RAJASTHAN RENEWABLE ENERGY CORPORATION LIMITED, Jaipur V. DCIT, Jaipur

ITA 159/JPR/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2115 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 5 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 19-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VERINDER MEHTA
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Diversion of income; Question of law; Capital receipt; Reassessment proceedings
• Section: 43B; 37(1); 10B; 147

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH DQY HKKJR] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YA DAV, AM VK;DJ VIHY LA- @ ITA NO. 159/JP/2015 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR :2011-2012 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD., E-166, AKSHAY URJA BHAWAN, YUDISTER MARG, C-SCHEME, JAIPUR. CUKE VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-6, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAACL3171C VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA- @ ITA NO. 202/JP/2015 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR :2011-2012 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-6, JAIPUR. CUKE VS. M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD., E- 166, AKSHAY URJA BHAWAN, YUDISTER MARG, C-SCHEME, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAACL3171C VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA- @ ITA NO. 125/JP/2017 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR :2010-2011 THE ACIT, CIRCLE-6, JAIPUR. CUKE VS. M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD., E- 166, AKSHAY URJA BHAWAN, YUDISTER MARG, C-SCHEME, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAACL3171C VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 2 VK;DJ VIHY LA- @ ITA NO. 95/JP/2016 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR :2008-2009 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD., E-166, AKSHAY URJA BHAWAN, YUDISTER MARG, C-SCHEME, JAIPUR. CUKE VS. THE ITO, CIRCLE-6(4), JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAACL3171C VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA- @ ITA NO. 96/JP/2016 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR :2009-2010 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD., E-166, AKSHAY URJA BHAWAN, YUDISTER MARG, C-SCHEME, JAIPUR. CUKE VS. THE ITO, CIRCLE-6(4), JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAACL3171C VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA- @ ITA NO. 87/JP/2016 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR :2009-2010 THE ACIT, CIRCLE-6, JAIPUR. CUKE VS. M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD., E- 166, AKSHAY URJA BHAWAN, YUDISTER MARG, C-SCHEME, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAACL3171C VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 3 VK;DJ VIHY LA- @ ITA NO. 97/JP/2016 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR :2012-2013 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD., E-166, AKSHAY URJA BHAWAN, AKSHAY URJA BHAWAN, YUDISTER MARG, C- SCHEME, JAIPUR. CUKE VS. THE ITO, CIRCLE-6(4), JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAACL3171C VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA- @ ITA NO. 88/JP/2016 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR :2012-2013 THE ACIT, CIRCLE-6, JAIPUR. CUKE VS. M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD., E- 166, AKSHAY URJA BHAWAN, YUDISTER MARG, C-SCHEME, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAACL3171C VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI P.C. PARWAL (C.A.) JKTLO DH VKSJ LS @ REVENUE BY : SHRI VERINDER MEHTA (CIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 28/06/2017 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT: 18/08/2017 VKNS'K@ ORDER PER: SHRI VIKRAM SINGH YADAV, A.M. THESE ARE THE CROSS APPEALS FILED BY THE ASSESSEE A ND THE REVENUE DIRECTED AGAINST THE ORDER OF LD. CIT(A)-2, JAIPUR DATED 15.12.2014 FOR A.Y. 2011-12, DATED 27.11.2015 FOR A .Y. 2008-09, 2009- 10 & 2012-13 AND DATED 18.11.2016 FOR A.Y. 2010-11. GIVEN THE ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 4 SIMILARITY OF FACTS AND COMMON GROUNDS OF APPEAL IN VOLVED IN ALL THESE YEARS, ALL THESE APPEALS WERE HEARD TOGETHER AND AR E BEING DISPOSED OFF BY THIS CONSOLIDATED ORDER. 2. WITH THE CONSENT OF BOTH THE PARTIES, FOR THE PU RPOSE OF DISCUSSION, THE FACTS OF AY 2011-12 HAVE BEEN CONSI DERED AS THE LEAD CASE AND THE RESPECTIVE GROUNDS OF APPEAL TAKEN AND CONTENTIONS ADVANCED BY BOTH THE PARTIES ARE DISCUSSED IN SUCCE EDING PARAGRAPHS. REVENUES GROUNDS OF APPEAL (ITA NO. 202/JP/15) 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) WAS JUSTIFIED IN DELETING ADDITION OF RS. 20 ,00,000/- MADE BY DISALLOWING CONTRIBUTION TO STATE RENEWAL FUND. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) WAS JUSTIFIED IN DELETING ADDITION OF RS. 1, 24,442/- MADE ON A/C OF LATE DEPOSITION OF EPF AFTER DUE DATES OF THE RELEVANT PF ACT. 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) WAS JUSTIFIED IN DELETING ADDITION OF RS. 29 ,17,461/- DEBITED BY THE ASSESSEE IN IEC PLAN. 4. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) WAS JUSTIFIED IN DELETING ADDITION OF RS. 34 ,29,607/- MADE BY THE AO BY DISALLOWING EXPENSES ON RURAL VILLAGE ELECTRIFICATION (RVE) 2010-11. 5. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS . 4,12,500/- MADE BY THE AO BY DISALLOWING EXPENSES ON BIOMASS F UEL SUPPLY STUDY EXPENSES. 6. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS . 92,00,000/- ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 5 MADE BY THE AO ON ACCOUNT OF EXTENSION FEE TOWARDS PROJECT NO. 25/2004. 7. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS . 71,00,000/- MADE BY THE AO ON ACCOUNT OF EXTENSION FEE/ CANCELL ATION FEE IN THE CASE OF M/S RRB ENERGY AND M/S ENERCON (INDIA) LTD. 8. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) WAS JUSTIFIED IN PARTLY ALLOWING DEDUCTION U /S 80IA(4)(IV) WITHOUT APPRECIATING THE FACTS ON THE BASIS OF WHIC H THE AO DISALLOWED THE SAME. ASSESSEES GROUNDS OF APPEAL (ITA NO. 159/JP/15) 1. THE LEARNED C.I.T. (APPEALS) HAS ERRED IN FACTS AND LAW IN CONFIRMING THE DISALLOWANCE OF RS. 1,00,00,000/- IN RESPECT OF CONTRIBUTION TO RAJASTHAN BHAWAN AS NOT AN EXPENDIT URE FOR ASSESSEES BUSINESS . 2. THE LEARNED C.I.T. (APPEALS) HAS ERRED IN FACTS AND LAW AND ITS OWN PRESUMPTIONS AND IGNORING THE FACTS NOT ALLOWIN G THE CLAIM OF DEDUCTION U/S 80IA(4) OF INCOME TAX ACT, 1961. 3. IN GROUND NO. 1, THE REVENUE HAS CHALLENGED THE DELETING OF ADDITION OF RS. 20 LACS TOWARDS CONTRIBUTION TO THE STATE RENEWAL FUND. THE LD. AR SUBMITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT, JAIPUR BENCH IN CASE OF RA JASTHAN STATE SEED CORPORATION LTD. VS. ACIT IN ITA NO. 233/JP/2009 OR DER DATED 25.05.2009 FOR A.Y. 2009-10 WHICH HAS BEEN AFFIRMED BY THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS RAJASTHA N STATE SEED CORPORATION LTD REPORTED IN 386 ITR 267. ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 6 4. THE RELEVANT FINDING OF THE LD CIT(A) WHERE HE H AS FOLLOWED THE DECISION OF THE COORDINATE BENCH IN CASE OF RAJASTH AN STATE SEED CORPORATION LTD IS REPRODUCED AS UNDER: 2.3.1 I HAVE PERUSED THE FACTS OF THE CASE, THE ASSESSMEN T ORDER AND THE SUBMISSION OF THE APPELLANT. THE FACTS OF T HIS ISSUE ARE SIMILAR TO THE FACTS IN THE CASE OF M/S RAJASTHAN S TATE SEEDS CORPORATION LTD. IN A.Y. 2006-07. IN THIS CASE, THE ITAT, JAIPUR (IN ITA NO. 233/JP/2009) HAS DECIDED THE MATTER IN FAVO UR OF THE ASSESSEE BY HOLDING AS UNDER- AS PER MEMORANDUM OF STATE RENEWAL FUND SET UP BY THE STATE GOVERNMENT, IT IS CREATED WITH THE OBJECT OF PROVID ING A SAFETY NET FOR THE WORKERS LIKELY TO BE AFFECTED BY RESTRUCTUR ING IN THE STATE PUBLIC ENTERPRISES. WE ARE THUS OF THE VIEW THAT CO NTRIBUTION MADE TO THE SAID FUND IS SOLELY FOR THE PURPOSE OF THE WELFARE AND BENEFIT OF THE EMPLOYEES. THE RAJASTHAN HIGH COURT IN CASE OF CIT V. RAJASTHAN SPINNING AND WEAVING MILLS LIMITED 274 ITR 465 HAS OBSERVED THAT IT IS FOR THE ASSESSEE TO DECIDE WHETHER ANY EXPENDITURE SHOULD BE INCURRED IN COURSE OF BUSINES S. THE EXPENDITURE CAN BE INCURRED VOLUNTARILY AND WITHOUT NECESSITY. ANY CONTRIBUTION MADE BY THE ASSESSEE TO A PUBLIC WELFARE FUND WHICH IS CONNECTED OR RELATED WITH HIS BUSINESS IS AN ALLOWABLE DEDUCTION U/S 37. AGAIN THE COURT IN THE CASE OF CI T V. SHRI RAJASTHAN SYNTEX LIMITED 221 CTR 410 (RAJ.) HELD TH AT WHERE ASSESSEE GAVE CONTRIBUTION TO THE EMPLOYEES WELFAR E FUND, THE SAME IS ALLOWABLE AS BUSINESS EXPENDITURE. THE CASE RELIED BY AO OF CIT V. JODHPUR CO-OPERATIVE MARKETING SOCIETY 27 5 ITR 372 (RAJ.) IS DISTINGUISHABLE AS IN THIS CASE THE AMOUN T WAS SET APART FOR THE SHAREHOLDERS OF THE SOCIETY WHEREAS IN THE PRESENT CASE AMOUNT WAS PROVIDED FOR THE BENEFIT OF THE EMPLOYEE S. IN VIEW OF THIS THE CONTRIBUTION MADE TO STATE RENEWAL FUND IS ALLOWABLE U/S 37(1). ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 7 5. IN D.B APPEAL NO. 4/2006 DATED 29.04.2016, THE HONBLE RAJASTHAN HIGH COURT IN CASE OF PRINCIPAL CIT VS RAJASTHAN STATE SEED CORPORATION LTD HAS HELD AS UNDER: 9. INSOFAR AS THE EXPENDITURE INCURRED ON STATE RE NEWAL FUND IS CONCERNED, SAID EXPENDITURE ALSO GOES TO SHOW THAT THE RENEWAL FUND WAS SET UP BY THE STATE GOVERNMENT AND WAS CRE ATED WITH THE OBJECT OF PROVIDING A SAFETY NET FOR THE WORKER S LIKELY TO BE EFFECTED BY RESTRICTING IN THE STATE PUBLIC ENTERPR ISE AND THAT A FINDING OF FACT HAS BEEN RECORDED THAT THE CONTRIBU TION MADE TO THE STATE RENEWAL FUND IS SOLELY FOR THE PURPOSES O F THE WELFARE AND BENEFIT OF THE EMPLOYEES. IN OUR VIEW, IT IS F OR THE ASSESSEE TO DECIDE WHETHER ANY EXPENDITURE SHOULD BE INCURRE D IN THE COURSE OF BUSINESS AND EXPENDITURE OF THIS NATURE B EING FOR BUSINESS EXPEDIENCY IS CERTAINLY ALLOWABLE DEDUCTIO N UNDER SECTION 37(1) OF THE ACT. IN OUR VIEW, ANY NORMAL EXPENDITURE FOR THE WELFARE AND BENEFIT OF EMPLOYEES IS ALLOWABLE E XPENDITURE UNDER SECTION 37(1), THE TRIBUNAL HAS COME TO A FIN DING OF FACT THAT IT WAS A LEGAL OBLIGATION OF THE RESPONDENT AS SESSEE TOWARDS CONTRIBUTION OF THE SAID AMOUNT TO THE STATE RENEWA L FUND AND THERE BEING A LEGAL OBLIGATION AS WELL IN OUR VIEW THE TRIBUNAL HAS COME TO A CORRECT CONCLUSION. 6. IN THE PRESENT CASE, IT IS NOTED THAT THE STATE RENEWAL FUND WAS SET UP TO PROVIDE SAFETY TO THE EMPLOYEES WORKING U NDER THE STATE OWNED ENTITIES IN CASE OF RESTRUCTURING/WIND-UP/CLO SURE OF THE UNDERTAKING. BASED ON THE STUDY DONE BY THE STATE GOVERNMENT, THE ASSESSEE HAS PROVIDED AN AMOUNT OF RS 20 LACS FOR T HE PURPOSES OF WELFARE AND BENEFIT OF THE EMPLOYEES. THE FACTS OF THE CASE ARE THUS PARI-MATERIA TO THE FACTS OF THE CASE BEFORE THE HONBLE RAJAST HAN HIGH COURT IN CASE OF RAJASTHAN SEED CORPORATION LTD AND RESPECTFULLY FOLLOWING THE SAME, WE AFFIRM THE ORDER OF THE LD C IT(A) WHO HAS RIGHTLY ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 8 DELETED THE DISALLOWANCE MADE BY THE AO TOWARDS CON TRIBUTION TO STATE RENEWAL FUND. IN THE RESULT, THE GROUND NO. 1 OF T HE REVENUES APPEAL IS DISMISSED. 7. IN GROUND NO. 2 OF THE REVENUES APPEAL, THE REV ENUE HAS CHALLENGED THE DELETION OF ADDITION OF RS. 1,24,442 /- MADE ON ACCOUNT OF LATE DEPOSITION OF EPF AFTER DUE DATE OF THE PF ACT. IN THIS REGARD, LD. AR SUBMITTED THAT IN VIEW OF THE FOLLOWING JUDI CIAL PRONOUNCEMENTS ON ALLOWABILITY OF DEDUCTION OF EMPLOYEES CONTRIBU TION TO PF AND OTHER FUNDS AFTER THE DUE DATES IN RESPECTIVE STATUTE BUT BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME, CIT(A) HAS RIGHTLY D ELETED THE ADDITION AND THUS THE GROUND OF THE DEPARTMENT BE DISMISSED: - CIT VS. STATE BANK OF BIKANER & JAIPUR (2014) 363 I TR 70 (RAJ) - CIT VS. JAIPUR VIDYUT VITRAN NIGAM LTD. (2014) 363 ITR 307 (RAJ) - CIT VS. UDAIPUR DUGDH UTPADAK SAHAKARI SANGH LTD. ( 2014) 366 ITR 163 (RAJ) 8. THE RELEVANT FINDING OF THE LD CIT(A) IS REPROD UCED AS UNDER:- 3.3 I HAVE PERUSED THE FACTS OF THE CASE, THE ASSE SSMENT ORDER AND THE SUBMISSIONS OF THE APPELLANT. ADMITTEDLY, C ONTRIBUTION TO PF HAS BEEN PAID BY THE APPELLANT, IN ALL INSTANCES , BEFORE THE DUE DATE OF FILING THE RETURN OF INCOME U/S 139(1). THI S FACT IS THEREFORE, NOT IN DISPUTE. IN VIEW OF THE JUDGMENTS OF THE RAJASTHAN HIGH COURT IN THE CASE JAIPUR VIDHYUT VIT HRAN NIGAM LTD, 265 CTR 62 (RAJ.), CIT VS. STATE BANK OF BIKAN ER & JAIPUR (2014) 99 DTR 131 (RAJ.), AND OTHER CASE LAWS ON TH IS ISSUE, THE CLAIM OF THE APPELLANT IS ALLOWABLE. ACCORDINGLY, T HIS DISALLOWANCE MADE BY THE ASSESSING OFFICER, IS DIRECTED TO BE DE LETED. THIS GROUND IS ALLOWED. ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 9 9. IN THE PRESENT CASE, ADMITTEDLY, EMPLOYEESS CO NTRIBUTION TO PF AMOUNTING TO RS 124,442 FOR THE MONTH OF AUGUST 201 0 HAS BEEN PAID BY THE APPELLANT ON 21.09.2010 WITHIN THE SAME FINA NCIAL YEAR 2010-11. THE ISSUE IS NO MORE RES INTEGRA IN LIGHT OF VARIOUS JUDICIAL PRONOUNCEMENTS OF THE HONBLE RAJASTHAN HIGH COURT REFERRED SUPRA. WE ACCORDINGLY AFFIRM THE ORDER OF THE LD CIT(A) WH O HAS RIGHTLY DELETED THE DISALLOWANCE MADE BY THE AO TOWARDS EMPLOYEES C ONTRIBUTION TO PF. IN THE RESULT, THE GROUND NO. 2 OF THE REVENUE S APPEAL IS DISMISSED. 10. IN RESPECT OF GROUND NO. 3 OF THE REVENUES APP EAL, THE REVENUE HAS CHALLENGED THE ACTION OF THE LD CIT(A) IN DELET ING ADDITION OF RS. 29,17,461/- DEBITED BY THE ASSESSEE IN IEC PLAN . 11. BRIEFLY THE FACTS OF THE CASE ARE THAT THE AS SESSEE, AS PER ITS OBJECT AS STATED IN THE MEMORANDUM OF ASSOCIATION ( MOA), IS ENGAGED DURING THE YEAR IN TWO TYPES OF BUSINESS ACTIVITIES (I) GENERATION OF ELECTRICITY FROM RENEWABLE/NON CONVENTIONAL SOURCES OF ENERGY LIKE WIND, SOLAR, BIOMASS, HYDRO ETC. AND SALE THEREOF A ND (II) ASSISTANCE TO VARIOUS ENTREPRENEURS FOR DEVELOPMENT AND GENERATIO N OF ELECTRICITY THROUGH NON-CONVENTIONAL SOURCES OF ENERGY. FOR FUL FILLMENT OF ACTIVITY NO. (II), THE ASSESSEE HAS A DUAL RESPONSIBILITY IN AS MUCH AS IT IS A STATE NODAL AGENCY OF MINISTRY OF NEW AND RENEWABLE ENERG Y (MNRE) REQUIRED TO POPULARIZE THE USAGE OF RENEWABLE ENERG Y SOURCES (RES) AND ALSO A STATE DESIGNATED AGENCY REQUIRED TO IMPL EMENT THE ENERGY CONSERVATION ACT, 2001 AND PROMOTE AND FACILITATE E NERGY CONSERVATION MEASURES. ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 10 12. AS PER OBJECTIVES OF INFORMATION, EDUCATION A ND COMMUNICATION (IEC) PLAN 2010-11 WHICH WERE MASS COMMUNICATION A ND PUBLIC AWARENESS FOR THE USE OF RES AND ENERGY CONSERVATIO N, VARIOUS TOOLS LIKE NEWSPAPERS, BROCHURES, LEAFLETS, POSTERS, MAGA ZINES, TELEVISION, FM RADIO, CINEMA SLIDES, DISPLAY BOARDS ETC. WERE DEPL OYED. THE FINANCIAL REQUIREMENT FOR THE SAME WAS ASSESSED AT RS.100 LAC S OUT OF WHICH RS.44.54 LACS WAS TO BE PROVIDED BY MNRE, RS. 20 LA CS BY BUREAU OF ENERGY EFFICIENCY (BEE) AND REMAINING RS. 35.46 LAC S BY ASSESSEE. THE ASSESSEE, THUS, INCURRED EXPENDITURE OF RS.29,17,46 1/- ON ACCOUNT OF IEC PLAN 2010-11 AND CLAIMED THE SAME IN ITS P&L A/C. 13. THE AO MADE DISALLOWANCE OF RS.29,17,461/- BY H OLDING THAT THE EXPENDITURE HAS NOT BEEN INCURRED WHOLLY AND EXCLUS IVELY IN CONNECTION WITH THE GENERATION OF ELECTRICITY WHICH IS THE BUS INESS OF THE ASSESSEE, THE EXPENDITURE IS NOT INCIDENTAL TO THE BUSINESS O F THE ASSESSEE, THE ASSESSEE IS MIXING APPLICATION OF INCOME WITH THE E XPENDITURE WHEN IT IS A CLEAR CUT CASE OF APPLICATION OF INCOME, THE EXPE NDITURE NEITHER HAS ANY BUSINESS EXPEDIENCY NOR IT IS DIVERSION OF INCO ME BY OVERRIDING TITLE AND MERELY BECAUSE SOMETHING IS INCLUDED IN THE OBJ ECTS OF THE ASSESSEE CANNOT JUSTIFY THE ALLOWABILITY OF CLAIM U /S 37(1) OF THE IT ACT, 1961. 14. THE LD. CIT(A) DELETED THE DISALLOWANCE BY GIVI NG THE FOLLOWING FINDINGS:- 4.6 .THE APPELLANT IS THE NODAL AGENCY OF MNRE FO R POPULARIZING THE USAGE OF RENEWABLE ENERGY SOURCE (RES) AND ALSO THE STATE DESIGNATED ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 11 AGENCY FOR ENERGY CONSERVATION. THIS EXPENDITURE UN DER THE IEC PLAN HAS BEEN INCURRED FOR GENERATING PUBLIC AWARENESS A BOUT RES AND ENERGY CONSERVATION. A PART OF THIS EXPENDITURE WAS CONTRIBUTED BY MNRE AND OTHER AGENCIES WHILE THE BALANCE AMOUNT HA S TO BE CONTRIBUTED BY THE APPELLANT. IT IS THIS SUM CONTRI BUTED BY THE APPELLANT WHICH HAS BEEN DISALLOWED BY THE ASSESSING OFFICER WITHOUT UNDERSTANDING THE NATURE OF THE BUSINESS OF THE APP ELLANT AND TAKING INTO CONSIDERATION THE REVENUE STREAMS ARISING FROM THESE ACTIVITIES. THEREFORE, IT IS HELD THAT THE ABOVE EXPENDITURE HA S BEEN INCURRED FOR BUSINESS PURPOSES. IN VIEW OF THE ABOVE DISCUSSION, IT IS HELD THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER OF THE A BOVE EXPENDITURE, IS WITHOUT ANY BASIS AND IS DIRECTED TO BE DELETED. 15. DURING THE COURSE OF HEARING, LD. AR SUBMITTED THAT THE ASSESSEE IS ENGAGED IN THE ACTIVITY OF SALE OF ELECTRICITY G ENERATED THROUGH WIND/SOLAR BASED POWER PROJECTS AND ACTIVITY OF PRO VIDING ASSISTANCE TO VARIOUS ENTREPRENEURS FOR SETTING UP POWER GENERATI ON PLANTS THROUGH NON-CONVENTIONAL ENERGY SOURCES. THE EXPENDITURE TH US INCURRED BY THE ASSESSEE ON MASS COMMUNICATION AND PUBLIC AWARENESS FOR THE USE OF RENEWABLE ENERGY SOURCES AND ENERGY CONSERVATION UN DER IEC PLAN 2010-11 IS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ITS BUSINESS MORE SO WHEN THE SAME IS AS PER ITS OBJECT AS STATED IN THE MOA AND THE ASSESSEE IS A STATE NODAL AGENCY OF MNRE AND ALSO A STATE DESIGNATED AGENCY REQUIRED FOR POPULARIZING THE USE OF RENEWAB LE ENERGY SOURCES AND PROMOTE ENERGY CONSERVATION MEASURES. THE AO HA S NOT DOUBTED THE GENUINENESS OF THE EXPENDITURE. HENCE, THE EXPE NDITURE INCURRED BY THE ASSESSEE IS ALLOWABLE TO IT U/S 37(1). ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 12 16. IT WAS FURTHER SUBMITTED BY THE LD AR THAT DUE TO THE EXPENDITURE INCURRED BY THE ASSESSEE ON SUCH AWARENESS PROGRAMM E, VARIOUS ENTREPRENEURS HAVE COME TO RAJASTHAN FOR DEVELOPMEN T AND GENERATION OF ELECTRICITY THROUGH NON-CONVENTIONAL SOURCES OF ENERGY FROM WHOM THE ASSESSEE HAS RECEIVED REGISTRATION/PROCESSING F EES ON THE PLANTS INSTALLED BY THEM WHICH IS A PART OF THE RECEIPT OF RS.31.66 CRORES CREDITED TO THE P&L A/C. THE AO HAS COMPLETELY OVER LOOKED THIS REVENUE STREAM OF THE ASSESSEE IN DISALLOWING THE EXPENDITU RE. 17. WE HAVE HEARD THE RIVAL CONTENTIONS AND PURUSE D THE MATERIAL AVAILABLE ON RECORD. THE EXPENDITURE UNDER THE IEC PLAN HAS BEEN INCURRED BY THE ASSESSEE FOR GENERATING PUBLIC AWAR ENESS ABOUT RES AND ENERGY CONSERVATION. THE APPELLANT IS THE NODAL AGENCY OF MNRE FOR POPULARIZING THE USAGE OF RENEWABLE ENERGY SOUR CES AND ALSO THE STATE DESIGNATED AGENCY FOR ENERGY CONSERVATION. IT IS ALSO A FACT THAT ASSISTANCE TO VARIOUS ENTREPRENEURS FOR DEVELOPMENT AND GENERATION OF ELECTRICITY THROUGH NON-CONVENTIONAL SOURCES OF ENE RGY IS ONE OF THE STATED OBJECTIVES OF THE ASSESSEE COMPANY AND IT HA S BEEN SUBMITTED THAT THE ASSESSEE COMPANY HAS GENERATED REVENUES WO RTH RS 31.66 CRORES BY WAY OF REGISTRATION/PROCESSING FEES DURIN G THE YEAR UNDER CONSIDERATION. THE EXPENDITURE INCURRED ON MASS COM MUNICATION AND PUBLIC AWARENESS FOR THE USE OF THE RENEWABLE ENERG Y SOURCES AND ENERGY CONSERVATION HAS THUS BEEN INCURRED FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE COMPANY AND IS ALLOWABLE U NDER THE PROVISIONS OF SECTION 37(1) OF THE ACT. IN THE RESULT, WE AFF IRM THE ORDER OF THE LD CIT(A) WHO HAS RIGHTLY DELETED THE DISALLOWANCE MAD E BY THE AO ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 13 TOWARDS EXPENDITURE UNDER THE IEC PLAN. THE GROUND OF APPEAL OF REVENUE IS THUS DISMISSED. 18. IN ITS GROUND NO. 4, THE REVENUE HAS CHALLENGED THE DELETING OF ADDITION OF RS. 34,29,607/- MADE BY THE AO TOWARDS EXPENSES ON RURAL VILLAGE ELECTRIFICATION (RVE) 2010-11. THE LD AR SU BMITTED THAT THE STATE GOVERNMENT OF RAJASTHAN, AS AN OWNER OF THE ASSESSE E, DIRECTED IT TO BEAR 5% SHARE OF THE COST OF SYSTEMS AND COST ON AC COUNT OF REPLACEMENT OF BATTERIES OF THE HOME LIGHTING SYST EMS UNDER THE RURAL VILLAGE ELECTRIFICATION (RVE) 2010-11 PROGRAM OF M INISTRY OF NEW AND RENEWABLE ENERGY (MNRE). THE OBJECT OF THE PROGRAM WAS TO PROVIDE ELECTRIFICATION/LIGHTING THROUGH RENEWABLE ENERGY S OURCES IN UN- ELECTRIFIED HAMLETS OF THE STATE OF RAJASTHAN. ACCO RDINGLY, THE ASSESSEE, ON DIRECTIONS OF THE STATE GOVERNMENT OF RAJASTHAN AND BEING A NODAL AGENCY OF MNRE REQUIRED TO POPULARIZE THE USAGE OF RENEWABLE ENERGY SOURCES INCURRED EXPENDITURE OF RS.34,29,607/- AND CLAIMED THE SAME IN THE P&L A/C. 19. THE AO DISALLOWED THE EXPENDITURE BY HOLDING TH AT THE EXPENDITURE HAS NOT BEEN LAID OUT WHOLLY AND EXCLUS IVELY IN CONNECTION WITH THE BUSINESS OF GENERATION OF RENEWABLE ENERGY OR GENERATING ELECTRICITY FROM SOLAR/WIND-MILL. 20. THE RELEVANT FINDING OF THE LD CIT(A) WHICH ARE REPRODUCED AS UNDER:- 4.3.1 I HAVE PERUSED THE FACTS OF THE CASE, THE AS SESSMENT ORDER AND THE SUBMISSIONS OF THE APPELLANT. THE APPELLANT IS ENGAGED IN ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 14 THE BUSINESS OF GENERATING ELECTRICITY FROM WIND FA RMS AND SOLAR ENERGY. ALSO, THE ASSESSEE IS ENGAGED IN THE PROMOT ION OF NON CONVENTIONAL ENERGY IN THE STATE OF RAJASTHAN AND H AS BEEN APPOINTED AS A NODAL AGENCY BY MINISTRY OF NON RENE WABLE ENERGY (MNRE), BUREAU OF ENERGY EFFICIENCY (BEE) AN D STATE DESIGNATED AGENCY (SDA) TO CONDUCT PROGRAMMES AT TH E STATE LEVEL TO ENCOURAGE AND PROMOTE NON CONVENTIONAL ENE RGY AND USAGE OF RENEWABLE ENERGY SOURCE (RES) INCLUDING GE NERATION OF ELECTRICITY FROM BIO-MASS AND TO PROMOTE AND FACILI TATE MEASURES OF ENERGY CONSERVATION. THE APPELLANT RECEIVES SERV ICE CHARGES FOR PROMOTING THESE ACTIVITIES AND/OR INCOME IN THE NATURE OF APPLICATION, REGISTRATION AND PROCESSING FEES FROM PERSONS SETTING UP UNITS FOR GENERATING NON CONVENTIONAL ENERGY. 4.3.2 THE ASSESSING OFFICER HAS DISALLOWED THE ABOV E EXPENDITURE U/S 37(1) BY HOLDING THAT THIS EXPENDITURE HAS NOT BEEN MADE IN CONNECTION WITH BUSINESS OF THE ASSESSEE VIZ GENERA TION OF ELECTRICITY AND IS NOT DIVERSION BY OVERRIDING TITL E. THE ASSESSING OFFICER HAS OVERLOOKED THAT THE APPELLANT IS THE NO DAL AGENCY FOR MNRE AND BEE FOR PROMOTION OF NON CONVENTIONAL AND RENEWABLE ENERGY AS WELL AS FOR PROMOTION OF ENERGY CONSERVAT ION. THE ASSESSING OFFICER HAS TOTALLY OVERLOOKED THE REVENU E STREAMS ARISING FROM THE ABOVE ACTIVITIES WHILE DECIDING TH AT THESE EXPENDITURES HAVE NOT BEEN INCURRED FOR BUSINESS PU RPOSES. THE ISSUE RELATING TO DIVERSION BY OVERRIDING TITLE DOE S NOT ARISE IN THIS MATTER IN DECIDING THE ALLOWABILITY OF THE ABOVE EX PENDITURE U/S 37(1) AND ALSO THE CASE LAW OF CIT VS. SITALDAS TIR ATHDAS 41 ITR 367 (SC), CITED REPEATEDLY BY THE ASSESSING OFFICER HAS NO RELEVANCE TO THE ISSUE AT HAND. THE ASSESSING OFFIC ER HAS NOT DOUBTED THE GENUINENESS OF THE EXPENDITURE INCURRED . 4.3.3 THE EXPENDITURE ON ACCOUNT OF RURAL VILLAGE E LECTRIFICATION (RVE) FOR F.Y. 09-10, 10-11 AND RVE TRAVELLING AND VEHICLE EXPENSES HAS BEEN INCURRED IN ACCORDANCE WITH THE P ROGRAMMES OF MNRE RELATING TO RENEWABLE ENERGY (FOR WHICH THE APPELLANT IS A NODAL AGENCY FOR THE STATE OF RAJASTHAN). THE APP ELLANT HAS EARNED INCOME FROM SERVICE CHARGES AS WELL AS FROM APPLICATION, PROCESSING AND REGISTRATION FEES FROM NEW APPLICANT S. THEREFORE, IT IS HELD THAT THE ABOVE EXPENDITURE HAVE BEEN INC URRED FOR BUSINESS PURPOSES. AS REGARDS, THE EXPENDITURE ON R VE FOR F.Y. ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 15 2009-10, THE ASSESSING OFFICER HAS ALSO STATED THAT THIS EXPENDITURE RELATES TO AN EARLIER PREVIOUS YEAR AND IS IN THE NATURE OF PRIOR PERIOD EXPENSES. THE ITAT HAS HELD IN THE CASE OF RAJASTHAN SAHKARI KRAY VIKRAY SANGH LTD. FOR A.Y 20 03-04, 2004- 05 AND 2006-07 THAT PRIOR PERIOD EXPENSES ARE ALLOW ABLE ESPECIALLY IN CASES OF GOVERNMENT COMPANIES WHERE A PPROVAL OF EXPENDITURE HAS TO BE TAKEN FROM HIGHER AUTHORITIES BEFORE DEBITING THE BOOKS WHICH MAY TAKE TIME LEADING TO P RIOR PERIOD EXPENSES BEING BOOKED IN A LATER YEAR. THIS SYSTEM OF ACCOUNTING OF EXPENDITURE HAS BEEN REGULARLY FOLLOWED BY THE A PPELLANT. THE GENUINENESS OF THIS EXPENSES HAS NOT BEEN DOUBTED B Y THE ASSESSING OFFICER. NOTHING HAS BEEN BROUGHT ON RECO RD TO SHOW THAT THERE HAS BEEN A DISTORTION OF PROFITS OR THAT THE BOOKS OF ACCOUNTS DO NOT REFLECT THE CORRECT PICTURE. IN VIE W OF THE ABOVE DISCUSSION, IT IS HELD THAT THE DISALLOWANCES MADE BY THE ASSESSING OFFICER OF THE ABOVE EXPENDITURE, IS WITH OUT ANY BASIS AND IS DIRECTED TO BE DELETED. GROUND NO. 3,6 AND 7 ARE ALLOWED. 21. DURING THE COURSE OF HEARING, THE LD. AR SUBMIT TED THAT THE DETAILED FINDINGS GIVEN BY THE LD. CIT(A) SUPRA IS RELIED UPON. IT WAS FURTHER SUBMITTED THAT MNRE HAS ANNOUNCED PROGRAMME S FROM TIME TO TIME TO PROVIDE ELECTRIFICATION/LIGHTING THROUGH RE NEWABLE ENERGY SOURCES. THE ASSESSEE AS A NODAL AGENCY HAS THEREFO RE INCURRED THE EXPENDITURE ON IMPLEMENTATION OF THESE PROGRAMMES. FOR CARRYING OUT SUCH PROGRAMMES, ASSESSEE RECEIVED SERVICE CHARGES FROM MNRE. DURING THE YEAR, RS. 24,80,363/- IS RECEIVED FROM MNRE TOWARDS SERVICE CHARGES WHICH IS OFFERED FOR TAX. THEREFORE, ONCE R ECEIPT IS TAXED, EXPENDITURE CANNOT BE DISALLOWED. IN VIEW OF ABOVE, CIT(A) HAS RIGHTLY DELETED THE DISALLOWANCE AND THUS THE GROUND OF THE DEPARTMENT BE DISMISSED. 22. WE HAVE HEARD THE RIVAL CONTENTIONS AND PURUSED THE MATERIAL AVAILABLE ON RECORD. THE APPELLANT HAS INCURRED AN EXPENDITURE OF RS. ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 16 34,29,607/- ON DIRECTIONS OF THE STATE GOVERNMENT T OWARDS THE COST OF SYSTEMS AND COST ON ACCOUNT OF REPLACEMENT OF BATTE RIES OF THE HOME LIGHTING SYSTEMS UNDER THE RURAL VILLAGE ELECTRIF ICATION (RVE) 2010-11 PROGRAM OF MINISTRY OF NEW AND RENEWABLE ENERGY (MN RE). THE OBJECT OF THE PROGRAM WAS TO PROVIDE ELECTRIFICATION/LIGHT ING THROUGH RENEWABLE ENERGY SOURCES IN UN-ELECTRIFIED HAMLETS OF THE STA TE OF RAJASTHAN. AS WE HAVE NOTED ABOVE, THE APPELLANT IS THE STATE NOD AL AGENCY OF MNRE FOR POPULARIZING THE USAGE OF RENEWABLE ENERGY SOUR CES AND AS PART OF ITS STATED BUSINESS OBJECTIVES, HAS INCURRED THE SU BJECT EXPENDITURE. THE EXPENDITURE HAS THUS A DIRECT LINKAGE WITH THE ACTIVITIES OF THE ASSESSEE COMPANY AND HAS BEEN INCURRED FOR THE PURP OSES OF THE BUSINESS OF THE ASSESSEE COMPANY AND IS ALLOWABLE U NDER THE PROVISIONS OF SECTION 37(1) OF THE ACT. FROM PERUSAL OF ASSES SMENT ORDER, IT IS ALSO NOTED THAT THE ASSESSEE COMPANY HAS RECEIVED RS 33, 50,000 AS SERVICE CHARGED FOR ELECTRIFICATION OF RURAL HAMLETS UNDER THE RVE PROGRAM 2010-11. IT THUS FURTHER STRENGTHENS THE CONTENTIO N OF THE ASSESSEE COMPANY IN TERMS OF INCURRING THE SUBJECT EXPENDITU RE FOR ITS STATED OBJECTIVES AND IN RESPECT OF WHICH REVENUES HAVE AL SO BEEN GENERATED DURING THE YEAR. IN THE RESULT, WE AFFIRM THE ORDE R OF THE LD CIT(A) WHO HAS RIGHTLY DELETED THE DISALLOWANCE MADE BY THE AO TOWARDS EXPENDITURE UNDER THE REV 2010-11 PROGRAM. THE GRO UND OF APPEAL OF REVENUES APPEAL IS THUS DISMISSED. 23. IN RESPECT OF GROUND NO. 5, THE REVENUE HAS CHA LLENGED THE ACTION OF THE LD CIT(A) IN DELETING THE ADDITION OF RS. 4,12,500/- MADE BY THE AO ON BIO MASS FUEL SUPPLY STUDY EXPENSES. T HE BRIEF FACTS OF THE CASE ARE THAT DURING THE YEAR, RAJASTHAN ELECTR ICITY REGULATORY ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 17 COMMISSION (RERC) IN THE MATTER OF DETERMINATION OF TARIFF FOR SALE OF ELECTRICITY FROM JULIFLORA BASED BIO MASS POWER PLA NTS IN THE STATE, DIRECTED THE ASSESSEE, BEING THE NODAL AGENCY TO GE T THE PRICE AND PRICE TREND OF MAIN BIO-MASS FUEL IN THE STATE STUDIED/SU RVEYED AND TO SUBMIT A REPORT TO IT. ACCORDINGLY, THE ASSESSEE ISSUED A WORK ORDER TO DALKIA ENERGY SERVICE LTD. FOR CONDUCTING THE STUDY. FOR C ONDUCTING THIS STUDY, ASSESSEE INCURRED EXPENDITURE OF RS.4,12,500/- ON P AYMENT TO DALKIA ENERGY SERVICE LTD. THE AO OBSERVED THAT EXPENDITUR E IS CAPITAL IN NATURE AS ASSESSEE WILL GET ENDURING BENEFIT SPREAD OVER YEARS FOR ITS BUSINESS ON ACCOUNT OF SUCH STUDY BEING A NEW LINE OF BUSINESS. ACCORDINGLY, HE DISALLOWED THE CLAIM OF THE EXPENDI TURE. 24. THE RELEVANT FINDING OF THE LD CIT(A) ARE REPR ODUCED AS UNDER:- 4.7 GROUND NO. 8 RELATES TO DISALLOWANCE OF EXPEND ITURE ON BIOMASS FUEL SUPPLY STUDY. THE ASSESSING OFFICER HA S HELD THAT THIS EXPENDITURE IS CAPITAL IN NATURE SINCE BIOMASS FUEL SUPPLY IS NOT RELATED TO THE EXISTING BUSINESS OF GENERATION OF ELECTRICITY FROM SOLAR POWER PLANT/WINDMILL AND THAT IT IS A NE W LINE OF BUSINESS. THE APPELLANT HAS STATED THAT THIS IS NOT A NEW LINE OF BUSINESS AS IT IS ENGAGED IN THE BUSINESS OF DEVELO PMENT OF NON CONVENTIONAL ENERGY AND RENEWABLE ENERGY SOURCES, F OR A LONG TIME. BASED ON THIS STUDY, APPELLANT HAS ISSUED WOR K ORDERS TO VARIOUS APPLICANTS FOR WHICH IT HAS RECEIVED APPLIC ATION AND PROCESSING FEES. IN VIEW OF ABOVE DISCUSSION, IT IS HELD THAT THE ABOVE EXPENDITURE IS NOT CAPITAL IN NATURE AND DOES NOT RELATE TO A NEW LINE OF BUSINESS. IT IS HELD THAT THIS EXPEND ITURE IS REVENUE IN NATURE AND HAS BEEN INCURRED FOR THE PURPOSES OF BUSINESS. IN VIEW OF THE ABOVE DISCUSSION, IT IS HELD THAT THE D ISALLOWANCE MADE BY THE ASSESSING OFFICER OF THE ABOVE EXPENDIT URE, IS WITHOUT ANY BASIS AND IS DIRECTED TO BE DELETED. GR OUND NO. 8 IS ALLOWED. ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 18 25. DURING THE COURSE OF HEARING, LD. AR SUBMITTED THAT GOVERNMENT OF RAJASTHAN ISSUED A POLICY FOR PROMOTING GENERATI ON OF ELECTRICITY FROM BIO-MASS IN FEBRUARY 2010. ACCORDINGLY, AS DIRECTED BY RERC VIDE ORDER DT. 11.10.2010, THE ASSESSEE AS A NODAL AGENCY COND UCTED THE STUDY THROUGH DALKIA ENERGY SERVICE LTD., NEW DELHI FOR W HICH THE ABOVE PAYMENT IS MADE. COPY OF LETTER DT. 28.07.2011 SUBM ITTED BY THE ASSESSEE TO RERC IN THIS CONNECTION IS AT PB 183. T HUS, THE SAID EXPENDITURE IS INCURRED BY THE ASSESSEE AS A PART O F ITS OBJECT. THIS IS NOT A NEW LINE OF BUSINESS AS ASSUMED BY THE AO IN AS MUCH AS ASSESSEE IS ALREADY CONDUCTING THE VARIOUS STUDIES FOR DEVELOPMENT OF NON-CONVENTION ENERGY AND RENEWABLE ENERGY SOURCES OF WHICH BIO MASS IS A PART. THE CASES RELIED BY THE AO ARE THER EFORE NOT APPLICABLE. IN THESE CIRCUMSTANCES, THE ORDER OF CIT(A) BE UPHE LD BY DISMISSING THE GROUND OF THE DEPARTMENT. 26. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PURSUE D THE MATERIAL AVAILABLE ON RECORD. BEING THE STATE NODAL AGENCY FOR DEVELOPMENT AND PROMOTION OF RENEWABLE ENERGY SOURCES, THE ASSESSEE , AS INSTRUCTED BY RAJASTHAN STATE REGULATORY COMMISSION, HAS GOT A ST UDY DONE ON BIOMASS FUELS PRICE TREND AS PART OF DETERMINATION OF TARIFF FOR SALE OF ELECTRICITY FROM JULIFLORA BASED BIOMASS POWER PLAN T IN THE STATE OF RAJASTHAN. THE AO HAS HELD THAT THE EXPENDITURE IS TOWARDS A NEW LINE OF BUSINESS AS THE ASSESSEE IS ENGAGED IN THE BUSIN ESS OF GENERATION OF ELECTRICITY FROM SOLAR POWER PLANT/WIND MILL AND IS THUS ENDURING IN NATURE. IT IS NOT THE CASE OF THE APPELLANT THAT I T WILL START GENERATING ELECTRICITY FROM BIO-MASS FUEL IN FUTURE AND HAS CA RRIED OUT THE STUDY IN ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 19 THAT RESPECT. THE CASE OF THE APPELLANT IS THAT IT IS ENGAGED IN THE BUSINESS OF PROMOTION AND DEVELOPMENT OF NON CONVEN TIONAL ENERGY AND RENEWABLE ENERGY SOURCES AND BIO-MASS ENERGY IS ONE SUCH ENERGY, THE PROMOTION OF WHICH HAS BEEN TAKEN UP AS PART OF THE STATE POLICY. THE EXPENDITURE ON STUDY OF BIOMASS IS THUS AN EXPE NDITURE UNDERTAKEN AS PART OF DEVELOPMENT AND PROMOTION OF RENEWABLE E NERGY SOURCES IN THE STATE OF RAJASTHAN. FURTHER, THE LD CIT(A) HAS GIVEN A FINDING THAT BASED ON THIS STUDY, APPELLANT HAS ISSUED WORK ORDE RS TO VARIOUS APPLICANTS FOR WHICH IT HAS RECEIVED APPLICATION AN D PROCESSING FEES AND THE SAID FINDING REMAIN UNCONTROVERTED BEFORE US. IN THE RESULT, WE ARE OF THE VIEW THAT EXPENDITURE ON THE SUBJECT STUDY I S AN EXPENDITURE INCURRED IN THE COURSE OF CARRYING OUT EXISTING BUS INESS OF THE ASSESSEE COMPANY AND NOT IN RESPECT OF NEW LINE OF BUSINESS, BEING THE MAIN CONTENTION OF THE AO TO HOLD THE EXPENDITURE AS CAP ITAL AND ENDURING IN NATURE. IN THE RESULT, WE UPHELD THE ORDER OF THE LD CIT(A) AND CONFIRM THE DELETION OF SUBJECT EXPENDITURE. IN THE RESULT , THE SUBJECT GROUND OF THE REVENUES APPEAL IS DISALLOWED. 27. IN RESPECT OF GROUND NO. 6 AND 7 OF REVENUES A PPEAL, THE REVENUE HAS CHALLENGED THE ACTION OF LD CIT(A) IN D ELETING THE ADDITION OF RS. 92,00,000/- MADE BY THE AO ON ACCOUNT OF EXT ENSION FEE TOWARD PROJECT NO. 25/2004 AND RS. 71,00,000/- MADE BY THE AO ON ACCOUNT OF EXTENSION FEE/CANCELLATION FEE IN CASE OF M/S RR B ENERGY AND M/S ENERCON (INDIA) LTD. 28. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FOLLOWS THE MERCANTILE SYSTEM OF ACCOUNTING. HOWEVER, AS PER TH E SIGNIFICANT ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 20 ACCOUNTING POLICIES, CERTAIN INCOME IS RECOGNIZED O NLY WHEN ACTUALLY RECEIVED. ONE OF SUCH INCOME IS APPLI CATION/ PROCESSING/ REGISTRATION/ EXTENSION/ LAND IDENTIFICATION/ACCRED ITATION FEES [REFER POINT NO. (B)(II) OF SIGNIFICANT ACCOUNTING POLICIE S] WHICH IS ACCOUNTED FOR IN THE YEAR IN WHICH THE SAME IS ACTUALLY RECEI VED. THE EXTENSION FEE IS A CHARGE LEVIED ON THE ENTREPRENEUR FOR NOT COMM ISSIONING THE PROJECTS WITHIN THE GIVEN TIME. HOWEVER, BEFORE THE LEVY OF THIS FEE, AN OPPORTUNITY IS GIVEN TO THE ENTREPRENEUR TO PUT FOR TH ITS CASE BEFORE THE BOARD AND SLEC. THESE BODIES MAY ORDER FOR LEVY OF EXTENSION FEE WHICH THE ENTREPRENEUR MAY/MAY NOT PAY AS IN SOME C ASES, THE ENTREPRENEUR MAY OPT FOR CANCELLATION OF THE PROJEC T. 29. FOR THE YEAR UNDER CONSIDERATION, THE STATUTORY AUDITOR AS PER OBSERVATION NO. 7, 9 AND 10 OF ITS REPORT STATED TH AT ASSESSEE SHOULD TAKE APPROPRIATE ACTION FOR RECOVERY OF EXTENSION F EES OF RS.16 LACS FROM M/S ENERCON (INDIA) LTD. (NOTE NO. 7), RS.55 LACS F ROM M/S VESTAS RRB LTD. (NOTE NO. 9) AND RS.92 LACS FROM M/S ENERCON ( INDIA) LTD. (NOTE NO. 10) AS THEY HAVE NOT COMMISSIONED THE PROJECT W ITHIN SCHEDULE TIME. ON THE BASIS OF THESE OBSERVATION, AO OBSERVE D THAT EXTENSION FEES HAS BECOME DUE TO THE ASSESSEE AND AS IT IS FO LLOWING ACCRUAL SYSTEM OF ACCOUNTING, HE MADE THE ADDITION OF RS.1, 63,00,000/- (RS.92 LACS + RS.55 LACS + RS.16 LACS). BEING AGGRIEVED, T HE ASSESSEE CARRIED THE MATTER IN APPEAL WHICH HAS DELETED THE SAID ADD ITION AGAINST WHICH THE REVENUE IS IN APPEAL BEFORE US. 30. THE RELEVANT FINDING OF THE LD CIT(A) WHICH ARE REPRODUCED AS UNDER:- ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 21 6.3 I HAVE PERUSED THE FACTS OF THE CASE, THE ASSES SMENT ORDER AND THE SUBMISSIONS OF THE APPELLANT. THE ASSESSING OFFICER HAS ADDED EXTENSION FEE TOWARDS PROJECT NO. 25/2004 AMO UNTING TO RS.92 LACS AND EXTENSION/CANCELLATION FEE FOR TWO O THER PROJECTS AMOUNTING TO RS.71 LACS. IT HAS BEEN HELD BY THE AS SESSING OFFICER THAT THESE INCOMES HAVE NOT BEEN ACCOUNTED FOR BY T HE ASSESSEE IN SPITE OF THE FACT THAT IT FOLLOWS A MERCANTILE S YSTEM OF ACCOUNTING. THE APPELLANT HAS EXPLAINED THAT PROJEC TS HAVE TO BE COMMISSIONED WITHIN A GIVEN TIME. IF THE PROJECT IS NOT COMMISSIONED WITHIN A GIVEN TIME, THEN THE APPLICAN T IS LIABLE TO PAY EXTENSION FEE/CANCELLATION FEE. BEFORE THE LEVY OF THIS FEE, AN OPPORTUNITY IS GIVEN TO THE APPLICANT TO PUT FORTH ITS CASE BEFORE THE BOARD AND SLEC. THESE BODIES MAY ORDER FOR LEVY OF EXTENSION FEE WHICH THE ENTREPRENEUR MAY/MAY NOT PA Y AS IN SOME CASES, THE ENTREPRENEUR MAY OPT FOR CANCELLATI ON OF THE PROJECT. IT HAS BEEN STATED BY THE APPELLANT THAT O NLY WHEN SUCH FEES IS REALIZED FROM THE APPLICANT THAT THE ASSESS EE SHOWS IT AS INCOME. THE APPELLANT HAS RELIED ON ACCOUNTING STAN DARD (AS-9) TO SUBSTANTIATE ITS STAND THAT INCOME CANNOT BE REC OGNIZED UNLESS IT IS MEASURABLE AND THERE IS A CERTAINTY ABOUT ITS REALIZATION. THIS HAS ALSO BEEN STATED IN THE NOTES TO ACCOUNTS. THE INSTANCE, CITED BY THE ASSESSING OFFICER OF THE FORFEITURE OF SECUR ITY DEPOSIT OF M/S ENERCON OF RS.4 LACS (WRONGLY TYPED AS RS.40 LACS) HAS BEEN RECOGNIZED AS INCOME BY THE ASSESSEE, UPON ITS RECE IPT. THE HONBLE SUPREME COURT OF INDIA IN THE CASE OF CIT V S. SHOORJI VALLABHDAS & CO. 46 ITR 144 (SC) HAS HELD THAT IN A NY ACCRUAL SYSTEM, THE PROBABILITY OR IMPROBABILITY OF REALIZA TION HAS ALSO TO BE CONSIDERED IN A REALISTIC MANNER. IN THE CASE OF CHAINRUP SAMPATRAM VS. CIT 24 ITR 481 (SC), THE HONBLE APEX COURT HELD THAT WHILE ANTICIPATED LOSS IS TAKEN INTO ACCOUNT, ANTICIPATED PROFIT IS NOT BROUGHT IN ACCOUNT, AS NO PRUDENT TRADER WOU LD CARE TO SHOW INCREASED PROFIT BEFORE ITS ACTUAL REALIZATION . IN VIEW OF THE ABOVE DISCUSSION AND FOLLOWING THE ABOVE JUDGMENTS OF THE APEX COURT, THE ABOVE ADDITIONS MADE BY THE ASSESSING OF FICER ARE DIRECTED TO BE DELETED. GROUND NO. 9 & 10 ARE ALLOW ED. ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 22 31. DURING THE COURSE OF HEARING, THE LD. AR SUBMIT TED THAT THE FINDINGS GIVEN BY CIT(A) IS RELIED UPON. FURTHER, I T WAS SUBMITTED THAT EVEN IN THE ACCRUAL SYSTEM OF ACCOUNTING, THE FUNDA MENTAL ACCOUNTING PRINCIPLE OF PRUDENCE HAS TO BE FOLLOWED. THE PRINC IPLE OF PRUDENCE REQUIRES THAT THE REVENUE SHOULD NOT BE RECOGNIZED UNLESS THERE IS A REASONABLE CERTAINTY OF ITS REALIZATION. FURTHER, A S PER THE ACCOUNTING POLICY CONSISTENTLY FOLLOWED BY THE ASSESSEE, EXTEN SION FEES IS RECOGNIZED, ONLY WHEN ACTUALLY RECEIVED. SINCE THER E IS AN UNCERTAINTY ON THE REALIZATION OF THE EXTENSION FEES, THE ACCOU NTING POLICY SO FOLLOWED IS IN LINE WITH THE PRINCIPLE OF PRUDENCE. THEREFORE, SUCH UNCERTAIN INCOME CANNOT BE BROUGHT TO TAX EVEN UNDE R THE MERCANTILE SYSTEM OF ACCOUNTING. IN THE SUBSEQUENT ASSESSMENT YEAR 12-13/13- 14/14-15, THE AMOUNT ACTUALLY RECEIVED HAS BEEN OFF ERED FOR TAX. THE COPY OF LEDGER ACCOUNT FOR THESE A.Y.S IS AT PB 18 4-188 . THEREFORE, IN VIEW OF THE DECISION OF SUPREME COURT IN CASE OF EX CEL INDUSTRIES LTD. 358 ITR 295 SUCH AMOUNT CANNOT BE ADDED TO THE INCO ME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. 32. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PURUSE D THE MATERIAL AVAILABLE ON RECORD. THE ISSUE UNDER CONSIDERATION RELATES TO RECOGNITION OF EXTENSION FEE AND CANCELLATION FEE I N RESPECT OF CERTAIN SPECIFIED PROJECTS AS NOTED ABOVE. IT IS CONTENDED THAT AS PER THE CONSISTENT ACCOUNTING POLICY FOLLOWED BY THE ASSESS EE COMPANY, SUCH REVENUES ARE RECOGNIZED ONLY WHEN ACTUALLY RECEIVED AND THE SAME IS IN CONSONANCE WITH AS-9 AS WELL AS WELL-ACCEPTED PRINC IPLE OF PRUDENCE WHICH HAS BEEN RECOGNIZED BY THE COURTS FROM TIME T O TIME AS PART OF ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 23 ACCRUAL SYSTEM OF ACCOUNTING. ON PERUSAL OF THE AU DITORS REPORT, IT IS NOTED THAT IN RESPECT OF ENERCON INDIA LTD, IT HAS BEEN STATED BY THE AUDITORS THAT FOR THE DELAY IN COMMISSIONING A PART OF THE PROJECT, THE ASSESSEE COMPANY SHOULD TAKE ACTION TO FORFEIT THE SECURITY DEPOSIT OR LEVY EXTENSION FEES OF RS 16 LACS. SIMILARLY, IN R ESPECT OF VESTAS RRB LTD, THE AUDITORS HAVE STATED THAT THE ASSESSEE COM PANY SHOULD TAKE APPROPRIATE ACTION FOR RECOVERY OF EXTENSION FEE OF RS 55 LACS. IN RESPECT OF ENERCON PROJECT (25/2004), IT HAS BEEN S TATED BY THE AUDITORS THAT THE MATTER RELATING TO EXTENSION FEE OF RS 92 LACS IS STILL UNDER CONSIDERATION OF THE MANAGEMENT AND ANY ACCOUNTING TREATMENT SHALL BE CONSIDERED IN THE YEAR OF RECEIPT AS PER THE CON SISTENT ACCOUNTING POLICY OF THE ASSESSEE COMPANY. IN LIGHT OF THE SA ME, THESE ARE PROJECTS WHERE THE ACTION LIES WITH THE ASSESSEE CO MPANY TO INITIATE THE PROCESS OF LEVY OF EXTENSION FEES OR THE MATTER FOR LEVY OF EXTENSION FEE HAS BEEN INITIATED BUT IS CURRENTLY UNDER CONSIDERA TION. IN TERMS OF PRINCIPLE OF PRUDENCE, UNLESS AND UNTIL THERE IS CE RTAINTY OF REALIZATION, REVENUE CANNOT BE RECOGNIZED. IN THE INSTANT CASE, THERE IS CLEARLY NO CERTAINTY OF REALIZATION AS THE ACTION FOR LEVY OF EXTENSION FEES ITSELF HAS NOT BEEN INITIATED OR PENDING CONSIDERATION OF THE ASSESSEE COMPANY ITSELF. ONCE THE ASSESSEE COMPANY INITIATES THE AC TION FOR LEVY EXTENSION FEES, VARIOUS CONTRACTUAL FACTORS ARE TAK EN INTO CONSIDERATION, THE PROJECT OWNERS ARE GIVEN AN OPPORTUNITY AND THE Y ARE HEARD AND THEREAFTER, EXTENSION FEES IS FINALLY LEVIED. IN SO ME CASES, IT HAS BEEN EXPLAINED THAT THE APPLICANT MAY OPT FOR CANCELLATI ON OF THE PROJECT INSTEAD OF PAYING THE EXTENSION FEES. IN THE ENTIR ETY OF FACTS AND CIRCUMSTANCES OF THE CASE, WE DONOT SEE ANY INFIRMI TY IN THE ORDER OF THE LD CIT(A) WHO HAS RIGHTLY DELETED THE ADDITION MADE BY THE ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 24 ASSESSING OFFICER. IN THE RESULT, BOTH THE GROUNDS TAKEN BY THE REVENUE ARE DISMISSED. 33. NOW, WE REFER TO GROUND NO. 8 OF THE REVENUES APPEAL AND GROUND NO. 2 OF THE ASSESSEES APPEAL WHICH RELATES TO DEDUCTION UNDER SECTION 80IA(4)(IV) OF THE ACT. BRIEF FACTS OF TH E CASE ARE THAT THE ASSESSEE CLAIMED DEDUCTION U/S 80IA(4)(IV) IN RESPE CT OF ITS POWER GENERATING PLANTS AT RS.3,20,31,386/-. IN ASSESSMEN T PROCEEDINGS, THE AO OBSERVED THAT ASSESSEE HAS NOT PROPORTIONATELY A LLOCATED THE INDIRECT EXPENSES ON ACCOUNT OF PAYMENT TO AND PROV ISION FOR EMPLOYEES AT RS.3,02,06,576/- AND ADMINISTRATIVE, E STABLISHMENT AND OTHER EXPENSES AT RS.4,76,62,463/-. HE, THEREFORE, ALLOCATED THESE EXPENSES ON PROPORTIONATE BASIS TO THE SALE OF ELEC TRICITY TO THE TOTAL TURNOVER AND WORKED OUT SUCH PROPORTIONATE INDIRECT EXPENSES TO 80IA UNITS AT RS.2,98,62,118/-. HE FURTHER OBSERVED THAT INCOME ON ACCOUNT OF SHORTFALL IN GENERATION AMOUNTING TO RS.22,83,28 1/- IS NOT ELIGIBLE FOR DEDUCTION U/S 80IA IN VIEW OF THE DECISION OF SUPRE ME COURT IN CASE OF LIBERTY INDIA VS. CIT 317 ITR 218. ACCORDINGLY, HE REDUCED RS.3,21,45,399/- (2,98,62,118+ 22,83,281) FROM THE DEDUCTION U/S 80IA CLAIMED BY THE ASSESSEE AT RS.3,02,06,576/- AN D THUS WORKED OUT THE DEDUCTION U/S 80IA AT RS. NIL. 34. THE LD. CIT(A) AFTER ANALYZING THE EXPENDITURE OBSERVED THAT OUT OF THE ADMINISTRATIVE/ESTABLISHMENT AND OTHER EXPEN SES, RS.2,61,09,810/- PERTAINS DIRECTLY TO THE PROMOTIONAL ACTIVITIES OF THE APPELLANT (INCOME FROM PROMOTIONAL AND OTHER ACTIVI TY IS RS.38,84,12,326/-) AND RS.24,86,561/- IS ALREADY AL LOCATED BY THE ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 25 ASSESSEE FOR WORKING OUT THE ELIGIBLE PROFIT OF 80I A UNITS. ACCORDINGLY, HE HELD THAT OUT OF THE EXPENDITURE OF RS.4,76,62,4 63/-, AFTER REDUCING THE AMOUNT OF RS.2,61,09,810/-, THE BALANCE AMOUNT OF RS.1,90,68,091/- REMAINS AS A COMMON EXPENDITURE UN DER THE HEAD ADMINISTRATIVE/ESTABLISHMENT AND OTHER EXPENSES. HE ALSO CONSIDERED EXPENDITURE ON PAYMENT AND PROVISION TO EMPLOYEES A T RS.3,02,06,576/- AS THE COMMON EXPENDITURE. THE AGG REGATE OF THESE TWO AMOUNTS TOTALING TO RS.4,92,74,667/- WAS DIRECT ED TO BE APPORTIONED BETWEEN THE TURNOVER OF POWER GENERATIN G UNITS TO THE TOTAL TURNOVER OF THE ASSESSEE TO WORK OUT THE PROF IT ELIGIBLE FOR DEDUCTION U/S 80IA(4). HE DID NOT ACCEPT THE CONTEN TION OF THE ASSESSEE THAT NO PART OF THESE EXPENDITURE CAN BE ALLOCATED TO THE POWER GENERATING BUSINESS AS THE SAME HAS BEEN OUTSOURCED . IN RESPECT OF THE INCOME OF RS.22,83,281/- ON ACCOUNT OF SHORTFALL IN THE GENERATION, WHICH IS EXCLUDED BY THE AO FOR CALCULATION OF ELIG IBLE PROFIT U/S 80IA(4), NO FINDING IS GIVEN BY THE LD. CIT(A). THE RELEVANT FINDING OF THE LD CIT(A) ARE REPRODUCED AS UNDER:- 7.3 I HAVE PERUSED THE FACTS OF THE CASE, THE ASSE SSMENT ORDER AND THE SUBMISSION OF THE APPELLANT. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD DEDUCTED ONLY DIRECT EXPENDITURE IN RELATION TO SALES FROM GENERATION OF ELECTRICITY WHILE CLAIMING DEDUCTION U/S 80IA(4). THE ASSESSING OFFICER HELD T HAT INDIRECT EXPENSES IN THE NATURE OF PAYMENTS AND PROVISIONS FOR EMPLOYEES AMOUNTING TO RS. 4,76,62,463/- AND ADMIN ISTRATIVE, ESTABLISHMENT AND OTHER EXPENSES AMOUNT TO RS. 3,02 ,06,576/- HAD ALSO TO BE DEDUCTED ON A PROPORTIONATE BASIS FR OM THE SALES TO ARRIVE AT THE CORRECT COMPUTATION OF PROFITS & G AINS DERIVED FROM THIS INDUSTRIAL UNDERTAKING FOR DETERMINING TH E CORRECT DEDUCTION U/S 80IA(4). IT HAS BEEN STATED BYT HE AP PELLANT THAT OUT OF ADMINISTRATIVE ESTABLISHMENT AND OTHER EXPEN SES OF RS. ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 26 3,02,06,576/-; AN AMOUNT OF RS. 24,84,561/- PERTAIN DIRECTLY TO POWER PROJECTS AND HAS BEEN DEDUCTED ACCORDINGLY, F URTHER EXPENDITURE OF RS. 2,61,09,810/- ON BIOMASS FUEL SU PPLY DISCOUNT, IEC PLAN EXPENSES, EXPENSES RELATING TO RURAL VILLA GE ELECTRIFICATION ( RVE), ENERGY CONSERVATION CONTRIB UTION EXPENSES PERTAIN DIRECTLY TO THE PROMOTIONAL ACTIVITIES OF T HE APPELLANT AND CANNOT BE APPORTIONED ON PROPORTIONATE BASIS WITH P OWER GENERATION ACTIVITY. THIS CONTENTION OF THE APPELLA NT IS ACCEPTABLE. THEREAFTER AN AMOUNT OF RS. 1,90,68,091/- REMAINS A S THE COMMON EXPENDITURE UNDER THE HEAD ADMINISTRATIVE/ ESTABLISHMENT EXPENSES ALONG WITH PAYMENT AND PRO VISION TO EMPLOYEES OF RS. 3,02,06,576/-. THE ABOVE TWO EXPEN DITURES TOTALING RS. 4,92,74,667/-, NEEDS TO BE APPORTIONED BETWEEN THE POWER GENERATION ACTIVITIES AND PROMOTIONAL ACTIVIT IES OF THE APPELLANT. THE CONTENTION OF THE APPELLANT THAT THI S COMMON EXPENDITURE IS NOT RELATABLE TO THE POWER GENERATIO N BUSINESS SINCE IT HAS BEEN OUTSOURCED IS NOT ACCEPTABLE BECA USE THESE ARE INDIRECT EXPENSES IN THE NATURE OF EMPLOYEE COSTS A ND ADMINISTRATION, ESTABLISHMENT EXPENSES WHICH WOULD HAVE BEEN INCURRED FOR BOTH THE BUSINESS OF THE APPELLANT. TH E ALTERNATE SUBMISSION OF THE APPELLANT THAT THIS EXPENDITURE C AN BE ATTRIBUTED TO THE POWER GENERATION BUSINESS ONLY TO THE EXTENT OF 5% IS WITHOUT ANY BASIS. ALSO, THE CONTENTION THAT THIS EXPENDITURE CAN BE APPORTIONED ON GROSS PROFIT BASI S IS NOT CORRECT BECAUSE THE APPELLANT HAS NOT INCLUDED DEPR ECIATION WHILE CALCULATING HE GROSS PROFIT ON CASH BASIS. THEREFOR E, THE ONLY REASONABLE BASIS FOR APPORTIONING THIS EXPENDITURE IS ON THE BASIS OF TURNOVER, AS HAS BEEN DONE BY THE ASSESSING OFFI CER WITH THE ONLY DIFFERENCE BEING THAT THIS APPORTIONMENT IS TO BE DONE ON COMMON EXPENDITURE AMOUNTING TO RS. 4,92,74,667/-. THIS GROUND IS PARTLY ALLOWED. 35. DURING THE COURSE OF HEARING, LD. AR SUBMITTED THAT THE FIRST ISSUE IN THIS GROUND IS WHETHER THE EXPENDITURE ON PAYMEN T TO EMPLOYEES AND ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 27 ADMINISTRATIVE/ESTABLISHMENT EXPENSES NEEDS TO BE A LLOCATED TOWARDS THE POWER GENERATING UNITS AND IF SO WHAT SHOULD BE THE BASIS FOR SUCH ALLOCATION. THE SECOND ISSUE IS WHETHER DEDUCTION U /S 80IA(4) IS AVAILABLE ON THE INCOME RECEIVED ON ACCOUNT OF SHOR TFALL IN THE GENERATION OF POWER. 36. IN RESPECT OF THE FIRST ISSUE, IT WAS SUBMITTED THAT OUT OF THE SEVEN POWER PLANTS ESTABLISHED BY THE ASSESSEE, FOU R POWER PLANTS ARE IN THE DISTRICT OF JAISALMAR AND ONE EACH IN THE DI STRICT OF RAJSAMAND, JODHPUR AND JHUNJHUNU. ALL THE PLANTS HAVE BEEN GIV EN TO THE OPERATORS FOR OPERATION AND MAINTENANCE AS PER THE AGREEMENT EXECUTED BY THEM. AS PER THE AGREEMENT, ASSESSEE IS LIABLE TO PAY SPE CIFIED AMOUNTS AS PER THE GENERATION OF POWER FOR OPERATING AND MAINT AINING EXPENSES OF THE PLANT. THEREFORE, ASSESSEE IS NOT REQUIRED TO E MPLOY ANY PERSON FOR DAY TO DAY OPERATION OF PLANT OR TO INCUR ANY OTHER EXPENDITURE IN RELATION TO IT. ALL THE DIRECT EXPENSES RELATING TO THESE POWER PLANTS I.E. EXPENDITURE ON OPERATION AND MAINTENANCE, REPAIR AN D MAINTENANCE, INTEREST AND FINANCIAL EXPENSES, DEPRECIATION, INSU RANCE PREMIUM AND LEASE RENT AGGREGATING TO RS.22,50,45,687/- HAS BEE N CONSIDERED BY THE ASSESSEE FOR WORKING OUT THE ELIGIBLE PROFIT OF THE SE POWER GENERATING UNITS. THEREFORE, NO PART OF THE EXPENDITURE ON PAY MENT TO EMPLOYEES AND ADMINISTRATIVE/ESTABLISHMENT EXPENSES NEEDS TO BE ALLOCATED AGAINST THE POWER GENERATING UNITS. 37. SO FAR AS THE EXPENDITURE OF RS. 3,02,06,576/- ON ACCOUNT OF PAYMENT AND PROVISION TO EMPLOYEES ARE CONCERNED, I T WAS SUBMITTED THAT SUCH EXPENDITURE IS ON ACCOUNT OF OTHER PROMOT IONAL ACTIVITIES OF ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 28 THE ASSESSEE AGAINST WHICH ASSESSEE HAS DECLARED AN INCOME OF RS.38,84,12,326/-. FROM THE EMPLOYEE-WISE DETAILS O F THE EXPENDITURE UNDER THIS HEAD, IT CAN BE NOTED THAT SALARY TO THE EMPLOYEES WHO ARE EXCLUSIVELY EMPLOYED TOWARDS PROMOTIONAL ACTIVITIES IS OF RS.2,56,29,076/-. HENCE, THIS AMOUNT CANNOT BE ALLO CATED TOWARDS THE POWER PROJECT. THE REMAINING SALARY OF RS.45,77,500 /- IS BOTH TOWARDS THE PROMOTIONAL ACTIVITIES AND THE POWER PROJECT. T HEREFORE, ONLY THIS AMOUNT OF SALARY CAN AT THE MOST BE ALLOCATED TOWAR DS THE POWER PLANTS IN THE RATIO OF THE TURNOVER OF THE POWER PLANTS TO THE TOTAL TURNOVER OF THE ASSESSEE. THE CIT(A) IS NOT CORRECT IN ALLOCATI NG THE ENTIRE EXPENDITURE ON SALARY ON PROPORTIONATE BASIS INSTEA D OF ALLOCATING ONLY A PART OF SUCH SALARY. IF THIS AMOUNT OF RS.45,77,500 /- IS ALLOCATED IN THE RATIO OF THE TURNOVER, THE EXPENDITURE RELATING TO THE POWER GENERATING UNIT WOULD BE RS.18,13,289/- (45,77,500*25,47,93,79 2/64,32,06,118). BEFORE THE CIT(A) ASSESSEE REQUESTED THAT CONSIDERI NG THE INVOLVEMENT OF THE EMPLOYEES TOWARDS POWER PROJECT ONLY 5% OF T HE SALARY I.E. RS.15,10,329/- BE CONSIDERED IN WORKING OUT THE DED UCTION U/S 80IA. IN THESE CIRCUMSTANCES, CONSIDERING THE SPECIFIC DETAI LS, ONLY AN AMOUNT OF RS.18,13,289/- CAN BE CONSIDERED AS EXPENSES ON SAL ARY ATTRIBUTABLE TO THE POWER GENERATING UNDERTAKINGS. 38. SO FAR AS EXPENDITURE OF RS.4,76,62,462/- UNDER THE HEAD ADMINISTRATIVE/ESTABLISHMENT AND OTHER EXPENSES IS CONCERNED, IT WAS SUBMITTED THAT THE LD. CIT(A) RIGHTLY EXCLUDED THE EXPENDITURE OF RS.2,85,94,371/- COMPRISING OF RS.24,84,561/- WHICH THE ASSESSEE ITSELF CONSIDERED IN WORKING OUT THE PROFIT OF POWER UNITS AND RS.2,61,09,810/- WHICH IS DIRECTLY RELATED TO THE P ROMOTIONAL AND OTHER ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 29 ACTIVITIES FOR WHICH INCOME OF RS.38,84,12,326/- HA S BEEN DECLARED BY THE ASSESSEE. FROM THE BALANCE EXPENDITURE OF RS.1, 90,68,091/-, IT CAN BE NOTED THAT EXPENDITURE OF RS. 1 CRORES IS ON ACC OUNT OF CONTRIBUTION GIVEN BY THE ASSESSEE FOR CONSTRUCTION OF RAJASTHAN BHAWAN AT MUMBAI. THIS AMOUNT HAS ALREADY BEEN DISALLOWED BY THE AO I N COMPUTING THE TOTAL INCOME AND THE SAME IS CONFIRMED BY THE CIT(A ). THEREFORE, THIS AMOUNT CANNOT BE AGAIN ALLOCATED OTHERWISE IT WOULD AMOUNT TO DOUBLE DISALLOWANCE. FURTHER, THIS CONTRIBUTION HAS NO REL ATIONSHIP WITH THE PROFIT OF THE POWER GENERATING UNDERTAKINGS AND THE REFORE ALSO IT CANNOT BE ALLOCATED FOR WORKING OUT THE PROFITS OF POWER G ENERATING UNDERTAKINGS. AFTER CONSIDERING THE SAME, THE REMAI NING EXPENDITURE IS RS.90,68,091/. THESE EXPENDITURE IS IN THE NATURE O F FEES AND SUBSCRIPTION (RS.10,43,010/-), LEGAL AND PROFESSION AL EXPENSES (RS.14,22,423/-), PRINTING AND STATIONARY (RS.10,53 ,995/-), CONTRIBUTION TO STATE RENEWABLE FUND (RS.20 LACS) AND OTHER EXPE NSES LIKE AUDIT FEES, ELECTRICITY CHARGES, FAX, COURIER AND PHOTO STATE E XPENSES, REPAIRS OF OFFICE EQUIPMENTS/BUILDING ETC. THESE EXPENSES HAVE NO RELATION WITH THE POWER GENERATING UNDERTAKING. STILL THE ASSESSE E ON A FAIR BASIS REQUESTED THE CIT(A) TO CONSIDER ONLY 5% OF SUCH EX PENSES OF RS.90,68,091/- I.E. RS.4,53,404/- AS ATTRIBUTABLE T O POWER GENERATING UNITS. HOWEVER, THE CIT(A) WITHOUT ANY BASIS AND WI THOUT CONSIDERING THE NATURE OF THE EXPENDITURE HELD THAT THE CLAIM O F THE ASSESSEE IS WITHOUT ANY BASIS. THIS FINDING OF THE CIT(A) IS NO T CORRECT AND THEREFORE EVEN IF AN ALLOCATION IS TO BE MADE, IT S HOULD BE RESTRICTED TO RS.4,53,404/- ONLY. IF THIS CONTENTION OF THE ASSES SEE IS NOT ACCEPTABLE, THEN ONLY THE AMOUNT OF RS. 90,68,091/- CAN BE ALLO CATED IN THE RATIO OF TURNOVER OF THE POWER PLANTS TO THE TOTAL TURNOVER OF THE ASSESSEE WHICH ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 30 WOULD WORK OUT TO RS.35,92,151/- (90,68,091*25,47,93,792/64,32,06,118). 39. SO FAR AS INCOME OF RS.22,83,281/- ON ACCOUNT O F SHORTFALL IN THE GENERATION OF ELECTRICITY IS CONCERNED, IT WAS SUBM ITTED THAT THE SUPPLIER OF POWER PLANTS HAS PROVIDED A NET MINIMUM GUARANTE E GENERATION PER ANNUM PER MW. IF THERE IS ANY SHORTFALL FROM THE NE T MINIMUM GUARANTEE GENERATION, ASSESSEE IS ENTITLED TO SHORT FALL IN THE GENERATION. DURING THE YEAR ASSESSEE RECEIVED RS.22,83,281/- ON ACCOUNT OF SHORTFALL IN THE GENERATION OF ELECTRICITY ON WHICH IT CLAIMED DEDUCTION U/S 80IA. THE AO, HOWEVER, OBSERVED THAT DEDUCTION U/S 80IA IS ALLOWABLE ONLY IN RESPECT OF PROFITS AND GAINS DERI VED FROM SALE OF POWER AND THEREFORE RELYING ON THE DECISION OF SUPREME CO URT IN CASE OF LIBERTY INDIA VS. CIT 317 ITR 218, HE HELD THAT SUC H INCOME WHICH IS NOT DERIVED FROM POWER GENERATION BUSINESS IS NOT E LIGIBLE FOR DEDUCTION U/S 80IA(4). 40. IT WAS SUBMITTED THAT THE SHORTFALL IN THE GENE RATION OF ELECTRICITY IS PAID BY THE SUPPLIER OF THE PLANT DUE TO SHORTFA LL IN THE MINIMUM GUARANTEED GENERATION OF POWER UNITS INSTALLED BY I T. THESE CHARGES ARE THUS NOTHING BUT THE INCOME FROM SALE OF POWER ONLY , AS IT WAS THE COMMITMENT OF THE SUPPLIER OF THE PLANT THAT THE PL ANT SUPPLIED BY HIM WOULD GENERATE MINIMUM GUARANTEED UNITS OF ELECTRIC ITY. IN CASE GENERATION IS LESS THAN FIXED GUARANTEED UNIT, THE SUPPLIER HAS FULFILLED THE SHORTFALL BY MAKING PAYMENT OF FIXED AMOUNT PER UNIT WHICH IS GENERATED LESS. HENCE, AMOUNT SO RECEIVED IS NOTHIN G BUT THE ADDITIONAL AMOUNT REALIZED BY THE ASSESSEE IN RESPECT OF THE E LECTRICITY GENERATED ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 31 BY ITS POWER PLANT. THE AMOUNT SO RECEIVED IS THERE FORE THE PROFIT OR GAIN DERIVED BY THE POWER UNDERTAKING FROM THE BUSI NESS OF GENERATION AND DISTRIBUTION OF POWER. IN THIS CONNECTION, RELI ANCE IS PLACED ON THE FOLLOWING CASES:- CIT VS. PRAKASH OILS LTD. 58 DTR 279 (MP): THE HONBLE COURT HELD AS UNDER:- 6. AS REGARDS THE SAUDA SETTLEMENT INCOME, IT WA S HELD BY THE CIT(A) THAT DURING THE COURSE OF THE BUSINESS THE ASSESSEE HAS TO SOMETIMES PAY/RECEIVE LIQUIDATION DAMAGES FOR NOT HONOURING A CONTRACT FOR SALE OF OIL AND DEOILED CAKE. IT HELD THAT THE INCOME IS DI RECTLY DERIVED FROM THE INDUSTRIAL UNDERTAKING, THE SAME IS ELIGIBLE FOR DE DUCTION UNDER S. 80-IA. THUS, THE FINDING OF THE CIT(A) WAS THAT THE INCOME IN BOTH THE COUNTS IS A BUSINESS INCOME. THE SAID ORDER OF CIT(A) HAS BEEN AFFIRMED BY THE TRIBUNAL BY HOLDING THAT IT IS NOT AN INTEREST ON F DR, SHORT-TERM DEPOSITS ON SURPLUS FUNDS OR COMPULSORY DEPOSITS IN BANK BUT IS INTEREST ON DELAYED PAYMENT BY TRADE DEBTORS TOWARDS SALE PROCE ED. IN THE CIRCUMSTANCES SUCH INTEREST RECEIVED IS A TRADING I TEM AND IT HAS TO BE CONSIDERED IN MANUFACTURING OR TRADING ACCOUNT AND IT IS, THEREFORE, AN INCOME DERIVED BY THE INDUSTRIAL UNDERTAKING. THE T RIBUNAL AFFIRMED THE DECISION OF THE CIT(A) IN RESPECT OF DEDUCTIONS CLA IMED ON SAUDA SETTLEMENT ALSO AND HAS HELD THAT THE ASSESSEE HAS ESTABLISHED THAT HIS PROFITS AND GAINS ARE DERIVED FROM HIS INDUSTRIAL U NDERTAKING. 7. HAVING REGARD TO THE AFORESAID FINDING OF FACT R ECORDED BY THE CIT(A) AFFIRMED BY THE TRIBUNAL IN OUR CONSIDERED VIEW, NO QUESTION OF LAW ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 32 MUCH LESS SUBSTANTIAL QUESTION OF LAW ARISES IN THI S APPEAL. WE FIND NO INFIRMITY IN THE FINDING RECORDED BY THE TWO AUTHOR ITIES BELOW. CIT VS. ADVANCE DETERGENTS LTD. 339 ITR 81 (2011)(D EL.)(HC): IN THIS CASE HONBLE HIGH COURT AFTER CONSIDERING T HE JUDGMENTS OF VARIOUS COURTS HELD THAT INTEREST RECEIVED BY THE A SSESSEE ON OVERDUE PAYMENT FROM THE CUSTOMERS IS TO BE CONSIDERED AS P ROFITS AND GAINS DERIVED FROM THE INDUSTRIAL UNDERTAKING ELIGIBLE FO R DEDUCTION U/S 80IA. 41. THE AO IN THIS CONNECTION HAS RELIED ON THE DEC ISION OF SUPREME COURT IN CASE OF LIBERTY INDIA LTD. HOWEVER, THIS C ASE IS NOT APPLICABLE ON FACTS AS IT WAS A CASE IN WHICH IT WAS HELD THAT THE DUTY DRAWBACK RECEIPT COULD NOT BE SAID TO BE PROFITS AND GAINS D ERIVED FROM AN ELIGIBLE BUSINESS. THUS, THIS CASE WAS CONCERNED WITH AN EXP ORT INCENTIVE WHICH IS FAR REMOVED FROM THE REIMBURSEMENT OF AN ELEMENT OF COST. AS AGAINST THIS, IN THE SUBSEQUENT DECISION OF SUPREME COURT IN CASE OF CIT VS. MEGHALAYA STEELS LTD. (2016) 383 ITR 217, AFTER DISTINGUISHING THE JUDGMENT OF LIBERTY INDIA LTD., IT WAS HELD THAT TR ANSPORT SUBSIDY, INTEREST SUBSIDY, POWER SUBSIDY AND INSURANCE SUBSI DY ARE REVENUE RECEIPTS WHICH ARE REIMBURSED TO THE ASSESSEE FOR E LEMENTS OF COST RELATING TO MANUFACTURE AND SALE OF ITS PRODUCTS. T HERE IS CERTAINLY A DIRECT NEXUS BETWEEN THE PROFITS AND GAINS OF THE I NDUSTRIAL UNDERTAKING OR BUSINESS AND SUCH SUBSIDIES. WHAT IS TO BE SEEN FOR THE APPLICABILITY OF SS. 80-IB & 80-IC IS WHETHER THE PROFITS AND GAI NS ARE DERIVED FROM THE BUSINESS. SO LONG AS PROFITS AND GAINS EMANATE DIRECTLY FROM THE BUSINESS ITSELF, THE FACT THAT THE IMMEDIATE SOURCE OF THE SUBSIDIES IS THE GOVERNMENT WOULD MAKE NO DIFFERENCE, AS IT CANNOT B E DISPUTED THAT ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 33 THE SAID SUBSIDIES ARE ONLY IN ORDER TO REIMBURSE, WHOLLY OR PARTIALLY, COSTS ACTUALLY INCURRED BY THE ASSESSEE IN THE MANU FACTURING AND SELLING OF ITS PRODUCTS. THE PROFITS AND GAINS REFERRED T O IN SS. 80-IB AND 80- IC HAVE REFERENCE TO NET PROFIT. AND NET PROFIT CAN ONLY BE CALCULATED BY DEDUCTING FROM THE SALE PRICE OF AN ARTICLE ALL ELE MENTS OF COST WHICH GO INTO MANUFACTURING OR SELLING IT. THEREFORE, THE AM OUNT RECEIVED BY THE ASSESSEE AS SUBSIDIES QUALIFY FOR DEDUCTION U/S 80- IB & 80-IC. IN VIEW OF THIS DECISION OF SUPREME COURT, THE AMOUNT RECEI VED FROM THE SUPPLIER OF PLANT AGAINST SHORTFALL IN THE GENERATI ON OF ELECTRICITY IS ONLY TO REIMBURSE THE COST RELATING TO THE GENERATION AN D SALE OF ELECTRICITY AND THEREFORE IT HAS A DIRECT NEXUS WITH THE PROFIT AND GAINS OF THE POWER GENERATING UNDERTAKING ELIGIBLE FOR DEDUCTION U/S 80IA. IN VIEW OF ABOVE, THE AO BE DIRECTED TO ALLOW THE CLAIM OF DEDUCTION U/S 80IA ON THE AMOUNT OF SHORTFALL IN THE GENERATION OF ELE CTRICITY RECEIVED BY ASSESSEE. 42. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. UNDISPUTEDLY, THE ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA(4)(IV) IN RESPECT OF ITS SEVEN W IND AND SOLAR POWER PLANTS ESTABLISHED AT VARIOUS LOCATIONS IN RAJASTHA N. THE AO WHILE EXAMINING THE QUANTUM OF DEDUCTION CLAIMED BY THE A SSESSEE COMPANY, HAS OBSERVED THAT ONLY DIRECT OPERATION AND MAINTEN ANCE EXPENSES HAVE BEEN CONSIDERED AND EXPENSES OF COMMON NATURE I.E, HEAD OFFICE AND OTHER DAY-TO-DAY MANAGEMENT AND SUPERVISION EXP ENSES HAVE NOT BEEN APPORTIONED AMONGST THE UNITS/PLANTS CLAIMING DEDUCTION UNDER SECTION 80IA OF THE ACT. THE AO INVOKED THE PROVISI ONS OF SECTION 80IA(5), RELIED UPON THE DECISION OF THE COORDINATE BENCH IN CASE OF ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 34 NITCO TILES (30 SOT 474 MUM) AND HELD THAT ADMINIST RATIVE, HEAD OFFICE AND OTHER EXPENSES HAVE A DIRECT NEXUS WITH THE RUN NING OF VARIOUS ELIGIBLE UNITS. IN OUR VIEW, THERE CANNOT BE ANY D ISPUTE THAT THE PROVISIONS OF SECTION 80IA(5) ARE ATTRACTED IN THE INSTANT CASE. AT THE SAME TIME, PROVISIONS OF SECTION 80IA(5) HAVE TO BE READ HARMONIOUSLY ALONG WITH THE PROVISIONS OF SECTION 80IA(1) WHICH PROVIDES FOR PROFITS AND GAINS DERIVED FROM AN ELIGIBLE BUSINESS. 43. IN THIS REGARD, WE REFER TO THE DECISION OF TH E HONBLE BOMBAY HIGH COURT IN CASE OF ZANDU PHARMACEUTICALS WORKS LTD. VS. CIT REPORTED IN 350 ITR 366 WHEREIN DRAWING SUPPORT FRO M THE DECISION OF HONBLE SUPREME COURT IN CASE OF CIT V. STERLING FO ODS REPORTED IN 104 TAXMAN 204, IT WAS HELD AS UNDER: 13. THE SUPREME COURT HELD THAT THERE MUST BE FOR THE APPLICATION OF THE WORDS 'DERIVED FROM' A DIRECT NEXUS BETWEEN THE PROFITS AND GAINS AND AN INDUSTRIAL UNDERTAKING. SECTIONS 80-I AND 80 -IA ALSO USE THE EXPRESSION 'DERIVED FROM'. IF THERE MUST BE A DIREC T NEXUS BETWEEN THE PROFITS AND GAINS AND AN INDUSTRIAL UNDERTAKING, IT MUST FOLLOW EQUALLY THAT THERE MUST BE A DIRECT NEXUS BETWEEN AN INDUST RIAL UNDERTAKING AND THE EXPENSES WHICH ARE SOUGHT TO BE APPORTIONED /ATTRIBUTABLE TO IT. EXPENSES WHICH DO NOT RELATE TO AN INDUSTRIAL UNDER TAKING/UNIT UNDER CONSIDERATION AND THEY RELATE TO OTHER UNITS OR TO THE HEAD OFFICE OF THE ASSESSEE, CANNOT BE TAKEN INTO CONSIDERATION WHILE COMPUTING THE DEDUCTION UNDER THE SAID PROVISIONS. ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 35 IN LIGHT OF ABOVE, WHAT IS TO BE EXAMINED IS WHETHE R THERE IS PROXIMATE CONNECTION OR DIRECT NEXUS WHICH HAS BEEN ESTABLISH ED BETWEEN THE EXPENDITURE AND THE INDUSTRIAL UNDERTAKING IN THE I NSTANT CASE. 44. THE EXPENDITURE UNDER CONSIDERATION FALLS UNDE R TWO BROAD BASKETS. THE FIRST EXPENDITURE RELATES TO PAYMENT TO AND PROVISION FOR EMPLOYEES AMOUNTING TO RS 3,02,06,576. IN THIS REG ARD, THE LD AR HAS SUBMITTED THAT ALL THE SEVEN POWER PLANTS HAVE BEEN GIVEN TO THE THIRD PARTY OPERATORS FOR OPERATION AND MAINTENANCE AND T HE ASSESSEE IS LIABLE TO PAY SPECIFIED AMOUNTS AS PER THE AGREEMEN T EXECUTED WITH THEM. THEREFORE, ASSESSEE IS NOT REQUIRED TO EMPLOY ANY PERSON FOR DAY-TO- DAY OPERATION AND MAINTENANCE OF THESE PLAN TS. IT WAS FURTHER SUBMITTED THAT AS FAR AS THE EXPENDITURE OF RS. 3,0 2,06,576/- ON ACCOUNT OF PAYMENT AND PROVISION TO EMPLOYEES IS CO NCERNED, IT WAS SUBMITTED THAT FROM THE EMPLOYEE-WISE DETAILS OF TH E EXPENDITURE UNDER THIS HEAD, IT CAN BE NOTED THAT SALARY TO THE EMPLO YEES WHO ARE EXCLUSIVELY EMPLOYED TOWARDS PROMOTIONAL ACTIVITIES IS OF RS.2,56,29,076/-. THE REMAINING SALARY OF RS.45,77, 500/- IS BOTH TOWARDS THE PROMOTIONAL ACTIVITIES AND THE POWER PR OJECTS WHICH CAN AT THE MOST BE ALLOCATED TOWARDS THE POWER PLANTS IN T HE RATIO OF THE TURNOVER OF THE POWER PLANTS TO THE TOTAL TURNOVER OF THE ASSESSEE WHICH COMES TO RS 18,13,289/-. IT IS NOTED FROM DETAILS AVAILABLE ON RECORD AT APB 189-190 THAT THERE ARE EMPLOYEES LIKE FINANCIAL ADVISOR, CHIEF ACCOUNTS OFFICER, EXECUTIVE DIRECTOR, TECHNICAL MAN AGER, PROJECT MANAGER, ETC WHICH HAVE BEEN SHOWN AS PERFORMING WO RK FOR BOTH THE PROMOTIONAL ACTIVITIES AS WELL AS ACTIVITIES RELATI NG TO POWER PLANTS. THESE ARE EMPLOYEES WHO ARE INVOLVED IN THE OVERALL MANAGEMENT AND ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 36 SUPERVISION IN TECHNICAL AND FINANCIAL ARENA AND EM PLOYED AT THE HEAD OFFICE AND THUS HAVE A DIRECT NEXUS WITH THE ACTIVI TIES OF THE SEVEN PLANTS IF NOT AT THE OPERATIONAL LEVEL BUT DEFINITE LY AT THE STRATEGIC AND MANAGEMENT LEVEL. THE SALARY EXPENSES OF RS.45,77, 500/- IS THUS REQUIRED TO BE ALLOCATED TO THE ELIGIBLE UNITS IN T HE RATIO OF THEIR TURNOVER TO THE TOTAL TURNOVER OF THE ASSESSEE COMPANY. THE AO IS ACCORDINGLY DIRECTED TO ALLOCATE COMMON EXPENDITURE OF RS 45,77 ,500 TO THE POWER UNITS OUT OF TOTAL EXPENDITURE OF RS. 3,02,06,576/- IN THE RATIO OF THEIR TURNOVER TO THE TOTAL TURNOVER WHILE WORKING OUT TH E ELIGIBLE PROFITS UNDER SECTION 80IA OF THE ACT. 45. NOW COMING TO THE SECOND CATEGORY OF EXPENDITU RE AMOUNTING TO RS.4,76,62,462/- WHICH FALLS UNDER THE HEAD ADMINISTRATIVE/ESTABLISHMENT AND OTHER RELATES EXPE NSES. OUT OF THE SAID EXPENDITURE, THE EXPENDITURE OF RS.24,84,561/- HAS ALREADY BEEN CONSIDERED BY THE ASSESSEE WHILE WORKING OUT THE PR OFIT OF POWER UNITS. FURTHER, LD CIT(A) HAS HELD THAT AN AMOUNT OF RS.2, 61,09,810/- ON BIOMASS FUEL SUPPLY DISCOUNT, IEC PLAN EXPENSES, EX PENSES RELATING TO RURAL VILLAGE ELECTRIFICATION (RVE), ENERGY CONSERV ATION CONTRIBUTION EXPENSES PERTAIN DIRECTLY TO THE PROMOTIONAL ACTIVI TIES OF THE APPELLANT AND CANNOT BE APPORTIONED ON PROPORTIONATE BASIS WI TH POWER GENERATION ACTIVITY. THE SAID FINDING OF THE LD CIT (A) REMAIN UNCONTROVERTED BEFORE US. THEREAFTER, AN AMOUNT OF RS. 1,90,68,091/- REMAINS AS THE COMMON HEAD OFFICE EXPENDITURE UNDER THE HEAD ADMINISTRATIVE/ ESTABLISHMENT EXPENSES. IN THIS REGARD, IT WAS SUBMITTED THAT EXPENDITURE OF RS. 1 CRORES IS ON AC COUNT OF CONTRIBUTION GIVEN BY THE ASSESSEE FOR CONSTRUCTION OF RAJASTHAN BHAWAN AT MUMBAI ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 37 AND IT HAS NO NEXUS WITH THE POWER UNITS. FURTHER, IT WAS SUBMITTED THAT THE BALANCE AMOUNT OF RS 90,68,091/- AGAIN HAS NO NEXUS BUT THE ASSESSEE HAS OFFERED TO ALLOCATE 5% OF THE SAID EXP ENDITURE BEFORE THE LD CIT(A) AND WHERE THE SAME IS NOT ACCEPTABLE, IT WAS SUBMITTED THAT THE SAME CAN BE ALLOCATED IN THE RATIO OF TURNOVER OF THE POWER PLANTS TO THE TOTAL TURNOVER OF THE ASSESSEE. WE AGREE WI TH THE ASSESSEES CONTENTION TO RESTRICT THE POOL OF COMMON EXPENSES TO RS 90,68,091. GIVEN THE FACT THAT THESE ARE COMMON HEAD OFFICE EX PENSES RELATING TO THE ACTIVITIES IN THE NATURE OF MANAGEMENT AND SUPE RVISION AT THE HEAD OFFICE, THEY HAVE A DIRECT NEXUS WITH THE ACTIVITIE S OF THE SEVEN PLANTS AT THE STRATEGIC AND MANAGEMENT LEVEL. AS WE HAVE DIRE CTED EARLIER TO ALLOCATE THE SALARY EXPENSES OF THE HEAD OFFICE EMP LOYEES, THE COMMON HEAD OFFICE EXPENSES ARE ALSO DIRECTED TO BE ALLOCA TED IN THE RATIO OF TURNOVER OF THE POWER PLANTS TO THE TOTAL TURNOVER OF THE ASSESSEE COMPANY. IN OUR VIEW, THIS IS THE MOST RATIONAL AN D REASONABLE BASIS FOR ALLOCATION OF COMMON EXPENSES IN ABSENCE OF ANY THING MORE SPECIFIC WHICH HAS BEEN BROUGHT ON RECORD. IN ANY CASE, THE POOL OF COMMON EXPENSES HAS BEEN BROUGHT DOWN TO A LARGE EXTENT AS THE EXPENSES WHICH HAVE A DIRECT NEXUS WITH THE PROMOTIONAL ACTI VITIES HAVE ALREADY BEEN EXCLUDED AND THE ASSESSEE HAS ALSO ACCEPTED TH IS ALLOCATION METHODOLOGY. THE AO IS ACCORDINGLY DIRECTED TO ALL OCATE RS 90,68,091 OUT OF THE TOTAL ADMINISTRATIVE/ESTABLISHMENT EXPEN SES OF 4,76,62,462/- TO THE POWER UNITS IN THE RATIO OF THEIR TURNOVER T O THE TOTAL TURNOVER WHILE WORKING OUT THE ELIGIBLE PROFITS UNDER SECTIO N 80IA OF THE ACT. 46. REGARDING INCOME OF RS 22,83,281, WE FIND THAT THE SAID INCOME FLOWS DIRECTLY FROM THE BUSINESS OF GENERATION OF P OWER AND IS THUS ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 38 ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA OF THE AC T. IT REPRESENT AN AMOUNT WHICH IS RECEIVED BY THE ASSESSEE FROM THE S UPPLIER OF THE POWER PLANT FOR THE SHORTFALL IN THE MINIMUM GUARAN TEED GENERATION OF POWER. HAD THE POWER PLANT GENERATED MINIMUM GUARA NTEED POWER DURING THE YEAR, THE ASSESSEE WOULD NOT HAVE BEEN E LIGIBLE FOR SUCH REVENUES. THE REVENUES THUS EARNED HAVE A DIRECT N EXUS WITH THE RUNNING OF THE POWER PLANTS AND REPRESENT THE MINIM UM STANDARD OF PERFORMANCE OF THE POWER PLANTS AND COMPENSATE THE ASSESSEE FOR ANY SHORTFALL IN THE GENERATION OF MINIMUM GUARANTEED P OWER. FURTHER, IT IS NOTED THAT SIMILAR ISSUE HAS COME UP RECENTLY IN CA SE OF RAJASTHAN STATE MINES AND MINERALS PVT LTD (ITA NO. 253/JP/15& OTHERS) DATED 30.05.2017 WHERE WE HAVE HELD THAT SUCH INCOME AS D ERIVED FROM THE BUSINESS OF THE UNDERTAKING. IN THE RESULT, WE ARE OF THE VIEW THAT SUCH INCOME IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA OF THE ACT. 47. THE RESPECTIVE GROUNDS OF APPEAL ARE DISPOSED OFF ACCORDINGLY. 48. NOW COMING TO GROUND NO. 1 OF THE ASSESSEES AP PEAL WHEREIN THE ASSESSEE HAS CHALLENGED THE ACTION OF LD CIT(A) IN CONFIRMING THE DISALLOWANCE OF RS. 1 CRORES IN RESPECT OF CONTRIBU TION TO RAJASTHAN BHAWAN. 49. BRIEF FACTS OF THE CASE ARE THAT THE GOVERNMEN T OF RAJASTHAN, AS AN OWNER OF THE ASSESSEE, DIRECTED IT TO CONTRIBUTE RS.2 CRORES TOWARDS CONSTRUCTION OF RAJASTHAN BHAWAN AT MUMBAI. THE B OARD OF DIRECTORS OF THE COMPANY, ACCORDINGLY RESOLVED IN ITS 65 TH BOARD MEETING DATED 13.12.2010 TO PROVIDE AN AMOUNT OF RS.2 CRORES FOR CONSTRUCTION OF ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 39 RAJASTHAN BHAWAN AT MUMBAI OF WHICH RS. 1 CRORES WA S PAID IN THE YEAR UNDER CONSIDERATION AND BALANCE RS. 1 CRORES WAS TO BE PAID AS PER THE PROGRESS OF THE WORK. ACCORDINGLY, ASSESSEE CLAIMED THE SAME AS EXPENDITURE U/S 37(1) OF THE ACT. 50. THE AO MADE THE DISALLOWANCE BY HOLDING THAT TH E EXPENDITURE SO INCURRED BY WAY OF CONTRIBUTION TO RAJASTHAN BHAWAN IS NOT WHOLLY AND EXCLUSIVELY FOR ASSESSEES BUSINESS OF GENERATION O F RENEWABLE ENERGY, THE EXPENDITURE INCURRED IS NOT WITH A VIEW TO BRIN G PROFIT OR MONETARY ADVANTAGE TO THE ASSESSEE AND IT IS A CLEAR CUT CAS E OF APPLICATION OF INCOME. 51. THE LD CIT(A) CONFIRMED THE DISALLOWANCE. THE RELEVANT FINDINGS OF THE LD CIT(A) ARE PRODUCED AS UNDER:- 5.3 I HAVE PERUSED THE FACTS OF THE CASE, THE ASSESSMEN T ORDER AND THE SUBMISSION OF THE APPELLANT. THE ASSESSING OFFICER HAS DISALLOWED CONTRIBUTION OF RS. RS.1,00,00,000/- FOR RAJASTHAN BHAWAN TO BE BUILT IN MUMBAI ON THE GROUND THAT THI S EXPENDITURE IS NOT RELATED TO THE BUSINESS OF THE A SSESSEE. THE APPELLANT HAS STATED THAT THIS GUEST HOUSE HAS BEEN CONSTRUCTED FOR THE BENEFIT OF THE EMPLOYEES OF RAJASTHAN GOVER NMENT AS WELL AS FOR THE EMPLOYEES OF COMPANIES OF THE STATE GOVE RNMENT OF RAJASTHAN, AS AND WHEN THEY VISIT MUMBAI. THE APPEL LANT HAS RELIED ON THE ORDER ITAT, JAIPUR IN THE CASE OF RAJ ASTHAN STATE INDUSTRIAL DEVELOPMENT AND INVESTMENT CORPORATION L TD. (ITA NO.324/JP/2006) AND THE ORDER OF ITAT, JAIPUR IN TH E CASE OF RAJASTHAN STATE ROAD DEVELOPMENT AND CONSTRUCTION C ORPORATION LTD. (ITA NO. 129/JP/2008). IN THESE CASES, EXPENDITURE HAD BEEN INCURRED FOR A GUEST HOUSE IN NEW DELHI FOR WH ICH A CERTAIN NUMBER OF ROOMS HAD BEEN EARMARKED FOR THE RESPECTIVE ASSESSEE FOR USE BY ITS EMPLOYEES. IN TH IS CASE, ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 40 NO ROOMS IN THE GUEST HOUSE IN MUMBAI HAVE BEEN EARMARKED FOR THE EMPLOYEES OF THE APPELLANT. ALSO, THERE DOES NOT APPEAR TO BE ANY BUSINESS CONNECTION OF TH E APPELLANT IN MUMBAI. IN VIEW OF ABOVE, IT DOES NOT APPEAR TO ME THAT THIS EXPENDITURE HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE APPELLANTS BU SINESS. IN VIEW OF ABOVE DISCUSSION, THIS DISALLOWANCE MADE BY THE AO IS UPHELD. THIS GROUND IS DISMISSED. 52. DURING THE COURSE OF HEARING, THE LD. AR SUBMIT TED THAT THE CONTRIBUTION SO MADE BY THE ASSESSEE FOR CONSTRUCTI ON OF RAJASTHAN BHAWAN AT MUMBAI IS ON THE DIRECTIONS OF THE STATE GOVERNMENT OF RAJASTHAN, BEING THE OWNER OF THE ASSESSEE. THE ASS ESSEE ALSO REQUESTED THE GOVERNMENT OF RAJASTHAN TO PROVIDE AC COMMODATION FACILITIES TO ITS OFFICERS IN THE RAJASTHAN BHAWAN. THE OBSERVATION OF THE LOWER AUTHORITIES THAT THE EXPENDITURE SO INCURRED IS NOT WHOLLY AND EXCLUSIVELY FOR ASSESSEES BUSINESS IS INCORRECT IN AS MUCH AS BY INCURRING SUCH EXPENDITURE, ASSESSEE HAS THE EASE O F DOING THE BUSINESS. IN CASE OF HINDUSTAN PETROLEUM CORPORATIO N LTD. VS. DCIT 96 ITD 186 (MUM.) WHERE THE ASSESSEE WAS A COMPANY OWN ED BY THE GOVERNMENT OF INDIA AND WORKING UNDER THE CONTROL A ND DIRECTION OF THE GOVERNMENT OF INDIA, INCURRED EXPENDITURE ON 20 POI NT PROGRAMMES IN VIEW OF SPECIFIC DIRECTION OF GOVERNMENT OF INDIA. IT WAS HELD THAT IT CANNOT BUT BE IN THE BUSINESS INTEREST OF THE ASSES SEE COMPANY TO ABIDE BY THE DIRECTIONS OF THE GOVERNMENT OF INDIA WHICH ALSO OWNS THE ASSESSEE COMPANY. MONIES SPENT BY THE ASSESSEE AS A GOOD CORPORATE CITIZEN AND TO EARN THE GOODWILL OF THE SOCIETY HEL P CREATING AN ATMOSPHERE IN WHICH THE BUSINESS CAN SUCCEED IN A G REATER MEASURE WITH THE HELP OF SUCH GOODWILL. THE MONIES SO SPENT , THEREFORE, ARE ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 41 REQUIRED TO BE TREATED AS BUSINESS EXPENDITURE ELIG IBLE FOR DEDUCTION U/S 37(1). EVEN IF AN EXPENSE IS INCURRED VOLUNTARILY, IT MAY STILL BE CONSTRUED AS WHOLLY AND EXCLUSIVELY. JUST BECAUSE THE EXPENSES ARE VOLUNTARY IN NATURE AND ARE NOT FORCED ON THE ASSES SEE BY A STATUTORY OBLIGATION, THESE EXPENSES CANNOT CEASE TO BE BUSIN ESS EXPENDITURE. 53. IN THE PRESENT CASE ALSO, EXPENDITURE IS INCUR RED ON THE DIRECTIONS OF THE GOVERNMENT WITH WHICH ASSESSEE HAS TO CLOSEL Y INTERACT FOR ITS DAY TO DAY BUSINESS ACTIVITIES. THEREFORE, IN THE B USINESS INTEREST, ASSESSEE HAS CONTRIBUTED SUCH AMOUNT AND A REQUEST IS ALSO MADE TO PROVIDE THE ACCOMMODATION FACILITY TO ITS OFFICERS IN THE RAJASTHAN BHAWAN. THE LD. CIT(A) HAS INCORRECTLY HELD THAT TH E DECISION OF HONBLE ITAT IN CASE OF RIICO LTD. AND RSRDC LTD. I S NOT APPLICABLE AS IN THOSE CASES CERTAIN ROOMS WERE EARMARKED FOR THE USE OF ITS EMPLOYEES FOR THE GUEST HOUSE IN NEW DELHI IGNORING THAT IN THOSE CASES ALSO CONTRIBUTION WAS MADE AS PER THE DIRECTI ON OF THE GOVERNMENT AND IT MAKE NO DIFFERENCE WHETHER THE RO OMS ARE EARMARKED OR NOT. IN THIS DECISION, A FINDING IS GI VEN THAT THE SAME WAS REQUIRED ONLY FOR RUNNING THE BUSINESS AND WORKING OF THE ASSESSEE FOR BETTER INTERACTION WITH THE GOVERNMENT OF INDIA AND VARIOUS FINANCIAL ORGANIZATIONS. COPY OF THE DECISION IN CASE OF ACIT VS. RIICO IN ITA NO. 324/JP/2006 ORDER DATED 21.08.2007 IS AT PB 205-213 . HENCE, THE EXPENDITURE SO INCURRED IS ALLOWABLE EXPENDITURE U/ S 37(1). IN VIEW OF ABOVE, THE DISALLOWANCE MADE BY THE AO AND CONFIRME D BY THE CIT(A) BE DIRECTED TO BE DELETED. ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 42 54. THE LD DR HAS VEHEMENTLY ARGUED THE MATTER AND RELIED UPON THE ORDER OF THE LOWER AUTHORITIES. 55. WE HAVE HEARD THE RIVAL CONTENTIONS AND PURSUE D THE MATERIAL AVAILABLE ON RECORD. IT IS NOT DISPUTED THAT THE C ONTRIBUTION TOWARDS CONSTRUCTION OF RAJASTHAN BHAWAN HAS BEEN MADE AS D IRECTED AND AUTHORIZED BY THE STATE GOVERNMENT, BEING THE OWNER AND SHAREHOLDER OF THE ASSESSEE COMPANY. THE QUESTION IS THEREFORE NOT ABOUT THE AUTHORIZATION BEFORE INCURRENCE OF THE SAID EXPENDI TURE. THE QUESTION IS WHETHER THE SAID EXPENDITURE HAS BEEN INCURRED BY T HE ASSESSEE COMPANY FOR THE PURPOSES OF ITS BUSINESS OR NOT. T HE ONUS IS ON THE ASSESSEE COMPANY TO ESTABLISH THE SAID FACT. THE L D AR HAS SUBMITTED THAT THE ASSESSEE COMPANY HAS WRITTEN TO THE GOVERN MENT OF RAJASTHAN TO PROVIDE ACCOMMODATION FACILITIES IN THE RAJASTHA N BHAWAN TO ITS OFFICERS ON THEIR VISIT TO MUMBAI, HOWEVER, THERE I S NOTHING ON RECORD TO SUPPORT THE SAID CONTENTION. WE ARE ACCORDINGLY SE TTING ASIDE THE MATTER TO THE FILE OF THE AO TO EXAMINE THE SAID CO NTENTION AND THE EXAMINE THE MATTER A FRESH. IN THE RESULT, THE GRO UND OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. REVENUES APPEAL ( ITA NO. 125/JP/17) IN ITS APPEAL FOR AY 2010-11, THE REVENUE HAS TAKEN FOLLOWING GROUNDS OF APPEAL: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE A DDITION OF RS. 3,95,066/- MADE BY THE AO FOR DEPOSITING THE EMPLOY EES CONTRIBUTION TO PF BEYOND THE PRESCRIBED TIME LIMIT PROVIDED IN RESPECTIVE ACTS. ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 43 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN HOLDING THAT E MPLOYEES CONTRIBUTION TO PF & ESI ARE GOVERNED BY THE PROVIS ION OF SECTION 43B AND NOT BY SECTION 36(1)(VA) R.W.S. 2(24)(X) OF THE I.T. ACT. 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN HOLDING CONTRI BUTION OF RS. 80,00,000/- TO STATE RENEWAL FUND AS AN ALLOWABLE E XPENDITURE THOUGH IT IS NOT AN ACTUAL EXPENDITURE. 56. THE RELEVANT FINDING OF THE LD. CIT(A) WHICH AR E UNDER CHALLENGE ARE REPRODUCED AS UNDER:- 3.3 I HAVE PERUSED THE FACTS OF THE CASE, PENALTY ORDER AND THE SUBMISSIONS OF THE APPELLANT. ADMITTEDLY, EMPLOYEES CONTRIBUTION TO ESI AND PF HAS BEEN PAID BY THE APPELLANT, IN ALL INSTANCES, BEFORE THE DATE OF FIL ING THE RETURN OF INCOME U/S 139(1). THIS FACT IS THEREFORE, NOT IN DISPUTE. IN VIEW OF THE JUDGMENTS OF THE RAJASTHAN HIGH COURT IN THE CASE JAIPUR VIDHYUT VITHRAN NIGAM LTD, 265 CTR 62 (RAJ.), CIT VS. STAE BANK OF BIHANER & JAIPUR (2014) 99 DTR 131 (RAJ.) AND ITAT, JAIPUR, IN THE CASE OF THE ASSESSEE, THE CLAIM OF THE APPELLANT IS ALLOWABLE. ACCORDINGLY, THE DISALLOWAN CE MADE BY THE ASSESSING OFFICER IS DIRECTED TO BE DELETED. THIS G ROUND IS ALLOWED. 6.3 I HAVE PERUSED THE FACTS OF THE CASE, PENALTY ORDER AND THE SUBMISSIONS OF THE APPELLANT. IN ASSESSMENT YEAR 20 11-12, THE CIT(A)-2, JAIPUR (APPEAL NO. 334/13-14) HAS ALSO DE CIDED THE MATTER IN FAVOUR OF THE ASSESSEE. THE CIT(A) HAS AL LOWED THE CLAIM OF THE ASSESSEE BY HOLDING AS UNDER: THE FACTS OF THIS ISSUE ARE SIMILAR TO THE FACTS I N THE CASE OF M/S RAJASTHAN STATE SEEDS CORPORATION LTD., IN A.Y. 200 6-07. IN THIS ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 44 CASE, THE ITAT, JAIPUR (IN ITA NO. 233/JP/2009) HAS DECIDED THE MATTER IN FAVOUR OF THE ASSESSEE BY HOLDING AS UNDE R:- AS PER THE MEMORANDUM OF STATE RENEWAL FUND SET UP BY THE STATE GOVERNMENT, IT IS CREATED WITH THE OBJECT OF PROVIDING A SAFETY NET FOR THE WORKERS LIKELY TO BE AFFECTED BY RESTRUCTURING IN THE STATE PUBLIC ENTERPRISES. WE ARE THUS OF THE VI EW THAT CONTRIBUTION MADE TO THE SAID FUND IS SOLELY FOR TH E PURPOSE OF THE WELFARE AND BENEFIT OF THE EMPLOYEES. THE RAJASTHAN HIGH COURT IN CASE OF CIT V. RAJASTHAN SPINNING AND WEAVING MI LLS LIMITED 274 IT 465 HAS OBSERVED THAT IT IS FOR THE ASSESSEE TO DECIDE WHETHER ANY EXPENDITURE SHOULD BE INCURRED IN COURS E OF BUSINESS. THE EXPENDITURE CAN BE INCURRED VOLUNTARI LY AND WITHOUT IN COURSE OF BUSINESS. THE EXPENDITURE CAN BE INCUR RED VOLUNTARILY AND WITHOUT NECESSITY. ANY CONTRIBUTION MADE BY THE ASSESSEE TO A PUBLIC WELFARE FUND WHICH IS CONNECTED OR RELATED WITH HIS BUSINESS IS AN ALLOWABLE DEDUCTION U/S 37. AGAIN TH E COURT IN THE CASE OF CIT V. SHRI RAJASTHAN SYNTEX LIMITED 221 CT R 410 (RAJ.) HELD THAT WHERE ASSESSEE GAVE CONTRIBUTION TO THE E MPLOYEES WELFARE FUND, THE SAME IS ALLOWABLE AS BUSINESS EXP ENDITURE. THE CASE RELIED BY AO OF CIT V. JODHPUR CO-OPERATIVE MA RKETING SOCIETY 275 ITR 372 (RAJ.) IS DISTINGUISHABLE AS IN THIS CASE THE AMOUNT WAS SET APART FOR THE SHAREHOLDERS OF THE SO CIETY WHEREAS IN THE PRESENT CASE AMOUNT WAS PROVIDED FOR THE BEN EFIT OF THE EMPLOYEES. IN VIEW OF THIS THE CONTRIBUTION MADE TO STATE RENEWAL FUND IS ALLOWABLE U/S 37(1). 2.3.2 FOLLOWING THE ABOVE JUDGMENT, THE DISALLOWANC E ON ACCOUNT OF CONTRIBUTION TO STATE RENEWAL FUND OF RS. 20,00, 000/- MADE BY THE ASSESSING OFFICER IS DIRECTED TO BE DELETED. TH IS GROUND IS ALLOWED. FOLLOWING THE ABOVE JUDGMENT, THE DISALLOWANCE ON A CCOUNT OF CONTRIBUTION TO STATE RENEWAL FUND OF RS. 80,00,000 /- MADE BY THE ASSESSING OFFICER IS DIRECTED TO BE DELETED. TH IS GROUND OF APPEAL IS ALLOWED. ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 45 57. IN ITA NO. 202/JP/15 FOR AY 2011-12, SIMILAR G ROUNDS OF APPEAL HAVE BEEN RAISED BY THE REVENUE AND AFTER EXAMINING THE MATTER IN GREAT DETAIL, WE HAVE DISMISSED THESE GROUNDS OF AP PEAL. OUR FINDINGS AND DIRECTIONS CONTAINED IN ITA NO. 202/JP/15 SHALL APPLY MUTATIS MUTANDIS TO THIS APPEAL AS WELL. THE APPEAL OF THE REVENUE IS THUS DISMISSED. ASSESSEES APPEAL (ITA NO. 95/JP/16) IN ITS APPEAL FOR AY 2008-09, THE ASSESSEE HAS TAKE N FOLLOWING GROUNDS OF APPEAL: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED ON FACTS AND IN LAW IN NOT ALLOWING CLAIM OF DEDUCT ION OF RS. 579589/- OF FDR INTEREST U/S 80IA(4) OF THE INCOME TAX ACT, 1961 BY HOLDING THAT NO DIRECT NEXUS AND EARNING OF INTEREST IS NOT DIRECTLY RELATING TO THE BUSINESS FOR WHICH EX EMPTION IS AVAILABLE. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED ON FACTS AND IN LAW AND ITS OWN PRESUMPTIONS AND IG NORING THE FACTS NOT FULLY ALLOWING THE CLAIM OF DEDUCTION OF ADMINISTRATIVE ESTABLISHMENT & OTHER EXPENSES AND PAYMENT & PROVIS ION FOR EMPLOYEES U/S 80IA(4) OF INCOME TAX ACT, 1961. 58. IN RESPECT OF GROUND NO. 1, THE ASSESSEE HAS CH ALLENGED THE ACTION OF THE LD CIT(A) IN NOT ALLOWING THE CLAIM O F DEDUCTION OF RS. 5,79,589/- OF FDR INTEREST U/S 80-IA OF THE ACT BY HOLDING THAT EARNING OF INTEREST IS NOT DIRECTLY RELATED TO THE BUSINESS FOR WHICH EXEMPTION IS AVAILABLE AND IN GROUND NO. 2, IN NOT FULLY ALLOWIN G THE CLAIM OF DEDUCTION OF ADMINISTRATIVE, ESTABLISHMENT AND OTHE R EXPENSES AND PAYMENT & PROVISION FOR EMPLOYEES U/S 80-IA OF THE ACT. ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 46 59. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CLAIMED DEDUCTION U/S 80-IA(4)(IV) IN RESPECT OF ITS POWER GENERATING UNDERTAKINGS AT RS.2,85,07,321/-. IN THE ORIGINAL ASSESSMENT PROCEE DINGS, THE CLAIM WAS ALLOWED. HOWEVER, THE CASE WAS REOPENED U/S 147 ON THE GROUND THAT ASSESSEE HAS CLAIMED DEDUCTION U/S 80-IA ON FDR INT EREST AND HAS NOT APPORTIONED VARIOUS HEAD OFFICE AND OTHER DAY-TO-DA Y MANAGEMENT & SUPERVISION EXPENSES AMONGST THE UNITS CLAIMING U/S 80-IA OF THE ACT. IN REASSESSMENT PROCEEDINGS, AO HELD THAT FDR INTER EST OF RS.5,79,589/- IS NOT INCOME DERIVED FROM/ CONNECTED WITH THE ELIGIBLE BUSINESS OF THE ASSESSEE AND THEREFORE DEDUCTION U/ S 80-IA ON SUCH INCOME WAS DISALLOWED. HE FURTHER OBSERVED THAT ASS ESSEE HAS NOT PROPORTIONATELY ALLOCATED THE INDIRECT EXPENSES ON ACCOUNT OF PAYMENT TO AND PROVISION FOR EMPLOYEES AT RS.1,76,54,963/- AND ADMINISTRATIVE, ESTABLISHMENT AND OTHER EXPENSES AT RS.77,41,983/-. HE, THEREFORE, ALLOCATED THESE EXPENSES ON PROPORTIONATE BASIS TO THE SALE OF ELECTRICITY TO THE TOTAL TURNOVER AND WORKED OUT SUCH PROPORTIO NATE INDIRECT EXPENSES TO 80-IA UNITS AT RS.1,67,77,241/- AND THU S WORKED OUT THE CLAIM OF DEDUCTION U/S 80IA AT RS. 1,17,30,080/- AS AGAINST RS.2,85,07,321/- CLAIMED BY THE ASSESSEE. 60. THE LD. CIT(A) UPHELD THE FINDINGS OF THE AO I N NOT ALLOWING THE INTEREST ON FDR BY HOLDING THAT THERE IS NO DIRECT NEXUS OF EARNING OF INTEREST WITH THE BUSINESS FOR WHICH EXEMPTION IS A VAILABLE. THEREAFTER AT PARA 3.3, BY RELYING ON THE DECISION GIVEN IN AY 2011-12, HE WORKED OUT THE PROPORTIONATE ADMINISTRATIVE, ESTABLISHMENT & OTHER EXPENSES AND PAYMENT & PROVISION FOR EMPLOYEES AT RS.1,43,94 ,207/- AND ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 47 DIRECTED TO REDUCE THIS AMOUNT FROM THE DEDUCTION U /S 80-IA CLAIMED BY THE ASSESSEE. THIS WAS DONE ON THE BASIS THAT RS.6, 88,786/- OUT OF ADMINISTRATIVE, ESTABLISHMENT & OTHER EXPENSES PERT AINS DIRECTLY TO THE PROMOTIONAL ACTIVITIES OF THE APPELLANT (INCOME FRO M PROMOTIONAL AND OTHER ACTIVITY IS RS.13,46,08,444/-) AND RS.29,18,5 88/- IS ALREADY ALLOCATED BY THE ASSESSEE FOR WORKING OUT THE ELIGI BLE PROFIT OF 80-IA UNITS. ACCORDINGLY, HE HELD THAT OUT OF THE EXPENDI TURE OF RS.77,41,983/, AFTER REDUCING THE AMOUNT OF RS.36,07,374/- (6,88,7 86 + 29,18,588) THE BALANCE AMOUNT OF RS.41,34,609/- REMAINS AS A C OMMON EXPENDITURE UNDER THE HEAD ADMINISTRATIVE/ESTABLISH MENT AND OTHER EXPENSES. HE ALSO CONSIDERED EXPENDITURE ON PAYMENT AND PROVISION TO EMPLOYEES AT RS.1,76,54,963/- AS THE COMMON EXPENDI TURE. THE AGGREGATE OF THESE TWO AMOUNTS TOTALING TO RS.2,17, 89,572/- WAS DIRECTED TO BE APPORTIONED BETWEEN THE TURNOVER OF POWER GENERATING UNITS TO THE TOTAL TURNOVER OF THE ASSESSEE TO WORK OUT THE PROFIT ELIGIBLE FOR DEDUCTION U/S 80-IA(4). HE DID NOT ACCEPT THE C ONTENTION OF THE ASSESSEE THAT NO PART OF THESE EXPENDITURE CAN BE A LLOCATED TO THE POWER GENERATING BUSINESS AS THE SAME HAS BEEN OUTS OURCED. THE RELEVANT FINDING OF THE LD. CIT(A) ARE REPRODUCED AS UNDER:- 2.3 I HAVE PERUSED THE FACTS OF THE CASE, THE ASSE SSMENT ORDER AND THE SUBMISSION OF THE APPELLANT. THE COMPANY HAS TAKEN A LOAN FROM THE FINANCIAL INSTITUTION (PFC) AND AS PER TERMS AND CO NDITIONS OF THE AGREEMENT EXECUTED BETWEEN THEM, COMPANY WAS REQUIR ED TO MAINTAIN A ESCROW ACCOUNT, WHEREIN RECEIPT OF POWER SALES WI LL BE CREDITED AND OUT OF THAT CREDIT, COMPANY WILL PAY QUARTERLY INST ALLMENT TO THE INSTITUTION AS CONSIDERED THE FIRST CHARGES ON THAT CREDIT OF THE FINANCIAL INSTITUTION. ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 48 THE COMPANY HAS MADE THE FIXED DEPOSIT ON SHORT TER MS BASIS TILL THE INSTALLMENT ARE DUE AND EARNED THE INTEREST ON SUCH SURPLUS FUNDS DURING THE YEAR AND CLAIMED SUCH INTEREST INCOME FO R DEDUCTION U/S 10A FORM THE ELIGIBLE BUSINESS. DURING THE YEAR UNDER C ONSIDERATION THIS AMOUNT HAS BEEN CLAIMED THAT RS. 5,79,589/-. IN SUP PORT OF ALLOWABILITY OF THIS INTEREST THE ASSESSEE HAS PLACED RELIANCE O N THE FOLLOWING DECISIONS, AS APPEARING, IN THE ASSESSEES SUBMISSI ON AT PARA 5 ABOVE. IN THE CASE OF CIT VS ADVANCE DETERGENTS 2011-339 I TR 81 (DEL) WHICH THE ASSESSEE HAS RELIED ON TO SAY THAT INTEREST REC EIVED FROM TRADE DEBTORS IN ENTITLED FOR DEDUCTION U/S 80IA, IN THE SAME DECISION SPECIFIC FINDING HAS BEEN GIVEN RELATING TO INTEREST TO FDR S WHEREIN IT HAS BEEN HELD THAT INTEREST ON FDRS WOULD NOT BE ENTITLED IN VIEW OF T HE JUDGMENT OF THE SAME COURT IN CIT VS SRIRAM HONDA P OWER EQUIPMENT 289 ITR 475. SINCE IN THE CASE OF THE ASSESSEE THE INTEREST HAS ACCRUED FROM THE FDR IN THE ESCROW ACC OUNT AND NOT FROM THE TRADE DEBTOR HENCE THE FINDING OF THE COURT HAS BEEN WRONGLY TAKEN BY THE ASSESSEE AS IN ITS FAVOUR. THE OTHER JUDGMEN T AT (C,D,E,& F) ARE ON DIFFERENCE ISSUE LIKE SALE OF EMPTY CONTAINER, D UTY DRAWBACK, SERVICE CHARGES ETC. IN THE PRESENT PROCEEDINGS, SUBMISSIONS ARE MADE TO CONSIDER IT AS DERIVED EXCLUSIVELY FROM ELIGIBLE BUSINESS INCOME. SINCE THERE IS NO DIRECT NEXUS AND EARNING OF INTEREST IS NOT DIRECTL Y RELATED TO THE BUSINESS FOR WHICH EXEMPTION IS AVAILABLE, THE STAN D OF THE ASSESSING OFFICER IS CONFIRMED. FOR THE ABOVE DECISION RELIAN CE IS PLACED ON THE DECISION IN 59 TAXMANN.COM 32 (MADRAS) INTERNATIONA L COMPONENTS INDIA LTD. VS. ACIT WHEREIN IT IS HELD THAT INTERE ST EARNED BY THE ASSESSEE FROM DEPOSITS WITH BANK, ELECTRICITY BOARD AND ON STAFF ADVANCES WHICH DID NOT HAVE AN IMMEDIATE NEXUS WITH ITS BUSINESS UNDERTAKING, GRANT OF INTEREST UNDER SECTION 10B WA S A MISTAKE APPARENT FROM RECORD AND, HENCE, INTIMATION UNDER S ECTION 143(1) WAS RECTIFIABLE UNDER SECTION 154. ON THIS GROUND THE A PPEAL IS DISMISSED. 3.3 THIS ISSUE IS COVERED BY THE ORDER OF MY PREDE CESSOR CIT(A)-2 DT. 15.12.2014 FOR THE ASSESSMENT YEAR 2011-12. FOR THE CURRENT YEAR, THE ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 49 AMOUNT IS ARRIVED AT RS 14394207. IN THE RESULT, T HE GROUND IS PARTLY ALLOWED. 61. DURING THE COURSE OF HEARING THE LD. AR SUBMITT ED THAT THE FIRST ISSUE IN THIS CASE IS WHETHER DEDUCTION U/S 80-IA I S ALLOWABLE TO THE ASSESSEE ON FDR INTEREST OR NOT. THE ASSESSEE HAS T AKEN A LOAN FROM POWER FINANCE CORPORATION (PFC) FOR ESTABLISHMENT O F WINDMILL AND AS PER THE TERMS AND CONDITIONS OF THE AGREEMENT, ASSE SSEE WAS REQUIRED TO MAINTAIN A ESCROW ACCOUNT WHEREIN RECEIPT OF POW ER SALES IS TO BE CREDITED AND OUT OF THAT CREDIT, IT IS TO PAY QUART ERLY INSTALLMENT OF REPAYMENT OF LOAN TO PFC. PFC HAS FIRST CHARGE ON T HE AMOUNT LYING IN THIS ACCOUNT. THE ASSESSEE MADE FIXED DEPOSIT ON SH ORT TERM BASIS TILL THE INSTALLMENTS ARE DUE AND EARNED INTEREST ON SUC H AMOUNT FOR WHICH DEDUCTION U/S 80-IA IS CLAIMED. THIS FACT IS ADMITT ED BY CIT(A) AT PARA 2.3 OF THE ORDER BUT STILL SHE WRONGLY HELD THAT IT IS NOT DERIVED EXCLUSIVELY FROM THE ELIGIBLE BUSINESS INCOME. IN D OING SO, IT WAS IGNORED THAT THE INTEREST OF RS.5,79,589/- IS EARNE D BY THE ASSESSEE ONLY ON THE FUNDS RECEIVED FROM SALE OF POWER OF W INDMILL WHICH TEMPORARILY REMAINED UNUTILIZED AND SUCH INTEREST R ECEIPT HAS REDUCED THE INTEREST BURDEN PAID ON LOAN TAKEN FROM PFC. TH US, SUCH INTEREST IS DERIVED EXCLUSIVELY FROM THE ELIGIBLE BUSINESS. IT IS PERTINENT TO NOTE THAT ASSESSEE HAS ALSO EARNED INTEREST ON FDR OF RS.2,53 ,99,995/- BUT THE SAME IS NOT CONSIDERED BY THE ASSESSEE HIMSELF AS D ERIVED FROM THE ELIGIBLE BUSINESS FOR CLAIMING DEDUCTION U/S 80-IA. RELIANCE IN THIS CONNECTION IS PLACED ON THE FOLLOWING CASES:- ITO VS. HIRANANDANI BUILDERS (2015) 128 DTR 97 (MUM .) (TRIB.) ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 50 ASSESSEE RECEIVED LEASE DEPOSITS FROM THE LESSEES W HICH ARE REQUIRED TO BE RETURNED TO THEM UPON VACATING THE PREMISES. SIN CE THE POSSIBILITY OF VACATING THE PREMISES IN THE MIDDLE IS ALWAYS THERE , AS A PRUDENT BUSINESS POLICY, THE ASSESSEE WAS CONSTRAINED TO KE EP PART OF THE LEASE DEPOSITS AS FIXED DEPOSITS MAINTAINED WITH BANKS. S INCE THE LEASE RENTAL INCOME IS THE PRIMARY SOURCE OF INCOME OF THE ASSES SEE, RETENTION OF REFUNDABLE SECURITY DEPOSITS RECEIVED FROM LESSEES IN FIXED DEPOSITS FORMS INTEGRAL PART OF ITS BUSINESS OF OPERATION OF INFORMATION TECHNOLOGY PARKS AND SEZ. THEREFORE, INTEREST RECEI VED ON SUCH FDRS QUALIFIES FOR DEDUCTION U/S 80-IA. ALTERNATIVELY, S AID INTEREST INCOME SHOULD BE NETTED OF AGAINST THE INTEREST EXPENDITUR E AS THE ASSESSEE WAS CONSTRAINED TO KEEP PART OF SUCH LEASE DEPOSITS AS FIXED DEPOSITS IN VIEW OF THE NATURE OF ITS ACTIVITIES INSTEAD OF USI NG THE SAME FOR BUSINESS PURPOSE INCLUDING REPAYMENT OF LOAN. NIRMA INDUSTRIES VS. DCIT 283 ITR 402 (GUJ.) (HC) THE HEAD NOTE OF THE DECISION IS AS UNDER:- DEDUCTION UNDER S. 80-IPROFITS AND GAINS DERIVED F ROM INDUSTRIAL UNDERTAKINGINTEREST RECEIVED FROM TRADE DEBTORS FO R LATE PAYMENT OF SALES CONSIDERATIONASSESSABLE UNDER THE HEAD PROF ITS AND GAINS OF BUSINESS OR PROFESSIONIN FACT, THE COMPUTATION CO MMENCES BY TAKING PROFIT AS PER THE STATEMENT OF INCOME FILED ALONG W ITH THE RETURN THEREFORE, THE SAME ITEM OF RECEIPT CANNOT BE TREAT ED DIFFERENTLY ONCE WHILE COMPUTING THE GROSS TOTAL INCOME, AND SECONDL Y AT THE TIME OF COMPUTING DEDUCTION UNDER S. 80-IDISTINCTION DRAWN BY THE REVENUE BETWEEN THE SOURCE OF SALE PROCEEDS AND THE SOURCE OF INTEREST IS ERRONEOUS IN LAWIN PRINCIPLE THERE IS NO DISTINCTI ON AS TO THE SOURCE ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 51 THEREFORE, INTEREST PAID BY THE DEBTORS FOR LATE PA YMENT OF THE SALE PROCEEDS CANNOT BE EXCLUDED FROM ELIGIBLE INCOME FO R THE PURPOSE OF COMPUTING RELIEF UNDER S. 80-I. THE DECISION RELIED BY THE LD. CIT(A) IN CASE OF IN TERNATIONAL COMPONENTS INDIA LTD. VS. ACIT 59 TAXMANN.COM 32 (M ADRAS) IS NOT APPLICABLE IN AS MUCH AS IN THAT CASE INTEREST WAS EARNED FROM BANK DEPOSIT, ELECTRICITY BOARD AND STAFF ADVANCE WHICH HAS NO NEXUS WITH ITS BUSINESS UNDERTAKING WHEREAS IN THE PRESENT CASE IN TEREST EARNED HAS IMMEDIATE NEXUS WITH THE BUSINESS UNDERTAKING AS EX PLAINED ABOVE. 62. THE SECOND ISSUE IN THIS GROUND IS WHETHER THE EXPENDITURE ON PAYMENT TO EMPLOYEES AND ADMINISTRATIVE/ESTABLISHME NT EXPENSES NEEDS TO BE ALLOCATED TOWARDS THE TURNOVER OF THE P OWER GENERATING UNIT TO THE TOTAL TURNOVER OF THE ASSESSEE AND IF S O WHAT SHOULD BE THE BASIS FOR SUCH ALLOCATION. ON THIS ISSUE IT IS SUBM ITTED THAT OUT OF THE SEVEN POWER PLANTS ESTABLISHED BY THE ASSESSEE, FOU R POWER PLANTS ARE IN THE DISTRICT OF JAISALMAR AND ONE EACH IN THE DI STRICT OF RAJSAMAND, JODHPUR AND JHUNJHUNU. ALL THE PLANTS HAVE BEEN GIV EN TO THE OPERATORS FOR OPERATION AND MAINTENANCE AS PER THE AGREEMENT EXECUTED BY THEM. AS PER THE AGREEMENT, ASSESSEE IS LIABLE TO PAY SPE CIFIED AMOUNTS AS PER THE GENERATION OF POWER FOR OPERATING AND MAINT AINING EXPENSES OF THE PLANT. THEREFORE, ASSESSEE IS NOT REQUIRED TO E MPLOY ANY PERSON FOR DAY TO DAY OPERATION OF PLANT OR TO INCUR ANY OTHER EXPENDITURE IN RELATION TO IT. ALL THE DIRECT EXPENSES RELATING TO THESE POWER PLANTS I.E. EXPENDITURE ON OPERATION & MAINTENANCE, REPAIR & MA INTENANCE, INTEREST & FINANCIAL EXPENSES, DEPRECIATION, INSURA NCE PREMIUM AND ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 52 LEASE RENT AGGREGATING TO RS.21,56,56,752/- HAS BEE N CONSIDERED BY THE ASSESSEE FOR WORKING OUT THE ELIGIBLE PROFIT OF THE SE POWER GENERATING UNITS. THEREFORE, NO PART OF THE EXPENDITURE ON PAY MENT TO EMPLOYEES AND ADMINISTRATIVE/ESTABLISHMENT EXPENSES NEEDS TO BE ALLOCATED AGAINST THE POWER GENERATING UNITS. 63. IT WAS FURTHER SUBMITTED THAT SO FAR AS THE EXP ENDITURE OF RS.1,76,54,963/- ON ACCOUNT OF PAYMENT AND PROVISIO N TO EMPLOYEES ARE CONCERNED, SUCH EXPENDITURE IS ON ACCOUNT OF OT HER PROMOTIONAL ACTIVITIES OF THE ASSESSEE AGAINST WHICH ASSESSEE H AS DECLARED AN INCOME OF RS.13,46,08,444/-. FROM THE EMPLOYEE WISE DETAILS OF THE EXPENDITURE UNDER THIS HEAD ENCLOSED HEREWITH, IT C AN BE NOTED THAT SALARY TO THE EMPLOYEES WHO ARE EXCLUSIVELY EMPLOYE D TOWARDS PROMOTIONAL ACTIVITIES IS OF RS.1,59,96,821/-. HENC E, THIS AMOUNT CANNOT BE ALLOCATED TOWARDS THE POWER PROJECT. THE REMAINI NG SALARY OF RS.16,58,142/- IS AT THE MOST CAN BE CONSIDERED BOT H TOWARDS THE PROMOTIONAL ACTIVITIES AND THE POWER PROJECT. THERE FORE, ONLY THIS AMOUNT OF SALARY CAN AT THE MOST BE ALLOCATED TOWAR DS THE POWER PLANTS IN THE RATIO OF THE TURNOVER OF THE POWER PLANTS TO THE TOTAL TURNOVER OF THE ASSESSEE. THE CIT(A) IS NOT CORRECT IN ALLOCATI NG THE ENTIRE EXPENDITURE ON SALARY ON PROPORTIONATE BASIS INSTEA D OF ALLOCATING ONLY A PART OF SUCH SALARY. IF THIS AMOUNT OF RS.16,58,142 /- IS ALLOCATED IN THE RATIO OF THE TURNOVER, THE EXPENDITURE RELATING TO THE POWER GENERATING UNIT WOULD BE RS.10,95,370/- (16,58,142*24,36,63,77 4/36,88,51,807). BEFORE THE CIT(A) ASSESSEE REQUESTED THAT CONSIDERI NG THE INVOLVEMENT OF THE EMPLOYEES TOWARDS POWER PROJECT, ONLY 5% OF THE SALARY I.E. RS.8,82,748/- BE CONSIDERED IN WORKING OUT THE DEDU CTION U/S 80IA. IN ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 53 THESE CIRCUMSTANCES, CONSIDERING THE SPECIFIC DETAI LS, ONLY AN AMOUNT OF RS.10,95,370/- CAN BE CONSIDERED AS EXPENSES ON SAL ARY ATTRIBUTABLE TO THE POWER GENERATING UNDERTAKINGS. 64. IT WAS FURTHER SUBMITTED THAT SO FAR AS EXPENDI TURE OF RS.41,34,609/- UNDER THE HEAD ADMINISTRATIVE/ESTABL ISHMENT AND OTHER EXPENSES IS CONCERNED, THESE EXPENDITURES ARE IN NA TURE OF FEES AND SUBSCRIPTION (RS.6,92,349/-), LEGAL AND PROFESSIONA L EXPENSES (RS.2,15,777/-), PRINTING AND STATIONARY (RS.3,29,4 08/-) AND OTHER EXPENSES LIKE AUDIT FEES, ELECTRICITY CHARGES, FAX, COURIER AND PHOTO STATE EXPENSES, REPAIRS OF OFFICE EQUIPMENTS/BUILDING ETC . THESE EXPENSES HAVE NO RELATION WITH THE POWER GENERATING UNDERTAK ING. STILL THE ASSESSEE ON A FAIR BASIS REQUESTED THE CIT(A) TO CO NSIDER ONLY 5% OF SUCH EXPENSES OF RS.41,34,609/- I.E. RS.2,06,730/- AS ATTRIBUTABLE TO POWER GENERATING UNITS. HOWEVER, THE CIT(A) WITHOUT ANY BASIS AND WITHOUT CONSIDERING THE NATURE OF THE EXPENDITURE H ELD ON THE BASIS OF HIS FINDING IN AY 2011-12 THAT THE CLAIM OF THE ASS ESSEE IS WITHOUT ANY BASIS. THIS FINDING OF THE CIT(A) IS NOT CORRECT AN D THEREFORE EVEN IF AN ALLOCATION IS TO BE MADE, IT SHOULD BE RESTRICTED T O RS.2,06,730/- ONLY. IN VIEW OF ABOVE, THE AO BE DIRECTED TO REWORK OUT THE CLAIM OF DEDUCTION U/S 80-IA IN LIGHT OF THE SUBMISSION GIVEN ABOVE. 65. THE LD DR IS HEARD WHO HAS RELIED UPON THE ORDE R OF THE LOWER AUTHORITIES. 66. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE LD A.R CONTENDED BEFORE US THAT ASSESSEE WAS ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 54 REQUIRED TO MAINTAIN A ESCROW ACCOUNT WHEREIN RECEI PT OF POWER SALES IS TO BE CREDITED AND OUT OF THAT CREDIT, IT IS TO PAY QUARTERLY INSTALLMENT OF REPAYMENT OF LOAN TO PFC. PFC HAS FIRST CHARGE ON T HE AMOUNT LYING IN THIS ACCOUNT. THE ASSESSEE MADE FIXED DEPOSIT ON SH ORT TERM BASIS TILL THE INSTALLMENTS ARE DUE AND EARNED INTEREST ON SUC H AMOUNT FOR WHICH DEDUCTION U/S 80-IA IS CLAIMED. HOWEVER, THE MOOT P OINT IS THAT THE DEDUCTION U/S 80-IA IS ALLOWED IN RESPECT OF 'PROFI TS AND GAINS' DERIVED FROM THE ELIGIBLE UNDERTAKING. AS EXPLAINED BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT V. STERLING FOODS REPORTED IN 237 ITR 579, FOR APPLICATION OF THE WORDS 'DERIVED FROM', THERE MUST BE A DIRECT NEXUS BETWEEN THE PROFITS AND GAINS AND THE UNDERTAKING. IN THE INSTANT CASE, THE NEXUS OF INTEREST INCOME WITH THE BUSINESS OF T HE UNDERTAKING IS NOT DIRECT BUT INCIDENTAL. THE SOURCE OF INTEREST INCOM E IS ONLY BANK DEPOSITS. THE INSTANT CASE IS SIMILAR TO A SITUATI ON WHERE INTEREST IS EARNED ON FIXED DEPOSITS WHICH ARE PLACED WITH BANK S FOR THE PURPOSES OF AVAILING CREDIT FACILITIES FROM THE BANK WHEREIN THE COURTS FROM TIME TO TIME HAVE HELD THAT SUCH INTEREST INCOME DOES NO T HAVE AN IMMEDIATE NEXUS WITH THE BUSINESS OF THE UNDERTAKIN G. THE DECISION OF HONBLE DELHI HIGH COURT IN CASE OF CIT VS SRIRAM H ONDA POWER EQUIPMENT 289 ITR 475 WHICH HAS SINCE BEEN AFFIRMED BY THE HONBLE SUPREME COURT SUPPORT THE STAND OF THE REVENUE. THE DECISIONS CITED BY THE LD AR DOESNT SUPPORT THE CASE OF THE ASSESS EE. HENCE, IN OUR VIEW, THE LD CIT(A) WAS RIGHT IN LAW IN REJECTING T HE CLAIM OF DEDUCTION U/S 80-IA OF THE ACT IN RESPECT OF INTEREST INCOME. REGARDING ALLOCATION OF EMPLOYEE COSTS AND ADMINISTRATIVE/ESTABLISHMENT EXPENSES ARE CONCERNED , WE HAVE DEALT ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 55 WITH THE ISSUE IN AY 2011-12 IN GREAT DETAIL. FOLL OWING THE SAME, COMMON HEAD OFFICE EXPENSES PERTAINING TO EMPLOYEES HAS BEEN STATED TO BE RS 16,58,142 AND PERTAINING TO ADMINISTRATIVE /ESTABLISHMENT EXPENSES COMES TO RS 41,34,609. THE AO IS ACCORDIN GLY DIRECTED TO ALLOCATE THESE COMMON HEAD OFFICE EXPENSES TO THE P OWER GENERATING UNITS IN THE RATIO OF THEIR TURNOVER TO THE TOTAL T URNOVER OF THE ASSESSEE COMPANY. THE GROUNDS OF APPEAL ARE DISPOSED OFF WI TH ABOVE DIRECTIONS. ASSESSEES APPEAL (ITA NO. 96/JP/16) IN ITS APPEAL FOR AY 2009-10, THE ASSESSEE HAS TAKE N FOLLOWING GROUNDS OF APPEAL: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED ON FACTS AND IN LAW IN NOT ALLOWING CLAIM OF DEDUCT ION OF RS. 2,73,48,665/- ON SHORTFALL IN GENERATION, LOW GENE RATION AND STOCK CARBON FINANCIAL INSTRUMENTS U/S 80IA(4) OF THE INCOME TAX ACT, 1961. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED ON FACTS AND IN LAW IN NOT ALLOWING CLAIM OF DEDUCT ION OF RS. 62,45,945/- OF SELL OF CARBON FINANCIAL INSTRUMENT (CFI) IN U/S 80IA(4) OF THE INCOME TAX ACT, 1961. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED ON FACTS AND IN LAW AND ON ITS OWN PRESUMPTION AND IGNORING THE FACTS NOT FULLY ALLOWING THE CLAIM OF DEDUCTION OF ADMINISTRATIVE ESTABLISHMENT & OTHER EXPENSES AND PAYMENT & PROVIS ION FOR EMPLOYEES U/S 80IA(4) OF INCOME TAX ACT, 1961. REVENUES APPEAL ( ITA NO. 87/JP/16) ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 56 IN ITS CROSS-APPEAL FOR AY 2009-10, THE REVENUE HAS TAKEN FOLLOWING SOLE GROUND OF APPEAL: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN RESTRICTING TH E DISALLOWANCE U/S 80IA(4)(I) FROM RS. 2,50,95,465/- TO RS. 2,31,1 3,978/-. 67. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE C LAIMED DEDUCTION U/S 80-IA(4) IN RESPECT OF ITS POWER GENERATING UND ERTAKINGS AT RS.17,67,94,304/-. IN THE ORIGINAL ASSESSMENT PROC EEDINGS, CLAIM WAS ALLOWED. HOWEVER, THE CASE WAS REOPENED U/S 147 ON THE GROUND THAT ASSESSEE HAS CLAIMED DEDUCTION U/S 80-IA ON INCOME SUCH AS SHORTFALL IN GENERATION, LOW GENERATION & STOCK OF CARBON FINANC IAL INSTRUMENTS RS.2,73,48,665/- AND OTHER RECEIPTS OF RS.62,45,945 /- BY INCORRECTLY TREATING IT AS PROFIT DERIVED FROM ELIGIBLE BUSINES S AND HAS NOT APPORTIONED VARIOUS HEAD OFFICE AND OTHER DAY-TO-DA Y MANAGEMENT & SUPERVISION EXPENSES AMONGST THE UNITS CLAIMING U/S 80-IA OF THE ACT. 68. IN REASSESSMENT PROCEEDINGS, THE AO OBSERVED TH AT INCOME ON ACCOUNT OF SHORTFALL IN GENERATION, LOW GENERATION, STOCK CARBON FINANCIAL INSTRUMENTS OF RS.2,73,48,665/- AND OTHER RECEIPTS (SALE OF CARBON FINANCIAL INSTRUMENTS) OF RS.62,45,945/- IS NOT INCOME DERIVED FROM/ CONNECTED WITH THE ELIGIBLE BUSINESS OF THE A SSESSEE AND THEREFORE DEDUCTION U/S 80-IA ON SUCH INCOME WAS DI SALLOWED. HE FURTHER OBSERVED THAT ASSESSEE HAS NOT PROPORTIONAT ELY ALLOCATED THE INDIRECT EXPENSES ON ACCOUNT OF PAYMENT TO AND PROV ISION FOR EMPLOYEES AT RS.2,97,08,935/- AND ADMINISTRATIVE, E STABLISHMENT AND OTHER EXPENSES AT RS.88,61,651/-. HE, THEREFORE, AL LOCATED THESE ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 57 EXPENSES ON PROPORTIONATE BASIS TO THE SALE OF ELEC TRICITY TO THE TOTAL TURNOVER AND WORKED OUT SUCH PROPORTIONATE INDIRECT EXPENSES TO 80-IA UNITS AT RS.2,50,95,465/- AND THUS WORKED OUT THE C LAIM OF DEDUCTION U/S 80-IA AT RS. 11,81,04,229/- AS AGAINST RS.17,67 ,94,304/- CLAIMED BY THE ASSESSEE. 69. THE LD. CIT(A) BY RELYING ON THE DECISION GIVEN IN AY 2011-12 UPHELD THE FINDINGS OF THE AO ON ACCOUNT OF SHORTFA LL IN GENERATION, LOW GENERATION, STOCK CARBON FINANCIAL INSTRUMENTS BY H OLDING THAT THE INCOME RELATES TO PENALTIES IMPOSED ON THE SELLER B Y THE ASSESSEE COMPANY IF THE MACHINES DO NOT DELIVER AS PER THE P ROMISED PERFORMANCE. THESE CANNOT BE SAID TO BE DIRECTLY DE RIVED FROM BUSINESS OF POWER GENERATION AND DO NOT HAVE FIRST DEGREE NE XUS WITH THE ELIGIBLE BUSINESS. THEREAFTER, HE HELD THAT CARBON FINANCIAL INSTRUMENTS ARE AKIN TO IMPORT ENTITLEMENTS LIKE DUTY DRAWBACK AND ON SUCH REVENUE RECEIPTS, DEDUCTION U/S 80-IA CANNOT BE GIVEN IN VI EW OF THE DECISION OF SUPREME COURT IN CASE OF LIBERTY INDIA LTD. THEREAF TER, BY RELYING ON THE DECISION GIVEN IN AY 2011-12, HE WORKED OUT THE PROPORTIONATE ADMINISTRATIVE, ESTABLISHMENT & OTHER EXPENSES AND PAYMENT & PROVISION FOR EMPLOYEES AT RS.2,31,13,978/- AND DIRECTED TO REDUCE THIS AMOUNT FROM THE DEDUCTION U/S 80-IA CLAIMED BY THE ASSESSEE. THIS WAS DONE ON THE BASIS THAT RS.5,27,172/- OUT OF ADMINIS TRATIVE, ESTABLISHMENT & OTHER EXPENSES PERTAINS DIRECTLY TO THE PROMOTIONAL ACTIVITIES OF THE APPELLANT (INCOME FROM PROMOTIONA L AND OTHER ACTIVITY IS RS.12,01,48,172/-) AND RS.33,02,080/- IS ALREADY AL LOCATED BY THE ASSESSEE FOR WORKING OUT THE ELIGIBLE PROFIT OF 80- IA UNITS. ACCORDINGLY, HE HELD THAT OUT OF THE EXPENDITURE OF RS.88,61,651 /-, AFTER REDUCING ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 58 THE AMOUNT OF RS.38,29,252/- (5,27,172 + 33,02,080) , THE BALANCE AMOUNT OF RS.50,32,399/- REMAINS AS A COMMON EXPEND ITURE UNDER THE HEAD ADMINISTRATIVE/ESTABLISHMENT AND OTHER EXPENSE S. HE ALSO CONSIDERED EXPENDITURE ON PAYMENT AND PROVISION TO EMPLOYEES AT RS.2,97,08,935/- AS THE COMMON EXPENDITURE. THE AGG REGATE OF THESE TWO AMOUNTS TOTALLING TO RS.3,47,41,334/- WAS DIREC TED TO BE APPORTIONED BETWEEN THE TURNOVER OF POWER GENERATIN G UNITS TO THE TOTAL TURNOVER OF THE ASSESSEE TO WORK OUT THE PROF IT ELIGIBLE FOR DEDUCTION U/S 80-IA(4). HE DID NOT ACCEPT THE CONTE NTION OF THE ASSESSEE THAT NO PART OF THESE EXPENDITURE CAN BE A LLOCATED TO THE POWER GENERATING BUSINESS AS THE SAME HAS BEEN OUTS OURCED. 70. THE RELEVANT FINDING OF THE LD. CIT(A) WHICH AR E REPRODUCED AS UNDER:- 2.3 I HAVE PERUSED THE FACTS OF THE CASE, THE ASSE SSMENT ORDER AND THE SUBMISSIONS OF THE APPELLANT. THE ASSESSEE HAS INCLUDED THE OTHER INCOME, ON ACCOUNT OF SHORTFALL IN GENERA TION, LOW GENERATION, AMOUNTING TO RS. 2,73,48,665/- WHICH AL SO INCLUDES STOCK OF CARBON FINANCIAL INSTRUMENTS OF RS. 40,00, 000/- AS ELIGIBLE INCOME FOR DEDUCTION U/S 80IA. THE DEDUCTI ON U/S 80IA HAS BEEN DENIED BY THE ASSESSING OFFICER HOLDING TH AT THESE INCOMES CANNOT BE SAID TO BE DERIVED FROM THE POW ER GENERATION INCOME AND HAS PLACED RELIANCE ON THE DECISION OF T HE APEX COURT IN THE CASE OF LIBERTY INDIA VS. CIT 317 ITR 218 (S C). THE ASSESSEE IN ITS WRITTEN SUBMISSIONS, STATED THA T THE SHORTFALL/LOW GENERATION ARE BEING TAKEN UNDER THE GROUP HEAD APPLICATION/ PROCESSING/REGISTERED FEES & OTHERS. THE AR WAS ASKED TO EXPLAIN THE EXACT NATURE OF INC OME UNDER THIS HEAD. THE AR STATED THAT THE COMPANY HAS AWARD ED ALL THE ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 59 POWER PLANTS FOR OPERATION AND MAINTENANCE AND GENE RATION OF POWER TO THE VENDORS/ OPERATORS AS PER AGREEMENT EX ECUTED BETWEEN THEM. AS PER EXECUTION OF THE AGREEMENTS, OPERATORS/VENDORS, WHO IS/ARE OPERATE TO THE POWER PLANTS, COMPANY HAS EXECUTED A ASSURANCE IN THE AGREEMENT T HAT THE VENDERS/AWARDS THAT INSTALLED POWER PLANT WILL GENE RATE A MINIMUM POWER GENERATION ON A PARTICULAR WIND FLOW IN A SPECIFIED AREA AT WHERE POWER PLANTS ARE INSTALLED. AS PER THE EXECUTION OF AGREEMENT, BETWEEN THE COMPANY AND POW ER PLANT OPERATORS, IF THAT POWER PLANT WILL NOT OPERATE OR GENERATE A MINIMUM ASSURED POWER GENERATION, THEN THE OPERATOR WILL COMPENSATE FOR SUCH FALL OF GENERATION OF POWER. SU CH MINIMUM GENERATION IS CONSIDERED ON THE BASIS OF WIND FLOW RATING WORKED OUT BY THE CENTRAL GOVERNMENT AGENCY REPORTED ON YE AR TO YEAR BASIS. THEREFORE, WHATEVER RECOVERY IS RECOVERED ON ACCOUNT OF GENERATION OF SHORT FALL IS ON THE BASIS OF MINIMUM GUARANTEE OF POWER GENERATION, NOT OTHERWISE. HENCE IT ALSO NOT PRESUMED THAT THE MINIMUM POWER GENERATION HAS BEEN TAKEN ON ASSU MPTION AND/OR PRESUMPTION BASIS AND THE RECEIPTS OF SHORT FALL OF GENERATION/LOW GENERATION OF POWER PLANTS ARE BASIC ALLY IS RECEIPTS OF POWER GENERATION. THE AR WAS ASKED TO PRODUCE COPIES OF AGREEMENT WIT H THE OPERATOR. IN THE AGREEMENT IT IS SEEN THAT THESE ON E DEALT WITH CLAUSE NO. 8 PAGE 11 OF THE AGREEMENT DEALS WITH TH IS ISSUE. SEL SHALL COMMISSION A WIND MAST AT LOCAL APPROVED BY RREC WITH THE PROJECT SITE WITH SENSOR TO BE INSTALLED A T HUB HEIGHT EQUIVALENT OF WEF INSTALLED. THE ACTUAL WIND DATA G ENERATED ON MONTHLY BASIS WILL BE CONSIDERED TO CALCULATE THE E STIMATED GENERATION FROM WIND FARM BASED ON CERTIFIED POWER CURVE OF THE INSTALLED MACHINE. THE CALCULATED GENERATION WILL B E COMPARED WITH ACTUAL MONTHLY GENERATION ACHIEVED FOR CORRESP ONDING PERIOD FROM THE WIND FARM. FOR SHORTFALL IN ANNUAL GENERAT ION BELOW 95% OF THE CALCULATED GENERATION, A PENALTY @ 110% OF T HE DEEMED REVENUE LOSS TO RREC SHALL BE LEVIED ON THE ANNUAL BASIS. THE ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 60 PENALTY SHALL BE RECKONED AND RECOVERED ON A BLOCK OF EVERY 02 YEARS PERFORMANCE FROM SEL. IT WAS FURTHER EXPLAINED THAT THE LOW GENERATION AN D SHORT FALL WAS RECOGNIZED BASED ON THE AGENCY REPORT OF CENTRE FOR WIND ENERGY TEST (C-WET) WHICH CERTIFIES AND QUANTIFIES THE LOW GENERATION. FURTHER, THIS PROCESS TAKES ALMOST A YE AR AND THEREFORE THE SHORTFALL RECEIVED MAY NOT RELATE TO THE SHORTFALL IN GENERATION FOR THAT PARTICULAR YEAR. IT IS ALSO SEE N THAT IN THE ASSESSMENT YEAR 2011-12 THIS AMOUNT WAS CLAIMED FOR THE FIRST TIME BY THE ASSESSEE AND EXCLUDED FROM THE INCOME E LIGIBLE FOR SECTION 10A BY THE ASSESSING OFFICER. THE ABOVE DISCUSSION CLEARLY SHOWS THAT THIS INCOME RELATES TO PENALTIES IMPOSED ON THE SELLER BY THE ASSESSEE COM PANY IF THE MACHINES DO NOT DELIVER AS PER THE PROMISED PERFORM ANCE. THESE CANNOT BE SAID TO BE DIRECTLY DERIVED FROM THE BUSI NESS OF POWER GENERATION AND DO NOT HAVE A FIRST DEGREE NEXUS WIT H THE ELIGIBLE BUSINESS. IN VIEW OF THE ABOVE, DEDUCTION UNDER SEC TION 80IA IS NOT ALLOWABLE ON THIS AMOUNT. 3.3 I HAVE PERUSED THE FACTS OF THE CASE, THE ASSE SSMENT ORDER AND THE SUBMISSIONS OF THE APPELLANT. THIS GROUND R ELATES AN AMOUNT OF RS. 6245945/- RELATING TO OTHER INCOME WH ICH WAS RELATABLE TO SELL OF CARBON FINANCIAL INSTRUMENTS ( CFI). HOWEVER IN THE ASSESSMENT ORDER THE ASSESSING OFFICER HAS WRON GLY TAKEN IT AS FDR INTEREST INCOME. AS REGARDS THE CARBON FINANCIAL INSTRUMENT (CFI) TH E AR SUBMITTED AS PER THE GUIDELINE OF THE MINISTRY OF C ENTRAL GOVT., WHERE THE COMPANY IS ENGAGED IN POWER GENERATION AC TIVITIES FROM NON-CONVENTIONAL SOURCES IN THESE CASES, FOR T HE UNITS PRODUCED/ GENERATED FROM NON CONVENTIONAL SOURCES, COMPANY IS ELIGIBLE FOR AVAILING OF CREDIT OF CARBON FINANCIAL INSTRUMENT (CFI) DUE TO GENERATION OF GREEN ENERGY WITHOUT POLLUTING ENVIRONMENT AS PER INTERNATIONAL STANDARDS. AS PER ACCOUNTING G UIDELINE, ONLY ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 61 THE CREDIT INSTRUMENTS SOLD ARE ACCOUNTED FOR AND T HE BALANCE ARE TREATED AS STOCK OF CARBON INSTRUMENTS. THESE CARBON CREDITS ARE ALLOWED TO THE COMPANY DUE TO ITS EFFORTS IN PRODUCING GREEN ENERGY AND IS AN INC ENTIVE TO REDUCE ENVIRONMENTAL POLLUTION. THE WHOLE CONCEP T OF CARBON CREDIT AND SALE/ TRANSFER OF CFIS OPERATES IN THE ARENA OF ENVIRONMENT PROTECTION AND RELATED TO THE ACTIVITY OF POWER GENERATION. THOUGH IT IS DEFINITE LY AN OFFSHOOT OF THE ACTIVITY OF POWER GENERATION BUT IS NOT DERIVED FROM THE SAME. THE CERS ARE, INCENTIVES GI VEN BY THE GOVT. TO AVOID USE OF FOSSIL FUEL IN THE INDUST RY. THEY HAVE ALMOST SIMILAR FEATURES AS IN AN IMPORT ENTIT LEMENT. THESE CFIS CAN EITHER BE KEPT AS STOCK OR SOLD AND ARE TRADABLE. HOWEVER, ON SUCH REVENUE RECEIPTS WHICH A RE AKIN TO IMPORT ENTITLEMENTS LIKE DUTY DRAWBACK, DEDUCTION U/S 80IA CANNOT BE GIVEN IN VIEW OF THE A PEX COURT DECISION IN CASE OF LIBERTY INDIA LTD SINCE T HERE IS NOT FIRST DEGREE NEXUS. IN VIEW OF THE ABOVE, THE DEDUCTION U/S 80IA IS NOT ALLOWABLE ON INCOME RELATED TO THIS. ON THIS GROUND THE ASSESSEE S APPEAL IS DISMISSED. 4.3 THIS ISSUE IS COVERED BY THE ORDER OF MY PREDE CESSOR CIT(A)- 2 DT. 15.12.2014 FROM THE ASSESSMENT YEAR 2011-12. FOR THE CURRENT YEAR THE AMOUNT IS ARRIVED AT RS. 2,31,1397 8/-. IN THE RESULT THIS GROUND IS PARTLY ALLOWED. 71. DURING THE COURSE OF HEARING, THE LD. AR SUBMIT TED THAT IN THE APPEAL PREFERRED BY THE ASSESSEE AND THE CROSS APPE AL OF THE DEPARTMENT, BASICALLY THREE ISSUES ARE INVOLVED. TH E FIRST ISSUE IS WHETHER DEDUCTION U/S 80-IA(4) IS AVAILABLE ON THE INCOME RECEIVED ON ACCOUNT OF SHORTFALL IN THE GENERATION/LOW GENERATI ON OF POWER. THE ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 62 SECOND ISSUE IS WHETHER DEDUCTION U/S 80-IA(4) IS A VAILABLE ON THE INCOME RECEIVED FROM SALE OF CARBON FINANCIAL INST RUMENTS/ STOCK OF SUCH INSTRUMENTS AND THIRD ISSUE IS WHETHER THE EXP ENDITURE ON PAYMENT TO EMPLOYEES AND ADMINISTRATIVE/ESTABLISHME NT EXPENSES NEEDS TO BE ALLOCATED TOWARDS THE TURNOVER OF THE P OWER GENERATING UNIT TO THE TOTAL TURNOVER OF THE ASSESSEE AND IF S O WHAT SHOULD BE THE BASIS FOR SUCH ALLOCATION. 72. IN GROUND NO.1, ASSESSEE HAS CHALLENGED NOT ALL OWING DEDUCTION OF RS.2,73,48,665/- ON SHORTFALL IN GENERATION, LOW GENERATION AND STOCK CARBON FINANCIAL INSTRUMENTS. THIS AMOUNT COMPRISE OF THE FOLLOWING AMOUNTS:- (A) SHORTFALL IN GENERATION OF ELECTRICITY RS.1, 80,86,484/- (B) LOW GENERATION OF ELECTRICITY RS.43 ,02,041/- (C) STOCK OF CARBON FINANCIAL INSTRUMENTS RS.49,60, 140/- TOTAL RS.2,73,48,665 /- THE STOCK OF CARBON FINANCIAL INSTRUMENTS OF RS.49, 60,140/- AND THE SALE OF CARBON FINANCIAL INSTRUMENTS OF RS.62,45,945/- A RE OF SAME NATURE AND THEREFORE SAME IS DEALT IN ISSUE NO.2 AND THE S HORTFALL IN GENERATION OF ELECTRICITY AND LOW GENERATION OF ELECTRICITY IS CONSIDERED IN ISSUE NO.1 73. IN RESPECT OF ISSUE NO.1, IT WAS SUBMITTED THAT ASSESSEE HAS AWARDED THE OPERATION, MAINTENANCE & GENERATION OF ALL THE POWER UNDERTAKINGS INSTALLED BY IT TO THE VENDORS/OPERATO RS AS PER THE AGREEMENT EXECUTED WITH THEM. AS PER THE AGREEMENT, THESE ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 63 VENDORS/OPERATORS HAVE ASSURED THAT POWER PLANT INS TALLED BY THEM WILL GENERATE MINIMUM POWER ON A PARTICULAR WIND FLOW IN THE SPECIFIED AREA AND IF THEY DO NOT OPERATE OR GENERATE THE MINIMUM ASSURED POWER GENERATION, THEN OPERATOR WILL COMPENSATE FOR SUCH FALL OF GENERATION OF POWER. DURING THE YEAR ASSESSEE RECEIVED RS.2,23,88 ,525/- ON ACCOUNT OF SHORTFALL IN GENERATION AND LOW GENERATION OF EL ECTRICITY ON WHICH IT CLAIMED DEDUCTION U/S 80IA. THE AO, HOWEVER, OBSERV ED THAT DEDUCTION U/S 80IA IS ALLOWABLE ONLY IN RESPECT OF PROFITS AN D GAINS DERIVED FROM SALE OF POWER AND THEREFORE RELYING ON THE DECISION OF SUPREME COURT IN CASE OF LIBERTY INDIA VS. CIT 317 ITR 218, HE HELD THAT SUCH INCOME WHICH IS NOT DERIVED FROM POWER GENERATION BUSINESS IS NOT ELIGIBLE FOR DEDUCTION U/S 80IA(4). 