857/- on account of amortizati on of land (depreciation) while computing book profits u/s 115JB of the Act. While making the disallowa nce, the AO's contention has been that the depreciation on l and is neither prescribed under the In come Tax Act nor in the Companies Act, 1956 and hence, the accounts of the company we re n ot in accordance with the provision of pa rt II and In of schedule VI of the Companies Act. The appell ant, on the other hand, has contended that amort ization of lea se hold land has been made as per accounting standard 10 of ICAI and am ortization of lan d unclassified as per Accounting Standard 6 of ICAI and in view of CAG, which has be en done to meet the requirement of companies Act and amortization of land is permitted u/s 115JB. T he identical issue was also involved in the ca se of appellant f or A.Y.2008-09 and as per the de tailed discussion vide para 6.2 of my orde r date d 02.01.2012 in appeal No.276/2010-11, this i ssue has been decided in favour of the appellant. Since the issue is already covered by the decision for earlier year, the addition of Rs.1,80,79,857 /- made by the AO for the purpose of computing book profit u/s 115JB of the Act is directed to be dele ted. The ground No.3 of appeal is allowed."
12. At the outset itself, the ld. AR for the assessee submitted that this issue i s covered in favour of the assessee in a ssessee 's own case in IT A No.2449/ Del/2008 for Assessme nt Year 2004-05 orde r dated 30.09.2014 of the Tri bunal and took ou r attention to page 6, pa ra 7 of the orde r. He also submitted that the ITAT, relying on the aforesaid orde r dated 30.09 .2014 (supra), has deci ded this issue in favour of the asse ssee in assessee's own case in assessment years 2007-08 and 2008-09.
13. We have heard rival submissions and peru sed the material on record. The Tribu nal in the orde r for 22 ITA Nos. 3650 & 3738/Del/2015 NHPC Ltd.
assessment year 2002-03 (supra) has conside red an identical issue and ha d deci ded th e matter in favour of the assessee. The aforesaid order of the Tribunal was followed in subsequent assessment years 2005- 06, 2007-08 and 2008-09. Since identical issue has been considered by the Tribunal and the issue raised before us is identical to the issue covered by the coordinate Bench of the Tri bunal in assessee's own case for assessment year 2002-03 (supra) and other years, respectfully following the same, we confirm the order of the ld. CIT (A) on this issue."
38. Therefore, thi s ground of appe al of the revenue is di smi ssed.
39. Now we take up the assessee's appeal .
40. Ground No. 1 of the appeal of the assessee i s general i n nature and hence does not require any separate adjudi cati on by us.
41. In ground no. 2 of the appeal of the assessee, the gri evance of the assessee i s that the Commi ssi oner of Income Tax (Appeal s) erred i n confi rming the order of the Assessi ng Offi cer di sall owi ng deducti on of Rs.4,46,54,883/- u/s 80IA of the Act.
42. The Assessi ng Offi cer has observe d as under:
"11. From the pe rusa l of computat ion of inc ome, it is noticed that t he assessee company had cla imed deduction u/s 80-LA in case of three power stati on projects i.e. URI power statio n stage-I; Chamera power stat ion stage-II and Rangit powe r stati on. Furthe r, it is noted that the deductio n taken from profits u/s 80-IA also incl udes other income whic h is Not all owed because as per sec tion 80-IA of the Income Tax Act , 1961 an assessee shall be el igible fo r such deduct ion o nly f rom prof it obtained from generation & di stributi on of po wer and Not from ot her 23 ITA Nos. 3650 & 3738/Del/2015 NHPC Ltd.
income. Acco rdi ngl y, t he AR was asked vide show cause dtd.04.02.2013 as to why the othe r i ncome amounti ng to Rs . 12,47,34,246/- (4,67,54,558 + 5,99,90,812 + 1,79,88,876) be not excluded from t he deduction cla imed u/s 80-IA. The AR of the assessee replied on 18.02.2013 slating that , "Regardi ng t reatment of ot her inc o me amounti ng to Rs. 12.47.34.246/- (4,67,54.558 + 5,99,90,812 + 1,79.88,876) in respect of above po wer statio ns .
Schedule 14 pertai ns t o Othe r Inc ome which contai ns t he fol low ing items i n c ase of U ri Powe r Station Stage-I, C hamera Powe r S tation Stage-II & Rangit Power Statio n. Assessee has al ready fi led project-wise Audit ors cert ificates duly cert ifyi ng eligible deducti on u/s 80-IA of Inco me Tax Act.
Interest o n Emplo yees Advance s, The amount recovered to wards interest on l oans gra nted to employees as per employment conditions and have been paid out of b orrowed f unds .
Late Payment Surc harge: This is basica lly i n t he nature of late payment made by State Electricity Boards and pe rtai ns to sale of elect ricit y.
Profit o n Sale of Assets: The amount has been reduced w hile calc ulati ng cla im of 80-IA.
Liabilities/ p ro visi ons not required writte n back: This is basicall y i n the nat ure of liabi l ities / pro visi ons whic h a re no l onger requi red and have been w ritte n hack i .e. re versal of expe nditure booked in earlier years.
Others Income: Inc ludes rent/ hi re charges , ot her income, tow nship recove ry, l ease recovery, electricit y recove ry, telepho ne re covery, staff ca r recovery, cable charges, guest ho use recovery etc and all these inc omes are in relat i on to generat ing activit y of t he power stat ion.
Foreign Currency Fluct uatio n Acc ount: Based o n actual payment of foreig n curre ncy, amounts become recoverab le from benefic iaries (c ustomers) and are credited to sales. On other ha nd, a ctual amount paid 24 ITA Nos. 3650 & 3738/Del/2015 NHPC Ltd.
is reduced from sale. I n view of above, prof it and loss account of the assessee company is not affected. To nullif y this impact , a cont ra entry has been passed i n acco unt s as per opini on given b y Expert Ad viso ry Committee of Insti tute of Charte red Accounta nts of I ndia . The f oreign currenc y fluctuat ion adjustment (debit) appeals in the schedule 15 'Gen, Admin and other expenses' a nd foreign c urrenc y fluct uatio n adjustment (credit) appears in sc hedule 14 other inc ome.
In view of abo ve, the abo ve i ncom es are not l iable to be excluded from the deductio ns claimed u/s 80- IA. As othe r income is di rectly /e xclusivel y related to the co ncerned power statio ns, therefo re, cla im made are as per the applicable p rovisions."
The above reply of the AR has been taken on reco rd and cons idered. I have als o gone thro ugh t he entire material ava ilable o n t he reco rd a nd the case is al so discussed w ith t he AR of the assessee. After discuss ion, it is co ncluded that an assessee is eligible for s uch deductio n u/s 80-IA is onl y f rom profit obtained from generatio n & dist rib utio n of powe r and Not from ot her income. Furt her, the nature of each and every ot her i ncome credited in prof it & loss account is cons idered a nd thus , so me incomes fo und t o be correctl y taken as t hey are i nseparable from the business of t he assessee. But the amount credi ted in 'others' is not acceptable and als o the assessee had not p ro vided its details and justif i cation that why t he income bo oked under the s ub-category of 'o thers' be allowed. From t he schedules of ot her inc ome of all t he three projects , the othe r inc ome of Rs.4 ,46,54,883/- (2,17,83,145 + 1,17,59,699 + 1,11,12,039) is not eligible for suc h deducti on u/s 80-IA.
Keeping in view the above facts, an amount of Rs.4,46,54,883/- is hereby disal lo wed and is added back to the t otal income of t he assessee company under no rmal provis io ns of the Act ."
43. On appeal , the Commi ssi oner of Income Tax (Appeal s) hel d as under:
25 ITA Nos. 3650 & 3738/Del/2015NHPC Ltd.
"8.4 I have gone through the assessee's reply and AO remarks given in the assessment order for non considering miscellaneous i ncome of Rs. 4,46,54,883/- for re bate u/s 80-IA in respect of Uri- I, Rangit and Chamber-ll Power station. The assessee's explanation regarding disallowance of Rs. 4,46,54,883/- is not acceptable as such income cannot be conside red attribut able to business activities of the project. In this regard, its pertinent to point out that the appellant has shown substantial income from Rent and it's evide nt that earning of Rent is not the Business activity of the appellant. Similarly the same logic holds true for the other means of income shown by the appellant. Thus I hold that the AO has rightly denied the rebate u/s 80IA under these heads. Therefore, addition of Rs. 4,46,54,883/- is upheld and Ground No. 6,of the appellant is Dismissed."
44. Before us, it was submi tted by the Authori zed Representati ve of the assessee that i n the case of CIT Vs Cochi n Refi neri es l td. (1983) 43 CTR 103, i t was hel d that hi re charges and mi scell aneous i ncome earned i n the course of busi ness are el i gi bl e for deducti on u/s 80IA of the Act . Therefore, the di sall owance made shoul d be del eted.
45. On the other hand, the l d. Depa rtmental Representative supported the orde rs of the authori ti es bel ow.
46. We fi nd that the Assessi ng Offi cer made the i mpugned di sall owance Rs.4,46 ,54,883/- hol di ng that assessee i s eli gi bl e for deducti on u/s 80-IA onl y on profi t earned from generati on & di stri buti on of power and not from other i ncome. The detail s of such amounts are as foll ows:
26 ITA Nos. 3650 & 3738/Del/2015NHPC Ltd.
S. No Particulars Uri-I Power Chamera-ll Rangit Total (Amount
Station Power Station (Amount in in Rs.)
(Amount in (Amount in Rs.) Rs.)
Rs.)
1 RENT/HIRE CHARGES FROM - 1,81,718 - 1,81,718
CONTRACTORS
2 RENT/HIRE CHARGES- 3,92,088 - 1,54,496 5,46,584
OTHERS
3 OTHER INCOME (BALANCES, 2,03,85,742 94,03,816 94,37,700 3,92,27,258
EXPENSES, LIABILITIES NO
LONGER REQUIRED
WRITTEN BACK)
4 TOWNSHIP RECOVERIES 4,73,737 13,78,490 7,80,005 26,32,232
5 LEASE RECOVERY 75,102 1,40,005 - 2,15,107
6 ELECTRICITY RECOVERY 3,32,344 4,08,662 4,98,879 12,39,885
7 TELEPHONE RECOVERY - 1,331 1,331
8 STAFF CAR RECOVERY - 12,242 12,242
9 CABLE CHARGES 88,850 1,34,410 1,17,250 3,40,510
10 GUEST HOUSE RECOVERY 35,282 1,12,598 1,10,136 2,58,016
Total 2,17,83,145 1,17,59,699 1,11,12,039 4,46,54,883
47. We fi nd that the AAR i n the case of Nati onal Fertili zers Li mited 193 CTR 498(AAR) hel d that the expenses i ncurred to earn these other i ncomes sh oul d be excl uded from the debi t si de of the profi t and l oss account for computi ng the deducti on u/s 80-I of the Act. The rel evant extract of the judgment i s as bel ow:
"(2)question No. 2 in AAR/53 2/2001 that the expenses of Rs.2,76,03,364 and Rs.12,12,74,426 (it is stated that the correct figure is Rs.11,02,56,561) allocated by marketing office an d corporate office and interest expenditure of Rs.71,65,99,045 allocated by the corporate office a nd on question No. 2 in AAR/533/2001 that expenses of Rs.2,56,44,186 and of R s.12,94,59 ,292 allocated by corporate office and marketing office and intere st expenditure of Rs.8,49,30,952 all ocated by corporate office should be excluded from the de bit side of the profit and loss account of the industrial unde rtaki ng for the purpose of deducti on under section 80-I of the Income-tax Act, 1961; the fact that the allocated interest income from corporate office Rs.5,22,94,939 and Rs.3,97,44,811 credited to profit and loss account of 27 ITA Nos. 3650 & 3738/Del/2015 NHPC Ltd.
Vijaipur unit in the assessment years 1995-96 and 1996-97 is of no consequence as both interest income and interest expenditure are liable to be excluded for the purpose of dedu ction under se ction 80-I of the Act."
48. Further, the Hon'bl e Delhi Hi gh Court i n the case of Pr. CIT vs. Bha rat Sancha r Ni gam Li mi ted reported i n 388 ITR 371 expl ai ning the meani ng deri ved from whi l e computing the deducti on u/s 80-IA of the Act, has hel d as under:
"8. The question arose in the context of the Assessee being asked to expl ain why certain spe cific items categorize d as 'other income' and 'extra- ordina ry item' in the Profit and Loss Account in assessment year 2004-05 should not be excluded from the profit and gains of the Assessee. According to the Revenue, these items could not be considered as profits and gains 'derived from' the eligible business for the pu rpose of de duction under Section 80 I A. The said six items were:
(i) Extra Ordinary Items
(ii) Refund from Universal Service Fund
(iii) Interest from others
(iv) Liquidated Damages
(v) Excess provision written back
(vi) Others including sale of di rectories, publications, form, waster paper, etc.
