ACIT, Shimla V. M/s SJVN Limited, Shimla

ITA 1309/CHANDI/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95467 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 28-07-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 17-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR AMA RVEER SINGH
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 143(3); 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES DB CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.R. SOOD, ACCOUNTANT MEMBER ITA NO.1309/CHD/2012 ASSESSMENT YEAR: 2009-10 ACIT, VS. SJVN LIMITED CIRLCE HIMFED BUILDING SHIMLA NEW SHIMLA PAN NO. AAICS1307F (APPELLANT) (RESPONDENT) APPELLANT BY : DR. AMARVEER SINGH RESPONDENT BY : SH. RAJIV SOOD DATE OF HEARING : 28/07/2015 DATE OF PRONOUNCEMENT : 04/08/2015 ORDER PER BHAVNESH SAINI, J.M. THIS APPEAL FILED BY THE REVENUE IS AGAINST THE ORD ER OF THE LD. CIT(A), SHIMLA DT. 26/09/2012, FOR ASSESSMENT YEAR 2009-10 . THE DEPARTMENT HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN HOLDING THAT THE AO WAS NOT RIGHT IN MAKIN G ADJUSTMENTS FOR WORKING THE BOOK PROFIT UNDER SECTION 115JB OF THE I.T. ACT, 1961 BY ADDING THE AAD TO THE BOOK PROFIT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN HOLDING THAT THERE WAS NO DIMINUTION IN TH E ASSETS ON ACCOUNT OF ADVANCE AGAINST DEPRECIATION (AAD) AND THUS, NOT RE QUIRED TO ADDED BACK TO THE BOOK PROFIT UNDER CLAUSE(I) OF EXPLANAT ION (1) TO SECTION 115JB OF THE INCOME TAX ACT, 1961. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN HOLDING THAT THE CATCHMENT AREA EXPENSES A RE REVENUE IN NATURE BEING THE EXPENDITURE NOT RESULTED INTO ANY ENDURIN G BENEFIT TO THE ASSESSEE AS AGAINST HELD BY THE AO THAT THE BENEFIT DERIVED FROM SUCH LAND IMPROVEMENT WAS LONG LASTING AND THEREFORE, TH E SAID EXPENDITURE RESULTED IN A BENEFIT OF ENDURING NATURE AND WAS TO BE TREATED AS CAPITAL EXPENDITURE. 2 4. IT IS PRAYED THAT THE ORDER OF THE LD. CIT(A) BE SE T-ASIDE AND THAT OF THE AO BE RESTORED. 2. WE HAVE HEARD LD. REPRESENTATIVES OF BOTH PARTIE S AND PERUSED THE MATERIAL ON RECORD. 3. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE A SSESSEE IS A JOINT VENTURE OF THE GOI AND GOVT. OF H.P., INCORPORATED WITH THE MA IN OBJECT OF GENERATING HYDRO ELECTRIC POWER. DURING THE IMPUGNED AY, IT FI LED ITS RETURN OF INCOME ON 29-09-2009 DECLARING AN INCOME OF RS. 120,47,63,829 /- UNDER NORMAL PROVISIONS AND BOOK PROFIT FOR MAT WAS SHOWN AT RS. 2139,97,2 7,180/-. SUBSEQUENTLY THE RETURN WAS REVISED ON 17/06/2010 AND RS. 849.35 CRO RES, PERTAINING TO ADVANCE AGAINST DEPRECIATION (AAD) WAS REDUCED FROM THE BOO K PROFIT U/S 115JB. ASSESSMENT WAS FRAMED U/S 143(3) VIDE ORDER DT 29-1 2-2011,COMPUTING INCOME UNDER THE NORMAL PROVISIONS AT RS. 120.47 CRORES AN D THE BOOK PROFIT AS PER 115JB AT 2140,64,39,486/-. ADDITION OF RS. 849.35 CRORES WAS MADE TO BOOK PROFIT ON ACCOUNT AAD AND ADDITION OF RS. 8,19,00,000/- WAS M ADE TO INCOME COMPUTED UNDER THE NORMAL PROVISIONS OF THE INCOME TAX ACT ON ACCOUNT OF CATCHMENT AREA TREATMENT EXPENSES HOLDING THEM TO BE CAPITAL IN NATURE. ON APPEAL BEFORE THE LD. CIT(A) THE QUANTUM OF AAD WAS REDUCE D TO RS. 144.55 CRORES, WHICH WAS HELD TO BE THE AMOUNT ACTUALLY DEBITED TO THE P&L ACCOUNT ,FROM RS.849.35 AND FURTHER THE ENTIRE ADDITION TO BOOK PROFIT ON ACCOUNT OF AAD WAS DELETED BY HOLDING THAT THE ISSUE OF ALLOWABILITY A ND NATURE OF AAD HAD ALREADY BEEN SETTLED BY THE HONBLE SUPREME COURT, IN NATIO NAL HYDRO ELECTRIC POWER CORPORATION LTD. VS CIT 320 ITR 374 (SC). THE DISA LLOWANCE OF CAT EXPENSES BY HOLDING THEM TO BE CAPITAL IN NATURE, WAS ALSO DELE TED BY THE CITA(A) BY HOLDING THAT THE SAME IS A RECURRING EXPENDITURE W HICH HAS TO BE INCURRED EVERY YEAR BY THE ASSESSEE TO IMPROVE THE QUALITY OF WATE R BY REDUCING ITS SILT CONTENT. THE CIT(A) HELD THAT NEITHER ANY ENDURING BENEFIT R ESULTED FROM SUCH EXPENDITURE 3 NOR ANY ASSET, TANGIBLE OR INTANGIBLE WAS CREATED B Y INCURRING SUCH EXPENDITURE. THEREFORE THE EXPENSES WERE REVENUE IN NATURE AND N OT CAPITAL. AGGRIEVED BY THIS ORDER THE REVENUE PREFERRED THE PRESENT APPEAL . 4. WE SHALL NOW DEAL WITH THE PRESENT APPEAL GROUND WISE. GROUND NO. 1 & 2 RELATE TO ADDITION OF ADVANCE AGAI NST DEPRECIATION (AAD) TO BOOK PROFIT U/S 115 JB. AAD IS A COMPONENT OF ELECTRICITY TARIFF, AND IS ME ANT TO FACILITATE REPAYMENT OF LOAN TAKEN BY POWER COMPANIES LIKE SJVN LTD. WHILE THE ASSESSEE EXCLUDED IT FROM ITS INCOME BY TREATING IT AS INCOME RECEIVED IN ADVANCE, THE AO ADDED BACK THE SAME TO THE BOOK PROFITS BY HOLDING THAT : A- AAD IS AN ACCRUED INCOME AND LIABLE TO BE CREDITED TO P&L ACCOUNT AND EXCLUSION OF AAD, VIOLATED PART II & III OF SCH EDULE VI OF COMPANIES ACT AND CONTRAVENTION OF THESE ESTABLISHED NORMS OF PREPARING & DRAWING BOOK PROFIT U/S 115JB EMPOWERED AO TO ADD A AD TO THE AUDITED PROFIT OF THE ASSESSEE FOR PURPOSE OF MAT. B- AAD WAS LINKED WITH DIMINUTION IN VALUE OF ASSETS I T FELL SQUARELY WITHIN THE AMBIT OF CLAUSE (I) TO EXPLANATION 1 OF 115JB O F THE ACT. 5. ON APPEAL LD. CIT(A) DELETED THE ADDITION. 6. THE ISSUE IS NO LONGER RES-INTEGRA AS IT IS COV ERED BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF NHPC VS. CIT 3 20 ITR 374 (SC) IN WHICH IT WAS HELD AS UNDER: WE HOLD THAT AAD IS A TIMING DIFFERENCE, IT IS NO T A RESERVE, IT IS NOT CARRIED THROUGH PROFIT AND LOSS ACCOUNT AND THAT IT IS INCOME RECEIVED IN ADVANCE SUBJECT TO ADJUSTMENT IN FUTURE AND, THERE FORE, CLAUSE(B) OF EXPLANATION-I TO SECTION 115JB IS NOT APPLICABLE. A CCORDINGLY, THE IMPUGNED RULING IS SET ASIDE AND THE CIVIL APPEAL F ILED BY THE ASSESSEE STANDS ALLOWED WITH NO ORDER AS TO COSTS. ACCORDINGLY THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 7. GROUND NO.3 RELATES TO THE ISSUE OF TREATMENT OF CATCHMENT AREA TREATMENT EXPENSES AS REVENUE. THE AO AT PARA 5 O F HIS ORDER HELD AS UNDER: 4 THE REPLY OF THE ASSESSEE HAS BEEN CONSIDERED. TH E SUBMISSION THAT RS. 8.19 CRORES TOWARDS CAT EXPENSES IS REVENUE IN NATU RE IS NOT ACCEPTABLE. THE EXPENDITURE INCURRED WAS FOR REDUCTION OF SILT CONT ENT IN THE WATER BY MAKING IMPROVEMENT OF LAND IN THE CATCHMENT AREA, SO THAT THE SILT CONTENT IN THE WATER FLOWING INTO THE RESERVOIR IS REDUCED. THE BENEFIT DERIVED FROM SUCH LAND IMPROVEMENT IS LONG LASTING AND INDEED VITAL FOR TH E CONTINUED POWER GENERATION BY ANY HYDRO-POWER GENERATING COMPANY. HEAVY SILTAT ION WOULD LEAD TO DISRUPTION IN POWER GENERATION, THEREBY RESULTING I N LOWER INCOME AND PROFITS AND CAUSING HARM TO THE PROFIT MAKING APPARATUS. THE EX PENDITURE THEREFORE RESULTS IN A BENEFIT OR ENDURING NATURE AND IS HENCE CAPITAL E XPENDITURE. THE ACCOUNTING POLICY OF THE ASSESSEE AS STATED IN SCHEDULE 20 TO THE ACCOUNTS ITSELF STATES AT PARA 6.9 THEREOF THAT EXPENDITURE ON CATCHMENT AREA TRE ATMENT PLAN DURING CONSTRUCTION IS CAPITALIZED ALONGWITH DAM. THE NAT URE OF THE EXPENDITURE REMAINS THE SAME EVEN FOR THE POST-CONSTRUCTION PERIOD. THE REFORE, RS. 8.19 CRORES ON ACCOUNT OF CAT EXPENSES ARE HELD TO BE CAPITAL EXPE NDITURE AND DISALLOWED. 8. IN APPEAL, THE LD. CIT(A) VIDE PARA 7 AT PAGE 13 HELD AS UNDER : 7. THE RIVAL SUBMISSIONS HAVE BEEN CAREFULLY CONS IDERED WITH REFERENCE TO THE FACTS OF THE CASE. IT IS NOTED THA T THE CAT EXPENDITURE IS INCURRED BY THE APPELLANT EVERY YEAR AND A SUBSTANT IAL PART OF IT IS A MANDATORY CHARGE PAID TO THE DEPARTMENT OF FOREST A ND DEPARTMENT OF FISHERIES. THE CATCHMENT AREA OF RIVER SATLUJ IS A VAST AREA OVER WHICH THE APPELLANT COMPANY HAS NO OWNERSHIP RIGHTS. IT IS RE QUIRED TO INCUR CAT EXPENDITURE IN ORDER TO IMPROVE THE QUALITY OF WATE R BY REDUCING ITS SILT CONTENT. HOWEVER, THERE IS NOTHING ABOUT THIS EXPEN DITURE WHICH RESULTS IN ANY ENDURING BENEFIT TO THE APPELLANT IN THE FORM O F THE CREATION OF ANY TANGIBLE OR INTANGIBLE ASSET. THE CATCHMENT AREA OF THE RIVER SATLUJ CANNOT BE TREATED AS THE PLANT AND MACHINERY OF THE APPELL ANT. MERELY BECAUSE THE CAT EXPENDITURE INCURRED IN THE PRE-OPERATIVE P ERIOD WAS CAPITALIZED BY THE APPELLANT DOES NOT MEAN THAT THE SAID EXPEND ITURE HAS TO BE CAPITALIZED EVEN IN THE POST-OPERATIVE PERIOD. THE CAT EXPENDITURE INCURRED BY THE APPELLANT DURING THE GENERATION OF POWER IS DISTINCTLY IN THE NATURE OF REVENUE EXPENDITURE. THEREFORE, THE L D. A.OS ACTION OF TREATING THE SAME AS CAPITAL EXPENDITURE IS NOT FOU ND TO BE IN ORDER. ACCORDINGLY THE APPELLANT SUCCEEDS ON THIS GROUND O F APPEAL. 9. BEFORE US THE AR RELIED UPON THE ORDER OF THE CI T(A) . THE DR ON THE OTHER HAND RELIED ON THE FINDINGS OF THE AO. 10. ON CONSIDERATION OF THE RIVAL SUBMISSIONS, WE F IND THAT CAT PAYMENTS WERE MADE FOR MAINTAINING THE ENVIRONMENT AND AFFORESTAT ION OF THE CATCHMENT AREA OF THE PROJECT, WHICH IS AN OPERATIONAL PROJECT, TO MINIMIZE SILT EROSION. THE EXPENDITURE IS VITAL FOR THE CONTINUED POWER-GENERA TION BY ANY HYDRO-POWER GENERATING COMPANY. IT IS INCURRED ON LAND NOT OWNE D BY THE ASSESSEE AND IS INCURRED EVERY YEAR. NO TANGIBLE OR INTANGIBLE ASSE T COMES INTO EXISTENCE BY VIRTUE OF THIS EXPENDITURE. ALL THESE FACTS ARE UND ISPUTED AND HAVE NOT BEEN REBUTTED BY THE REVENUE. IT IS EVIDENT FROM THE ABOVE FACTS THAT THE CAT EXP ENDITURE IS RELATED TO CARRYING ON OF THE BUSINESS OPERATIONS OF THE ASSES SEE. IT IS AN INTEGRAL PART OF THE 5 PROFIT EARNING PROCESS. MOREOVER THE EXPENDITURE HA S NOT RESULTED IN THE ACQUISITION OF ANY TANGIBLE/ INTANGIBLE ASSET. THE EXPENDITURE THEREFORE IS REVENUE IN NATURE. MERELY BECAUSE THE EXPENDITURE R ESULTS IN ENDURING BENEFIT IS NOT ENOUGH TO CATEGORIZE IT IS CAPITAL IN NATURE. T HIS ISSUE HAS BEEN SETTLED BY THE SUPREME COURT IN EMPIRE JUTE CO. LTD. VS. CIT 124 I TR 1(SC) WHEREIN THE COURT HAS HELD : II. THERE MAY BE CASES WHERE EXPENDITURE, EVEN I F INCURRED FOR OBTAINING AN ADVANTAGE OF ENDURING BENEFIT, MAY, NO NE THE LES, BE ON REVENUE ACCOUNT AND THE TEST OF ENDURING BENEFIT MA Y BREAK DOWN. IT IS NOT EVERY ADVANTAGE OF ENDURING NATURE ACQUIRED BY AN ASSESSEE THAT BRINGS THE CASE WITHIN THE PRINCIPLE LAID DOWN IN T HIS TEST. WHAT IS MATERIAL TO CONSIDER IS THE NATURE OF THE ADVANTAGE IN A COM MERCIAL SENSE AND IT IS ONLY WHERE THE ADVANTAGE IS IN THE CAPITAL FIELD TH AT THE EXPENDITURE WOULD BE DISALLOWABLE ON AN APPLICATION OF THIS TES T. IF THE ADVANTAGE CONSISTS MERELY IN FACILITATING THE ASSESSEES TRAD ING OPERATIONS OR ENABLING THE MANAGEMENT AND CONDUCT OF THE ASSESSEES BUSINE SS TO BE CARRIED ON MORE EFFICIENTLY OR MORE PROFITABLY WHILE LEAVIN G THE FIXED CAPITAL UNTOUCHED, THE EXPENDITURE WOULD BE ON REVENUE ACCO UNT, EVEN THOUGH THE ADVANTAGE MAY ENDURE FOR AN INDEFINITE FUTURE. THE TEST OF ENDURING BENEFIT IS, THEREFORE, NOT A CERTAIN OR CONCLUSION TEST AND IT CANNOT BE APPLIED BLINDLY AND MECHANICALLY WITHOUT REGARD TO THE PARTICULAR FACTS AND CIRCUMSTANCES OF A GIVEN CASE. WE DO NOT THEREFORE FIND ANY REASON TO INTERFERE WI TH THE ORDER OF THE CIT(A) ON THIS ISSUE. ACCORDINGLY, THIS GROUND OF A PPEAL FILED BY THE REVENUE IS DISMISSED. 11. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 04/08/2015 SD/- SD/- (T.R. SOOD) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 04/08/2015 AG COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR