TaxTMI 
TaxTMI 
2014 (5) TMI 1206
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.... appeal against the order of dismissal by the Tribunal before the Hon'ble High Court of Karnataka. The Hon'ble High Court in ITA No.95/2010 by judgment dated 22.06.2011, set aside the order of the Tribunal in view of the later decision of the Hon'ble Supreme Court in the case of Electronics Development Corporation of India Ltd. v. UOI & Ors. in Civil Appeal No.1883/11 dated 17.2.2011, wherein it was held by the Hon'ble Supreme Court that approval of the COD required for filing the appeals before the Tribunal by any public sector undertaking as laid down by the Hon'ble Supreme Court in its earlier judgment did not serve the purpose and therefore, such approval needed to be dispensed with. 3. Consequent to the aforesaid judgment dated 22.06.2011 of the Hon'ble High Court of Karnataka setting aside the order of the Tribunal and restoring the matter back to the Tribunal, this appeal was again fixed for hearing the parties on merits. 4. The assessee is a corporation established under the Companies Act, 1956. It is engaged in the business of generation of power in the state of Karnataka. It is a State Govt. Undertaking. The assessee has five units which are eligible to claim deduction ....
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.... business being run by the assessee, still, while allowing the deduction, the provisions of section 32(2), 80A, 80AB and 80B would be applicable. Hence, though the assessee is entitled to a larger deduction, the same is to be restricted to the gross total income as stipulated under section 80A(2). Accordingly, the deduction u/.s 80IA is restricted to the gross total income of the assessee after set off of all the brought forward unabsorbed depreciation." 6. Aggrieved by the aforesaid order of the AO, the assessee preferred the appeal before the CIT(Appeals). The CIT(A) following the decision of the Calcutta Bench of the Tribunal in the case of ITO v. Kanchan Oil Industries Ltd. (supra), directed the AO to allow the claim of the assessee as made in the return of income. The Tribunal in the aforesaid case had taken the following view:- "For the purpose of determining the quantum of deduction under sub-s. (5) of s. 80-IA, the eligible business is to be treated as the only source of income of the assessee during the relevant assessment year as provided under sub-s. (7) of s. 80-IA. A careful perusal of s. 80-IA(7) shows that s. 80-IA(7) enacts provisions of overriding nature. Sec. 8....
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....sessment year. Thus, s. 80-IA can be said to be a special provision providing a special mode of computation of deduction from the profits and gains derived from eligible business under s. 80-IA. Having regard to the cardinal principle of interpretation emerged from the maxim "generalia specialibus non derogant", the special provision of s. 80-IA(7), which is overriding in nature, must prevail over general provisions to the extent of its scope and limit. Consequently, the deductions, expenses and losses, etc., and the unabsorbed losses, unabsorbed depreciation, etc., relating to other non-eligible business or any other source of income cannot be taken into account in computing the "gross total income" for the purpose of computing the quantum of deduction admissible under s. 80-IA." (emphasis supplied) 7. Aggrieved by the order of the CIT(Appeals), the revenue has preferred the present appeal before the Tribunal. 8. At the time of hearing of the appeal, it was brought to our notice that similar issue raised by the revenue in this appeal was considered and decided by the Hon'ble Supreme Court in the case of Synco Industries Ltd. v. AO, 299 ITR 444 (SC). The Assessee in that case wa....
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....then it would almost render the provisions of s. 80A(2) nugatory and, therefore, the same cannot be accepted. It was held that the non obstante clause in s. 80-I(6) cannot restrict the operation of ss. 80A(2) and 80B(5) which operate in different spheres. The Hon'ble Court therefore concluded that loss from the oil division of the assessee was required to be adjusted before determining the gross total income, and since the gross total income was 'Nil', assessee was not entitled to claim deduction under s. 80-I. 9. The above decision rendered in the context of Sec.80-I of the Act would in our view squarely apply to the provisions of Sec.80-IA and 80- IA(7) of the Act as the provisions are impari materia the same. 10. In view of the aforesaid decision of the Hon'ble Supreme Court, we are of the view that the order of the CIT(Appeals) allowing the claim of the assessee without setoff of losses of earlier years while arriving at the gross total income cannot be sustained. 11. The ld. counsel for the assessee, however, submitted before us that in the A.Y. 2003-04, the CIT(A) had initiated proceedings u/s. 263 of the Act. The aforesaid proceedings u/s. 263 of the Act was in relation t....
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.... "3. The learned authorities below are not justified in law in making an addition of a sum of Rs. 11,67,257/- being the amount of Rs. 8,65,857/- pertaining to the donation of assets and a sum of Rs. 3,01,400/- being the obsolesce of assets under the facts and circumstances of the case." 18. As we have already seen, the assessee is a corporation established under the Companies Act, 1956, engaged in the business of generation and supply of electricity. In the course of assessment proceedings, the AO noticed that the assessee had made a claim for deduction of a sum of Rs. 11,67,257; being a sum of Rs. 8,65,857 which was donation of assets given by the assessee and another sum of Rs. 3,01,400 being obsolescent assets written off. The AO did not allow the claim of the assessee for deduction of the aforesaid sum for the reason that the details of expenditure on account of obsolescence and donation of assets showed that they were capital losses and therefore cannot be allowed as revenue expenditure. 19. Before the CIT(A), the assessee gave details of the assets that were donated and that which were written off as obsolete. The same were as follows:- The details of donation of assets:....
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....ontrovert the finding of the assessing authority. In this view of the matter, we dismiss Ground No.5 raised by the assessee." 23. We are of the view that in the light of the decision of the Tribunal referred to by the ld. DR, there is no merit in ground No.4 raised by the assessee. Accordingly, the same is dismissed. 24. Ground No.4 reads as follows:- "4. The learned authorities below are not justified in making an addition of Rs. 19,95,80,290/- on the following expenses on the ground that they pertain to prior period under the facts and circumstances of the case." 25. As far as ground No.4 is concerned, the break up of the sum of Rs. 19,95,80,290 claimed as deduction by the assessee under the head 'prior period expenses' is as follows:- (a) Stores reconciliation of coal carried out during the previous year Rs. 13,70,43,439 (b) Payments made towards coal transport agency due to price escalation Rs. 2,07,60,000 (c) Differential surface transport charges to coal suppliers Rs. 70,63,081 (d) Differential sales tax reimbursement on lease rentals Rs. 2,63,72,297 (e) Others (being expenses claimed by employees and other agencies in conducting the activit....
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....f the previous year under the scheme of the Income Tax Act. 29. With regard to the difference of sales tax on lease rentals of Rs. 2,63,72,297/- (i.e., 9.2% -1.5% = 7.7%) paid in F.Y. 2005-06, the Assessee pointed out that the differential liability payable on lease rentals were claimed by the lessor only during the previous year relating to AY 06- 07 though the same related to lease rents payable for F.Y. 2004-05. Hence, the same were accounted under the head of account 'Expenses pertaining to previous period'. 30. With regard to the remaining sum of Rs. 83,41,475/-, the Assessee submitted that the above sum represents expenses for which bills were produced by the agencies and staff during the year and are crystallized during the year. The Assessee argued that in the absence of contract and crystallization of the liability the same cannot be claimed. The amounts were accounted in the earlier years as advance to staff and advance to supplier/agencies and transferred to the expense account during the year as the bills have been given by them only this year. This has been a consistent practice followed by the company over the years. Hence the same is to be allowable during the year....
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....So far the alternative plea as to giving direction to the A.O. to allow such claim in the year of genesis or accrual, I refrain because it is only the assessee's discretion to take remedial measures if it considers fit and legal and also because I have no power to set aside the present assessment not to speak of the past ones. Hence, grounds of appeal is dismissed." 34. Aggrieved by the order of the CIT(A), the assessee has preferred ground No.4 before the Tribunal. 35. We have heard the rival submissions. As far as the sum of Rs. 13,70,43,439 which is claimed to be relating to stores reconciliation is concerned, we find that as per the procedure in the stores department, the custodian of material maintains ledger quantity aspect and the accounts wing maintains ledger for quantity aspect with value. It was noticed that there were discrepancies in ledger quantity maintained by the custodian of materials and the accounts wing. A review of quantity balances between the custodian of materials and accounts wing was done and an appraisal note on the discrepancies found and the reason for the discrepancy was prepared as on 31.3.2006 and it was noticed that a sum of Rs. 8,45,05,557 was a....
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....and beyond the original contract period of June 2004. The breakup is as follows: a) Rs. 40/- per MT on account of escalation based on FO & LDO as per the applicable formula. b) Rs. 20/- per MT over and above escalation on account of FO & LDO. Please confirm your acceptance to the above in full & final settlement of your claim relating to this contract as regards increase in Ocean Freight & Charter hire Prices." 37. Based on the aforesaid letter, the transporters M/s. SICAL accepted the offer of the assessee as follows:- "This has reference to your letter dated 10th February 2006 and also our letter dated 14th February 2006. Vide your letter you have informed us that based on the decision of Board of Directors in respect of ocean freight and charter hire, KPCL proposes to make a payment of Rs. 60/- pmt in respect of 3.46 lakh Mts of coal moved over and above the contacted quantity of 36 lakhs Mts. We have already explained to you in our letter that as per the contractual conditions, the escalation payable to us is much more than this amount. We have also pointed out that this decision is not as per the terms of the contract. However, as we have certain pressing commitment....
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....n question was payable in respect of transportation done during an earlier period, the same is allowable in the present assessment year as the liability had crystallised only during the previous year. We therefore direct that the claim of the assessee be allowed. 41. As far as the differential sales tax reimbursement of lease rentals is concerned, the facts are as follows. The assessee had entered into an agreement with M/s.ICICI Bank Ltd., towards sale and lease back of Boiler at Raichur Thermal Power Station - units 5 & 6 for which the Government of Karnataka had granted exemption from payment of sales tax on such lease rentals. However the exemption was withdrawn by the Hon'ble Government of Karnataka with effect from 01/08/2004 resulting in payment of sales tax on lease rentals. As per the claims of M/s. ICICI Bank Limited the sales tax was paid at 1.50% of the lease rentals with effect from 01/08/2004. Thereupon the ICICI Bank Limited demanded and claimed that the applicable sales tax rates will be at 9.20% instead of 1.50% on such lease rentals. The assessee reimbursed the differential sales tax on lease rentals amounting to Rs. 2,63,72,297/- on 07/03/2006 to M/s. ICICI Bank....
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....ed and one has to accept the claim of the assessee. It was also submitted that the expenditure claimed under six heads is negligible considering the large scale operations in which the assessee is engaged. It was therefore prayed that the addition made should be deleted. 45. We are of the view that considering the explanation offered, it would be reasonable to allow the claim of the assessee. Consequently the claim of the assessee is directed to be accepted. 46. In the result, ground No.4 is partly allowed. 47. Ground Nos. 5 & 6 raised by the assessee reads as follows:- "5. Without Prejudice the appellant denies itself liable to be taxed under the provisions of section 115JB of the Act since the appellant is a electricity company and the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 are not applicable to the appellant. 6. The authorities below ought to have appreciated that the provisions of MAT is not applicable to the appellant since the appellant is engaged in the generation or supply of electricity and under proviso to section 211[2] of the Act,, the appellant is exempted from preparing its books of account in terms of requirements under schedu....
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....ee in the case on hand is an electric company engaged in the generation of power. The provisions of section 115JB(2) read as under : " Every assessee, being a company, shall for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 (1 of 1956)." The assessee, in the case on hand, however does not have to prepare its accounts in accordance with Parts II and III of Schedule VI of the Companies Act, 1956, by virtue of proviso to section 211(2) thereto. The proviso to section 211 (2) of the Companies Act, 1956 reads as under : "Provided that nothing contained in this sub-section shall apply to any insurance or banking company or any company engaged in the generation or supply of electricity, or to any other class of company for which the form of profit and loss account has been specified in or under the Act governing such class of company." 11.2.2. As contended by the learned Authorised Representative the newly inserted Explanation - 3 to section 115JB of the Act is clear that the assessee is given an option to prepare its profit and loss ac....
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....s of the Act, they need to be challenged before the Tribunal. It was also pointed out that the assessee's total income was computed under the provisions of section 115JB of the Act as the tax payable was more than the total income computed under the normal provisions of the Act. 54. We have considered the submissions of the ld. counsel for the assessee and the reasons given in the affidavit for condonation of delay of 31 days in filing the appeal. We are satisfied that the delay in filing the appeal was occasioned due to sufficient cause and we accordingly condone the delay in fling the appeal. 55. As far as this appeal is concerned, ground Nos.1, 11 & 12 are general in nature and call for no specific adjudication. 56. Grounds 6 & 7 raised by the assessee read as follows:- "6. Without prejudice the learned authorities below failed to appreciate the fact that by virtue of additions and disallowances made to the reported income, the gross total income increases and even after such additions, the income of the appellant will be Rs.NIL since the appellant had an eligible claim of deduction under section 80IA of the Act amounting to sum of Rs. 249,82,55,108/- and the same will be r....
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....able only during the assessment year 2008-09. Therefore, the AO is justified in making the disallowance, which is upheld." 62. We have considered the rival submissions. From a perusal of the order of the AO as well as CIT(Appeals), it is clear that the revenue authorities have not denied the fact that the expenditure crystallised during the previous year, though they related to a period earlier to the previous year. In our view, under the mercantile system of accounting it is the crystallization of liability that will decide as to allowability of an expenditure. Since, admittedly, crystallization of expenses in question had happened during the previous year, the expenditure claimed by the assessee has to be allowed. Accordingly, the AO is directed to allow the claim of the assessee for deduction. 63. Ground No.4 raised by the assessee reads as follows:- "4. The learned CIT[A] is not justified in law in confirming the disallowance made by the learned assessing officer on account of expenditure claimed by the appellant under the head expenditure on establishment and general expenses of Rs. 61,21,109/- as against the original addition made by the learned assessing officer of Rs. 3....
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.... in enhancing the disallowance made by the AO has overlooked the fact that the liability of the assessee to pay DA had crystallised only during the previous year. Accordingly, the addition made by way of enhancement by the CIT(A) is directed to be deleted. 68. With regard to the remaining sum of Rs. 38,55,151, the ld. counsel for the assessee submitted before us that the necessary evidence to prove crystallization of liability during the previous year can be produced by the assessee and for this purpose, pleaded for a fresh opportunity before the AO. We are of the view that the request made is reasonable and accordingly we set aside the order of the CIT(A) insofar as the addition of Rs. 38,55,151 is concerned and direct the assessee to file necessary evidence before the Assessing Officer. In this regard we are also of the view that the Assessee being a corporation established by the State of Karnataka should be afforded an opportunity as no motives for any tax evasion can be attributed. The AO is directed to consider the claim of the assessee afresh, with liberty to file evidence to substantiate its claim. The AO will thereafter decide the issue affording the assessee opportunity ....