TaxTMI 
TaxTMI 
2017 (8) TMI 1382
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....is 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.....
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....e 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 employ....
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....icial 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 ....
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.... 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 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 understand....
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....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 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 Re....
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....lity 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. 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 whe....
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.... 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 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 f....
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....nd 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 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....
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.... 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:- "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 g....
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....nnot 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 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 c....
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....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 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 c....
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....neration 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 emplo....
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....cating 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 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 c....
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....nd 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 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 ....
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.... 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 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 ....
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....ect 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." 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 an....
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....s 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 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 plan....
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....ide an amount of Rs. 2 crores for construction of 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 Governmen....
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.... 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 as....
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....nditure 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 ca....
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....sed. 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....
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....nd 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. The company has made the fixed deposit on short terms basis till the installment ar....
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....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 fr....
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.... 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 lease rent aggregating to Rs. 21,5....
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....ower 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 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 ....
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....d 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) 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 ....
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....nal 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 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 as....
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....ind 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 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 a....
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.... 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 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 ele....
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....asis 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. 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....
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....d 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....
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....edit 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 cr....
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....pra] 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 ....
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....ction 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 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 fi....
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.... 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 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 a....
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....he 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. 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 delet....
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....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 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....
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....ing 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 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 re....
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.... 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 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 dismis....
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....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." 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 inc....
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....d 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/201....
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....rder. 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 ....
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....alty 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 shor....
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....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 drawback receipt could not be said to be profits and gains derived from an eligible business....
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....t 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 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 ....