Income Tax Appellate Tribunal - Panji
Rajasthan Renewable Energy ... vs Dcit, Jaipur on 18 August, 2017
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YADAV, AM
vk;dj vihy la-@ITA No. 159/JP/2015
fu/kZkj.k o"kZ@Assessment Year :2011-2012
M/s Rajasthan Renewable cuke The Deputy Commissioner of
Energy Corporation Ltd., E-166, Vs. Income Tax, Circle-6, Jaipur.
Akshay Urja Bhawan, Yudister
Marg, C-Scheme, Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAACL3171C
vihykFkhZ@Appellant izR;FkhZ@Respondent
vk;dj vihy la-@ITA No. 202/JP/2015
fu/kZkj.k o"kZ@Assessment Year :2011-2012
The Deputy Commissioner of cuke M/s Rajasthan Renewable
Income Tax, Circle-6, Jaipur. Vs. Energy Corporation Ltd., E-
166, Akshay Urja Bhawan,
Yudister Marg, C-Scheme,
Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAACL3171C
vihykFkhZ@Appellant izR;FkhZ@Respondent
vk;dj vihy la-@ITA No. 125/JP/2017
fu/kZkj.k o"kZ@Assessment Year :2010-2011
The ACIT, Circle-6, Jaipur. cuke M/s Rajasthan Renewable
Vs. Energy Corporation Ltd., E-
166, Akshay Urja Bhawan,
Yudister Marg, C-Scheme,
Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAACL3171C
vihykFkhZ@Appellant izR;FkhZ@Respondent
2 ITA No. 159&202/JP/2015
& 95,96,87,97,88/JP/16 &125/JP/17
M/s Rajasthan Renewable Energy Corporation Ltd.
vk;dj vihy la-@ITA No. 95/JP/2016
fu/kZkj.k o"kZ@Assessment Year :2008-2009
M/s Rajasthan Renewable cuke The ITO, Circle-6(4), Jaipur.
Energy Corporation Ltd., E-166, Vs.
Akshay Urja Bhawan, Yudister
Marg, C-Scheme, Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAACL3171C
vihykFkhZ@Appellant izR;FkhZ@Respondent
vk;dj vihy la-@ITA No. 96/JP/2016
fu/kZkj.k o"kZ@Assessment Year :2009-2010
M/s Rajasthan Renewable cuke The ITO, Circle-6(4), Jaipur.
Energy Corporation Ltd., E-166, Vs.
Akshay Urja Bhawan, Yudister
Marg, C-Scheme, Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAACL3171C
vihykFkhZ@Appellant izR;FkhZ@Respondent
vk;dj vihy la-@ITA No. 87/JP/2016
fu/kZkj.k o"kZ@Assessment Year :2009-2010
The ACIT, Circle-6, Jaipur. cuke M/s Rajasthan Renewable
Vs. Energy Corporation Ltd., E-
166, Akshay Urja Bhawan,
Yudister Marg, C-Scheme,
Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAACL3171C
vihykFkhZ@Appellant izR;FkhZ@Respondent
3 ITA No. 159&202/JP/2015
& 95,96,87,97,88/JP/16 &125/JP/17
M/s Rajasthan Renewable Energy Corporation Ltd.
vk;dj vihy la-@ITA No. 97/JP/2016
fu/kZkj.k o"kZ@Assessment Year :2012-2013
M/s Rajasthan Renewable cuke The ITO, Circle-6(4), Jaipur.
Energy Corporation Ltd., E-166, Vs.
Akshay Urja Bhawan, Akshay
Urja Bhawan, Yudister Marg, C-
Scheme, Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAACL3171C
vihykFkhZ@Appellant izR;FkhZ@Respondent
vk;dj vihy la-@ITA No. 88/JP/2016
fu/kZkj.k o"kZ@Assessment Year :2012-2013
The ACIT, Circle-6, Jaipur. cuke M/s Rajasthan Renewable
Vs. Energy Corporation Ltd., E-
166, Akshay Urja Bhawan,
Yudister Marg, C-Scheme,
Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAACL3171C
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj l@
s Assessee by : Shri P.C. Parwal (C.A.)
jktLo dh vksj ls@ Revenue by : Shri Verinder Mehta (CIT)
lquokbZ dh rkjh[k@ Date of Hearing : 28/06/2017
mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 18/08/2017
vkns'k@ ORDER
PER: SHRI VIKRAM SINGH YADAV, A.M. These are the cross appeals filed by the assessee and the Revenue directed against the order of ld. CIT(A)-2, Jaipur dated 15.12.2014 for A.Y. 2011-12, dated 27.11.2015 for A.Y. 2008-09, 2009- 10 & 2012-13 and dated 18.11.2016 for A.Y. 2010-11. Given the 4 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
similarity of facts and common grounds of appeal involved in all these years, all these appeals were heard together and are being disposed off by this consolidated order.
2. With the consent of both the parties, for the purpose of discussion, the facts of AY 2011-12 have been considered as the lead case and the respective grounds of appeal taken and contentions advanced by both the parties are discussed in succeeding paragraphs.
Revenue's grounds of appeal (ITA No. 202/JP/15) "1. Whether on the facts and circumstances of the case, the ld. CIT(A) was justified in deleting addition of Rs. 20,00,000/- made by disallowing contribution to State Renewal Fund.
2. Whether on the facts and circumstances of the case, the ld. CIT(A) was justified in deleting addition of Rs. 1,24,442/- made on a/c of late deposition of EPF after due dates of the relevant PF Act.
3. Whether on the facts and circumstances of the case, the ld. CIT(A) was justified in deleting addition of Rs. 29,17,461/- debited by the assessee in IEC Plan.
4. Whether on the facts and circumstances of the case, the ld. CIT(A) was justified in deleting addition of Rs. 34,29,607/- made by the AO by disallowing expenses on Rural village Electrification (RVE) 2010-11.
5. Whether on the facts and circumstances of the case, the ld. CIT(A) was justified in deleting the addition of Rs. 4,12,500/- made by the AO by disallowing expenses on Biomass Fuel Supply Study expenses.
6. Whether on the facts and circumstances of the case, the ld. CIT(A) was justified in deleting the addition of Rs. 92,00,000/-
5 ITA No. 159&202/JP/2015& 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
made by the AO on account of extension fee towards Project No. 25/2004.
7. Whether on the facts and circumstances of the case, the ld. CIT(A) was justified in deleting the addition of Rs. 71,00,000/- made by the AO on account of extension fee/ cancellation fee in the case of M/s RRB Energy and M/s Enercon (India) Ltd.
8. Whether on the facts and circumstances of the case, the ld. CIT(A) was justified in partly allowing deduction u/s 80IA(4)(iv) without appreciating the facts on the basis of which the AO disallowed the same."
Assessee's grounds of appeal (ITA No. 159/JP/15) "1. The learned C.I.T. (Appeals) has erred in facts and law in confirming the disallowance of Rs. 1,00,00,000/- in respect of contribution to Rajasthan Bhawan as not an expenditure for assessee's business.
2. The learned C.I.T. (Appeals) has erred in facts and law and its own presumptions and ignoring the facts not allowing the claim of deduction U/s 80IA(4) of Income Tax Act, 1961."
3. In ground no. 1, the Revenue has challenged the deleting of addition of Rs. 20 lacs towards contribution to the State Renewal Fund. The ld. AR submitted that this issue is covered in favour of the assessee by the decision of ITAT, Jaipur Bench in case of Rajasthan State Seed Corporation Ltd. Vs. ACIT in ITA No. 233/JP/2009 order dated 25.05.2009 for A.Y. 2009-10 which has been affirmed by the Hon'ble Rajasthan High Court in the case of CIT vs Rajasthan State Seed Corporation Ltd reported in 386 ITR 267.
6 ITA No. 159&202/JP/2015& 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
4. The relevant finding of the ld CIT(A) where he has followed the decision of the Coordinate Bench in case of Rajasthan State Seed Corporation Ltd is reproduced as under:
"2.3.1 I have perused the facts of the case, the assessment order and the submission of the appellant. The facts of this issue are similar to the facts in the case of M/s Rajasthan State Seeds Corporation Ltd. in A.Y. 2006-07. In this case, the ITAT, Jaipur (in ITA No. 233/JP/2009) has decided the matter in favour of the assessee by holding as under-
"As per memorandum of State Renewal Fund set up by the State Government, it is created with the object of providing a safety net for the workers likely to be affected by restructuring in the State public Enterprises. We are thus of the view that contribution made to the said fund is solely for the purpose of the welfare and benefit of the employees. The Rajasthan high Court in case of CIT V. Rajasthan Spinning and Weaving Mills Limited 274 ITR 465 has observed that it is for the assessee to decide whether any expenditure should be incurred in course of business. The expenditure can be incurred voluntarily and without necessity. Any contribution made by the assessee to a public welfare fund which is connected or related with his business is an allowable deduction u/s 37. Again the court in the case of CIT V. Shri Rajasthan Syntex Limited 221 CTR 410 (Raj.) held that where assessee gave contribution to the employee's welfare fund, the same is allowable as business expenditure. The case relied by AO of CIT V. Jodhpur Co-operative Marketing Society 275 ITR 372 (Raj.) is distinguishable as in this case the amount was set apart for the shareholders of the society whereas in the present case amount was provided for the benefit of the employees. In view of this the contribution made to State Renewal Fund is allowable u/s 37(1)."7 ITA No. 159&202/JP/2015
& 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
5. In D.B Appeal No. 4/2006 dated 29.04.2016, the Hon'ble Rajasthan High Court in case of Principal CIT vs Rajasthan State Seed Corporation Ltd has held as under:
"9. Insofar as the expenditure incurred on State Renewal fund is concerned, said expenditure also goes to show that the renewal fund was set up by the State Government and was created with the object of providing a safety net for the workers likely to be effected by restricting in the State Public Enterprise and that a finding of fact has been recorded that the contribution made to the state renewal fund is solely for the purposes of the welfare and benefit of the employees. In our view, it is for the assessee to decide whether any expenditure should be incurred in the course of business and expenditure of this nature being for business expediency is certainly allowable deduction under section 37(1) of the Act. In our view, any normal expenditure for the welfare and benefit of employees is allowable expenditure under section 37(1), the Tribunal has come to a finding of fact that it was a legal obligation of the respondent assessee towards contribution of the said amount to the state renewal fund and there being a legal obligation as well in our view the Tribunal has come to a correct conclusion."
6. In the present case, it is noted that the State Renewal Fund was set up to provide safety to the employees working under the state owned entities in case of restructuring/wind-up/closure of the undertaking. Based on the study done by the State Government, the assessee has provided an amount of Rs 20 lacs for the purposes of welfare and benefit of the employees. The facts of the case are thus pari-materia to the facts of the case before the Hon'ble Rajasthan High Court in case of Rajasthan Seed Corporation Ltd and respectfully following the same, we affirm the order of the ld CIT(A) who has rightly 8 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
deleted the disallowance made by the AO towards contribution to State Renewal Fund. In the result, the ground no. 1 of the revenue's appeal is dismissed.
7. In ground no. 2 of the Revenue's appeal, the Revenue has challenged the deletion of addition of Rs. 1,24,442/- made on account of late deposition of EPF after due date of the PF Act. In this regard, ld. AR submitted that in view of the following judicial pronouncements on allowability of deduction of employee's contribution to PF and other funds after the due dates in respective statute but before the due date of filing of return of income, CIT(A) has rightly deleted the addition and thus the ground of the department be dismissed:
- CIT Vs. State Bank of Bikaner & Jaipur (2014) 363 ITR 70 (Raj)
- CIT Vs. Jaipur Vidyut Vitran Nigam Ltd. (2014) 363 ITR 307 (Raj)
- CIT Vs. Udaipur Dugdh Utpadak Sahakari Sangh Ltd. (2014) 366 ITR 163 (Raj)
8. The relevant finding of the ld CIT(A) is reproduced as under:-
"3.3 I have perused the facts of the case, the assessment order and the submissions of the appellant. Admittedly, contribution to PF has been paid by the appellant, in all instances, before the due date of filing the return of income u/s 139(1). This fact is therefore, not in dispute. In view of the judgments of the Rajasthan High Court in the case Jaipur Vidhyut Vithran Nigam Ltd, 265 CTR 62 (Raj.), CIT Vs. State Bank of Bikaner & Jaipur (2014) 99 DTR 131 (Raj.), and other case laws on this issue, the claim of the appellant is allowable. Accordingly, this disallowance made by the Assessing officer, is directed to be deleted. This ground is allowed."9 ITA No. 159&202/JP/2015
& 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
9. In the present case, admittedly, employees's contribution to PF amounting to Rs 124,442 for the month of August 2010 has been paid by the appellant on 21.09.2010 within the same financial year 2010-11. The issue is no more res integra in light of various judicial pronouncements of the Hon'ble Rajasthan High Court referred supra. We accordingly affirm the order of the ld CIT(A) who has rightly deleted the disallowance made by the AO towards employees contribution to PF. In the result, the ground no. 2 of the revenue's appeal is dismissed.
10. In respect of ground no. 3 of the Revenue's appeal, the Revenue has challenged the action of the ld CIT(A) in deleting addition of Rs. 29,17,461/- debited by the assessee in IEC plan.
11. Briefly the facts of the case are that the assessee, as per its object as stated in the Memorandum of Association (MOA), is engaged during the year in two types of business activities (i) generation of electricity from renewable/non conventional sources of energy like wind, solar, biomass, hydro etc. and sale thereof and (ii) assistance to various entrepreneurs for development and generation of electricity through non-conventional sources of energy. For fulfillment of activity no. (ii), the assessee has a dual responsibility in as much as it is a state nodal agency of Ministry of New and Renewable Energy (MNRE) required to popularize the usage of renewable energy sources (RES) and also a state designated agency required to implement the Energy Conservation Act, 2001 and promote and facilitate energy conservation measures.
10 ITA No. 159&202/JP/2015& 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
12. As per objectives of "Information, Education and Communication (IEC) Plan 2010-11" which were mass communication and public awareness for the use of RES and energy conservation, various tools like newspapers, brochures, leaflets, posters, magazines, television, FM radio, cinema slides, display boards etc. were deployed. The financial requirement for the same was assessed at Rs.100 lacs out of which Rs.44.54 lacs was to be provided by MNRE, Rs. 20 lacs by Bureau of Energy Efficiency (BEE) and remaining Rs. 35.46 lacs by assessee. The assessee, thus, incurred expenditure of Rs.29,17,461/- on account of "IEC Plan 2010-11" and claimed the same in its P&L a/c.
13. The AO made disallowance of Rs.29,17,461/- by holding that the expenditure has not been incurred wholly and exclusively in connection with the generation of electricity which is the business of the assessee, the expenditure is not incidental to the business of the assessee, the assessee is mixing application of income with the expenditure when it is a clear cut case of application of income, the expenditure neither has any business expediency nor it is diversion of income by overriding title and merely because something is included in the objects of the assessee cannot justify the allowability of claim u/s 37(1) of the IT Act, 1961.
14. The ld. CIT(A) deleted the disallowance by giving the following findings:-
"4.6 ....The appellant is the nodal agency of MNRE for popularizing the usage of renewable energy source (RES) and also the state designated 11 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
agency for energy conservation. This expenditure under the IEC plan has been incurred for generating public awareness about RES and energy conservation. A part of this expenditure was contributed by MNRE and other agencies while the balance amount has to be contributed by the appellant. It is this sum contributed by the appellant which has been disallowed by the assessing officer without understanding the nature of the business of the appellant and taking into consideration the revenue streams arising from these activities. Therefore, it is held that the above expenditure has been incurred for business purposes. In view of the above discussion, it is held that the disallowance made by the assessing officer of the above expenditure, is without any basis and is directed to be deleted."
15. During the course of hearing, ld. AR submitted that the assessee is engaged in the activity of sale of electricity generated through wind/solar based power projects and activity of providing assistance to various entrepreneurs for setting up power generation plants through non-conventional energy sources. The expenditure thus incurred by the assessee on mass communication and public awareness for the use of renewable energy sources and energy conservation under "IEC Plan 2010-11" is wholly and exclusively for the purpose of its business more so when the same is as per its object as stated in the MOA and the assessee is a state nodal agency of MNRE and also a state designated agency required for popularizing the use of renewable energy sources and promote energy conservation measures. The AO has not doubted the genuineness of the expenditure. Hence, the expenditure incurred by the assessee is allowable to it u/s 37(1).
12 ITA No. 159&202/JP/2015& 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
16. It was further submitted by the ld AR that due to the expenditure incurred by the assessee on such awareness programme, various entrepreneurs have come to Rajasthan for development and generation of electricity through non-conventional sources of energy from whom the assessee has received registration/processing fees on the plants installed by them which is a part of the receipt of Rs.31.66 crores credited to the P&L a/c. The AO has completely overlooked this revenue stream of the assessee in disallowing the expenditure.
