TaxTMI 
TaxTMI 
2022 (5) TMI 1265
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....ounting to Rs. 422,42,82,000/- and expenditure of assets not owned by the assessee amounting to Rs. 8,89,00,000/- without considering the findings of the AO that the assessee has furnished inaccurate particulars of income? 2. Whether in facts and circumstances of the case and in law, the Ld. CIT(A) is justified in reducing the penalty by Rs. 519,54,82,260/- levied by the AO u/s 271(1)(c) of the Act without considering the provisions of Explanation 1 to Section 27 1(1)(c) of the Act? 3. Whether in facts and circumstances of the case and in law, the Ld. CIT(A) is justified in ignoring ratio dicidendi as laid by Hon'ble Delhi High Court in the case of CIT vs. Zoom Communication Pvt. Ltd. (327 ITR 510)?" 3. In ITA No.3590/Del/2014, the Revenue has raised following grounds of appeal: "1. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in wing the additional depreciation of Rs.4,49,49,17,000/- by relying on the decision of the Hon'ble ITAT in the AY 2005-06 in assessee's own case ignoring the fact that the matter is sub-judice as the Department has preferred an appeal before the Hon'ble Supreme Court on the issue. ....
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....he levy of penalty by disregarding the submissions and explanations of the assessee. 4. On the facts and circumstances of the case, the Ld. CIT(A) has erred, both on facts and in law in upholding the levy of penalty despite the issue involved being a debatable and controversial issue. 5. On the facts and circumstances of the case, the Ld. CIT(A) has erred, both on facts and in law, in upholding the levy of penalty despite the fact that the addition made on account of disallowance of amortization of premium paid on purchase of securities is not sustainable on merits also. 6. On the facts and circumstances of the case, the Ld. CIT(A) has erred in upholding the levy of penalty despite the fact that there is neither any concealment of income nor furnishing of any inaccurate particulars. 7. On the facts and circumstances of the case, the Ld. CIT(A) has erred, both on facts and in law, in upholding the levy of penalty ignoring the fact that penalty proceedings are independent proceedings, and as such, mere disallowance or addition could not lead to the levy of penalty." 5. In ITA No.3535/Del/2014, the assessee has raised following grounds of appeal:....
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....been confirmed despite the expenses being incurred wholly and exclusively for the purpose of business. 6(i) On the facts and circumstances of the case, the learned C1T(A) has erred both on facts and in law in confirming addition of Rs.41.30 Crores made by the AO on account of premium paid on purchase of securities. (ii) The addition has been confirmed despite the assessee following the mercantile system of accounting and following the accounting standards prescribed' Institute of Chartered Accounts of India." ITA No. 3590/Del/2014 (Departmental Appeal) Disallowance of additional depreciation: 6. The revenue has challenged the action of the Ld. CIT(A) in allowing additional depreciation of Rs. 449.49 cr. on the following two contentions: (i) that the activity of power generation cannot be considered as manufacturing of an article or thing, so as to be entitled for additional depreciation. (ii) that the Ld. CIT(A) erred in placing reliance on the decision of coordinate bench of this Hon'ble Tribunal in appellant's own case for AY 2005-06, ignoring the fact that the matter is subjudice as the department has preferred an appeal before th....
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....cle. The ITAT has not dealt with these two judgments extensively rather simply observed that decision in the case of Madhya Pradesh Electricity Board was given in the context of the language of a particular statute. The only discussion made by the ITAT with regard to these two judgments of the Hon'ble Supreme Court reads as under: "6. Reference was made to the decisions of Apex Court rendered in the case of M.P. Electricity Board 35 STC 188 (sic). In this case it was held that electricity is goods within the meaning of section 2(3) of Central Province and Virar Sales-tax Act. This decision was rendered in the context of the language of a particular statute. /As such this meaning cannot be extended to the facts of the present case". 23. Thus, taking into consideration all these aspects, we are of the view that admissibilitv of additional depreciation cannot be denied to the assessee merely on the ground that electricity is not an article or thing. The order of the Learned CIT(Appeals) is reversed to this extent and the disallowance is deleted. 24. In the result, the appeal of the assessee is partly allowed. Decision pronounced in the open court on 30.04.20....
