The DCIT, Circle-4, Ahmedabad V. Gujarat Paguthan Energy Corpn. Ltd., Ahmedabad

ITA 1031/AHD/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 67684 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 23-08-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 05-04-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Assessment record
• Section: 143(3); 115JB

Judgement Text

ITA NO 1031/A/2010 & CO. NO.124/A/2010 . A.Y. 2006- 07 1 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD (BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL C HATURVEDI, A.M.) I.T. A. NO. 1031/AHD/2010 & CO. N O. 124/AHD/2010 (ASSESSMENT YEAR:2006-07) THE DCIT,CIRCLE-4, AHMEDABAD (APPELLANT) VS. GUJARAT PAGUTHAN ENERGY CORPORATION PVT. LTD. 6 TH FLOOR, CHANAKYA BUILDING, OFF. ASHRAM ROAD, AHMEDABAD (RESPONDENT) GUJARAT PAGUTHAN ENERGY CORPORATION PVT. LTD. 6 TH FLOOR, CHANAKYA BUILDING, OFF. ASHRAM ROAD, AHMEDABAD (APPELLANT) VS. THE DCIT,CIRCLE-4, AHMEDABAD (RESPONDENT) PAN: AAACG 7999P APPELLANT BY : SHRI SUBHASH BAINS. CIT D. R. RESPONDENT BY : SHRI S.N.SOPARKAR WITH URVASH I SHODHAN A .R. ( )/ ORDER DATE OF HEARING : 23-08-201 3 DATE OF PRONOUNCEMENT : 20-09-2013 PER SHRI ANIL CHATURVEDI,A.M. ITA NO 1031/A/2010 & CO. NO.124/A/2010 . A.Y. 2006- 07 2 1. THESE TWO APPEALS ARE FILED BY THE REVENUE AND A SSESSEE AGAINST THE ORDER OF CIT(A)-VIII, AHMEDABAD DATED 30.11.2009 FOR ASSE SSMENT YEAR 2006-07. 2. FACTS AS CULLED OUT FROM THE ORDERS ARE AS UNDER : 3. ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF GENERATION OF ELECTRICAL ENERGY. IT ELECTRONICALLY FILED RETURN OF INCOME FO R AY 2006-07 ON 29.12.2006 DECLARING TOTAL INCOME OF RS 36149032/- THE CASE WA S SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED U/S 143(3) VIDE ORDER DATED 24.12.2008 AND THE TOTAL TAXABLE INCOME WAS DETERMI NED AT RS 562016990 AND THE BOOK PROFITS U/S 115JB WAS DETERMINED AT RS 2855354938. AGGREIVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEF ORE CIT(A). CIT(A) VIDE ORDER DATED 30.11.2009 PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE IS NOW IN APPEAL BE FORE US AND THE ASSESSEE HAS ALSO FILED CO. THE GROUNDS RAISED BY THE REVENU E READS AS UNDER: THE LD.CIT(A) -VIII HAS ERRED IN LAW AND ON FACTS I N DELETING THE ADDITION OF RS.3,44,55,366/- MADE BY THE A.O. BEING THE INCOME ACCRUED TO THE ASSESSEE ON ACCOUNT OF DELAYED PAYMENT CHARGES, WITHOUT PROP ERLY APPRECIATING THE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECOR D BY THE A.O. 1.2. IN DOING SO, THE LD.CIT(A) HAS ERRED IN LAW AN D ON FACTS IN NOT APPRECIATING THAT THE SAID INCOME HAD ACCRUED TO TH E ASSESSEE AS PER THE POWER PURCHASE AGREEMENT AND JUST BECAUSE GEB HAD D ENIED THE LIABILITY, IT COULD NOT HELD THAT THERE WAS NO ACCRUAL OF INCOME. 1.3. IN DOING SO, THE LD.CIT(A) HAS ERRED IN LAW AN D ON FACT IN NOT APPRECIATING THE RATIO OF THE DECISIONS OF HON'BLE APEX COURT IN THE CASE OF KERALA FINANCE CORPORATION 210 ITR 129. 2. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN D ELETING THE ADDITION OF RS. 1,51,37,588/- MADE BY THE AO. ON ACCOUNT OF DISALLO WANCE OF MISC.EXPENSES WRITTEN OFF, WITHOUT PROPERLY APPRECIATING THE FACT S OF THE CASE AND THE MATERIAL BROUGHT ON RECORD BY THE A.O. 2.2. IN DOING SO, THE LD.CIT(A) HAS ERRED IN LAW AN D ON FACTS IN NOT APPRECIATING THAT THE SAID EXPENDITURE WAS INCURRED IN EARLIER YEAR AND WAS ALSO PERTAINING TO THE EARLIER YEAR AND THEREFORE T HE DISALLOWANCE WAS RIGHTLY MADE BY THE A.O. 3. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN G IVING RELIEF OUT OF THE ADDITION OF RS. 47,62,75,000/- MADE BY THE A.O. ON ACCOUNT OF DISALLOWANCE OF DEDUCTION U/S.801A OF THE ACT BY DIRECTING THE A .O. TO EXCLUDE ONLY THE NET ITA NO 1031/A/2010 & CO. NO.124/A/2010 . A.Y. 2006- 07 3 INTEREST FROM THE ELIGIBLE INCOME INSTEAD OF THE GR OSS INTEREST INCOME EXCLUDED BY THE A.O. 3.1. IN DOING SO, THE LD.CIT(A) HAS ERRED IN LAW AN D ON FACTS IN NOT APPRECIATING THAT THE NETTING OF INTEREST IS NOT AN ALLOWABLE PROCEDURE AS THE LOANS HAD BEEN TAKEN FOR THE PURPOSE OF BUSINESS WH ILE THE INTEREST INCOME HAD BEEN EARNED ON INVESTMENTS OF THE ASSESSEE. 4. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN D ELETING THE ADDITION OF RS. 10,64,06,649/- MADE BY THE A.O. ON ACCOUNT OF DISAL LOWANCE U/S.40(A)(IA) OF THE ACT, WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECORD BY THE ASSESSING OFFICER. 4.1 IN DOING SO, THE LD. CIT(A) HAS ERRED IN LAW A ND ON FACTS IN NOT APPRECIATING THAT IF THE DELAYED PAYMENT CHARGES AR E TREATED AS INTEREST IN NATURE, BY THE SAME COROLLARY, THE REBATE FOR EARLY PAYMENT PAYMENT SHOULD ALSO BE TREATED AS INTEREST IN NATURE. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 6. IT, IS THEREFORE, PRAYED THAT THE ORDER OF THE LD. CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED T O THE ABOVE EXTENT. GR.NO 1 AND ITS SUB GROUNDS ARE WITH RESPECT TO ADD ITION ON ACCOUNT OF DELAYED PAYMENT CHARGES: 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AO N OTICED THAT ASSESSEE HAD NOT RECOGNISED THE DELAYED PAYMENT CHARGES (DPC) RE CEIVABLE FROM GUJARAT ELECTRICITY BOARD (GEB) THOUGH SIMILAR CHARGES WERE SHOWN TO HAVE BEEN RECEIVED IN EARLIER YEARS. THE ASSESSEE INTERALIA S UBMITTED THAT ASSESSEE HAD NOT RECOGNISED DPC SINCE THE ASSESSEE BELIEVED THAT THERE WAS NO CERTAINTY OF THE DPC BEING PAID BY GEB SPECIALLY IN THE LIGHT OF THE REVERSAL OF THE CLAIMS FOR YEAR ENDED MARCH 2005. IT WAS FURTHER SU BMITTED THAT IT CONSISTENTLY FOLLOWS THE POLICY OF ACCOUNTING THE SAME WHEN ITS RECOVERABILITY IS CERTAIN. THE AO DID NOT FIND THE SUBMISSIONS OF THE ASSESSEE ACCEPTABLE AND ACCORDINGLY ADDED RS 3,44,55,366/- AS INCOME OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) FOLLOWING THE ORDER OF HIS PREDECESSOR DECIDED THE ISSUE IN F AVOUR OF ASSESSEE BY HOLDING AS UNDER: ITA NO 1031/A/2010 & CO. NO.124/A/2010 . A.Y. 2006- 07 4 6.6 I HAVE CONSIDERED THAT FACTS AND SUBMISSION OF THE LD. A.R CAREFULLY. I HAVE GONE THROUGH THE ORDER OF MY ID PREDECESSOR FO R THE A.Y 2005-06 IN THIS REGARD. THERE IS NO DENIAL OF FACT THAT THE GEB AUT HORITIES HAD DENIED THEIR LIABILITY FOR SUCH PAYMENTS AS PER THEIR LETTER OF NOVEMBER 2004. WHEN THE GEB AUTHORITIES HAVE DISPUTED THE LIABILITY THERE W AS NO ACCRUAL OF INCOME TO THE APPELLANT IN THIS REGARD. IT SEEN THAT THE FINA L OUTCOME OF THE DISPUTE HAS BEEN ARRIVED AT ONLY IN MARCH 2007 I.E. MUCH AFTER THE CLOSE OF THE F.Y 2005- 06. THEREFORE, UNDER THESE CIRCUMSTANCES THE ADDITI ON MADE BY THE A.O CANNOT BE SUSTAINED. SINCE I HAVE ALREADY DELETED T HE ADDITION UNDER REFERENCE THE ID. A.R'S ALTERNATIVE PLEA AND OTHER ARGUMENTS ARE HEREBY REJECTED . 5. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE IS NOW IN APPEAL BEFORE US. BEFORE US, THE ID.D.R. RELIED ON THE ORDER OF AO. ON THE O THER HAND THE LD. A.R. SUBMITTED THAT ON IDENTICAL FACTS IN THE ASSESSEES OWN CASE FOR AY 2005-06, THE ISSUE HAS BEEN DECIDED IN FAVOUR OF ASSESSEE BY TRIBUNAL IN ITA NO. 2839/AHD/2008 ORDER DATED 30/03/2012. HE ALSO PLACE D ON RECORDS THE AFORESAID ORDER. HE THEREFORE URGED THAT THE MATTE R BE DECIDED IN FAVOUR OF ASSESSEE. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN ADMITTED POSITION BY BOTH THE PARTIES BEFORE US THAT THE FACTS IN THE PRESENT GROUND ARE IDENTICAL TO THAT OF AY 2005-06. IN AY 2 005-06, WE FIND THAT THE ISSUE HAS BEEN DECIDED IN FAVOUR OF ASSESSEE BY THE CO-ORDINATE BENCH OF TRIBUNAL IN ITA NO 2839/AHD/2008 ORDER DATED 30.3.2 012 BY HOLDING AS UNDER: 2.3.4 WE HAVE CONSIDERED THE RIVAL SUBMISSION, PERU SED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW. WE FIND THAT IT IS NOTED BY THE LD. CIT(A) IN HIS ORDER THAT EVEN A S PER FINAL DECISION TAKEN IN THE MONTH OF MARCH 2007, THE AMOUNT OF DPC CHARGES COULD BE CALCULATED UP TO MARCH 2005 AT RS.226.39 CRORES OUT OF WHICH WAIV ER IS ALLOWED AS PER THE AGREEMENT TO THE EXTENT OF RS.90.56 CRORES AND HENC E, THE NET RECEIVABLE AMOUNT OF DPC CHARGE UP TO 31.03.2005 WAS ONLY RS.1 35.83 CRORES AND THE AMOUNT ALREADY ACCOUNTED FOR AS INCOME UP TO MARCH 2004 WAS MORE THAN THIS AMOUNT I.E. RS.217.83 CRORES AND, THEREFORE, T HERE IS NO FURTHER AMOUNT TO BE RECOGNIZED AS INCOME IN THE PRESENT YEAR. IN THE LIGHT OF THESE FACTS, WE ITA NO 1031/A/2010 & CO. NO.124/A/2010 . A.Y. 2006- 07 5 ARE OF THE CONSIDERED OPINION THAT NO INTERFERENCE IS CALLED FOR IN THE ORDER OF LD. CIT(A) ON THIS ISSUE. THIS GROUND OF THE REVENU E STANDS REJECTED. 7. SINCE THE FACTS IN THE YEAR UNDER APPEAL ARE IDE NTICAL TO THAT OF A.Y. 05-06, (ORDER DATED 30.03.2012), RESPECTFULLY FOLLOWING TH E DECISION OF THE CO- ORDINATE BENCH, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF CIT(A). THUS THIS GROUND OF THE REVENUE IS DISMISSED. GR. NO 2 AND SUB GROUNDS ARE WITH RESPECT TO ADDITI ON ON ACCOUNT OF MISCELLANEOUS EXPENSES WRITTEN OFF: 8. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AO N OTICED THAT ASSESSEE HAD WRITTEN OFF MISC. EXPENSES AMOUNTING TO RS 1,51,37, 588/-. ASSESSEE WAS ASKED TO JUSTIFY ITS CLAIM. ASSESSEE INTER ALIA SUB MITTED THAT IN MARCH 2003 IT HAD INCURRED MAJOR MAINTENANCE EXPENDITURE ON ACCOU NT OF HOT GAS PATH INSPECTION EXPENSES AND ACCORDING TO IT ITS BENEFIT WAS EXPECTED TO BE DERIVED OVER NEXT FIVE YEARS AND ACCORDINGLY 1/5 TH OF THE EXPENDITURE WAS WRITTEN OFF EVERY YEAR. THE SUBMISSION OF ASSESSEE WAS NOT FOUND ACCEPTABLE TO AO AS HE WAS OF THE VIEW THAT THE EXPENDITURE DO ES NOT RELATE TO AY 2005- 06 AND PERTAINED TO EARLIER YEARS. HE ACCORDINGLY D ISALLOWED THE CLAIM OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CA RRIED THE MATTER BEFORE CIT(A). CIT(A) FOLLOWING THE ORDER OF HIS PREDECESS OR, DECIDED THE ISSUE IN FAVOUR OF ASSESSEE BY HOLDING AS UNDER: 7.3 I HAVE CONSIDERED THE FACTS AND SUBMISSION OF T HE LD. A.R CAREFULLY. I HAVE ALSO GONE THROUGH THE ORDER OF MY LD. PREDECESSOR IN THIS REGARD WHO VIDE HIS ORDER DATED 13.5.2008 DELE TED THE ADDITION OBSERVING AS UNDER: I HAVE CONSIDERED THE SUBMISSION OF THE A.R CAREFUL LY. ON CONSIDERATION OF THE FACTS OF THE CASE I AM OF THE VIEW THAT WHEN THIS CLAIM IS BASED ON THE PAST PRACTICE WHICH HAS NOT B EEN DENIED IN THE EARLIER YEARS BY THE DEPARTMENT, AND THE FACTS BEIN G THE SAME, THERE IS NO JUSTIFICATION FOR NOT ALLOWING THE CLAIM. THE DISALLOWANCE IS THEREFORE, DELETED.' ITA NO 1031/A/2010 & CO. NO.124/A/2010 . A.Y. 2006- 07 6 7.4 THEREFORE, KEEPING IN VIEW THE LEGAL POSITION IN THIS REGARD AND THE DECISION OF MY ID. PREDECESSOR, THE ADDITION MADE B Y THE A.O IS HEREBY DELETED. 9. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE IS NOW IN APPEAL BEFORE US. 10. BEFORE US, AT THE OUTSET THE LD. A.R. SUBMITTED THAT ON IDENTICAL ISSUE FOR AY 2005-06, HON. TRIBUNAL VIDE ORDER DATED 30.3.2012 H AD RESTORED THE ISSUE TO THE FILE OF AO WITH NECESSARY DIRECTIONS. HE THEREF ORE SUBMITTED THAT SINCE THE FACT IN THE PRESENT GROUND ARE IDENTICAL TO THAT OF AY 2005-06, SIMILAR DIRECTIONS MAY BE GIVEN IN THE PRESENT CASE ALSO. T HE LD.D.R. DID NOT SERIOUSLY OBJECT TO THE SUBMISSION OF THE AR. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT ON IDENTICAL ISSUE, THE CO-ORDINATE BENCH OF TRIBUNAL FOR AY 2005-06 VIDE ORDER DATED 30.3.2012 HAS DECIDED THE ISSUE AS UNDER: 2.4.4 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PER USED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW. WE FIND THAT IT WAS THE SUBMISSION BY THE ASSESSEE BEFORE THE A. O. THAT IN THE YEAR ENDED 31.03.2003, THE ASSESSEE COMPANY HAD SPENT MA JOR AMOUNT AND THE BENEFIT OF WHICH WAS EXPECTED TO BE DERIVED FOR NEXT FIVE YEARS AND, THEREFORE, IN THE BOOKS OF ACCOUNT, THE SAME EXPEND ITURE WAS DEBITED TO MISCELLANEOUS EXPENSES AND L/5 TH OF THE SAME I.E. RS.116.64 LACS IS WRITTEN OFF EVERY YEAR. THERE IS NOTHING ON RECORD IN THIS REGARD AS TO WHETHER IN THE ASSESSMENT YEAR 2003-04, FULL DEDUCTION WAS ALL OWED OR ONLY L/5 TH DEDUCTION WAS ALLOWED IN THAT YEAR. IT MAY BE THERE THAT IN THE BOOKS OF ACCOUNT, THE ASSESSEE HAS DEBITED ONLY L/5 TH OF THE AMOUNT IN THAT YEAR BUT IN THE COMPUTATION OF INCOME, THE ENTIRE AMOUNT CAN BE CLAIMED AS DEDUCTION AND THE SAME MIGHT HAVE BEEN ALLOWED IN T HAT YEAR TO THE EXTENT OF 100%. WITHOUT EXAMINING THIS ASPECT, ALLO WING ANY FURTHER DEDUCTION IN THE PRESENT YEAR WILL RESULT INTO ALLO WING THE DOUBLE DEDUCTION. NO FINDING IS GIVEN BY ID. CIT(A) AS TO WHETHER HE HAD EXAMINED THE PAST RECORD PARTICULARLY THE ASSESSMENT RECORD OF ASSESS MENT YEAR 2003-04 AS TO WHETHER ONLY L/5 TH DEDUCTION WAS ALLOWED IN THAT YEAR AND HENCE, WE S ET ASIDE THE ORDER OF LD. CIT(A) ON THIS ISSUE TO REST ORE BACK THIS MATTER TO THE FILE OF THE A.O. FOR A FRESH DECISION. IF IN TH ESE TWO YEARS, I.E. ASSESSMENT YEARS 2003-04 AND 2004-05, ONLY L/5 TH OF THE EXPENDITURE ON ITA NO 1031/A/2010 & CO. NO.124/A/2010 . A.Y. 2006- 07 7 THIS ACCOUNT WAS ALLOWED, THEN NO DISALLOWANCE SHOU LD BE MADE IN THE PRESENT YEAR. THERE IS AN ALTERNATIVE CONTENTION OF THE ASSESSEE THAT EVEN IF NO DEDUCTION IS ALLOWED ON THIS ACCOUNT IN THE P RESENT YEAR, CORRESPONDING INCREASE IN THE INCOME SHOULD BE CONS IDERED FOR THE PURPOSE OF ALLOWING DEDUCTION U/S 80IA. WE DIRECT T HE A.O. TO CONSIDER THIS ASPECT ALSO IF IT IS ULTIMATELY HELD BY HIM THAT NO DEDUCTION IS ALLOWABLE IN THE PRESENT YEAR ON ACCOUNT OF L/5 TH OF THE MISCELLANEOUS EXPENSES I.E. RS.116.64 LACS. THE A.O. SHOULD PASS NECESSARY ORDE R AS PER LAW AS PER ABOVE DISCUSSION AFTER PROVIDING ADEQUATE OPPORTUNI TY OF BEING HEARD TO THE ASSESSEE. THIS GROUND OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 12. SINCE THE FACTS IN THE PRESENT GROUND ARE IDENT ICAL TO THAT OF AY 2005-06, WE FOLLOWING THE AFORESAID ORDER OF THE CO-ORDINATE BE NCH (FOR A.Y. 05-06), WITH SIMILAR DIRECTIONS RESTORE THE ISSUE TO THE FILE OF AO. THUS THIS GROUND OF REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. GR 3 IS WITH RESPECT TO ALLOWANCE OF DEDUCTION ON I NTEREST FOR 80IA DEDUCTION: 13. AO NOTICED THAT ASSESSEE WHILE COMPUTING THE DE DUCTION U/S 80IA INCLUDED OTHER INCOME COMPRISING OF GROSS INTEREST, OTHER INCOME AND FOREIGN EXCHANGE FLUCTUATION. AO WAS OF THE VIEW THAT THE A FORESAID INCOME WERE NOT 'DERIVED FROM' FROM ELIGIBLE UNDERTAKING AND THEREF ORE ASSESSEE WAS NOT ELIGIBLE FOR DEDCUCTION ON THE SAME. HE, FOLLOWING THE DECISION OF PUNJAB & HARYANA HC, IN THE CASE OF RANI PALIWAL VS CIT 268 ITR 220 AND MADRAS HC DECISION IN THE CASE OF K.S.SUBBIAH PILLAI & CO 260 ITR 304, EXCLUDED THE TOTAL OTHER INCOME OF RS 47,62,75,000 FOR THE PURPO SE OF DEDUCTION U/S 80IA. 14. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) FOLLOWING THE ORDER OF HIS PREDECESSOR AND O F TRIBUNAL IN ASSESSEES OWN CASE DECIDED IN FAVOUR OF ASSESSEE BY HOLDING A S UNDER: 8.4 I HAVE CONSIDERED THE FACTS AND SUBMISSIONS OF THE ID. A.R CAREFULLY. IT IS NOTICED THAT THE FACTS OF THE CASE ARE DISCUSSED IN DETAIL IN THE APPELLATE ORDER FOR THE A.YS 2003-04 AND 2004-05. THE FACTS OF THE CASE UNDER REFERENCE ARE ITA NO 1031/A/2010 & CO. NO.124/A/2010 . A.Y. 2006- 07 8 SIMILAR TO THAT OF EARLIER YEARS. MY LD. PREDECESSO R WHILE DECIDING THE ISSUE IN FAVOUR OF THE APPELLANT IN A.Y 2005-06 HELD AS UNDE R. '10.2 I HAVE CONSIDERED THE OBSERVATION OF THE ASSE SSING OFFICER IN THE ASSESSMENT ORDER AND THE SUBMISSIONS OF THE APPELLA NT. INSOFAR AS THE DEDUCTION WITH REFERENCE TO INTEREST IS CONCERNED, THE FOLLOWING EXTRACT FROM THE APPELLATE ORDER FOR ASSESSMENT YEAR 2004-05 DAT ED 26-2-2007 IN THE CASE OF THE APPELLANT IS DIRECTLY ON THE ISSUE. THE ASSE SSING OFFICER, THEREFORE, IS DIRECTED TO FOLLOW THE SAME: '4. GROUND NOS. 4.1. AND 4.2 ARE SIMILAR TO GROUND NOS. 3.1 & 3.2 REGARDING INTEREST INCOME OF RS. 261.08 LACS. FROM THE ASSESS MENT ORDER IT IS NOT CLEAR IF THE ASSESSING OFFICER HAD ELIMINATED THE SAME IN CALCULATING THE DEDUCTION U/S 80IA. HOWEVER, THE ISSUE BEING SIMILAR TO GROUN D NO.3, THE ASSESSING OFFICER IS DIRECTED TO CONSIDER BOTH THE INTEREST I NCOME AND INTEREST EXPENDITURE DIRECTLY LINKED WITH THE SAME AND REWOR K THE DEDUCTION U/S 80IA AS MAY BE NECESSARY. IT IS MADE CLEAR THAT INTEREST INCOME IS ALLOWED AGAINST EXPENDITURE THEY BEING DIRECTLY LINKED. THE APPELLA NT SHALL FURNISH THE COMPLETE DETAILS IN THIS REGARD TO ENABLE THE ASSES SING OFFICER TO GIVE EFFECT TO THE ORDER CORRECTLY. SUBJECT TO THE ABOVE REMARKS, GROUND NO. 4.1 AND 4.2 ARE TREATED AS PARTLY ALLOWED.' 8.5 FURTHER, IT IS SEEN THAT HON'BLE ITAT IN THE AP PELLANT'S CASE FOR THE A.Y 2002-03 ON THIS ISSUE WHEREIN THE HON'BLE ITAT IN I TA NO. 2140 / AND/2006 AND 275/AHD/2006 DATED 15.5.2009 HAS HELD AS UNDER: ' GROUND NO. 3 RELATES TO EXCLUSION OF THE NET INTE REST WHILE COMPUTING THE DEDUCTION U/S 80IA OF THE ACT. THE BRIEF FACTS RELA TING TO THIS GROUND ARE THAT THE ASSESSEE CLAIMED DEDUCTION U/S 80IA ON THE INTE REST RECEIPT OF RS. 26,09,90,500/- BUT THE A.O CONSIDERED THE SAID RECE IPT TO BE THE INCOME FROM OTHER SOURCES AND THEREFORE EXCLUDED THE SAME WHILE COMPUTING THE DEDUCTION U/S 80IA. WHEN THE MATTER WENT BEFORE THE CIT(A), THE CIT(A) AGREED WITH THE AO FOR THE PROPOSITION OF LAW THAT THE INTEREST RECEIPT DO NOT QUALIFY FOR THE DEDUCTION U/S 80IA AND UPHELD THE O RDER OF THE AO IN THE LIGHT OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF STERLING FOODS LTD. 237 ITR 579 AND PANDIAN CHEMICALS LTD. 262 ITR 278 BUT ON THE ISSUE OF NETTING OF INTEREST TOOK THE VIEW THAT IN THE CASE OF THE ASSESSEE THE INTEREST PAYMENT AND INTEREST RECEIPT HAVE HAVING DIRECT NEX US. THE CIT(A) FURTHER NOTED THAT IN THE A.Y 1999-2000 HIS PREDECESSOR VID E HIS ORDER ALLOWED NETTING OF THE INTEREST BY SETTING OFF THE INTEREST RECEIPT AGAINST THE INTEREST PAYMENT AND DIRECTED ONLY NET AMOUNT, IF ANY, TO BE EXCLUDED FROM THE ELIGIBLE PROFIT IN THE CASE OF THE ASSESSEE THE CIT(A) NOTED THAT THE NET AMOUNT OF INTEREST IS NEGATIVE AND THEREFORE NO QUESTION OF E XCLUDING THE INTEREST ARISES AND ACCORDINGLY DIRECTED THE A.O TO COMPUTE THE DED UCTION U/S 80IA OF THE ACT. THE LD. DR VEHEMENTLY CONTENDED THAT THE GROSS INTE REST INCOME HAS TO BE EXCLUDED WHILE COMPUTING THE DEDUCTION U/S 80IA AND NOT THE NET INTEREST. THE ID. A.R ON THE OTHER HAND, RELIED ON THE ORDER OF T HE DELHI HIGH COURT IN THE CASE OF CIT V. SHRI RAM HONDA POWER EQUIP 289 ITR 4 75. ITA NO 1031/A/2010 & CO. NO.124/A/2010 . A.Y. 2006- 07 9 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IN OUR OPINION, THE FINDING OF THE CIT(A ) IS DULY COVERED BY THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF CIT V. SHRI RAM HONDA POWER EQUIP 289 ITR 475. IN VIEW OF THE DECISION OF THE D ELHI HIGH COURT, WE ARE OF THE VIEW NO INTERFERENCE IS CALLED FOR IN THE ORDER OF THE CIT(A) AND ACCORDINGLY CONFIRM THE ORDER OF THE CIT(A) DIRECTI NG THE AO TO EXCLUDE ONLY THE NET INTEREST FROM THE INCOME WHILE COMPUTING TH E DEDUCTION U/S 801A OF THE ACT. THUS, THIS GROUND STANDS DISMISSED.' 8.6 IN VIEW OF THE ABOVE, SO FAR AS EXCLUSION OF TH E AMOUNT OF INTEREST FROM THE INCOME ELIGIBLE FOR DEDUCTION U/S 80IA IS CONCERNED , THE A.O IS DIRECTED TO EXCLUDE ONLY NET INTEREST FROM THE ELIGIBLE INCOME KEEPING IN VIEW THE FINDINGS OF HON'BLE ITAT IN THE APPELLANTS CASE AS REFERRED TO ABOVE AND THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT V/S SHRI RAM HONDA POWER EQUIPMENTS 289 ITR 475 8.7 AS REGARDS THE MISCELLANEOUS INCOME FROM SCRAP AMOUNTING TO RS. 5.24 LACS AND INCOME FROM FOREIGN EXCHANGE FLUCTUATION A MOUNTING TO RS. 4.81 LACS, SAME CANNOT BE HELD AS DERIVED FROM INDUSTRIA L UNDERTAKING KEEPING IN VIEW THE DECISION OF HON'BLE SUPREME COURT IN THE C ASE OF STERLING FOODS AND HINDUSTAN LEVER (SUPRA) THAT A.O'S ACTION TO THAT E XTENT IS HEREBY CONFIRMED. 15. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE IS NO W IN APPEAL BEFORE US. 16. BEFORE US, AT THE OUTSET, THE LD.A.R SUBMITTED THAT ON IDENTICAL ISSUE FOR AY 2005-06 IN THE ASSESSEES OWN CASE, THE ISSUE HAS B EEN DECIDED IN FAVOUR OF ASSESSEE BY HON. TRIBUNAL. HE PLACED ON RECORD THE AFORESAID ORDER OF THE TRIBUNAL. HE THEREFORE URGED THAT SIMILAR VIEW BY T AKEN AS THERE WAS NO CHANGE IN THE FACTS OF THE CASE AS COMPARED TO THAT OF EARLIER YEARS. THE LD. D.R. ON THE OTHER HAND RELIED ON THE ORDER OF AO. 17. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT ON IDENTICAL FACTS, THE CO-ORDINATE BENCH OF TRIBUNAL IN ASSESSEE'S OWN CASE FOR AY 2005-06 ORDER DATED 30.03.2012 DECI DED THE ISSUE IN FAVOUR OF ASSESSEE BY HOLDING AS UNDER: 2.6.2 BEING AGGRIEVED, THE ASSESSEE CARRIED THE MAT TER IN APPEAL BEFORE LD. CIT(A) WHO HAS DECIDED THIS ISSUE REGARDING INTERES T PART ON THIS BASIS THAT AS PER THE ORDER OF LD. CIT(A) FOR THE ASSESSMENT YEAR 2004-05 DATED 26.02.2007, THE A.O. HAS TO CONSIDER THE INTEREST I NCOME AS WELL AS INTEREST EXPENDITURE WHICH IS CONNECTED WITH THE SAME AND RE WORK THE DEDUCTION U/S ITA NO 1031/A/2010 & CO. NO.124/A/2010 . A.Y. 2006- 07 10 80IA AS MAY BE NECESSARY. IT GOES TO SHOW THAT TO T HE EXTENT THE ASSESSEE IS ELIGIBLE TO ESTABLISH THE NEXUS OF INTEREST EXPENDI TURE WITH INTEREST INCOME BY SHOWING THAT THE INTEREST EXPENDITURE WAS INCURRED FOR EARNING INTEREST INCOME, NETTING HAS TO BE ALLOWED AND ONLY SUCH NET INTEREST INCOME HAS TO BE EXCLUDED FROM BUSINESS PROFITS FOR THE PURPOSE OF C OMPUTATION OF DEDUCTION ALLOWABLE U/S 80IA. ON THIS ASPECT, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF LD. CIT(A). 18. BEFORE US, THE REVENUE COULD NOT BRING ON RECOR D ANY CONTRARY FACTS. SINCE THE ISSUE HAS ALREADY BEEN DECIDED IN FAVOUR OF ASS ESSEE BY THE CO-ORDIANTE BENCH IN A.Y. 05-06. WE RESPECTFULLY FOLLOWING THE AFORESAID ORDER FIND NO REASON TO INTERFERE WITH THE ORDER OF CIT(A) AND TH US THIS GROUND OF REVENUE IS DISMISSED. GR. 4 IS WITH RESPECT TO DISALLOWANCE U/S 40(A)(IA) : 19. AO NOTICED THAT ASSESSEE HAD PAID RS 10,64,06,6 49/- TO GUVNL AS 'REBATE' FOR EARLY PAYMENT CHARGES FOR POWER SUPPLIED TO IT. HE WAS OF THE VIEW THAT THE REBATE WAS IN THE NATURE OF INTEREST AND THEREFORE THE ASSESSEE SHOULD HAVE DEDUCTED TDS U/S 194A. SINCE THE ASSESSEE HAD NOT D EDUCTED TDS U/S 194A, THE ENTIRE EXPENDITURE WAS DISALLOWED U/S 40( A)(IA). AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE CIT (A). CIT(A) DECIDED THE ISSUE IN FAVOUR OF ASSESSEE BY HOLDING AS UNDER: 9.5 I HAVE CONSIDERED THE FACTS AND SUBMISSION OF T HE LD. A.R CAREFULLY. THE REBATE ALLOWED BY THE APPELLANT TO ITS CUSTOMERS FO R EARLY PAYMENT CANNOT BE EQUATED WITH INTEREST AS DEFINED IN SECTION 2(28A) OF THE ACT. EVEN IT IS A COMMON KNOWLEDGE THAT FOR EARNING AN INTEREST A DEP OSIT IS REQUIRED TO BE MADE WITH THE CONCERNED PERSON AND THAT DEPOSIT IS CALLED PRINCIPAL AMOUNT WHICH IS CONSIDERED FOR EARNING THE INTEREST. HERE, IN THIS CASE THERE IS NO DEPOSIT OF PRINCIPAL BY THE RECIPIENT OF DISCOUNT W ITH THE APPELLANT THEREFORE, THERE IS NO QUESTION OF ALLOWING INTEREST THE PAYME NTS UNDER REFERENCE MADE BY THE APPELLANT IS DISCOUNT ONLY AND THE SAME CANN OT BE TERMED AS INTEREST AS WRONGLY HELD BY THE A.O. IN VIEW OF THIS, NEITHE R THE PROVISIONS OF SEC. 194A ARE APPLICABLE NOR THE PROVISIONS OF SEC. 40(A)(IA) OF THE ACT ARE ATTRACTED ON SUCH PAYMENTS WOULD BE INVOKED. THEREFORE, THE DISA LLOWANCE MADE BY THE A.O IS HEREBY DELETED. ITA NO 1031/A/2010 & CO. NO.124/A/2010 . A.Y. 2006- 07 11 20. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE IS NO W IN APPEAL BEFORE US. BEFORE US, THE LD. D.R. RELIED ON THE ORDER OF AO. THE LD A.R. ON THE OTHER HAND SUPPORTED THE ORDER OF CIT(A) AND FURTHER SUBMITTED THAT THE ISSUE IS COVERED IN ITS FAVOUR BY THE DECISION OF TRIBUNAL IN THE CA SE OF S.DPHARMACY VS DCIT (2008) 31 SOT 386 (COCH). HE THUS SUPPORTED THE ORD ER OF CIT(A). 21. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT THE ENTIRE SALES OF THE ASS ESSEE IS TO GUVNL AND THE PAYMENTS RECEIVED BY THE ASSESSEE FROM IT ARE TOWAR DS SALES FROM THE CUSTOMER. NOTHING HAS BEEN BROUGHT ON RECORD BY THE REVENUE TO DEMONSTRATE THAT THE REBATE GIVEN IS NOT IN THE NAT URE OF DISCOUNT BUT IS IN THE NATURE OF INTEREST. WE FURTHER FIND THAT CIT(A) WHI LE DELETING THE ADDITION HAS NOTED THAT THE SINCE THE REBATE IS IN THE NATURE OF DISCOUNT NO TDS U/S 194A IS DEDUCTIBLE ON THE SAME. BEFORE US, THE LD. D.R. COU LD NOT CONTROVERT THE FINDING OF CIT(A) BY BRINGING ANY CONTRARY MATERIAL ON RECORD. IN VIEW OF THESE FACTS WE FIND NO REASON TO INTERFERE WITH THE ORDER OF CIT(A) AND THUS THIS GROUND OF REVENUE IS DISMISSED. 22. IN THE RESULT THE APPEAL OF THE REVENUE IS PART LY ALLOWED FOR STATISTICAL PURPOSES. CO NO. 124/AHD/2010 GROUND NO 1 & 2 ARE NOT PRESSED BY LD. A.R. AND THE REFORE DISMISSED. 23. GR. NO. 3 IS WITH RESPECT TO ACCRUAL OF INTERES T. 24. BEFORE US, BOTH THE PARTIES SUBMITTED THAT THIS GROUND IS CONNECTED TO GR. NO 1 OF REVENUE'S APPEAL. SINCE GROUND NO 1 OF REVENUE 'S APPEAL HAS BEEN DISMISSED HEREINABOVE, THE PRESENT GROUND BECOMES A CADEMIC AND THEREFORE THE SAME IS DISMISSED. ITA NO 1031/A/2010 & CO. NO.124/A/2010 . A.Y. 2006- 07 12 25. GROUND NO 4 AND ITS SUB GROUND ARE WITH RESPECT TO INCOME NOT CONSIDERED AS ELIGIBLE FOR DEDUCTION U/S 80IA. 26. ASSESSEE HAD CONSIDERED FOREIGN EXCHANGE FLUCTU ATION OF RS 4,81,000 AND RS 5,24,000 BEING INCOME EARNED ON SALE OF SCRAP, AS I NCOME WHICH WAS ELIGIBLE FOR DEDUCTION U/S 80IA OF THE ACT. WITH RESPECT TO FOREIGN EXCHANGE FLUCTUATION, IT WAS ASSESSEE'S SUBMISSION THAT IT H AD ENTERED INTO VARIOUS TRANSACTIONS WHEREIN THE ASSESSEE HAD TO MAKE THE P AYMENT IN FOREIGN CURRENCIES. IT REPRESENTED THE REDUCTION IN PAYMENT OF OPERATIONAL EXPENSES OVER THE AMOUNT BOOKED IN THE BOOKS OF ACCOUNTS. WI TH RESPECT TO SALE OF SCRAP, IT WAS SUBMITTED THAT IT WAS EARNED ON THE S ALE OF SCRAP GENERATED FROM OPERATIONS. THE SUBMISSION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE AO AS HE WAS OF THE VIEW THAT THE AFORESAID INCOMES CANNOT BE CONSIDERED TO BE 'DERIVED FROM' ELIGIBLE UNDERTAKING AND THEREFOR E CANNOT BE CONSIDERED TO BE INCOME DERIVED FROM SUCH UNDERTAKING. HE ACCORDI NGLY EXCLUDED THE FOREIGN EXCHANGE FLUCTUATION AND INCOME FROM SALE O F SCRAP WHILE COMPUTING THE ELIGIBLE PROFITS FOR DEDUCTION U/S 80IA. THE MA TTER WAS CARRIED BEFORE CIT(A). CIT(A) CONFIRMED THE ACTION OF AO BY RELYIN G ON THE DECISION OF APEX COURT IN THE CASE OF STERLING FOODS VS CIT 237 ITR 579 AND HINDUSTAN LEVER LTD VS CIT 239 ITR 297. AGGRIEVED BY THE ORDER OF C IT(A), ASSESSEE IS NOW IN APPEAL BEFORE US. 27. BEFORE US, THE LD.A.R. RETIERATED THE SUBMISSIO NS MADE BEFORE AO AND CIT(A). HE FURTHER SUBMITTED THAT THE ISSUE IS COVE RED IN ITS FAVOUR BY THE MADRAS TRIBUNAL DECISION IN THE CASE OF ACIT VS P.S .APPARELS (2006) 101 TTJ 29 (MAD), DCIT VS HARJIVANDAS JUTHABHAI ZAVERI (2002) 258 ITR 785 (GUJ) AND DCIT VS CORE HEALTHCARE LTD (2009) 308 IT R 263 (GUJ) . HE THEREFORE URGED THAT MATTER BE DECIDED IN ASSESSEE S FAVOUR. THE LD. D.R. ON THE OTHER HAND RELIED ON THE ORDER OF AO AND CIT(A) . ITA NO 1031/A/2010 & CO. NO.124/A/2010 . A.Y. 2006- 07 13 28. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS ASSESSEES CONTENTION THAT IT HAD ENTERED INTO VARI OUS TRANSACTIONS WHEREIN THE ASSESSEE HAD TO MAKE THE PAYMENT IN FOREIGN CUR RENCIES. THE FOREIGN EXCHANGE FLUCTUATION CREDITED BY IT REPRESENTED THE REDUCTION IN PAYMENT OF OPERATIONAL EXPENSES OVER THE AMOUNT BOOKED IN THE BOOKS OF ACCOUNTS. WITH RESPECT TO SALE OF SCRAP, IT WAS SUBMITTED THAT THE INCOME WAS EARNED FROM THE SCRAP GENERATED FROM OPERATIONS. THESE CONTENTI ONS OF THE ASSESSEE HAS NOT BEEN CONTROVERTED BY REVENUE BY PLACING ANY CON TRARY MATERIAL ON RECORD. BEFORE US, WITH RESPECT TO THE FOREIGN EXCH ANGE FLUCTUATION, THE ASSESSEE HAS NOT PRODUCED ANY EVIDENCE AS TO THE NA TURE AND THE QUANTUM OF OPERATIONAL EXPENSES INCURRED BY IT IN FOREIGN C URRENCY TO WHICH THE FOREIGN EXCHANGE FLUCTUATIONS RELATE AND ALSO FOR THE INCOM E FROM SALE OF SCRAP. WE FURTHER FIND THAT THERE IS NO FINDING WITH RESPECT TO THE BOTH THE ISSUES EITHER BY THE AO OR BY CIT(A). WE THEREFORE FEEL THAT THESE A SPECT NEEDS VERIFICATION AT THE END OF AO. WE THEREFORE REMIT THE ISSUE TO THE FILE OF AO FOR VERIFICATION AND DIRECT HIM TO DECIDE THE ISSUE AS PER LAW AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND AFTER GIVING A REAS ONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. THUS THIS GROUND OF THE AS SESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 29. GROUND NO 5 IS WITH RESPECT TO NOT CONSIDERING THE ALTERNATE GROUND OF REBATE BEING NOT ELIGIBLE FOR DEDUCTION U/S 80IA: 30. BEFORE US, BOTH THE PARTIES SUBMITTED THAT THIS GROUND IS CONNECTED TO GR. NO 4 OF REVENUE'S APPEAL. SINCE GROUND NO 4 OF REVENUE 'S APPEAL HAS BEEN DISMISSED HEREINABOVE, THE PRESENT GROUND BECOMES A CADEMIC AND THEREFORE THE SAME IS DISMISSED. 31. GROUND NO 6 IS WITH RESPECT TO INTEREST. THE SA ME IS CONSEQUENTIAL NO SPECIFIC ADJUDICATION IS REQUIRED. ITA NO 1031/A/2010 & CO. NO.124/A/2010 . A.Y. 2006- 07 14 32. IN THE RESULT THE CO IS PARTLY ALLOWED FOR STAT ISTICAL PURPOSES. 33. IN RESULT THE APPEAL OF REVENUE AND THE CO OF THE A SSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 20 - 09 - 2013. SD/- SD/- (G.C.GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD . TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT, AHMEDABAD