17. We have heard the rival contentions and purused the material available on record. The expenditure under the IEC plan has been incurred by the assessee for generating public awareness about RES and energy conservation. The appellant is the nodal agency of MNRE for popularizing the usage of renewable energy sources and also the state designated agency for energy conservation. It is also a fact that assistance to various entrepreneurs for development and generation of electricity through non-conventional sources of energy is one of the stated objectives of the assessee company and it has been submitted that the assessee company has generated revenues worth Rs 31.66 crores by way of registration/processing fees during the year under consideration. The expenditure incurred on mass communication and public awareness for the use of the renewable energy sources and energy conservation has thus been incurred for the purposes of the business of the assessee company and is allowable under the provisions of section 37(1) of the Act. In the result, we affirm the order of the ld CIT(A) who has rightly deleted the disallowance made by the AO 13 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
towards expenditure under the IEC plan. The ground of appeal of revenue is thus dismissed.
18. In its ground no. 4, the Revenue has challenged the deleting of addition of Rs. 34,29,607/- made by the AO towards expenses on Rural Village Electrification (RVE) 2010-11. The ld AR submitted that the State Government of Rajasthan, as an owner of the assessee, directed it to bear 5% share of the cost of systems and cost on account of replacement of batteries of the 'home lighting systems' under the "Rural Village Electrification (RVE) 2010-11" program of Ministry of New and Renewable Energy (MNRE). The object of the program was to provide electrification/lighting through renewable energy sources in un- electrified hamlets of the State of Rajasthan. Accordingly, the assessee, on directions of the State Government of Rajasthan and being a nodal agency of MNRE required to popularize the usage of renewable energy sources incurred expenditure of Rs.34,29,607/- and claimed the same in the P&L a/c.
19. The AO disallowed the expenditure by holding that the expenditure has not been laid out wholly and exclusively in connection with the business of generation of renewable energy or generating electricity from solar/wind-mill.
20. The relevant finding of the ld CIT(A) which are reproduced as under:-
"4.3.1 I have perused the facts of the case, the assessment order and the submissions of the appellant. The appellant is engaged in 14 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
the business of generating electricity from wind farms and solar energy. Also, the assessee is engaged in the promotion of non conventional energy in the State of Rajasthan and has been appointed as a nodal agency by Ministry of Non Renewable Energy (MNRE), Bureau of Energy Efficiency (BEE) and State Designated Agency (SDA) to conduct programmes at the state level to encourage and promote non conventional energy and usage of renewable energy source (RES) including generation of electricity from bio-mass and to promote and facilitate measures of energy conservation. The appellant receives service charges for promoting these activities and/or income in the nature of application, registration and processing fees from persons setting up units for generating non conventional energy.
4.3.2 The assessing officer has disallowed the above expenditure u/s 37(1) by holding that this expenditure has not been made in connection with business of the assessee viz generation of electricity and is not diversion by overriding title. The assessing officer has overlooked that the appellant is the nodal agency for MNRE and BEE for promotion of non conventional and renewable energy as well as for promotion of energy conservation. The assessing officer has totally overlooked the revenue streams arising from the above activities while deciding that these expenditures have not been incurred for business purposes. The issue relating to diversion by overriding title does not arise in this matter in deciding the allowability of the above expenditure u/s 37(1) and also the case law of CIT Vs. Sitaldas Tirathdas 41 ITR 367 (SC), cited repeatedly by the assessing officer has no relevance to the issue at hand. The assessing officer has not doubted the genuineness of the expenditure incurred.
4.3.3 The expenditure on account of Rural Village Electrification (RVE) for F.Y. 09-10, 10-11 and RVE travelling and vehicle expenses has been incurred in accordance with the programmes of MNRE relating to renewable energy (for which the appellant is a nodal agency for the State of Rajasthan). The appellant has earned income from service charges as well as from application, processing and registration fees from new applicants. Therefore, it is held that the above expenditure have been incurred for business purposes. As regards, the expenditure on RVE for F.Y. 15 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
2009-10, the Assessing Officer has also stated that this expenditure relates to an earlier previous year and is in the nature of prior period expenses. The ITAT has held in the case of Rajasthan Sahkari Kray Vikray Sangh Ltd. for A.Y 2003-04, 2004- 05 and 2006-07 that prior period expenses are allowable especially in cases of government companies where approval of expenditure has to be taken from higher authorities before debiting the books which may take time leading to prior period expenses being booked in a later year. This system of accounting of expenditure has been regularly followed by the appellant. The genuineness of this expenses has not been doubted by the Assessing Officer. Nothing has been brought on record to show that there has been a distortion of profits or that the books of accounts do not reflect the correct picture. In view of the above discussion, it is held that the disallowances made by the Assessing officer of the above expenditure, is without any basis and is directed to be deleted. Ground No. 3,6 and 7 are allowed. "
21. During the course of hearing, the ld. AR submitted that the detailed findings given by the Ld. CIT(A) supra is relied upon. It was further submitted that MNRE has announced programmes from time to time to provide electrification/lighting through renewable energy sources. The assessee as a nodal agency has therefore incurred the expenditure on implementation of these programmes. For carrying out such programmes, assessee received service charges from MNRE. During the year, Rs. 24,80,363/- is received from MNRE towards service charges which is offered for tax. Therefore, once receipt is taxed, expenditure cannot be disallowed. In view of above, CIT(A) has rightly deleted the disallowance and thus the ground of the department be dismissed.
22. We have heard the rival contentions and purused the material available on record. The appellant has incurred an expenditure of Rs.16 ITA No. 159&202/JP/2015
& 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
34,29,607/- on directions of the State government towards the cost of systems and cost on account of replacement of batteries of the 'home lighting systems' under the "Rural Village Electrification (RVE) 2010-11"
program of Ministry of New and Renewable Energy (MNRE). The object of the program was to provide electrification/lighting through renewable energy sources in un-electrified hamlets of the State of Rajasthan. As we have noted above, the appellant is the state nodal agency of MNRE for popularizing the usage of renewable energy sources and as part of its stated business objectives, has incurred the subject expenditure. The expenditure has thus a direct linkage with the activities of the assessee company and has been incurred for the purposes of the business of the assessee company and is allowable under the provisions of section 37(1) of the Act. From perusal of assessment order, it is also noted that the assessee company has received Rs 33,50,000 as service charged for electrification of rural hamlets under the RVE Program 2010-11. It thus further strengthens the contention of the assessee company in terms of incurring the subject expenditure for its stated objectives and in respect of which revenues have also been generated during the year. In the result, we affirm the order of the ld CIT(A) who has rightly deleted the disallowance made by the AO towards expenditure under the REV 2010-11 program. The ground of appeal of revenue's appeal is thus dismissed.
23. In respect of ground No. 5, the Revenue has challenged the action of the ld CIT(A) in deleting the addition of Rs. 4,12,500/- made by the AO on bio mass fuel supply study expenses. The brief facts of the case are that during the year, Rajasthan Electricity Regulatory 17 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
Commission (RERC) in the matter of determination of tariff for sale of electricity from Juliflora based bio mass power plants in the State, directed the assessee, being the nodal agency to get the price and price trend of main bio-mass fuel in the State studied/surveyed and to submit a report to it. Accordingly, the assessee issued a work order to Dalkia Energy Service Ltd. for conducting the study. For conducting this study, assessee incurred expenditure of Rs.4,12,500/- on payment to Dalkia Energy Service Ltd. The AO observed that expenditure is capital in nature as assessee will get enduring benefit spread over years for its business on account of such study being a new line of business. Accordingly, he disallowed the claim of the expenditure.
24. The relevant finding of the ld CIT(A) are reproduced as under:-
"4.7 Ground No. 8 relates to disallowance of expenditure on biomass fuel supply study. The assessing Officer has held that this expenditure is capital in nature since biomass fuel supply is not related to the existing business of generation of electricity from solar power plant/windmill and that it is a new line of business. The appellant has stated that this is not a new line of business as it is engaged in the business of development of non conventional energy and renewable energy sources, for a long time. Based on this study, appellant has issued work orders to various applicants for which it has received application and processing fees. In view of above discussion, it is held that the above expenditure is not capital in nature and does not relate to a new line of business. It is held that this expenditure is revenue in nature and has been incurred for the purposes of business. In view of the above discussion, it is held that the disallowance made by the Assessing Officer of the above expenditure, is without any basis and is directed to be deleted. Ground No. 8 is allowed."18 ITA No. 159&202/JP/2015
& 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
25. During the course of hearing, ld. AR submitted that Government of Rajasthan issued a policy for promoting generation of electricity from bio-mass in February 2010. Accordingly, as directed by RERC vide order dt. 11.10.2010, the assessee as a nodal agency conducted the study through Dalkia Energy Service Ltd., New Delhi for which the above payment is made. Copy of letter dt. 28.07.2011 submitted by the assessee to RERC in this connection is at PB 183. Thus, the said expenditure is incurred by the assessee as a part of its object. This is not a new line of business as assumed by the AO in as much as assessee is already conducting the various studies for development of non-convention energy and renewable energy sources of which bio mass is a part. The cases relied by the AO are therefore not applicable. In these circumstances, the order of CIT(A) be upheld by dismissing the ground of the department.
26. We have heard the rival submissions and pursued the material available on record. Being the state nodal agency for development and promotion of renewable energy sources, the assessee, as instructed by Rajasthan State Regulatory Commission, has got a study done on biomass fuels price trend as part of determination of tariff for sale of electricity from Juliflora based biomass power plant in the state of Rajasthan. The AO has held that the expenditure is towards a new line of business as the assessee is engaged in the business of generation of electricity from solar power plant/wind mill and is thus enduring in nature. It is not the case of the appellant that it will start generating electricity from bio-mass fuel in future and has carried out the study in 19 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
that respect. The case of the appellant is that it is engaged in the business of promotion and development of non conventional energy and renewable energy sources and bio-mass energy is one such energy, the promotion of which has been taken up as part of the State policy. The expenditure on study of biomass is thus an expenditure undertaken as part of development and promotion of renewable energy sources in the State of Rajasthan. Further, the ld CIT(A) has given a finding that based on this study, appellant has issued work orders to various applicants for which it has received application and processing fees and the said finding remain uncontroverted before us. In the result, we are of the view that expenditure on the subject study is an expenditure incurred in the course of carrying out existing business of the assessee company and not in respect of new line of business, being the main contention of the AO to hold the expenditure as capital and enduring in nature. In the result, we upheld the order of the ld CIT(A) and confirm the deletion of subject expenditure. In the result, the subject ground of the revenue's appeal is disallowed.
27. In respect of ground No. 6 and 7 of Revenue's appeal, the Revenue has challenged the action of ld CIT(A) in deleting the addition of Rs. 92,00,000/- made by the AO on account of extension fee toward project No. 25/2004 and Rs. 71,00,000/- made by the AO on account of extension fee/cancellation fee in case of M/s RRB Energy and M/s Enercon (India) Ltd.
28. Brief facts of the case are that the assessee follows the mercantile system of accounting. However, as per the Significant 20 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
Accounting Policies, certain income is recognized only when actually received. One of such income is application/ processing/ registration/ extension/ land identification/accreditation fees [Refer Point No. (b)(ii) of Significant Accounting Policies] which is accounted for in the year in which the same is actually received. The extension fee is a charge levied on the entrepreneur for not commissioning the projects within the given time. However, before the levy of this fee, an opportunity is given to the entrepreneur to put forth its case before the Board and SLEC. These bodies may order for levy of extension fee which the entrepreneur may/may not pay as in some cases, the entrepreneur may opt for cancellation of the project.
29. For the year under consideration, the statutory auditor as per observation No. 7, 9 and 10 of its report stated that assessee should take appropriate action for recovery of extension fees of Rs.16 lacs from M/s Enercon (India) Ltd. (Note No. 7), Rs.55 lacs from M/s Vestas RRB Ltd. (Note No. 9) and Rs.92 lacs from M/s Enercon (India) Ltd. (Note No. 10) as they have not commissioned the project within schedule time. On the basis of these observation, AO observed that extension fees has become due to the assessee and as it is following accrual system of accounting, he made the addition of Rs.1,63,00,000/- (Rs.92 lacs + Rs.55 lacs + Rs.16 lacs). Being aggrieved, the assessee carried the matter in appeal which has deleted the said addition against which the Revenue is in appeal before us.
30. The relevant finding of the ld CIT(A) which are reproduced as under:-
21 ITA No. 159&202/JP/2015& 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
"6.3 I have perused the facts of the case, the assessment order and the submissions of the appellant. The assessing officer has added extension fee towards Project No. 25/2004 amounting to Rs.92 lacs and extension/cancellation fee for two other projects amounting to Rs.71 lacs. It has been held by the assessing officer that these incomes have not been accounted for by the assessee in spite of the fact that it follows a mercantile system of accounting. The appellant has explained that projects have to be commissioned within a given time. If the project is not commissioned within a given time, then the applicant is liable to pay extension fee/cancellation fee. Before the levy of this fee, an opportunity is given to the applicant to put forth its case before the Board and SLEC. These bodies may order for levy of extension fee which the entrepreneur may/may not pay as in some cases, the entrepreneur may opt for cancellation of the project. It has been stated by the appellant that only when such fees is realized from the applicant that the assessee shows it as income. The appellant has relied on accounting standard (AS-9) to substantiate its stand that income cannot be recognized unless it is measurable and there is a certainty about its realization. This has also been stated in the notes to accounts. The instance, cited by the assessing officer of the forfeiture of security deposit of M/s Enercon of Rs.4 lacs (wrongly typed as Rs.40 lacs) has been recognized as income by the assessee, upon its receipt. The Hon'ble Supreme Court of India in the case of CIT Vs. Shoorji Vallabhdas & Co. 46 ITR 144 (SC) has held that in any accrual system, the probability or improbability of realization has also to be considered in a realistic manner. In the case of Chainrup Sampatram Vs. CIT 24 ITR 481 (SC), the Hon'ble Apex Court held that while anticipated loss is taken into account, anticipated profit is not brought in account, as no prudent trader would care to show increased profit before its actual realization. In view of the above discussion and following the above judgments of the Apex Court, the above additions made by the assessing officer are directed to be deleted. Ground No. 9 & 10 are allowed."22 ITA No. 159&202/JP/2015
& 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
31. During the course of hearing, the ld. AR submitted that the findings given by CIT(A) is relied upon. Further, it was submitted that even in the accrual system of accounting, the fundamental accounting principle of prudence has to be followed. The principle of prudence requires that the revenue should not be recognized unless there is a reasonable certainty of its realization. Further, as per the accounting policy consistently followed by the assessee, extension fees is recognized, only when actually received. Since there is an uncertainty on the realization of the extension fees, the accounting policy so followed is in line with the principle of prudence. Therefore, such uncertain income cannot be brought to tax even under the mercantile system of accounting. In the subsequent assessment year 12-13/13- 14/14-15, the amount actually received has been offered for tax. The copy of ledger account for these A.Y.'s is at PB 184-188. Therefore, in view of the decision of Supreme Court in case of Excel Industries Ltd. 358 ITR 295 such amount cannot be added to the income of the assessee for the year under consideration.
32. We have heard the rival submissions and purused the material available on record. The issue under consideration relates to recognition of extension fee and cancellation fee in respect of certain specified projects as noted above. It is contended that as per the consistent accounting policy followed by the assessee company, such revenues are recognized only when actually received and the same is in consonance with AS-9 as well as well-accepted principle of prudence which has been recognized by the Courts from time to time as part of 23 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
accrual system of accounting. On perusal of the auditor's report, it is noted that in respect of Enercon India Ltd, it has been stated by the auditors that for the delay in commissioning a part of the project, the assessee company should take action to forfeit the security deposit or levy extension fees of Rs 16 lacs. Similarly, in respect of Vestas RRB Ltd, the auditors have stated that the assessee company should take appropriate action for recovery of extension fee of Rs 55 lacs. In respect of Enercon project (25/2004), it has been stated by the auditors that the matter relating to extension fee of Rs 92 lacs is still under consideration of the management and any accounting treatment shall be considered in the year of receipt as per the consistent accounting policy of the assessee company. In light of the same, these are projects where the action lies with the assessee company to initiate the process of levy of extension fees or the matter for levy of extension fee has been initiated but is currently under consideration. In terms of principle of prudence, unless and until there is certainty of realization, revenue cannot be recognized. In the instant case, there is clearly no certainty of realization as the action for levy of extension fees itself has not been initiated or pending consideration of the assessee company itself. Once the assessee company initiates the action for levy extension fees, various contractual factors are taken into consideration, the project owners are given an opportunity and they are heard and thereafter, extension fees is finally levied. In some cases, it has been explained that the applicant may opt for cancellation of the project instead of paying the extension fees. In the entirety of facts and circumstances of the case, we donot see any infirmity in the order of the ld CIT(A) who has rightly deleted the addition made by the 24 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
assessing officer. In the result, both the grounds taken by the Revenue are dismissed.
33. Now, we refer to ground No. 8 of the Revenue's appeal and ground no. 2 of the assessee's appeal which relates to deduction under section 80IA(4)(iv) of the Act. Brief facts of the case are that the assessee claimed deduction u/s 80IA(4)(iv) in respect of its power generating plants at Rs.3,20,31,386/-. In assessment proceedings, the AO observed that assessee has not proportionately allocated the indirect expenses on account of payment to and provision for employees at Rs.3,02,06,576/- and administrative, establishment and other expenses at Rs.4,76,62,463/-. He, therefore, allocated these expenses on proportionate basis to the sale of electricity to the total turnover and worked out such proportionate indirect expenses to 80IA units at Rs.2,98,62,118/-. He further observed that income on account of shortfall in generation amounting to Rs.22,83,281/- is not eligible for deduction u/s 80IA in view of the decision of Supreme Court in case of Liberty India Vs. CIT 317 ITR 218. Accordingly, he reduced Rs.3,21,45,399/- (2,98,62,118+ 22,83,281) from the deduction u/s 80IA claimed by the assessee at Rs.3,02,06,576/- and thus worked out the deduction u/s 80IA at Rs. Nil.
34. The Ld. CIT(A) after analyzing the expenditure observed that out of the administrative/establishment and other expenses, Rs.2,61,09,810/- pertains directly to the promotional activities of the appellant (income from promotional and other activity is Rs.38,84,12,326/-) and Rs.24,86,561/- is already allocated by the 25 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
assessee for working out the eligible profit of 80IA units. Accordingly, he held that out of the expenditure of Rs.4,76,62,463/-, after reducing the amount of Rs.2,61,09,810/-, the balance amount of Rs.1,90,68,091/- remains as a common expenditure under the head administrative/establishment and other expenses. He also considered expenditure on payment and provision to employees at Rs.3,02,06,576/- as the common expenditure. The aggregate of these two amounts totaling to Rs.4,92,74,667/- was directed to be apportioned between the turnover of power generating units to the total turnover of the assessee to work out the profit eligible for deduction u/s 80IA(4). He did not accept the contention of the assessee that no part of these expenditure can be allocated to the power generating business as the same has been outsourced. In respect of the income of Rs.22,83,281/- on account of shortfall in the generation, which is excluded by the AO for calculation of eligible profit u/s 80IA(4), no finding is given by the Ld. CIT(A). The relevant finding of the ld CIT(A) are reproduced as under:-
"7.3 I have perused the facts of the case, the assessment order and the submission of the appellant. The Assessing Officer observed that the assessee had deducted only direct expenditure in relation to sales from generation of electricity while claiming deduction u/s 80IA(4). The Assessing Officer held that indirect expenses in the nature of "payments and provisions for employees" amounting to Rs. 4,76,62,463/- and administrative, establishment and other expenses amount to Rs. 3,02,06,576/- had also to be deducted on a proportionate basis from the sales to arrive at the correct computation of profits & gains derived from this industrial undertaking for determining the correct deduction u/s 80IA(4). It has been stated byt he appellant that out of administrative establishment and other expenses of Rs.26 ITA No. 159&202/JP/2015
& 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
3,02,06,576/-; an amount of Rs. 24,84,561/- pertain directly to power projects and has been deducted accordingly, Further expenditure of Rs. 2,61,09,810/- on biomass fuel supply discount, IEC plan expenses, expenses relating to rural village electrification ( RVE), energy conservation contribution expenses pertain directly to the promotional activities of the appellant and cannot be apportioned on proportionate basis with power generation activity. This contention of the appellant is acceptable. Thereafter an amount of Rs. 1,90,68,091/- remains as the common expenditure under the head 'administrative/ establishment expenses' along with payment and provision to employees of Rs. 3,02,06,576/-. The above two expenditures totaling Rs. 4,92,74,667/-, needs to be apportioned between the power generation activities and promotional activities of the appellant. The contention of the appellant that this common expenditure is not relatable to the power generation business since it has been outsourced is not acceptable because these are indirect expenses in the nature of employee costs and administration, establishment expenses which would have been incurred for both the business of the appellant. The alternate submission of the appellant that this expenditure can be attributed to the power generation business only to the extent of 5% is without any basis. Also, the contention that this expenditure can be apportioned on gross profit basis is not correct because the appellant has not included depreciation while calculating he gross profit on cash basis. Therefore, the only reasonable basis for apportioning this expenditure is on the basis of turnover, as has been done by the Assessing Officer with the only difference being that this apportionment is to be done on common expenditure amounting to Rs. 4,92,74,667/-. This ground is partly allowed."
35. During the course of hearing, ld. AR submitted that the first issue in this ground is whether the expenditure on payment to employees and 27 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
administrative/establishment expenses needs to be allocated towards the power generating units and if so what should be the basis for such allocation. The second issue is whether deduction u/s 80IA(4) is available on the income received on account of shortfall in the generation of power.
36. In respect of the first issue, it was submitted that out of the seven power plants established by the assessee, four power plants are in the district of Jaisalmar and one each in the district of Rajsamand, Jodhpur and Jhunjhunu. All the plants have been given to the operators for operation and maintenance as per the agreement executed by them. As per the agreement, assessee is liable to pay specified amounts as per the generation of power for operating and maintaining expenses of the plant. Therefore, assessee is not required to employ any person for day to day operation of plant or to incur any other expenditure in relation to it. All the direct expenses relating to these power plants i.e. expenditure on operation and maintenance, repair and maintenance, interest and financial expenses, depreciation, insurance premium and lease rent aggregating to Rs.22,50,45,687/- has been considered by the assessee for working out the eligible profit of these power generating units. Therefore, no part of the expenditure on payment to employees and administrative/establishment expenses needs to be allocated against the power generating units.
37. So far as the expenditure of Rs. 3,02,06,576/- on account of payment and provision to employees are concerned, it was submitted that such expenditure is on account of other promotional activities of 28 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
the assessee against which assessee has declared an income of Rs.38,84,12,326/-. From the employee-wise details of the expenditure under this head, it can be noted that salary to the employees who are exclusively employed towards promotional activities is of Rs.2,56,29,076/-. Hence, this amount cannot be allocated towards the power project. The remaining salary of Rs.45,77,500/- is both towards the promotional activities and the power project. Therefore, only this amount of salary can at the most be allocated towards the power plants in the ratio of the turnover of the power plants to the total turnover of the assessee. The CIT(A) is not correct in allocating the entire expenditure on salary on proportionate basis instead of allocating only a part of such salary. If this amount of Rs.45,77,500/- is allocated in the ratio of the turnover, the expenditure relating to the power generating unit would be Rs.18,13,289/- (45,77,500*25,47,93,792/64,32,06,118). Before the CIT(A) assessee requested that considering the involvement of the employees towards power project only 5% of the salary i.e. Rs.15,10,329/- be considered in working out the deduction u/s 80IA. In these circumstances, considering the specific details, only an amount of Rs.18,13,289/- can be considered as expenses on salary attributable to the power generating undertakings.
38. So far as expenditure of Rs.4,76,62,462/- under the head administrative/establishment and other expenses is concerned, it was submitted that the Ld. CIT(A) rightly excluded the expenditure of Rs.2,85,94,371/- comprising of Rs.24,84,561/- which the assessee itself considered in working out the profit of power units and Rs.2,61,09,810/- which is directly related to the promotional and other 29 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
activities for which income of Rs.38,84,12,326/- has been declared by the assessee. From the balance expenditure of Rs.1,90,68,091/-, it can be noted that expenditure of Rs. 1 crores is on account of contribution given by the assessee for construction of Rajasthan Bhawan at Mumbai. This amount has already been disallowed by the AO in computing the total income and the same is confirmed by the CIT(A). Therefore, this amount cannot be again allocated otherwise it would amount to double disallowance. Further, this contribution has no relationship with the profit of the power generating undertakings and therefore also it cannot be allocated for working out the profits of power generating undertakings. After considering the same, the remaining expenditure is Rs.90,68,091/. These expenditure is in the nature of fees and subscription (Rs.10,43,010/-), legal and professional expenses (Rs.14,22,423/-), printing and stationary (Rs.10,53,995/-), contribution to state renewable fund (Rs.20 lacs) and other expenses like audit fees, electricity charges, fax, courier and photo state expenses, repairs of office equipments/building etc. These expenses have no relation with the power generating undertaking. Still the assessee on a fair basis requested the CIT(A) to consider only 5% of such expenses of Rs.90,68,091/- i.e. Rs.4,53,404/- as attributable to power generating units. However, the CIT(A) without any basis and without considering the nature of the expenditure held that the claim of the assessee is without any basis. This finding of the CIT(A) is not correct and therefore even if an allocation is to be made, it should be restricted to Rs.4,53,404/- only. If this contention of the assessee is not acceptable, then only the amount of Rs. 90,68,091/- can be allocated in the ratio of turnover of the power plants to the total turnover of the assessee which 30 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
would work out to Rs.35,92,151/-
(90,68,091*25,47,93,792/64,32,06,118).
39. So far as income of Rs.22,83,281/- on account of shortfall in the generation of electricity is concerned, it was submitted that the supplier of power plants has provided a net minimum guarantee generation per annum per MW. If there is any shortfall from the net minimum guarantee generation, assessee is entitled to shortfall in the generation. During the year assessee received Rs.22,83,281/- on account of shortfall in the generation of electricity on which it claimed deduction u/s 80IA. The AO, however, observed that deduction u/s 80IA is allowable only in respect of profits and gains derived from sale of power and therefore relying on the decision of Supreme Court in case of Liberty India Vs. CIT 317 ITR 218, he held that such income which is not derived from power generation business is not eligible for deduction u/s 80IA(4).
40. It was submitted that the shortfall in the generation of electricity is paid by the supplier of the plant due to shortfall in the minimum guaranteed generation of power units installed by it. These charges are thus nothing but the income from sale of power only, as it was the commitment of the supplier of the plant that the plant supplied by him would generate minimum guaranteed units of electricity. In case generation is less than fixed guaranteed unit, the supplier has fulfilled the shortfall by making payment of fixed amount per unit which is generated less. Hence, amount so received is nothing but the additional amount realized by the assessee in respect of the electricity generated 31 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
by its power plant. The amount so received is therefore the profit or gain derived by the power undertaking from the business of generation and distribution of power. In this connection, reliance is placed on the following cases:-
CIT Vs. Prakash Oils Ltd. 58 DTR 279 (MP):
The Hon'ble Court held as under:-
"6. As regards the 'Sauda' settlement income, it was held by the CIT(A) that during the course of the business the assessee has to sometimes pay/receive liquidation damages for not honouring a contract for sale of oil and deoiled cake. It held that the income is directly derived from the industrial undertaking, the same is eligible for deduction under s. 80-IA.
Thus, the finding of the CIT(A) was that the income in both the counts is a business income. The said order of CIT(A) has been affirmed by the Tribunal by holding that it is not an interest on FDR, short-term deposits on surplus funds or compulsory deposits in bank but is interest on delayed payment by trade debtors towards sale proceed. In the circumstances such interest received is a trading item and it has to be considered in manufacturing or trading account and it is, therefore, an income derived by the industrial undertaking. The Tribunal affirmed the decision of the CIT(A) in respect of deductions claimed on 'Sauda' settlement also and has held that the assessee has established that his profits and gains are derived from his industrial undertaking.
7. Having regard to the aforesaid finding of fact recorded by the CIT(A) affirmed by the Tribunal in our considered view, no question of law 32 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
much less substantial question of law arises in this appeal. We find no infirmity in the finding recorded by the two authorities below."
CIT Vs. Advance Detergents Ltd. 339 ITR 81 (2011)(Del.)(HC):
In this case Hon'ble High Court after considering the judgments of various Courts held that interest received by the assessee on overdue payment from the customers is to be considered as profits and gains derived from the industrial undertaking eligible for deduction u/s 80IA.
41. The AO in this connection has relied on the decision of Supreme Court in case of Liberty India Ltd. However, this case is not applicable on facts as it was a case in which it was held that the duty drawback receipt could not be said to be profits and gains derived from an eligible business. Thus, this case was concerned with an export incentive which is far removed from the reimbursement of an element of cost. As against this, in the subsequent decision of Supreme Court in case of CIT Vs. Meghalaya Steels Ltd. (2016) 383 ITR 217, after distinguishing the judgment of Liberty India Ltd., it was held that transport subsidy, interest subsidy, power subsidy and insurance subsidy are revenue receipts which are reimbursed to the assessee for elements of cost relating to manufacture and sale of its products. There is certainly a direct nexus between the profits and gains of the industrial undertaking or business and such subsidies. What is to be seen for the applicability of ss. 80-IB & 80-IC is whether the profits and gains are derived from the business. So long as profits and gains emanate directly from the business itself, the fact that the immediate source of the subsidies is the Government would make no difference, as it cannot be disputed that 33 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
the said subsidies are only in order to reimburse, wholly or partially, costs actually incurred by the assessee in the manufacturing and selling of its products. The "profits and gains" referred to in ss. 80-IB and 80- IC have reference to net profit. And net profit can only be calculated by deducting from the sale price of an article all elements of cost which go into manufacturing or selling it. Therefore, the amount received by the assessee as subsidies qualify for deduction u/s 80-IB & 80-IC. In view of this decision of Supreme Court, the amount received from the supplier of plant against shortfall in the generation of electricity is only to reimburse the cost relating to the generation and sale of electricity and therefore it has a direct nexus with the profit and gains of the power generating undertaking eligible for deduction u/s 80IA. In view of above, the AO be directed to allow the claim of deduction u/s 80IA on the amount of shortfall in the generation of electricity received by assessee.
42. We have heard the rival contentions and perused the material available on record. Undisputedly, the assessee is eligible for deduction under section 80IA(4)(iv) in respect of its seven wind and solar power plants established at various locations in Rajasthan. The AO while examining the quantum of deduction claimed by the assessee company, has observed that only direct operation and maintenance expenses have been considered and expenses of common nature i.e, head office and other day-to-day management and supervision expenses have not been apportioned amongst the units/plants claiming deduction under section 80IA of the Act. The AO invoked the provisions of section 80IA(5), relied upon the decision of the Coordinate Bench in case of 34 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
Nitco Tiles (30 SOT 474 Mum) and held that administrative, head office and other expenses have a direct nexus with the running of various eligible units. In our view, there cannot be any dispute that the provisions of section 80IA(5) are attracted in the instant case. At the same time, provisions of section 80IA(5) have to be read harmoniously along with the provisions of section 80IA(1) which provides for profits and gains derived from an eligible business.
43. In this regard, we refer to the decision of the Hon'ble Bombay High Court in case of Zandu Pharmaceuticals Works Ltd. vs. CIT reported in 350 ITR 366 wherein drawing support from the decision of Hon'ble Supreme Court in case of CIT v. Sterling Foods reported in 104 Taxman 204, it was held as under:
"13. The Supreme Court held that there must be for the application of the words "derived from" a direct nexus between the profits and gains and an industrial undertaking. Sections 80-I and 80-IA also use the expression "derived from". If there must be a direct nexus between the profits and gains and an industrial undertaking, it must follow equally that there must be a direct nexus between an industrial undertaking and the expenses which are sought to be apportioned/attributable to it. Expenses which do not relate to an industrial undertaking/unit under consideration and they relate to other units or to the head office of the assessee, cannot be taken into consideration while computing the deduction under the said provisions."35 ITA No. 159&202/JP/2015
& 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
In light of above, what is to be examined is whether there is proximate connection or direct nexus which has been established between the expenditure and the industrial undertaking in the instant case.
44. The expenditure under consideration falls under two broad baskets. The first expenditure relates to payment to and provision for employees amounting to Rs 3,02,06,576. In this regard, the ld AR has submitted that all the seven power plants have been given to the third party operators for operation and maintenance and the assessee is liable to pay specified amounts as per the agreement executed with them. Therefore, assessee is not required to employ any person for day-to- day operation and maintenance of these plants. It was further submitted that as far as the expenditure of Rs. 3,02,06,576/- on account of payment and provision to employees is concerned, it was submitted that from the employee-wise details of the expenditure under this head, it can be noted that salary to the employees who are exclusively employed towards promotional activities is of Rs.2,56,29,076/-. The remaining salary of Rs.45,77,500/- is both towards the promotional activities and the power projects which can at the most be allocated towards the power plants in the ratio of the turnover of the power plants to the total turnover of the assessee which comes to Rs 18,13,289/-. It is noted from details available on record at APB 189-190 that there are employees like financial advisor, Chief accounts officer, executive director, technical manager, project manager, etc which have been shown as performing work for both the promotional activities as well as activities relating to power plants. These are employees who are involved in the overall management and 36 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
supervision in technical and financial arena and employed at the Head office and thus have a direct nexus with the activities of the seven plants if not at the operational level but definitely at the strategic and management level. The salary expenses of Rs.45,77,500/- is thus required to be allocated to the eligible units in the ratio of their turnover to the total turnover of the assessee company. The AO is accordingly directed to allocate common expenditure of Rs 45,77,500 to the power units out of total expenditure of Rs. 3,02,06,576/- in the ratio of their turnover to the total turnover while working out the eligible profits under section 80IA of the Act.