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....ount ascertained at the time of filing of return of income (being Rs. 115.85 cr.) or at the amount recorded in the books of accounts (being Rs. 586.3 cr.) 12. With regard to the above, it was submitted that as per para 7 of the CERC guideline, Regulation No. L-7/25(5)/2003CERC dated 26.03.2004, the incidence of income tax on income from generation of electricity (generation income), is on the customers i.e., here SEBs. In other words, out of the total income of the appellant, the tax on 'generation income' is recoverable from SEBs while it is payable by the appellant itself on 'other income'. 13. The correct amount of tax payable by the appellant on its generation income (as is recoverable from SEBs) is ascertainable only at the time of filing of return when due adjustments to taxable income are made. 14. Thus, as at the time of finalization of accounts, the amount of tax recoverable from SEBs is recorded on provisional basis, and is reduced from the provision for taxes made in the books of accounts. Thereafter, at the time of filing of return of income, the correct tax liability on generation income is computed and paid on grossing up basis. 15. In light of the above, ....
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....1 As the issue has already been settled by various appellate orders and re-assessment proceedings initiated by Department has already been quashed by Hon'ble Delhi High Court, Ground of appeal No. 6 is allowed." 20. In light of the above, the impugned addition made by the AO, with the view that, without incorporating the amount of tax liability in its Profit & Loss account, reduction of the taxable profit has been rightly allowed by the ld. CIT(A). Addition on account of Pre-Commissioning Sales: 21. The revenue challenged the action of the Ld. CIT(A) in allowing capitalization of pre-commissioning expenses, after being netted off with pre-commissioning sales and deleting the addition made by the AO on account of pre-commissioning sales. 22. The issue under consideration has already been discussed at length and thereupon decided in favor by the Ld. CIT(A) for AY 03-04 to 05-06. 23. Relevant observations of the Ld. CIT(A) for AY 03-04 are as under: "I have examined in detail the reason given by the AO for including the pre- commissioning sales without netting the pre-commissioning expenditure. He has relied on the judgment of Hon'ble Rajasthan High Court i....
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.... AY 2007-08. 12.1 As issue has already been settled at Assessing Officer level. This ground is decided in favour of appellant." 26. Since, it has been consistently ruled in favour of the assessee by the Co-ordinate bench of Tribunal and Ld. CIT(A) since A.Y. 2003-04, and also accepted by the AO for all the subsequent years, we hereby decline to interfere with the order of the ld. CIT(A) on this issue. Addition u/s 14A: 27. The revenue challenged the action of the Ld. CIT(A) in deleting the disallowance of Rs. 138.12 cr. u/s 14A of the Act. The impugned issue has been decided in favour of the appellant by the Ld. CIT(A) by relying upon the decision of his predecessor Ld. CIT(A) for A.Y. 2004-05. The said decision of the Ld. CIT(A) for A.Y. 2004-05 has also been upheld by the Coordinate Bench of ITAT vide its decision dated 04.05.2018 in ITA No. 15/Del/2009. Relevant observations made vide the said order are reproduced below for ready reference: "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 ....
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.... "17. The insertion of section 14A with retrospective effect is the serious attempt on the part of the Parliament not to allow deduction in respect of any expenditure incurred by the assessee in relation to income, which does not form part of the total income under the Act against the taxable income (see Circular No. 14 of 2001, dated 22- 11-2001). In other words, section 14A clarifies that expenses incurred can be allowed only to the extent they are relatable to the earning of taxable income. In many cases the nature of expenses incurred by the assessee may be relatable partly to the exempt income and partly to the taxable income. In the absence of section 14A, the expenditure incurred in respect of 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 com....
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.....2. Hon'ble Punjab & Haryana High Court in their decision in CIT vs. Hero Cycles Ltd., 323 ITR 518 have observed that disallowance under section 14A requires finding of incurring of expenditure and where it is found that for earning exempted income no expenditure has been incurred, disallowance under section 14A cannot stand. 11.3. Hon'ble Kerala High Court in their decision in Catholic Syrian Bank Ltd. (supra) held that there being no precise formula for proportionate disallowance, no disallowance is called for out of administrative expenses until Rule 8D came in to force. 11.4. Hon'ble jurisdictional High Court in their decision in Printers House (P) Ltd. (supra) upheld the findings of the ITAT, holding 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 Id. CIT(A) so as to enable us to take a different view in the matter nor even referred to us any material that impugned expenditu....
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....eflecting the difference between provisional billing of sales at Rs. 26,830.10 cr. and its downward accounting at Rs. 25,717.90 cr. was disallowed and added back as sale of the year to the total income of the appellant. 35. It is to be mentioned that the impugned issue arose for the first time in A.Y. 2005-06, wherein though no addition in this respect was made by the AO, however the case on this issue was reopened by the Ld. CIT(A) u/s 263 of the Act. 36. It is pertinent to mention that initiation of the said reassessment proceedings were further upheld by Co-ordinate Bench of the Tribunal vide its order dated 30.04.2012. 37. Against the decision of Co-ordinate Bench of the Tribunal in assessee's own case for A.Y. 05-06 (supra), the appellant preferred an appeal before the Hon'ble Delhi High Court. 38. As on 31.03.2014, when the Ld. CIT(A) passed his order for the impugned assessment year i.e., AY 2006-07, the matter (with respect to the proceedings initiated under section 263 of the Act) for the immediately preceding assessment year i.e., AY 2005-06, remained decided against the appellant by the coordinate bench of this Hon'ble Tribunal vide its order dated 30.04.2012....
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....al of tariff, whichever is earlier and shall be subject to adjustment after final determination of tariff by the Commission based on such applications.'' 20. NTPC thus had no choice in the matter but to carry on billing in terms of the previous notification on a provisional basis up to 31.03.2005 or till the approval of tariffs; such billing figures were to be subject to adjustment after final tariff determination. Thus, inherently there was a degree of uncertainty and incompleteness in the process. This was reflected in the return when the adjustment of the billing became necessary on account of the application of the CERC notification. NTPC's argument that the tariff for power plants from 2004-09 was lower than the tariff norms for 2000-04 has not been disputed by the Revenue. Even a bare look at the later Tariff Regulations shows that the rate of return was revised downwards. NTPC submits that it accounted sales for electricity for Rs. 2212.8 crores based upon the previous experience in tariff fixation orders of CERC. This was even though the billed amount was Rs.2306.6 crores. This estimate was bona fide and made on a realistic assessment of sales estimation that could....
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....xercise his power under Section 263; Leisure Wear (supra) aptly summarizes this power as not enabling a revisional interdict on the mere existence of another view which conflicts with what was adopted by the Income Tax Officer; so long as the tatter's opinion is a plausible one, exercise of power would be unwarranted. The fulfillment of both preconditions, i.e. error of law, and prejudice to revenue is essential, else the revenue would have wide ranging powers to oversee and re-open almost every assessment order. In the present case, the court is satisfied that the AO's order was made after appropriate inquiry; the absence of discussion regarding downward revision of sales figures in this case did not make it any less vulnerable to correction under Section 263. The view taken by him is one which is endorsed by law, as the CERC Regulations left the NTPC with little choice to make such revision awaiting a final determination in regard to the whole period after the expiry of the assessment in that instance. 23. This Court is of the opinion that the question of law framed in this appeal has to be answered in favour of the assessee. The Commissioner acted erroneously in exercis....
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....n the facts and circumstances of the case, the Id. AO has erred, both on facts and in law, in disallowing an amount of Rs. 422.42 cr. out of deduction under section 80IA claimed by the assessee on account of units which have no profit left after adjusting brought forward losses." 49. The Ld. CIT(A) dismissed the appeal of the assessee. 50. It was argued that the issue under consideration is no longer res-integra and has already been decided by the Hon'ble Madras High Court in the case of Velayudhswamy Spinning Mills, 340 ITR 477, dated 11.03.2010, wherein it was held that the initial assessment year cannot be the year in which the undertaking commenced its operations but has to be the year in which assessee has chosen to claim deduction under section 80IA for the first time. It was accordingly held that the provisions of section 80-IA(5) treating undertaking as a separate sole source of income cannot be applied to a year prior to the year in which the assessee opted to claim relief under section 80-IA for the first time. The Court concluded that depreciation and carry forward loss relief to the unit which claims deduction under section 80-IA, cannot be notionally carried forw....
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....o. 176 of 2016 (Madras) • South India Corporation Ltd. vs. ACIT in ITA Nos. 74 & 75 of 2008 dated 07.01.2019 (Kerala) • Tata Power Co. Ltd. vs. ACIT in ITA No.3452/Mum/2012, dated 29.11.2019 (ITAT Mumbai) • Bajaj Electricals Ltd. vs. ACIT in ITA No. 3892/Mum/2011, dated 14.10.2019 (ITAT Mumbai) • DCIT vs. Birla Corporation Ltd. in ITA No. 971/Kol./2012, dated 25.08.2017 (ITAT Kolkata) • M/s. Zaveri & Co. P. Ltd. vs. DCIT in ITA No.1080 & 1081/Ahd./2018, dated 19.03.2020 (ITAT Ahmadabad) 54. In light of the above, we find that the issue under consideration already stands settled in favor of the appellant by various judicial precedents upto the level of the apex court. Hence the appeal of the assessee on this ground is allowed. Section 80IA deduction-Steam Turbine Units: 55. This Ground of appeal pertains to disallowance of deduction claimed under section 80IA in respect of steam units of Combined Cycle Gas Power Plants (CCGPS), with a view that steam turbine units do not constitute independent separate industrial units and the profits derived therefrom do not qualify for deduction under section 80IA. 56. Th....
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....ed details to the AO to substantive the claim. Appeal of the assessee on this ground is allowed for statistical purpose. Amortization of premium paid on purchase of securities: 60. The assessee has purchased GOI securities from the market having face value of Rs. 455 cr. at Rs. 508.4 cr. i.e., at a premium of Rs. 53.4 cr. It was submitted that these securities were purchased at a premium, as interest rate on these securities was higher than the prevailing market rate. On redemption of such securities, only the face value was to be received. 61. It was argued that such premium was amortized over the maturity period of the securities, being in line with Accounting Standard 13 and opinion of Expert Advisory Committee of the ICAI issued on this subject. Accordingly, Rs. 41.3 cr. was amortized during the year under consideration. 62. During the year under consideration, the interest income earned on such securities of Rs. 61.8 cr. However, the appellant offered Rs. 20.5 cr. to tax, being interest earned Rs. 61.8 cr., as reduced by the impugned amount of amortization of premium of Rs. 41.3 cr., as evident from Schedule 20 of the audited Financial Statements. 63. The AO dis....
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.... (vii) As per RBI guidelines dated 16th October 2000, the investment portfolio of the banks is required to be classified under three categories viz. Held to Maturity (HTM), Held for Trading (HFT) and Available for Sale (AFS). Investments classified under HTM category need not be marked to market and are carried at acquisition cost unless these are more than the face value, in which case the premium should be amortized over the period remaining to maturity. In the case of HFT and AFS securities forming stock in trade of the bank, the depreciation /appreciation is to be aggregated scrip wise and only net depreciation, if any, is required to be provided for in the accounts. The latest guidelines of the RBI may be referred to for allowing any such claims." 68. The above Circular provides for amortization of premium paid on purchase of securities, as the same is in line with the RBI guidelines, governing the assesses being banks. Having regard to the above said Circular and distinguishing the decision of the apex court in the case of Vijava Bank (supra), several coordinate benches of the Hon'ble Tribunal have allowed deduction claimed on account of amortization of premium on p....