M/s Karnataka Power Corporation Limited, Bangalore V. ACIT, Bangalore

ITA 1341/BANG/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6114 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 6 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-05-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 22-04-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 15-10-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRS PRISCILLA SINGSIT CITIIIDR
• Keywords: Business income; Depreciation; Opportunity of being heard; Rule of consistency; Source of fund; Retrospective amendment; Question of law; Condonation of delay; Unabsorbed depreciation; Revenue expenditure
• Section: 80C; 143(3); 234B; 115JB; 37(1); 6; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NO. 961/BANG/2006 ASSESSMENT YEAR : 2003-04 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 11(5), BANGALORE. VS. M/S. KARNATAKA POWER CORPORATION LTD., SHAKTI BHAVAN, NO.32, RACE COURSE ROAD, BANGALORE. PAN : AAACK 8032D APPELLANT RESPONDENT ITA NOS. 323 & 1341/BANG/2012 ASSESSMENT YEAR : 2006-07 & 2008- 09 M/S. KARNATAKA POWER CORPORATION LTD., BANGALORE. PAN : AAACK 8032D VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 11(5), BANGALORE. APPELLANT RESPONDENT REVENUE BY : MRS. PRISCILLA SINGSIT, CIT-III(DR) ASSESSEE BY : SHRI NARENDRA SHARMA, ADVOCATE DATE OF HEARING : 22.04.2014 DATE OF PRONOUNCEMENT : 09.05.2014 ITA NOS.961/BANG/06 AND 323 & 1341/BANG/12 PAGE 2 OF 37 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER ALL THESE THREE APPEALS PERTAINING TO ONE AND THE SAME ASSESSEE WERE HEARD TOGETHER AS THEY INVOLVE SOME COMMON ISS UES. WE DEEM IT CONVENIENT TO PASS A COMMON ORDER. ITA 961/B/2006 THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER D ATED 11.08.2006 OF THE CIT(APPEALS)-I, BANGALORE RELATING TO ASSESSMEN T YEAR 2003-04. THIS APPEAL WAS ORIGINALLY DISMISSED BY THIS TRIBUNAL BY ITS ORDER DATED 09.10.2009 FOR THE REASON THAT THE CONSENT OF THE C OMMITTEE ON DISPUTES (COD) FOR FILING THIS APPEAL HAS NOT BEEN OBTAINED AS REQUIRED BY THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE O F ONGC V. COLLECTOR OF CENTRAL EXCISE (1995) SUPP. 4 SCC 541 (SC) . 2. THE REVENUE PREFERRED AN APPEAL AGAINST THE ORDE R OF DISMISSAL BY THE TRIBUNAL BEFORE THE HONBLE HIGH COURT OF KARNA TAKA. THE HONBLE HIGH COURT IN ITA NO.95/2010 BY JUDGMENT DATED 22.06.201 1, SET ASIDE THE ORDER OF THE TRIBUNAL IN VIEW OF THE LATER DECISION OF TH E HONBLE SUPREME COURT IN THE CASE OF ELECTRONICS DEVELOPMENT CORPORATION OF INDIA LTD. V . UOI & ORS. IN CIVIL APPEAL NO.1883/11 DATED 17.2.20 11 , WHEREIN IT WAS HELD BY THE HONBLE SUPREME COURT THAT APPROVAL OF THE COD REQUIRED FOR FILING THE APPEALS BEFORE THE TRIBUNAL BY ANY P UBLIC SECTOR UNDERTAKING ITA NOS.961/BANG/06 AND 323 & 1341/BANG/12 PAGE 3 OF 37 AS LAID DOWN BY THE HONBLE SUPREME COURT IN ITS EA RLIER JUDGMENT DID NOT SERVE THE PURPOSE AND THEREFORE, SUCH APPROVAL NEED ED TO BE DISPENSED WITH. 3. CONSEQUENT TO THE AFORESAID JUDGMENT DATED 22.0 6.2011 OF THE HONBLE HIGH COURT OF KARNATAKA SETTING ASIDE THE O RDER OF THE TRIBUNAL AND RESTORING THE MATTER BACK TO THE TRIBUNAL, THIS APP EAL WAS AGAIN FIXED FOR HEARING THE PARTIES ON MERITS. 4. THE ASSESSEE IS A CORPORATION ESTABLISHED UNDER THE COMPANIES ACT, 1956. IT IS ENGAGED IN THE BUSINESS OF GENERA TION OF POWER IN THE STATE OF KARNATAKA. IT IS A STATE GOVT. UNDERTAKING. TH E ASSESSEE HAS FIVE UNITS WHICH ARE ELIGIBLE TO CLAIM DEDUCTION U/S. 80IA. O UT OF THESE FIVE UNITS, THREE UNITS INCURRED LOSS WHILE TWO UNITS, RPS 5 AN D 6, AND GERUSOPPA DERIVED PROFITS. THE ASSESSEE CLAIMED DEDUCTION U/ S. 80IA OF THE INCOME TAX ACT, 1961 (ACT) IN RESPECT OF THE TWO UNITS W HICH DERIVED PROFITS. THE TOTAL DEDUCTION CLAIMED U/S. 80IA FROM THESE TWO UN ITS IS RS.133,10,50,731. AS PER THE ASSESSEES COMPUTATION STATEMENT, AFTER HAVING ARRIVED AT THE GROSS TOTAL INCOME OF RS.327,47,61,109, THE ASSESSE E HAD CLAIMED THE DEDUCTION AMOUNTING TO RS.133,10,50,731, THUS ARRIV ING AT A PROFIT OF RS.194,37,10,378. AGAINST THIS, THE BROUGHT FORWAR D UNABSORBED DEPRECIATION WAS SET OFF THUS MAKING THE INCOME AS NIL WITH A CLAIM FOR CARRY FORWARD OF UNABSORBED DEPRECIATION OF RS.4,92 ,08,556. THE AO PROPOSED TO SET OFF UNABSORBED DEPRECIATION PERTAIN ING TO EARLIER YEARS ITA NOS.961/BANG/06 AND 323 & 1341/BANG/12 PAGE 4 OF 37 BEFORE ALLOWING THE DEDUCTION U/S. 80IA. THE ASSES SEE IN RESPONSE TO THE PROPOSAL OF THE AO SUBMITTED THAT AS PER THE PROVIS IONS OF SECTION 80IA(5) OF THE ACT, THE PROVISIONS OF SECTION 80AB WOULD NO T BE APPLICABLE AND THUS NEITHER THE BROUGHT FORWARD LOSSES NOR THE DEPRECIA TION ARE REQUIRED TO BE SET OFF WHILE APPLYING THE PROVISIONS OF SECTION 80 IA. RELIANCE WAS PLACED BY THE ASSESSEE ON THE DECISION OF THE CALCUTTA BEN CH OF THE TRIBUNAL IN THE CASE OF ITO V. KANCHAN OIL INDUSTRIES LTD. (92 ITD 557) . 5. THE AO, HOWEVER, RESTRICTED THE DEDUCTION U/S. 80IA TO THE GROSS TOTAL INCOME OF THE ASSESSEE, AFTER SET OFF ALL THE BROUGHT FORWARD UNABSORBED DEPRECATION, AND HELD AS FOLLOWS:- AS PER THE PROVISIONS OF SEC. 32(2), THE UNABSORBE D DEPRECIATION IS TO BE TREATED AS PART OF CURRENT DE PRECIATION. UNDER THESE CIRCUMSTANCES, THE UNABSORBED DEPRECIAT ION ALONG WITH THE CURRENT YEARS DEPRECIATION HAS TO BE FIRS T SET OFF TO ARRIVE AT THE GROSS TOTAL INCOME. THE PROVISIONS O F SECTION 80A STATES THAT THE DEDUCTION SPECIFIED IN SECTIONS 80C TO 80U ARE TO BE GIVEN FROM THE GROSS TOTAL INCOME. THE GROSS TO TAL INCOME HAS BEEN DEFINED IN SECTION 80B(5) OF THE ACT AS TH E TOTAL INCOME COMPUTED IN ACCORDANCE WITH THE PROVISIONS O F THIS ACT BEFORE MAKING ANY DEDUCTION UNDER CHAPTER VIA. SEC . 32(2) BEING PART OF THE METHODOLOGY OF COMPUTING BUSINESS INCOME, THE GROSS TOTAL INCOME CAN BE ARRIVED AT ONLY AFTER SET OFF OF THE BROUGHT FORWARD DEPRECIATION. THOUGH, AS PER THE P ROVISIONS OF SECTION 80IA(5) THE DEDUCTION U/S. 80IA IS TO BE CO MPUTED AS IF THE UNIT IS THE ONLY BUSINESS BEING RUN BY THE ASSE SSEE, STILL, WHILE ALLOWING THE DEDUCTION, THE PROVISIONS OF SEC TION 32(2), 80A, 80AB AND 80B WOULD BE APPLICABLE. HENCE, THOU GH THE ASSESSEE IS ENTITLED TO A LARGER DEDUCTION, THE SAM E IS TO BE RESTRICTED TO THE GROSS TOTAL INCOME AS STIPULATED UNDER SECTION 80A(2). ACCORDINGLY, THE DEDUCTION U/.S 80IA IS RE STRICTED TO THE GROSS TOTAL INCOME OF THE ASSESSEE AFTER SET OFF OF ALL THE BROUGHT FORWARD UNABSORBED DEPRECIATION. ITA NOS.961/BANG/06 AND 323 & 1341/BANG/12 PAGE 5 OF 37 6. AGGRIEVED BY THE AFORESAID ORDER OF THE AO, THE ASSESSEE PREFERRED THE APPEAL BEFORE THE CIT(APPEALS). THE CIT(A) FOLL OWING THE DECISION OF THE CALCUTTA BENCH OF THE TRIBUNAL IN THE CASE OF ITO V. KANCHAN OIL INDUSTRIES LTD. (SUPRA) , DIRECTED THE AO TO ALLOW THE CLAIM OF THE ASSESSEE AS MADE IN THE RETURN OF INCOME. THE TRIB UNAL IN THE AFORESAID CASE HAD TAKEN THE FOLLOWING VIEW:- FOR THE PURPOSE OF DETERMINING THE QUANTUM OF DEDU CTION UNDER SUB-S. (5) OF S. 80-IA, THE ELIGIBLE BUSINESS IS TO BE TREATED AS THE ONLY SOURCE OF INCOME OF THE ASSESSEE DURING THE RE LEVANT ASSESSMENT YEAR AS PROVIDED UNDER SUB-S. (7) OF S. 80-IA. A CAREFUL PERUSAL OF S. 80-IA(7) SHOWS THAT S. 80-IA(7) ENACT S PROVISIONS OF OVERRIDING NATURE. SEC. 80-IA(7) IS A PART OF S. 80 -IA, WHICH WAS NEWLY INSERTED IN THE IT ACT BY THE FINANCE (NO. 2) ACT, 1991, W.E.F. 1ST APRIL, 1991. IT STARTS WITH THE WORDS 'NOTWITHS TANDING ANYTHING CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT'. THU S, S. 80-IA(7) HAS BEEN GIVEN AN OVERRIDING EFFECT OVER ANY OTHER PROV ISIONS OF IT ACT. IN OTHER WORDS, S. 80-IA(7) PROVIDES THAT ITS PROVI SIONS ARE TO PREVAIL OVER ANY OTHER PROVISIONS OF THE ACT. ALL OTHER PRO VISIONS OF THE ACT WOULD THUS BE APPLIED SUBJECT TO THE PROVISIONS OF S. 80-IA(7) FOR THE PURPOSE OF DETERMINING QUANTUM OF DEDUCTION UNDER S UB-S. (5) OF S. 80-IA. IT IS SEEN THAT S. 80-IA PROVIDES A SPECIAL MODE FOR COMPUTATION OF THE PROFITS AND GAINS DERIVED FROM E LIGIBLE INDUSTRIAL UNDERTAKING UNDER S. 80-IA. IN OTHER WORDS, FOR THE PURPOSES OF DETERMINING THE QUANTUM OF DEDUCTION UNDER SUB-S. ( 5) OF S. 80-IA, THE PROFITS AND GAINS OF AN ELIGIBLE BUSINESS IS TO BE COMPUTED OR DETERMINED AS IF SUCH BUSINESS WERE THE ONLY SOURCE OF INCOME OF THE ASSESSEE DURING THE RELEVANT YEAR AND THE ASSES SEE HAD NO OTHER SOURCE OF INCOME. CONSEQUENTLY, THE TOTAL INC OME OF THE ELIGIBLE BUSINESS IS TO BE COMPUTED UNDER THE PROVI SIONS OF THE ACT AS IF THE ELIGIBLE BUSINESS WERE THE ONLY SOURCE OF INCOME OF THE ASSESSEE. CONSEQUENTLY, ALL THE DEDUCTIONS, ALLOWAN CES AND LOSSES RELATING TO THE ELIGIBLE BUSINESS ARE ONLY TO BE TA KEN INTO ACCOUNT IN DETERMINING THE AMOUNT OF INCOME OF THAT NATURE WHI CH IS DERIVED OR RECEIVED BY THE ASSESSEE FROM ELIGIBLE BUSINESS AND WHICH IS INCLUDED IN HIS GROSS TOTAL INCOME AND THEN IN DETE RMINING QUANTUM OF DEDUCTION AVAILABLE UNDER S. 80-IA, EVEN THOUGH THE ASSESSEE MAY HAVE OTHER LOSSES OR ALLOWANCES OR DEDUCTIONS R ELATING TO SOME SOURCES OF INCOME OTHER THAN THE ELIGIBLE BUSINESS. THE LANGUAGE OF ITA NOS.961/BANG/06 AND 323 & 1341/BANG/12 PAGE 6 OF 37 S. 80-IA(7) ITSELF SHOWED THAT THERE WAS NO SCOPE F OR A SETTING OFF OR ADJUSTMENT OF EXPENSES, DEDUCTIONS, LOSSES, EARLIER YEARS LOSSES OR UNABSORBED DEPRECIATION, ETC. ARISING OUT OF OTHER BUSINESS ACTIVITIES OR RELATED TO THE OTHER SOURCES OF INCOME OF THE AS SESSEE AGAINST PROFITS AND GAINS OF ELIGIBLE BUSINESS TO WHICH S. 80-IA APPLIES BEFORE THE PROVISIONS OF S. 80-IA WERE APPLIED, INASMUCH A S IT IS CLEAR FROM THE PROVISIONS CONTAINED IN SUB-S. (7) OF S. 80-IA THAT THE DEDUCTION UNDER S. 80-IA IS TO BE COMPUTED AS IF SUCH ELIGIBL E BUSINESS WERE THE ONLY SOURCE OF INCOME OF THE ASSESSEE DURING TH E RELEVANT ASSESSMENT YEAR. THUS, S. 80-IA CAN BE SAID TO BE A SPECIAL PROVISION PROVIDING A SPECIAL MODE OF COMPUTATION O F DEDUCTION FROM THE PROFITS AND GAINS DERIVED FROM ELIGIBLE BUSINES S UNDER S. 80-IA. HAVING REGARD TO THE CARDINAL PRINCIPLE OF INTERPRE TATION EMERGED FROM THE MAXIM 'GENERALIA SPECIALIBUS NON DEROGANT' , THE SPECIAL PROVISION OF S. 80-IA(7), WHICH IS OVERRIDING IN NA TURE, MUST PREVAIL OVER GENERAL PROVISIONS TO THE EXTENT OF ITS SCOPE AND LIMIT. CONSEQUENTLY, THE DEDUCTIONS, EXPENSES AND LOSSES, ETC., AND THE UNABSORBED LOSSES, UNABSORBED DEPRECIATION, ETC ., RELATING TO OTHER NON-ELIGIBLE BUSINESS OR ANY OTHER SOURCE OF INCOME CANNOT BE TAKEN INTO ACCOUNT IN COMPUTING THE 'GROS S TOTAL INCOME' FOR THE PURPOSE OF COMPUTING THE QUANTUM OF DEDUCTION ADMISSIBLE UNDER S. 80-IA. (EMPHASIS SUPPLIED) 7. AGGRIEVED BY THE ORDER OF THE CIT(APPEALS), THE REVENUE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 8. AT THE TIME OF HEARING OF THE APPEAL, IT WAS BR OUGHT TO OUR NOTICE THAT SIMILAR ISSUE RAISED BY THE REVENUE IN THIS APPEAL WAS CONSIDERED AND DECIDED BY THE HONBLE SUPREME COURT IN THE CASE OF SYNCO INDUSTRIES LTD. V. AO, 299 ITR 444 (SC) . THE ASSESSEE IN THAT CASE WAS ENGAGED IN THE BUSINESS OF OIL AND CHEMICALS. IT HA D A UNIT FOR OIL DIVISION AT SIROHI DISTRICT, RAJASTHAN. IT ALSO HAD A CHEMICAL DIVISION AT JODHPUR. THE ASSESSEE HAD EARNED PROFIT IN THE ASST. YRS. 1990-9 1 AND 1991-92 IN BOTH ITA NOS.961/BANG/06 AND 323 & 1341/BANG/12 PAGE 7 OF 37 THE UNITS. HOWEVER, THE ASSESSEE HAD SUFFERED LOSSE S IN THE OIL DIVISION IN EARLIER YEARS. THE APPELLANT CLAIMED DEDUCTIONS UND ER SS. 80HH AND 80-I OF THE ACT, CLAIMING THAT EACH UNIT SHOULD BE TREATED SEPARATELY AND THE LOSS SUFFERED BY THE OIL DIVISION IN EARLIER YEARS IS NO T ADJUSTABLE AGAINST THE PROFITS OF THE CHEMICAL DIVISION. THE AO NOTICED TH AT THE GROSS TOTAL INCOME OF THE ASSESSEE BEFORE DEDUCTIONS UNDER CHAPTER VI- A WAS NIL. THEREFORE, HE CONCLUDED THAT THE ASSESSEE WAS NOT ENTITLED TO THE BENEFIT OF DEDUCTIONS UNDER CHAPTER VI-A. THE ACTION OF THE A O WAS CONFIRMED BY THE CIT(A) AS WELL AS BY THE TRIBUNAL. THE HONBLE HIGH COURT ALSO CONFIRMED THE ACTION OF THE TRIBUNAL. ON FURTHER A PPEAL BY THE ASSESSEE THE HONBLE SUPREME COURT HELD THAT DEDUCTION UNDER THAT CLAUSE (5) OF S. 80B DEFINES THE EXPRESSION GROSS TOTAL INCOME TO MEAN THE TOTAL INCOME COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE A CT BEFORE MAKING ANY DEDUCTION UNDER CHAPTER VI-A. WHILE COMPUTING THE TOTAL INCOME, THE LOSSES AND DEPRECIATION CARRIED FORWARD HAVE TO BE ADJUSTED AND THEREAFTER THE GROSS TOTAL INCOME HAS TO BE WORKED OUT. IF TH E GROSS TOTAL INCOME OF THE ASSESSEE IS DETERMINED AS NIL, ON ACCOUNT OF LOSSES OF EARLIER YEARS, UNABSORBED DEPRECIATION, ETC. NO DEDUCTION CAN BE A LLOWED UNDER CHAPTER VI-A. ON THE CONTENTION THAT THE PROFITS DERIVED F ROM ONE INDUSTRIAL UNDERTAKING CANNOT BE SET OFF AGAINST LOSS SUFFERED FROM ANOTHER UNDERTAKING IN VIEW OF S. 80-I(6) AND THAT THE PROF IT IS REQUIRED TO BE COMPUTED AS IF THE PROFIT MAKING INDUSTRIAL UNDERTA KING IS THE ONLY SOURCE OF INCOME, THE HONBLE SUPREME COURT HELD THAT THE SAM E HAS NO MERITS AND ITA NOS.961/BANG/06 AND 323 & 1341/BANG/12 PAGE 8 OF 37 THAT THE NON OBSTANTE CLAUSE APPEARING IN S. 80-I(6 ) IS APPLICABLE ONLY TO THE QUANTUM OF DEDUCTION, WHEREAS THE GROSS TOTAL INCOM E REFERRED TO IN S. 80- I(1) IS REQUIRED TO BE COMPUTED IN THE MANNER PROVI DED UNDER THE ACT WHICH PRESUPPOSES THAT THE GROSS TOTAL INCOME SHALL BE AR RIVED AT AFTER ADJUSTING THE LOSSES OF THE OTHER DIVISION AGAINST THE PROFIT S DERIVED FROM AN INDUSTRIAL UNDERTAKING. THE HONBLE SUPREME COURT ALSO HELD TH AT IF THE INTERPRETATION AS SUGGESTED BY THE ASSESSEE IS ACCEPTED THEN IT WO ULD ALMOST RENDER THE PROVISIONS OF S. 80A(2) NUGATORY AND, THEREFORE, TH E SAME CANNOT BE ACCEPTED. IT WAS HELD THAT THE NON OBSTANTE CLAUSE IN S. 80-I(6) CANNOT RESTRICT THE OPERATION OF SS. 80A(2) AND 80B(5) WHI CH OPERATE IN DIFFERENT SPHERES. THE HONBLE COURT THEREFORE CONCLUDED THA T LOSS FROM THE OIL DIVISION OF THE ASSESSEE WAS REQUIRED TO BE ADJUSTE D BEFORE DETERMINING THE GROSS TOTAL INCOME, AND SINCE THE GROSS TOTAL I NCOME WAS NIL, ASSESSEE WAS NOT ENTITLED TO CLAIM DEDUCTION UNDER S. 80-I. 9. THE ABOVE DECISION RENDERED IN THE CONTEXT OF SE C.80-I OF THE ACT WOULD IN OUR VIEW SQUARELY APPLY TO THE PROVISIONS OF SEC.80-IA AND 80- IA(7) OF THE ACT AS THE PROVISIONS ARE IMPARI MATERIA THE SAME. 10. IN VIEW OF THE AFORESAID DECISION OF THE HONBL E SUPREME COURT, WE ARE OF THE VIEW THAT THE ORDER OF THE CIT(APPEALS) ALLOWING THE CLAIM OF THE ASSESSEE WITHOUT SETOFF OF LOSSES OF EARLIER YEARS WHILE ARRIVING AT THE GROSS TOTAL INCOME CANNOT BE SUSTAINED. ITA NOS.961/BANG/06 AND 323 & 1341/BANG/12 PAGE 9 OF 37 11. THE LD. COUNSEL FOR THE ASSESSEE, HOWEVER, SUBM ITTED BEFORE US THAT IN THE A.Y. 2003-04, THE CIT(A) HAD INITIATED PROCE EDINGS U/S. 263 OF THE ACT. THE AFORESAID PROCEEDINGS U/S. 263 OF THE ACT WAS IN RELATION TO ISSUES WHICH DID NOT ARISE OUT OF THE ORDER OF ASSESSMENT PASSED U/S. 143(3) OF THE ACT AND WERE IN RELATION TO DIFFERENT ISSUES WHICH HAD NOT BEEN CONSIDERED IN THE ORDER U/S. 143(3) OF THE ACT. THE ORDER OF ASSESSMENT U/S. 143(3) OF THE ACT, WHICH ORDER OF ASSESSMENT IS SUBJECT MATTE R OF PRESENT APPEAL WAS PASSED ON 15.3.2006. AGAINST THE AFORESAID ORDER, THE CIT(A) PASSED THE ORDER DATED 11.08.2006 AGAINST WHICH THE PRESENT AP PEAL ARISES. THE ORDER PASSED U/S. 263 OF THE ACT WAS DATED 4.11.2009. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT CONSEQUENT TO THE ORDER DATED 4.11.2009 BY THE CIT U/S. 263 OF THE ACT, THE ORDER OF ASSESS MENT U/S. 143(3) OF THE ACT DATED 15.3.2006 IS DEEMED TO HAVE BEEN CANCELLE D AND THEREFORE THE ISSUES RAISED BY THE REVENUE IN THIS APPEAL HAVE BE COME INFRUCTUOUS. 12. IN OUR VIEW, THE FACTS OF THE PRESENT CASE STAN D ON A TOTALLY DIFFERENT FOOTING. IT IS AN ADMITTED POSITION THAT THE ORDER U/S. 263 OF THE ACT WERE ON ISSUES WHICH WERE NOT CONSIDERED BY THE ASSESSING O FFICER IN THE ORDER U/S. 143(3) OF THE ACT. THE ORDER U/S. 263 OF THE ACT H AD TO BE THEREFORE CONSIDERED AS HAVING BEEN SET ASIDE ONLY FOR THE LI MITED PURPOSE OF CONSIDERING THE ISSUES RAISED IN THE ORDER U/S. 263 OF THE ACT. THE OTHER ISSUES DEALT WITH IN THE ORDER U/S. 143(3) OF THE A CT WILL CONTINUE TO SUBSIST. THEREFORE, THE PLEA OF THE LD. COUNSEL FOR THE ASSE SSEE THAT THE ISSUES RAISED BY THE REVENUE IN THE APPEAL HAVE BECOME INF RUCTUOUS, CANNOT BE ITA NOS.961/BANG/06 AND 323 & 1341/BANG/12 PAGE 10 OF 37 ACCEPTED AND THE SAME IS REJECTED. FOLLOWING THE D ECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SYNCO INDUSTRIES LTD. (SUPRA) , WE ARE OF THE VIEW THAT THIS APPEAL OF THE REVENUE HAS TO BE ALLOWED. IT IS ACCORDINGLY ALLOWED. 13. IN THE RESULT, THE APPEAL BY THE REVENUE IS ALL OWED. ITA 323/BANG/2012 14. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDE R DATED 30.11.2011 OF THE CIT(APPEALS)-I, BANGALORE RELATING TO ASSESS MENT YEAR 2006-07. 15. THE ASSESSEE HAS FILED CONSOLIDATED GROUNDS OF APPEAL AND THOSE CONSOLIDATED GROUNDS OF APPEAL ARE TAKEN UP FOR CON SIDERATION. 16. GROUND NOS.1 & 2 AND GROUNDS 9 & 10 RAISED BY T HE REVENUE ARE GENERAL IN NATURE AND CALLS FOR NO SPECIFIC ADJUDIC ATION. GROUNDS NO. 7 & 8 WITH REGARD TO LEVY OF INTEREST U/S. 234B AND 234C ARE PURELY CONSEQUENTIAL AND THE AO IS DIRECTED TO GIVE CONSEQUENTIAL RELIEF . 17. GROUND NO.3 RAISED BY THE ASSESSEE READS AS FOL LOWS:- 3. THE LEARNED AUTHORITIES BELOW ARE NOT JUSTIFIE D IN LAW IN MAKING AN ADDITION OF A SUM OF RS. 11,67,257/- BEIN G THE AMOUNT OF RS. 8,65,857/- PERTAINING TO THE DONATION OF ASSETS AND A SUM OF RS.3,01,400/- BEING THE OBSOLESCE OF A SSETS UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE. ITA NOS.961/BANG/06 AND 323 & 1341/BANG/12 PAGE 11 OF 37 18. AS WE HAVE ALREADY SEEN, THE ASSESSEE IS A CORP ORATION ESTABLISHED UNDER THE COMPANIES ACT, 1956, ENGAGED IN THE BUSIN ESS OF GENERATION AND SUPPLY OF ELECTRICITY. IN THE COURSE OF ASSESS MENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAD MADE A CLAIM FOR DEDU CTION OF A SUM OF RS.11,67,257; BEING A SUM OF RS.8,65,857 WHICH WAS DONATION OF ASSETS GIVEN BY THE ASSESSEE AND ANOTHER SUM OF RS.3,01,40 0 BEING OBSOLESCENT ASSETS WRITTEN OFF. THE AO DID NOT ALLOW THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF THE AFORESAID SUM FOR THE REASON THAT THE DETAILS OF EXPENDITURE ON ACCOUNT OF OBSOLESCENCE AND DONATION OF ASSETS SHOWED THAT THEY WERE CAPITAL LOSSES AND THEREFORE CANNOT BE ALLOWED AS REVENUE EXPENDITURE. 19. BEFORE THE CIT(A), THE ASSESSEE GAVE DETAILS OF THE ASSETS THAT WERE DONATED AND THAT WHICH WERE WRITTEN OFF AS OBSOLETE . THE SAME WERE AS FOLLOWS:- THE DETAILS OF DONATION OF ASSETS: PARTICULARS AMOUNT (RS.) WITHDRAWAL OF VALUE OF BUILDING IN VIEW OF RELEASED MATERIALS SPARED TO PRIVATE AGENCIES DURING DISMANTLING. 7,43,177 TRANSFER OF TEMPORARY BUILDING AT SAMPEKATTE GRAM PANCHAYAT, SAMPEKATTE. 1,22,680 TOTAL 8,65,857 ITA NOS.961/BANG/06 AND 323 & 1341/BANG/12 PAGE 12 OF 37 THE DETAILS OF LOSS ON OBSOLESCENCE OF ASSETS IS AS UNDER: ACCOUNTING UNIT PARTICULARS AMOUNT (RS.) GANESHGUDI RADIAL GATES 2,91,797 EXIDE BATTERIES 9,423 PEDESTAL FAN 180 TOTAL : 3,01,400 THE ASSESSEE CONTENDED BEFORE CIT(A) THAT THE ASSES SING OFFICER FAILED TO APPRECIATE THAT SUCH DONATIONS AND WRITE OFF OF OBS OLETE ASSETS WERE PART OF BUSINESS ACTIVITY AND HENCE ALLOWABLE. IT WAS ALSO CONTENDED THAT THE ABOVE EXPENSES WERE WHOLLY AND EXCLUSIVELY SPENT IN EARNI NG THE INCOME AND THE SAME ARE ALLOWABLE UNDER SECTION 37(1) OF THE INCOM E TAX ACT. THE ASSESSEE EXPLAINED THAT MOST OF THE SITES WHERE THE GENERATION OF POWER TAKES PLACE ARE TEMPORARY OR MAKE SHIFT PLACES BELO NGING TO LOCAL AUTHORITY. WHEN THE TEMPORARY SITES ARE ABANDONED, THE ASSETS LYING THEREIN ARE EITHER GIVEN AS DONATIONS. SOME ASSETS ALSO BECOME OBSOLETE MAKING THEM UNFIT FOR ANY USE. IN SO FAR AS SOME OLD BUIL DING WHICH HAVE BEEN DEMOLISHED, THE CONTRACTORS HAVE BEEN INFORMED TO T AKE OVER THE WASTE AND INCOME FROM SUCH CONTRACT IS ACCOUNTED IN MISCELLAN EOUS RECEIPTS. 20. THE CIT(A), HOWEVER, DID NOT AGREE WITH THE CON TENTIONS PUT FORTH BY THE ASSESSEE AND WAS OF THE VIEW THAT THE LOSS IS O N ACCOUNT OF CAPITAL ACCOUNT AND CANNOT BE ALLOWED AS REVENUE EXPENDITUR E. 21. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE REI TERATED THE SUBMISSIONS AS WAS MADE BEFORE THE CIT(APPEALS). ITA NOS.961/BANG/06 AND 323 & 1341/BANG/12 PAGE 13 OF 37 22. THE LD. DR, HOWEVER, BROUGHT TO OUR NOTICE THAT SIMILAR ISSUE HAD BEEN CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN C ASE IN A.Y. 2007-08 IN ITA NO.711/BANG/2011, ORDER DATED 11.10.2013, WHERE IN THE TRIBUNAL UPHELD SIMILAR DISALLOWANCE BY THE REVENUE AUTHORIT IES. THE OBSERVATIONS OF THE TRIBUNAL ARE AS FOLLOWS:- 7.3 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. THE AS SESSING OFFICER HAS NOT ALLOWED THE ASSESSEE'S CLAIM FOR DE DUCTION OF THE LOSS ON OBSOLESCENCE OF ASSETS UNDER SECTION 37(1) OF THE ACT, HOLDING IT TO BE CAPITAL IN NATURE. BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE WAS UNABLE TO BRING ON RE CORD ANY COGENT EVIDENCE TO SUBSTANTIATE ITS CLAIM AND CONTR OVERT THE FINDING OF THE ASSESSING AUTHORITY. IN THIS VIEW OF THE MATTER, WE DISMISS GROUND NO.5 RAISED BY THE ASSESSEE. 23. WE ARE OF THE VIEW THAT IN THE LIGHT OF THE DEC ISION OF THE TRIBUNAL REFERRED TO BY THE LD. DR, THERE IS NO MERIT IN GRO UND NO.4 RAISED BY THE ASSESSEE. ACCORDINGLY, THE SAME IS DISMISSED. 24. GROUND NO.4 READS AS FOLLOWS:- 4. THE LEARNED AUTHORITIES BELOW ARE NOT JUSTIFIE D IN MAKING AN ADDITION OF RS. 19,95,80,290/- ON THE FOLLOWING EXPENSES ON THE GROUND THAT THEY PERTAIN TO PRIOR PERIOD UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE. 25. AS FAR AS GROUND NO.4 IS CONCERNED, THE BREAK U P OF THE SUM OF RS.19,95,80,290 CLAIMED AS DEDUCTION BY THE ASSESSE E UNDER THE HEAD PRIOR PERIOD EXPENSES IS AS FOLLOWS:- ITA NOS.961/BANG/06 AND 323 & 1341/BANG/12 PAGE 14 OF 37 (A) STORES RECONCILIATION OF COAL CARRIED OUT DURING THE PREVIOUS YEAR RS.13,70,43,439 (B) PAYMENTS MADE TOWARDS COAL TRANSPORT AGENCY DUE TO PRICE ESCALATION RS.2,07,60,000 (C) DIFFERENTIAL SURFACE TRANSPORT CHARGES TO COAL SUPPLIERS RS.70,63,081 (D) DIFFERENTIAL SALES TAX REIMBURSEMENT ON LEASE RENTALS RS.2,63,72,297 (E) OTHERS (BEING EXPENSES CLAIMED BY EMPLOYEES AND OTHER AGENCIES IN CONDUCTING THE ACTIVITY OF THE ASSESSEE FOR WHICH BILLS WERE PRODUCED BY THE EMPLOYEES AND OTHER AGENCIES PERTAINING TO PRIOR PERIOD ONLY DURING THE PREVIOUS YEAR RS.8 2,43,612 26. THE AO IN THE ORDER OF ASSESSMENT HAS MADE NO D ISCUSSION ON THIS CLAIM OF THE ASSESSEE FOR DEDUCTION AND HAS REJECTE D THE SAME BY OBSERVING THAT PRIOR PERIOD EXPENSES CANNOT BE ALLO WED AS DEDUCTION IN COMPUTING THE INCOME OF THE PREVIOUS YEAR. 27. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THE D ETAILS OF PRIOR PERIOD EXPENSES AND SUBMITTED THAT THOUGH THOSE EXPENSES R ELATED TO A PERIOD EARLIER TO THE PREVIOUS YEAR, YET THEY CRYSTALLIZED AS LIABILITY OF THE ASSESSEE ONLY DURING THE PREVIOUS YEAR. THE ASSESSEE IN THI S REGARD POINTED OUT THAT THE MAJOR OF ITEM OF EXPENSES PERTAINING TO PRIOR P ERIOD TO THE TUNE OF RS. 19,95,80,290/- PERTAINED TO STORES RECONCILIATION. IT WAS SUBMITTED THAT THE SIMILAR EXPENSES WERE ALLOWED IN THE PREVIOUS ASSES SMENT YEARS AND THAT RULE OF CONSISTENCY IN MAKING ASSESSMENTS AS LAID D OWN BY THE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SRIDEVI ENTERPRISES REPORTED IN 192 ITA NOS.961/BANG/06 AND 323 & 1341/BANG/12 PAGE 15 OF 37 ITR 165 (KAR) SHOULD BE FOLLOWED. IT WAS POINTED OUT THAT RECON CILIATION OF STORES WAS CARRIED OUT DURING THE PREVIOUS YEAR AMOUNTING TO RS. 8,45,05,557/- AND STORES ISSUED DURING FEBRUARY 200 6 AMOUNTING TO RS.5,25,37,882/- ERRONEOUSLY ACCOUNTED UNDER THE HE AD PRIOR PERIOD EXPENSES (EXPENSES PERTAINING TO PREVIOUS YEAR). TH US AN AMOUNT OF RS.13,70,43,439/- IS NOT PRIOR PERIOD EXPENSE AT AL L. 28. WITH REGARD TO DURING PAYMENTS MADE TOWARDS COA L TRANSPORT AGENCY DUE TO PRICE ESCALATION OF RS.2,07,60,000 A ND DIFFERENTIAL SURFACE TRANSPORT CHARGES TO COAL SUPPLIERS OF RS.70,63,08 1, THE ASSESSEE POINTED OUT THAT IT HAD ENTERED INTO AGREEMENT WITH COAL SUPPLIERS AND COAL SUPPLYING AGENCIES, WHEREIN THE REVISED RATES FOR C OAL HAS BEEN AGREED INTO WITH RETROSPECTIVE EFFECT. THE DIFFERENCE AMOU NT OF RS.2,78,23,081/-, PAID TO COAL SUPPLIERS AND COAL SUPPLYING AGENCIES BY REASON OF REVISED RATES IN RESPECT OF SUPPLY OF COAL FOR THE EARLIER YEARS HAS BEEN CHARGED TO PRIOR PERIOD EXPENSES. THE LIABILITY TO PAY CRYSTA LLIZED DURING THE YEAR PREVIOUS YEAR. THE ASSESSEE POINTED OUT THAT THE F INAL PRICE WAS DETERMINED ONLY DURING THE PREVIOUS YEAR IN THE CUR RENT ASSESSMENT YEAR AND HAS BEEN RIGHTLY CLAIMED AS EXPENSES AND THEREF ORE THE EXPENSES ARE ALLOWABLE IN COMPUTING THE TAXABLE INCOME OF THE PR EVIOUS YEAR UNDER THE SCHEME OF THE INCOME TAX ACT. 29. WITH REGARD TO THE DIFFERENCE OF SALES TAX ON L EASE RENTALS OF RS.2,63,72,297/- (I.E., 9.2% -1.5% = 7.7%) PAID I N F.Y. 2005-06, THE ITA NOS.961/BANG/06 AND 323 & 1341/BANG/12 PAGE 16 OF 37 ASSESSEE POINTED OUT THAT THE DIFFERENTIAL LIABILIT Y PAYABLE ON LEASE RENTALS WERE CLAIMED BY THE LESSOR ONLY DURING THE PREVIOUS YEAR RELATING TO AY 06- 07 THOUGH THE SAME RELATED TO LEASE RENTS PAYABLE F OR F.Y. 2004-05. HENCE, THE SAME WERE ACCOUNTED UNDER THE HEAD OF AC COUNT EXPENSES PERTAINING TO PREVIOUS PERIOD. 30. WITH REGARD TO THE REMAINING SUM OF RS.83,41,4 75/-, THE ASSESSEE SUBMITTED THAT THE ABOVE SUM REPRESENTS EXPENSES FO R WHICH BILLS WERE PRODUCED BY THE AGENCIES AND STAFF DURING THE YEAR AND ARE CRYSTALLIZED DURING THE YEAR. THE ASSESSEE ARGUED THAT IN THE AB SENCE OF CONTRACT AND CRYSTALLIZATION OF THE LIABILITY THE SAME CANNOT BE CLAIMED. THE AMOUNTS WERE ACCOUNTED IN THE EARLIER YEARS AS ADVANCE TO S TAFF AND ADVANCE TO SUPPLIER/AGENCIES AND TRANSFERRED TO THE EXPENSE AC COUNT DURING THE YEAR AS THE BILLS HAVE BEEN GIVEN BY THEM ONLY THIS YEAR . THIS HAS BEEN A CONSISTENT PRACTICE FOLLOWED BY THE COMPANY OVER TH E YEARS. HENCE THE SAME IS TO BE ALLOWABLE DURING THE YEAR. 31. THUS THE ASSESSEE PLEADED THAT THE AMOUNT OF R S. 13,70,43,439/- IS NOT PRIOR PERIOD EXPENSES BUT HAS BEEN WRONGLY C LASSIFIED. THE OTHER EXPENSES HAVE CRYSTALLIZED DURING THE YEAR AND UNDE R ANY EVENT THE CLAIM IS REVENUE NEUTRAL. NO SUCH DISALLOWANCE WAS MADE I N ANY OF THE EARLIER YEARS. TAKING ALL FACTORS INTO ACCOUNT, THE ASSESSE E SUBMITTED THAT THE AMOUNT OF RS.19,95,80,290/- REQUIRES TO BE ALLOWED AS DEDUCTION. ITA NOS.961/BANG/06 AND 323 & 1341/BANG/12 PAGE 17 OF 37 32. THE CIT(APPEALS) OBTAINED A REMAND REPOT FROM T HE AO ON THE SUBMISSIONS MADE BY THE ASSESSEE. IN HIS REMAND REP ORT, THE AO TOOK THE STAND AS FOLLOWS:- (A) THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND THEREFORE SHOULD ESTABLISH AS TO HOW PRIOR PERIOD E XPENSE CAN BE CLAIMED IN THE PRESENT ASSESSMENT YEAR. (B) THE ASSESSEE DID NOT FILE DOCUMENTARY EVIDENCE AS TO WHY THE PRIOR PERIOD EXPENSES WERE ACCOUNTED FOR ONLY DURING THE PREVIOUS YEAR. (C) THE REASONS FOR REVISION FOR RATES IN COAL HAVE NOT BEEN MENTIONED. (D) MAJOR EXPENSES RELATING TO REPAIRS AND EXPENSES HAVE BEEN CLAIMED AND AS SUCH EXPENSES MAY NOT CRYSTALLISE ON LY IN A LATER PERIOD. 33. ON A CONSIDERATION OF THE ABOVE SUBMISSIONS, TH E CIT(A) HELD AS FOLLOWS:- 7.3. THE GIST OF THE SUBMISSION MADE BY THE A.R. IS THAT OUT OF RS.19,95,80,290/- CLAIMED UNDER THE HEAD PRIOR PER IOD EXPENDITURE MOST OF IT IS NOT ACTUALLY PRIOR PERIO D EXPENDITURE, VIZ., (I) RS. 8,45,05,557/- PERTAINS TO STORES RECONCILIATION AND (II) RS.5,25,37,882(557)/- PERTAINS TO STORES REVALUATION TOTAL RS. 13,70,43,439/- IT WAS CLAIMED THAT STORES RECONCILIATION AND REVAL UATION HAD BEEN DONE IN FEBRUARY, 2006. IT MAY BE MENTIONED TH AT NO DETAILS AS TO THE METHOD OF SUCH RECONCILIATION AND REVALUATION WAS PROVIDED AT THE APPELLATE STAGE. EVEN THE A.O. HAD WRITTEN IN THE REMAND REPORT THAT WHAT FACTORS LED TO SUCH ACTIVITY HAD ITA NOS.961/BANG/06 AND 323 & 1341/BANG/12 PAGE 18 OF 37 NOT BEEN REVEALED TO HIM. IN VIEW OF THIS, THE INEV ITABLE CONCLUSION IS UPHOLDING OF SUCH PORTION OF DISALLOW ANCE. IN RESPECT OF THE CLAIM OF CRYSTALLIZATION OF SALES TAX LIABILITY RAISED IN F.Y.2004-05 AND VARIOUS BILLS GIVEN BY TH E AGENTS AND EMPLOYEES IN EARLIER YEARS, I AM ONE WITH THE A.O. WHEN HE POINTS OUT THAT THE ASSESSEE REGULARLY FOLLOWING ME RCANTILE SYSTEM OF ACCOUNTING SHOULD HAVE CLAIMED SUCH ALLOW ANCE IN THE YEAR IN WHICH SUCH LIABILITY ACCRUED AND NOT IN THE PRESENT YEAR WHEN IT ACTUALLY CRYSTALLIZED OR PAID OR REIMB URSED. SO FAR THE ALTERNATIVE PLEA AS TO GIVING DIRECTION TO THE A.O. TO ALLOW SUCH CLAIM IN THE YEAR OF GENESIS OR ACCRUAL, I REF RAIN BECAUSE IT IS ONLY THE ASSESSEES DISCRETION TO TAKE REMEDIAL MEASURES IF IT CONSIDERS FIT AND LEGAL AND ALSO BECAUSE I HAVE NO POWER TO SET ASIDE THE PRESENT ASSESSMENT NOT TO SPEAK OF THE PA ST ONES. HENCE, GROUNDS OF APPEAL IS DISMISSED. 34. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSES SEE HAS PREFERRED GROUND NO.4 BEFORE THE TRIBUNAL. 35. WE HAVE HEARD THE RIVAL SUBMISSIONS. AS FAR AS THE SUM OF RS.13,70,43,439 WHICH IS CLAIMED TO BE RELATING TO STORES RECONCILIATION IS CONCERNED, WE FIND THAT AS PER THE PROCEDURE IN THE STORES DEPARTMENT, THE CUSTODIAN OF MATERIAL MAINTAINS LEDGER QUANTITY ASP ECT AND THE ACCOUNTS WING MAINTAINS LEDGER FOR QUANTITY ASPECT WITH VALU E. IT WAS NOTICED THAT THERE WERE DISCREPANCIES IN LEDGER QUANTITY MAINTAI NED BY THE CUSTODIAN OF MATERIALS AND THE ACCOUNTS WING. A REVIEW OF QUANT ITY BALANCES BETWEEN THE CUSTODIAN OF MATERIALS AND ACCOUNTS WING WAS DO NE AND AN APPRAISAL NOTE ON THE DISCREPANCIES FOUND AND THE REASON FOR THE DISCREPANCY WAS PREPARED AS ON 31.3.2006 AND IT WAS NOTICED THAT A SUM OF RS.8,45,05,557 WAS ACTUALLY RECONCILIATION OF MATERIAL OF COAL CAR RIED OUT DURING THE ITA NOS.961/BANG/06 AND 323 & 1341/BANG/12 PAGE 19 OF 37 PREVIOUS YEAR AND IN RELATION TO QUANTITY FOUND SHO RT DURING THE PREVIOUS YEAR. ANOTHER SUM OF RS.5,25,37,882 RELATED TO STO RES DISCREPANCY ISSUED DURING FEBRUARY, 2006. THE ABOVE TWO AMOUNTS HAVE BEEN WRONGLY SHOWN AS PRIOR PERIOD EXPENSES. THESE SUMS WERE ACTUALLY DISCREPANCIES IN STOCK NOTICED DURING THE PREVIOUS YEAR AND HAD TO BE ALLO WED AS A DEDUCTION. THE APPRAISAL NOTE BY THE AUDIT COMMITTEE, A COPY O F WHICH IS PLACED AT PAGES 49 TO 55 OF THE ASSESSEES PAPERBOOK SHOWS DI FFERENCE IN QUANTITIES. HOWEVER, IT IS SEEN THAT THE AFORESAID REPORT HAS N EITHER BEEN CONSIDERED BY THE CIT(APPEALS) NOR BY THE ASSESSING OFFICER IN THE REMAND REPORT FILED BEFORE THE CIT(A). IT APPEARS TO US THAT THERE HA S BEEN NO PROPER APPRECIATION OF THE FACTS IN THE RIGHT PERSPECTIVE AS TO WHETHER THE APPRAISAL NOTE IS IN RELATION TO RECONCILIATION OF STOCKS AS PER THE BOOKS AND AS PHYSICALLY FOUND RELATING TO THE PREVIOUS YEAR OR T O A PRIOR PERIOD, WHICH HAS NEITHER BEEN COMMENTED UPON BY THE AO NOR DECIDED B Y THE CIT(A). IT, HOWEVER, APPEARS FROM PAGE 3 OF THE APPRAISAL NOTE THAT THE DISCREPANCIES RELATE TO THE PERIOD FEBRUARY & MARCH, 2006. SINCE THE FACTS HAVE NOT BEEN PROPERLY APPRECIATED EITHER BY THE AO OR THE CIT(A) , WE ARE NOT IN A POSITION TO COMMENT ON THE ALLOWABILITY OR OTHERWIS E OF THE CLAIM OF THE ASSESSEE. IN THE GIVEN CIRCUMSTANCES, WE ARE OF TH E VIEW THAT IT WOULD BE JUST AND PROPER TO SET ASIDE THE ORDER OF THE AO ON THIS ISSUE AND REMAND THE QUESTION OF ALLOWING THE CLAIM OF THE ASSESSEE FOR ADJUDICATION TO THE EXTENT OF RS.13,70,43,439 FOR FRESH ADJUDICATION BY THE ASSESSING OFFICER. ITA NOS.961/BANG/06 AND 323 & 1341/BANG/12 PAGE 20 OF 37 36. THE NEXT ITEM OF PRIOR PERIOD EXPENSES DISALLOW ED IS WITH REGARD TO PRICE ESCALATION OF RS.2,07,60,000. AS FAR AS THIS SUM IS CONCERNED, WE FIND THAT AT PAGE 56 OF THE PAPERBOOK, ONE SICAL WH O WAS TRANSPORTING COAL ON BEHALF OF THE ASSESSEE TO ITS VARIOUS POWER STATIONS HAD MADE A CLAIM FOR ESCALATION OF COSTS TO BE PAID FOR TRANSP ORTATION OF COAL. THE ASSESSEE IN A COMMUNICATION DATED 10.02.2006 HAS AG REED TO INCREASE THE COST ON TRANSPORTATION OF COAL AS FOLLOWS:- BASED ON THE DECISION OF THE BOARD OF DIRECTORS IN RESPECT OF OCEAN FREIGHT AND CHARTER HIRE IT IS PROPOSED TO MAKE PAYMENT OF RS.60/- PER MT IN RESPECT OF 3.46 LAKH M T OF COAL MOVED OVER AND ABOVE THE CONTRACTED QUALITY OF 36.0 0 LAKH MT AND BEYOND THE ORIGINAL CONTRACT PERIOD OF JUNE 200 4. THE BREAKUP IS AS FOLLOWS: A) RS.40/- PER MT ON ACCOUNT OF ESCALATION BASED ON FO & LDO AS PER THE APPLICABLE FORMULA. B) RS.20/- PER MT OVER AND ABOVE ESCALATION ON ACC OUNT OF FO & LDO. PLEASE CONFIRM YOUR ACCEPTANCE TO THE ABOVE IN FULL & FINAL SETTLEMENT OF YOUR CLAIM RELATING TO THIS CON TRACT AS REGARDS INCREASE IN OCEAN FREIGHT & CHARTER HIRE PRICES. 37. BASED ON THE AFORESAID LETTER, THE TRANSPORTERS M/S. SICAL ACCEPTED THE OFFER OF THE ASSESSEE AS FOLLOWS:- THIS HAS REFERENCE TO YOUR LETTER DATED 10TH FEBRU ARY 2006 AND ALSO OUR LETTER DATED 14 TH FEBRUARY 2006. VIDE YOUR LETTER YOU HAVE INFORMED US THAT BASED ON THE DECISION OF BOAR D OF DIRECTORS IN RESPECT OF OCEAN FREIGHT AND CHARTER H IRE, KPCL PROPOSES TO MAKE A PAYMENT OF RS.60/- PMT IN RESPEC T OF 3.46 LAKH MTS OF COAL MOVED OVER AND ABOVE THE CONTACTED QUANTITY OF 36 LAKHS MTS. WE HAVE ALREADY EXPLAINED TO YOU IN O UR LETTER THAT ITA NOS.961/BANG/06 AND 323 & 1341/BANG/12 PAGE 21 OF 37 AS PER THE CONTRACTUAL CONDITIONS, THE ESCALATION P AYABLE TO US IS MUCH MORE THAN THIS AMOUNT. WE HAVE ALSO POINTED OU T THAT THIS DECISION IS NOT AS PER THE TERMS OF THE CONTRACT. HOWEVER, AS WE HAVE CERTAIN PRESSING COMMITMENTS WE ARE WILLING TO RECEIVE THE MONEY APPROVED BY THE BOARD IN VIEW OF THE GOOD BUSINESS RELATIONSHIP WE HAD WITH KPCL. HE NCE WE WOULD REQUEST YOU TO RELEASE US PAYMENT OF RS.2,07, 60,000/- (3,46,000 MTS X RS.60/- PMT). THIS AMOUNT IS BEING RECEIVED BY US WITHOUT PREJUDI CE. WE WOULD SIMULTANEOUSLY REQUEST KPCL TO PROCESS OUR CL AIM SENT TO YOU VIDE OUR LETTER DATED 14.2.2006. WE SHALL BE THANKFUL IF THIS AMOUNT OF RS.2,07,60,0 00/- IS RELEASED TO US AT THE EARLIEST. 38. BASED ON THE AFORESAID LETTER, THE ASSESSEE HAS MADE A CLAIM FOR DEDUCTION OF RS.2,07,60,000. IT IS CLEAR FROM THE A FORESAID CORRESPONDENCE THAT THE LIABILITY OF THE ASSESSEE TO PAY THE AFORE SAID SUM CRYSTALLISED ONLY DURING THE PREVIOUS YEAR I.E., ON 10.2.2006 AND 25. 3.2006 WHEN THE OFFER OF THE ASSESSEE AND ACCEPTANCE BY SICAL TOOK PLACE. T HOUGH THE LIABILITY MAY RELATE TO AN EARLIER PERIOD, SINCE THE LIABILIT Y HAD CRYSTALLISED ONLY DURING THE PREVIOUS YEAR, THE SAME HAD TO BE ALLOWE D AS DEDUCTION. ACCORDINGLY, WE DIRECT THAT THE AFORESAID SUM BE AL LOWED AS DEDUCTION IN COMPUTING THE TOTAL INCOME. 39. AS FAR AS THE SUM OF RS.70,63,,081 FOR DIFFEREN CE IN TRANSPORT CHARGES PAID BY THE ASSESSEE FOR SURFACE TRANSPORT OF COAL TO M/S. ARYAN ENERGY PVT. LTD. IS CONCERNED, THE DOCUMENT ON RECO RD SHOW THAT THE BOARD MEETING OF THE ASSESSEE CONDUCTED ON 2.1.2006 CONSI DERED THE REVISION OF ITA NOS.961/BANG/06 AND 323 & 1341/BANG/12 PAGE 22 OF 37 RATES FOR SURFACE TRANSPORT OF COAL AS RECOMMENDED BY THE TECHNICAL COMMITTEE RESOLVED AS FOLLOWS:- RESOLVED THAT UNDER THE CIRCUMSTANCES, APPROVAL O F THE BOARD BE AND IS HEREBY ACCORDED TO THE PROPOSALS IN THE C ONTRACT FOR SUPPLY OF WASHED COAL WITH M/S. ARYAN ENERGY PVT. L TD. I) TO REGULATE PAYMENT IN RESPECT OF RAKES WITH EX CESS ASH AND MOISTURE ON PRO RATA BASIS AND AS PER METHODOLOGY RECOMMENDED BY THE TECHNICAL COMMITTEE. II) TO REIMBURSE THE BALANCE AMOUNT OF RS. 12.10 P ER MT IN RESPECT OF SURFACE TRANSPORTATION CHARGES FOR DISPA TCH OF COAL FROM AKALTARA SIDING IN SECL AREA RECKONING THE SAM E AT RS. 70 PER MT. III) TO REJECT THE REQUEST FOR CHARGES TOWARDS QUAL ITY ASSURANCE CHARGES. 40. IT IS CONSEQUENT TO THE AFORESAID RESOLUTION TH AT THE AFORESAID SUM WAS PAID BY THE ASSESSEE TO M/S. ARYAN ENERGY PVT. LTD. IT IS THUS CLEAR FROM THE DOCUMENT THAT THE LIABILITY OF THE ASSESSE E TO PAY THE DIFFERENTIAL SURFACE TRANSPORT CHARGES CRYSTALLISED ONLY DURING THE PREVIOUS YEAR. THOUGH THE AMOUNT IN QUESTION WAS PAYABLE IN RESPEC T OF TRANSPORTATION DONE DURING AN EARLIER PERIOD, THE SAME IS ALLOWABL E IN THE PRESENT ASSESSMENT YEAR AS THE LIABILITY HAD CRYSTALLISED O NLY DURING THE PREVIOUS YEAR. WE THEREFORE DIRECT THAT THE CLAIM OF THE AS SESSEE BE ALLOWED. 41. AS FAR AS THE DIFFERENTIAL SALES TAX REIMBURSEM ENT OF LEASE RENTALS IS CONCERNED, THE FACTS ARE AS FOLLOWS. THE ASSESSEE HAD ENTERED INTO AN AGREEMENT WITH M/S.ICICI BANK LTD., TOWARDS SALE AN D LEASE BACK OF BOILER ITA NOS.961/BANG/06 AND 323 & 1341/BANG/12 PAGE 23 OF 37 AT RAICHUR THERMAL POWER STATION - UNITS 5 & 6 FOR WHICH THE GOVERNMENT OF KARNATAKA HAD GRANTED EXEMPTION FROM PAYMENT OF SALES TAX ON SUCH LEASE RENTALS. HOWEVER THE EXEMPTION WAS WITHDRAWN BY THE HONBLE GOVERNMENT OF KARNATAKA WITH EFFECT FROM 01/08/2004 RESULTING IN PAYMENT OF SALES TAX ON LEASE RENTALS. AS PER THE CLAIMS OF M/S. ICICI BANK LIMITED THE SALES TAX WAS PAID AT 1.50% OF THE LEASE RENTAL S WITH EFFECT FROM 01/08/2004. THEREUPON THE ICICI BANK LIMITED DEMAND ED AND CLAIMED THAT THE APPLICABLE SALES TAX RATES WILL BE AT 9.20% INS TEAD OF 1.50% ON SUCH LEASE RENTALS. THE ASSESSEE REIMBURSED THE DIFFEREN TIAL SALES TAX ON LEASE RENTALS AMOUNTING TO RS.2,63,72,297/- ON 07/03/2006 TO M/S. ICICI BANK LIMITED WITH RETROSPECTIVE EFFECT AT 7.70% (I.E., 9 .20% LESS 1.50%). IT WAS SUBMITTED THAT THE LIABILITY TO PAY THE SALES TAX O N LEASE RENTALS TO M/S. ICICI BANK LIMITED WAS CRYSTALLIZED ONLY DURING THE IMPUG NED ASSESSMENT YEAR AND HENCE THE SAME IS ALLOWABLE EXPENDITURE. 42. IN THIS REGARD, WE FIND THAT ICICI BANK HAD ADD RESSED A LETTER DATED 27.5.2005 TO THE ASSESSEE, WHICH READS AS FOLLOWS:- AS YOU ARE AWARE NOTIFICATION FD 185 CSL 95 (II) D ATED 1.3.96 (EXEMPTING THE LEASE RENTALS OF KPCL) WAS WITHDRAWN W.E.F. AUGUST 1, 2004. HENCE THE LEASE RENTALS HAVE BECOME TAXABLE UNDER KARNATAKA SALES TAX ACT. ICICI BANK LIMITED ( ERST. ICICI LIMITED) HAD LEASE D TWO BOILERS TO YOUR COMPANY UNDER SALE AND LEASE BACK ARRANGEME NT. AT THE TIME OF SALE, YOUR COMPANY HAS NOT CHARGED U S ANY SALES TAX ON SALE OF THESE BOILERS AS THE SAME WAS EXEMPT FROM SALES TAX VIDE NOTIFICATION ED 185 CSL 95 (II) DATED 1.3. 96. THE COPIES ITA NOS.961/BANG/06 AND 323 & 1341/BANG/12 PAGE 24 OF 37 OF YOUR PURCHASE INVOICES SENT TO US SHOW THAT THE BOILERS ARE PURCHASED INTERSTATE FROM HARIDWAR TO KARNATAKA. THE LEASE TRANSACTION WOULD THEREFORE BE TAXABLE UN DER SECTION 5C @ 9.2% TILL MARCH 31, 2005 & SINCE THE TRANSACTI ON IS TAXABLE UNDER SECTION 5-C IT WOULD NOT ATTRACT RESALE TAX @ 1.5% WHICH IS CHARGEABLE UNDER SECTION 6B OF THE KARNATAKA SALES TAX ACT. WE THEREFORE ENCLOSE THE DEBIT NOTES FOR DIFFERENTI AL SALES TAX & REQUEST YOU TO PAY US THE SAME AT THE EARLIEST. 43. THE DEBIT NOTES ANNEXED WITH THE LETTER FOR A S UM OF RS.2,63,72,297 IS AT PAGES 59 & 60 OF THE PAPERBOOK. IT IS CLEAR F ROM THE AFORESAID DETAILS THAT THOUGH THE ASSESSEES LIABILITY TO DIFFERENTIA L SALES TAX WAS IN RELATION TO AN EARLIER PERIOD, THE LIABILITY HAD CRYSTALLISED O NLY DURING THE PREVIOUS YEAR AND THEREFORE HAD TO BE ALLOWED AS A DEDUCTION IN C OMPUTING THE TOTAL INCOME OF THE PREVIOUS YEAR. WE THEREFORE DIRECT T HE AO TO ALLOW THE AFORESAID CLAIM OF THE ASSESSEE FOR DEDUCTION. 44. THE OTHER SUM COMPRISED IN THE SUM OF RS.19,95, 80,290 DISALLOWED BY THE AO IS THE SUM OF RS.82,43,612 BEING EXPENSES CLAIMED BY THE ASSESSEES EMPLOYEES AND OTHER AGENCIES FOR WHICH B ILLS WERE PRODUCED BY THEM DURING THE PREVIOUS YEAR. IN THIS REGARD, THE ASSESSEE SUBMITTED THAT THE VOUCHERS TO SHOW THE CRYSTALLIZATION OF THE LIA BILITY DURING THE PREVIOUS YEAR ARE VOLUMINOUS AND HENCE WERE NOT PRODUCED BEF ORE THE AO. IT WAS ALSO SUBMITTED THAT THE BOOKS OF ACCOUNT ARE AUDITE D AND ONE HAS TO ACCEPT THE CLAIM OF THE ASSESSEE. IT WAS ALSO SUBMITTED T HAT THE EXPENDITURE CLAIMED UNDER SIX HEADS IS NEGLIGIBLE CONSIDERING T HE LARGE SCALE OPERATIONS ITA NOS.961/BANG/06 AND 323 & 1341/BANG/12 PAGE 25 OF 37 IN WHICH THE ASSESSEE IS ENGAGED. IT WAS THEREFORE PRAYED THAT THE ADDITION MADE SHOULD BE DELETED. 45. WE ARE OF THE VIEW THAT CONSIDERING THE EXPLANA TION OFFERED, IT WOULD BE REASONABLE TO ALLOW THE CLAIM OF THE ASSESSEE. CONSEQUENTLY THE CLAIM OF THE ASSESSEE IS DIRECTED TO BE ACCEPTED. 46. IN THE RESULT, GROUND NO.4 IS PARTLY ALLOWED. 47. GROUND NOS. 5 & 6 RAISED BY THE ASSESSEE READS AS FOLLOWS:- 5. WITHOUT PREJUDICE THE APPELLANT DENIES ITSELF LIABLE TO BE TAXED UNDER THE PROVISIONS OF SECTION 115JB OF THE ACT SINCE THE APPELLANT IS A ELECTRICITY COMPANY AND THE PROVISIO NS OF PARTS II AND III OF SCHEDULE VI TO THE COMPANIES ACT, 1956 A RE NOT APPLICABLE TO THE APPELLANT. 6. THE AUTHORITIES BELOW OUGHT TO HAVE APPRECIATED THAT THE PROVISIONS OF MAT IS NOT APPLICABLE TO THE APPELLAN T SINCE THE APPELLANT IS ENGAGED IN THE GENERATION OR SUPPLY OF ELECTRICITY AND UNDER PROVISO TO SECTION 211[2] OF THE ACT,, TH E APPELLANT IS EXEMPTED FROM PREPARING ITS BOOKS OF ACCOUNT IN TER MS OF REQUIREMENTS UNDER SCHEDULE VI TO THE COMPANIES ACT . 48. THESE GROUNDS WERE NOT RAISED BEFORE THE LOWER AUTHORITIES AND BEING PURELY LEGAL QUESTIONS ARE SOUGHT TO BE RAISE D BEFORE THE TRIBUNAL. IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT I N THE CASE OF NTPC LTD., 229 ITR 383, IF A QUESTION OF LAW CAN BE RAISED WHICH CAN BE DECIDED ON THE AVAILABLE FACTS ON RECORD, THE SAME SHOULD B E ADMITTED FOR CONSIDERATION. FOLLOWING THE SAID DECISION, WE ADM IT THE ADDITIONAL GROUNDS FOR ADJUDICATION. ITA NOS.961/BANG/06 AND 323 & 1341/BANG/12 PAGE 26 OF 37 49. THE ADDITIONAL GROUNDS RAISED BY THE ASSESSEE S EEK TO CHALLENGE THE APPLICABILITY OF PROVISIONS OF SECTION 115JB TO AN ELECTRICITY SUPPLY COMPANY SUCH AS THE ASSESSEE. IN THIS REGARD, THE LD. COUN SEL FOR THE ASSESSEE BROUGHT TO OUR NOTICE THE DECISION OF ITAT BANGALOR E IN THE ASSESSEES OWN CASE FOR THE A.Y. 2007-08 IN ITA NO.711/BANG/2011 D ATED 11.10.2013, WHEREIN THIS TRIBUNAL ON AN IDENTICAL ISSUE, HELD A S FOLLOWS:- 11.1 GROUND NOS.8 AND 9 RAISED BY THE ASSESSEE IS IN RESPECT OF THE VERY APPLICABILITY OF THE PROVISIONS OF SECT ION 115JB OF THE ACT, TO THE ASSESSEE, SINCE THE ASSESSEE BEING AN E LECTRIC COMPANY, THE PROVISIONS OF PARTS II AND III OF SCHE DULE VI TO THE COMPANIES ACT, 1956 ARE NOT APPLICABLE. IN THIS REG ARD, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT TH E NEWLY INSERTED EXPLANATION 3 TO SECTION 115JB(2) OF THE A CT (INSERTED BY FINANCE ACT, 2012 W.E.F. 1.4.2013) IS VERY CLEAR THAT THE PROVISIONS OF SECTION 115JB OF THE ACT IS NOT APPLI CABLE TO COMPANIES ENGAGED IN THE GENERATION OF POWER PRIOR TO 1.4.2013. THIS MEANS THAT THE ASSESSEE BEING IN THE BUSINESS OF GENERATION OF POWER PRIOR TO ASSESSMENT YEAR 2013-1 4, THE PROVISIONS OF SECTION 115JB OF THE ACT ARE NOT APPL ICABLE TO IT AND SINCE THE ASSESSEE BEING A COMPANY TO WHICH THE PROVISO TO SECTION 211(2) OF THE COMPANIES ACT, 1956 APPLIES, IT WILL NOT BE LIABLE TO TAX UNDER SECTION 115JB OF THE ACT. IN TH IS CONTEXT, THE LEARNED AUTHORISED REPRESENTATIVE PLACED RELIANCE O N THE PARITY OF REASONING OF THE FOLLOWING TRIBUNAL DECISIONS :- I) STATE BANK OF HYDERABAD V DCIT (ITA NO.578 & 579/HYD/2010 DT.7.9.2012); AND II) DECISION OF THE CO-ORDINATE BENCH OF ITAT, BAN GALORE IN THE CASE OF SYNDICATE BANK V DCIT (ITA NOS.668 AND 669/BANG/2010 AND 708 & 709/BANG/2010 DT.19.6.2013. ) 11.2.1 WE HAVE HEARD BOTH PARTIES AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS NOT IN DIS PUTE THAT THE ASSESSEE IN THE CASE ON HAND IS AN ELECTRIC COMPANY ENGAGED IN THE GENERATION OF POWER. THE PROVISIONS OF SECTI ON 115JB(2) READ AS UNDER : ITA NOS.961/BANG/06 AND 323 & 1341/BANG/12 PAGE 27 OF 37 EVERY ASSESSEE, BEING A COMPANY, SHALL FOR THE PURPOSES OF THIS SECTION, PREPARE ITS PROFIT AND LO SS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR IN ACCORDANC E WITH THE PROVISIONS OF PARTS II AND III OF SCHEDULE VI T O THE COMPANIES ACT, 1956 (1 OF 1956). THE ASSESSEE, IN THE CASE ON HAND, HOWEVER DOES N OT HAVE TO PREPARE ITS ACCOUNTS IN ACCORDANCE WITH PAR TS II AND III OF SCHEDULE VI OF THE COMPANIES ACT, 1956, BY VIRTU E OF PROVISO TO SECTION 211(2) THERETO. THE PROVISO TO SECTION 2 11 (2) OF THE COMPANIES ACT, 1956 READS AS UNDER : PROVIDED THAT NOTHING CONTAINED IN THIS SUB-SECTIO N SHALL APPLY TO ANY INSURANCE OR BANKING COMPANY OR ANY COMPANY ENGAGED IN THE GENERATION OR SUPPLY OF ELECTRICITY, OR TO ANY OTHER CLASS OF COMPANY FOR W HICH THE FORM OF PROFIT AND LOSS ACCOUNT HAS BEEN SPECIFIED IN OR UNDER THE ACT GOVERNING SUCH CLASS OF COMPANY. 11.2.2. AS CONTENDED BY THE LEARNED AUTHORISED REPRESENTATIVE THE NEWLY INSERTED EXPLANATION - 3 T O SECTION 115JB OF THE ACT IS CLEAR THAT THE ASSESSEE IS GIVE N AN OPTION TO PREPARE ITS PROFIT AND LOSS ACCOUNT FOR THE RELEVAN T PREVIOUS YEAR EITHER IN ACCORDANCE WITH THE PROVISIONS OF PARTS I I AND III OF SCHEDULE VI OF THE COMPANIES ACT, 1956, OR IN ACCOR DANCE WITH THE PROVISIONS OF THE ACT GOVERNING SUCH COMPA NY, W.E.F. 1.4.2013. SINCE THERE IS NO DISPUTE THAT THE ASSESS EE IS ENGAGED IN THE GENERATION OF POWER AND IN AN ELECTR ICITY COMPANY, IT IS GOVERNED BY AND BOUND TO FOLLOW THE RELEVANT ELECTRICITY ACT AND RULES THERETO IN PREPARATION OF ITS FINANCIAL STATEMENTS. IN THIS VIEW OF THE MATTER AND TAKING I NTO CONSIDERATION THE JUDICIAL DECISIONS CITED AND RELI ED UPON BY THE ASSESSEE, WE ARE OF THE CONSIDERED VIEW THAT THE PR OVISIONS OF SECTION 115JB OF THE ACT ARE NOT APPLICABLE TO THE ASSESSEE WHICH IS AN ELECTRIC COMPANY IN THE BUSINESS OF GEN ERATION OF POWER. IN THIS VIEW OF THE MATTER, THE ADDITIONAL G ROUNDS OF APPEAL RAISED BY THE ASSESSEE ON THE NON-APPLICABIL ITY OF THE PROVISIONS OF SECTION 115JB OF THE ACT IS ALLOWED. ITA NOS.961/BANG/06 AND 323 & 1341/BANG/12 PAGE 28 OF 37 50. FOLLOWING THE DECISION OF THE TRIBUNAL IN THE A SSESSEES OWN CASE, WE ALLOW THE ADDITIONAL GROUNDS RAISED BY THE ASSES SEE AND HOLD THAT THE PROVISIONS OF SECTION 115JB ARE NOT APPLICABLE TO T HE ASSESSEE. 51. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS PA RTLY ALLOWED. ITA 1341/BANG/2012 52. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDE R DATED 15.6.2012 OF THE CIT(APPEALS)-I, BANGALORE RELATING TO ASSESSMEN T YEAR 2008-09. 53. THERE IS A DELAY OF 31 DAYS IN FILING THIS APPE AL BY THE ASSESSEE. THE REASONS FOR DELAY HAVE BEEN EXPLAINED AS FOLLOW S. THAT THE MAIN GRIEVANCE OF THE ASSESSEE AGAINST THE ORDER OF THE AO WAS IN ADDING TO PROFIT AS PER THE P&L ACCOUNT PREPARED IN ACCORDANC E WITH PROVISIONS OF THE COMPANIES ACT, 1956 CERTAIN LIABILITY AS UNASCERTAI NED LIABILITY IN COMPUTING BOOK PROFITS U/S. 115JB OF THE ACT. THE CIT(APPEAL S) IN THE IMPUGNED ORDER HAD GIVEN RELIEF TO THE ASSESSEE IN RESPECT OF DETE RMINATION OF BOOK PROFITS U/S. 115JB OF THE ACT BY HOLDING THAT PROVISION MAD E FOR CERTAIN LIABILITIES CANNOT BE SAID TO BE PROVISION FOR UNASCERTAINED LI ABILITY. THE ASSESSEE WAS SATISFIED WITH THE RELIEF GIVEN BY THE CIT(A), BUT LATER ON WHEN THE PAPERS WERE SCRUTINIZED BY THE TAX CONSULTANTS, IT CAME TO LIGHT THAT PROVISIONS OF SECTION 115JB OF THE ACT WOULD NOT BE APPLICABLE TO ELECTRICITY POWER GENERATION COMPANIES AND THEREFORE IN RESPECT OF OT HER ADDITIONS MADE WHILE COMPUTING THE TOTAL INCOME UNDER THE NORMAL P ROVISIONS OF THE ACT, ITA NOS.961/BANG/06 AND 323 & 1341/BANG/12 PAGE 29 OF 37 THEY NEED TO BE CHALLENGED BEFORE THE TRIBUNAL. IT WAS ALSO POINTED OUT THAT THE ASSESSEES TOTAL INCOME WAS COMPUTED UNDER THE PROVISIONS OF SECTION 115JB OF THE ACT AS THE TAX PAYABLE WAS MORE THAN T HE TOTAL INCOME COMPUTED UNDER THE NORMAL PROVISIONS OF THE ACT. 54. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LD. C OUNSEL FOR THE ASSESSEE AND THE REASONS GIVEN IN THE AFFIDAVIT FOR CONDONATION OF DELAY OF 31 DAYS IN FILING THE APPEAL. WE ARE SATISFIED THA T THE DELAY IN FILING THE APPEAL WAS OCCASIONED DUE TO SUFFICIENT CAUSE AND W E ACCORDINGLY CONDONE THE DELAY IN FLING THE APPEAL. 55. AS FAR AS THIS APPEAL IS CONCERNED, GROUND NOS. 1, 11 & 12 ARE GENERAL IN NATURE AND CALL FOR NO SPECIFIC ADJUDICA TION. 56. GROUNDS 6 & 7 RAISED BY THE ASSESSEE READ AS FO LLOWS:- 6. WITHOUT PREJUDICE THE LEARNED AUTHORITIES BELO W FAILED TO APPRECIATE THE FACT THAT BY VIRTUE OF ADDITIONS AND DISALLOWANCES MADE TO THE REPORTED INCOME, THE GROSS TOTAL INCOME INCREASES AND EVEN AFTER SUCH ADDITIONS, THE INCOME OF THE AP PELLANT WILL BE RS.NIL SINCE THE APPELLANT HAD AN ELIGIBLE CLAIM OF DEDUCTION UNDER SECTION 80IA OF THE ACT AMOUNTING TO SUM OF RS.249,82,55,108/- AND THE SAME WILL BE RESTRICTED TO THE AVAILABLE TOTAL INCOME UNDER THE FACTS AND CIRCUMST ANCES OF THE CASE. 7. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE LEARNED ASSESSING OFFICER WAS NOT CORRECT IN LAW IN DETERMI NING THE TOTAL INCOME OF THE APPELLANT AT RS.7,33,79,721/- UNDER T HE NORMAL PROVISIONS BY TREATING THE ENTIRE ADDITIONS AS INDE PENDENT INCOME WITHOUT CONSIDERING THE SAME AS GROSS TOTAL INCOME UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE. ITA NOS.961/BANG/06 AND 323 & 1341/BANG/12 PAGE 30 OF 37 57. THESE GROUNDS DO NOT ARISE OUT OF THE ORDER OF THE CIT(A) BECAUSE THE CIT(A) HAS DIRECTED THE AO TO ALLOW DEDUCTION U /S. 80IA OF THE ACT AFTER CONSIDERING THE GROSS TOTAL INCOME AS INCREASED BY ADDITIONS WHICH WERE MADE BY THE AO CONSEQUENT TO DISALLOWANCE OF CERTAI N EXPENSES. HENCE THESE GROUNDS ARE DISMISSED. 58. GROUNDS NO.9 & 10 RAISED BY THE ASSESSEE BY WAY OF ADDITIONAL GROUND ARE SIMILAR TO GROUNDS NO.5 & 6 RAISED BY TH E ASSESSEE FOR A.Y. 2006-07. FOR THE REASONS STATED THEREIN, THESE GRO UNDS ARE ALLOWED. 59. GROUND NO.3 RAISED BY THE ASSESSEE ARE AS FOLLO WS:- 3. THE LEARNED CIT[A] IS NOT JUSTIFIED IN LAW IN CONFIRMING THE DISALLOWANCE MADE BY THE LEARNED ASSESSING OFFICER ON ACCOUNT OF EXPENDITURE CLAIMED BY THE APPELLANT UNDER THE H EAD EXPENDITURE ON MAINTENANCE EXPENSES AMOUNTING TO RS . 41,75,146/- ON THE FACTS AND CIRCUMSTANCES OF THE C ASE. 60. AS FAR AS GROUND NO.3 IS CONCERNED, THE AO NOTI CED IN THE COURSE OF ASSESSMENT PROCEEDINGS THAT THE ASSESSEE HAD CLAIME D AS DEDUCTION A SUM OF RS.41,75,146 FOR EXPENSES TOWARDS OPERATION AND MAINTENANCE OF CIVIL STRUCTURES, ELECTRICAL AND MECHANICAL APPLIAN CES. THE CLAIM OF THE ASSESSEE WAS THAT EXPENSES HAD CRYSTALLIZED ONLY DU RING THE PREVIOUS YEAR AND THEREFORE WERE CLAIMED AS DEDUCTION DURING THE RELEVANT ASSESSMENT YEAR. THE AO, HOWEVER, HELD THAT UNDER THE MERCANT ILE SYSTEM OF ACCOUNTING, EXPENSES NOT RELATING TO THE PREVIOUS Y EAR CANNOT BE ALLOWED AS DEDUCTION. ITA NOS.961/BANG/06 AND 323 & 1341/BANG/12 PAGE 31 OF 37 61. ON APPEAL BY THE ASSESSEE, THE CIT(A) HELD AS F OLLOWS:- 4.3 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS O F THE APPELLANT AND PERUSED THE ASSESSMENT ORDER. THE APP ELLANT CLAIMS THAT BILLS FOR AN AMOUNT OF RS.41,75,146/- R ELATING TO THE EARLIER YEAR WERE RECEIVED ONLY AFTER THE EXECUTION OF THE WORK AND SUBSEQUENTLY. IN THE ABSENCE OF ANY LIABILITY I NCURRED DURING THE YEAR UNDER CONSIDERATION, THE EXPENDITURE CANNO T BE ALLOWED. THE APPELLANT HAS FAILED TO PROVE THAT THE EXPENDITURE IS ALLOWABLE ONLY DURING THE ASSESSMENT YEAR 2008-09. THEREFORE, THE AO IS JUSTIFIED IN MAKING THE DISALLOWANCE, WHI CH IS UPHELD. 62. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. FROM A PERUSAL OF THE ORDER OF THE AO AS WELL AS CIT(APPEALS), IT IS CLEA R THAT THE REVENUE AUTHORITIES HAVE NOT DENIED THE FACT THAT THE EXPEN DITURE CRYSTALLISED DURING THE PREVIOUS YEAR, THOUGH THEY RELATED TO A PERIOD EARLIER TO THE PREVIOUS YEAR. IN OUR VIEW, UNDER THE MERCANTILE SYSTEM OF ACCOUNTING IT IS THE CRYSTALLIZATION OF LIABILITY THAT WILL DECIDE AS TO ALLOWABILITY OF AN EXPENDITURE. SINCE, ADMITTEDLY, CRYSTALLIZATION OF EXPENSES IN Q UESTION HAD HAPPENED DURING THE PREVIOUS YEAR, THE EXPENDITURE CLAIMED B Y THE ASSESSEE HAS TO BE ALLOWED. ACCORDINGLY, THE AO IS DIRECTED TO ALL OW THE CLAIM OF THE ASSESSEE FOR DEDUCTION. 63. GROUND NO.4 RAISED BY THE ASSESSEE READS AS FOL LOWS:- 4. THE LEARNED CIT[A] IS NOT JUSTIFIED IN LAW IN CONFIRMING THE DISALLOWANCE MADE BY THE LEARNED ASSESSING OFFICER ON ACCOUNT OF EXPENDITURE CLAIMED BY THE APPELLANT UNDER THE H EAD EXPENDITURE ON ESTABLISHMENT AND GENERAL EXPENSES O F RS. 61,21,109/- AS AGAINST THE ORIGINAL ADDITION MADE B Y THE LEARNED ASSESSING OFFICER OF RS. 38,55,151/- INSTEAD OF DEL ETING THE ENTIRE ADDITIONS MADE ON ACCOUNT OF EXPENDITURE ON ESTABLI SHMENT AND GENERAL EXPENSES UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE. ITA NOS.961/BANG/06 AND 323 & 1341/BANG/12 PAGE 32 OF 37 64. AS FAR AS GROUND NO.4 IS CONCERNED, THE FACTUAL BACKGROUND IS AS FOLLOWS. THE ASSESSING OFFICER DISALLOWED A SUM OF RS.38,55,151 TOWARDS THE ESTABLISHMENT AND GENERAL EXPENSES. THE BREAKU P OF THE EXPENSES ARE AS UNDER:- SL. PARTICULARS AMOUNT (RS.) 1. SALARY ARREARS EXGRATIA 2,78,2 17 2. ADVERTISEMENT 62,294 3. HIRE CHARGES 22,553 4. MUNICIPAL TAXES & OTHERS 3,90,428 5. OTHER ESTABLISHMENT 31,01,209 38,55,151 65. THE CIT(APPEALS) DURING THE COURSE OF FIRST APP ELLATE PROCEEDING FURTHER ENHANCED THE DISALLOWANCE TO RS.61,21,109 W ITHOUT APPRECIATING THAT THE SUM ENHANCED AMOUNTING TO RS.22,65,958 WER E CLAIMED BY THE ASSESSEE TOWARDS THE D.A ARREARS AS PER THE GOVERNM ENT ORDER. SUCH AMOUNT WAS ALREADY CONSIDERED DURING THE ASSESSMENT PROCEEDINGS AND THE AO ALLOWED THE CLAIM OF THE ASSESSEE HOLDING TH AT THE LIABILITY CRYSTALLIZED ONLY DURING THE IMPUGNED ASSESSMENT YE AR. 66. WE HAVE HEARD RIVAL SUBMISSIONS. FROM A PERUSA L OF THE ASSESSMENT ORDER, IT IS CLEAR THAT THE ASSESSEE HAD CLAIMED TOTAL SUM OF RS.61,21,109 UNDER THE HEADS ESTABLISHMENT AND GE NERAL EXPENSES. OUT OF THE ABOVE, A SUM OF RS.22,65,958 WAS ALLOWED BY THE AO ON FINDING THAT THE LIABILITY TO PAY THE AFORESAID SUM WHICH WAS A DECLARATION OF DA BY THE ITA NOS.961/BANG/06 AND 323 & 1341/BANG/12 PAGE 33 OF 37 GOVERNMENT HAD CRYSTALLISED ONLY DURING THE PREVIOU S YEAR WHEN THE STATE GOVT. DECLARED DA. THE AO HAD ACCORDINGLY ALLOWED THE CLAIM OF THE ASSESSEE. THE CIT(A) HOWEVER HAD DIRECTED THAT THI S SUM ALSO BE DISALLOWED FOR THE FOLLOWING REASON:- 5.3 I HAVE CAREFULLY CONSIDERED THE APPELLANTS S UBMISSIONS AND PERUSED THE ASSESSMENT ORDER. THE APPELLANT CLA IMS THAT AN AMOUNT OF RS.61,21,109/- BEING THE AGGREGATE OF EXP ENDITURE RELATING TO THE EARLIER YEARS UNDER THE HEADS ESTA BLISHMENT AND GENERAL EXPENSES CRYSTALLIZED ONLY DURING THE PRE VIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION . IN THE ABSENCE OF ANY LIABILITY INCURRED DURING THE YEAR U NDER CONSIDERATION, THE EXPENDITURE CANNOT BE ALLOWED. T HE APPELLANT HAS FAILED TO PROVE THAT THE EXPENDITURE IS ALLOWAB LE DURING THE ASSESSMENT YEAR 2008-09. THEREFORE, THE AO IS JUSTI FIED IN MAKING THE DISALLOWANCE OF RS.61,21,109/-, WHICH IS UPHELD. 67. IN OUR VIEW, THE CIT(A) IN ENHANCING THE DISALL OWANCE MADE BY THE AO HAS OVERLOOKED THE FACT THAT THE LIABILITY OF TH E ASSESSEE TO PAY DA HAD CRYSTALLISED ONLY DURING THE PREVIOUS YEAR. ACCORD INGLY, THE ADDITION MADE BY WAY OF ENHANCEMENT BY THE CIT(A) IS DIRECTED TO BE DELETED. 68. WITH REGARD TO THE REMAINING SUM OF RS.38,55,15 1, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT THE NECES SARY EVIDENCE TO PROVE CRYSTALLIZATION OF LIABILITY DURING THE PREVIOUS YE AR CAN BE PRODUCED BY THE ASSESSEE AND FOR THIS PURPOSE, PLEADED FOR A FRESH OPPORTUNITY BEFORE THE AO. WE ARE OF THE VIEW THAT THE REQUEST MADE IS RE ASONABLE AND ACCORDINGLY WE SET ASIDE THE ORDER OF THE CIT(A) IN SOFAR AS THE ADDITION OF RS.38,55,151 IS CONCERNED AND DIRECT THE ASSESSEE T O FILE NECESSARY ITA NOS.961/BANG/06 AND 323 & 1341/BANG/12 PAGE 34 OF 37 EVIDENCE BEFORE THE ASSESSING OFFICER. IN THIS REG ARD WE ARE ALSO OF THE VIEW THAT THE ASSESSEE BEING A CORPORATION ESTABLIS HED BY THE STATE OF KARNATAKA SHOULD BE AFFORDED AN OPPORTUNITY AS NO M OTIVES FOR ANY TAX EVASION CAN BE ATTRIBUTED. THE AO IS DIRECTED TO C ONSIDER THE CLAIM OF THE ASSESSEE AFRESH, WITH LIBERTY TO FILE EVIDENCE TO S UBSTANTIATE ITS CLAIM. THE AO WILL THEREAFTER DECIDE THE ISSUE AFFORDING THE A SSESSEE OPPORTUNITY OF BEING HEARD. 69. GROUND NO.5 RAISED BY THE ASSESSEE READS AS FOL LOWS:- 5. THE LEARNED CIT[A] IS NOT JUSTIFIED IN LAW IN CONFIRMING THE DISALLOWANCE MADE BY THE LEARNED ASSESSING OFFICER ON ACCOUNT OF EXPENDITURE CLAIMED BY THE APPELLANT UNDER THE H EAD POWER CHARGES AND ELECTRICITY TAX ON COLONY CONSUMPTION A MOUNTING TO RS. 6,53,49,424/- ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 70. AS FAR AS THE AFORESAID ISSUE RAISED IN GROUND NO.5 IS CONCERNED, THE FACTS ARE THAT THE ASSESSEE BEING ENGAGED IN THE AC TIVITY OF GENERATION OF ELECTRICITY HAS TOWNSHIPS AND COLONIES IN PROJECT L OCATIONS. THE ELECTRICITY GENERATED IN THE POWER STATION WAS BEING USED BY TH E ASSESSEE FOR RUNNING THE MACHINERIES LIKE BOILERS, TURBINES AND GENERATO RS AND FOR PLANT LIGHTING. THE USER OF ELECTRICITY WITHIN THE POWER STATIONS I S TERMED AS AUXILIARY CONSUMPTION AND BESIDES, THE ELECTRICITY CONSUMED IN THE COLONIES AND TOWNSHIPS ARE TERMED AS COLONY CONSUMPTION. THE USE R OF POWER FOR COLONY CONSUMPTION ALSO HAS TO BE TRANSMITTED TO END USER POINTS ONLY THROUGH THE GRID AND TRANSMISSION LINES (NETWORKS) OWNED BY TRA NSMISSION COMPANY ITA NOS.961/BANG/06 AND 323 & 1341/BANG/12 PAGE 35 OF 37 I.E., KARNATAKA POWER TRANSMISSION CORPORATION LIMI TED (KPTCL). THE ASSESSEE HAS TO PAY THE TRANSMISSION COMPANY THE TR ANSMISSION CHARGES, RUNNING AND WHEELING CHARGES FOR USAGE OF TRANSMISS ION EQUIPMENTS AND NETWORKS, AS DETERMINED BY THE KARNATAKA ELECTRICIT Y REGULATORY COMMISSION. 71. IT WAS SUBMITTED THAT THE ASSESSEE DURING THE I MPUGNED ASSESSMENT YEAR HAS WRITTEN OFF A SUM OF RS.6,53,49 ,424/- BEING THE SHORTFALL OF PROVISION ALREADY MADE DURING THE FINANCIAL YEARS 2005- 2006 AND 2006-07. THUS IT WAS SUBMITTED THAT THE AMOUNT CRYSTALLIZED ONLY DURING THE IMPUGNED ASSESSMENT YEAR AND THE SA ME HAS TO BE ALLOWED UNDER THE FACTS AND CIRCUMSTANCES OF THE CA SE. 72. THE AO DISALLOWED THE CLAIM OF THE ASSESSEE FOR DEDUCTION FOR THE REASON THAT THERE WAS NO JUSTIFICATION FOR THIS CLA IM AND, DISALLOWED THE SAME, BROUGHT TO TAX THE SUM OF RS.6,53,49,424/-. ON APPEAL BY THE ASSESSEE, THE CIT(A) CONFIRMED THE ORDER OF THE AO. BEFORE CIT(A), THE ASSESSEE HAD SUBMITTED THAT SHORT PROVISIONS MADE T OWARDS POWER CHARGES AND ELECTRICITY TAX OF COLONY CONSUMPTION R ELATING TO THE PERIOD PRIOR TO THE PREVIOUS YEAR IN QUESTION WAS LIABLE T O BE ALLOWED DURING THIS YEAR IN VIEW OF THE ORDER DATED 9/6/2005 PASSED BY THE KARNATAKA ELECTRICITY REGULATORY COMMISSION (KERC), WHEREBY T HE ACTUAL LIABILITY GOT CRYSTALLIZED. THE CIT(A) HOWEVER NOTICED THAT THE A SSESSEE DID NOT ACCEPT THE ORDER OF KERC AND THEREFORE THE SAID LIABILITY IS NOT ASCERTAINED YET AND, ITA NOS.961/BANG/06 AND 323 & 1341/BANG/12 PAGE 36 OF 37 THEREFORE, CANNOT BE ALLOWED. THEREFORE, THE AO IS JUSTIFIED IN MAKING THE DISALLOWANCE OF RS.6,53,49,424/-. 73. AGGRIEVED BY THE ORDER OF THE CIT(APPEALS), TH E ASSESSEE HAS RAISED GROUND NO.5 BEFORE THE TRIBUNAL. 74. WE HAVE HEARD THE RIVAL SUBMISSIONS. IT IS NOT IN DISPUTE BEFORE US THAT THAT THE LIABILITY OF THE ASSESSEE TO PAY THE AFORESAID SUM AROSE ONLY DURING THE PREVIOUS YEAR. IT IS ALSO NOT IN DISPUT E BEFORE US THAT THE TOTAL DEMAND INSOFAR AS THE POWER CHARGES ARE CONCERNED I S MUCH MORE THAN THE SUM OF RS.6,53,49,424. THE ASSESSEE HAS NO DOU BT CHALLENGED THE ORDER OF KERC, BUT INSOFAR AS THE SUM OF RS.6,53,49 ,424 IS CONCERNED, THE ASSESSEE HAD MADE THE ACTUAL PAYMENT OF THE AFORESA ID SUM, NOTWITHSTANDING THE FACT THAT THE CHALLENGE BY THE ASSESSEE INCLUDES THIS SUM ALSO. STRICTLY SPEAKING, THE LIABILITY TO THIS EXTENT CANNOT BE SAID TO HAVE BEEN CRYSTALLIZED DURING THE PREVIOUS YEAR. H OWEVER, AS AND WHEN THE DISPUTE IS SETTLED, THE ASSESSEE WILL BE ENTITL ED TO CLAIM THIS EXPENDITURE IN THE ASSESSMENT YEAR IN WHICH THE DISPUTE IS ULTI MATELY SETTLED. CONSEQUENTLY, THIS GROUND OF APPEAL BY THE ASSESSEE IS DISMISSED. 75. GROUND NO.8 IS WITH REGARD TO LEVY OF INTEREST U/S. 234B AND 234D OF THE ACT. THE AO IS DIRECTED TO GIVE CONSEQUENTIAL RELIEF. 76. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS PA RTLY ALLOWED. ITA NOS.961/BANG/06 AND 323 & 1341/BANG/12 PAGE 37 OF 37 77. THUS, THE APPEAL BY THE REVENUE IS ALLOWED, WHI LE THE APPEALS BY THE ASSESSEE ARE PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 9 TH DAY OF MAY, 2014. SD/- SD/- ( JASON P. BOAZ ) ( N.V. VASUDEVA N ) ACCOUNTANT MEMBER JUDICIAL MEMBE R BANGALORE, DATED, THE 9 TH MAY, 2014. /D S/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR / SENIOR PRIVATE SECRETARY ITAT, BANGALORE.