ANDHRA PRADESH POWER GENRATION CORPORATION LIMITED, VIJAYAWADA V. Deputy commissioner of Income Tax, Circle-1(1), Vijayawada

ITA 101/VIZ/2022

• Counselvise Citation: [2024] 101 COUNSELVISE.COM (IT) 7025 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 15-04-2024
• Assessment Year: 2017-2018
• Appeal Filed On: 09-05-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 263; 143(3); 142(1); 80IA; 143(2); 72

Judgement Text

आयकरअपीलीयअधिकरण, विशाखापटणमपीठ, विशाखापटणम IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM श्रीद ु व्ि ू रुआरएलरेड्डी, न्याययकसदस्यएिंश्रीएसबालाक ृ ष्णन, लेखासदस्यकेसमक्ष BEFORE SHRI DUVVURU RL REDDY, HON’BLE JUDICIAL MEMBER & SHRI S BALAKRISHNAN, HON’BLE ACCOUNTANT MEMBER आयकरअपीलसं./ I.T.A. No.101/Viz/2022 (निर्धारणवर्ा/ Assessment Year : 2017-18) Andhra Pradesh Power Generation Corporation Limited, Vijayawada. PAN: AACCA 2734 J Vs. Deputy Commissioner of Income Tax, Circle-1(1), Vijayawada. (अपीलधर्थी/ Appellant) (प्रत्यर्थी/ Respondent) अपीलधर्थीकीओरसे/ Assessee by : Sri M. Chandramouleswara Rao, AR प्रत्यधर्थीकीओरसे/ Revenue by : Dr. Satyasai Rath, CIT-DR स ु िवधईकीतधरीख/ Date of Hearing : 16/04/2024 घोर्णधकीतधरीख/Date of Pronouncement : 28/05/2024 O R D E R PER S. BALAKRISHNAN, Accountant Member : This appeal filed by the assessee is against the order of the Ld. Principal Commissioner of Income Tax, Vijayawada [Pr. CIT] in DIN & Order No. ITBA/REV/F/REV5/2021-22/1041271247(1), dated 22/03/2022 arising out of the order passed U/s. 143(3) of the Income Tax Act, 1961 [the Act] for the AY 2017-18. 2 2. Briefly stated the facts of the case are that the assessee is engaged in generation of power filed its original return of income on 26/10/2017 admitting a total income of Rs. 56,22,32,770/- for the AY 2017-18 after claiming deduction U/s. 80IA of the Act for Rs. 425,82,10,964/-. Later the assessee revised the return of income on 5/10/2018 admitting an income of Rs. 144,41,11,950/- after claiming deduction U/s. 80IA of the Act for Rs. 425,82,10,964/-. The case was selected for scrutiny under CASS and statutory notices U/s. 143(2) and 142(1) of the Act were issued and served on the assessee. In response, the assessee filed the information called for from time to time. The Ld. AO observed that the assessee has not admitted income derived from coal ash for Rs. 28,80,42,765/-. Further, the Ld. AO also observed that the assessee has not admitted receipt of liquidated damages and therefore treated it as a revenue receipt and added it to the total income returned. The Ld. Pr. CIT on examination of the relevant assessment record found that the assessment order was passed without making enquiries or verification and therefore considered the said assessment order as erroneous insofar as it is prejudicial to the interests of the Revenue within the meaning of section 263 of the Act. He therefore issued a detailed show cause notice U/s. 263 of the Act 3 dated 25/02/2022 requesting the assessee to furnish information on or before 3/3/2022. Since the assessee did not respond, the Ld. Pr. CIT offered one more opportunity of being heard by posting the case for hearing on 10/03/2022. In response, the assessee filed its written submissions by email on 10/03/2022. The main contention of the Ld. Pr. CIT in the show cause notice is with respect to disallowing the payment of Rs. 34,57,48,140/- towards of cost of water charges and water cess. Similarly, an amount of Rs. 35,94,33,899/- towards Police Guard charges was also proposed to be disallowed U/s. 40(a)(iib) of the Act. The Ld. Pr. CIT considered the payment of water charges as royalty. Further, the Ld. Pr. CIT also considered that these services are provided exclusively to the APGENCO thereby attracting the provisions of section 40(a)(iib) of the Act. He therefore considered the order of the Ld.AO as erroneous insofar as it is prejudicial to the interests of the Revenue as it has been passed without any enquiries or verification and thereby invoking the revisionary powers U/s. 263 of the Act, the Ld. Pr. CIT partly set- aside the assessment order with a direction to re-do the assessment in accordance with law after making necessary enquiries and verification in respect of the issues discussed the order passed U/s. 263 of the Act after affording a reasonable 4 opportunity of being heard to the assessee. Aggrieved by the order of the Ld. Pr. CIT passed U/s. 263 of the Act, the assessee is in appeal before us by raising the following grounds of appeal: “1. The Revisionary order made by Pr. CIT is bad, unlawful and erroneous both on facts and in law. 2. On the facts and in the circumstances of the case and in law, the Ld. Pr. CIT has erred in assuming revisional jurisdiction u/s 263 treating the cost of water used in the generation of electricity, as amount payable towards “Royalty” and invoked sec. 40(a)(iib) ignoring the fundamental concept envisaged U/s. 9 of the IT Act dealing with the definition of “Royalty”. He ought to have considered the fact that the appellant has purchased water, and purchase of commodity is not covered under the definition of “royalty”. 