Income Tax Appellate Tribunal - Ahmedabad
Gujarat Alkalies And Chemicals Ltd.,, ... vs The Dy. Commissioner Of Income Tax, ... on 16 October, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL
"C" BENCH, AHMEDABAD
BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER &
Ms. MADHUMITA ROY, JUDICIAL MEMBER
I.T.A. No.1455/Ahd/2016
(Assessment Year : 2012-13)
Gujarat Alkalies And Chemicals Vs. The DCIT,
Ltd., Near IPCL Complex, P.O. Circle - 1(1)(1),
Petrochemicals, at Ranoli Dist. Baroda - 390 007.
Baroda - 391 346.
And
I.T.A. No.1589/Ahd/2016
(Assessment Year : 2012-13)
The DCIT, Vs. Gujarat Alkalies And
Circle - 1(1)(1), Chemicals Ltd.,
Vadodara - 390 007. Near IPCL Complex, P.O.
Petrochemicals, at Ranoli Dist.
Baroda - 391 346.
[PAN No. AAACG 8896 M]
(Appellant) .. (Respondent)
Assessee by : Shri Sulabh Padshah, A.R.
Revenue by : Shri O. P. Sharma, CIT-D.R.
Date of Hearing 29.07.2019
Date of Pronouncement 16.10.2019
ORDER
PER SHRI WASEEM AHMED - ACCOUNTANT MEMBER :
These two cross appeals (filed by the assessee and the revenue) are directed against the order dated 31.03.2016 passed by the Commissioner of Income Tax (Appeals)-1, Vadodara under section 143(3) of the Income Tax Act, 1961 (hereinafter referred as to "the Act") arising out of the order dated ITA Nos.1455 & 1589/Ahd/2016 Gujarat Alkalies & Chemicals Ltd. vs. DCIT (Cross Appeals) Asst.Year -2012-13 -2- 05.03.2015 passed by the DCIT, Circle-1(1)(1), Vadodara for the Assessment Year 2012-13.
Since both the appeals relate to the same assessee, hence the same are heard analogously and are being disposed of by way of this common order.
2. First, we take up assessee's appeal bearing ITA No. 1455/AHD/2016 pertaining to the A.Y. 2012-13. The assessee has raised the following grounds of appeal:
"Your appellant being dissatisfied with the order passed by the Hon'ble Commissioner of Income Tax(Appeals)-1 Baroda, u/s 143(3) of the Act, dated 31.03.2016 received by us on 21.04.2016, presents this appeal against the said order on the following amongst other grounds:
1. The order passed by the Hon'ble Commissioner of Income Tax(Appeals)-1 Baroda, is bad in law, contrary to legal pronouncement and same be quashed. The additions/disallowances confirmed by the Hon'ble Commissioner of Income Tax(Appeals)-1 Baroda, are unwarranted and unjustified. It be held so now and same be deleted.
2. The Hon'ble CIT(A)-1 has erred in upholding the order of the AO by holding that no deduction u/s 80IA(4) is allowed since the captive power plant has incurred loss during the year. Your appellant submits that the Hon'ble CIT(A) has erred in not considering the orders passed by Hon'ble ITAT Ahd in appellant's own case for A.Y. 2005-06 to 2007-08 and A.Y. 2008-09 in which the deduction as claimed by the appellant has been held as allowable on both the grounds (Re: Captive Consumption and Market rate per unit). Your appellant therefore submits that directions be given to follow the decision of ITAT Ahd in A.Y. 2005-06 to 2007-08 and A.Y 2008- 09 and allow the deduction as claimed.
3. The Hon'ble CIT(A) has erred in not disposing the ground no. 8 regarding re-computation of profit u/s 115JB by increasing the book profit by Rs. 18,72,000/- being prior period income. Your appellant submits that there is no provision in section 115JB to make such adjustments. It be held so now and addition made by AO be deleted."
ITA Nos.1455 & 1589/Ahd/2016 Gujarat Alkalies & Chemicals Ltd. vs. DCIT (Cross Appeals) Asst.Year -2012-13 -3-
3. The 1st issue raised by the assessee in ground No. 1 and 2 is that the learned CIT (A) erred in denying the deduction claimed under section 80 IA(4) of the Act by holding that the assessee has incurred losses in its eligible undertaking.
4. Briefly stated facts are that the assessee in the present case is a limited company and engaged in the business of manufacturing & trading of chemicals and generation of power. The assessee has set up a 90 MW power plant at Dahej in the year 1998. The profit from such power project was eligible for deduction under section 80-IA(4)(iv)(a) of the Act. The assessee was utilizing the power generated by it for its captive consumption with respect to its plants located at Dahej and Vadodara. The assessee was also selling surplus power available with it to GUVNL. The assessee was charging different rates from the supply of electricity to its plants and GUVNL as detailed under:
Sr. Particulars KWH Rate per Amount
No. KWH (Rs./lacs)
(Rs.)
(1) Captive Usage at 59,20,03,761 5.8482 34621.30
Dahej Plant
(2) Captive Usage at 64,68,750 8.4663 547.66
Vadodara Plant
(Wheeled from Dahej
CPP)
(3) Sale of GUVNL 44,52,013 4.7355 210.82
(4) Other - from sale of - 2445.49
Utilities
Total 60,29,24,524 - 37825.27
The assessee on the basis of above price charged from its undertakings/ GUVNL has computed the profit of Rs 40,51,74,000/- and claimed the deduction for the same under section 80 IA (4) of the Act.
ITA Nos.1455 & 1589/Ahd/2016 Gujarat Alkalies & Chemicals Ltd. vs. DCIT (Cross Appeals) Asst.Year -2012-13 -4- However, the AO disagreed with the deduction claimed by the assessee under section 80 IA (4) of the Act by observing that the undertaking engaged in generating power for its captive consumption is not eligible for deduction.
The AO without prejudice to the above also disagreed with the price charged by the assessee from its undertakings and GUVNL. As per the AO price charged by the Gujarat state electricity Corporation Ltd, a company engaged in the generation of power, from GUVNL (Gujarat Urja Vikas Nigam Ltd) being 3.39 per unit should be the basis for working out the deduction under section 80-IA(4) of the Act. The AO accordingly worked out the profit of the assessee with respect to its eligible undertaking for computing the deduction under section 80 IA(4) of the Act. The relevant extract of the assessment order reads as under:
Sr. Particulars KWH Rate per Amount Revised
No. KWH (Rs./lacs)
amount @
(Rs.) Rs.3.39 (in
lacs)
(1) Captive Usage at 59,20,03,761 5.8482 34621.30 20068.93
Dahej Plant
(2) Captive Usage at 64,68,750 8.4663 547.66 219.29
Vadodara Plant
(Wheeled from
Dahej CPP)
(3) Sale of GUVNL 44,52,013 4.7355 210.82 150.92
(4) Other - from sale of - - 2445.49 2445.49
Utilities
Total 60,29,24,524 - 37825.27 22884.63
On taking the rate at Rs.3.39 per unit the sale value comes to Rs.22884.63 lakhs whereas the expenditure of the assessee is at Rs.35773.53 lakhs and therefore, no profit and actually incurred losses, hence deduction u/s 80IA(4) is treated at Nil.
5. Aggrieved assessee preferred an appeal to the learned CIT (A) who has also confirmed the order of the AO by observing that his predecessor in the ITA Nos.1455 & 1589/Ahd/2016 Gujarat Alkalies & Chemicals Ltd. vs. DCIT (Cross Appeals) Asst.Year -2012-13 -5- earlier year has decided the issue against the assessee. The relevant finding of the CIT (A) stands as under:
"4.3.3. I have considered the appellant's submission. Regarding the market value of electricity units, the ITAT, Ahmadabad Bench in appellant's own case for AY.2009-10 vide order dated 19/11/2015 in ITA No.2398/Ahd/2012 has held as follows: -
"20. Ground No. 4 - has arisen due to reduction in the deduction claimed by assessee under section 80IA wherein the Assessing Officer has estimated the rate of Rs.2.23 per unit for units of electricity sold and arrived at a conclusion that assessee earned has not earned any profit rather incurred losses. Aggrieved, assessee went in appeal before the CIT(A) who replaced the rate taken by the Assessing Officer at Rs.2.23 by Rs.3.11 per unit and accordingly asked the Assessing Officer to recomputed the profits of eligible undertaking for the purpose of section 80IA(iv). However, ld CIT(A) has confirmed in his order that assessee is eligible for deduction under section 80IA(4) in respect of electricity generated by it for captive consumption. Aggrieved, the assessee is now in appeal before the Tribunal.
21. The Ld. AR of the assessee submitted that similar issue in assessee's own case has been dealt by the Tribunal in ITA Nos.179, 180 & 181/Ahd/2010 for Asstt.years 2005-06 to 2007-08 (copy placed on record). So he submitted that the issue may be decided in view of the above decision of the Tribunal.
22. The Ld. DR supported the orders of lower authorities.
23. We have considered the rival submissions and perused the material on record. We find that the co-ordinate Bench in assessee's own case for Asstt. Years 2005-06 to 2007-08 has decided similar issue by observing as under:-
"5.4.1. We have considered the rival submissions and we find that this issue was decided by Id. CIT(A) as per the Tribunal decision in the case of Alembic Ltd. (supra) and also in the case of Jindal Steels & Power Ltd. (supra) and worked out deduction allowable to the assessee u/s.80IA in respect of captive consumption of power, the rates fixed by Electricity Board i.e. GEB in the present case, has to be applied and not the price fixed by the legislative mandate. He has also noted that in the present case, the assessee is prevented by legislative mandate from selling power to any person other than GEB and ITA Nos.1455 & 1589/Ahd/2016 Gujarat Alkalies & Chemicals Ltd. vs. DCIT (Cross Appeals) Asst.Year -2012-13 -6- the rates fixed by GEB was Rs.1.86 per unit only but the GEB is asking the assessee to pay at Rs.4.55 per unit and hence, he has directed the AO to allow deduction u/s.80IA as claimed, being the market rate of Rs.4.55 per unit of power. No contrary decision was brought to our notice by the Id.DR and hence, we do not find any reason to interfere in the order of Id.CIT(A) on this issue which is in line with various Tribunal decisions. This issue is decided in favour of the assessee and these grounds of the revenue in all the three years are rejected."
24. Applying the same ratio to the case of assessee on this ground, we do not find any reason to interfere in the order of CIT(A) and accordingly the ground of assessee is partly allowed."
4.3.4. Thus, in the AY.2009-10, the ITAT has upheld the order of the CIT(A) of adopting the amount of Rs. 3.11 per unit for re-computing the profits of eligible undertaking for the purpose of section 80IA(iv). The rate determined in present appeal by the AO is at the rate of 3.39 per unit on the basis of direction given by the CIT(A) in the appellate order for AY.2009-10. Hence, the order of the AO does not require any inference. The AO has held that by taking rate at Rs.3.39 per unit, the sale value of electricity units comes to Rs.22884.63 lakhs whereas the expenditure of the assessee is at Rs.35773.53 lakhs and therefore no profit has been earned on which deduction u/s.80IA(4) can be allowed. The rate of Rs.3.39 per unit adopted by the AO is the average rate of purchase of power by GUVNL from generator companies.
4.3.5. Accordingly, the order of the AO is upheld and since the captive power plant has incurred loss during this year, hence no deduction u/s 80IA(4) is allowed."
Being aggrieved by the order of the learned CIT (A) the assessee is in appeal before us.
6. The learned AR before us submitted that this Tribunal in the own case of the assessee has decided the issue in its favour bearing ITA No. 688/AHD/2015 pertaining to the assessment 2011-12 vide order dated 25th February 2019.
ITA Nos.1455 & 1589/Ahd/2016 Gujarat Alkalies & Chemicals Ltd. vs. DCIT (Cross Appeals) Asst.Year -2012-13 -7-
7. On the other hand the ld. DR vehemently supported the order of the authorities below.
8. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset we note that impugned issue has already been decided in favor of the assessee by this tribunal in its own case (supra). The relevant extract of the order is reproduced as under:
"25. We have heard the rival contentions and perused the materials available on records. At the outset, we find that the issue has already been adjudicated by the Jurisdictional High Court in favor of the assessee as discussed above. The relevant extract of the order is reproduced below:
"3. Since both the issues are covered by various judgments of this Court, we do not find it necessary to record facts at any length. Division Bench of this Court by judgment dated 22.11.2011 in Tax Appeal No.2092/2010 in somewhat similar controversy observed as under "3. With respect to Question [B], the issue pertains to sub Section (8) of Section 80IA of the Income Tax Act, 1961. The assessee had a CPP Unit generating electricity, which was supplying it to a general unit. The electricity generated is being supplied to other consumers also. The CPP unit charged Rs. 5.40 ps. per unit from the general unit.
The Assessing Officer applying sub-Section (8) of Section 80IA restricted the same to Rs. 5.32 ps. per unit and, thereby, restricted the deductions claimed by the assessee under Section 80IA of the Act. This restriction was primarily on the basis that the rate of Rs. 5.40 ps. charged by Gujarat Electricity Board (" GEB" for short) was inclusive of 8 paise per unit of electricity duty. This component of electricity duty the Assessing Officer discarded for the purposes of ascertaining market value of the electricity generated by the CPP Unit and supplied to its general unit.
4. CIT (Appeals) confirmed the view of the Assessing Officer on the same line of reasoning. The Tribunal, however, on further appeal by the assessee, reversed the orders passed by the Revenue authorities referring to and relying upon the decisions of other Tribunals. The Tribunal was of the opinion that the market value of the electricity supplied by the CPP Unit to the general unit would be the same being charged by GEB from the consume Rs.
ITA Nos.1455 & 1589/Ahd/2016 Gujarat Alkalies & Chemicals Ltd. vs. DCIT (Cross Appeals) Asst.Year -2012-13 -8-
5. Counsel for the Revenue contended that the component of 8 paise per unit was the electricity duty which GEB was not authorized to retain but had to pass on to the Government. In essence, GEB was only collecting 8 paise per unit as electricity duty for and on behalf of the Government. He submitted that the market value of the electricity should be reckoned on Rs. 5.32 ps. per unit as was done by the Revenue authority.
6. Under sub-Section(8) of Section 80IA of the Act, if it is found that where any goods or services held for the purposes of the eligible business are transferred to any other business carried on by the assessee or where any goods or services held for the purposes of any other business carried on by the assessee are transferred to the eligible business and in either case the consideration for such transfer does not correspond to the market value of such goods as on the date of the transfer, then for the purposes of deduction under Section 80IA in case of the eligible business as if the transfer had been made at the market value of such goods or services. It is in this context that the question of substituting the actual consideration by the market value comes into picture.
7. We may notice that the Tribunal did not accept the contention of the assessee that the electricity is neither goods nor services and that, transfer of electricity, therefore, would not be covered under sub- Section (8) of Section 80IA of the Act. However, in so far as the Tribunal's reasoning to adopt the market value of the goods at Rs. 5.40 ps. per unit is concerned, we find no error. Undisputedly, GEB supplied the electricity to its consumers at the same rate. This, therefore, was a market value of the electricity supplied by the CPP Unit to the general unit. The fact that this amount of Rs. 5.40 ps. comprises of a component of 8 paise, which was electricity duty, to our mind, would make no difference in so far as the market value is concerned. To a consumer, the price being paid remains 5.40 ps. per unit. The fact that the seller retains only Rs. 5.32 ps. out of the said collection and passes on 8 paise per unit to the Government in the form of electricity duty, to our mind, would make no difference. This question is, therefore, not required to be considered."
4. This was followed in case of CIT v. Shah Alloys Ltd. in Tax Appeal No. 2093/2010. This was reiterated in Tax Appeal No.1646/2010 in case of ACIT v. Pragati Glass Works (P.) Ltd. (order dated 30.1.2012), in which following observations were made ITA Nos.1455 & 1589/Ahd/2016 Gujarat Alkalies & Chemicals Ltd. vs. DCIT (Cross Appeals) Asst.Year -2012-13 -9- "7. To our mind, Tribunal has committed no error. Assessing Officer and CIT (Appeals) while adopting Rs. 4.51 per unit as the value of electricity generated by eligible unit of assessee and supplied through its non eligible unit only worked out cost of such electricity generation. In fact CIT(Appeals) in terms recorded that Rs. 4.51 was computed as the reasonable value of the electricity generated by eligible unit of assessee. This amount included Rs. 4.17 per unit which was the cost of electricity generation and Rs. 0.34 per unit which was duty paid by the assessee to GEB for such power generation. Thus the sum of Rs. 4.51 per unit only represented the cost of electricity generation to the assessee. In Section 80IA(8) of the Act what is required to be ascertained is the market value of the goods transferred by the eligible business, when such transfer is by eligible business to another non eligible business of the same assessee and the consideration recorded in the accounts of the eligible business does not correspond to market value of such goods. Term "Market Value" is further explained in explanation to said sub-section to mean in relation to any goods or services, price that such goods or services will ordinarily fetch in the open market. To our mind sum of Rs. 4.51 per unit of electricity only represented cost of electricity generation to the assessee and not the market value thereof. It is not in dispute that the GEB charged Rs. 5 per unit for supplying electricity to other industries including non eligible unit of the assessee itself. Tribunal therefore, while adopting the said base figure and excluding excise duty therefrom to work out Rs. 4.90 as the market value of the electricity generated by the assessee, to our mind, committed no error. It can be easily seen that if the assessee were to supply such electricity or was allowed to do so in the open market, surely it would not fetch Rs. 4.51 per unit but Rs. 5 per unit as was being charged by GEB. Since the excise duty component thereof would not be retained by the assessee, Tribunal reduced the said figure by the nature of excise duty and came to the figure of Rs. 4.90 to ascertain the market value of electricity generated by the eligible unit and supplied to non eligible business of the assessee. No error was committed by the Tribunal. No question of law therefore, arises. Tax Appeal is dismissed."
5. Issue once again reached the Division Bench of this Court in case of CIT v. Alembic Ltd. in Tax Appeal No.471/2009 and connected appeals. The Division Bench referring to earlier judgments of the Court held as under:
"11. We have considered the submissions made by the learned counsel for the parties. We have also considered the case laws cited by the learned counsel for the assessee. Taking into consideration the judements of this court and other High Courts, cited above, we are of ITA Nos.1455 & 1589/Ahd/2016 Gujarat Alkalies & Chemicals Ltd. vs. DCIT (Cross Appeals) Asst.Year -2012-13
- 10 -
the opinion that the Tribunal has rightly allowed the claim of the assessee. In that view of the matter, we do not find any infirmity in the order of the Tribunal. Therefore, we answer question (C) and (D) in favour of the assessee and against the revenue."
6. Issues are thus considered on number of occasions by the Court and held against the Revenue. Questions are answered against the Revenue. Both the tax appeals are therefore, dismissed."
25.1 As the issue is covered in favor of the assessee by the Hon'ble Jurisdictional High court as discussed above. Thus respectfully following the same we reverse the order of Ld. CIT(A) and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed."
In view of the above, we also note that the impugned issue has also been decided by the Hon'ble Gujarat High Court in the own case of the assessee in its favor in tax appeal No. 708 of 2016. The relevant extract of the judgment has already been reproduced in the preceding paragraph.
We also note that the learned CIT (A) has relied on the order of this Tribunal in the own case of the assessee bearing ITA No. 2398/AHD/2012 for the assessment year 2009-10 vide order dated 19-11-2015. However, it is pertinent to note that this Tribunal has revised its order dated 19-11-2015 in the MA bearing No. 160/AHD/2016 arising out of ITA No. 2398/AHD/2012 for the assessment year 2009-10 vide order dated 3rd March 2017. The relevant extract of the order is reproduced as under:
"4. We have heard the rival contentions. Assessee through this Miscellaneous Application is referring to an apparent mistake which has occurred in the Tribunal's order dated 19.11.2015 in para 24 adjudicating ground no.4 raised by the assessee in ITA No.2398/Ahd/2012 for Asst. Year 2009-10. We observe that assessee, which is eligible for claiming deduction u/s 80IA of the Act adopted the sale price of electricity at Rs.4.55 per unit which was restricted to Rs.2.23 per unit by the Assessing Officer and was further sustained to Rs.3.11 per unit by ld.CIT(A). Aggrieved, assessee came up in appeal ITA Nos.1455 & 1589/Ahd/2016 Gujarat Alkalies & Chemicals Ltd. vs. DCIT (Cross Appeals) Asst.Year -2012-13
- 11 -
before the Tribunal against ld. Commissioner of Income Tax(A)'s order allowing deduction u/s 80IA on the basis of sale price of electricity at Rs.3.11 as against Rs.4.55 per unit. We further observe that Co-ordinate Bench vide its order for Asst. Year 2005-06 to 2007- 08 in assessee's own case allowed assessee's claim of deduction u/s 80IA of the Act by taking the sale price at Rs.4.55 per unit. However, in para 24 of the Tribunal's order dated 19.11.2015 it was wrongly mentioned that ground of assessee is partly allowed and no interference is called for in the order of ld. Commissioner of Income Tax(A).
5. In view of our above discussion, we are of the opinion that in these peculiar facts an apparent mistake has cropped up in the Tribunal's order dated 19.11.15 giving rise to a contradictory view occurring in para 23 and para 24 of the order. We thus recall our MA No.160/Ahd/2016 in ITA No. 2398/Ahd/2012 Asst. Year 2009-10 5 finding mentioned in para 24 of the order dated 19.11.15 and replace it with the following paragraph :- "Respectfully following the ratio of decision taken by the Co-ordinate Bench in assessee's own case, we set aside the order of ld. Commissioner of Income Tax(A) and allow the ground of assessee."
6. In the result, Miscellaneous application filed by the assessee is allowed in the above stated terms."
Thus, it is clear that the order of this Tribunal as relied by the learned CIT (A) as discussed above has been revised subsequently by the same Tribunal by deciding the issue in favour of the assessee. In view of the above, we hold that the impugned issue has already been decided in favour of the assessee by this Tribunal which was also subsequently confirmed by the Hon'ble Gujarat High Court as discussed above. Accordingly, we reverse the order of the learned CIT (A) and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed.
9. The 2nd issue raised by the assessee in ground No. 3 is that the ld. CIT- A erred in not adjudicating the issue for the addition of Rs. 18.72 lacs made by ITA Nos.1455 & 1589/Ahd/2016 Gujarat Alkalies & Chemicals Ltd. vs. DCIT (Cross Appeals) Asst.Year -2012-13
- 12 -
the AO under MAT computation of income under section 115 JB of the Act on account of prior income.
10. The similar issue was also raised by the Revenue in ITA No. 1589/AHD/2016 in ground No. 3 challenging the deletion of the addition made by the AO for Rs. 39.11 lacs under normal and MAT computation of income on account of prior period expenses.
11. The issues as raised by the assessee and the Revenue are inter- connected. Therefore, we have clubbed both of them for the purpose of the adjudication.
12. The assessee in the year under consideration has shown prior period Income and expense in the manner as detailed below:
PRIOR PERIOD ADJUSTMENT (NET) Disclosure pursuant to Note No.5(i)(I) of Part II of Schedule VI to the Companies Act, 1956[Rs. in Lakh s] 2011-12 2010-11 Income Sales 4.36 -
Other Income 14.36 -
18.72 -
Expenditure 8.08 (15.29)
Raw Materials Consumed 3.45 -
Administrative, General and Marketing 1.64 -
Expenses 25.94 2.32
Interest
Depreciation (Net)
39.11 (12.97)
20.39 (12.97)
Net Debit / (Credit) Total :
ITA Nos.1455 & 1589/Ahd/2016
Gujarat Alkalies & Chemicals Ltd. vs. DCIT (Cross Appeals) Asst.Year -2012-13
- 13 -
The assessee accordingly claimed net expenses under the head prior period item amounting to Rs. 20.39 lacs only. As per the assessee, the prior period expenses were crystallized in the year under consideration. Therefore the same was claimed as deduction against the profit of the current year.
The assessee further submitted that there cannot be any adjustment while determining the books profit under section 115 JB of the Act as there is no provision to make any adjustment under the MAT.
However, the AO disagreed with the contention of the assessee by observing that the assessee is maintaining its books of accounts based on mercantile system of accounting. Therefore, the prior period expenses are not eligible for deduction against the profit of the current year. The AO in holding so placed his reliance on the judgment of Hon'ble High Court of Kerala in the case of Sree Bhagawathy Textiles Ltd. vs. ACIT reported in 199 taxman 14.
Similarly, the AO noticed that the amount of prior period income of 18.72 lakhs has not been added back by the assessee in computing the income under normal as well as MAT provisions of the Act.
Accordingly the AO added back the prior period expenses of 39.11 lacs under normal as well as MAT computation of income as well as prior period income of 18.72 lakhs under normal and MAT computation of income.
Aggrieved assessee preferred an appeal to the learned CIT (A).
ITA Nos.1455 & 1589/Ahd/2016 Gujarat Alkalies & Chemicals Ltd. vs. DCIT (Cross Appeals) Asst.Year -2012-13
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The assessee before the learned CIT (A) submitted that the liability towards the prior period expenses was crystallized in the year under consideration therefore the same was claimed as deduction.
The assessee also submitted that it has already made the disallowance of Rs. 25,93,976 representing the amount of depreciation embedded in the amount of prior period expenses. Accordingly the assessee claimed that if any disallowance is required to be made on account of prior period expenses then there will be double addition to the extent of rupees 25,93,976.00 only.
However, the learned CIT (A) observed that the assessee has not furnished any evidence suggesting that the prior period expenses were crystallized in the year under consideration.
The learned CIT (A) further agreed with the submission of the assessee that the disallowance of Rs. 25,93,976.00 will amount to double addition as per the submission of the assessee. Accordingly the learned CIT (A) directed the AO to verify whether the assessee has made the disallowance of Rs. 25,93,976 being representing prior period expenses. If the claim of the assessee is found correct then he directed the AO to delete the addition made by him under normal computation of income.
Regarding the addition made under book profit for 39.11 lacs, the learned CIT (A) directed the AO to delete the addition made by him by observing that in the immediate preceding assessment year 2011-12 such addition was deleted.
ITA Nos.1455 & 1589/Ahd/2016 Gujarat Alkalies & Chemicals Ltd. vs. DCIT (Cross Appeals) Asst.Year -2012-13
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13. Being aggrieved by the order of the learned CIT (A) both the assessee and the Revenue are in appeal before us. The assessee is in appeal before us for the confirmation of the addition made by the learned CIT (A) for 18,72,000 in the computation under section 115 JB of the Act whereas the Revenue is in appeal against the deletion of the confirmation of 39.11 lacs under MAT computation of Income.
14. The learned AR before us submitted that the issue was raised before the learned CIT (A) for the addition made by the AO for 18,72,000.00 under MAT computation of income. But the learned CIT (A) has not adjudicated the same. Accordingly, the learned AR prayed before us to restore the issue to the file of the learned CIT-A for fresh adjudication as per the provisions of law.
15. On the other hand, the learned DR submitted that the assessee is following mercantile system of accounting. Therefore, the prior period expenses cannot be allowed as deduction in the year under consideration.
Both the learned AR and the DR vehemently supported the order of the authorities below to the extent favorable to them.
16. We have heard the rival contentions of both the parties and perused the materials available on record. In the case on hand, the AO has held that the prior period income as well as prior period expenses as income of the assessee. Accordingly, the AO added the prior period income amounting to Rs. 18.72 lacs under normal computation and MAT computation of income. Similarly the AO also added the prior period expenses amounting to Rs. 39.11 lacs under normal and MAT computation of income.
ITA Nos.1455 & 1589/Ahd/2016 Gujarat Alkalies & Chemicals Ltd. vs. DCIT (Cross Appeals) Asst.Year -2012-13
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At the outset we note that the assessee has offered the prior period income amounting to 18.72 lacs to tax under normal and MAT computation of income. This fact can be verified from the from the profit and loss statement of income under normal and MAT computation of income placed on page 7 and 9 -11 of the paper book. Therefore, any further addition on account of prior period income to the total income and the book profit would lead to double addition which is unwanted under the provisions of Act.
Similarly, we also note that the assessee has only claimed prior period expenses amounting to 20.39 lakhs (39.11 lacs - 18.72 lacs) after adjusting the prior period income as discussed above.
Now turning to the appeal filed by the assessee
17. At the outset we note that the prior period income has already been offered to tax by the assessee under normal as well as MAT computation of income which was subsequently added by the AO resulting to the double addition.
However, we note that the assessee before the learned CIT (A) as well as before us has not challenged the impugned addition under normal computation of income. Therefore, we are not inclined to comment anything on such aspect.
Regarding the addition of 18.72 lakhs under MAT computation of income, we note that the assessee has challenged before the learned CIT (A) ITA Nos.1455 & 1589/Ahd/2016 Gujarat Alkalies & Chemicals Ltd. vs. DCIT (Cross Appeals) Asst.Year -2012-13
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but the same has not been adjudicated by him. Therefore in the interest of justice and fair play we are inclined to restore this issue to the file of the learned CIT (A) for fresh adjudication as per the provisions of law. Hence the ground of appeal of the assessee is allowed for the statistical purposes.
Now turning to the appeal filed by the Revenue
18. At the outset, we note that the ground raised by the revenue is not clear whether it is against the normal computation of income or MAT computation of income. However in the interest of justice and fair play we adjudicate the issue under normal as well as MAT computation of income.
Regarding the normal computation of income, we note that the assessee has claimed deduction only to the tune of 39.11 lacs. Out of such expenses, we also note that the assessee has made the disallowance of prior period expenses in the form of depreciation amounting to Rs. 25,93,976.00. This fact can be verified from the normal computation of income placed on page 9 of the paper book. Thus, as a result of suo-moto disallowance by the assessee, we note that there cannot be for the disallowance on account of prior period expenses under normal computation of income for the entire amount. It is because the assessee has claimed the deduction for 39.11 lakhs whereas it has made the disallowance of Rs. 25, 93, 976.00 in the statement of income. Thus the amount involved in the dispute is limited to the extent of 13,17,024.00 only which has not been challenged before us.
Regarding the MAT computation of income, we note that while determining the income under the provisions of section 115 JB of the Act, ITA Nos.1455 & 1589/Ahd/2016 Gujarat Alkalies & Chemicals Ltd. vs. DCIT (Cross Appeals) Asst.Year -2012-13
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there can be made limited adjustments in the book profit as specified therein. On perusal of the provisions of section 115 JB of the Act, we note that there is no adjustment on account of prior period expenses. In holding so we find support and guidance from the judgment of Hon'ble Supreme Court in the case of Apollo tyres ltd. Vs. CIT reported in 255 ITR 273 wherein it was held as under:
"Therefore, the Assessing Officer while computing the income under section 115J has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The Assessing Officer thereafter has limited power of making additions and reductions as provided for in the Explanation to the said section. To put it differently, the Assessing Officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to section 115J."
In view of the above, we hold that there cannot be any addition to the book profit on account of prior period expenses as discussed above. In the result the appeal of the Revenue is partly allowed.
19. In the result, the appeal of the assessee is partly allowed for the statistical purposes.
Coming to the Revenue's appeal bearing ITA No. 1589/AHD/2016 pertaining to the Assessment Year 2012-13
20. The Revenue has raised the following grounds of appeal:
"1. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the amortization of lease rent amounting to Rs. 15.35 lacs, which in fact, the expenditure is to treated as capital in nature and not as revenue in nature as held by the Ld. CIT(A).
ITA Nos.1455 & 1589/Ahd/2016 Gujarat Alkalies & Chemicals Ltd. vs. DCIT (Cross Appeals) Asst.Year -2012-13
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2. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the claim of replacement cost of rememberaining in membrane cells amounting to Rs. 8,85,94,567/-, which in fact, the expenditure is to treated as capital in nature and not as revenue in nature as held by the Ld. CIT(A).
3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the prior period expenses amounting to Rs.39.11 lacs, claimed by the assessee. Since the assessee company is following the mercantile system of accounting, the expenses related to the prior period are not an allowable expenses.
4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the unutulized Modvat credit in raw material amounting to Rs. 6,08,47,130/-. The AO has righty justified in adding back the unutilized MODVAT credit for the year as per the new provisions of section 145A of the I. T. Act, wherein the unutilized MODVAT credit had to be included in the closing stock of raw material and work in progress, whereas the excise duty paid on unsold finished goods had to be included in the inventory of finished goods."
5. The appellant craves leave to add to, amend or alter the above grounds as may be deemed necessary.
Relief claimed in appeal It is prayed that the order of the CIT (Appeals) be set aside and that of the Assessing Officer be restored."
21. The 1st issue raised by the Revenue is that the CIT (A) erred in deleting the addition made by the AO for 15.35 lacs on account of lease rent.
22. The assessee has amortized the lump-sum payment paid to Gujarat Industrial Development Corporation for the land taken on lease over a period of lease i.e. 99 years. Accordingly, the assessee has charged the amount amortized for the sum of 15.35 lacs in the profit and loss account. However, the same was disallowed by the AO treating the same as capital in nature and after having reliance on the order of immediate preceding assessment year ITA Nos.1455 & 1589/Ahd/2016 Gujarat Alkalies & Chemicals Ltd. vs. DCIT (Cross Appeals) Asst.Year -2012-13
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2011-12. Thus, the sum of 15.35 lacs was added to the total income of the assessee.
23. Aggrieved assessee preferred an appeal to the learned CIT (A) who has deleted the addition made by the AO after having reliance on the order of his predecessor for the immediate preceding assessment year.
Being aggrieved by the order of the learned CIT (A), the Revenue is in appeal before us.
Before us the learned DR and the learned AR relied on the order of the authorities below as favourable to them.
24. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset we note that the impugned issue has already been decided by the Jurisdictional High Court in favour of the assessee in Tax Appeal No. 578 of 2016 wide order dated 3 October 2016. The relevant extract is reproduced as under:
"2. Since the issue is covered by the decision of this Court, we had issued notice for final disposal. Learned advocate for the parties do not dispute that by Judgement dated 21.10.2013 is Tax Appeal No.778/2013 and connected appeals, this Court in case of this very assessee considered this issue as under:
"9.0 Now, so far as question no 2 in Tax Appeal Nos.778 of 2013 and 779 of 2013 and sole question in Tax Appeal No.780 of 2013i.e. Whether the learned Tribunal was right in law in holding that Rs, 3,36.224/- being amortisation of lease rent for the land is capital expenditure is concerned, on considering the decision of this Court in the case of Sun Pharmaceutical Industries Limited (supra) as well as decision of the Hon'ble Supreme Court in the case of Madras Auto Services Pvt. Limited (supra), we are of the opinion that the learned Tribunal has committed an error in distinguishing the ITA Nos.1455 & 1589/Ahd/2016 Gujarat Alkalies & Chemicals Ltd. vs. DCIT (Cross Appeals) Asst.Year -2012-13
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aforesaid decisions and not applying the same to the facts of the case on hand. Considering the aforesaid two decisions, it is to be held that the aforesaid lease rent was deductible as revenue expenditure and the learned Tribunal has erred in holding that Rs.3,36,224/- after amortisation of lease rent paid for the land is capital expenditure. Under the circumstances, considering the aforesaid two decisions of the Hon'ble Supreme Conn in the case of Madras Auto Services Pvt, Limited (supra) and the decision of this Hon'ble Court in the case of Sun Pharmaceutical Industries Limited (supra) the question no. 2 in Tax Appeal Nos. 778 and 779 of 2013 and sole question no.1 in Tax Appeal No. 780 of 2013 is required to be answered in favour of the assessor and against the revenue."
3. In the result, appeal is allowed. Question is answered in favour of the assessee. Judgement of the Tribunal to that extent is reversed. Tax Appeal is disposed of."
Respectfully, following the judgment of the Hon'ble Gujarat High Court in the own case of the assessee (supra), we do not find any reason to interfere in the order of the learned CIT-A. Hence the ground of appeal of the Revenue is dismissed.
25. The next issue raised by the Revenue is that the learned CIT (A) erred in deleting the addition made by the AO for 8,85,94,567/- only on account of replacement cost of rememberaining in membrane cells treating the same as capital expenditure.
26. The AO during the assessment proceedings observed that the assessee has incurred certain expenditure of Rs. 19,71,24,454.00 representing the replacement of parts/components of the process system which has useful life for more than one year. Accordingly, the AO treated the same as capital expenditure and disallowed the same after allowing the depreciation on such expenditure. Thus, the sum of 18,23,40,120 after depreciation was added to the total income of the assessee.
ITA Nos.1455 & 1589/Ahd/2016 Gujarat Alkalies & Chemicals Ltd. vs. DCIT (Cross Appeals) Asst.Year -2012-13
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27. Aggrieved assessee preferred an appeal to the learned CIT (A) who deleted the addition made by the AO by observing as under:
"4.2.1 Identical issue was involved in appellant's own case in earlier years also and the ITAT, Ahmedabad Bench, in its orders for A.Y. 1999-2000 to A.Y. 2004-05, has decided the issue in favour of the appellant, Besides, in the appellate order for A.Y. 2011-12 referred to above, entire expenditure incurred as cost of replacement of membrane cells has been allowed as revenue expenditure. Hence, the AO is directed to allow the entire expenditure as revenue expenditure and at the same time the depreciation allowed by the AO by treating this amount as capital expenditure will be withdrawn at the time of giving effect to this decision."
Being aggrieved by the order of the learned CIT (A), the Revenue is in appeal before us.
28. Before us the learned DR and the learned AR relied on the order of the authorities below as favourable to them.
29. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset we note that the impugned issue has already been decided by the Jurisdictional High Court in favour of the assessee in Tax Appeal No. 577 of 2016 vide order dated 1 August 2016. The relevant extract is reproduced as under:
"3. Though three different questions are framed, the issue is single viz. the correctness of the decision of the ITAT in deleting addition of Rs. 4.67 crores made on account of expenses incurred for replacement of remembering cells- II. The Revenue would contend that the expenditure is capital in nature and therefore, was not allowable deduction.
4. Both sides agreed that this issue in case of this very assessee for earlier assessment years came up for consideration before this Court in case of Commissioner of Income Tax vs. Gujarat Alkalies and Cheimcals Ltd.
ITA Nos.1455 & 1589/Ahd/2016 Gujarat Alkalies & Chemicals Ltd. vs. DCIT (Cross Appeals) Asst.Year -2012-13
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reported in 372 ITR 237. Division Bench of this Court dismissed the Revenue's appeal making following observations:
"12. The attempt to contend that life of membrane would be spread over from 3 to 5 years or that the amount involved for replacement of membrane is huge and, therefore, the departure on the part of the Revenue could be said as justified, in our view, cannot be countenance for two reasons. One is that the amount involved would not make difference for chargability of the tax but the nature of expenditure would be relevant for the chargability of tax. It hardly matters whether the amount is more or less. Further, on the aspect of life of the membrane, nothing is referred to by the A.O. nor by C.I.T. (Appeals) that earlier, such aspect, namely, life of the membrane spread over from 3 to 5 years was not considered or it had missed or otherwise."
5. In the result, this tax appeal is dismissed."
Respectfully, following the Judgment of the Hon'ble Gujarat High Court in the own case of the assessee (supra), we do not find any reason to interfere in the order of the learned CIT-A. Hence the ground of appeal of the Revenue is dismissed.
Note: we find that there was mismatch in the amount of dispute. Therefore we direct the AO to give effect in the order of the correct amount involved in the dispute.
30. The 3rd issue raised by the Revenue is that the Learned CIT (A) erred in deleting the addition made by the AO for 39.11 lacs on account of prior period expenses.
31. At the outset, we note that the impugned issue has already been adjudicated along with the appeal of the assessee bearing ITA No.1455/AHD/2017 by dismissing the ground of appeal of the Revenue. For the detailed discussion, please refer the relevant paragraph bearing No. 16 of ITA Nos.1455 & 1589/Ahd/2016 Gujarat Alkalies & Chemicals Ltd. vs. DCIT (Cross Appeals) Asst.Year -2012-13
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this order. Respectfully following the same, the ground of appeal of the Revenue is partly allowed.
32. The next issue raised by the Revenue is that the learned CIT (A) erred in deleting the addition made by the AO for 6,08,47,130/- on account of unutilized MODVAT credit.
33. The AO during the assessment proceedings observed that there was an utilized MODVAT credit amounting to 6,08,47,130/- which was required to be included in the stock of raw material and work-in-progress. But the assessee has not done so. Accordingly, the AO enhanced the value of the closing stock by the amount of unutilized MODVAT credit which resulted increase in the income of the assessee. Thus the amount of MODVAT credit was added to the total income of the assessee.
34. Aggrieved assessee preferred an appeal to the learned CIT (A) who has deleted the addition made by the AO by observing as under:
"4.5.1 Identical issue was involved in the appellant's own case in A.Y. 2011-
12. In the appellate order referred to above, my predecessor has held as under:
"10.13 In view of above, discussion as well as decisions of Hon'ble Courts, it is held that the AO is not correct in increasing only the amount of closing stock by the unutilized amount of CENVAT credit, The AO is required to include the excise duty element in the cost of purchases, sales and opening stock. The AO is accordingly directed to make adjustment in the values of opening stock, purchases as well as sales also and compute the net addition or relief to the appellant as the case may be. As per the AR of the appellant it is mentioned by the auditor in the audit report that there is no impact on the profit if net method (i.e. exclusive method) is followed. In view of this the AO is directed to verify from the audit report and relevant record of the appellant and find out whether as a result of following Inclusive Method as per section 145A of the Act there is any impact on ITA Nos.1455 & 1589/Ahd/2016 Gujarat Alkalies & Chemicals Ltd. vs. DCIT (Cross Appeals) Asst.Year -2012-13
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the net profit in its case for the year under consideration. If there is no impact on the net profit of the appellant as a result of following Inclusive Method (i.e. by including the CENVAT in the opening stock, purchases, sales and closing stock), then the AO is directed to delete the addition of Rs.5,31,03,250/-. However, if there is increase in the profit in the case of appellant as a result of following such Inclusive Method, then the profit to the extent so increased is confirmed. Thus, the ground of appellant is disposed off accordingly."
4.5.2. The AO is directed to follow the same directions for the current year. If there is no impact on the net profit of the appllant as a result of following Inclusive Method (i.e. by including the CENVAT in the opening stock, purchases, sales and closing stock), then he AO is directed to delete the addition of Rs.6,08,47,130/-. However, if there is increase in the profit in the case of appellant as a result of following Inclusive Method, then the amount equal to increase in profit will be added to the total income. This ground of appeal is disposed off accordingly."
Being aggrieved by the order of the learned CIT (A), the Revenue is in appeal before us.
35. Before us the learned DR and the learned AR relied on the order of the authorities below as favourable to them.
36. We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, we note that the assessee has been recording its transactions of purchase, sales, and valuation of inventories, net of MODVAT consistently. Thus, if the inventory of closing stock is enhanced by the amount of MODVAT credit attributable to it, then the amount of corresponding purchases/opening stock should also be increased by the said amount which will result in tax neutral exercise. Thus, in our considered view, the Assessing Officer erred in enhancing the value of closing stock without giving effect to the purchases/ opening stock as the case may be. In this regard, we find support and guidance from the judgment of Hon'ble ITA Nos.1455 & 1589/Ahd/2016 Gujarat Alkalies & Chemicals Ltd. vs. DCIT (Cross Appeals) Asst.Year -2012-13
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Gujarat High Court in the case of Pr.CIT vs. Gujarat Gas Company Ltd. In Tax Appeal No.90 of 2017 vide order dated 07/02/2017, wherein it was held as under:-
"3.03. Now, so far as question No. [B] i.e. with respect to addition made by the A.O. on account of unutilized modvat/cenvat credit of Rs. 56,08,089/- is connected, it is required to be noted that the learned tribunal has taken note that with respect to modvat receivable account, there is corresponding less debit to the purchase account and hence to that extent there is already income offered for tax. If that be so, there was no question of further adding modvat/cenvat credit to the income of the assessee for the year under consideration. Under the circumstances, we see no reason to interfere with the impugned judgement and order passed by the learned tribunal so far as confirming the order passed by the learned CIT(A) deleting the addition made by the A.O. on account of unutilised modvat/cenvat credit of Rs. 56,08,089/-. We are in complete agreement with the view taken by the learned tribunal."
Respectfully following the Judgment of the Hon'ble Jurisdictional Courts, we do not find any infirmity in the order of the learned CIT (A). Hence the ground of appeal of the Revenue is dismissed.
37. In the result the appeal filed by the Revenue is dismissed.
38. In the combined result, the appeal filed by the assessee is partly allowed for the statistical purposes whereas the appeal filed by the Revenue is partly allowed.
This Order pronounced in Open Court on 16/10/2019
Sd/- Sd/-
( MADHUMITA ROY ) (WASEEM AHMED )
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated 16/10/2019
Priti Yadav, Sr.PS
ITA Nos.1455 & 1589/Ahd/2016
Gujarat Alkalies & Chemicals Ltd. vs. DCIT (Cross Appeals) Asst.Year -2012-13
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आदे श क त ल प अ े षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. संबं धत आयकर आयु त / Concerned CIT
4. आयकर आय
ु त(अपील) / The CIT(A)-1, Vadodara.
5. वभागीय त न ध, आयकर अपील!य अ धकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड' फाईल / Guard file.
आदे शानुसार/ BY ORDER, स या पत त //True Copy// उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad
1. Date of dictation 07.10.2019
2. Date on which the typed draft is placed before the Dictating Member 09.10.2019
3. Other Member.....................
4. Date on which the approved draft comes to the Sr.P.S./P.S 14.10.2019
5. Date on which the fair order is placed before the Dictating Member for pronouncement......
6. Date on which the fair order comes back to the Sr.P.S./P.S.......
7. Date on which the file goes to the Bench Clerk.....................
8. Date on which the file goes to the Head Clerk..........................................
9. The date on which the file goes to the Assistant Registrar for signature on the order..........................
10. Date of Despatch of the Order..........................................