2017 (4) TMI 1530 - AT - Income Tax

Tribunal Rules on Tax Appeals: Depreciation, Deductions, Surcharge Disputes

The Dy. Commissioner of Income Tax, Large Taxpayer Unit, Chennai Versus M/s. Neyveli Lignite Corporation Ltd. AND Vice-Versa

The Dy. Commissioner of Income Tax, Large Taxpayer Unit, Chennai Versus M/s. Neyveli Lignite Corporation Ltd. AND Vice-Versa - TMI Issues Involved:1. Depreciation on water supply and drainage.2. Higher rate of depreciation on electrical installations.3. Surcharge recoverable from electricity bills.4. Deduction under Section 80IA.5. Disallowance under Section 14A.6. Disallowance of prepaid expenditure.7. Overburden removal expenditure.8. Exclusion of other income for deduction under Section 80IA.Issue-wise Detailed Analysis:1. Depreciation on Water Supply and Drainage:The first issue pertains to the disallowance of excess depreciation on water supply and drainage for the assessment years (AY) 2007-08, 2009-10, and 2010-11. The assessee claimed depreciation at 15%, treating the assets as plant, while the Assessing Officer (AO) restricted it to 10%, treating them as non-residential buildings. The Commissioner of Income Tax (Appeals) [CIT(A)] allowed the assessee’s appeal, holding that the assets serve special technical requirements and qualify as plant. The Tribunal upheld the CIT(A)’s decision, noting that civil constructions in mining activities are constructed with special technical requirements and are subject to high wear and tear, thus qualifying for higher depreciation.2. Higher Rate of Depreciation on Electrical Installations:For AYs 2007-08 and 2010-11, the AO disallowed higher depreciation on electrical installations, restricting it to 10% instead of the claimed 15%. The CIT(A) allowed the higher rate, citing the Karnataka Power Corporation case. The Tribunal remitted the matter back to the AO to examine the nature of electrical installations, distinguishing between those used in mining activities (eligible for 15%) and those used in administrative buildings (eligible for 10%).3. Surcharge Recoverable from Electricity Bills:The AO added the surcharge recovered from belated power bill settlements to the income, arguing that under the mercantile system of accounting, the income had accrued. The CIT(A) deleted the addition, relying on the Supreme Court’s decision in Godhra Electricity Co. Ltd. The Tribunal reversed the CIT(A)’s decision, holding that the tripartite agreement provided certainty of recovery, and thus, the surcharge income had accrued and was taxable.4. Deduction under Section 80IA:The AO disallowed the deduction claimed under Section 80IA for the TPS-I expansion unit, considering it an expansion of an existing unit rather than a new undertaking. The CIT(A) allowed the deduction, citing Supreme Court precedents that expansion of existing business qualifies for relief under Section 80IA. The Tribunal upheld the CIT(A)’s decision, noting that the issue was covered by a previous Tribunal order in the assessee’s favor.5. Disallowance under Section 14A:The AO disallowed expenses under Section 14A read with Rule 8D for AYs 2008-09 to 2010-11, related to tax-free bond income. The CIT(A) deleted the disallowance, stating that no expenditure was incurred to earn the exempt income. The Tribunal remitted the matter back to the AO to recompute the disallowance, following a previous Tribunal decision.6. Disallowance of Prepaid Expenditure:For AY 2008-09, the AO disallowed prepaid insurance expenditure, considering it related to future liability. The CIT(A) allowed the appeal, following a previous Tribunal order in the assessee’s favor. The Tribunal upheld the CIT(A)’s decision, noting that the issue was covered by a previous Tribunal order.7. Overburden Removal Expenditure:For AY 2010-11, the AO disallowed the overburden removal expenditure, treating it as capital expenditure. The CIT(A) allowed the appeal, following a previous Tribunal order that such expenditure is allowable as revenue expenditure. The Tribunal upheld the CIT(A)’s decision.8. Exclusion of Other Income for Deduction under Section 80IA:The AO excluded interest income from employees, handling charges for fly ash, and miscellaneous income from the profits eligible for deduction under Section 80IA. The CIT(A) upheld the AO’s decision. The Tribunal agreed with the AO and CIT(A) that these incomes were not derived from the industrial undertaking and thus not eligible for deduction under Section 80IA. However, the Tribunal directed the AO to exclude 10% of other income as related expenses while computing the deduction.Conclusion:The Tribunal provided a detailed analysis and rulings on each issue, often referring back to previous decisions and legal precedents to support its conclusions. The appeals were partly allowed, with specific directions for further examination and computation by the AO where necessary.