TaxTMI 
TaxTMI 
2017 (4) TMI 1530
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....-08 2009-10 and 2010-11 is the disallowance made on account of excess depreciation on water suuply and drainage for the above AYs as under: Assessment Year Amount of Depreciation disallowed Rs. 2007-08 1,23,50,917 2009-10 2,37,05,163 2010-11 2,90,90,542 2.1 During the assessment proceedings, the Assessing Officer (in short 'AO') found that the assessee has claimed the depreciation @ 15% on the assets grouped under the head water supply and Drainage in block of assets. The assessee grouped the assets under the head water supply and Drainage consisting of civil construction works like storage tanks, check dams, RCC Aprons and culverts, sewerage and drainage and large size pipelines and bore wells etc. and treated the same as plant and claimed the depreciation @15%. The AO was of the view that the allowable depreciation is @10% as applicable in the case of non-residential buildings. The AO relied on the decision of CIT vs. Anand theatres (244 ITR 192) of the Hon'ble Apex court and restricted the Depreciation to 10% as applicable for non residential buildings and disallowed the balance amount of 5% depreciation as per the details given above. 2.2 Aggrie....
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....me Court's above decision. I accordingly direct the A.O to allow it. This issue is decided in favour of the appellant. 2.3 Aggrieved by the order of the Ld.CIT(A), the Department is on appeal before us. The Ld.DR argued that as per the Appendix-I of Income Tax Rules buildings includes roads, bridges, culverts, wells and pipelines. The Ld.DR argued that the rate of depreciation for each type of asset has been incorporated in the Appendix of Income Tax Rules, after getting expert opinions emanating out of vast statistical data and services and profound researches. The rates are to be applied as per the description and also the nomenclature of the asset. The building and plant are treated separately for the purpose of grant of depreciation. Higher rate of depreciation is granted to machinery and plant as against the building which has more durable. On the other hand, the Ld.AR argued that civil constructions in mining works cannot be treated as mere buildings. Since they have to construct for specific purpose in the mining where the water supply and drainage systems are associated with the excavation, generation and transmission activities as submitted by the assessee and the sp....
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....of the Hon'ble Karnataka High Court. 3.2 Aggrieved by the order of the Ld.CIT(A), the Revenue has filed the appeal before us. The assessee argued that the Lignite is excavated from mines and its force will be very high at rate. The observation bore-wells are dug around the spot of lignite excavating area and higher power submersible motor pumps are engaged to dry up the area. The Ld.AR reiterated the submissions made before the Ld.CIT(A) for the AY 2007-08 which is extracted from the order of the Ld.CIT(A) in Para No.5 as under: a. The lignite is excavated at level of, where the water intrusion and force will be at high rate. The observation bore wells are dug around to the spot of lignite excavating area and high power submersion electric motor pumps are engaged to dry up the area. During the time of rains, mega electric motor pumps are engaged to pump out the storm water from lines and drained out. Thus, the Ground Water Control System (GWC) and Storm Water Control System ('SWC) are engaged in mining. b. Vvhere it is found as a fact that a building has been so planned and constructed as to serve special technical requirements, it will qualify to be treated....
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....e Assessment Order and breakup of the block of assets, there are two types of electrical installations. Electrical installations installed in mines for the purpose of excavation, generation and transmission activities and the electrical installations installed in the building, godown, bus station, etc. We agree with the Ld.CIT(A) that the electrical installations installed for the purpose of excavation, transmission of mining activities required to be considered as a plant as per the decisions relied upon by the assessee. Whereas, the electrical installations installed in the administrative buildings, bus stations, etc., perform the functions of normal transmission of electricity cannot be held as a plant. The assessee also relied on the decision of Kutti Spinners Pvt Ltd 34 ITR 0470. The Co-ordinate Bench of ITAT, Chennai held in the cited case that the electrical cables, fittings and other electrical works connected with the wind mill considered as a single capacity unit and eligible for depreciation @80%. Our view is supported by the Co-ordinate Bench decision cited supra. Therefore, the issue is remitted the matter back to the file of the AO and to examine the electrical instal....
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....n the case of Godhra Electricity Co. Ltd. Vs. CIT 225 ITR 0746 and deleted the addition and held that the improbability of realization has to be considered in realistic manner and in practical point of view. Since the payment has not been received till the date of the decision, the Hon'ble Supreme Court judgment in the case of Godhra Electricity Co. Ltd. Vs. CIT 225 ITR 0746 held to be squarely applicable and accordingly deleted the addition. 4.2 Appearing for the Revenue, the Ld.DR argued that the assessee is following mercantile system of accounting and the income has been accrued as per the system of accounting followed by the assessee. In the case of the assessee, the improbability of recovery does not arise because of the liability has been ascertained and the income has been accrued as per the CERC notification. The recovery is also assured by tripartite agreement between the RBI, Government of India and the State Governments. It was also mentioned in the Tripartite agreement dated 17.04.2002 that the payments remaining outstanding after 90 days from the date of billing shall be recovered on behalf of CPSUs by Ministry of Finance, through adjustment against release due to ....
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....he tariff regulations of the CERC, the powers are conferred u/s.178 of Electricity Act, 2003 r.w.s.61. The CERC has to fix the tariff accordingly and the CERC notified the regulations as under: In exercise of powers conferred under section 178 of the Electricity Act * 2003 read with section 61 thereof CERC notifies (Terms and conditions of Tariff) Regulations. * These regulations apply in cases where tariff for a generating station or a unit thereof is required to be determined by the Commission under Section 62 of the Act read with section 179 thereof. The relevant extracts attached. c) How tariff for supply to electricity board is fixed: Steps involved: * Plant specific Tariff petition / application is prepared based on the capital cost of the plant and norms of Operation of the applicable CERC (Terms & Conditions of the Tariff Regulations) and is filed before CERC as per the stipulated procedures. * Copies of the petitions filed are sent to the Respondent beneficiaries. * Any additional information sought by CERC is filed with a copy to the Respondents. * CERC issues Record of proceedings and directs respond....
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....ent, payment of such bills shall be made no later than 60 days from the date of billing, or within 45 days of their receipt, whichever is later. * 13.1 SEBs or their successor entities shall open and maintain irrevocable Letter of Credits (L.Cs) that are equal to 105 percent of their average monthly billing for the preceding 12 months. The amount shall be revised once in six months, based on the said average. * 13.2 The requisite L.Cs shall be opened no later than 30.09.2002 and failure to do so shall attract reduction in supplies from all CPSUs equal to 2.5 percent of the average daily supply for the preceding 90 days, in addition to the suspension of APDRP as mentioned in paragraph 16 below. These penal provisions shall also apply if the L.Cs are not maintained in future. * 14. Payments made after the period specified in paragraph 12 above, shall attract interest at the rate of 15 percent per annum, compounded quarterly. * 15.1 In the event that payments are not made within the period specified in paragraph 13 above, the supply of electricity shall be reduced forthwith by 5 percent (inclusive of the reduction, if any, under the provisions of pa....
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....nsideration is covered by this agreement. 8.5 In view of the above, it cannot be said that there is uncertainty in recovery of surcharge. Even assuming that the Electricity Boards defaults in making payments due to the assessee company, the tripartite agreement provides for recovery of the same through adjustment by Ministry of finance. Thus, there is no reason for the assessee company in not recognizing the surcharge on accrual basis. After recognizing the surcharge on accrual basis, if for some genuine reason the same could not be realized, then the assessee can write off the same as bad debt. But even for making such a claim, sec.36(2) stipulates a condition that the corresponding income should have been offered to tax. 8.6 In view of the above discussion, the surcharge recoverable by the assessee company from Electricity Boards during the relevant year on the belated settlement of the power bill, amounting to Rs. 118 crores, is treated as income accrued to the assessee and added to the total income. From the discussion of the AO, as per Clause-16 of the guidelines of the tri-partite agreements payments remained outstanding after 90 days from the date of bil....
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....ghtly brought to tax. Therefore we set-aside the orders of the Ld.CIT(A) and restore the Assessment Order. 4.4 In the result, the ground of appeal raised by the Revenue on the issue of surcharge recovery from Electricity Boards is allowed for the AYs 2007-08 to 2010-11. 5.0 For the AYs 2008-09, 2009-10 and 2010-11, the Revenue raised the grounds relating to the issue of deduction u/s.80IA. During the assessment proceedings the AO found that the assessee has claimed the deduction u/s 80IA pertaining to the Unit TPS-I expansion. AO was of the view that the Unit TPS-I was an expansion of the existing unit and hence not eligible for deduction u/s80IA.The AO disallowed the deduction holding that the expansion cannot be considered as a new unit. The disallowance made by the AO u/s.80IA for the AYs 2008-09, 2009-10 & 2010-11 is as under: Assessment Year Amount in Rs. 2008-09 147,36,91,926 2009-10 209,94,46,495 2010-11 246,92,76,304 5.1 For the sake of convenience, the reasoning given by the AO is extracted from the Assessment order made available in Page No.5 of the A.Y.2008-09 asunder: In the instant case also, the assessee has claimed deduction ....
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....and the AO. The main objection of the AO is that the new unit started cannot be considered as separate undertaking because it is using the same manufacturing technology and the finished goods are also the same, i.e., power. The new unit, i.e., unit TPS-I Expansion is nothing but the expansion of the already existing TPS-l unit. He further stated that benefit of sec 80-lA shall be applicable only to the assessee who have started "new business" of generation of power and not to those expanding their business by establishing new plant and machinery and also by introducing new technology for enhancing existing productivity. But reading of the section, in my opinion, does not lead to the interpretation as expounded by the AO. Relief u/s 80-lA(1) is in respect of profits and gains derived by an undertaking from business referred to in subsection (4) of sec 80-lA. In the present case, as per clause(iv) of sub-sec (4), deduction in respect of an undertaking which is set up in any part of India for the generation or generation and distribution of power if it begins to generate power at any time during the period beginning on the 1st day of April, 1993 and ending on 31st day of March, 2011 s....
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....tion grants relief in respect of profits and gains of an undertaking. Explanation 2 under subsection (3) of sec 80-IA cannot govern or restrict the relief available under the main section. It is not correct to interpret the relief that can be granted u/s.80-IA on the basis of a wording in an Explanation to a sub-section concerned only with regard to transfer of machinery previously used for any other purpose to a new business. Various Hon'ble Courts including the Hon'ble Supreme Court, on issues relating to deductions u/s. 80HH, 80I and 80J, have consistently held that expansion in production of the existing product in a geographically separate and independent undertaking will be entitled to relief under those sections. In fact, the heading of these section as well as 80-lA is "Deduction in respect of profits and gains from industrial undertakings or enterprise engaged in infrastructure development, etc.." and not "profits and gains from certain new business". In these circumstances, I am of the considered opinion that the appellant is entitled to relief under section 80-lA in respect of TPS-l Expansion. The requirement regarding investment in the plant and machinery and other cond....
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.... the assessee in respect of such expenditure. Further, the law has not distinguished whether the investment for the purpose of earning the exempted income was made by way of compulsory investment or by way of parking the surplus funds available with the assessee. As per provisions of Section 14A(3), the provisions of sub-section (2) shall not apply in relation to a case where in the assessee claims that no expenditure has been incurred by him in relation to such income. Considering the huge amount of interest income involved, I am not satisfied with the correctness of the claim of the assessee and the claim of the assessee that no expenditure has been incurred in relation to income which does not form part of the total income. 6.2 The assessee went on appeal before the Ld.CIT(A) and the Ld.CIT(A) allowed the assessee's appeal as per the discussion made in para No.8.2 of the Ld.CIT(A)'s Order for the AY 2008-09 as under: 8.2 I have carefully considered the facts of the case and the submissions of the Ld.AR. I have also gone through the decisions relied on by the Ld.AR. There is no dispute regarding the fact that Rule 8D is applicable for the subject ass....
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....to our notice that on the same facts in the assessee's own case in ITA Nos.712 & 713/2010 dated 11/04/2013 the issue was remitted back to the file of the AO to recompute the disallowance. The relevant part of the decision of the coordinate bench is extracted as under: 13. We have perused the orders and heard the rival submissions. Insofar as ground of the Revenue that ld. CIT(Appeals) had not considered the decision of Special Bench of this Tribunal in the case of Daga Capital Management (P) Ltd. (supra), we find that this decision, insofar as it relates to applicability of Rule 8D for years prior to assessment year 2008-09, stands reversed by Hon'ble Bombay High Court in the case of Godrej and Boyce Mfg. Co. Ltd vs. Dy. CIT (328 ITR 81). Hon'ble Bombay High Court clearly held in the said decision that Rule 8D which came with effect from 24 th March, 2008, will be applicable only after the period 2008-09. Nevertheless, their Lordship has clearly noted that even prior to that year, A.O. was duty bound to compute disallowance under Section 14A by applying a reasonable method having regard to the facts and circumstances of the case. Therefore, despite the argument of learned ....
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....that the amount disallowed in the AY 2007-08 amounting to Rs. 231.52 Lakh may please be allowed". 7.1 The Ld.CIT(A) allowed the appeal of the assessee placing the reliance on the order of the ITAT,Chennai in assessee's own case in ITA No. 482 & 483/Mds/2010 dated 30/06/2011. Both the Ld.DR and the Ld.AR accepted during the appeal hearing that the assessee's case covered by this Tribunal order ITA No.482 & 483/Mds/2010. Since the issue is covered by this Tribunal order and the Ld.CIT(A) followed the order this tribunal we do not find any infirmity in the order of the Ld.CIT(A) and the appeal of the revenue on this issue is dismissed. 8.0 The Next issue of Revenue's appeal for the A.Y.2010-11 is over Burden removal of Rajasthan Mine amounting to Rs. 43,93,11543/-.The assessee claimed expenditure of Rs. 43,93,11,543/- in the memo of income towards advance OB removal - Rajasthan. Further, it is seen from Sch.12A to balance sheet- miscellaneous expenditure that such expenses were capitalized in the books. The AO asked the assessee to explain the nature of expenditure and the submitted the reply. The submissions made by the assessee in this regard are given below: 9. Disal....
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....enditure and in the financial year 2009-10 an amount of Rs. 43.93 Cr had been claimed as revenue expenditure. Detailed submission had also been made during the assessment proceeding for the AY 2009-10 vide letter dated 18/10/2011. In the financial year relevant to the Assessment year 2010-11, an amount of Rs. 6.91 Crore charged in the Profit and loss account had been offered as income in the computation statement. Balance amount of Rs. 55.27 cores is shown in the balance sheet as advance overburden removal expenditure under schedule 12A to be charged in the subsequent years. Expenditure of Rs. 50.18 Crores shown as overburden removal expenditure in the schedule 19 are as under: Expenditure incurred for Mine I overburden removal outsourcedexisting Operation 6,32,456.001 Expenditure incurred for barsingsar mine during the period of advance overburden removal stage- transferred to deferred expenditure (included in the expenditure capitalized -vide page no.57 of Annual report) 43,93,11,542.00 Expenditure incurred for barsingsar mine after 1-12-2009 6,18,27,485.00 Total 50,17,71,483.00 8.1 Aggrieved by the ....
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....ay find that sections 80-lB and 80-IA are the Codes by themselves as they contain both substantive as well as procedural provisions. It is evident that section 80-lB provides for allowing of deduction in respect of profits and gains derived from the eligible business. The words 'derived from' are narrower in connotation as compared to the words 'attributable to'. In other words, by using the expression 'derived from the Parliament intended to cover sources not beyond the first degree. [Para 14] Further, sub-section (13) of section 80-lB provides for applicability of the provisions of subsection. (5) and sub-sections (7) to (12) of section 80-lA, so far as may be applicable to the eligible business under section 80-lB. Therefore, one needs to read sections 80-I, 80-IA and 804B as having a common scheme. On perusal of sub-section (5) of section 80-lA, it may be noticed that it provides for manner of computation of profits of an eligible business. Accordingly, such profits are to be computed as if such eligible business is the only source of income of the assessee. Therefore, the devices adopted to reduce or inflate the profits of eligible business have got to be rejected in ....
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....TOTAL Rs. 294.28 lakhs 9.2 Since the AO has disallowed the entire deduction claimed by the assessee u/s.80IA, no separate disallowance was made by the AO towards other income. The AO commented in the Assessment Order that in the event of allowing the deduction u/s 80IA subsequently consequent to appeals, the necessary adjustments required to be made for quantifying the deduction u/s.80IA by excluding amounts relating to other income i.e. handling charges, interest received from employees and miscellaneous income. 9.3 The Ld.CIT(A) dismissed the assessee's appeal as per the reasoning given in Para 5.2 which is reproduced as under: 5.2 I have carefully considered the facts of the case and the submissions of the Ld.AR. I have also gone through the decision relied on by the AO and the stand of the Law. I fully agree with the reasoning of the AO that 80-IA is a special provision and the deduction will be possible only when the profits are 'derived from' the industrial undertaking. The 'other income' shown by the appellant goes beyond any stretch of imagination that they have been derived from the industrial activity from the point of view of the existing provisions and....