3. On the facts and in the circumstances of the case and in law, the Ld. Pr. CIT has erred in assuming revisional jurisdiction u/s. 263, on the issue of purchase of water cost supplied by state Government to all private and public organizations in uniform for all the users on consumptive and non-consumptive levy by the State Government this issue is unwarranted and contrary to the provisions of section 40(a)(iib). 4. On the facts and in the circumstances of the case and in law, the Ld. Pr. CIT has erred in assuming revisional jurisdiction U/s. 263 on the issue of water cess collected as part of water charges levy by the Central Government and collected by the AP pollution control board are not under purview of section 40(a)(iib) of the Act. He ought to have considered the fact that the AO has followed the well established law and has not committed any error in this issue. 5. On the facts and in the circumstances of the case and in law, the Ld. Pr. CIT has erred in assuming revisional jurisdiction U/s. 263, on disallowance of cost of Police Guard services are non-exclusively provided by APSPF Department U/s. 40(a)(iib) of the Act alleging that the AO has failed to call for the information / documents to examine the allowability. 6. Such other ground or grounds that may be urged during the hearing of appeal.” 5 3. Grounds No. 1 and 6 are general in nature and they need no adjudication. 4. With respect to Ground No.2, 3, 4 & 5, the assessee has contested the power of the Ld. Pr. CIT for invoking the provisions of section 263 of the Act by disallowing the expenditure U/s. 40(a)(iib) of the Act. The Ld. AR submitted that section 40(a)(iib) of the Act specifies that ‘ any amount paid by way of royalty, licence fee, service fee, privilege fee, service charge or any other fee or charge, by whatever name called, which is levied exclusively on a State Government undertaking by the State Government shall be disallowed’. In the instant case, the Ld. AR submitted that the assessee consumed water in the process of generation of electricity as per the rates fixed by the State Government. The Ld. AR further argued that water should be treated as a commodity or good whereas the Ld. Pr. CIT considered it as royalty for the purpose of section 40(a)(iib) of the Act. Further, the Ld. AR submitted that the principles of e jusdem generis would apply while interpreting the provisions of section 40(a)(iib) of the Act. The Ld. AR also submitted that the water charges have not been levied exclusively on the APGENCO but are levied on various State Government undertakings, various Central Government undertakings and undertakings in the Private Sector hence there is no exclusivity for the assessee. On the issue 6 of disallowance of Police Guard charges, the Ld. AR submitted that the security services are provided by the Police Department to various parties which is evidenced from the confirmation letters received from Andhra Pradesh Special Protection Force (“APSPF”) available in page No.72 of the paper book. The Ld. AR therefore pleaded that the Pr. CIT has erred in invoking the provisions of section 263 of the Act by wrongly interpreting the section 40(a)(iib) of the Act. The Ld. AR placed heavy reliance on the ratio laid down by the Hon’ble Supreme Court in the case of Kerala State Beverages Manufacturing & Marketing Corporation Ltd vs. ACIT reported in [2022] 440 ITR 492 (SC) and also relied on the decision of the Coordinate Bench of the ITAT at Chennai in the case of M/s. Tamilnadu State Marketing Corporation Ltd vs. ACIT in ITA No. 353/Chny/2022 (AY 2014-15), dated 14/11/2022. The Ld. AR also relied on G.O.M.S. No. 39, dated 02/04/2022 and G.O.M.S. No. 76, dated 9/8/2010 in support of his contentions. Per contra, the Ld. Departmental Representative [DR] heavily relied on the order of the Ld. Pr. CIT and also relied on the ratio laid down by the Hon’ble Kerala High Court in the case of Kerala State Beverages (Manufacturing & Marketing) Corporation Ltd vs. ACIT reported in [2018] 94 taxmann.com 91 (Kerala). Further, the Ld. DR also relied on the decision of the Coordinate Bench of ITAT at Cochin in the case of Kerala 7 State Electricity Board Ltd vs. DCIT reported in [2019] 111 taxmann.com 353 (Cochin – Trib.). 5. We have heard both the sides and perused the material available on record and the orders of the Ld. Revenue Authorities as well as the written submissions made by the assessee. In the instant case, the assessee has made payments towards water charges amounting to Rs. 18.23 Crs and water cess amounting to Rs. 16.34 Crs. Further, the assessee also paid Rs. 35.95 Crs towards Police Guard charges. It was the contention of the Ld. AR that the cost of water is paid to the State Government and the water cess is paid to the Central Government. There is a merit in the argument of the Ld. AR that the assessee is not exclusively enjoying the supply of water by the Irrigation and Water Resources Department of the State Government whereas the water has been supplied to various Government Undertakings and Private Organizations as per the rates fixed by the Government and hence there is no exclusivity to the assessee for the purpose of invoking the disallowance U/s. 40(a)(iib) of the Act. It is further noticed that the Ld. Pr. CIT has erroneously considered the cost of water as ‘royalty’ paid to the State Government. Explanation-2 to section 9(1)(vi) defines the expression ‘royalty’ and in our opinion the water charges are paid by the 8 assessee cannot be considered as royalty as per the definition. Further, section 40(a)(iib) of the Act is extracted herein below for reference: “Sec. 40(a)(iib) any amount— (A) paid by way of royalty, licence fee, service fee, privilege fee, service charge or any other fee or charge, by whatever name called, which is levied exclusively on; or (B) which is appropriated, directly or indirectly, from, a State Government undertaking by the State Government. Explanation.—For the purposes of this sub-clause, a State Government undertaking includes— (i) a corporation established by or under any Act of the State Government; (ii) a company in which more than fifty per cent of the paid-up equity share capital is held by the State Government; (iii) a company in which more than fifty per cent of the paid-up equity share capital is held by the entity referred to in clause (i) or clause (ii) (whether singly or taken together); (iv) a company or corporation in which the State Government has the right to appoint the majority of the directors or to control the management or policy decisions, directly or indirectly, including by virtue of its shareholding or management rights or shareholders agreements or voting agreements or in any other manner; (v) an authority, a board or an institution or a body established or constituted by or under any Act of the State Government or owned or controlled by the State Government;” On a plain reading of section 40(a)(iib)(A) of the Act clearly states amount levied exclusively on the assessee shall be subjected to deduction U/s. 40(a)(iib) of the Act. However, in the instant case, we find that water charges was not levied exclusively on the assessee and hence we find that the Ld. Pr. CIT has erroneously invoked the provisions of section 40(a)(iib) of the Act. Further, from the submissions of the Ld. AR we find regarding the payment of Guard Charges by the assessee to Andhra Pradesh Special Protection Force is not exclusively provided to the 9 assessee but also to other industrial undertakings, temples, banks and Public Sector Undertakings as evidenced by the letter submitted by the assessee in page No. 72 of the paper book. Hence, we are of the opinion that the principle of exclusivity has been wrongly interpreted by the Ld. Pr. CIT on the payments made to the Andhra Pradesh Special Protection Force. The case relied on by the Ld. DR ie., Kerala State Beverages (Manufacturing & Marketing) Corporation Ltd (supra) is with respect to electricity duty paid and cannot be applied to the instant case. The Hon’ble Supreme Court in para 14 of its decision in the case of Kerala State Beverages Manufacturing & Marketing Corporation Ltd (supra) has held that the aspect of ‘exclusivity’ U/s. 40(a)(iib) has to be viewed from the nature of undertaking on which levy is imposed and not on the number of undertakings on which the levy is imposed and concluded that there is an exclusive levy on the State Government undertakings. Therefore, the reliance placed by the Ld. DR in the decision of the Hon’ble High Court of Kerala in the case of Kerala State Beverages (Manufacturing & Marketing) Corporation Ltd (supra) has been overruled by the Hon’ble Supreme Court and hence cannot be applied to the instant case. In the light of the aforesaid discussions, we are of the considered opinion that the Ld. Pr. CIT has erred in invoking the provisions of section 263 of the Act in the mater of disallowance of water charges and water cess and Police Protection charges by invoking the provisions of section 40(a)(iib) 10 of the Act is not valid and we therefore have no hesitation to quash the order passed by the Ld. Pr. CIT U/s. 263 of the Act. Thus, Grounds No.2, 3, 4 & 5 raised by the assessee are allowed. 6. In the result, appeal filed by the assessee is allowed. Pronounced in the open Court on 28 th May, 2024. Sd/- Sd/- (द ु व्ि ू रु आर. एल रेड्डी) (एस बालाक ृ ष्णन) (DUVVURU RL REDDY) (S.BALAKRISHNAN) न्याययकसदस्य/JUDICIAL MEMBER लेखासदस्य/ACCOUNTANT MEMBER Dated : 28.05.2024 OKK - SPS आदेशकीप्रतिलिपिअग्रेपिि/Copy of the order forwarded to:- 1. निर्धाररती/ The Assessee–Andhra Pradesh Power Generation Corporation Limited C/o. M. Chandra Mouleswara Rao, Chartered Accountant, C-3, Skylark Apartments, Near Skyline Theatre, Basheerbagh, Hyderabad-500 029, Telangana. 2. रधजस्व/The Revenue –Deputy Commissioner of Income Tax, Circle- 1(1), 2 nd Floor, Central Revenue Buildings, MG Road, Vijayawada- 520002. 3. The Principal Commissioner of Income Tax, 4. आयकरआय ु क्त (अपील)/ The Commissioner of Income Tax 5. ववभधगीयप्रनतनिधर्, आयकरअपीलीयअधर्करण, ववशधखधपटणम/ DR,ITAT, Visakhapatnam 6. गधर्ाफ़धईल / Guard file आदेशधि ु सधर / BY ORDER Sr. Private Secretary ITAT, Visakhapatnam