TaxTMI 
TaxTMI 
2023 (8) TMI 1058
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.... and thereafter reduce the voluntary disallowance made by the assessee in the return of income. 2 Whether on the facts and under the circumstances of the case and in law, the Ld CIT(A) was justified in allowing the expenses incurred for replacement of meters as Revenue expenditure? 3. Whether on the facts and under the circumstances of the case and in law, the Ld CIT(A) was justified in allowing the proportionate apportionment and allocation of Head Office expenses while calculating deduction u/s 801A of the Act? 4. Whether on the facts and the circumstances of the case and in law, the Ld CIT(A) was justified in holding that the deduction u/s 80IA of the Act to the extent of gross total income computed and not against the net business income only? 5. Whether on the facts and the circumstances of the case and in law, the Ld CIT(A) was justified in deletion of disallowance made u/s. 14A of the Act while computing book profit u/s. 115JB of the Act? 6. Whether on the facts and the circumstances of the case and in law the Ld CIT(A) was justified in restricting the over valuation of coal price estimated by AO to 50% i.e. over valuation to be t....
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....owever, the main argument of the assessee before the ld. AO was that no interest disallowance should be made because assessee had surplus interest free funds of Rs. 17517.57 crores far exceeding the total value of tax free investments which was Rs. 11,444.74 Crores. However, ld. AO after discussing the assessee's submissions rejected all the contention. Ld. AO has though not disputed this fact that assessee had interest free funds, but he rejected the plea that no disallowance u/s. 14A can be made on the basis of decisions of the Hon'ble Bombay High Court in the case of Reliance Utilities and Power Ltd reported in 313 ITR 340; and the two decisions of Hon'ble Bombay High Court in the case of HDFC Bank Ltd. reported in (2014) 49 taxmann.com 335; and (2016) 67 taxmann.com 42, stating that these judgment do not lay down the correct law and he finally, mechanically apply Rule 8D and worked out the disallowance at Rs. 238,59,77,646/- and after reducing suomoto disallowance of Rs. 13,92,89,519/- made disallowance of Rs. 224,66,89,126/-. 7. Before the ld. CIT(A), assessee had relied on the decision of the ITAT in its own case for AY 2013-14 and AY 2014-15, ld. CIT(A) Order for AY 2015-....
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....se by ITAT in AY 2015-16. The assessee also placed reliance on the following decisions:- • ACIT vs. Vireet Investments P. Ltd. (ITA No. 502/Del/2012) and C.O. No. 68/Del/2014) (SB) • Principal Commissioner of Income Tax v. GVK Project and Technical Services Ltd. [2019] 106 taxmann.com 181 (SC) • Principal Commissioner of Income Tax, Bangalore v. Sterling Developers (P) Ltd. [2021] 129 taxmann.com 116 (Kar HC) Principal Commissioner of Income Tax - 6 v. Kohinoor Project P. Ltd [2020] 121 taxmann.com 177 (Bom). With respect to the assessee's without prejudice contention that disallowance u/s. 14A ought to be restricted to exempt income earned by the assessee, reliance has placed on the following decisions • Principal Commissioner of Income Tax - 2 v. Caraf Builders & Constructions Pvt. Ltd. [2019] 112 taxmann.com 322 (SC) • Joint Investments Pvt. Ltd. Vs. CIT [2015] (59 taxmann.com 295) (Del.) (HC) • Principle Commissioner of Income Tax v. India Bulls Capital Services Ltd. (SC) [2020] 114 taxmann.com 647 • Principal Commissioner of Income Tax v. Reliance Chemotex Indus....
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....ution of electricity in the suburbs of Mumbai catering to over 2.9 million consumers. The assessee has installed separate meters in the premises of each consumer (either residential or commercial or industrial) These meters have to be periodically replaced on account of obsolescence, reading of the meter becoming faulty, meter being burnt etc. Many times on account of manufacturing defects, the entire lot of meters has to be replaced. In the books of account, the assessee capitalizes the cost of these replaced meters as per the governing provisions of the Electricity Act, however in the computation of income, the expenditure incurred on replacement of meters is claimed as revenue expenditure since the replacement of meters only facilitates better reading and does not in any way enhance the capital assets or the quantity of power supply. The assessee has been claiming the expenditure on replacement of meters as revenue expenditure since AY 1999-2000 onwards. 14. Ld. AO held that expenditure incurred in replacement of meters is a capital expenditure and allowed depreciation thereon as against assessee's claim as "revenue expenditure". In sum and substance, his reasoning was that; ....
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....n case, it is seen that the expenditure has been incurred on replacement of meters which is treated as revenue expenditure for facilitating the business operations and enables the maintenance and conduct of the assessee's business more effectively or more profitably. The replacement of meter does not increase the Assessee's generation or distribution capacity. In fact assessee replacing old meters by new meters which resulted in better readings of the electricity / current consumption and do not in any way enhance the capital assets or the quantity of power supply. Accordingly, the same is rightly claimed as revenue expenditure. Moreover, this issue has been covered by the decision of Hon'ble Bombay High Court in assessee's own case for AY 2006-07 to AY 2009-10 and also by ITAT Mumbai for AY 2002-03 to AY 2015-16. Accordingly, the disallowance of expenditure made by the AO in both the assessment years is hereby deleted." 18. Since this issue is squarely covered by the decision of the Hon'ble Bombay High Court in assessee's own case for A.Y. 2012- 13 to 2015-16 and therefore, consistent with the binding precedents of Jurisdictional High Court in the case of the assessee, the addi....
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....see Rs. 321,88,18,015 7.1.5 The working of the allocation of head office expenses in the ratio of the turnover of the unit to the total turnover is as under:- Sr. No. Name of unit Turnover of the unit Proportion to the total turnover Share of head office expenses Revised profit/dedn u/s 80IA A B = A/TO C=HO*B i. Power Distribution Unit 7203,56,94,524 0.5330242 171,57,07,942 385,6775,999 Total 171,57,07,942 385,67,75,999 7.1.6 Accordingly, the head office expenses to the extent of Rs. 171,57,07,942 are allocated to the unit and the deduction u/s 80IA of the said unit stands reduced to Rs. 385,67,75,999/-. 21. The ld. CIT (A) has allowed the assessee's ground of appeal for non-allocation of head office expenses for computing the eligible 80IA profits following the decision of CIT (A) in assessee's own case for AY 2015-16 and the decision of the ITAT in assessee's own case for AY 2013-14 and AY 2014-15. 22. Before us, ld. Counsel submitted ....
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....n found as a finding of fact that these expenses do not have direct and immediate connection with the eligible unit. Accordingly, ground No.3 raised by the Revenue is dismissed. 27. In ground No. 4, Revenue has raised deduction u/s. 80IA should be restricted to business income instead of total income. The brief facts are that the company has claimed the deduction u/s 80IA of the Income Tax Act with reference to the net income derived from the eligible 80IA undertaking. This deduction has been restricted to total taxable income of the assessee in accordance with section 80A(2) of the Act. The ld. AO in the assessment order has stated that the assessee's claim for deduction u/s. 80IA is to be restricted to the extent of business income instead of gross total income. He has further stated that since for the year under consideration, the assessee's claim for deduction u/s. 80IA as per revised return of Rs. 557,24,83,941 was lower than the business income of Rs. 1028, 45,30,159, the issue of restricting the deduction u/s. 80IA to business income does not arise. 28. The assessee had not raised the ground with respect to restricting the deduction u/s. 80IA to the extent of business ....
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....s ld. Counsel submitted that the amount worked out under Rule 8D cannot be applied to work out the amount of expenditure in respect of exempt income required to be added in computation of book profit. The assessee submitted that the ITAT in its own case for AY 2013-14 to AY 2015-16 has held that no disallowance u/s. 14A is required to be made for computing book profits u/s. 115JB. Reliance is also placed on the following decisions: • ACIT vs. Vireet Investments P. Ltd. (ITA No. 502/Del/2012) and C.O. No. 68/Del/2014) (SB) • ACIT, Ward 10(2) v. Geometric Software Solutions Co. Ltd. [2022] 140 taxmann.com 647 (Mum. Trib) 34. The issue of disallowance u/s. 14A for computing book profits u/s. 115JB has been decided by the ITAT in Appeal Nos. ITA No. 476/Mum-2022 and ITA No. 2106/Mum-2022 for AY 2017-18 & AY 2018-19 respectively vide their order dated 23.03.2023 at para 78 on page 64 of the order as under: "78. Now coming to issue with regard to disallowance u/s. 14A while computing book profit u/s. 115JB in AY 2017-18. We find that this issue is covered by the decision of ITAT in assessee's own case for AY 2013-14 to AY 2015-16 wherein it was held ....
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....e earlier years and applied it to the declared CIF value for FY 2015-16. The disallowance accordingly worked out to Rs. 21,38,59,853/-. 39. The ld. AO in the Assessment Order has stated that the assessee had purchased the coal from intermediaries at an inflated rate than the actual value of such coal sourced from original suppliers. The ld. AO has stated that the intermediary firms were merely invoicing agents for facilitating invoice inflation. Further, as per the ld.AO the over valuation of coal has the effect of artificially raising the power tariff fixed by the respective state electricity regulatory commission. By overvaluing the coal imports, the cost of coal purchase have been enhanced which in turn is passed on to the ultimate consumers benefitting the power generation companies. The ld. AO based on the disallowance made in the re-assessment proceedings for A.Y. 2011-12 to A.Y. 2015-16 has added back inflated coal expenses of Rs. 21,38,59,853. The ld. AO has not confronted any adverse material and / or evidence to suggest the so-called inflation of expenses. AO then worked out the the average of % of overvaluation to the CIF value for F.Y. 2011-12 to F.Y. 2014-15 and app....
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....I Report were specifically for AY 2011-12 to AY 2015-16 and cannot be applied to the current year under consideration i.e. AY 2016-17 merely on presumptions. 44. He further submitted that the ld.AO and the learned CIT (A) has made the disallowance at Rs. 10,69,29,926/- without appreciating the fact that cost of coal is an integral part for determining the tariff price and the cost of coal already recovered as part of tariff from the consumers and credited to Profit and Loss Account through tariff of electricity sold is offered for tax. Therefore, the disallowance of coal cost has resulted in taxing the recovery of coal cost without allowing the coal cost. Ld. Counsel pointed out that the Adjudicating Authority of Directorate of Revenue Investigation (DRI) had passed an order upholding the show cause notice of DRI for alleged over valuation of Indonesian coal imports in case of Knowledge Infrastructure Systems Pvt. Ltd. which was further challenged before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Mumbai by Knowledge Infrastructure Systems Pvt. Ltd. CESTAT vide its order dated 31.05.2018 in Order No: A/86617-86619 / 2018 has set aside the order passed by the....
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....rms further issued LoAs to the 1st stage traders selected by the CPT of R Infra in their bidding process. Both the LoAs are almost mirror of each other except the price in as much as the price in the LoAs from the intermediary firms to the 1st stage traders was as negotiated by the CPT of R Infra, but the price in the LoAs from R Infra to the intermediary firms was much higher. The 1 stage traders supplied Coal to R Infra after purchasing from Indonesian suppliers or 2nd stage traders. The 1st stage traders raised invoices on the intermediary firms as per the LoAs issued by the latter to them. The Coal, however, was shipped directly from Indonesia to India. 8.3.2 The intermediary firms raised invoices on R-Infra at inflated price mentioned in the LoAs from the latter to the former It appears from the investigation done by Department of Revenue Intelligence that the intermediary firms were merely invoicing agents for facilitating invoice inflation. The intermediary firms appear to have received remittances towards value of invoices raised on the assessee in India, which included the over-valued portion of the price. 8.3.3 Looking at the above case from the perspect....
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....hese responsibilities were entrusted upon the actual suppliers. The intermediary firms had no role to play even in negotiation, finalization of order with actual suppliers, and freightment of cargo as the Incoterms of trade remained identical between the actual suppliers and the intermediary firms on one hand and the intermediary firms and assessee on the other That the intermediary firms were dummy supplier created only for artificially inflating the invoice also appears to be seen from Reliance ADAG officers directly negotiating with actual suppliers in their office at Mumbai and elsewhere by interacting with them. 8.3.6. The conduit companies i.e. Intermediary Firms that have been used are as mentioned below, 1 Reliance Natural Resources Ltd. (RNRL); 2. Larimar Holdings Ltd., Jersey ("LHL"): A British crown dependency and tax haven. 3 3.Epic Alloy Steel Pvt. Ltd, Raigarh, 4. Century Exports Ltd., Hong Kong. ("CEL"): Tax haven, 8.3.7 In respect of the Coal imported by assessee, documentary evidence (Invoices of actual suppliers etc.) pertaining to back-to- back transaction between the intermediary firms and the actual suppliers in rela....
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....s did not affect their profitability and was revenue neutral. 8.3.10 The overvaluation of Coal has the effect of artificially raising the power tariff fixed by the respective state electricity regulatory commission. In India the power tariff is regulated by the regulatory authorities based on the costing date provided by power generation. By overvaluing the Coal imports, the power generator, i.e. assessee, appear to have illegitimately managed to increase landed cost of the Coal, which is primary fuel in Coal based thermal power plants. The higher tariff dispensed by the regulators to the power generators enhances the cost of purchase of the power distributors which in turn is passed on to ultimate consumers benefitting to power generating companies: 8.3.11 Based on the data for the earlier years, extent of over-valuation for A.Y 2016-17 relevant to FY 2015-16 is worked out as under: FY Declared CIF value (Rs.) Extent of Over Valuation % of Over Valuation to declared CIF value 2011-12 2,48,63,51,806 32,87,01,976 13% 2012-13 28,41,06,769 6,52,20,632 23% 2013-14 2,35,05,52,646 67,....
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.... basis of the addition was made by the ld. AO is the information received from DRI, Mumbai for A.Y. 2011-12 to 2015-16, wherein it had investigated the case of over valuation in the import of coal of Indonesian origin. The case of the ld. AO is that intermediary firms were merely invoicing agents for facilitating invoice inflation which has effect of artificially raising the power tariff fixed by the respective state electricity regulatory commission. The ld. CIT(A) has merely stated that the ld. AO has not brought out profitability and the over valuation of coal as an effect of artificially raising the power tariff fixed by the respective state electricity regulatory commission and accordingly, he restricted the disallowance in Adhoc 50% made by the ld. AO. 48. First of all, so far as DRI report is concerned, the same pertains to A.Y.2011-12 to 2015-16 and moreover, no final conclusion or any order has been passed in the case of the assessee therein and it is still at show-cause notice stage. 49. Here in this case, the cost of coal is otherwise an integral part of determining the tariff price and the cost of coal are tariff price and the cost of coal already recovered as par....