45. Now coming to the second category of expenditure amounting to Rs.4,76,62,462/- which falls under the head administrative/establishment and other relates expenses. Out of the said expenditure, the expenditure of Rs.24,84,561/- has already been considered by the assessee while working out the profit of power units. Further, ld CIT(A) has held that an amount of Rs.2,61,09,810/- on biomass fuel supply discount, IEC plan expenses, expenses relating to rural village electrification (RVE), energy conservation contribution expenses pertain directly to the promotional activities of the appellant and cannot be apportioned on proportionate basis with power generation activity. The said finding of the ld CIT(A) remain uncontroverted before us. Thereafter, an amount of Rs. 1,90,68,091/- remains as the common head office expenditure under the head 'administrative/ establishment expenses'. In this regard, it was submitted that expenditure of Rs. 1 crores is on account of contribution given by the assessee for construction of Rajasthan Bhawan at Mumbai 37 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
and it has no nexus with the power units. Further, it was submitted that the balance amount of Rs 90,68,091/- again has no nexus but the assessee has offered to allocate 5% of the said expenditure before the ld CIT(A) and where the same is not acceptable, it was submitted that the same can be allocated in the ratio of turnover of the power plants to the total turnover of the assessee. We agree with the assessee's contention to restrict the pool of common expenses to Rs 90,68,091. Given the fact that these are common head office expenses relating to the activities in the nature of management and supervision at the Head office, they have a direct nexus with the activities of the seven plants at the strategic and management level. As we have directed earlier to allocate the salary expenses of the Head office employees, the common head office expenses are also directed to be allocated in the ratio of turnover of the power plants to the total turnover of the assessee company. In our view, this is the most rational and reasonable basis for allocation of common expenses in absence of anything more specific which has been brought on record. In any case, the pool of common expenses has been brought down to a large extent as the expenses which have a direct nexus with the promotional activities have already been excluded and the assessee has also accepted this allocation methodology. The AO is accordingly directed to allocate Rs 90,68,091 out of the total administrative/establishment expenses of 4,76,62,462/- to the power units in the ratio of their turnover to the total turnover while working out the eligible profits under section 80IA of the Act.
46. Regarding income of Rs 22,83,281, we find that the said income flows directly from the business of generation of power and is thus 38 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
eligible for deduction under section 80IA of the Act. It represent an amount which is received by the assessee from the supplier of the power plant for the shortfall in the minimum guaranteed generation of power. Had the power plant generated minimum guaranteed power during the year, the assessee would not have been eligible for such revenues. The revenues thus earned have a direct nexus with the running of the power plants and represent the minimum standard of performance of the power plants and compensate the assessee for any shortfall in the generation of minimum guaranteed power. Further, it is noted that similar issue has come up recently in case of Rajasthan State Mines and Minerals Pvt ltd (ITA No. 253/JP/15& Others) dated 30.05.2017 where we have held that such income as derived from the business of the undertaking. In the result, we are of the view that such income is eligible for deduction under section 80IA of the Act.
47. The respective grounds of appeal are disposed off accordingly.
48. Now coming to ground no. 1 of the assessee's appeal wherein the assessee has challenged the action of ld CIT(A) in confirming the disallowance of Rs. 1 crores in respect of contribution to Rajasthan Bhawan.
49. Brief facts of the case are that the Government of Rajasthan, as an owner of the assessee, directed it to contribute Rs.2 crores towards construction of 'Rajasthan Bhawan' at Mumbai. The Board of Directors of the company, accordingly resolved in its 65th Board meeting dated 13.12.2010 to provide an amount of Rs.2 crores for construction of 39 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
Rajasthan Bhawan at Mumbai of which Rs. 1 crores was paid in the year under consideration and balance Rs. 1 crores was to be paid as per the progress of the work. Accordingly, assessee claimed the same as expenditure u/s 37(1) of the Act.
50. The AO made the disallowance by holding that the expenditure so incurred by way of contribution to Rajasthan Bhawan is not wholly and exclusively for assessee's business of generation of renewable energy, the expenditure incurred is not with a view to bring profit or monetary advantage to the assessee and it is a clear cut case of application of income.
51. The ld CIT(A) confirmed the disallowance. The relevant findings of the ld CIT(A) are produced as under:-
" 5.3 I have perused the facts of the case, the assessment order and the submission of the appellant. The Assessing officer has disallowed contribution of Rs. Rs.1,00,00,000/- for Rajasthan Bhawan to be built in Mumbai on the ground that this expenditure is not related to the business of the assessee. The appellant has stated that this guest house has been constructed for the benefit of the employees of Rajasthan Government as well as for the employees of companies of the State Government of Rajasthan, as and when they visit Mumbai. The appellant has relied on the order ITAT, Jaipur in the case of Rajasthan State Industrial Development and Investment Corporation Ltd. (ITA No.324/JP/2006) and the order of ITAT, Jaipur in the case of Rajasthan State Road Development and Construction Corporation Ltd. (ITA No. 129/JP/2008). In these cases, expenditure had been incurred for a guest house in New Delhi for which a certain number of rooms had been earmarked for the respective assessee for use by its employees. In this case, 40 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
no rooms in the guest house in Mumbai have been earmarked for the employees of the appellant. Also, there does not appear to be any business connection of the appellant in Mumbai. In view of above, it does not appear to me that this expenditure has been incurred 'wholly and exclusively' for the purposes of the appellant's business. In view of above discussion, this disallowance made by the AO is upheld. This ground is dismissed."
52. During the course of hearing, the ld. AR submitted that the contribution so made by the assessee for construction of 'Rajasthan Bhawan' at Mumbai is on the directions of the State Government of Rajasthan, being the owner of the assessee. The assessee also requested the Government of Rajasthan to provide accommodation facilities to its officers in the Rajasthan Bhawan. The observation of the lower authorities that the expenditure so incurred is not wholly and exclusively for assessee's business is incorrect in as much as by incurring such expenditure, assessee has the ease of doing the business. In case of Hindustan Petroleum Corporation Ltd. Vs. DCIT 96 ITD 186 (Mum.) where the assessee was a company owned by the Government of India and working under the control and direction of the Government of India, incurred expenditure on 20 point programmes in view of specific direction of Government of India. It was held that it cannot but be in the business interest of the assessee company to abide by the directions of the government of India which also owns the assessee company. Monies spent by the assessee as a good corporate citizen and to earn the goodwill of the society help creating an atmosphere in which the business can succeed in a greater measure with the help of such goodwill. The monies so spent, therefore, are 41 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
required to be treated as business expenditure eligible for deduction u/s 37(1). Even if an expense is incurred voluntarily, it may still be construed as 'wholly and exclusively. Just because the expenses are voluntary in nature and are not forced on the assessee by a statutory obligation, these expenses cannot cease to be business expenditure.
53. In the present case also, expenditure is incurred on the directions of the Government with which assessee has to closely interact for its day to day business activities. Therefore, in the business interest, assessee has contributed such amount and a request is also made to provide the accommodation facility to its officers in the Rajasthan Bhawan. The Ld. CIT(A) has incorrectly held that the decision of Hon'ble ITAT in case of RIICO Ltd. and RSRDC Ltd. is not applicable as in those cases certain rooms were earmarked for the use of its employees for the guest house in New Delhi ignoring that in those cases also contribution was made as per the direction of the Government and it make no difference whether the rooms are earmarked or not. In this decision, a finding is given that the same was required only for running the business and working of the assessee for better interaction with the Government of India and various financial organizations. Copy of the decision in case of ACIT Vs. RIICO in ITA No. 324/JP/2006 order dated 21.08.2007 is at PB 205-213. Hence, the expenditure so incurred is allowable expenditure u/s 37(1). In view of above, the disallowance made by the AO and confirmed by the CIT(A) be directed to be deleted.
42 ITA No. 159&202/JP/2015& 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
54. The ld DR has vehemently argued the matter and relied upon the order of the lower authorities.
55. We have heard the rival contentions and pursued the material available on record. It is not disputed that the contribution towards construction of Rajasthan Bhawan has been made as directed and authorized by the State Government, being the owner and shareholder of the assessee company. The question is therefore not about the authorization before incurrence of the said expenditure. The question is whether the said expenditure has been incurred by the assessee company for the purposes of its business or not. The onus is on the assessee company to establish the said fact. The ld AR has submitted that the assessee company has written to the Government of Rajasthan to provide accommodation facilities in the Rajasthan Bhawan to its officers on their visit to Mumbai, however, there is nothing on record to support the said contention. We are accordingly setting aside the matter to the file of the AO to examine the said contention and the examine the matter a fresh. In the result, the ground of the assessee is allowed for statistical purposes.
Revenue's appeal ( ITA No. 125/JP/17) In its appeal for AY 2010-11, the Revenue has taken following grounds of appeal:
"1. Whether on the facts and circumstances of the case and in law, the ld. CIT(A) was justified in deleting the addition of Rs. 3,95,066/- made by the AO for depositing the employee's contribution to PF beyond the prescribed time limit provided in respective Acts.43 ITA No. 159&202/JP/2015
& 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
2. Whether on the facts and circumstances of the case and in law, the ld. CIT(A) was justified in holding that employee's contribution to PF & ESI are governed by the provision of section 43B and not by section 36(1)(va) r.w.s. 2(24)(x) of the I.T. Act.
3. Whether on the facts and circumstances of the case and in law, the ld. CIT(A) was justified in holding contribution of Rs. 80,00,000/- to State Renewal Fund as an allowable expenditure though it is not an actual expenditure."
56. The relevant finding of the ld. CIT(A) which are under challenge are reproduced as under:-
"3.3 I have perused the facts of the case, penalty order and the submissions of the appellant. Admittedly, employee's contribution to ESI and PF has been paid by the appellant, in all instances, before the date of filing the return of income u/s 139(1). This fact is therefore, not in dispute. In view of the judgments of the Rajasthan High Court in the case Jaipur Vidhyut Vithran Nigam Ltd, 265 CTR 62 (Raj.), CIT Vs. Stae bank of Bihaner & Jaipur (2014) 99 DTR 131 (Raj.) and ITAT, Jaipur, in the case of the assessee, the claim of the appellant is allowable. Accordingly, the disallowance made by the Assessing Officer is directed to be deleted. This ground is allowed."
"6.3 I have perused the facts of the case, penalty order and the submissions of the appellant. In Assessment Year 2011-12, the CIT(A)-2, Jaipur (Appeal No. 334/13-14) has also decided the matter in favour of the assessee. The CIT(A) has allowed the claim of the assessee by holding as under:
"The facts of this issue are similar to the facts in the case of M/s Rajasthan State Seeds Corporation Ltd., in A.Y. 2006-07. In this 44 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
case, the ITAT, Jaipur (in ITA No. 233/JP/2009) has decided the matter in favour of the assessee by holding as under:-
"As per the memorandum of state renewal fund set up by the state government, it is created with the object of providing a safety net for the workers likely to be affected by restructuring in the State Public Enterprises. We are thus of the view that contribution made to the said fund is solely for the purpose of the welfare and benefit of the employees. The Rajasthan High Court in case of CIT V. Rajasthan Spinning and Weaving Mills Limited 274 IT 465 has observed that it is for the assessee to decide whether any expenditure should be incurred in course of business. The expenditure can be incurred voluntarily and without in course of business. The expenditure can be incurred voluntarily and without necessity. Any contribution made by the assessee to a public welfare fund which is connected or related with his business is an allowable deduction u/s 37. Again the court in the case of CIT V. Shri Rajasthan Syntex Limited 221 CTR 410 (Raj.) held that where assessee gave contribution to the employees welfare fund, the same is allowable as business expenditure. The case relied by AO of CIT V. Jodhpur Co-operative marketing society 275 ITR 372 (raj.) is distinguishable as in this case the amount was set apart for the shareholders of the society whereas in the present case amount was provided for the benefit of the employees. In view of this the contribution made to state renewal fund is allowable u/s 37(1)."
2.3.2 Following the above judgment, the disallowance on account of contribution to State Renewal Fund of Rs. 20,00,000/- made by the Assessing Officer is directed to be deleted. This ground is allowed."
Following the above judgment, the disallowance on account of contribution to State Renewal Fund of Rs. 80,00,000/- made by the Assessing Officer is directed to be deleted. This ground of appeal is allowed."
45 ITA No. 159&202/JP/2015& 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
57. In ITA No. 202/JP/15 for AY 2011-12, similar grounds of appeal have been raised by the Revenue and after examining the matter in great detail, we have dismissed these grounds of appeal. Our findings and directions contained in ITA No. 202/JP/15 shall apply mutatis mutandis to this appeal as well. The appeal of the Revenue is thus dismissed.
Assessee's appeal (ITA No. 95/JP/16) In its appeal for AY 2008-09, the assessee has taken following grounds of appeal:
1. The learned Commissioner of Income Tax (Appeals) has erred on facts and in law in not allowing claim of deduction of Rs.
579589/- of FDR Interest u/s 80IA(4) of the Income Tax Act, 1961 by holding that no direct nexus and earning of interest is not directly relating to the business for which exemption is available.
2. The learned Commissioner of Income Tax (Appeals) has erred on facts and in law and its own presumptions and ignoring the facts not fully allowing the claim of deduction of Administrative Establishment & other Expenses and payment & Provision for employees U/s 80IA(4) of Income Tax Act, 1961."
58. In respect of ground No. 1, the assessee has challenged the action of the ld CIT(A) in not allowing the claim of deduction of Rs. 5,79,589/- of FDR interest u/s 80-IA of the Act by holding that earning of interest is not directly related to the business for which exemption is available and in ground no. 2, in not fully allowing the claim of deduction of administrative, establishment and other expenses and payment & provision for employees u/s 80-IA of the Act.
46 ITA No. 159&202/JP/2015& 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
59. Brief facts of the case are that the assessee claimed deduction u/s 80-IA(4)(iv) in respect of its power generating undertakings at Rs.2,85,07,321/-. In the original assessment proceedings, the claim was allowed. However, the case was reopened u/s 147 on the ground that assessee has claimed deduction u/s 80-IA on FDR interest and has not apportioned various head office and other day-to-day management & supervision expenses amongst the units claiming u/s 80-IA of the Act. In reassessment proceedings, AO held that FDR interest of Rs.5,79,589/- is not income derived from/ connected with the eligible business of the assessee and therefore deduction u/s 80-IA on such income was disallowed. He further observed that assessee has not proportionately allocated the indirect expenses on account of payment to and provision for employees at Rs.1,76,54,963/- and administrative, establishment and other expenses at Rs.77,41,983/-. He, therefore, allocated these expenses on proportionate basis to the sale of electricity to the total turnover and worked out such proportionate indirect expenses to 80-IA units at Rs.1,67,77,241/- and thus worked out the claim of deduction u/s 80IA at Rs. 1,17,30,080/- as against Rs.2,85,07,321/- claimed by the assessee.
60. The ld. CIT(A) upheld the findings of the AO in not allowing the interest on FDR by holding that there is no direct nexus of earning of interest with the business for which exemption is available. Thereafter at Para 3.3, by relying on the decision given in AY 2011-12, he worked out the proportionate administrative, establishment & other expenses and payment & provision for employees at Rs.1,43,94,207/- and 47 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
directed to reduce this amount from the deduction u/s 80-IA claimed by the assessee. This was done on the basis that Rs.6,88,786/- out of administrative, establishment & other expenses pertains directly to the promotional activities of the appellant (income from promotional and other activity is Rs.13,46,08,444/-) and Rs.29,18,588/- is already allocated by the assessee for working out the eligible profit of 80-IA units. Accordingly, he held that out of the expenditure of Rs.77,41,983/, after reducing the amount of Rs.36,07,374/- (6,88,786 + 29,18,588) the balance amount of Rs.41,34,609/- remains as a common expenditure under the head administrative/establishment and other expenses. He also considered expenditure on payment and provision to employees at Rs.1,76,54,963/- as the common expenditure. The aggregate of these two amounts totaling to Rs.2,17,89,572/- was directed to be apportioned between the turnover of power generating units to the total turnover of the assessee to work out the profit eligible for deduction u/s 80-IA(4). He did not accept the contention of the assessee that no part of these expenditure can be allocated to the power generating business as the same has been outsourced. The relevant finding of the ld. CIT(A) are reproduced as under:-
"2.3 I have perused the facts of the case, the assessment order and the submission of the appellant. The Company has taken a loan from the financial institution (PFC) and as per terms and conditions of the agreement executed between them, company was required to maintain a escrow account, wherein receipt of power sales will be credited and out of that credit, company will pay quarterly installment to the institution as considered the first charges on that credit of the financial institution.48 ITA No. 159&202/JP/2015
& 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
The company has made the fixed deposit on short terms basis till the installment are due and earned the interest on such surplus funds during the year and claimed such interest income for deduction u/s 10A form the eligible business. During the year under consideration this amount has been claimed that Rs. 5,79,589/-. In support of allowability of this interest the assessee has placed reliance on the following decisions, as appearing, in the assessee's submission at para 5 above.
In the case of CIT vs Advance Detergents 2011-339 ITR 81 (Del) which the assessee has relied on to say that interest received from trade debtors in entitled for deduction u/s 80IA, in the same decision specific finding has been given relating to interest to FDR's wherein it has been held that interest on FDRs would not be entitled in view of the judgment of the same court in CIT Vs Sriram Honda Power equipment 289 ITR 475. Since in the case of the assessee the interest has accrued from the FDR in the escrow account and not from the trade debtor hence the finding of the court has been wrongly taken by the assessee as in its favour. The other judgment at (c,d,e,& f) are on difference issue like sale of empty container, duty drawback, service charges etc. In the present proceedings, submissions are made to consider it as derived exclusively from eligible business income. Since there is no direct nexus and earning of interest is not directly related to the business for which exemption is available, the stand of the Assessing Officer is confirmed. For the above decision Reliance is placed on the decision in 59 Taxmann.com 32 (Madras) International Components India Ltd. Vs. ACIT wherein it is held that "interest earned by the assessee from deposits with Bank, electricity Board and on staff advances which did not have an immediate nexus with its business undertaking, grant of interest under section 10B was a mistake apparent from record and, hence, intimation under section 143(1) was rectifiable under section 154. On this ground the appeal is dismissed. "
"3.3 This issue is covered by the order of my predecessor CIT(A)-2 Dt. 15.12.2014 for the assessment year 2011-12. For the current year, the 49 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
amount is arrived at Rs 14394207. In the result, the ground is partly allowed. "
61. During the course of hearing the ld. AR submitted that the first issue in this case is whether deduction u/s 80-IA is allowable to the assessee on FDR interest or not. The assessee has taken a loan from power finance corporation (PFC) for establishment of windmill and as per the terms and conditions of the agreement, assessee was required to maintain a escrow account wherein receipt of power sales is to be credited and out of that credit, it is to pay quarterly installment of repayment of loan to PFC. PFC has first charge on the amount lying in this account. The assessee made fixed deposit on short term basis till the installments are due and earned interest on such amount for which deduction u/s 80-IA is claimed. This fact is admitted by CIT(A) at Para 2.3 of the order but still she wrongly held that it is not derived exclusively from the eligible business income. In doing so, it was ignored that the interest of Rs.5,79,589/- is earned by the assessee only on the funds received from sale of power of windmill which temporarily remained unutilized and such interest receipt has reduced the interest burden paid on loan taken from PFC. Thus, such interest is derived exclusively from the eligible business. It is pertinent to note that assessee has also earned interest on FDR of Rs.2,53,99,995/- but the same is not considered by the assessee himself as derived from the eligible business for claiming deduction u/s 80-IA. Reliance in this connection is placed on the following cases:-
ITO Vs. Hiranandani Builders (2015) 128 DTR 97 (Mum.) (Trib.) 50 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
Assessee received lease deposits from the lessees which are required to be returned to them upon vacating the premises. Since the possibility of vacating the premises in the middle is always there, as a prudent business policy, the assessee was constrained to keep part of the lease deposits as fixed deposits maintained with banks. Since the lease rental income is the primary source of income of the assessee, retention of refundable security deposits received from lessees in fixed deposits forms integral part of its business of operation of Information Technology Parks and SEZ. Therefore, interest received on such FDRs qualifies for deduction u/s 80-IA. Alternatively, said interest income should be netted of against the interest expenditure as the assessee was constrained to keep part of such lease deposits as fixed deposits in view of the nature of its activities instead of using the same for business purpose including repayment of loan.
Nirma Industries Vs. DCIT 283 ITR 402 (Guj.) (HC) The head note of the decision is as under:-
Deduction under s. 80-I--Profits and gains derived from industrial undertaking--Interest received from trade debtors for late payment of sales consideration--Assessable under the head 'Profits and gains of business or profession'--In fact, the computation commences by taking profit as per the statement of income filed along with the return-- Therefore, the same item of receipt cannot be treated differently once while computing the gross total income, and secondly at the time of computing deduction under s. 80-I--Distinction drawn by the Revenue between the source of sale proceeds and the source of interest is erroneous in law--In principle there is no distinction as to the source--51 ITA No. 159&202/JP/2015
& 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
Therefore, interest paid by the debtors for late payment of the sale proceeds cannot be excluded from eligible income for the purpose of computing relief under s. 80-I. The decision relied by the Ld. CIT(A) in case of International Components India Ltd. Vs. ACIT 59 taxmann.com 32 (Madras) is not applicable in as much as in that case interest was earned from bank deposit, electricity board and staff advance which has no nexus with its business undertaking whereas in the present case interest earned has immediate nexus with the business undertaking as explained above.
62. The second issue in this ground is whether the expenditure on payment to employees and administrative/establishment expenses needs to be allocated towards the turnover of the power generating unit to the total turnover of the assessee and if so what should be the basis for such allocation. On this issue it is submitted that out of the seven power plants established by the assessee, four power plants are in the district of Jaisalmar and one each in the district of Rajsamand, Jodhpur and Jhunjhunu. All the plants have been given to the operators for operation and maintenance as per the agreement executed by them.
As per the agreement, assessee is liable to pay specified amounts as per the generation of power for operating and maintaining expenses of the plant. Therefore, assessee is not required to employ any person for day to day operation of plant or to incur any other expenditure in relation to it. All the direct expenses relating to these power plants i.e. expenditure on operation & maintenance, repair & maintenance, interest & financial expenses, depreciation, insurance premium and 52 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
lease rent aggregating to Rs.21,56,56,752/- has been considered by the assessee for working out the eligible profit of these power generating units. Therefore, no part of the expenditure on payment to employees and administrative/establishment expenses needs to be allocated against the power generating units.
63. It was further submitted that so far as the expenditure of Rs.1,76,54,963/- on account of payment and provision to employees are concerned, such expenditure is on account of other promotional activities of the assessee against which assessee has declared an income of Rs.13,46,08,444/-. From the employee wise details of the expenditure under this head enclosed herewith, it can be noted that salary to the employees who are exclusively employed towards promotional activities is of Rs.1,59,96,821/-. Hence, this amount cannot be allocated towards the power project. The remaining salary of Rs.16,58,142/- is at the most can be considered both towards the promotional activities and the power project. Therefore, only this amount of salary can at the most be allocated towards the power plants in the ratio of the turnover of the power plants to the total turnover of the assessee. The CIT(A) is not correct in allocating the entire expenditure on salary on proportionate basis instead of allocating only a part of such salary. If this amount of Rs.16,58,142/- is allocated in the ratio of the turnover, the expenditure relating to the power generating unit would be Rs.10,95,370/- (16,58,142*24,36,63,774/36,88,51,807). Before the CIT(A) assessee requested that considering the involvement of the employees towards power project, only 5% of the salary i.e. Rs.8,82,748/- be considered in working out the deduction u/s 80IA. In 53 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
these circumstances, considering the specific details, only an amount of Rs.10,95,370/- can be considered as expenses on salary attributable to the power generating undertakings.
64. It was further submitted that so far as expenditure of Rs.41,34,609/- under the head administrative/establishment and other expenses is concerned, these expenditures are in nature of fees and subscription (Rs.6,92,349/-), legal and professional expenses (Rs.2,15,777/-), printing and stationary (Rs.3,29,408/-) and other expenses like audit fees, electricity charges, fax, courier and photo state expenses, repairs of office equipments/building etc. These expenses have no relation with the power generating undertaking. Still the assessee on a fair basis requested the CIT(A) to consider only 5% of such expenses of Rs.41,34,609/- i.e. Rs.2,06,730/- as attributable to power generating units. However, the CIT(A) without any basis and without considering the nature of the expenditure held on the basis of his finding in AY 2011-12 that the claim of the assessee is without any basis. This finding of the CIT(A) is not correct and therefore even if an allocation is to be made, it should be restricted to Rs.2,06,730/- only. In view of above, the AO be directed to rework out the claim of deduction u/s 80-IA in light of the submission given above.
65. The ld DR is heard who has relied upon the order of the lower authorities.
66. We have heard the rival contentions and perused the material available on record. The Ld A.R contended before us that assessee was 54 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
required to maintain a escrow account wherein receipt of power sales is to be credited and out of that credit, it is to pay quarterly installment of repayment of loan to PFC. PFC has first charge on the amount lying in this account. The assessee made fixed deposit on short term basis till the installments are due and earned interest on such amount for which deduction u/s 80-IA is claimed. However, the moot point is that the deduction u/s 80-IA is allowed in respect of "Profits and gains" derived from the eligible undertaking. As explained by the Hon'ble Supreme Court in the case of CIT v. Sterling foods reported in 237 ITR 579, for application of the words "derived from", there must be a direct nexus between the profits and gains and the undertaking. In the instant case, the nexus of interest income with the business of the undertaking is not direct but incidental. The source of interest income is only bank deposits. The instant case is similar to a situation where interest is earned on fixed deposits which are placed with banks for the purposes of availing credit facilities from the bank wherein the Courts from time to time have held that such interest income does not have an immediate nexus with the business of the undertaking. The decision of Hon'ble Delhi High court in case of CIT Vs Sriram Honda Power equipment 289 ITR 475 which has since been affirmed by the Hon'ble Supreme Court support the stand of the Revenue. The decisions cited by the ld AR doesn't support the case of the assessee. Hence, in our view, the Ld CIT(A) was right in law in rejecting the claim of deduction u/s 80-IA of the Act in respect of interest income.
Regarding allocation of employee costs and administrative/establishment expenses are concerned, we have dealt 55 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
with the issue in AY 2011-12 in great detail. Following the same, common head office expenses pertaining to employees has been stated to be Rs 16,58,142 and pertaining to administrative/establishment expenses comes to Rs 41,34,609. The AO is accordingly directed to allocate these common head office expenses to the power generating units in the ratio of their turnover to the total turnover of the assessee company. The grounds of appeal are disposed off with above directions.
Assessee's appeal (ITA No. 96/JP/16) In its appeal for AY 2009-10, the assessee has taken following grounds of appeal:
1. The learned Commissioner of Income Tax (Appeals) has erred on facts and in law in not allowing claim of deduction of Rs.
2,73,48,665/- on shortfall in generation, low generation and stock carbon financial instruments u/s 80IA(4) of the Income Tax Act, 1961.
2. The learned Commissioner of Income Tax (Appeals) has erred on facts and in law in not allowing claim of deduction of Rs. 62,45,945/- of sell of carbon financial instrument (CFI) in u/s 80IA(4) of the Income Tax Act, 1961.
3. The learned Commissioner of Income Tax (Appeals) has erred on facts and in law and on its own presumption and ignoring the facts not fully allowing the claim of deduction of Administrative Establishment & other Expenses and Payment & Provision for employees u/s 80IA(4) of Income Tax Act, 1961."
Revenue's appeal ( ITA No. 87/JP/16) 56 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
In its cross-appeal for AY 2009-10, the Revenue has taken following sole ground of appeal:
"1. Whether on the facts and in the circumstances of the case and in law, the CIT(A) has erred in restricting the disallowance u/s 80IA(4)(i) from Rs. 2,50,95,465/- to Rs. 2,31,13,978/-."
67. Brief facts of the case are that the assessee claimed deduction u/s 80-IA(4) in respect of its power generating undertakings at Rs.17,67,94,304/-. In the original assessment proceedings, claim was allowed. However, the case was reopened u/s 147 on the ground that assessee has claimed deduction u/s 80-IA on income such as shortfall in generation, low generation & stock of Carbon Financial Instruments Rs.2,73,48,665/- and other receipts of Rs.62,45,945/- by incorrectly treating it as profit derived from eligible business and has not apportioned various head office and other day-to-day management & supervision expenses amongst the units claiming u/s 80-IA of the Act.
68. In reassessment proceedings, the AO observed that income on account of shortfall in generation, low generation, stock Carbon Financial Instruments of Rs.2,73,48,665/- and other receipts (sale of Carbon Financial Instruments) of Rs.62,45,945/- is not income derived from/ connected with the eligible business of the assessee and therefore deduction u/s 80-IA on such income was disallowed. He further observed that assessee has not proportionately allocated the indirect expenses on account of payment to and provision for employees at Rs.2,97,08,935/- and administrative, establishment and other expenses at Rs.88,61,651/-. He, therefore, allocated these 57 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
expenses on proportionate basis to the sale of electricity to the total turnover and worked out such proportionate indirect expenses to 80-IA units at Rs.2,50,95,465/- and thus worked out the claim of deduction u/s 80-IA at Rs. 11,81,04,229/- as against Rs.17,67,94,304/- claimed by the assessee.
69. The Ld. CIT(A) by relying on the decision given in AY 2011-12 upheld the findings of the AO on account of shortfall in generation, low generation, stock Carbon Financial Instruments by holding that the income relates to penalties imposed on the seller by the assessee company if the machines do not deliver as per the promised performance. These cannot be said to be directly derived from business of power generation and do not have first degree nexus with the eligible business. Thereafter, he held that Carbon Financial Instruments are akin to import entitlements like duty drawback and on such revenue receipts, deduction u/s 80-IA cannot be given in view of the decision of Supreme Court in case of Liberty India Ltd. Thereafter, by relying on the decision given in AY 2011-12, he worked out the proportionate administrative, establishment & other expenses and payment & provision for employees at Rs.2,31,13,978/- and directed to reduce this amount from the deduction u/s 80-IA claimed by the assessee. This was done on the basis that Rs.5,27,172/- out of administrative, establishment & other expenses pertains directly to the promotional activities of the appellant (income from promotional and other activity is Rs.12,01,48,172/-) and Rs.33,02,080/- is already allocated by the assessee for working out the eligible profit of 80-IA units. Accordingly, he held that out of the expenditure of Rs.88,61,651/-, after reducing 58 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
the amount of Rs.38,29,252/- (5,27,172 + 33,02,080), the balance amount of Rs.50,32,399/- remains as a common expenditure under the head administrative/establishment and other expenses. He also considered expenditure on payment and provision to employees at Rs.2,97,08,935/- as the common expenditure. The aggregate of these two amounts totalling to Rs.3,47,41,334/- was directed to be apportioned between the turnover of power generating units to the total turnover of the assessee to work out the profit eligible for deduction u/s 80-IA(4). He did not accept the contention of the assessee that no part of these expenditure can be allocated to the power generating business as the same has been outsourced.
70. The relevant finding of the ld. CIT(A) which are reproduced as under:-
"2.3 I have perused the facts of the case, the assessment order and the submissions of the appellant. The assessee has included the other income, on account of shortfall in generation, low generation, amounting to Rs. 2,73,48,665/- which also includes stock of carbon financial instruments of Rs. 40,00,000/- as eligible income for deduction u/s 80IA. The deduction u/s 80IA has been denied by the Assessing Officer holding that these incomes cannot be said to be 'derived from' the power generation income and has placed reliance on the decision of the Apex Court in the case of Liberty India vs. CIT 317 ITR 218 (SC).
The assessee in its written submissions, stated that the shortfall/low generation are being taken under the Group head 'application/ processing/registered fees & others'.
The AR was asked to explain the exact nature of income under this head. The AR stated that the company has awarded all the 59 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
power plants for operation and maintenance and generation of power to the Vendors/ operators as per agreement executed between them. "As per execution of the agreements, operators/vendors, who is/are operate to the power plants, company has executed a assurance in the agreement that the venders/awards that installed power plant will generate a minimum power generation on a particular wind flow in a specified area at where power plants are installed. As per the execution of agreement, between the company and power plant operators, if that power plant will not operate or generate a minimum assured power generation, then the operator will compensate for such fall of generation of power. Such minimum generation is considered on the basis of wind flow rating worked out by the central government agency reported on year to year basis. Therefore, whatever recovery is recovered on account of generation of short fall is on the basis of minimum guarantee of power generation, not otherwise. Hence it also not presumed that the minimum power generation has been taken on assumption and/or presumption basis and the receipts of short fall of generation/low generation of power plants are basically is receipts of power generation.
The AR was asked to produce copies of agreement with the operator. In the agreement it is seen that these one dealt with clause No. 8 page 11 of the agreement deals with this issue.
"SEL shall commission a wind mast at local approved by RREC with the project site with sensor to be installed at hub height equivalent of WEF installed. The actual wind data generated on monthly basis will be considered to calculate the estimated generation from wind farm based on certified power curve of the installed machine. The calculated generation will be compared with actual monthly generation achieved for corresponding period from the wind farm. For shortfall in annual generation below 95% of the calculated generation, a penalty @ 110% of the deemed revenue loss to RREC shall be levied on the annual basis. The 60 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
penalty shall be reckoned and recovered on a block of every 02 years performance from SEL."
It was further explained that the low generation and short fall was recognized based on the agency report of centre for wind energy test (C-WET) which certifies and quantifies the low generation. Further, this process takes almost a year and therefore the shortfall received may not relate to the shortfall in generation for that particular year. It is also seen that in the assessment year 2011-12 this amount was claimed for the first time by the assessee and excluded from the income eligible for section 10A by the Assessing Officer.
The above discussion clearly shows that this income relates to penalties imposed on the seller by the assessee company if the machines do not deliver as per the promised performance. These cannot be said to be directly derived from the business of power generation and do not have a first degree nexus with the eligible business. In view of the above, deduction under section 80IA is not allowable on this amount."
"3.3 I have perused the facts of the case, the assessment order and the submissions of the appellant. This ground relates an amount of Rs. 6245945/- relating to other income which was relatable to sell of carbon financial instruments (CFI). However in the assessment order the Assessing officer has wrongly taken it as FDR interest income.
As regards the Carbon Financial Instrument (CFI) the AR submitted as per the guideline of the Ministry of Central Govt., where the company is engaged in power generation activities from non-conventional sources in these cases, for the units produced/ generated from non conventional sources, company is eligible for availing of credit of Carbon Financial Instrument (CFI) due to generation of green energy without polluting environment as per international standards. As per accounting guideline, only 61 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
the credit instruments sold are accounted for and the balance are treated as stock of carbon instruments.
These carbon credits are allowed to the company due to its efforts in producing green energy and is an incentive to reduce environmental pollution. The whole concept of carbon credit and sale/ transfer of CFI's operates in the arena of environment protection and related to the activity of power generation. Though it is definitely an offshoot of the activity of power generation but is not derived from the same. The CER's are, incentives given by the Govt. to avoid use of fossil fuel in the industry. They have almost similar features as in an 'import entitlement'. These CFI's can either be kept as stock or sold and are tradable. However, on such revenue receipts which are akin to import entitlements like duty drawback, deduction u/s 80IA cannot be given in view of the Apex Court decision in case of Liberty India Ltd since there is not first degree nexus.
In view of the above, the deduction u/s 80IA is not allowable on income related to this. On this ground the assessee's appeal is dismissed."
"4.3 This issue is covered by the order of my predecessor CIT(A)- 2 Dt. 15.12.2014 from the assessment year 2011-12. For the current year the amount is arrived at Rs. 2,31,13978/-. In the result this ground is partly allowed."
71. During the course of hearing, the ld. AR submitted that in the appeal preferred by the assessee and the cross appeal of the department, basically three issues are involved. The first issue is whether deduction u/s 80-IA(4) is available on the income received on account of shortfall in the generation/low generation of power. The 62 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
second issue is whether deduction u/s 80-IA(4) is available on the income received from sale of Carbon Financial Instruments/ stock of such instruments and third issue is whether the expenditure on payment to employees and administrative/establishment expenses needs to be allocated towards the turnover of the power generating unit to the total turnover of the assessee and if so what should be the basis for such allocation.
72. In Ground No.1, assessee has challenged not allowing deduction of Rs.2,73,48,665/- on shortfall in generation, low generation and stock carbon financial instruments. This amount comprise of the following amounts:-
(a) Shortfall in generation of electricity Rs.1,80,86,484/-
(b) Low generation of electricity Rs.43,02,041/-
(c) Stock of carbon financial instruments Rs.49,60,140/-
Total Rs.2,73,48,665/-
The stock of carbon financial instruments of Rs.49,60,140/- and the sale of carbon financial instruments of Rs.62,45,945/- are of same nature and therefore same is dealt in Issue No.2 and the shortfall in generation of electricity and low generation of electricity is considered in Issue No.1
73. In respect of Issue No.1, it was submitted that assessee has awarded the operation, maintenance & generation of all the power undertakings installed by it to the vendors/operators as per the agreement executed with them. As per the agreement, these 63 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
vendors/operators have assured that power plant installed by them will generate minimum power on a particular wind flow in the specified area and if they do not operate or generate the minimum assured power generation, then operator will compensate for such fall of generation of power. During the year assessee received Rs.2,23,88,525/- on account of shortfall in generation and low generation of electricity on which it claimed deduction u/s 80IA. The AO, however, observed that deduction u/s 80IA is allowable only in respect of profits and gains derived from sale of power and therefore relying on the decision of Supreme Court in case of Liberty India Vs. CIT 317 ITR 218, he held that such income which is not derived from power generation business is not eligible for deduction u/s 80IA(4).
74. It was submitted that the shortfall in the generation of electricity is paid by the vendors/operators due to shortfall in the minimum guaranteed generation of power units installed by it. These charges are thus nothing but the income from sale of power only, as it was the commitment of the vendors/operators of the plant that the plant supplied by him would generate minimum guaranteed units of electricity. In case generation is less than fixed guaranteed unit, the vendors/operators fulfilled the shortfall by making payment of fixed amount per unit which is generated less. The exact terms of the agreement as reproduced at Pg 7 of the CIT(A) order reads as under:-
"Suzlon Energy Ltd. (SEL) shall commission a wind mast at location approved by RREC within the project site with sensor to be installed at hub height equivalent of WEG installed. The actual wind data generated on monthly basis will be considered to calculate the estimated 64 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
generation from wind farm based on certified power curve of the installed machine. The calculated generation will be compared with actual monthly generation achieved for corresponding period from the wind farm. For shortfall in annual generation below 95% of calculated generation, a penalty @ 110% of the deemed revenue loss to RREC shall be levied on the annual basis. The penalty shall be reckoned and recovered on a block of every 2 years performance from SEL."
From the above condition, it can be noted that amount received on account of shortfall in generation of electricity/low generation of electricity is nothing but the additional amount realized by the assessee to recover the revenue loss incurred by the assessee. The amount so received is therefore the profit or gain derived by the power undertaking from the business of generation and distribution of power.
75. The AO in holding that the compensation so received is not an income derived from the eligible undertaking has relied on the decision of Supreme Court in case of Liberty India Ltd. However, this case is not applicable on facts as it was a case in which it was held that the duty drawback receipt could not be said to be profits and gains derived from an eligible business. Thus, this case was concerned with an export incentive which is far removed from the reimbursement of an element of cost. As against this, in the subsequent decision of Supreme Court in case of CIT Vs. Meghalaya Steels Ltd. (2016) 383 ITR 217, after distinguishing the judgment of Liberty India Ltd., it was held that transport subsidy, interest subsidy, power subsidy and insurance subsidy are revenue receipts which are reimbursed to the assessee for 65 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
elements of cost relating to manufacture and sale of its products. There is certainly a direct nexus between the profits and gains of the industrial undertaking or business and such subsidies. What is to be seen for the applicability of sections 80-IB & 80-IC is whether the profits and gains are derived from the business. So long as profits and gains emanate directly from the business itself, the fact that the immediate source of the subsidies is the Government would make no difference, as it cannot be disputed that the said subsidies are only in order to reimburse, wholly or partially, costs actually incurred by the assessee in the manufacturing and selling of its products. The "profits and gains"
referred to in sections 80-IB and 80-IC have reference to net profit. And net profit can only be calculated by deducting from the sale price of an article all elements of cost which go into manufacturing or selling it. Therefore, the amount received by the assessee as subsidies qualify for deduction u/s 80-IB & 80-IC. In view of this decision of Supreme Court, the amount received from the supplier of plant against shortfall in the generation of electricity is only to reimburse the cost relating to the generation and sale of electricity and therefore it has a direct nexus with the profit and gains of the power generating undertaking eligible for deduction u/s 80IA.
76. Further reliance is placed on the following cases:-
• CIT Vs. Prakash Oils Ltd. 58 DTR 279 (MP) • CIT Vs. Advance Detergents Ltd. 339 ITR 81 (2011)(Del.)
77. It was also submitted that ITAT, Delhi Bench in case of DCIT Vs. M/s Andhra Expressway Ltd. in ITA No.3805/Del/2009 dt. 26.03.2010, 66 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
where deduction u/s 80IA was claimed on the income derived by the assessee by way of bonus from NHAI for early completion of the project and compensation from the contractor for delay in completing the work assigned to it, held that such receipt is directly related to the cost of the project and therefore would go to reduce the cost of project and to that extent the depreciation would be lower and the income would be more which would be entitled for deduction u/s 80IA. In present case, the amount is given by the supplier of power plants for shortfall in the minimum guaranteed generation per annum and therefore it is directly related to the income derived from the operation of the windmill and therefore on such income, assessee is eligible to claim deduction u/s 80IA. In view of above, the AO be directed to allow the claim of deduction u/s 80IA on the amount of shortfall in the generation/low generation of electricity received by assessee.
78. We have heard the rival submissions and pursued the material available on record. Regarding receipts on account of shortfall/low generation amounting to Rs 2,23,88,525, we have already dealt with the subject issue in AY 2011-12. Our findings and directions contained therein shall apply mutatis mutandis to this year as well. In the result, the assessee company is held eligible for deduction u/s 80IA(4) in respect of receipts on account of shortfall/low generation.
79. In respect of the second issue, i.e. stock of carbon financial instruments Rs.49,60,140/- and sale of carbon financial instruments Rs.62,45,945/- is concerned, it was submitted that these instruments by way of carbon emission certificates are received by the assessee on 67 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
generation of electricity from its wind power projects which helped in low carbon emission. As per the Kyoto protocol the industries which are generating lesser carbon than the prescribed norms gets such credit which can be sold to industries generating higher carbon. The receipt from sale of CFI/valuation of such CFI is a capital receipt as decided by Hon'ble ITAT Hyderabad Bench in case of My Home Power Ltd. Vs. DCIT 21 ITR(Trib.) 186 where the Hon'ble Bench held as under:-
"We have heard both the parties and perused the material on record. Carbon credit is in the nature of "an entitlement" received to improve world atmosphere and environment reducing carbon, heat and gas emissions. The entitlement earned for carbon credits can, at best, be regarded as a capital receipt and cannot be taxed as a revenue receipt. It is not generated or created due to carrying on business but it is accrued due to "world concern". It has been made available assuming character of transferable right or entitlement only due to world concern. The source of carbon credit is world concern and environment. Due to that the assessee gets a privilege in the nature of transfer of carbon credits. Thus, the amount received for carbon credits has no element of profit or gain and it cannot be subjected to tax in any manner under any head of income. It is not liable for tax for the assessment year under consideration in terms of sections 2(24), 28, 45 and 56 of the Income-tax Act, 1961. Carbon credits are made available to the assessee on account of saving of energy consumption and not because of its business. Further, in our opinion, carbon credits cannot be considered as a bi-product. It is a credit given to the assessee under the Kyoto Protocol and because of international understanding. Thus, the assessees who have surplus carbon credits can sell them to other 68 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
assessees to have capped emission commitment under the Kyoto Protocol. Transferable carbon credit is not a result or incidence of one's business and it is a credit for reducing emissions. The persons having carbon credits get benefit by selling the same to a person who needs carbon credits to overcome one's negative point carbon credit. The amount received is not received for producing and/or selling any product, bi-product or for rendering any service for carrying on the business. In our opinion, carbon credit is entitlement or accretion of capital and hence income earned on sale of these credits is capital receipt. For this proposition, we place reliance on the judgment of the Supreme Court in the case of CIT v. Maheshwari Devi Jute Mills Ltd. (57 ITR 36) wherein held that transfer of surplus loom hours to other mill out of those allotted to the assessee under an agreement for control of production was capital receipt and not income. Being so, the consideration received by the assessee is similar to consideration received by transferring of loom hours. The Supreme Court considered this fact and observed that taxability of payment received for sale of loom hours by the assessee is on account of exploitation of capital asset and it is capital receipt and not an income. Similarly, in the present case the assessee transferred the carbon credits like loom hours to some other concerns for certain consideration. Therefore, the receipt of such consideration cannot be considered as business income and it is a capital receipt. Accordingly, we are of the opinion that the consideration received on account of carbon credits cannot be considered as income taxable in the assessment year under consideration. Carbon credit is not an offshoot of business but an offshoot of environmental concerns. No asset is generated in the course of business but it is generated due to 69 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
environmental concerns. Credit for reducing carbon emission or greenhouse effect can be transferred to another party in need of reduction of carbon emission. It does not increase profit in any manner and does not need any expenses. It is a nature of entitlement to reduce carbon emission, however, there is no cost of acquisition or cost of production to get this entitlement. Carbon credit is not in the nature of profit or in the nature of income."
80. The above decision of ITAT Hyderabad Bench is approved by Hon'ble High Court of Andhra Pradesh in CIT Vs. My Home Power Ltd. 365 ITR 82 where it was held as under:-
"We have consider the aforesaid submission and we are unable to accept the same, as the ld. Tribunal has factually found that "carbon credit is not an offshoot of business but an offshoot of environmental concerns. No asset is generated in course of business but it is generated due to Environmental concerns." We agree with this factual analysis as the assessee is carrying on the business of power generation. On the sale of excess carbon credits the income was received and hence as correctly held by the Tribunal it is a capital receipt and it cannot be business receipt or income."
81. The Hon'ble ITAT Jaipur bench in case of Shree Cement Limited 100 DTR 33 dt. 27.01.14 has also held that receipt from sale of CERs is capital receipt not liable for tax at all. The relevant finding of Hon'ble ITAT is as under:-
70 ITA No. 159&202/JP/2015& 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
"We have heard the rival submissions and perused the evidence on record. We find that the Appellate Tribunal in My Home Power Ltd Vs. DCIT [supra], have, after detailed examination, concluded that the receipts from Carbon credit are capital in nature. We are inclined to follow the said decision and the other two decisions of Chennai Tribunal in Sri Velayudhaswamy Spinning Mills (P.) Ltd. Vs. DCIT [supra] and Ambika Cotton Mills Ltd. Vs. DCIT (supra) where also it has been held that receipt on account of Carbon Credit is capital in nature & neither chargeable to tax under the head Business Income nor liable to tax under the head Capital Gains. Our above view is also supported by the decision of Supreme Court in the case of Vodafone International Holdings Vs. UOI [supra] wherein Supreme Court has held that treatment of any particular item in different manner in the 1961 Act and DTC serves as an important guide in determining the taxability of said item. Since DTC by virtue of the deeming provisions specifically provides for taxability of carbon credit as business receipt and Income Tax Act does not do so, our view gets duly fortified by the principles stated in the above decision of Supreme Court. Accordingly this ground of the assessee is allowed and the addition made by the AO is deleted."
Following this decision, the Hon'ble Bench in case of RSMM Ltd. in ITA No.144/JP/14 & 124/JP/14 for AY 2010-11 dt.12.02.2016 has again held that the receipt from sale of CER is a capital receipt.
82. This issue is also decided in favour of the assessee by the following Tribunal decisions where such receipts were held to be capital receipts:
71 ITA No. 159&202/JP/2015& 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
- M/s. Subhash Kabini Powers Vs. CIT ITA no.258/Banglore/2014, AY 2009-10 dated 28.11.2014 affirmed by Hon'ble Karnataka High Court (2016) 385 ITR 592
- Ambica Cottons Mills Ltd. Vs. DCIT ITA No.1836/Mds./2012 AY 2009-10 dated 16.04.2013
- Sri Velayudhaswammy Spinning Mills (P)Ltd. Vs. DCIT 40 Taxmann.com141 (Chennai)/ 27 ITR (Trib) 106 (Chennai) dated 12.06.2013
- Arun Textile P. Limited V. ACIT 36 ITR(Trib) 300 (Chennai) In view of above discussion, the AO be directed to exclude the sale/stock of carbon financial instruments in computing the total income of the assessee being a capital receipt.
83. We have heard the rival contentions and pursued the material available on record. The issue under consideration relates to whether the income received by the assessee company from sale of Carbon Financial Instruments/ stock of such instruments is eligible for deduction u/s 80IA(4) of the Act. The ld AR has drawn our reference to the decision of the Hon'ble Karnataka High Court in case of My Home Power Ltd (supra) wherein it was held that "carbon credit is not an offshoot of business but an offshoot of environmental concerns and receipt on sale of excess carbon credits is a capital receipt and not a business receipt." In the instant case, the assessee has suo-moto offered these receipts as business receipts and included in its gross total income. The assessee has thereafter claimed these receipts as 72 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
derived from eligible business and claimed deduction under section 80IA of the Act. Now, when the Revenue has challenged the claim of deduction under section 80IA, the ld AR has maintained its position before the ld CIT(A) that such receipts are derived from eligible business and are eligible for deduction under section 80IA of the Act. The ld CIT(A) has held that such receipts are akin to import entitlement like duty drawback, and due to lack of first degree nexus and following the Hon'ble Supreme Court decision in case of Liberty India, she has confirmed the denial of deduction on receipts under section 80IA of the Act. Now, before us, the ld AR has come up with a fresh contention that such receipt is a capital receipt and should be excluded in computing the total income. Such contention has been raised while pressing the ground of appeal relating to non-allowance of deduction by the AO in respect of such receipts under section 80IA of the Act. In our view, on combined reading of section 80IA(1) read with section 80IA(5), where the receipt is held to be a capital receipt and not a business receipt, the question of determination of such receipts as eligible for deduction under section 80IA of the Act doesn't arise for consideration. The reason for the same is that firstly, the receipt has to form part of gross total income and thereafter, where such receipts are derived from the eligible business, it is held eligible for deduction. Where the receipts are in the nature of capital receipts, it doesn't get included in the gross total income. In the instant case, the assessee company has suo-moto offered these receipts to tax and included it in its gross total income. In such a situation, the assessee cannot plead now that since the Revenue has denied the deduction holding that such receipts are not derived from the eligible business, the assessee should 73 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
be allowed to contend that such receipts are not includible in gross total income itself being in the nature of capital receipts. Further, no arguments have been canvassed before us to controvert the findings of the lower authorities that these receipts are not derived from the eligible business of power plants. Infact, the decision of the Hon'ble Karnataka High Court in case of My Home Power Ltd (supra) holds such receipts as not even business receipt at first place. In such a case, the question of such receipts derived from eligible business also doesn't arise. In light of above, we confirm the findings of the ld CIT(A) in this regard and confirm the disallowance of deduction under section 80IA(4) in respect of the income amounting to Rs 1,12,06,085 received by the assessee company from sale of Carbon Financial Instruments/ stock of such instruments which has been suo-moto offered to tax as business receipts in its return of income.
84. In respect of the third issue, it was submitted that out of the seven power plants established by the assessee, four power plants are in the district of Jaisalmar and one each in the district of Rajsamand, Jodhpur and Jhunjhunu. All the plants have been given to the operators for operation and maintenance as per the agreement executed by them. As per the agreement, assessee is liable to pay specified amounts as per the generation of power for operating and maintaining expenses of the plant. Therefore, assessee is not required to employ any person for day to day operation of plant or to incur any other expenditure in relation to it. All the direct expenses relating to these power plants i.e. expenditure on operation and maintenance, repair and maintenance, interest and financial expenses, depreciation, insurance premium and 74 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
lease rent aggregating to Rs.21,92,74,325/- has been considered by the assessee for working out the eligible profit of these power generating units. Therefore, no part of the expenditure on payment to employees and administrative/establishment expenses needs to be allocated against the power generating units.
85. So far as the expenditure of Rs.2,97,08,935/- on account of payment and provision to employees are concerned, it was submitted that such expenditure is on account of other promotional activities of the assessee against which assessee has declared an income of Rs.12,01,48,172/-. From the employee-wise details of the expenditure enclosed herewith, it can be noted that salary to the employees who are exclusively employed towards promotional activities is of Rs.2,62,33,210/-. Hence, this amount cannot be allocated towards the power project. The remaining salary of Rs.26,22,075/- is both towards the promotional activities and the power project. Therefore, only this amount of salary can at the most be allocated towards the power plants in the ratio of the turnover of the power plants to the total turnover of the assessee. The CIT(A) is not correct in allocating the entire expenditure on salary on proportionate basis instead of allocating only a part of such salary. If this amount of Rs.26,22,075/- is allocated in the ratio of the turnover, the expenditure relating to the power generating unit would be Rs.17,44,509/- (26,22,075*28,33,95,225/42,59,55,582). Before the CIT(A) assessee requested that considering the involvement of the employees towards power project, only 5% of the salary i.e. Rs.14,85,447/- be considered in working out the deduction u/s 80IA. In these circumstances, considering the specific details, only an amount of 75 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
Rs.17,44,509/- can be considered as expenses on salary attributable to the power generating undertakings.
86. So far as expenditure of Rs.88,61,651/- under the head administrative/establishment and other expenses is concerned, an amount of Rs.33,02,080/- is already considered by the assessee in working out the income from power project and an amount of Rs.5,27,172/- exclusively relate to the income from promotional and other activities. This has been accepted by the Ld. CIT(A) also. After excluding the same, the remaining expenditures are Rs.50,32,399/-. These expenditure are in nature of fees and subscription (Rs.4,95,825/- ), legal and professional expenses (Rs.8,63,914/-), printing and stationary (Rs.1,72,703/-) and other expenses like audit fees, electricity charges, fax, courier and photo state expenses, repairs of office equipments/building etc. These expenses have no relation with the power generating undertaking. Still the assessee on a fair basis requested the CIT(A) to consider only 5% of such expenses of Rs.50,32,399/- i.e. Rs.2,51,619/- as attributable to power generating units. However, the CIT(A) without any basis and without considering the nature of the expenditure held on the basis of his finding in AY 2011-12 that the claim of assessee is without any basis. This finding of the CIT(A) is not correct and therefore even if an allocation is to be made, it should be restricted to Rs.2,51,619/- only. In view of above, the AO be directed to rework out the claim of deduction u/s 80-IA in light of the submission given above.
76 ITA No. 159&202/JP/2015& 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
87. We have heard the rival contentions and perused the material available on record. Regarding allocation of employee costs and administrative/establishment expenses are concerned, we have dealt with the issue in AY 2011-12 in great detail. It is noted that common head office expenses pertaining to employees has been stated to be Rs 26,22,075 and pertaining to administrative/establishment expenses comes to Rs 50,32,399. The AO is accordingly directed to allocate these common expenses to the power generating units in the ratio of their turnover to the total turnover of the assessee company.
88. The grounds of assessee and revenue are accordingly disposed off with above directions.
Revenue's appeal ( ITA No. 88/JP/16) In its appeal for AY 2012-13, the Revenue has taken following grounds of appeal:
"1. Whether on the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting disallowance of contribution to State Renewal Fund of Rs. 20,00,000/- as made by AO.
2. (a) Whether on the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting addition of Rs. 1,26,059/- made for depositing the employee's contribution to FP &ESI beyond the prescribed time limit provided in the respective Acts.
(b) Whether on the facts and in the circumstances of the case and in law, the CIT(A) has erred in holding that employee's contribution to PF &ESI are governed by the provision of section 43B and not by section 36(1) (va) r.w.s. 2(24)(x) of I.T.Act.77 ITA No. 159&202/JP/2015
& 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
3. Whether on the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting disallowance of expenses on rural village electrification (RVE) of Rs. 19,02,871/- as made by AO.
4. Whether on the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting disallowance of RVE travelling expenses of Rs. 58,221/- as made by AO.
5. Whether on the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting disallowance of reimbursement of conveyance expenses ( RVE) of Rs. 36,835/- as made by AO.
6. Whether on the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting disallowance of RVE training expenses of Rs. 3,02,380/- as made by AO.
7. Whether on the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting disallowance of contribution to Energy Conservation Fund of Rs. 1,00,00,000/- as made by AO.
8. Whether on the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting disallowance of expenses for information, education and communication plan 2011-12 (IEC) of Rs. 18,50,580/- as made by AO.
9. Whether on the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting disallowance of publicity and advertisement expenses Rs. 3,25,71,656/- as made by AO."
Assessee's ground ( ITA No. 97/JP/16) In its cross appeal, the assessee has taken following grounds of appeal:
"1. The Learned Commissioner of Income Tax (Appeals) has erred on facts and in law in not allowing claim of deduction of Rs. 93,32,447/- on shortfall in generation and low generation U/s 78 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
80IA(4) of Income Tax Act, 1961 holding that not derived from the business of power generation.
2. The Learned Commissioner of Income Tax (Appeals) has erred on facts and in law and its own presumptions and ignoring the facts not allowing the claim of deduction of indirect power related income of Rs. 9,40,31,183/- U/s 80IA(4) of Income Tax Act, 1961."
89. The relevant findings of the ld. CIT(A) are reproduced as under:-
"2.3 I have perused the facts of the case, the assessment order and the submissions of the appellant. In the assessment year 2011-12 in assessee's own case this issue has been dealt with by the CIT(A) as follows:-
"The facts of this issue are similar to the facts in the case of M/s Rajasthan State Seeds Corporation Ltd. in A.Y. 2006-07. In this case, the ITAT, Jaipur (in ITA No. 233/JP/2009) has decided the matter in favour of the assessee by holding as under:-
"As per the memorandum of State Renewal Fund set up by the State Government, it is created with the object of providing a safety net for the workers likely to be affected by restructuring in the Public Enterprises. We are thus of the view that contribution made to the said fund is solely for the purpose of the welfare and benefit of the employees. The Rajasthan High Court in case of CIT V. Rajasthan Spinning and Weaving Mills Limited 274 ITR 465 has observed that it is for the assessee to decide whether any expenditure should be incurred in course of business. The expenditure can be incurred voluntarily and without necessity. Any contribution made by the assessee to a public welfare fund which is connected or related with this business is an allowable deduction u/s 37. Again the court in the case of CIT V. Shri Rajasthan Syntex Limited 221 CTR 410 ( Raj.) held that where 79 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
assessee gave contribution to the employee's welfare fund, the same is allowable as business expenditure. The case relied by AO of CIT V. Jodhpur Co-operative Marketing Society 275 ITR 372 (Raj.) is distinguishable as in this case the amount was set apart for the shareholders of the society whereas in the present case amount was provided for the benefit of the employees. In view of this the contribution made to State Renewal Fund is allowable u/s 37(1)."
Following the above judgment, the disallowance on account of contribution to State Renewal Fund of Rs. 20,00,000/- made by the Assessing Officer is directed to be deleted. This ground is allowed."
"3.3 I have perused the facts of the case, the assessment order and the submissions of the appellant. Admittedly, contribution of PF has been paid by the appellant, in all instances, before the due date of filing the return of income u/s 139(1). This fact is therefore, not in dispute. In view of the judgments of the Rajasthan High Court in the case Jaipur Vidhyut Vithran Nigam Ltd. 265CTR 62 (Raj.), CIT Vs. State Bank of Bikaner & Jaipur (2014) 99 DTR 131 (Raj.), and other case laws on this issue, the claim of the appellant is allowable. Accordingly, this disallowance made by the Assessing Officer is, directed to be deleted. This ground is allowed."
"4.3 I have perused the facts of the case, the assessment order and the submissions of the appellant. In the assessment year 2011-12 in assessee's own case this issue has been dealt with by the CIT(A) as follow:-
" The Assessing Officer has disallowed the above expenditure u/s 37(1) by holding that this expenditure has not been made in connection with business of the assessee viz generation of electricity and is not diversion by overriding title. The Assessing 80 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
Officer has overlooked that the appellant is the nodal agency for MNRE and BEE for promotion of non conventional and renewable energy as well as for the promotion of energy conservation. The Assessing Officer has totally overlooked the revenue streams arising from the above activities while deciding that these expenditures have not been incurred for business purposes. The issue relating to diversion by overriding title does not arise in this matter in deciding the allowability of the above expenditure u/s 37(1) and also the case law of CIT Vs. Sitaldas Tirathdas 41 ITR 367 (SC, cited repeatedly by the Assessing Officer has no relevant to the issue at hand. The Assessing Officer has not doubted the genuineness of the expenditure incurred.
The expenditure on account of Rural village Electrification (RVE) for F.Y. 2009-10, 2010-11 & RVE travelling and vehicle expenses has been incurred in accordance with the programmes of MNRE relating to renewable energy (for which the appellant is a nodal agency for the State of Rajasthan). The appellant has earned income from service charges as well as from application, processing and registration fees from new appellants. Therefore, it is held that the above expenditures have been incurred for business purposes. As regards, the expenditure on RVE for F.Y. 2009-10, the Assessing Officer has also stated that this expenditure relates to an earlier previous year and is in the nature of prior period expenses. The ITAT has held in the case of Rajasthan Sahkari Kray Vikray Sangh Ltd. for A.Y. 2003-04, 2004- 05 and 2006-07 that prior period expenses are allowable especially in cases of government companies where approval of expenditure has to be taken from higher authorities before debiting the books which may take time leading to prior period expenses being booked in a later year. This system of accounting of expenditure has been regularly followed by the appellant. The genuineness of these expenses has not been doubted by the Assessing Officer. Nothing has been brought on record to show that there has been a distortion of profits or that the books of 81 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
accounts do not reflect the correct picture. In view of the above discussion, it is held that the disallowance made by the Assessing Officer of the above expenditure, is without any basis and is directed to be deleted. Ground No. 3,6,& 7 are allowed.
Following the above judgment, addition made by the Assessing Officer on ground 3,6,7 & 8 is directed to be deleted. Ground No. 3,6,7 & 8 are allowed."
90. In respect of ground of appeal no. 1 to 6, in AY 2011-12, similar grounds of appeal have been raised by the Revenue and after examining the matter in great detail, we have dismissed these grounds of appeal. Our findings and directions contained in ITA No. 159/JP/15 shall apply mutatis mutandis to this appeal as well. The ground of appeal no. 1 to 6 the Revenue are thus dismissed.
91. In respect of ground No. 7, the Revenue has challenged the action of ld CIT(A) in deleting disallowance of contribution to energy conservation fund of Rs. 1 crore. Brief facts of the case are that the assessee contributed Rs.1 crore to State Energy Conservation Fund to be spent on conservation of energy as and when required. The AO held that the contribution so made is not wholly & exclusively for assessee business of generating renewable energy. He therefore, disallowed the same. On appeal, the Ld. CIT(A) by relying on the decision of Coordinate Bench in assessee's own case in ITA No.983/JP/13 for AY 2008-09 deleted the disallowance.
92. The ld AR submitted that the issue is covered by the decision of Hon'ble ITAT in assessee's own case for AY 2008-09. It was further 82 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
submitted that the contribution is made to Rajasthan State Energy Conservation Fund constituted as per section 16 of the Energy Conservation Act, 2001. The object of the fund is mentioned at Pg 11- 12 of the CIT(A) order. The assessee is incorporated with the object of promoting the non conventional and renewable energy sources and therefore the contribution so made is wholly & exclusively for the purpose of business. Otherwise also, any contribution made to a statutory fund is allowable as deduction as held by Supreme Court in case of CIT Vs. New Horizon Sugar Mills Pvt. Ltd.269 ITR 397 where it was held that amount set apart towards molasses storage reserve fund is to be excluded from assessee's total income on the principle of diversion of income by overriding title. In view of above, CIT(A) has rightly deleted the disallowance and thus the ground of the department be dismissed.
93. The relevant finding of the ld. CIT(A) are reproduced as under:-
" 5.3 I have perused the facts of the case, the assessment order and the submissions of the appellant. The fact of this issue is similar to the fact in assessee's own case for the assessment year 2008-09, appeal No. ITA No. 983/JP/2013. This issue has been decided in favour of the assessee as follow:-
"This amount was paid towards energy conversation contribution fund, which is statutory liability as per provisions of Energy Conservation Act, 2001. The case law relied by the assessee of the judgment of the Hon'ble jurisdictional High Court in the case of CIT Vs. Raj Shipping and Weaving Mills Ltd. (supra) is squarely applicable in the case of the assessee wherein it has been held that contribution to the fund set up for products which was also 83 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
the business of the assessee has direct nexus to the advancement of the assessee business."
Following the above judgment, the disallowance on account of contribution to energy conservation fund of Rs. 1,00,00,000/- made by the Assessing Officer is directed to be deleted. This ground is allowed."
94. Undisputedly, there is no change in the facts and circumstances of the case or any authority which has been brought to our notice subsequent to the decision of the Coordinate Bench in assessee's own case in AY 2008-09. Respectfully following the decision of the Coordinate Bench referred supra, we affirm the findings of the ld CIT(A) and the ground taken by the Revenue is dismissed.
95. In respect of ground No. 8, the Revenue has challenged the action of ld CIT(A) in deleting disallowance of expenses for Information, Education & Communication Plan 2011-12 (IEC) of Rs. 18,50,580/-. The objective of the plan was mass communication and public awareness for the use of RES and energy conservation for which various tools like newspapers, brochures, leaflets, posters, magazines, television, FM radio, cinema slides, display boards etc. were deployed. For this purpose, assessee incurred expenditure of Rs.18,50,580/- on account of "IEC Plan 2011-12" and claimed the same in its P&L a/c. The AO made disallowance of Rs.18,50,580/- by holding that the expenditure has not been incurred wholly and exclusively in connection with the generation of electricity which is the business of the assessee, the expenditure is not incidental to the business of the assessee, the 84 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
assessee is mixing application of income with the expenditure when it is a clear cut case of application of income, the expenditure neither has any business expediency nor it is diversion of income by overriding title and merely because something is included in the objects of the assessee cannot justify the allowability of claim u/s 37(1) of the IT Act, 1961.
96. The ld. CIT(A) deleted the disallowance by following his order for AY 2011-12 where following findings were given:-
"6.3 I have perused the facts of the case, the assessment order and the submissions of the appellant. In the Assessment year 2011-12, appeal No. 334/13-14 in assessee's own case this issue has been dealt with by the CIT(A) as follow:-
"The appellant is the nodal agency of MNRE for popularizing the usage of renewable energy source (RES) and also the state designated agency for energy conservation. This expenditure under the IEC plan has been incurred for generating public awareness about RES and energy conservation. A part of this expenditure was contributed by MNRE and other agencies while the balance amount has to be contributed by the appellant. It is this sum contributed by the appellant which has been disallowed by the assessing officer without understanding the nature of the business of the appellant and taking into consideration the revenue streams arising from these activities. Therefore, it is held that the above expenditure has been incurred for business purposes. In view of the above discussion, it is held that the disallowance made by the assessing officer of the above expenditure, is without any basis and is directed to be deleted. Ground No. 5 is allowed."85 ITA No. 159&202/JP/2015
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97. During the course of hearing, the ld. AR submitted that the assessee is engaged in the activity of sale of electricity generated through wind/solar based power projects and activity of providing assistance to various entrepreneurs for setting up power generation plants through non-conventional energy sources. The expenditure thus incurred by the assessee on mass communication and public awareness for the use of renewable energy sources and energy conservation under "IEC Plan 2011-12" is wholly and exclusively for the purpose of its business more so when the same is as per its object as stated in the MOA and the assessee is a state nodal agency of MNRE and also a state designated agency required for popularizing the use of renewable energy sources and promote energy conservation measures. The AO has not doubted the genuineness of the expenditure. Hence, the expenditure incurred by the assessee is allowable to it u/s 37(1).
98. It was further submitted that due to the expenditure incurred by the assessee on such awareness programme, various entrepreneurs have come to Rajasthan for development and generation of electricity through non-conventional sources of energy from whom the assessee has received registration/processing fees on the plants installed by them which is a part of the receipt of Rs.16.77 crores credited to the P&L a/c. The AO has completely overlooked this revenue stream of the assessee in disallowing the expenditure. In view of above, CIT(A) has rightly deleted the disallowance and thus the ground of the department be dismissed.
86 ITA No. 159&202/JP/2015& 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
99. In ITA No. 202/JP/15 for AY 2011-12, similar ground of appeal have been raised by the Revenue and after examining the matter in great detail, we have dismissed the said ground of appeal. Our findings and directions contained in ITA No. 202/JP/15 shall apply mutatis mutandis to this appeal as well. The ground of the Revenue is thus dismissed.
100. In respect of ground no. 9, the Revenue has challenged the action of ld CIT(A) in deleting disallowance of publicity and advertisement expenses of Rs. 3,25,71,656/- on account of topographic survey, recruitments, technical investigation, printing of energy policy, inviting tenders, etc. The AO observed that these expenditures are in the nature of development/exploration of new business and disallowed the same. The Ld. CIT(A) after considering the nature of the expenditure which largely related to payment to advertisement, printing & publishing agencies allowed the expenditure incurred by the assessee.
101. During the course of hearing, the ld AR submitted that the object of the assessee is to promote and facilitate energy conservation measures. For this purpose it carries out mass communication in public awareness programs by publication of Akshay Urja Sandesh on quarterly basis, distributing brochures, leaflets & hand bills and advertising through TV, radio, cable network, cinema slides, display boards, hoardings, etc. As a result, assessee received a sum of Rs.16.77 crores as registration fees from various entrepreneurs for setting renewable energy plants. Only an amount of Rs.3.50 lacs is incurred for 87 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
topographic survey which is also a part of its business activity. Hence, the expenditure incurred by the assessee on advertisement is wholly & exclusively for the purpose of business and the same is allowable u/s 37(1). In view of above, ld CIT(A) has rightly deleted the disallowance and thus the ground of the department be dismissed
102. The relevant finding of the ld. CIT(A) are reproduced as under:-
"7.3 I have perused the facts of the case, the assessment order and the submissions of the appellant. The Assessing Officer has made the disallowance under this head as he found that the expenditure had been incurred for topographic survey, recruits members, technical investigations, printing of energy policy and inviting tenders etc. and was of the opinion that this seemed in the nature of new business development and exploration of business opportunity. Further, it was also felt that this expenditure had increased exceptionally during the year almost 4 times.
In the present proceedings, the AR in his written submissions has stated that the assessee company being the State Nodal Agency of the Ministry of new & renewable energy department, Govt. of India, is required to popularize the usage of Renewable Energy Source & policy deployment too.
Further, in the F.Y. 2010-11, the State Government of Rajasthan, Issued "Rajasthan Solar Energy Policy, 2011 Vide Notification No. F.20(6) Energy/2010 dated 19.04.2011 for the promotion the solar energy in Rajasthan, Prior to enactment to this policy, the promotion of solar energy was being done under the policy for promoting generation of electricity through Non-Conventional Energy Sources, 2004.
The company was also appointed as Nodal Agency for Single Window Clearance of project of Solar Power project set up in the state of Rajasthan, as per Rajasthan Solar Energy policy, 2011 as 88 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
notified and issued by the Government of Rajasthan Energy Department vide dated 19.04.2011.
The ledger account of the expenditure has been filed and perused. Largely, the expenditure is related to payment to advertising agencies and printing and publishing agencies. A small amount of 3.50 lakhs approx. is fixed for topographic survey Geo technical investigation which has been explained by AR as in pursuance of the promulgation of the new policy. In view of the above the disallowance made by the Assessing Officer is deleted."
103. We have heard the rival contentions and purused the material available on record. One of the business objects of the assessee company is to promote and facilitate energy conservation and popularize the usage of renewable energy sources & encourage companies to set up renewable energy plants. As part of its activities, the assessee company has incurred the publicity and advertisement expenditure during the year. The ld CIT(A) has given a findings on perusal of ledger account that these expenditure largely related to payment to advertising agencies and printing and publishing agencies. The said finding of the ld CIT(A) remain uncontroverted before us. In the result, we confirm the order of the ld CIT(A) and ground of appeal taken by the Revenue is dismissed.
Assessee's appeal (ITA No. 97/JP/16)
104. In its appeal for AY 2012-13, the assessee has challenged the action of ld CIT(A) in not allowing claim of deduction of Rs. 93,32,447/- on shortfall in generation/low generation u/s 80IA(4) by holding that it is not derived from business of power generation and not allowing the 89 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
claim of deduction of indirect power related income of Rs. 9,40,31,183/- u/s 80-IA of the Act.
105. Brief facts of the case are that the assessee claimed deduction u/s 80-IA(4)(iv) in respect of its power generating undertakings at Rs.11,74,07,808/- as per the working at Page 10 & 11 of the assessment order. In this working, Rs.93,32,447/- is included towards shortfall/low generation of electricity. Further, Rs.9,40,31,183/- is included in income as proportionate indirect income relating to the power and Rs.7,11,35,342/- is reduced towards indirect expenses of head office as per the cost audit report. The AO excluded the income of Rs.10,33,63,630/- (93,32,447+9,40,31,183) for computing deduction u/s 80-IA but did not exclude the indirect expenses of head office of Rs.7,11,35,342/- and thus worked out the claim of deduction u/s 80-IA at Rs.1,40,44,178/-. The Ld. CIT(A) confirmed the findings of the AO.
106. The relevant finding of the ld. CIT(A) which are reproduced as under:-
"8.3 I have perused the facts of the case, the assessment order and the submissions of the appellant. The assessee has included the other income, on account of shortfall in generation, low generation, amounting to Rs. 93,32,447/- as eligible income for deduction u/s 80IA. The deduction u/s 80IA has been denied by the Assessing Officer holding that these incomes cannot be said to be 'derived from' the power generation income and has placed reliance on the decision of the Apex Court in the case of Liberty India vs. CIT 317 ITR 218 (SC).90 ITA No. 159&202/JP/2015
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The assessee in its written submission stated that the shortfall/low generation are being taken under the Group head 'application/processing/registered fees & others'.
The AR was asked to explain the exact nature of income under this head. The AR stated that the company has awarded all the power plants for operation and maintenance and generation of power to the Vendors/operators as per agreement executed between them. "As per execution of the agreements, operators/vendors, who is/are operate to the power plants, company has executed a assurance in the agreement that the vendors/awards that installed power plant will generated a minimum power generation on a particulars wind flow in a specified areas at where power plants are installed. As per the execution of agreement, between the company and power plant operators, if that power plant will not operate or generate a minimum assured power generation, than the operator will compensate for such fall of generation of power. Such minimum generation is considered on the basis of wind flow rating worked out by the central government agency reported on year to year basis. Therefore, whatever recovery is recovered on account of generation of short fall is on the basis of minimum guarantee of power generation, not on other wise. Hence it also not presumed that the minimum power generation has been taken on assumption and/or presumption basis and the receipts of short fall of generation/low generation of power plants are basically is receipts of power generation."
The AR was asked to produce copies of agreement with the operator. In the agreement it is seen that these one dealt with clause No. 8 Page 11 of the agreement.
"SEL shall commission a wind mast at local approved by RREC within the project site with sensor to be installed at hub height equivalent of WEG installed. The actual wind data generated on monthly basis will be considered to calculate the estimated 91 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
generation from wind farm based on certified power curve of the installed machine. The calculated generation will be compared with actual monthly generation achieved for corresponding period from the wind farm. For shortfall in annual generation below 95% of the calculated generation, a penalty @ 110% of the deemed revenue loss to RREC shall be levied on the annual basis. The penalty shall be reckoned and recovered on a block of every 02 years performance from SEL."
It was further explained that the low generation and short fall was recognized based on agency report of centre for wind energy test (C-WET) which certified and quantifies the low generation. Further, this process takes almost a year and therefore the shortfall received may not relate to the shortfall in generation for the particular year. It is also seen that in the assessment year 2011-12 this amount was claimed for the first time by the assessee and excluded from the income eligible for section 10A by the Assessing Officer.
The above discussion clearly shows that this income relates to penalties imposed on the seller by the assessee company if the machines do not deliver as per the promised performance. These cannot be said to be directly derived from the business of power generation and do not have a first degree nexus with the eligible business. In view of the above, deduction under section 80IA is not allowable on this ground."
107. During the course of hearing, the ld. AR submitted that the two issues are involved. One is whether the income of Rs.93,32,447/- on shortfall/low generation of power is income derived from business or not and the second issue is whether the indirect power related income is to be included for computing the deduction u/s 80-IA(4) or not and if 92 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
not, the indirect expenses of HO of Rs.7,11,35,342/- is to be excluded in computing the deduction u/s 80-IA(4) or not.
108. In respect of issue no.1, it was submitted that assessee has awarded the operation, maintenance & generation of all the power undertakings installed by it to the vendors/operators as per the agreement executed with them. As per the agreement, these vendors/operators have assured that power plant installed by them will generate minimum power on a particular wind flow in the specified area and if they do not operate or generate the minimum assured power generation, then operator will compensate for such fall of generation of power. During the year assessee received Rs.93,32,447/- on account of shortfall in generation and low generation of electricity on which it claimed deduction u/s 80IA. The AO, however, observed that deduction u/s 80IA is allowable only in respect of profits and gains derived from sale of power and therefore relying on the decision of Supreme Court in case of Liberty India Vs. CIT 317 ITR 218, he held that such income which is not derived from power generation business is not eligible for deduction u/s 80IA(4).
109. It was submitted that the shortfall in the generation of electricity is paid by the vendors/operators due to shortfall in the minimum guaranteed generation of power units installed by it. These charges are thus nothing but the income from sale of power only, as it was the commitment of the vendors/operators of the plant that the plant supplied by him would generate minimum guaranteed units of electricity. In case generation is less than fixed guaranteed unit, the 93 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
vendors/operators fulfilled the shortfall by making payment of fixed amount per unit which is generated less. The exact terms of the agreement as reproduced at Pg 23 of the CIT(A) order reads as under:-
"Suzlon Energy Ltd. (SEL) shall commission a wind mast at location approved by RREC within the project site with sensor to be installed at hub height equivalent of WEG installed. The actual wind data generated on monthly basis will be considered to calculate the estimated generation from wind farm based on certified power curve of the installed machine. The calculated generation will be compared with actual monthly generation achieved for corresponding period from the wind farm. For shortfall in annual generation below 95% of calculated generation, a penalty @ 110% of the deemed revenue loss to RREC shall be levied on the annual basis. The penalty shall be reckoned and recovered on a block of every 2 years performance from SEL."
From the above condition, it can be noted that amount received on account of shortfall in generation of electricity/low generation of electricity is nothing but the additional amount realized by the assessee to recover the revenue loss incurred by the assessee. The amount so received is therefore the profit or gain derived by the power undertaking from the business of generation and distribution of power.
110. The AO in holding that the compensation so received is not an income derived from the eligible undertaking has relied on the decision of Supreme Court in case of Liberty India Ltd. However, this case is not applicable on facts as it was a case in which it was held that the duty 94 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
drawback receipt could not be said to be profits and gains derived from an eligible business. Thus, this case was concerned with an export incentive which is far removed from the reimbursement of an element of cost. As against this, in the subsequent decision of Supreme Court in case of CIT Vs. Meghalaya Steels Ltd. (2016) 383 ITR 217, after distinguishing the judgment of Liberty India Ltd., it was held that transport subsidy, interest subsidy, power subsidy and insurance subsidy are revenue receipts which are reimbursed to the assessee for elements of cost relating to manufacture and sale of its products. There is certainly a direct nexus between the profits and gains of the industrial undertaking or business and such subsidies. What is to be seen for the applicability of sections 80-IB & 80-IC is whether the profits and gains are derived from the business. So long as profits and gains emanate directly from the business itself, the fact that the immediate source of the subsidies is the Government would make no difference, as it cannot be disputed that the said subsidies are only in order to reimburse, wholly or partially, costs actually incurred by the assessee in the manufacturing and selling of its products. The "profits and gains"
referred to in sections 80-IB and 80-IC have reference to net profit. And net profit can only be calculated by deducting from the sale price of an article all elements of cost which go into manufacturing or selling it. Therefore, the amount received by the assessee as subsidies qualify for deduction u/s 80-IB & 80-IC. In view of this decision of Supreme Court, the amount received from the supplier of plant against shortfall in the generation of electricity is only to reimburse the cost relating to the generation and sale of electricity and therefore it has a direct nexus 95 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
with the profit and gains of the power generating undertaking eligible for deduction u/s 80IA.
111. Further reliance is placed on the following cases:-
• CIT Vs. Prakash Oils Ltd. 58 DTR 279 (MP) • CIT Vs. Advance Detergents Ltd. 339 ITR 81 (2011)(Del.)
112. It was also submitted that ITAT, Delhi Bench in case of DCIT Vs. M/s Andhra Expressway Ltd. in ITA No.3805/Del/2009 dt. 26.03.2010, where deduction u/s 80IA was claimed on the income derived by the assessee by way of bonus from NHAI for early completion of the project and compensation from the contractor for delay in completing the work assigned to it, held that such receipt is directly related to the cost of the project and therefore would go to reduce the cost of project and to that extent the depreciation would be lower and the income would be more which would be entitled for deduction u/s 80IA. In present case, the amount is given by the supplier of power plants for shortfall in the minimum guaranteed generation per annum and therefore it is directly related to the income derived from the operation of the windmill and therefore on such income, assessee is eligible to claim deduction u/s 80IA. In view of above, the AO be directed to allow the claim of deduction u/s 80IA on the amount of shortfall in the generation/low generation of electricity received by assessee.
113. It was further submitted that so far as including indirect income relating to power of Rs.9,40,31,183/- and reducing the indirect head office expenses of Rs.7,11,35,342/- in computing deduction u/s 80-IA 96 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
by the assessee is concerned, the same is done as per the calculation of cost auditors. This calculation is not as per section 80-IA. The cost auditor pulled the indirect income like interest, forfeiture of security deposit, etc. on proportionate basis and also considered the indirect head expenses on proportionate basis which is incorrect. Therefore, the income of Rs.9,40,31,183/- is to be excluded in computing the deduction u/s 80-IA(4) but at the same time the indirect expenses of HO allocated at Rs.7,11,35,342/- is also incorrect as part of such expenditure is directly related to promotional & other activities. Only expenditure of Rs.4,56,79,816/- can be considered towards the common expenses and if 5% of such expenses is allocated towards power generating income, only Rs.22,83,990/- can be allocated towards HO expenses for computing deduction u/s 80-IA(4) as against Rs.7,11,35,342/- allocated by the cost auditor. On this basis the deduction u/s 80-IA(4) would be worked out at Rs.9,22,77,975/- (9,45,61,966-22,83,990) as per the calculation enclosed. Hence, the AO be directed to rework the deduction u/s 80-IA(4) of the Act.
114. We have heard the rival contentions and perused the material available on record. Both the issues under consideration have been dealt with in detail in AY 2011-12.
115. Following our findings in AY 2011-12, the amount of Rs 93,32,447 being the receipts on account of shortfall/low generation of electricity is held eligible for deduction under section 80IA(4) of the Act. Regarding indirect income of Head office Rs 9,40,31,183, the assessee company has conceded that the same has been wrongly claimed based on the 97 ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/s Rajasthan Renewable Energy Corporation Ltd.
cost auditors calculation. Hence, the same is directed to be excluded and held not eligible for deduction under section 80IA(4) of the Act.
116. Regarding head office expenses, it was again contended that Rs 7,11,85,342 has been wrongly considered as per the cost auditors calculation as part of such expenditure is directly related to promotional & other activities and only Rs 4,56,79,816 should be considered as common Head office expenditure and 5% should be allocated towards power generating units. As we have held in AY 2011-12, the common head office expenses need to be allocated to the power generating units based on its turnover as a percentage of total turnover of the assessee company. Given that there is no finding of either the AO or the ld CIT(A) regarding the quantum of common head offices expenses, we are setting aside the matter to the file of the AO to examine the contentions of the assessee company afresh and once the common expenses are determined, the AO is directed to allocate the same to the power generating units based on its turnover. The assessee's grounds are disposed off with above directions.
The respective appeals of the revenue and the assessee are disposed off with above directions.
Order pronounced in the open court on 18/08/2017.
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(Kul Bharat) (Vikram Singh Yadav)
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98 ITA No. 159&202/JP/2015
& 95,96,87,97,88/JP/16 &125/JP/17
M/s Rajasthan Renewable Energy Corporation Ltd.
Tk;iqj@Jaipur fnukad@Dated:- 18/08/2017.
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vkns'k dh izfrfyfi vxzfs 'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- M/s Rajasthan Renewable Energy Corporation Ltd., E-166, Akshay Urja Bhawan, Yudister Marg, C- Scheme, Jaipur.
2. izR;FkhZ@ The Respondent- DCIT/ACIT/ITO, Circle-6, Jaipur.
3. vk;dj vk;qDr@ CIT
4. vk;dj vk;qDr@ CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur.
6. xkMZ QkbZy@ Guard File {ITA No. ITA No. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17} vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar