DCIT CEN CIR 8(3) ERSTWHILE DCIT CC 46, MUMBAI V. JSW ENERGY LTD, MUMBAI

ITA 1334/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0585 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-06-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: J
• Assessment Year: 2008-2009
• Appeal Filed On: 05-03-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ALOK JOHARIDR
• Keywords: Capital asset; Search and seizure; Opportunity of being heard; Earning of tax free income; Wholly owned subsidiary; Corroborative evidences; Capital receipt; Capital expenditure
• Section: 143(3); 153A; 14A; 115JB

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -JBENCH MUMBAI , , , BEFORE S/SHRI RAJENDRA,ACCOUNTANT MEMBER AND RAM LAL NEGI,JUDICIAL MEMBER ./I.T.A./1334/MUM/2015, /ASSESSMENT YEAR: 2008-09 DY. CIT-CENTRAL CIRCLE-8(3) ROOM NO.659, 6 TH FLOOR AAYAKAR BHAVAN, M.K. ROAD MUMBAI-400 020. VS. M/S. JSW ENERGY LIMITED JSW CENTRE, BANDRA KURLA COMPLEX BANDRA (E),MUMBAI-400 051. PAN:AAACJ 8109 N ( /APPELLANT ) ( / RESPONDENT ) ./I.T.A./1091/MUM/2015, /ASSESSMENT YEAR: 2008-09 M/S. JSW ENERGY LIMITED MUMBAI-400 051. VS. DY. CIT-CENTRAL CIRCLE-8(3) MUMBAI-400 020. ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY: SHRI ALOK JOHARI-DR ASSESSEE BY: SHRI RAKESH JOSHI / DATE OF HEARING: 05.04.2017 / DATE OF PRONOUNCEMENT: 02.06.2017 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 22.12.2014 OF CIT(A)-47 ,MUMBAI THE AO AND THE ASSESSEE HAVE FILED CROSS APPEALS FOR THE ABOVE MENTIONED ASSESSM ENT YEARS.ASSESSEE-COMPANY, ENGAGED IN THE BUSINESS OF GENERATION OF POWER AND OPERATION A ND MAINTENANCE OF POWER PLANTS,FILED ITS RETURN OF INCOME ON 29/09/2008 DECLARING INCOME OF RS.255.08 CRORES,AFTER CLAIMING DEDUCTION OF RS.692.29 CRORES U/S.80IA OF THE ACT. THE ORIGINAL ASSESSMENT WAS COMPLETED ON 12/10/10,U/S. 143(3) DETERMINING ITS INCOME AT RS.6 03.37 CRORES UNDER THE NORMAL PROVISIONS AND UNDER THE MAT PROVISIONS INCOME WAS COMPUTED AT RS.976.27 CRORES. ITA/1334/MUM/2015 - BRIEF FACTS: 2. AN ACTION U/S. 132(1) OF THE ACT WAS CARRIED OUT IN JSW GROUP, INCLUDING THE ASSESSEE, ON 16/03/2011RESULTING IN SEIZURE OF BOOKS OF ACCOUNTS AND DOCUMENTS.THEREAFTER, A NOTICE U/S. 153A WAS ISSUED REQUIRING THE ASSESSE TO FILE RETUR N OF INCOME. IN RESPONSE TO THE NOTICE IT FILED RETURN ON 29/01/2011 DECLARING INCOME OF RS.2 55.08 CRORES. INCOME U/S.115JB WAS DISCLOSED AT RS.9,76,27,90,248/-. 3. FIRST GROUND OF APPEAL IS ABOUT DELETING THE ADDITI ON MADE ON ACCOUNT OF CAPITALIZATION, AMOUNTING TO RS.33.84 CRORES IN RESPECT OF CONTRACT AWARDED TO M/S.GREMACH INFRASTRUCTURE EQUIPMENTS AND PROJECTS LTD. (GIEPL). DURING THE AS SESSMENT PROCEEDINGS THE AO OBSERVED 1334& 1091/M/15(08-09)- JSW ENERGY LIMITED 2 THAT THE GROUP HAD BOOKED HUGE CAPITAL EXPENDITURE IN VARIOUS PROJECTS OF M/S.JSW STEEL LTD., M/S. JSW ENERGY LTD. AND M/S.RAJ WEST POWER LTD., T HAT THERE WERE LOT OF DISCREPANCIES WITH REGARD TO THE CONTRACT AWARDED TO GIEPL, THAT THE A SSESSEE HAD NOT REVERSED/ WRITTEN BACK ANY AMOUNT OF CAPITAL WORK-IN-PROGRESS BASED ON THE DIS CREPANCIES FOUND DURING THE COURSE OF SEARCH AND SEIZURE PROCEEDINGS.HE FURTHER OBSERVED THAT JSW ENERGY LTD.(RATNAGIRI), PREVIOUSLY A WHOLLY OWNED SUBSIDIARY OF THE ASSESSE E HAD MERGED WITH IT W.E.F. 01.04.2010 , THAT IT GOT GENERATION OF ELECTRICITY FROM ITS PLAN T AT VILLAGE NANDIWADE, THAT THE TOTAL CAPACITY OF THE PROJECT WAS 1200MW, THAT IT HAD INVESTED RS. 3527.00 CRORES IN THE PROJECT TILL 31/3/2010, THAT ABOUT RS.615.00 CRORES WERE INVESTE D IN CAPITAL ASSETS AND RS.3959.00 CRORES WAS PART OF CAPITAL WORK-IN-PROGRESS.WITH REGARD TO GIEPL THE AO OBSERVED THAT DURING THE COURSE OF SEARCH AND SEIZURE PROCEEDINGS VARIOUS IN VOICES AND RUNNING BILLS OF GIEPL WERE SEIZED, THAT SCRUTINY OF THE DOCUMENTS SUGGESTED TH AT THERE WERE NO ENTRIES IN THE INWARD REGISTER,THAT THE LOG SHEETS WERE FABRICATED, THAT THERE WAS NO PROOF THAT CONSTRUCTION EQUIPMENTS HAD ENTERED THE FACTORY PREMISES,REFERRI NG TO THE STATEMENTS OF THE DGM RECORDED DURING THE SURVEY PROCEEDINGS AND FROM THE LOG SHEE TS HE OBSERVED THAT ALL THESE DOCUMENTS WERE PREPARED ON A PARTICULAR DAY TO SERVE THE PURP OSE OF HAVING SOME SUPPORTING EVIDENCE FOR THE BILLS PRODUCED BY THE CONTRACTOR I.E. GIEPL , THAT THE BILLS WERE APPROVED AND PASSED FOR PAYMENT WITHOUT ANY CROSS VERIFICATION,THAT THE LOG SHEET OF THE CONTRACTOR WERE MANIPU - LATED,THAT THE SERIALLY NUMBERED LOG SHEETS WERE NO T ISSUED IN ORDER, THAT THE LOG-SHEET FOR JULY-AUGUST,2007 WERE ISSUED AFTER THE LOG SHEET FO R THE NEXT TWO MONTHS WERE ISSUED, THAT THE ASSESSEE WAS NOT ABLE TO SUBSTANTIATE THE CLAIM THAT THE PAYMENT TO GIEPL WERE MADE FOR BUSINESS PURPOSES.HE FURTHER OBSERVED THAT SOME OF THE BILLS SUBMITTED BY GIEPL WERE UNSIGNED,THAT SUCH UNVERIFIED BILLS WERE PROCESSED BY THE ASSESSEE AND PAYMENTS AGAINST THESE BILLS WERE MADE. 3.1. HE FURTHER STATED THAT ASSESSEE HAD ENGAGED THE SER VICES OF GIEPL FOR EXECUTING PART OF ITS PROJECT DURING THE YEAR UNDER CONSIDERATION, THAT E NQUIRES WITH THE AO OF GIEPL WERE MADE ABOUT THE TRANSACTIONS, THAT THE AO OF GIEPL HAD IN FORMED THAT DURING THE COURSE OF HEARING GIEPL HAD ADMITTED THAT IT HAD PROVIDED ACCOMMODATI ON ENTRY TO JSW(E), RATNAGIRI OF RS. 35.54 CRORES.THE AO DIRECTED THE ASSESSEE TO FILE E XPLANATION AS TO WHY ALL THE EXPENDITURE RS.35.54 CRORES SHOULD NOT BE DISALLOWED. 3.2. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE, THE AO OBSERVED THAT GIEPL (NEW NAME-SANCIA GLOBAL INFRA PROJECTS LTD.)-SANCIA) HAD ADMITTED THAT IT HAD PROVIDED ENTRIES TO THE ASSESSEE TO THE EXTENT OF RS.35,54,88,534/-, TH AT NO WORK WAS DONE BY GIEPL IN RESPECT OF 1334& 1091/M/15(08-09)- JSW ENERGY LIMITED 3 CONTRACT AWARDED TO IT BY THE ASSESSEE COMPANY, TH AT NO WORK WAS CARRIED OUT, THAT THE PAYMENT MADE BY ASSESSEE TO GIEPL COULD NOT BE CONS IDERED FOR THE PURPOSE OF BUSINESS, THAT THE CLAIM MADE BY THE ASSESSEE HAD TO BE REJECTED.F INALLY,HE MADE A DISALLOWANCE OF RS.33.84 LAKHS IN RESPECT OF THE TRANSACTION ENTERED INTO WI TH GIEPL UNDER THE HEAD CAPITAL EXPENSES. 3.3 AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE IS IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA)AND MADE ELABORATE SUBMISSIONS. AFTE R CONSIDERING THE ASSESSMENT ORDER AND THE SUBMISSIONS OF THE ASSESSEE,HE HELD THAT JSW(E ), RATNAGIRI MADE PAYMENT TO GEIPL, THAT THE SUBSIDIARY GOT MERGED WITH THE ASSESSEE W.E.F. 1.4.2010 AS PER THE SCHEME ARRANGEMENT APPROVED BY THE HONBLE BOMBAY HIGH COURT VIDE ORD ER DT.24/9/2010, THAT IT STOOD DISSOLVED WITHOUT BEING WOUND UP ON 2/11/2010 BEING THE DATE OF FILING OF ORDER OF THE HON'BLE HIGH COURT WITH REGISTRAR OF COMPANIES, THAT SURVEY WAS CONDUCTED AT THE BUSINESS PREMISES OF THE JSW(E), RATNAGIRI ON 16/3/2011, THAT JSW(E) RATNAGI RI WAS IN EXISTENCE TILL 2/11/2010, THAT THE AO HAD NOT ALLEGED THAT THE ASSESSEE HAD CLAIME D ANY EXPENDITURE, REVENUE OR CAPITAL ON ACCOUNT OF PAYMENT MADE TO GEIPL DURING THE ASSESSM ENT YEAR 2008-09, THAT DISALLOWANCE CAN BE MADE ONLY IF THE ASSESSEE MAKES CLAIM FOR IN CURRING OF EXPENDITURE,THAT FOR THE ALLEGED DISCREPANCY IN CLAIMS MADE BY JSW(E), RATNAGIRI SAM E COULD HAVE BEEN DEALT WITH UNDER SEPARATE PROCEEDINGS INITIATED IN ITS NAME/ IN THE NAMES OF ITS SUCCESSORS, THAT DISALLOWANCE OF CAPITAL EXPENDITURE OF RS.33.84 LAKHS IN RESPECT O F TRANSACTION BETWEEN JSW(E) RATNAGIRI AND GEIPL.FINALLY, HE DELETED THE ADDITION MADE BY THE AO. 3.4. PROJECT CARRIED OUT BY RATNAGIRI UNIT, THAT GEIPL H AD ADMITTED TO HAVE ISSUED BOGUS BILL TO JSW(E),RATNAGIRI,THAT THE AO HAD RIGHTLY MADE THE D ISALLOWANCE.THE AUTHORISED REPRESENTA -TIVE(AR)CONTENDED THAT THE ASSESSEE WAS NOT CONNEC TED WITH THE BOGUS BILLS, EVEN IF THE FAKE BILLS WERE OBTAINED, SAME PERTAINED TO THE ERSTWHIL E COMPANY.HE REFERRED TO THE ORDER OF THE TRIBUNAL FOR THE AY.2009-10 AND STATED THAT THE RAT NAGIRI UNIT AMALGAMATED WITH THE ASSESSEE COMPANY IN THE SUBSEQUENT YEARS. 3.5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL BEFORE US. WE FIND THAT THE AMALGAMATION OF THE JSW(E)RATNAGIRI TOOK PLACE ON 0 1.04.2010, THAT BEFORE THAT DATE RATNAGIRI UNIT WAS AN INDEPENDENT ENTITY, THAT THE ALLEGED BOGUS BILLS WERE OBTAINED BY JSW(E)RATNAGIRI.IF ANY ADDITION IN THAT REGARD HAD TO BE MADE IT COULD BE MADE IN THE HANDS OF RATNAGIRI UNIT OR SUCCESSOR TO THAT UNIT. THE FA A HAS DELETED THE ADDITION AS THE BILLS WERE NOT TAKEN BY THE ASSESSEE IN THE YEAR UNDER CONSIDE RATION. IN OUR OPINION THE ORDER OF THE FAA DOES NOT SUFFER FROM ANY LEGAL OR FACTUAL INFIRMITY .THEREFORE, CONFIRMING THE SAME THE GROUND IS DECIDED AGAINST THE AO. 1334& 1091/M/15(08-09)- JSW ENERGY LIMITED 4 3.6. WE FIND THAT IDENTICAL ISSUE WAS DEALT BY THE TRIBU NAL IN THE CASE OF THE ASSESSEE WHILE DECIDING THE APPEAL FOR THE AY.2009-10(ITA/1335/MUM /2015 DT.06.1.17).WE ARE REPRODUC- ING PARAGRAPHS 2-5 OF THE ORDER FOR READY REFERENCE AND SAME READ AS UNDER: 2 . FIRST GROUND OF APPEAL IS ABOUT DELETING THE ADDITI ON MADE ON ACCOUNT OF CAPITALISATION OF RS. 68.15 LAKHS IN RESPECT OF CONTRACT AWARDED TO GREMACH INF RASTRUCTURE EQUIPMENTS AND PROJECTS LTD.(GIEPL).THE AO OBSERVED THAT DURING THE AY.2008 -09,THE ASSESSEE HAD CLAIMED TO HAVE ENGAGED THE SERVICES OF GEIPL FOR EXHIBITING PART OF ITS PROJEC TS, THAT IT HAD BEEN HELD DURING THAT YEAR THAT NO WORK HAD BEEN DONE BY GEIPL IN RESPECT OF THE CONTRACT A WARDED,THAT NO WORK COULD BE EXECUTED,THAT THE PAYMENT MADE BY THE ASSESSEE COULD NOT BE CONSIDERE D FOR PURPOSE OF BUSINESS,THAT CAPITAL EXPENDITURE OF RS. 68.15 LAKHS CLAIMED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION COULD NOT BE ALLOWED. 3.AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PR EFERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).BEFORE HIM,IT WAS ARGUED THAT IT HAD NEITHER INCURRED NOT CLAIM ANY EXPENDITURE FOR THE YEAR UNDER CONSIDERATION,THAT THE AO WAS NOT JUSTIF IED IN DISALLOWING THE SAME,THAT EXPEN -DITURE WAS INCURRED BY A SUBSIDIARY COMPANY OF THE ASSESSEE WH ICH AMALGAMATED WITH IT WITH EFFECT FROM 01/04/2010. HE REFERRED TO HIS ORDER FOR THE AY. 20 08- 09 AND STATED THAT THE MATTER PERTAINED TO CAPITALISATION OF AN EXPENDITURE WITH REGARD TO PAY MENT MADE TO GEIPL BY JSW ENERGY(RATNAGIRI)LTD.(JSWERL),THAT IT WAS A SUBSIDI ARY OF THE ASSESSEE AND THE AMOUNT IN QUESTION WAS INCLUDED IN THE CAPITAL WORK IN PROGRESS,THAT JS GO T MERGED WITH THE ASSESSEE WITH EFFECT FROM 01/04/2 010 VIDE AN SCHEME OF ARRANGEMENT APPROVED BY HONORABLE BOMBAY HIGH COURT ORDER DATED 24/09/2010 THAT DURING THE SEARCH AND SEIZURE PROCEEDINGS CARRIED O UT IN THE CASE OF ASSESSEE GROUP CERTAIN PAPERS WER E FOUND ABOUT THE CONTRACT GIVEN TO GEIPL, THAT THE A O OF THAT COMPANY HAD DISALLOWED A SUM OF RS. 33.84 LAKHS FOR THE AY. 2008-09 AND BALANCE AMOUNT OF RS. 68.15 LAKHS FOR THE AY. 2009-10 CLAIM UNDER THE HEAD CAPITAL EXPENDITURE. 4.BEFORE US,THE DEPARTMENTAL REPRESENTATIVE (DR) SU PPORTED THE ORDER OF THE AO. THE AUTHORISED REPRESENTATIVE (AR) STATED THAT ASSESSEE HAD NOT CL AIMED ANY EXPENDITURE IN ITS BOOKS OF ACCOUNTS, THA T DISPUTED AMOUNT WAS DISALLOWED IN THE CASE OF JSWER L, THAT DURING NOT MADE BY AN ASSESSEE COULD NOT BE DISALLOWED. 5.WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE ASSESSEE HA D NOT CLAIMED THE EXPENDITURE IN QUESTION IN ITS BOOK S OF ACCOUNTS FOR THE YEAR UNDER APPEAL.FOR DISALLOWING ANY EXPENSE,THE AO SHOULD FIRST PROVE T HE INCURRING AND CLAIMING OF OF THE SAID EXPENDITUR E IN THE REGULAR BOOKS OF ACCOUNTS.BUT, WITHOUT ESTAB LISHING THE BASIC FACT THAT THE ASSESSEE HAD CLAIME D THE EXPENDITURE,THE AO HAD MADE THE DISALLOWANCE.THE EX PENDITURE WAS INCURRED BY AN ERSTWHILE ENTITY NAMELY JSWERL AND CERTAIN DISCREPANCIES WERE NOTICE D ABOUT THE TRANSACTION.SO,IF ANY DISALLOWANCE WAS TO BE MADE,IT SHOULD HAVE BEEN IN THE HANDS OF THAT ASSESSEE OR IT SHOULD HAVE BEEN IN THE CASE OF SUCCESSOR OF JSWERL.THE FAA HAS GIVEN A CATEGORICAL FINDING OF FACT THAT BEFORE THE AMALGAMATION WITH JSWERL,THE ASSESSEE HAD NO CONNECTION WITH THAT ENT ITY,THAT EXPENDITURE WAS CLAIMED BY THAT COMPANY AND WAS DISALLOWED BY THE AO OF THAT COMPANY WHILE COMPLETING THE ASSESSMENT FOR THE AY.S 2008-09 AND 2009-10,THAT THE AO HAD WRONGLY DISALLOWED THE EXPENDITURE IN THE HANDS OF THE ASSESSEE.THUS, THER E WAS NO JUSTIFICATION FOR MAKING ANY ADDITION IN THE CASE OF THE ASSESSEE.IN OUR OPINION,THERE IS NO LE GAL OR FACTUAL INFIRMITY IN THE ORDER OF THE FAA.SO,CONFIR MING HIS ORDER,WE DECIDE FIRST GROUND OF APPEAL AGA INST THE AO. 4. SECOND GROUND IS ABOUT RESTRICTING THE DISALLOWANCE U/S. 14A R.W. RULE 8D OF THE INCOME TAX RULES ,1962 AT RS.9.14 CRORES AGAINST RS.44.03 CRORES.IN THE ORIGINAL ASSESSMENT ORDER THE AO HAD MADE DISALLOWANCE OF RS.29.66 CRORES FOLLOWI NG RULE 8D AGAINST NIL DISALLOWANCE BY THE ASSESSEE IN ITS RETURN OF INCOME.IN THE APP ELLATE PROCEEDINGS THE FAA ALLOWED PARTIAL RELIEF AND UPHELD THE DISALLOWANCE TO THE TUNE OF R S.14.34 CRORES.IN THE RETURN FILED IN RESPONSE TO THE NOTICE U/S.153A THE ASSESSEE ITSELF DISALLOWED AN AMOUNT OF RS.9.14 CRORES. HOWEVER,THE AO ENHANCED THE DISALLOWANCE TO RS.44.0 3 CRORES ON ACCOUNT OF INDIRECT EXPENSES UNDER RULE 8D(II). 1334& 1091/M/15(08-09)- JSW ENERGY LIMITED 5 4.1. BEFORE THE FAA,IN THE APPELLATE PROCEEDINGS,THE ASS ESSEE MADE ELABORATE SUBMISSIONS REGARDING NON APPLICABILITY OF SECTION 14A AND RUL E 8D CONTENDING THAT NO DISALLOWANCE HAD BEEN MADE AS IT HAD NOT EARNED ANY EXEMPT INCOME DU RING THE YEAR.AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE FAA HELD THAT DISA LLOWANCE OF RS.9.14 CRORES WAS MADE BY THE ASSESSEE ITSELF IN THE RETURN FILED BY THE ASS ESSEE U/S. 153A,THAT THERE WAS NO EXPLANATION AS TO HOW THE EXPENDITURE-THAT WAS IDENTIFIED BY TH E ASSESSEE AS BEING INCURRED WITH REFERENCE TO INVESTMENT IN SHARES-SHOULD NOT BE DIS ALLOWED.ACCORDINGLY, HE DIRECTED THE AO TO RESTRICT THE DISALLOWANCE TO RS.9.14 CRORES. 4.2. BEFORE US,THE DR SUPPORTED THE ORDER OF THE AO AND THE AR SUPPORTED THE ORDER OF THE FAA.WE FIND THAT THE AO HAD NOT GIVEN ANY JUSTIFICA TION FOR ENHANCING THE DISALLOWANCE TO RS.44 CRORES (APPROX.),THAT THE FAA HAD RESTRICTED THE DISALLOWANCE TO RS.9.14 CRORES ONLY, THAT THE ASSESSEE ITSELF HAD OFFERED THE DISALLOWAN CE IN THE RETURN FILED IN RESPONSE TO NOTICE U/S. 153A OF THE ACT. CONSIDERING THE ABOVE, WE ARE OF THE OPINION THAT THERE IS NO NEED TO DISTURB THE ORDER OF THE FAA.GROUND NO.2 STANDS DIS MISSED. 5. THIRD GROUND DEALS WITH ALLOWING DEDUCTION U/S. 80I A IN RESPECT OF THE TOTAL DISALLOWANCE U/S.14A OF THE ACT. THE DR SUPPORTED THE ORDER OF T HE AO AND THE AR STATED THAT ISSUE WAS ADJUDICATED IN FAVOUR OF THE ASSESSEE BY THE TRIBU NAL WHILE DECIDING THE APPEAL FOR AY 2008- 09(ITA/463/MUM/2014 DT.31.7.15). WE ARE REPRODUCING PARA NO.16-19 OF THE ABOVE ORDER: 16. BEFORE US, THE LD. REPRESENTATIVE FOR THE ASS ESSEE HAS NOT SERIOUSLY DISPUTED THE DISALLOWANCE O F RS. 9,05,83,986/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DIRECT INTEREST EXPENDITURE RELATED TO EARNING OF EXEMPT INCOME. OSTENSIBLY, THE SAID WORK ING WAS PROVIDED BY THE ASSESSEE ITSELF IN THE COUR SE OF HEARING BEFORE THE ASSESSING OFFICER. NEVERTHELE SS, IT IS TO BE NOTED THAT THE ENTIRE ISSUE OF THE DISALLOWANCE MADE BY INVOKING SECTION 14A OF THE AC T IS QUITE REDUNDANT BECAUSE THE CIT(A) AGREED TO AN OMNIBUS ALTERNATE PLEA OF THE ASSESSEE TO THE EF FECT THAT THE AMOUNT DISALLOWED U/S 14A OF THE ACT RESULTED IN INCREASED PROFITS, WHICH QUALIFIED FOR THE BENEFITS OF SECTION 80IA OF THE ACT. THE AFORES AID DECISION OF THE CIT(A) IS CHALLENGED BY THE REVENUE BY WAY OF GROUND OF APPEAL NO.2. 17. PERTINENTLY, WITH RESPECT TO THE DISALLOWANCE U /S 14A OF THE ACT MADE BY APPLICATION OF CLAUSES (I ) AND (II) OF RULE 8D OF THE RULES AMOUNTING TO RS. 24,37 ,66,836/- THE ASSESSING OFFICER HIMSELF ALLOWED DEDUCTION U/S 80IA OF THE ACT ON THE INCOME SO ENHA NCED. SO HOWEVER, IN RESPECT OF THE PROFITS ENHANCE D AS A RESULT OF A DISALLOWANCE UNDER THE THIRD LIMB OF RULE 8D(2)(III) OF THE RULES I.E. RS. 5,29,15,00 0/- ON ACCOUNT OF ADMINISTRATIVE EXPENSES, THE ASSESSING O FFICER BIFURCATED THE DISALLOWANCE BETWEEN 80IA UNI T AND NON 80IA UNIT ON THE BASIS OF TURNOVER AND ACCO RDINGLY EXEMPTION U/S 80IA OF THE ACT WAS DENIED ON THE AMOUNT OF RS. 3,11,29,566/-. IN APPEAL, THE CIT (A) HAS NOTED THAT THE EXPENSES DEBITED TO NON-80-I A UNITS WERE DIRECT EXPENSES PERTAINING TO THOSE UNIT S AND INSOFAR AS THE INDIRECT EXPENDITURE WAS CONCERNED, THE SAME WAS DEBITED TO 80IA UNITS, WHIC H ARE ENGAGED IN THE BUSINESS OF GENERATION OF POWER. THUS, AS PER THE CIT(A), THE DISALLOWANCE OF ADMINISTRATIVE EXPENSES U/S.14A R.W.R. 8D(2)(III) OF THE RULES AMOUNTING TO RS. 5,29,15,000/- WOULD ONLY RESULT IN INCREASED PROFITS OF THE BUSINESS OF GENERATION OF POWER, WHICH SHALL BE ELIGIBLE FOR EX EMPTION U/S 80IA OF THE ACT. ACCORDINGLY, THE CIT(A ) DISAGREED WITH THE ASSESSING OFFICER WHO HAD ALLOWE D THE EXEMPTION U/S 80IA OF THE ACT ON A PRO-RATA BASIS WITH RESPECT TO THE INCOME ENHANCED BY DISALL OWANCE OF ADMINISTRATIVE EXPENSES U/S 14A R.W.R 8D(2)(III) OF THE RULES. THIS ASPECT OF THE CONTROV ERSY HAS BEEN AGITATED BY THE REVENUE BEFORE US BY WAY OF GROUND OF APPEAL NO. 2. 18. HAVING CONSIDERED THE FINDINGS OF CIT(A) ON THI S ASPECT, WE FIND NO REASON TO INTERFERE WITH THE S AME INASMUCH AS THE SAME ARE UNEXCEPTIONAL. THE CIT (A) HAS FACTUALLY CONCLUDED THAT THE DISALLOWANCE OF ADMINISTRATIVE EXPENSES AMOUNTING TO RS. 5,29,15,00 0/- U/S 14A R.W.R 8D(2)(III) OF THE RULES LEADS TO 1334& 1091/M/15(08-09)- JSW ENERGY LIMITED 6 ENHANCED PROFITS OF THE ELIGIBLE BUSINESS OF THE GE NERATION OF POWER AND, THEREFORE, SUCH ENHANCED PRO FITS HAVE BEEN RIGHTLY HELD TO BE ELIGIBLE FOR BENEFITS OF SECTION 80IA OF THE ACT. NO MATERIAL HAS BEEN LE AD BY THE REVENUE 12 M/S JSW ENERGY LIMITED PAGE 12 OF 20 BEFORE US WHICH WOULD ENABLE US TO DISTRACT FROM THE ABOVE FINDING OF THE CIT(A), WHICH IS HEREBY AF FIRMED AND REVENUE FAILS IN GROUND OF APPEAL NO. 2. 19. THE RESULT OF THE AFORESAID IS THAT WHATEVER IN COME WAS ENHANCED ON ACCOUNT OF DISALLOWANCE COMPUTED U/S 14A OF THE ACT, IT HAS BEEN OFFSET BY THE EXEMPTION AVAILABLE ON SUCH ENHANCED PROFIT IN TERMS OF SECTION 80IA OF THE ACT. THUS, ON FACTS IT IS QUITE CLEAR THAT THE DISALLOWANCE U/S 14A OF TH E ACT DOES NOT IMPACT THE NET TAXABLE PROFITS AS ASSESSEE BECOMES ELIGIBLE TO HIGHER EXEMPTION U/S 80IA OF T HE ACT. THEREFORE, THE DISPUTE PERTAINING TO THE EFFIC ACY OF THE DISALLOWANCE U/S 14A OF THE ACT, R.W. RU LE 8D(2) OF THE RULES, WHICH IS MANIFESTED IN GROUND O F APPEAL NO. 4 OF THE ASSESSEE AND IN GROUND OF APPEAL NO. 1 OF THE REVENUE, IS ACADEMIC IN NATURE. THUS, WE REFRAIN FROM ADJUDICATING THE SAME AT THE PRESENT. RESPECTFULLY FOLLOWING THE ABOVE, GROUND THREE DECI DED AGAINST THE AO. 6. SALE OF CERTIFIED EMISSION REDUCTION (CER) IS THE S UBJECT MATTER OF GROUND NO.4.WHILE DECIDING THE APPEAL FILE BY THE ASSESSEE WE HAVE RE STORED BACK THE ISSUE OF SALE OF CER TO THE FILE OF AO FOR FRESH ADJUDICATION.GROUND NO.4 IS DE CIDED IN FAVOUR OF THE AO,IN PART. 7. NEXT GROUND IS ABOUT COMPUTATION OF BOOK PROFIT U/S .115JB OF THE ACT. IT WAS BROUGHT TO OUR NOTICE THAT THE TRIBUNAL IN ASSESSEES OWN CASE IN 2006-07 HAD DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE, THAT THE APPEAL FILED BY THE DEPAR TMENT BEFORE THE HON'BLE BOMBAY HIGH COURT (ITA NO.1468 OF 2013 DT. 30/4/2015) WAS DISM ISSED. IN THESE CIRCUMSTANCES, WE ARE OF THE OPINION THAT THE ORDER OF THE FAA HAS TO BE CON FIRMED. RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL FOR AY 2006-07,WE DECIDE THE FIFTH GROUND AGAINST THE AO. 8. LAST GROUND DEALS WITH PENALTY PROCEEDINGS.AS THE I SSUE RAISED BEFORE US IS PREMATURE SO,SAME IS NOT BEING ADJUDICATED. ITA/1091/MUM/2015:- 9. FIRST GROUND OF APPEAL,RAISED BY THE ASSESSEE,IS AB OUT TREATMENT GIVEN TO SALE PROCEEDS OF CER WHILE COMPUTING THE BOOK PROFIT.IT WAS BROUGHT TO OUR NOTICE THAT WHILE DECIDING THE APPEAL FOR THE AY.2008-09 (ITA/463/MUM/2014 DT.31.7 .2015),THE TRIBUNAL HAD DEALT WITH THE ISSUE AT PG.13-PARA-20 ONWARDS.WE ARE REPRODUCI NG THE RELEVANT PORTION OF THE ORDER AND IT READS AS UNDER :- 23. BOTH THE ADDITIONAL GROUNDS OF APPEAL RAISED BY THE ASSESSEE RELATE TO THE MANNER OF COMPUTATION OF BOOK PROFIT FOR THE PURPOSES OF SECTION 115JB OF THE ACT. IN ADDITIONAL GROUND NO. 1, THE PLEA OF ASSESSEE IS THAT THE CERS OR CARBON CREDITS ARE IN THE NATURE OF A CAPITAL RECEIPT AND, THEREFORE, THE SAME IS LIABLE TO BE REDUCED WHILE COMPUTING THE B OOK PROFIT FOR THE PURPOSES OF SECTION 115JB OF TH E ACT. THE POINT MADE OUT BY THE APPELLANT IS THAT IF THE RECEIPTS ON ACCOUNT OF SALE OF CARBON CREDITS ARE HELD TO BE CAPITAL RECEIPTS NOT CHARGEABLE TO TAX, IT WOULD AUTOMATICALLY HAVE THE EFFECT OF ALTERING THE BOOK PROFIT COMPUTABLE FOR THE PURPOSE OF SECTION 115JB OF THE ACT. SINCE IN THE EARLIER PART OF THI S ORDER, WE HAVE ALREADY UPHELD THE PLEA OF THE ASSES SEE THAT CARBON CREDIT RECEIPTS ARE IN THE NATURE O F A CAPITAL RECEIPT NOT CHARGEABLE TO TAX FOLLOWING THE JUDGMENT OF HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF MY HOME POWER LTD. (SUPRA), THEREFORE, THE PLEA OF THE ASSESSEE BY WAY OF ADDITIONAL GROUNDS OF APPEAL NO. 1 SPRINGS UP. INSOFAR AS THE ADMISSION OF SUCH AN ADDITIONAL GROUND IS CONCERNED , WE FIND THAT IT INVOLVES A POINT OF LAW AND THE SAM E IS ALSO RELEVANT IN DETERMINING APPROPRIATE TAX LIABILITY OF THE ASSESSEE AND, THEREFORE, FOLLOWING THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF 1334& 1091/M/15(08-09)- JSW ENERGY LIMITED 7 NATIONAL THERMAL POWER CORPORATION (SUPRA), THE SAM E IS LIABLE TO BE ADMITTED. NEVERTHELESS, THE SAID GROUND OF APPEAL WAS NOT HITHERTO RAISED BY THE ASS ESSEE BEFORE THE LOWER AUTHORITIES, THEREFORE, THE SAME IS OUGHT TO BE EXAMINED APPROPRIATELY BY THE I NCOME TAX AUTHORITIES. THUS, THE ADDITIONAL GROUND OF APPEAL NO. 1 IS ADMITTED AND THE SAME IS RESTORE D BACK TO THE FILE OF THE ASSESSING OFFICER FOR ADJUDICATION ON MERITS AS PER LAW AFTER ALLOWING TH E ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD. RESPECTFULLY FOLLOWING THE ORDER FOR THE EARLIER YE AR WE ARE RESTORING BACK THE ISSUE TO THE FILE OF THE AO FOR FRESH ADJUDICATION.HE IS DIRECTED TO AFFORD A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE.FIRST GROUND IS ALLOWED,IN PART. 10. SECOND GROUND IS ABOUT REDUCTION OF A SUM OF RS.325 .83 CRORES ON ACCOUNT OF DE-MERGER OF INVESTMENT DIVISION IN COMPUTING THE BOOK PROFIT S.WE FIND THAT SIMILAR GROUND WAS TAKEN BY THE ASSESSEE BEFORE THE TRIBUNAL IN THE APPEAL F ILED BY THE ASSESSEE IN THE AY 2008-09.WE ARE REPRODUCING THE PARA -24, 25, 26 AND 28 OF THE ORDER. 24. THE ADDITIONAL GROUND OF APPEAL NO. 2 ALSO INV OLVES DETERMINATION OF BOOK PROFITS FOR THE PURPOSE OF SECTION 115JB OF THE ACT. IT IS CANVASSE D THAT ASSESSEE IS ENTITLED TO A DEDUCTION OF RS. 3,25,83,13098/- ON ACCOUNT OF LOSS ARISING ON DEMER GER OF ITS INVESTMENT DIVISION WHILE COMPUTING THE BOOKS PROFITS U/S 115JB OF THE ACT. IN THIS CONTEXT , BRIEF FACTS ARE THAT THE ASSESSEE COMPANY WAS HOLDING SHARES OF ITS GROUP COMPANIES IN ITS INVEST MENT DIVISION. THE INVESTMENT DIVISION WAS HIVED OFF TO ITS SUBSIDIARY JSW ENERGY INVESTMENT PVT. LT D (JSWEIPL) DURING THE ASSESSMENT YEAR UNDER CONSIDERATION IN TERMS OF A SCHEME OF ARRANGEMENT A PPROVED BY THE HONBLE BOMBAY HIGH COURT VIDE ORDER DATED 1.11.2007. IN TERMS OF THE SCHEME OF ARRANGEMENT, THE ASSETS AND LIABILITIES OF THE INVESTMENT DIVISION WERE TRANSFERRED JSWEIPL AT THE IR BOOK VALUES. AS A CONSEQUENCE, A SUM OF RS.3,25,83,13,098/-, BEING THE EXCESS OF BOOK VALU E OF ASSETS OVER THE LIABILITIES TRANSFERRED, WAS A LOSS SUFFERED ON DEMERGER OF THE INVESTMENT DIVISIO N. NOTABLY, IN LIEU OF SUCH TRANSFER OF INVESTMENT DIVISION, SHARES OF JSWEIPL WERE ISSUED TO SHAREHOL DERS OF ASSESSEE COMPANY IN THE RATIO SPECIFIED IN THE SCHEME OF ARRANGEMENT. THE LOSS OF RS. 3,25, 83,13,098/- WAS ADJUSTED AGAINST THE BALANCE/ SURPLUS OF THE PROFIT & LOSS ACCOUNT APPEARING IN T HE BALANCE-SHEET, BUT WAS NOT ROUTED THROUGH THE PROFIT & LOSS ACCOUNT. 25. THE CLAIM OF THE APPELLANT IS THAT THE ABOVE LO SS OF RS. 3,25,83,13,098/- SUFFERED ON DEMERGER OF THE INVESTMENT DIVISION DURING THE PREVIOUS YEAR RE LEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION WAS NOT ROUTED THROUGH PROFIT & LOSS ACCOUNT BUT IT WAS AN AMOUNT DEDUCTIBLE WHILE COMPUTING BOOKS PROFITS U/S 115JB OF THE ACT. IT IS POINTED OUT THAT UNDER THE ACT TRANSFER OF ASSETS/LIABILIT IES IN THE CASE OF MERGER OR DEMERGER IS A TRANSACTION OF TRANSFER AND LIABLE TO CAPITAL GAINS TAX UNDER SECTION 45 OF THE ACT. SO HOWEVER, SINCE SECTION 47 (VIB) OF THE ACT, EXEMPTS TRANSFER IN THE SCHEME OF DEMERGER FROM THE DEFINITION OF TRANSFER, THE SAM E IS NOT LIABLE TO CAPITAL GAINS TAX. THE PLEA SET UP BY THE ASSESSEE IS THAT THE ACT RECOGNIZES TRANSFER OF SHARES, IN THE SCHEME OF MERGER, AS A TRANSFER BUT PROVIDES EXEMPTION U/S 47(VIB) OF THE ACT. 26. BEFORE US, THE LD. REPRESENTATIVE HAS PLACED RE LIANCE ON THE RATIO OF THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. VEEKAYLAL INVESTMENT CO. P. LTD. 249 ITR 597 (BOM.) TO JUSTIFY AFORESAID THE CLAIM. THE HONBLE BOMBAY HIG H COURT NOTICED THAT FOR COMPUTING THE TOTAL INCOME UNDER NORMAL PROVISIONS, THE CAPITAL GAINS C OMPUTED U/S 45 OF THE ACT, HAS TO BE TAKEN INTO ACCOUNT AND, THEREFORE IT WAS HELD THAT CAPITAL GAI NS COULD NOT BE EXCLUDED WHILE COMPUTING THE BOOK PROFITS U/S 115J OF THE ACT. IT WAS NOTED BY THE HO NBLE HIGH COURT THAT UNDER CLAUSE (2) OF PART II O F SCHEDULE VI OF THE COMPANIES, ACT 1956, WHERE A CO MPANY RECEIVES THE AMOUNT ON ACCOUNT OF SALE OF LEASE HOLD RIGHTS, THE COMPANY IS BOUND TO DISCL OSE IN THE PROFIT & LOSS ACCOUNT, THE SAID AMOUNT AS A NON-RECURRING TRANSACTION OR A TRANSACTION OF AN EXCEPTIONAL NATURE IRRESPECTIVE OF ITS NATURE BEING CAPITAL OR REVENUE AND THAT IT WOULD BE INAPP ROPRIATE TO DIRECTLY TRANSFER SUCH AMOUNT TO THE CAPITAL RESERVE IN THE BALANCE SHEET. ON THE BASIS OF THE RATIO OF THE JUDGMENT OF HONBLE BOMBAY HIGH COURT, THE LD. REPRESENTATIVE POINTED OUT THAT THE LOSS OF RS. 325.83 CRORES INCURRED ON DEMERGER OF THE INVESTMENT DIVISION WAS REQUIRED TO BE CONSIDERED WHILE COMPUTING THE BOOK PROFITS FOR THE PURPOSE OF SECTION 115JB OF THE AC T, THOUGH ASSESSEE DID NOT ROUTE THE ENTRY THROUGH THE PROFIT & LOSS ACCOUNT. XXXXX 28. AT THE TIME OF HEARING, THOUGH THE LD. DR OPPOS ED THE PRAYER OF ASSESSEE FOR ADMISSION OF THE AFORESAID ADDITIONAL GROUND OF APPEAL, BUT FACTUALL Y IT COULD NOT BE DISPUTED THAT THE GROUND SOUGHT 1334& 1091/M/15(08-09)- JSW ENERGY LIMITED 8 TO BE RAISED INVOLVES A PURE POINT OF LAW FOR WHICH THE RELEVANT AND CORRESPONDING FACTS REQUIRED FOR ADJUDICATION ARE ON RECORD. THEREFORE, CONSIDERING THE ENTIRETY OF FACTS AND CIRCUMSTANCES AND THE POSITION OF LAW EXPLAINED BY THE HONBLE SUPREME CO URT IN THE CASE OF NATIONAL THERMAL POWER CORPORATION (SUPRA) AND BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF PRUTHVI BROKERS & SHARE HOLDERS PVT. LTD. (SUPRA), WE DEEM IT FIT AND PROPE R TO ADMIT THE AFORESAID ADDITIONAL GROUND OF APPEAL NO. 2 ALSO. INSOFAR AS THE MERIT OF SAID GRO UND IS CONCERNED, IT WOULD BE IN THE FITNESS OF THI NGS THAT THE SAME IS RESTORED BACK TO THE FILE OF ASSES SING OFFICER FOR ADJUDICATION, SINCE THE SAME WAS N OT BEFORE THE LOWER AUTHORITIES. NEEDLESS TO SAY THE A SSESSING OFFICER SHALL ALLOW THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD IN SUPPORT OF THE AFORESAID ADDITIONAL GROUND OF APPEAL AND THEREAFTER PASS AN ORDER AFRESH AS PER LAW. CONSIDERING THE ABOVE WE ARE RESTORING BACK THE ISS UE TO THE FILE OF THE AO FOR FRESH ADJUDICA -TION.HE WOULD DECIDE THE ISSUE AFTER HEARING THE A SSESSEE.SECOND GROUND IS PARTLY ALLOWED. AS A RESULT, APPEALS FILED BY AO AND THE ASSESSEE STAND PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 ND JUNE, 2017. 2017 SD/- SD/- ( / RAM LAL NEGI ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : 02 .0 6 .2017. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.