2019 (3) TMI 1687 - AT - Income Tax

Tribunal rules in favor of assessee on deductions under section 80IA for scrap sales and recoveries

The A.C.I.T., Circle Shimla Versus M/s Satluj Jal Vidyut Nigam Ltd. And SJVN Ltd. And Vice Versa.

The A.C.I.T., Circle Shimla Versus M/s Satluj Jal Vidyut Nigam Ltd. And SJVN Ltd. And Vice Versa. - TMI Issues Involved:1. Disallowance of CSR expenses.2. Taxability of interest on income tax refund.3. Income set off against expenditure during construction period.4. Computation of deduction under section 80IA.5. Addition to book profit under section 115JB.6. Deduction under section 80IA on scrap sales.7. Deduction under section 80IA on sundry creditors written back and insurance claim received.8. Deduction under section 80IA on recovery from JP Power Ventures and Karcham Wangtoo.Detailed Analysis:1. Disallowance of CSR Expenses:The assessee incurred CSR expenses of Rs. 16,03,01,431/-, which were disallowed by the A.O. and upheld by the CIT(A) on the grounds that Explanation 2 to Section 37, disallowing CSR expenses, was retrospective. The Tribunal, however, referred to decisions in National Seeds Corporation Ltd. and Jindal Power Limited, holding that CSR expenses are business expenses and Explanation 2 is prospective. Thus, the disallowance was deleted, and the ground was allowed.2. Taxability of Interest on Income Tax Refund:The assessee received Rs. 2,16,05,340/- as interest on an income tax refund, which was not offered for taxation. The A.O. added this amount to the income, which was upheld by the CIT(A) as the applicable CERC regulation did not consider tax a pass-through item. The Tribunal found no merit in the assessee's contention and upheld the addition.3. Income Set Off Against Expenditure During Construction Period:Grounds related to income set off against expenditure during the construction period were not pressed by the assessee and were dismissed as not pressed.4. Computation of Deduction under Section 80IA:a) Interest from Staff: Not pressed and dismissed.b) Miscellaneous Income: The Tribunal upheld the CIT(A)'s decision that income from scrap sales is eligible for deduction under section 80IA as it is directly linked to the manufacturing process.5. Addition to Book Profit under Section 115JB:The A.O. added interest on income tax refund to the book profit, assuming it was not included. The Tribunal found that the interest was included in the profit and loss account and directed deletion of the addition, allowing the ground.6. Deduction under Section 80IA on Scrap Sales:The A.O. denied deduction on scrap sales, but the CIT(A) allowed it, finding that the scrap was generated from the manufacturing process. The Tribunal upheld the CIT(A)'s decision, noting that the scrap sales reduced the cost of new spares, thus increasing manufacturing profits.7. Deduction under Section 80IA on Sundry Creditors Written Back and Insurance Claim Received:The CIT(A) disallowed the deduction, stating the assessee failed to establish the receipts were related to business transactions. The Tribunal restored the issue to the A.O. for verification, following the direction given in the assessee's case for A.Y. 2008-09.8. Deduction under Section 80IA on Recovery from JP Power Ventures and Karcham Wangtoo:The A.O. denied the deduction, but the CIT(A) allowed it, finding the recoveries were related to business undertakings. The Tribunal upheld the CIT(A)'s decision, noting the recoveries were directly related to the running of the projects/plants.Conclusion:The Tribunal allowed the assessee's appeal partly, dismissing some grounds as not pressed and upholding the CIT(A)'s decisions on others. The Revenue's appeal was dismissed, affirming the CIT(A)'s allowance of deductions under section 80IA for scrap sales and recoveries from JP Power Ventures and Karcham Wangtoo.