9. The AO held that the six items of income could not be sai d to be derived from t he business of the Assessee and a dded the income therefrom to the returned income of the Assessee. In the appeal by the Assessee, the Commissione r of Income Tax (Appeals) ["C IT (A)"] agreed with the AO that three of the above items, viz. Extraordi nary Items, Refund from Universal Service Fund and Interest from Others, did n ot form pa rt of the profit de rived from eligible business. However, the Assessee"s plea regarding the other three items as being derived from the business was accepted by the CIT (A).28 ITA Nos. 3650 & 3738/Del/2015
NHPC Ltd.
10. The Assessee filed appeals an d the Revenue filed cross-appeal s before the ITAT. The ITAT in the impugned orde rs conclude d that with sub-section (2A) beginning with a n on-obstante clause, the legislative intention of making available to an undertaking, providing telecomm unication services, the benefit of deduction of 100% of the profits and gains "of the eligible business" w as explicit. Indee d, the legislature appears to have made a conscious departure in a dopting for sub-sect ion (2A) a wording different from that appea ring in sub section (1). Under Section 801A (1), what is available for deduction a re profits an d gain s "derived by an undertaking or an enterprise from any business referred t o in sub-section (4)" whereas in Section 80-IA (2A) what i s available for deduction is "hundred percent of the profits and gains of the eligible business". The following conclusion rea ched by the ITAT in para 13.11 of the impugned orde r correctly encapsulates the legal position a s far as the interpretation of Section 801A (2A) is concerned.
"13.11 Thus, we find that the legislature being alive to providing tax deductions to business enterprises and undertakings, it wanted to curtail the time line during which deduction can be claimed and also addressing the extent upto which it can be claimed has consci ously carved out an exception to spe cified undertakings/enterprises whose n eeds and priorities differ has taken care to expand the time line for claiming deductions. It has consciously enabled those undertakings/enterprise 'w ho fall under sub- section (2A) to claim 100% deduction of profits and gains of eligible business for the first five years and upto 30% for the remaining five years in the ten consecutive assessment years out of the fifteen years starting from the time the enterprise started its operation. The legislature having ousted applicability of sub-section (1) and (2) in the opening sentence brought in for th e purposes of time line sub-section (2) into play bu t made no efforts whatsoever to put the assessee under sub-secti on (2A) to meet the st ringent requ irements that the profits so contemplated were t o be "de rived from".
The requirements of the first de gree nexus of the 29 ITA Nos. 3650 & 3738/Del/2015 NHPC Ltd.
profits from the eligible business has not been brought into play."
11. As a result, the orders of both the AO and the CIT (A) to the extent they deny the Assessee, which in this case is in the business of providing telecommunication services, de duction in respect of the above items in terms of Section 80IA(2A) are unsustainable in law and have rightly been reversed by the IT AT."
49. Further, the Hon'bl e Gujarat Hi gh Court in the case of Ni rma Industri es Ltd. Vs DCIT (2006) 283 ITR 402 has hel d as under:
"27. Insofar as question No. 2 is concerned, according t o the T ribunal s. 80-I of the Act u ses the phrase 'derived f rom ' and he nce the interest received by the assessee from its trade debtors cannot be taken into consideration for the purpose of computing profits derived from an industrial undertaking. The Tribunal has fa iled to a ppreci ate that it is not the case of the AO that the interest income is not assessable under the head 'Profits and gains of business'. It is only while computing relief under s. 80-I of the Act that the Revenue changes its stand. When one reads the opening portion of s. 80-I of the Act it is clear that words used are: "gross total income of an assessee inclu des any profits and gains derived from an industrial undertaking". Once this is the position then, in computing the total income of the assessee, a deduction from such profits and gains of an amou nt equal to the prescribed percentage is to be allowed. That, in fact , the gross total income of the assessee included profits and gains from such business, and this is appa rent on a plain glance at the computation in the assessment orde r. Both in relation to Vatva Unit and Mandali Unit the computation commences by taking profit as per st atement of income filed along with return of income. Therefore , the same item of receipt cannot be treated differently: once while computing the gross total incom e, and secondly at the time of computing de duction u nder s. 80-I of the 30 ITA Nos. 3650 & 3738/Del/2015 NHPC Ltd.
Act. Therefore, on this limited cou nt alone, the order of the Tribunal suffers from a basic fallacy resulting in an error in law and on facts. T he Tribunal instead of recording findings on facts proceeded to discuss law. This litigation could have been avoided if the parties had invited attention to basic facts.
28. Neither the approach nor the reasons a dvanced by the Tribunal deserve acce ptance. It is an incorre ct proposition to state that interest paid by the debtors for late payment of the sale proceeds would not f orm part of the eligible income for the purpose of computing relief under s. 80-I of the Act. The reliance on the general meaning of the term interest as well as drawing distinction between the source of sale proceeds and the source of interest is errone ous in law in the case of CIT vs. Govinda Choudhury & Sons (su pra) the ape x Court was called upon to decide as to the nature of interest received by the assessee therein. In the ca se before the a pex Court the assessee who w as executing Government contracts found itself involved in disputes with the State Government with regard to the payments due under the contra cts and upon reference to arbitrat ors, the award included the principal sum as well as the interest for delay in payment of the principal sum. The assessee claim ed that the interest was of the same nature as other trading re ceipts, but it was held by the T ribunal t hat the same was 'Income from other sources'. Th e apex Court laid down:
"The assessee is a contractor. His business is to enter into contracts. In the course of the execution of these contracts, he has also to face disputes with the State Government and he has also to reckon with delays in payment of amounts that are due to him. If the amounts a re not pai d at the proper time and interest is awarded or paid for such delay, such interest is only an accretion t o the assessee's recei pts from the contra cts. It i s obviously attributable and incidental to the business carrie d on by him. It would not be correct, as the Tribunal has held, to say that this interest is totally de hors the contract business 31 ITA Nos. 3650 & 3738/Del/2015 NHPC Ltd.
carrie d on by the a ssessee. It is well settled that interest can be assesse d under t he head 'Income from other sources' only if it cannot be brought within one or the other of the specific heads of charge. We find it difficult to comprehend how the interest receipts by the assessee can be treated as receipts which flow to him de h ors the business which is carried on by him. In our view, the interest payable to him certainly parta kes of the same chara cter as the receipts f or the payment of which he was otherwise entitled under the contract and which payment has been dela yed as a result of certain disputes between the part ies. It cannot be separated from the other amounts granted to the assessee under the awards and treated as 'Income from other sou rces'".
50. In vi ew of the above quoted de ci si ons, we are of the consi dered vi ew that the di sall owance made of Rs.4,46,54,883/- whil e computi ng the deducti on all owabl e u/s 80-IA of the Act i s not justi fi ed. Hence, we set asi de the orders of the l ower authori ti es and di rect the Assessi ng Offi cer to re- compute the deducti on all owabl e to the assessee u/s 80-IA of the Act without excl udi ng Rs.4,46,54,883/-. Thus, thi s ground of appeal of the assessee i s all owed.
51. Ground No. 3 of the appeal of the assessee i s di rected agai nst the order of Commi ssi oner of Income Tax (Appeal s) confi rmi ng addi ti on of Rs.95,02,478/- made by the Assessi ng Offi cer on account of i ncome tax on pe rqui si te borne by the assessee in respect of accommodati on provi ded to i ts empl oyees whil e computi ng book profi t u/s 115JB of the Act.
52. The bri ef facts of the case are that the Assessi ng Offi cer observed that the assessee has cl aimed deducti on ofRs.95,02,478/- u/s 115JB of t he Act bei ng amount of tax 32 ITA Nos. 3650 & 3738/Del/2015 NHPC Ltd.
pai d by the assessee i n the capacity of empl oyer towards non- monetary perqui si te. The Assessing Offi cer observed that a s per Cl ause (a) of Expl anati on (1) of Sub-secti on (2) of Secti on 115JB of the Act book profi t i s to be i ncreased by the amount of i ncome tax pai d or payabl e and the provi si on therefore. He hel d that from thi s, i t i s cl ear that i ncome tax pai d or paya bl e or provi si on thereof i s to be added to compute the book profi t u/s 115JB of the Act. Accordi ngl y, he added Rs.95,02,478/- t o the book profi t computed u/s 115JB of the act.
53. On appeal , the Commi ssi oner of Income Tax (Appeal s) confi rmed the acti on of the Assessi ng Offi cer.
54. Before us, i t was argued that perqui site on account of l eased accommodati on provi ded i n NHPC resi denti al col ony was cal cul ated u/s 17(2) of the Act and proporti onatel y borne by assessee empl oyer and empl oyee. Housi ng accommodati on provi ded by the empl oyer i s a non-monetary perqui si te u/s 17(2) of the Act. It was submi tted that accordi ng to Secti on 40(a)(v) of the Act any tax pai d by the empl oyer u/s 10(10CC) of the Act will not be all owed as deducti on whil e computi ng the i ncome under normal provi si ons of the Act. It w as poi nted out that i t i s perti nent to note that Secti on 115JB of the Act, tax pai d on non-monetary perqui si te was not covered unde r expl anati on (1) of sub-secti on (2)(a) of Secti on 115JB of the Act. Theref ore, i t does n ot affect the book profi t and wi ll not be adde d to cal cul ate tax li abili ty under MAT . Rel i ance was pl aced on the de ci si on of Mumbai Bench of the Tri bunal i n the case of Ra shtri ya Chemi cal s & Fertili zers Ltd. Vs C IT (2018) 91 taxmann.com 104. Therefore, i t was prayed that foll owi ng the above deci si on, the addi ti on made shoul d be del eted.
33 ITA Nos. 3650 & 3738/Del/2015NHPC Ltd.
55. The l d. Departmental Representati ve reli ed on the orders of the l ower authori ti es.
56. We have heard the ri val submi ssi ons and perused the orde rs of l ower authori ties and materi al s avail abl e on record. In the i nstant case, the assessee cl ai med deducti on of i ncome tax pai d on income computed u/s 17(2) of the Act on accommodati on provi ded to the e mpl oyees of the company as the same was borne by the assessee. The Assessi ng Offi cer rel yi ng on Expl anati on (1) of Sub-secti on (2)(a) of Secti on 115JB of the Act hel d that i ncome tax pai d or paya bl e or provi si on thereof i s to be added to cal cul ate the adjusted book profi t u/s 115JB of the Act.
57. On appeal , the Commi ssi oner of Income Tax (Appeal s) confi rmed the acti on of the Assessi ng Offi cer.
58. The assessee before us has pl aced reli ance on the deci si on of Mumbai Bench of the Tri bunal i n the case of Rashtri ya Chemi cal s & Fertili zers Ltd. Vs CIT (supra) .
59. The l d. Departmental Representative supported the orders of the l ower authori ti es.
60. We fi nd that the Tri bunal in the case of Rasht ri ya Chemi cal s & Fertili zers Ltd. Vs CIT (supra) has hel d as under:
"Para 8.........We further find that taxes borne by the assessee on non-mon etary perquisites provided to employees forms part of Employee Benefit cost and akin to Fringe Ben efit Tax since th ey are certainly not b elow the line items since t he same are ex pressively disallowed u/s 40(a)(v) and th e same do not constitute Incom e Tax for the assessee in terms of Explanation-2. This view of ours is duly fortified by th e ju dgment of Tribunal rendered in IT O v Vintage Distillers Ltd. [2010] 13 0 T TJ 34 ITA Nos. 3650 & 3738/Del/2015 NHPC Ltd.
79 (D elhi) where the Tribunal has taken th e vi ew that the term 'tax' was much wider term than the term 'Income Tax' since the former, as pe r amended definition of 'tax' as provided in Section 2(43 ) included not only Income Tax but also Super Tax & Fringe Benefit Tax. Therefor e, without there being any corresponding amendment in the definition of Inco me Tax as provided in Explanation-2 to Sec tion 11 5JB, Fringe Bene fit Tax was not required to be added back while arriving at Book Profits u/s. 115JB. Similar view has been e xpressed in another judgment of Tribunal titled as Reliance Industries Ltd. v. A CIT [IT Appeal No . 5769 (M) o f 20 13, dated 16-9-2 015] wh ere th e Tribunal took a view that Wealth Tax' did not form part of Income Tax and therefore, could not b e added back to arrive at Book Profits since the adjustmen t ther eof was not envisaged by the statutory provisions. Therefore, we are of the opinion that the adjustment of impugned item as suggested by Ld. CIT was not legally tenable in law which leads us to in evitable conclusi on that t he omission to carry out the said adjustment did not result into any loss of rev enue "
61. We fi nd that the i ssue i s squarel y covered i n favour of the assessee by the a bove quoted deci si on of the Tri bunal . No contra ry deci si on was cited before us by the l d. Departmental Representati ve duri ng the course of hea ri ng. We, therefore , respectfull y foll owing the above quoted deci si on of the Mumbai Bench of the Tri bunal del ete the addi ti on of Rs.95,02,478/- and all ow thi s ground of appeal of the assessee.
62. Ground No. 4 of the appeal of the assessee i s di rected agai nst the order of Commi ssi oner of Income Tax (Appeal s) i n confi rmi ng the addi ti on of Rs.69,11,134/- made by the Assessi ng Offi cer on a ccount of weal th tax li ability whil e computi ng the book profi t u/s 115JB of the Act.
63. The Assessi ng Offi cer observed that the assessee has cl ai med deducti on of Rs.69,11,134/- on account of weal th tax 35 ITA Nos. 3650 & 3738/Del/2015 NHPC Ltd.
li abili ty whil e computi ng the book profi t u/s 115JB of the Act . The Assessi ng Offi cer obse rved th at deducti on of weal th tax i n computi ng book profi t u/s 115JB of the Act i s not acceptabl e and justi fi ed. Expl anati on 1 of Sub-secti on (2)(a) of Secti on 115JB of the Act provi des that the net profi t will be i ncreased by i ncome tax pai d or payabl e and the provi si ons therefore an d i t al so excl ude weal th tax for addi ti on whi ch means i t al so excl ude for deducti on of wealth tax. Therefore, he added Rs.69,11,134/- on account of weal th tax deducted whil e arri vi ng at the book profi t u/s 115JB of the Act.
64. On appeal , the Commi ssi oner of Income Tax (Appeal s) confi rmed the acti on of the Assessi ng Offi cer.
65. Before us, the Authori zed Repre se ntative of the assessee argued and submi tted that whil e cal cul ating book profi t u/s 115JB, the assessee cl ai med deducti on of provi si on of wealth tax li ability of Rs.69,11,134/-. It was submi tted that u/s 115JB of the Act, weal th tax i s not covered under Expl anati on 1 of Sub-secti on (2)(a) of Secti on 115JB of the Act. Thus, i t doe s not affect the book profi t and will not be adde d to cal cul ate tax li abili ty under MAT. For thi s reli ance was pl aced on the deci si on of Hon'bl e Bombay Hi gh Court i n the case of CIT Vs Reli ance Industri es Ltd. (2019) 102 taxmann.com 142 an d on the deci si on of Mumbai Bench of the Tri bunal i n the case of Rashtri ya Chemi cal s & Fertili zers Ltd. Vs CIT (2018) 91 taxmann.com 104.
66. The l d. Departmental Representati ve reli ed on the orders of the l ower authori ti es.
36 ITA Nos. 3650 & 3738/Del/2015NHPC Ltd.
67. We fi nd that the i ssue i s no more res integra. The Hon'bl e Bombay Hi gh Court i n the case of CIT Vs Reli ance Industri es Ltd. (supra) has hel d as under:
"Para 4....In plain terms, clause (a) as noted above refers to amount of incom e tax paid or payable or the provision made therefor. The legislature has advisedly not included wealth tax in this clause. By no interpretative process, the wealth tax can be included in clause (a). Th e R even ue, further made a vague attempt to bring this item in clause (c) noted above. Clause (c) would include the amount se t aside for provisions made for meeting liabilities other than ascertained liabilities. For applicability of this clause, therefore, fundamental facts would have to be brought on record which in the present cas e, th e R eve nue has not done. In fact, th e entire thrust of th e R even ue 's argument at th e outs et appears to be on clause (a) which refers to the income tax which according to the R ev enue would also include wealth tax. This question, therefor e , is not required to be ent ertained"
68. Respectfully foll owi ng the above quoted deci si on of the Hon'bl e Bombay Hi gh Court, we del ete the addi ti on of Rs.69,11,134/- and all ow thi s ground of appeal of the assessee.
69. In the resul t, the appeal of the Revenue i s di smi ssed and that of the assessee i s all owed.
(Order pron ou n ced in th e Cou rt on 8 t h day of May, 2 0 1 9 at New Del h i ) Sd/- Sd/-
(Bhavnesh Saini) (N. S. Saini)
Judicial Member Accountant Member
Dated: 08/05/2019
*Subodh*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR