TaxTMI 
TaxTMI 
2019 (5) TMI 95
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....facts and circumstances of the case & in law, the Ld. CIT(A) has erred in deleting the addition made by the AO by disallowing the expenditure on assets not owned by the assessee amounting to Rs. 20,60,00,000/-. 3. Whether on the facts and circumstances of the case & in law, the Ld. CIT(A) has erred in deleting the addition made by the AO by disallowing pre-commissioning sales amounting to Rs. 58,30,00,000/-. 4. Whether on the facts and circumstances of the case & in law, the Ld. CIT(A) has erred in allowing relief to the assessee to the tune of Rs. 40.42 crores by computing the disallowance by making retrospective application of Rule 8D of the I.T. Rules although the rule was introduced into the statute only in year 2008. 5. That the order of the Ld. CIT(A) is erroneous and is not tenable on facts and in law." 3. The Appellant, M/s. NTPC Limited (hereinafter referred to as the 'assessee') by filing the present appeal sought to set aside the impugned order dated 26.03.2015 passed by the Commissioner of Income-tax (Appeals)-6, New Delhi, qua the assessment year 2005-06 on the grounds inter alia that :- "1. On the facts and circumstances of the case, the order passed by ....
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....e assessee to earn the exempt income. 7. Assessee carried the matter by way of an appeal before the ld. CIT (A) who has deleted the additions by allowing the claim of the assessee u/s 80IA of the Act; by allowing the expenditure on assets not owned by the assessee; and by allowing precommissioning sales; however, ld. CIT (A) partly allowed the appeal by providing a relief of Rs. 40.42 crores qua addition made by the AO u/ 14A of the Act, by partly allowing the appeal. Feeling aggrieved, both the assessee as well as Revenue have come up before the Tribunal by way of filing the present appeals. 8. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case. GROUND NO.1 IN ITA NO.4183/DEL/2015 (REVENUE'S APPEAL) 9. Challenging the impugned order passed by the ld. CIT (A), ld. DR for the Revenue contended that the ld. CIT (A) has erred in deleting the addition by relying upon the order passed by his predecessor in assessee's own case for AY 2004-05 because facts of the year under assessment are distinguishable.. T....
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....and loss account either on the basis of expenditure actually paid or on the basis of liability incurred/accrued as per the mercantile method of accounting. There is no scope of notional expenditure in computing such profits. If no expenditure is incurred for use of any material or services, where is the question of debiting any amount on account of such notional expenses? Admittedly, the hot gas was freely available to the steam unit. If the assessee had not set up the steam unit, such hot gas would have to be exposed to the open atmosphere. There is no evidence that such hot gas can be sold in the open market. It is only because of the advanced technology that such hot gas, which otherwise goes waste, can be utilized for generating electricity. But that requires massive investment. What would happen if the assessee, in the national interest, allows a third party to use such gas free of any charges? Would the department reduce the profits of steam unit by notional expenditure? In our opinion, the answer would be clearly in the negative as no deduction can be allowed unless any expenditure is incurred. Therefore, in our humble opinion, no portion of the expenditure incurred by the g....
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....section 80-IA which, for the benefit of this order, are reproduced as under: "Section 80-1 (8): Where any goods held for the purposes of the business of the industrial undertaking or the hotel or the operation of the ship or the business of repairs to ocean-going vessels or other powered craft are transferred to any other business carried on by the assessee, or where any goods held for the purposes business carried on by the assessee, or where any goods held for the purposes of any other business carried on by the assessee are transferred to the business of the industrial undertaking or the hotel or the operation of the ship or the business of repairs to ocean-going vessels or other powered craft and, in either case, the consideration, if any, for such transfer as recorded in the accounts of the business of the industrial undertaking or the hotel or the operation of the ship or the business of repairs to oceangoing vessels or other powered craft does not correspond to the market value of such goods as on the date of the transfer, then, for the purposes of the deduction under this section, the profits and gains of the industrial undertaking or the business of the hotel or the ope....
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....ale in the open market. No evidence, whatsoever, has been brought to our notice to show that there is any market for sale of such waste hot gas in India. There is also no evidence that such gas transported. Such gas, if not used, has to be exposed to the open atmosphere. Maybe such gas may find a market but as per the provisions of sub-section (8) of section 80-1 and sub-section (9) of section 80-IA, the market value has to be seen as on the date of transfer. Since there is no evidence of any market for sale of such waste hot gas, we are unable to accept the stand of the revenue. 11. In view of the above discussion, it is held that the course adopted by the Assessing Officer for shifting a portion of expenses incurred by gas unit to the steam unit was not permissible in law and, therefore, cannot be approved. Consequently, the order of the CIT(A) confirming the above action of the Assessing Officer is set aside and the Assessing Officer is directed to allow deductions under sections 80-I and 80-IA without allocating any expenditure of gas unit to steam unit." 12. So, following the decision rendered by the coordinate Bench of the Tribunal on the identical issue, we are of the c....
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....s who are supposed to maintain the infrastructure/roads are not able to maintain such facilities in good working condition on which the development of the plant is dependant. These infrastructure facilities though not owned by NTPC, but are being used for operation of its normal business. All such expenditure has been incurred for the necessity and benefit of NTPC business for the purpose of running its business. In view of the above factual and legal position, the expenses incurred on capital assets not owned by the company is of the revenue nature which are allowable under section 37 of the I.T. Act based on the principle of commercial expediency. Therefore, the addition made by the AO on this account is legally not sustainable. The appeal is allowed in this ground in favour of the appellant." 16. We are of the considered view that there is no illegality or infirmity in the findings returned by the ld. CIT (A) which are based upon the decision rendered by Hon'ble Supreme Court in case of L.H. Sugar Factory & Oil Mills (P) Ltd. vs. CIT 125 ITR 293 (SC) and Hon'ble Delhi High Court in cases of Airport Authority of India vs. CIT - 2012-TIOL-09-HC-DEL-IT-LB and Bikaner Gypsusms Ltd....
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....terest received was assessable as income from other sources. Even if, the pre-commissioning sales were to be treated as income from other sources, the direct expenditure incurred on fuel and consumable has to be netted before charging the amount under The Income-tax Act, 1961. The alternate claim made by the appellant with regard to allowance of deduction of netting of pre-commissioning expenses after adjustment of corresponding sales cannot be allowed since section 43(1) read with Explanation 10 clearly provides for reduction of the "actual cost" of the asset by the amount received directly or indirectly (by whatever name called) relatable to the asset. In the case of the appellant, the SEB' s had met the part cost of the assets in the form of pre-commissioning sales. In the circumstances, I am in agreement with the appellant's submission that in case of sale of electricity prior to commercial operation any revenue from such sales (other than fuel cost) shall be taken for reduction in capital expenditure. This ground of appeal is therefore allowed in favour of assessee." Decision of CIT (A) for in 2004-05: "I have examined the facts and legal position dis....
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....ded inter alia that since no expenditure has been incurred by the assessee in relation to the earning of the exempt income, no disallowance can be made u/s 14A of the Act; that no proper satisfaction has been recorded by the AO before rejecting the claim of the assessee that no expenditure has been incurred to earn the exempt income; that no borrowed funds used by the assessee for making such investments and the loan to the Government are continued from the earlier years; that case of the assessee is covered by its own case rendered by the Tribunal for AY 2004-05 and relied upon the decisions in (i) CIT vs. Modi Rubber Ltd. [2017] 79 taxmann.com 366 (Hon'ble High Court of Delhi); (ii) Hon'ble Bombay High Court in the case of CIT Vs Reliance Utilities and Power Ltd. 313 ITR 340 (SLP filed in this case by the Department has been dismissed by the Hon'ble Supreme Court in civil appeal no 11 of 2019); (iii) Hon'ble Gujarat High Court in the case of CIT Vs Suzlon Energy Ltd. (2013) 354 ITR 630; (iv) Hon'ble Punjab & Haryana High Court in the case of CIT vs Winsome Textile Industries Ltd. 319 ITR 204; (v) Ahmedabad ITAT dated 10.05.2013 in the case of DCIT Vs Gujarat Narmada Valley Fe....
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....the tax free bond and loan to the Government was made long time back under one time settlement scheme. 28. Identical issue has already been decided in favour of the assessee in assessee's own case by the coordinate Bench of the Tribunal in AY 2004-05 by returning following findings :- "14. After considering the submissions of both the parties and the material available on the record, it is noticed that an identical issue having similar facts has been adjudicated in the aforesaid referred to case of DCIT Vs Power Grid Corporation of India Ltd. wherein the relevant findings have been given in paras 10 to 11.5 which read as under: "10. We have heard both the parties and gone through the facts of the case as also the aforecited decisions relied on by the Id. AR on behalf of the assessee. Indisputably, the assessee did not incur any expenditure by way of interest for investment in tax free bonds. In fact, the tax free bonds were acquired on the orders of the Government on conversion of sundry debtors of State Electricity Boards, facing financial crunch. The AO disallowed 2.5 % of the administrative expenses for earning interest income from tax free bonds in the assessment years ....
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....respect at exempt income was being claimed against taxable income. The mandate of section 14A is clear. It desires to curb the practice to claim deduction of expenses incurred in relation to exempt income against taxable income and at the same time avail the tax incentive by way of exemption of exempt income without making any apportionment of expenses incurred in relation to exempt income. The basic reason for insertion of section 14A is that certain incomes are not includible while computing total income as these are exempt under certain provisions of the Act. In the past, there have been cases in which deduction has been sought in respect of such incomes which in effect would mean that tax incentives to certain incomes was being used to reduce the tax payable on the nonexempt income by debiting the expenses, incurred to earn the exempt income, against taxable income. The basic principle of taxation to tax the net income i.e. gross income minus the expenditure. On the same analogy the exemption is also in respect of net income. Expenses allowed can only be in respect of earning of taxable income. This is the purport of section 14A. In section 14A, the first phrase is "for the pur....
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....ding that expenditure cannot be disallowed on the basis of a mere estimate as to what possibly could have been incurred to earn income exempted from tax. 11.5 In the light of view taken in the aforesaid decisions, especially when the Revenue has not placed before us any material in order to controvert the aforesaid findings of the ld. CIT(A) so as to enable us to take a different view in the matter nor even referred to us any material that impugned expenditure was incurred to earn tax free interest income, we are not inclined to interfere with the findings of the ld. CIT (A). In view thereof, ground no.2 in the appeal for assessment year 2003-04, ground nos. i to iii in the appeal for the AY 2002-03, ground no.2 in the appeal for assessment year 2004-05 and ground no.1 in the appeal for the AY 2007- 08, are dismissed." 15. Since, the facts of the assessee's case are similar to the facts involved in the case of DCIT, Circle-14(1), New Delhi Vs Power Grid Corporation of India Ltd. (supra). So, respectfully following the aforesaid referred to order dated 31.10.2011, we do not see any merit in this ground of the departmental appeal." 29. Perusal of the order passed by the c....
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....the assessee and at the same time, they have also brought on record by way of financials that no expenditure has been incurred in relation to earning such income. Accounts of the assessee are audited by auditor as well as Controller & Auditor General (CAG) and when the AO has failed to prove on record material to show that such and such expenditure has been incurred by the assessee to earn exempt income, in the face of the fact that all the investments are old investments that too in tax free bonds and loan to the Government out of its own huge surplus funds, no disallowance can be made. Hon'ble High Court of Punjab & Haryana in case of CIT vs. Hero Cycles Ltd. - 323 ITR 518 held that disallowance u/s 14A is not permissible where there is no nexus between expenditure incurred and income generated by returning following findings :- "Held, dismissing the appeal, that the expenditure on interest was set off against the income from interest and the investment in the shares and funds were out of the dividend proceeds. In view of this finding of fact, disallowance under section 14A was not sustainable. Whether, in a given situation, any expenditure was incurred which was to be disallo....