Income Tax Appellate Tribunal - Delhi
Ntpc- Sail Power Co. Pvt. Ltd., New Delhi vs Addl. Cit, New Delhi on 27 April, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: 'E' NEW DELHI
BEFORE SHRI G.D. AGRAWAL, HON'BLE PRESIDENT
AND
SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER
ITA No. 5687/Del/2014
Assessment Year: 2011-12
NTPC -SAIL Power Co. Pvt. Ltd., Addl.CIT,
4th Floor, NBCC Tower, Circle 13(1),
vs
15, Bhikaji Cama Place, New Delhi.
New Delhi-110066
(PAN: AABCN5467A)
(Appellant) (Respondent)
ITA No. 6501/Del/2014
Assessment Year: 2011-12
DCIT, NTPC -SAIL Power Co. Pvt. Ltd.,
Circle 18(2), 4th Floor, NBCC Tower,
New Delhi. vs 15, Bhikaji Cama Place,
New Delhi-110066
(PAN: AABCN5467A)
(Appellant) (Respondent)
Assessee by : Shri M.P. Rastogi, Adv.
Department by : Shri Shefali Swaroop, CIT DR
Date of Hearing: 31.01.2018
Date of Pronouncement: 27.04.2018
ORDER
PER BENCH:
This appeal has been preferred by the assessee against the order of the Ld. CIT (Appeals)-XVI, Delhi dated 25.08.2014 and ITA No. 5687/Del/2014 & 6501/Del/2014 Assessment year 2011-12 pertains to assessment year 2011-12 whereas ITA 6501/Del/2014 is the department's cross appeal for the same year.
2. Brief facts of the case are that the company is a joint venture company which is owned equally by NTPC Ltd. and Steel Authority of India Ltd. During the year under consideration, the assessee company was engaged in the business of production of thermal power. The return of income was filed declaring Nil income after set off of current year profit with brought forward unabsorbed depreciation and the book profit was declared at Rs. 285,03,42,896/- and tax of Rs. 56,80,87,591/- was paid thereon. The case was selected through CASS for scrutiny assessment and the assessment was completed after making the following additions:-
i) Disallowance of provision for retirement benefit-
Rs.55,67,488/-
ii) Disallowance of additional depreciation of Rs.
14,12,82,832/-
iii) Disallowance u/s 40(a)(ia) - Rs. 15,24,220/-
iv) Disallowance of expenses incurred on account of Corporate Social Responsibility(CSR) - Rs. 1,04,61,947/- 2 ITA No. 5687/Del/2014 & 6501/Del/2014 Assessment year 2011-12 2.1 Aggrieved, the assessee approached the Ld. CIT(A) who upheld the disallowance u/s 40(a)(ia) of the Income Tax Act, 1961 ('the Act') amounting to Rs. 15,24,220/- being bank guarantee commission. The Ld. CIT (A) also upheld the disallowance of Rs. 1,04,61,947/- being expenses on CSR. However, the Ld. Commissioner of Income Tax (A) gave relief to the assessee by deleting the disallowance of provision for retirement benefits amounting to Rs. 55,67,488/- as well as deleting the disallowance of additional depreciation of Rs. 14,12,82,832/-
2.2 Now, the assessee as well as the department is in appeal before the ITAT against the action of the Ld. Commissioner of Income Tax (A).
3. At the outset, the Ld. AR, appearing on behalf of the assessee, submitted that ground nos. 1.1, 1.2 of the assessee's appeal pertaining to disallowance u/s 40(a)(ia) of the Act with respect to bank guarantee commission for non-deduction of tax at source u/s 194H of the Act was covered in favour of the assessee by the order of the Tribunal in the cases of Kotak Securities Ltd. vs. DCIT in ITA No. 6657/Mum/2011 of the 3 ITA No. 5687/Del/2014 & 6501/Del/2014 Assessment year 2011-12 Mumbai Bench, DCIT vs. Laqshay Media Pvt. Ltd. reported in 160 ITD 35 (Mum) and Effectronics Systems Pvt. Ltd. 161 ITD 688 (Vizag) wherein it had been held that bank guarantee commission was not liable for deduction of tax at source u/s 194H of the Act. The Ld. AR also submitted that CBDT Circular No. 56/2012 dated 31.12.29012 clarified that no TDS was necessary in the case of bank guarantee commission. 3.1 With respect to ground no. 2 of the department's appeal, the Ld. AR submitted that this ground pertaining to disallowance of CSR expenses was also covered in favour of the assessee by the order of the Raipur Bench of the Tribunal in the case of ACIT vs. Jindal Power Ltd. in ITA No. 99/BLPR /2012. Ld. AR submitted that these expenses were incurred under the directions of the Govt. of India which required the assessee to spend the prescribed percentage of its profits on CSR.
