Sardar Sarovar Narmada Nigam Ltd., Gandhinagar V. The ACIT., GNR Circle, Gandhinagar

CO 80/AHD/2012

• Counselvise Citation: [2016] 123 COUNSELVISE.COM (IT) 2283 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 20 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 29-04-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 22-04-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 09-04-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIBHA BHALLA
• Assessee Lawyers: MRS ARTI N SHAH
• Keywords: Business income; Depreciation; Earning of tax free income
• Section: 143(3); 14A; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH BEFORE: S H RI ANIL CHATURVEDI , ACCOUNTANT MEMBER AND SHR I S. S. GODARA , JUDICIAL MEMBER THE ACIT, GANDHINAGAR (APPELLANT) VS SARDAR SAROVAR NARMADA NIGAM LTD., BLOCK NO. 12, 7 TH FLOOR, SACHIVALAYA, GANDHINAGAR - 382010 (RESPONDENT /CROSS OBJECTOR ) REVENUE BY : S MT. VIBHA BHALLA, CIT - D . R. ASSESSEE BY: MRS. ARTI N. SHAH , A.R. DATE OF HEARING : 22 - 04 - 2 016 DATE OF PRONOUNCEMENT : 29 - 04 - 2 016 / ORDER P ER : S. S. GODARA , JUDICIAL MEMBER : - THIS R EVENUE S APPEAL AND ASSESSEE S CROSS OBJECTION THEREIN FOR A.Y. 2008 - 09 , AR ISE FROM ORDER OF THE CIT(A), GANDHINAGAR DATED 02 - 11 - 2011 IN APPEA L NO. CIT(A)/GNR/90/2010 - 11 , IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . I T A NO . 420 & CO 80/ A HD/20 12 A SSESSMENT YEAR 200 8 - 09 I.T.A NO. 420 & CO NO. 80 /AHD/20 12 A.Y. 2008 - 09 PAGE NO ACIT VS. SARDAR SAROVAR NARMADA NIGAM LTD 2 2. WE COME TO THE RELEVANT PLEADINGS FIRST. THE REVENUE RAISES THE FOLLOWING SUBSTANTIVE GROUNDS: - 1. THE LEARNED CIT(APPEALS) HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT THE BUSINESS OF IRRIGATION HAS COMMENCED WITHOUT CONSIDERING THAT THE MAIN CANA L WAS NOT USED FOR THE PURPOSE OF BUSINESS OF IRRIGATION DURING TH E YEAR. 2. THE LEARNED CIT(APPEALS) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF DEPRECIATION OF RS.11 ,28,73,67, 651/ - ACCORDING TO COST SHARING FORMUL A AMONG DIFFERENT STATES INVOLVED IN THE PROJECT. 3. THE LEARNED CIT(APPEALS) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF COMMON EXPENDITURE OF RS. 14,09,21,642/ - ON THE BASIS OF USAGE PERCENTAGE. 4. THE LEARNED CIT(APPEALS) HAS ERRED IN LAW AND ON FACTS IN TREATING RS.4,99,15,047/ - AS BUSINESS INCOME INSTEAD OF INCOME FROM OTHER SOURCES. 3. THE ASSESSEE S CROSS OBJECTION PLEADS AS UNDER: - 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS). GANDHINAGAR HAS ERR ED IN LAW AS WELL AS ON FACTS OF THE CASE BY HOLDING THAT T HE RECEIPTS OF RS. 18,48,34,122/ - HAS TO BE TAXED AS INCOME FROM OTHER SOURCES. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), GANDHINAGAR HAS ERRED IN LAW AS WELL AS ON FACTS OF THE CASE B Y CONFIRMI NG THE DISALLOWANCE OF RS. 3,03, 000/ - U/S 14A OF THE INCOME TAX ACT, 1961. WE HAVE HEARD BOTH THE PARTIES. 4. WE COME TO REVENUE S FIRST SUBSTANTIVE GROUND CHALLENGING THE LOWER APPELLATE ORDER HOLDING THE ASSESSEE TO HAVE COMMENCED ITS I.T.A NO. 420 & CO NO. 80 /AHD/20 12 A.Y. 2008 - 09 PAGE NO ACIT VS. SARDAR SAROVAR NARMADA NIGAM LTD 3 IRR IGATION BUSINESS. LD. DEPARTMENTAL REPRESENTATIVE REITERATES REVENUE S PLEADING THAT THE MAIN CANAL WAS NOT USED FOR A PURPOSE OF BUSINESS OF IRRIGATION DURING THE RELEVANT PREVIOUS YEAR. THE ASSESSEE FILES BEFORE US A COPY OF THE TRIBUNAL S ORDER DATED 05 - 09 - 2014 IN ITS OWN CASE ITA 944/AHD/2011 DECIDED ON 05 - 09 - 2014 REJECTING REVENUE S IDENTICAL SUBSTANTIVE GROUND ABOUT NON - COMMENCEMENT OF IRRIGATION BUSINESS. LD. DEPARTMENTAL REPRESENTATIVE DOES NOT POINT OUT ANY DISTINCTION ON FACTS OR LAW. THIS FIR ST SUBSTANTIVE GROUND RAISED IN THE REVENUE S APPEAL FAILS ACCORDINGLY. 5. NEXT SUBSTANTIVE GROUND RAISED AT THE REVENUE S BEHEST SEEKS TO RESTORE DEPRECIATION DISALLOWANCE/ADDITION OF RS. 1128,73,67,751/ - CLAIMED AS PER COST SHARING FORMULA AMONGST DIF FERENT STATES INVOLVED IN THE SARDAR SAROVAR PROJEC T. LD. AUTHORIZED REPRESENTATIVE FILES BEFORE US A COPY OF CO - ORDINATE BENCH ORDER AS INDICATED HEREINABOVE REJECTING SIMILAR GROUND HOLDING AS UNDER: - 10. GROUND NO.3 IS WITH RESPECT TO NON APPLICA TION OF COST SHARING FORMULA FOR DETERMINATION OF THE COST OF ASSET FOR THE PURPOSE OF DEPRECIATION. 11. BEFORE US, LEARNED AR SUBMITTED THAT ON IDENTICAL FACTS FOR A.Y.2005 - 06, THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE. SINCE THE FACTS OF THE CASE IN THE YEAR UNDER APPEAL ARE IDENTICAL TO THAT OF EARLIER YEARS, THE GROUND OF THE REVENUE NEEDS TO BE DISMISSED. HE HAS POINTED TO THE RELEVANT PARAGRAPHS OF TRIBUNAL'S ORDER FOR A.Y.2005 - 06 AND 2006 - 07. THE LEARNED DR, ON THE OTHER HAND, RELIED UPON THE ORDER OF AO. 12. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WITH RESPECT TO THE NON I.T.A NO. 420 & CO NO. 80 /AHD/20 12 A.Y. 2008 - 09 PAGE NO ACIT VS. SARDAR SAROVAR NARMADA NIGAM LTD 4 APPLICATION OF COST SHARING FORMULA FOR THE PURPOSE OF DEPRECIATION. WE FIND THAT SIMILAR GROUND WAS TAKEN BE FORE THE HON'BLE TRIBUNAL BY THE REVENUE IN A.YS. 2005 - 06 AND 2006 - 07 AND THE SAME WAS DECIDED IN FAVOUR OF THE ASSESSEE BY HOLDING AS UNDER: '16. 3 R D GROUND IS WITH RESPECT TO NON APPLICATION OF COST SHARING FORMULA FOR THE PURPOSE OF DEPRECIATION: 17. T HIS GROUND IS IDENTICAL TO THAT OF GROUND NOS. 2 & 3 OF 1TA NO 838/AHD/2010. 18. AO NOTED THAT 'SARDAR SAROVAR NARMADA PROJECT' WAS IN THE NATURE OF JOINT VENTURE OF GOVERNMENTS OF GUJARAT, MAHARASHTRA, M.P. AND RAJASTLIAN AND THE COST OF PROJECT HAS ALRE ADY BEEN DETERMINED BY TRIBUNAL. SINCE THE ASSESSEE WAS AN INSTITUTION OF GUJARAT GOVERNMENT, ASSESSING OFFICER WAS OF THE VIEW ITS SHARE CANNOT BE MORE THAN THE SHARE OF GUJARAT GOVERNMENT IN THE PROJECT AND THEREFORE THE DEPRECIATION U/S 32 WAS ONLY ALLO WABLE TO THE EXTENT OF ITS SHARE. HE ALSO NOTED THAT ASSESSEE HAS INCLUDED THE SHARE OF COST IN''LNDIRA SAGAR DAM' BUILT BY MP GOVERNMENT TO WHICH ACCORDING TO AO, THE ASSESSEE WAS NOT ELIGIBLE FOR DEPRECIATION ON THE ENTIRE COST. HE ACCORDINGLY RE - WORKED THE DEPRECIATION. AGGRIEVED BY THE ORDER OF AO,' ASSESSEE CARRIED THE MATTER BEFORE C1T(A). CIT(A) DECIDED THE ISSUE IN FAVOUR OF ASSESSEE BY HOLDING AS UNDER: 3.3 THE MATTER HAS BEEN GIVEN DUE CONSIDERATION. NO DOUBT THE PROJECT IN QUESTION IS THE PRODUCT OF ADMINISTRATIVE - POLITICO DECISION OF GOVERNMENTS OF GUJARAT, MAFTARASHTRA, MADHYA PRADESH AND RAJASTHAN. IT IS ALSO PART OF THE SAME DECISION THAT IT SLIALL BE IMPLEMENTED BY GOVERNMENT OF GUJARAT IN ORDER TO IMPLEMENT THE SAME, THE GOVERNMENT OF GUJARA T DECIDED TO SETUP SARDAR SAROVAR NANNADA NIGAM LTD. AS A PUBLIC LIMITED COMPANY. IF SHOULD BE NOTED THAT ENTIRE SHARE CAPITAL OF THE NIGAM WAS SUBSCRIBED TO BY THE GOVERNMENT OF GUJARAT AND THE NIGAM WAS TO EXECUTE THE ENTIRE PROJECT. SO THERE ARE TWO SEP ARATE AREA OF OPERATION, ONE AMONG THE PARTICIPATING STATES FOR TAKING UP SUCH A PROJECT AND FOR COST SHARING AMONGST THEM AND THE OTHER FOR A LEGALLY INDEPENDENT COMPANY TO IMPLEMENT THE PROJECT. TO THE COMPANY THE COST OF THE ASSETS REMAINS THE SAME, NOT WITHSTANDING I.T.A NO. 420 & CO NO. 80 /AHD/20 12 A.Y. 2008 - 09 PAGE NO ACIT VS. SARDAR SAROVAR NARMADA NIGAM LTD 5 ANY ARRANGEMENT AMONG THE PARTICIPANT STATES BECAUSE THE COST OF HE ASSETS IS BEING MET BY THE FUNDS OF THE COMPANY EQUITY PROVIDED BY GOVERNMENT OF GUJARAT AND BORROWED FUNDS AS IN ANY COMMERCIAL VENTURE. IF ANY FUNDS ARE TRANSFERRED FROM ONE OF THE STATES TO THE GOVERNMENT OF GUJARAT, THE SAME SHALL NEITHER BE REFLECTED IN THE BOOKS OF THE APPELLANT NOR SHALL EFFECT THE COST OF ASSETS IN THE HANDS OF THE APPELLANT. THE ASSESSING OFFICER'S ASSERTION THAT APPELLANT'S SHARE IN PROJECT CANNOT EXC EED THE SHARE OF GOVERNMENT OF GUJARAT OVERLOOKS THE DISTINCTION OF FINANCIAL RELATIONSHIP BETWEEN STATES VIS - A - VIS MANNER OF IMPLEMENTING A PROJECT THROUGH A CARRIER, IN THIS CASE A COMPANY. THEREFORE, I DO NOT AGREE WITH THE ASSESSING OFFICER'S ACTION OF HOLDING THAT COST OF ASSETS IN THE HANDS OF THE APPELLANT HAS TO BE RESTRICTED AS PER COST - SHARING FORMULA DETERMINED BY THE TRIBUNAL. 3.3.1 AS FAR AS THE ISSUE OF 'INDIRA SAGAR DAM' IS CONCERNED, OBVIOUSLY THE ACCOUNTING TREATMENT GIVEN BY THE APPELLAN T IS INCORRECT ON THE BASIS OF APPELLANT'S OWN LOGIC. HENCE WHILE GIVING APPEAL EFFECT, THE ASSESSING OFFICER IS DIRECTED NOT TO TREAT WHOSE ASSETS AS BELONGING TO THE APPELLANT, WITH ITS DUE FOLLOW UP CONSEQUENCES LIKE WITH DRAWAL OF DEPRECIATION. 19. AGGR IEVED BY THE ORDER OF CIT(A), REVENUE IS NOW IN APPEAL BEFORE US. BEFORE US, ID. D.R. RELIED ON THE ORDER OF AO. ON THE OTHER HAND ID. A.R. REITERATED THE SUBMISSIONS MADE BEFORE CIT(A) AND SUPPORTED HIS ORDER. 20. I HAVE HEARD THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD. CIT(A) WHILE GRANTING THE RELIEF TO ASSESSEE HAS NOTED THAT THE ASSESSES IS A SEPARATE COMPANY FOR IMPLEMENTATION OF THE PROJECT AND ITS SHARE CAPITAL WAS SUBSCRIBED BY GOVT. OFGUJARAT. HE LIAS FURTHER NOTED THAT THE COSTS ARE MET BY THE ASSESSEE WHICH IS INDEPENDENT OF THE ARRANGEMENT AMONG THE PARTICIPATING STATES AND THE TRANSFER OF FUNDS BETWEEN ONE OF THE STATES TO GUJARAT IS NOT REFLECTED IN THE BOOKS OF THE ASSESSEE AND DOES NOT EFFECT THE COST OF ASSETS. BEFORE US, REVE NUE COULD NOT PRODUCE ANY MATERIAL' TO CONTROVERT THE FINDINGS OF CIT(A). WE THUS FIND NO REASON TO INTERFERE WITH THE ORDER OF CIT(A) AND THUS DISMISS THIS GROUND OF REVENUE FOR A.Y. 05 - 06 & 06 - 07.' I.T.A NO. 420 & CO NO. 80 /AHD/20 12 A.Y. 2008 - 09 PAGE NO ACIT VS. SARDAR SAROVAR NARMADA NIGAM LTD 6 12.1 SINCE THE FACTS OF THE YEAR UNDER APPEAL ARE IDENT ICAL TO THAT OF EARLIER YEARS AND AS THE REVENUE HAS NOT BROUGHT ANY CONTRARY BINDING DECISION IN ITS SUPPORT, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF LEARNED CIT(A) AND THUS DISMISS THIS GROUND OF THE REVENUE. NO DISTINCTION IS BEING POINTED O UT BY THE LD. DEPARTMENTAL R EPRESENTATIVE. WE ACCORDINGLY AFFIRM THE LOWER APPELLATE FINDINGS UNDER CHALLENGE. 6. REVENUE S THIRD SUBSTANTIVE GROUND ASSAILS CORRECTNESS OF THE LOWER APPELLATE ORDER DELETING DISALLOWANCE OF COMMON EXPENDITURE OF RS. 14,09, 21,642/ - MADE ON THE BASIS OF USAGE PERCENTAGE. THE ASSESSEE HERE AGAIN TAKES US TO A TRIBUNAL S ORDER AFORESAID DECIDING THE VERY ISSUE AGAINST THE R EVENUE ON TH IS USAGE PERCENTAGE. LD. DEPARTMENTAL R EPRESENTATIVE DOE NOT POINT OUT ANY EXCEPTION VIS - A - V I S THE FACTS INVOLVED IN THE INSTANT CASE. THIS THIRD SUBSTANTIVE GROUND ALSO FOLLOW SUIT AS THE PREVIOUS TWO. 7. THE REVENUE S FOURTH AND LAST SUBSTANTIVE GROUND SEEKS TO TREAT ASSESSEE S INCOME OF RS. 4,99,15,047/ - COMPRISING OF RENT OF RESIDENTIAL BU ILDING OF RS . 67,67,288/ - , M ISCE LLAN EOUS RECEIPT OF RS. 4,12,18,702/ - , PRIOR PERIOD ADJUSTMENT OF RS. 19,28,992/ - AND INTEREST ON LOAN TO STAFF OF RS. 65 ; RESPECTIVELY AS OTHER INCOME FROM SOURCES AS AGAINST THE CIT(A) S ORDER TAKING THE SAME THE BUSINESS INCOME. THE ASSESSEE INVITES OUR ATTENTION TO THE TRIBUNAL S ORDER IN ITS OWN IN ASSESSMENT YEAR 2006 - 07 DECIDED ON 28 - 02 - 2014 THAT THE SAME COVERS BY THE FINDINGS THEREIN. LD. DEPARTMENTAL REPRESENTATIVE I.T.A NO. 420 & CO NO. 80 /AHD/20 12 A.Y. 2008 - 09 PAGE NO ACIT VS. SARDAR SAROVAR NARMADA NIGAM LTD 7 STATES THAT THE FOUR HEADS OF INCOME HEREINABOV E ARE NOT COVERED FROM THE SAID ORDER. THE ASSESSEE AT THIS STAGE TAKES US TO PAGE 74 OF THE PAPER BOOK TO STATE THAT ALL THE FOUR ITEMS ARE SQUARELY COVERED . WE HAVE ALSO VERIFIED THIS ASPECT TO FIND THAT THESE FOUR HEADS HAVE ALREADY BEEN HELD TO BE IN COME FROM BUSINESS. THERE IS NO OTHER DISTINCTION POINTED OUT. WE REJECT THIS FOURTH GROUND AS WELL. REVENUE S APPEAL ITA 420/AHD/2012 IS DISMISSED. 8. WE COME TO ASSESSEE S CROSS OBJECTION NOW. ITS FIRST SUBS TA N T I VE GROUND PLEADS THAT BOTH THE LOWE R AUTHORITIES HAVE ERRED IN HOLDING RECEIPTS OF RS . 18,48,34,122/ - ARISING FROM INTEREST ON DEPOSITS AND SINKING FUND INVESTMENTS CLAIMED TO BE BUSINESS INCOME AS I NCOME FROM OTHER SOURCES. LD. AUTHORIZED R EPRESENTATIVE IS FAIR ENOUGH TO CONCEDE THAT THE VERY ISSUE STANDS ADJUDICATED AGAINST THE ASSESSEE BY THE TRIBUNAL IN ASSESSMENT YEAR 2006 - 07. WE APPRECIATE THIS FAIR STAND AND REJECT THIS FIRST SUBSTANTIVE GROUND PLEADED IN THE INSTANT CROSS OBJECTION. 9. THE ASSESSEE S SECOND SUBS TA N T I VE GROUND CH ALLENGES ADMINISTRATIVE EXPENDITURE DISALLOWANCE @ 0.5% OF A VERAGE VALUE OF INVESTMENTS RE LATED TO ITS EXEMPT INCOME ARISING FROM US 64 BONDS. BOTH THE LOWER AUTHORITIES ARE UNANIMOUS IN INVOKING RULE 8D(2)(III) OF THE INCOME TAX RULES R.W.S 14A(2) IN INV OKING THE IMPUGNED DISALLOWANCE. WE FIND THAT NEITHER THE ASSESSING OFFICER NOR THE CIT(A) REJECT ASSESSEE S SPECIFIC CONTENTION OF NOT HAVING INCURRED ANY EXPENDITURE IN EARNING EXEMPT INCOME. THE ASSESSEE QUOTES I.T.A NO. 420 & CO NO. 80 /AHD/20 12 A.Y. 2008 - 09 PAGE NO ACIT VS. SARDAR SAROVAR NARMADA NIGAM LTD 8 CASE LAW OF (2015) 376 ITR 553 (GUJ) PCI T VS. INDIA GILETINE CHEMICAL LTD. HOLDING THAT SUCH A SATISFACTION IS A PRE - CONDITION BEFORE INVOKING DISALLOWANCE UNDER RULE 8D FROM ASSESSMENT YEAR 2008 - 09. WE PLACE RELIANCE UPON THE SAME TO DELETE THE IMPUGNED DISALLOWANCE OF ADMINISTRATIVE EXPENDIT URE AM OUNTING TO RS. 3,03000/ - . LD. AUTHORIZED R EPRESENTATIVE S ARGUMENT S STRONGLY SUPPORTS THE IMPUGNED DISALLOWANCE ARE ACCORDINGLY REJECTED. THIS SECOND GROUND IN ASSESSEE S CROSS OBJECTION IS TREATED ALLOWED. 10. THE REVENUE S APPEAL ITA 420/AHD/201 2 IS DISMISSED. ASSESSEE S CROSS OBJECTION NO. 80/AHD/2012 IS PARTLY ALLOWED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 29 - 04 - 201 6 SD/ - SD/ - ( ANIL CHATURVEDI ) ( S. S. GODARA ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD : DATED 29 /04 /2016 AK / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,