4. In response, the Ld. CIT DR placed reliance on the order of assessment and vehemently argued that both the items of expenditure had been rightly disallowed by the AO and the Ld. CIT (A) had rightly confirmed the disallowances. 4 ITA No. 5687/Del/2014 & 6501/Del/2014 Assessment year 2011-12
5. With respect to the department's appeal, the Ld. AR submitted that ground nos. 1.1 and 1.2 pertaini to addition on account of provision for long service award made on actuarial basis were covered in favour of the assessee by the order of ITAT Delhi Bench in assessee's own case for assessment years 2008-09 and 2009-10 in ITA Nos. 1494 and 1495/Del/2013. It was further submitted that the department had filed an appeal before the Hon'ble High Court against the order of ITAT on other grounds but had not taken any ground on this issue implying their acceptance. It was also submitted that the Hon'ble High Court of Delhi in CIT vs. Insilco Ltd. reported in 320 ITR 322 (Del) had allowed provisions for long service award made on actuarial basis and, therefore, the issue was covered in favour of the assessee. It was further submitted that the Ld. Commissioner of Income Tax (A) was correct in deleting the disallowance made in respect of long service award made on actuarial basis from the book profits as long service award benefit is a determined liability and not a contingent liability and since it was allowable under normal provisions of the Act, the same should be allowed while determining the book profits also.
5 ITA No. 5687/Del/2014 & 6501/Del/2014 Assessment year 2011-12 5.1 With respect to ground no. 2 of the department's appeal regarding deletion of disallowance of additional depreciation, the Ld. AR submitted that this issue is also covered in favour of the assessee by order of ITAT Delhi Bench in the case of NTPC Ltd. vs. DCIT in ITA No. 1438/Del/2009 wherein it had been held that power generation companies were eligible for additional depreciation. It was submitted that the Ld. Commissioner of Income Tax (A) had also followed this order of the ITAT, Delhi Bench. The Ld. AR prayed that the ground raised by the department should be dismissed.
6. In response, the Ld. CIT DR vehemently supported the findings of the Assessing Officer and submitted that the Ld. Commissioner of Income Tax (A) had erred in deleting the disallowances made.
7. We have heard the rival submissions and perused the material available on record. We take up the assessee's appeal in ITA No. 5687/Del/2014 first. We find that the assessee's ground regarding disallowance u/s 40(a)(ia) with respect to the bank guarantee commission is squarely covered in favour of the assessee by order of ITAT Mumbai Bench in the case of 6 ITA No. 5687/Del/2014 & 6501/Del/2014 Assessment year 2011-12 Kotak Securities Ltd. vs. DCIT (supra) wherein ITAT Mumbai Bench has followed the order of ITAT Delhi Bench in the case of SRL Ranbaxy Ltd. vs. ACIT in ITA No. 434/Del/2011 and has held that there is no principal and agent relationship between the bank issuing the bank guarantee and the assessee and, further, that when the bank issues the bank guarantee on behalf of the assessee, all it does is to accept the commitment to make the payment of a specified amount to, on demand, to beneficiary and it is in consideration of this commitment that the bank charges a fee termed as bank guarantee commission. It was further held that although it is termed as guarantee commission, it is not in the nature of commission as is understood in the common business parlance and in context of section 194F of the Act. Respectfully following the order of the Coordinate Benches, we hold that since principal-agent relationship is a sine qua non for invoking provisions of section 194H, the Ld. Commissioner of Income Tax (A) was not justified in upholding the disallowance u/s 40(a)(ia) in respect of bank guarantee commission. Accordingly, we allow ground nos. 1.1 and 1.2 of 7 ITA No. 5687/Del/2014 & 6501/Del/2014 Assessment year 2011-12 the assessee's appeal and order the deletion of this disallowance.
7.1 Coming to ground no. 2 of the assessee's appeal which challenges the expenses incurred towards corporate social responsibility, we find that the Raipur Bench of ITAT in the case of ACIT vs. Jindal Power Ltd. In ITA No. 99/Del/2012 has allowed CSR expenses in assessment year 2008-09. The Raipur Bench has further held that Explanation (2) to section 37 of the Act, inserted by Finance Act, 2012 has been brought into the Statute w.e.f. 1.4.2013 and this amendment is prospective in nature and accordingly prior to 1.4.2013, CSR expenses are revenue in nature and allowable. We have gone through the details of CSR expenditure incurred by the assessee during the year under consideration i.e. assessment year 2011-12 and we find that the expenses have been incurred in respect of tree plantation/environment protection, construction of Zoology Lab in Rourkela, construction of Special Wings for cerebral palsy children in Rourkela, medical camps in Sirsa village in Bhilai, development of Dongia Pond in a village near Bhilai, construction of Bus stop shed in the city of Rourkela, creating awareness against drug abuse in 8 ITA No. 5687/Del/2014 & 6501/Del/2014 Assessment year 2011-12 Bhilai, construction of road in Durgapur etc. besides other expenses incurred under the head. It is not in dispute that these expenses have been incurred and the only reason they were disallowed by the Assessing Officer and so confirmed by the Ld. Commissioner of Income Tax (A) was that this expenditure was not expended wholly or exclusively for the purpose of business of the assessee. Although, it is undisputed that the assessee had incurred this expenditure on the basis of guidelines issued by Bureau of Public Enterprises, Govt. of India, the department was of the view that since the expenditure was not mandatory in nature, the same could not be allowed. However, we are unable to concur with the findings of the lower authorities on this issue and we hold that the disallowance under Explanation (2) to section 37(1) will not come into play and there is no such disabling provision even if the expenses in discharge of corporate social responsibility are incurred on voluntary basis. Explanation (2) to section 37(1) comes into play only w.e.f. 1.4.2015 and accordingly, expenses incurred towards corporate social responsibility incurred prior to this date will necessarily be allowable as revenue expenditure. Accordingly, we set aside the order of the Ld. 9 ITA No. 5687/Del/2014 & 6501/Del/2014 Assessment year 2011-12 Commissioner of Income Tax (A) on this issue and direct the Assessing Officer to allow the expenses incurred towards corporate social responsibility.
8. In the result, the appeal filed by the assessee stands allowed.
9. Coming to the appeal filed by the department in ITA No. 6501/Del/2014, ground nos. 1.1 and 1.2 challenge the action of the ld. Commissioner of Income Tax (A) in deleting provision for long service award made on actuarial basis. We find that this issue is squarely covered in favour of the assessee by order of ITAT Delhi Bench in assessee's own case for assessment years 2008-09 and 2009-10 and ITA No. 1494 and 1495/Del/2013 wherein the Coordinate Bench of the ITAT Delhi Bench, while settling the issue in favour of the assessee, had noted that the liability determined on the basis of provision was not a contingent liability but was definite and ascertained liability even though exact quantification had not happened and, therefore, the same was allowable under the provisions of the Act. While deciding the issue in favour of the assessee, the Coordinate Bench of the Tribunal had also 10 ITA No. 5687/Del/2014 & 6501/Del/2014 Assessment year 2011-12 placed reliance on the judgment of Hon'ble High Court in the case of CIT vs. Bharat Heavy Electricals Ltd. in ITA 1578/2010. Therefore, respectfully following the order of the Coordinate Bench as mentioned aforesaid, we hold that the Ld. Commissioner of Income Tax (A) was correct in directing deletion of addition made on account of provision of long service award made on actuarial basis. We also hold that since this provision is allowable under normal provisions of the Act, the deduction will be allowable under the provisions of MAT also. Accordingly, we dismiss ground nos. 1.1 and 1.2 raised by the department.
9.1 Coming to ground no. 2 of the department's appeal which pertains to disallowance of additional depreciation, we find that this issue is also covered in favour of the assessee by order of the ITAT Delhi Bench in the case of NTPC Ltd. vs. DCIT in ITA No. 1438/2109 wherein ITAT Delhi Bench had placed reliance on the judgment of the Hon'ble Apex Court in the case of State of Andhra Pradesh vs. NTPC and had held that 'electricity' would fall under the definition of goods as given in Article 366 (12) of the Constitution of India. The Hon'ble Apex Court, in this case, had observed that 'goods' 11 ITA No. 5687/Del/2014 & 6501/Del/2014 Assessment year 2011-12 means all kinds of moveable properties and merely because electrical energy was not tangible or cannot be moved or touched, it cannot cease to be moveable property. The Coordinate Bench of ITAT went on to hold that additional depreciation cannot be denied to the assessee merely on the ground that electricity is not an article or thing. Accordingly, respectfully following the order of the Coordinate Bench in the case of NTPC vs. DCIT (supra), we hold that the Ld. Commissioner of Income Tax (A) had rightly directed the deletion of disallowance with respect to additional depreciation. Accordingly, ground no. 2 raised by the department stands dismissed.
10. In the result, ITA No. 6501/Del/2014 stands dismissed.
11. Accordingly, the appeal of the assessee is allowed whereas the appeal of the department is dismissed. 12 ITA No. 5687/Del/2014 & 6501/Del/2014 Assessment year 2011-12 The order is pronounced in the open court on 27.04.2018.
Sd/- Sd/-
(G.D. AGRAWAL) (SUDHANSHU SRIVASTAVA)
PRESIDENT JUDICIAL MEMBER
Dated: 27th April, 2018
'GS'
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT
TRUE COPY
By Order
ASSISTANT REGISTRAR
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