74. IT WAS SUBMITTED THAT THE SHORTFALL IN THE GENE RATION OF ELECTRICITY IS PAID BY THE VENDORS/OPERATORS DUE TO SHORTFALL I N THE MINIMUM GUARANTEED GENERATION OF POWER UNITS INSTALLED BY I T. THESE CHARGES ARE THUS NOTHING BUT THE INCOME FROM SALE OF POWER ONLY , AS IT WAS THE COMMITMENT OF THE VENDORS/OPERATORS OF THE PLANT TH AT THE PLANT SUPPLIED BY HIM WOULD GENERATE MINIMUM GUARANTEED U NITS OF ELECTRICITY. IN CASE GENERATION IS LESS THAN FIXED GUARANTEED UNIT, THE VENDORS/OPERATORS FULFILLED THE SHORTFALL BY MAKING PAYMENT OF FIXED AMOUNT PER UNIT WHICH IS GENERATED LESS. THE EXACT TERMS OF THE AGREEMENT AS REPRODUCED AT PG 7 OF THE CIT(A) ORDER READS AS UNDER:- SUZLON ENERGY LTD. (SEL) SHALL COMMISSION A WIND M AST AT LOCATION APPROVED BY RREC WITHIN THE PROJECT SITE WITH SENSO R TO BE INSTALLED AT HUB HEIGHT EQUIVALENT OF WEG INSTALLED. THE ACTUAL WIND DATA GENERATED ON MONTHLY BASIS WILL BE CONSIDERED TO CALCULATE TH E ESTIMATED ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 64 GENERATION FROM WIND FARM BASED ON CERTIFIED POWER CURVE OF THE INSTALLED MACHINE. THE CALCULATED GENERATION WILL B E COMPARED WITH ACTUAL MONTHLY GENERATION ACHIEVED FOR CORRESPONDIN G PERIOD FROM THE WIND FARM. FOR SHORTFALL IN ANNUAL GENERATION BELOW 95% OF CALCULATED GENERATION, A PENALTY @ 110% OF THE DEEMED REVENUE LOSS TO RREC SHALL BE LEVIED ON THE ANNUAL BASIS. THE PENALTY SH ALL BE RECKONED AND RECOVERED ON A BLOCK OF EVERY 2 YEARS PERFORMANCE F ROM SEL. FROM THE ABOVE CONDITION, IT CAN BE NOTED THAT AMOU NT RECEIVED ON ACCOUNT OF SHORTFALL IN GENERATION OF ELECTRICITY/L OW GENERATION OF ELECTRICITY IS NOTHING BUT THE ADDITIONAL AMOUNT RE ALIZED BY THE ASSESSEE TO RECOVER THE REVENUE LOSS INCURRED BY THE ASSESSE E. THE AMOUNT SO RECEIVED IS THEREFORE THE PROFIT OR GAIN DERIVED BY THE POWER UNDERTAKING FROM THE BUSINESS OF GENERATION AND DIS TRIBUTION OF POWER. 75. THE AO IN HOLDING THAT THE COMPENSATION SO RECE IVED IS NOT AN INCOME DERIVED FROM THE ELIGIBLE UNDERTAKING HAS RE LIED ON THE DECISION OF SUPREME COURT IN CASE OF LIBERTY INDIA LTD. HOWE VER, THIS CASE IS NOT APPLICABLE ON FACTS AS IT WAS A CASE IN WHICH IT WA S HELD THAT THE DUTY DRAWBACK RECEIPT COULD NOT BE SAID TO BE PROFITS AN D GAINS DERIVED FROM AN ELIGIBLE BUSINESS. THUS, THIS CASE WAS CONCERNED WITH AN EXPORT INCENTIVE WHICH IS FAR REMOVED FROM THE REIMBURSEME NT OF AN ELEMENT OF COST. AS AGAINST THIS, IN THE SUBSEQUENT DECISIO N OF SUPREME COURT IN CASE OF CIT VS. MEGHALAYA STEELS LTD. (2016) 383 IT R 217, AFTER DISTINGUISHING THE JUDGMENT OF LIBERTY INDIA LTD., IT WAS HELD THAT TRANSPORT SUBSIDY, INTEREST SUBSIDY, POWER SUBSIDY AND INSURANCE SUBSIDY ARE REVENUE RECEIPTS WHICH ARE REIMBURSED T O THE ASSESSEE FOR ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 65 ELEMENTS OF COST RELATING TO MANUFACTURE AND SALE O F ITS PRODUCTS. THERE IS CERTAINLY A DIRECT NEXUS BETWEEN THE PROFITS AND GAINS OF THE INDUSTRIAL UNDERTAKING OR BUSINESS AND SUCH SUBSIDIES. WHAT IS TO BE SEEN FOR THE APPLICABILITY OF SECTIONS 80-IB & 80-IC IS WHETHER THE PROFITS AND GAINS ARE DERIVED FROM THE BUSINESS. SO LONG AS PROFITS A ND GAINS EMANATE DIRECTLY FROM THE BUSINESS ITSELF, THE FACT THAT TH E IMMEDIATE SOURCE OF THE SUBSIDIES IS THE GOVERNMENT WOULD MAKE NO DIFFE RENCE, AS IT CANNOT BE DISPUTED THAT THE SAID SUBSIDIES ARE ONLY IN ORD ER TO REIMBURSE, WHOLLY OR PARTIALLY, COSTS ACTUALLY INCURRED BY THE ASSESSEE IN THE MANUFACTURING AND SELLING OF ITS PRODUCTS. THE PRO FITS AND GAINS REFERRED TO IN SECTIONS 80-IB AND 80-IC HAVE REFERE NCE TO NET PROFIT. AND NET PROFIT CAN ONLY BE CALCULATED BY DEDUCTING FROM THE SALE PRICE OF AN ARTICLE ALL ELEMENTS OF COST WHICH GO INTO MANUFACT URING OR SELLING IT. THEREFORE, THE AMOUNT RECEIVED BY THE ASSESSEE AS S UBSIDIES QUALIFY FOR DEDUCTION U/S 80-IB & 80-IC. IN VIEW OF THIS DECISI ON OF SUPREME COURT, THE AMOUNT RECEIVED FROM THE SUPPLIER OF PLANT AGAI NST SHORTFALL IN THE GENERATION OF ELECTRICITY IS ONLY TO REIMBURSE THE COST RELATING TO THE GENERATION AND SALE OF ELECTRICITY AND THEREFORE IT HAS A DIRECT NEXUS WITH THE PROFIT AND GAINS OF THE POWER GENERATING U NDERTAKING ELIGIBLE FOR DEDUCTION U/S 80IA. 76. FURTHER RELIANCE IS PLACED ON THE FOLLOWING CAS ES:- CIT VS. PRAKASH OILS LTD. 58 DTR 279 (MP) CIT VS. ADVANCE DETERGENTS LTD. 339 ITR 81 (2011)(D EL.) 77. IT WAS ALSO SUBMITTED THAT ITAT, DELHI BENCH IN CASE OF DCIT VS. M/S ANDHRA EXPRESSWAY LTD. IN ITA NO.3805/DEL/2009 DT. 26.03.2010, ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 66 WHERE DEDUCTION U/S 80IA WAS CLAIMED ON THE INCOME DERIVED BY THE ASSESSEE BY WAY OF BONUS FROM NHAI FOR EARLY COMPLE TION OF THE PROJECT AND COMPENSATION FROM THE CONTRACTOR FOR DELAY IN C OMPLETING THE WORK ASSIGNED TO IT, HELD THAT SUCH RECEIPT IS DIRECTLY RELATED TO THE COST OF THE PROJECT AND THEREFORE WOULD GO TO REDUCE THE COST O F PROJECT AND TO THAT EXTENT THE DEPRECIATION WOULD BE LOWER AND THE INCO ME WOULD BE MORE WHICH WOULD BE ENTITLED FOR DEDUCTION U/S 80IA. IN PRESENT CASE, THE AMOUNT IS GIVEN BY THE SUPPLIER OF POWER PLANTS FOR SHORTFALL IN THE MINIMUM GUARANTEED GENERATION PER ANNUM AND THEREFO RE IT IS DIRECTLY RELATED TO THE INCOME DERIVED FROM THE OPERATION OF THE WINDMILL AND THEREFORE ON SUCH INCOME, ASSESSEE IS ELIGIBLE TO C LAIM DEDUCTION U/S 80IA. IN VIEW OF ABOVE, THE AO BE DIRECTED TO ALLOW THE CLAIM OF DEDUCTION U/S 80IA ON THE AMOUNT OF SHORTFALL IN TH E GENERATION/LOW GENERATION OF ELECTRICITY RECEIVED BY ASSESSEE. 78. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PURSUED THE MATERIAL AVAILABLE ON RECORD. REGARDING RECEIPTS ON ACCOUNT OF SHORTFALL/LOW GENERATION AMOUNTING TO RS 2,23,88,525, WE HAVE ALR EADY DEALT WITH THE SUBJECT ISSUE IN AY 2011-12. OUR FINDINGS AND DIRECTIONS CONTAINED THEREIN SHALL APPLY MUTATIS MUTANDIS TO THIS YEAR AS WELL. IN THE RESULT, THE ASSESSEE COMPANY IS HELD ELIGIBLE FOR DEDUCTION U/S 80IA(4) IN RESPECT OF RECEIPTS ON ACCOUNT OF SHORTFALL/LOW GEN ERATION. 79. IN RESPECT OF THE SECOND ISSUE, I.E. STOCK OF C ARBON FINANCIAL INSTRUMENTS RS.49,60,140/- AND SALE OF CARBON FINAN CIAL INSTRUMENTS RS.62,45,945/- IS CONCERNED, IT WAS SUBMITTED THAT THESE INSTRUMENTS BY WAY OF CARBON EMISSION CERTIFICATES ARE RECEIVED BY THE ASSESSEE ON ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 67 GENERATION OF ELECTRICITY FROM ITS WIND POWER PROJE CTS WHICH HELPED IN LOW CARBON EMISSION. AS PER THE KYOTO PROTOCOL THE INDUSTRIES WHICH ARE GENERATING LESSER CARBON THAN THE PRESCRIBED NORMS GETS SUCH CREDIT WHICH CAN BE SOLD TO INDUSTRIES GENERATING HIGHER C ARBON. THE RECEIPT FROM SALE OF CFI/VALUATION OF SUCH CFI IS A CAPITAL RECEIPT AS DECIDED BY HONBLE ITAT HYDERABAD BENCH IN CASE OF MY HOME POW ER LTD. VS. DCIT 21 ITR(TRIB.) 186 WHERE THE HONBLE BENCH HELD AS UNDER:- WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MAT ERIAL ON RECORD. CARBON CREDIT IS IN THE NATURE OF AN ENTITLEMENT RECEIVED TO IMPROVE WORLD ATMOSPHERE AND ENVIRONMENT REDUCING CARBON, H EAT AND GAS EMISSIONS. THE ENTITLEMENT EARNED FOR CARBON CREDIT S CAN, AT BEST, BE REGARDED AS A CAPITAL RECEIPT AND CANNOT BE TAXED A S A REVENUE RECEIPT. IT IS NOT GENERATED OR CREATED DUE TO CARRYING ON B USINESS BUT IT IS ACCRUED DUE TO WORLD CONCERN. IT HAS BEEN MADE AV AILABLE ASSUMING CHARACTER OF TRANSFERABLE RIGHT OR ENTITLEMENT ONLY DUE TO WORLD CONCERN. THE SOURCE OF CARBON CREDIT IS WORLD CONCERN AND EN VIRONMENT. DUE TO THAT THE ASSESSEE GETS A PRIVILEGE IN THE NATURE OF TRANSFER OF CARBON CREDITS. THUS, THE AMOUNT RECEIVED FOR CARBON CREDI TS HAS NO ELEMENT OF PROFIT OR GAIN AND IT CANNOT BE SUBJECTED TO TAX IN ANY MANNER UNDER ANY HEAD OF INCOME. IT IS NOT LIABLE FOR TAX FOR TH E ASSESSMENT YEAR UNDER CONSIDERATION IN TERMS OF SECTIONS 2(24), 28, 45 AND 56 OF THE INCOME-TAX ACT, 1961. CARBON CREDITS ARE MADE AVAIL ABLE TO THE ASSESSEE ON ACCOUNT OF SAVING OF ENERGY CONSUMPTION AND NOT BECAUSE OF ITS BUSINESS. FURTHER, IN OUR OPINION, CARBON CR EDITS CANNOT BE CONSIDERED AS A BI-PRODUCT. IT IS A CREDIT GIVEN TO THE ASSESSEE UNDER THE KYOTO PROTOCOL AND BECAUSE OF INTERNATIONAL UND ERSTANDING. THUS, THE ASSESSEES WHO HAVE SURPLUS CARBON CREDITS CAN S ELL THEM TO OTHER ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 68 ASSESSEES TO HAVE CAPPED EMISSION COMMITMENT UNDER THE KYOTO PROTOCOL. TRANSFERABLE CARBON CREDIT IS NOT A RESUL T OR INCIDENCE OF ONES BUSINESS AND IT IS A CREDIT FOR REDUCING EMISSIONS. THE PERSONS HAVING CARBON CREDITS GET BENEFIT BY SELLING THE SAME TO A PERSON WHO NEEDS CARBON CREDITS TO OVERCOME ONES NEGATIVE POINT CAR BON CREDIT. THE AMOUNT RECEIVED IS NOT RECEIVED FOR PRODUCING AND/O R SELLING ANY PRODUCT, BI-PRODUCT OR FOR RENDERING ANY SERVICE FO R CARRYING ON THE BUSINESS. IN OUR OPINION, CARBON CREDIT IS ENTITLEM ENT OR ACCRETION OF CAPITAL AND HENCE INCOME EARNED ON SALE OF THESE CR EDITS IS CAPITAL RECEIPT. FOR THIS PROPOSITION, WE PLACE RELIANCE ON THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF CIT V . MAHESHWARI DEVI JUTE MILLS LTD . (57 ITR 36) WHEREIN HELD THAT TRANSFER OF SURPLUS LOOM HOURS TO OTHER MILL OUT OF THOSE ALLOTTED TO THE ASSESSEE UNDER AN AGRE EMENT FOR CONTROL OF PRODUCTION WAS CAPITAL RECEIPT AND NOT INCOME. BEIN G SO, THE CONSIDERATION RECEIVED BY THE ASSESSEE IS SIMILAR T O CONSIDERATION RECEIVED BY TRANSFERRING OF LOOM HOURS. THE SUPREME COURT CONSIDERED THIS FACT AND OBSERVED THAT TAXABILITY OF PAYMENT R ECEIVED FOR SALE OF LOOM HOURS BY THE ASSESSEE IS ON ACCOUNT OF EXPLOIT ATION OF CAPITAL ASSET AND IT IS CAPITAL RECEIPT AND NOT AN INCOME. SIMILA RLY, IN THE PRESENT CASE THE ASSESSEE TRANSFERRED THE CARBON CREDITS LIKE LO OM HOURS TO SOME OTHER CONCERNS FOR CERTAIN CONSIDERATION. THEREFORE , THE RECEIPT OF SUCH CONSIDERATION CANNOT BE CONSIDERED AS BUSINESS INCO ME AND IT IS A CAPITAL RECEIPT. ACCORDINGLY, WE ARE OF THE OPINION THAT THE CONSIDERATION RECEIVED ON ACCOUNT OF CARBON CREDITS CANNOT BE CON SIDERED AS INCOME TAXABLE IN THE ASSESSMENT YEAR UNDER CONSIDERATION. CARBON CREDIT IS NOT AN OFFSHOOT OF BUSINESS BUT AN OFFSHOOT OF ENVIRONM ENTAL CONCERNS. NO ASSET IS GENERATED IN THE COURSE OF BUSINESS BUT IT IS GENERATED DUE TO ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 69 ENVIRONMENTAL CONCERNS. CREDIT FOR REDUCING CARBON EMISSION OR GREENHOUSE EFFECT CAN BE TRANSFERRED TO ANOTHER PAR TY IN NEED OF REDUCTION OF CARBON EMISSION. IT DOES NOT INCREASE PROFIT IN ANY MANNER AND DOES NOT NEED ANY EXPENSES. IT IS A NATURE OF E NTITLEMENT TO REDUCE CARBON EMISSION, HOWEVER, THERE IS NO COST OF ACQUI SITION OR COST OF PRODUCTION TO GET THIS ENTITLEMENT. CARBON CREDIT I S NOT IN THE NATURE OF PROFIT OR IN THE NATURE OF INCOME. 80. THE ABOVE DECISION OF ITAT HYDERABAD BENCH IS A PPROVED BY HONBLE HIGH COURT OF ANDHRA PRADESH IN CIT VS. MY HOME POWER LTD. 365 ITR 82 WHERE IT WAS HELD AS UNDER:- WE HAVE CONSIDER THE AFORESAID SUBMISSION AND WE AR E UNABLE TO ACCEPT THE SAME, AS THE LD. TRIBUNAL HAS FACTUALLY FOUND THAT CARBON CREDIT IS NOT AN OFFSHOOT OF BUSINESS BUT AN OFFSHO OT OF ENVIRONMENTAL CONCERNS. NO ASSET IS GENERATED IN COURSE OF BUSINE SS BUT IT IS GENERATED DUE TO ENVIRONMENTAL CONCERNS. WE AGREE WITH THIS FACTUAL ANALYSIS AS THE ASSESSEE IS CARRYING ON THE BUSINES S OF POWER GENERATION. ON THE SALE OF EXCESS CARBON CREDITS TH E INCOME WAS RECEIVED AND HENCE AS CORRECTLY HELD BY THE TRIBUNA L IT IS A CAPITAL RECEIPT AND IT CANNOT BE BUSINESS RECEIPT OR INCOME . 81. THE HONBLE ITAT JAIPUR BENCH IN CASE OF SHREE CEMENT LIMITED 100 DTR 33 DT. 27.01.14 HAS ALSO HELD THAT RECEIPT FROM SALE OF CERS IS CAPITAL RECEIPT NOT LIABLE FOR TAX AT ALL. THE RELE VANT FINDING OF HONBLE ITAT IS AS UNDER:- ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 70 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E EVIDENCE ON RECORD. WE FIND THAT THE APPELLATE TRIBUNAL IN MY H OME POWER LTD VS. DCIT [SUPRA], HAVE, AFTER DETAILED EXAMINATION, CON CLUDED THAT THE RECEIPTS FROM CARBON CREDIT ARE CAPITAL IN NATURE. WE ARE INCLINED TO FOLLOW THE SAID DECISION AND THE OTHER TWO DECISION S OF CHENNAI TRIBUNAL IN SRI VELAYUDHASWAMY SPINNING MILLS (P.) LTD. VS. DCIT [SUPRA] AND AMBIKA COTTON MILLS LTD. VS. DCIT (SUPRA) WHERE ALS O IT HAS BEEN HELD THAT RECEIPT ON ACCOUNT OF CARBON CREDIT IS CAPITAL IN NATURE & NEITHER CHARGEABLE TO TAX UNDER THE HEAD BUSINESS INCOME NO R LIABLE TO TAX UNDER THE HEAD CAPITAL GAINS. OUR ABOVE VIEW IS ALS O SUPPORTED BY THE DECISION OF SUPREME COURT IN THE CASE OF VODAFONE I NTERNATIONAL HOLDINGS VS. UOI [SUPRA] WHEREIN SUPREME COURT HAS HELD THAT TREATMENT OF ANY PARTICULAR ITEM IN DIFFERENT MANNE R IN THE 1961 ACT AND DTC SERVES AS AN IMPORTANT GUIDE IN DETERMINING THE TAXABILITY OF SAID ITEM. SINCE DTC BY VIRTUE OF THE DEEMING PROVISIONS SPECIFICALLY PROVIDES FOR TAXABILITY OF CARBON CREDIT AS BUSINE SS RECEIPT AND INCOME TAX ACT DOES NOT DO SO, OUR VIEW GETS DULY FORTIFIE D BY THE PRINCIPLES STATED IN THE ABOVE DECISION OF SUPREME COURT. ACCO RDINGLY THIS GROUND OF THE ASSESSEE IS ALLOWED AND THE ADDITION MADE BY THE AO IS DELETED. FOLLOWING THIS DECISION, THE HONBLE BENCH IN CASE OF RSMM LTD. IN ITA NO.144/JP/14 & 124/JP/14 FOR AY 2010-11 DT.12.02.20 16 HAS AGAIN HELD THAT THE RECEIPT FROM SALE OF CER IS A CAPITAL RECE IPT. 82. THIS ISSUE IS ALSO DECIDED IN FAVOUR OF THE ASS ESSEE BY THE FOLLOWING TRIBUNAL DECISIONS WHERE SUCH RECEIPTS WE RE HELD TO BE CAPITAL RECEIPTS: ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 71 - M/S. SUBHASH KABINI POWERS VS. CIT ITA NO.258/BAN GLORE/2014, AY 2009-10 DATED 28.11.2014 AFFIRMED BY HONBLE KAR NATAKA HIGH COURT (2016) 385 ITR 592 - AMBICA COTTONS MILLS LTD. VS. DCIT ITA NO.1836/MD S./2012 AY 2009-10 DATED 16.04.2013 - SRI VELAYUDHASWAMMY SPINNING MILLS (P)LTD. VS. DC IT 40 TAXMANN.COM141 (CHENNAI)/ 27 ITR (TRIB) 106 (CHENNA I) DATED 12.06.2013 - ARUN TEXTILE P. LIMITED V. ACIT 36 ITR(TRIB) 300 (CHENNAI) IN VIEW OF ABOVE DISCUSSION, THE AO BE DIRECTED TO EXCLUDE THE SALE/STOCK OF CARBON FINANCIAL INSTRUMENTS IN COMPU TING THE TOTAL INCOME OF THE ASSESSEE BEING A CAPITAL RECEIPT. 83. WE HAVE HEARD THE RIVAL CONTENTIONS AND PURSUED THE MATERIAL AVAILABLE ON RECORD. THE ISSUE UNDER CONSIDERATION RELATES TO WHETHER THE INCOME RECEIVED BY THE ASSESSEE COMPANY FROM SA LE OF CARBON FINANCIAL INSTRUMENTS/ STOCK OF SUCH INSTRUMENTS IS ELIGIBLE FOR DEDUCTION U/S 80IA(4) OF THE ACT. THE LD AR HAS DR AWN OUR REFERENCE TO THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN CASE OF MY HOME POWER LTD (SUPRA) WHEREIN IT WAS HELD THAT CARBON CREDIT IS NOT AN OFFSHOOT OF BUSINESS BUT AN OFFSHOOT OF ENVIRONMENT AL CONCERNS AND RECEIPT ON SALE OF EXCESS CARBON CREDITS IS A CAPIT AL RECEIPT AND NOT A BUSINESS RECEIPT. IN THE INSTANT CASE, THE ASSESS EE HAS SUO-MOTO OFFERED THESE RECEIPTS AS BUSINESS RECEIPTS AND INC LUDED IN ITS GROSS TOTAL INCOME. THE ASSESSEE HAS THEREAFTER CLAIMED T HESE RECEIPTS AS ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 72 DERIVED FROM ELIGIBLE BUSINESS AND CLAIMED DEDUCTIO N UNDER SECTION 80IA OF THE ACT. NOW, WHEN THE REVENUE HAS CHALLENGED T HE CLAIM OF DEDUCTION UNDER SECTION 80IA, THE LD AR HAS MAINTAI NED ITS POSITION BEFORE THE LD CIT(A) THAT SUCH RECEIPTS ARE DERIVED FROM ELIGIBLE BUSINESS AND ARE ELIGIBLE FOR DEDUCTION UNDER SECTI ON 80IA OF THE ACT. THE LD CIT(A) HAS HELD THAT SUCH RECEIPTS ARE AKIN TO IMPORT ENTITLEMENT LIKE DUTY DRAWBACK, AND DUE TO LACK OF FIRST DEGREE NEXUS AND FOLLOWING THE HONBLE SUPREME COURT DECISION IN CASE OF LIBER TY INDIA, SHE HAS CONFIRMED THE DENIAL OF DEDUCTION ON RECEIPTS UNDER SECTION 80IA OF THE ACT. NOW, BEFORE US, THE LD AR HAS COME UP WITH A FRESH CONTENTION THAT SUCH RECEIPT IS A CAPITAL RECEIPT AND SHOULD B E EXCLUDED IN COMPUTING THE TOTAL INCOME. SUCH CONTENTION HAS BE EN RAISED WHILE PRESSING THE GROUND OF APPEAL RELATING TO NON-ALLOW ANCE OF DEDUCTION BY THE AO IN RESPECT OF SUCH RECEIPTS UNDER SECTION 80 IA OF THE ACT. IN OUR VIEW, ON COMBINED READING OF SECTION 80IA(1) READ W ITH SECTION 80IA(5), WHERE THE RECEIPT IS HELD TO BE A CAPITAL RECEIPT AND NOT A BUSINESS RECEIPT, THE QUESTION OF DETERMINATION OF SUCH RECEIPTS AS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA OF THE AC T DOESNT ARISE FOR CONSIDERATION. THE REASON FOR THE SAME IS THAT FIR STLY, THE RECEIPT HAS TO FORM PART OF GROSS TOTAL INCOME AND THEREAFTER, WHE RE SUCH RECEIPTS ARE DERIVED FROM THE ELIGIBLE BUSINESS, IT IS HELD ELIG IBLE FOR DEDUCTION. WHERE THE RECEIPTS ARE IN THE NATURE OF CAPITAL REC EIPTS, IT DOESNT GET INCLUDED IN THE GROSS TOTAL INCOME. IN THE INSTANT CASE, THE ASSESSEE COMPANY HAS SUO-MOTO OFFERED THESE RECEIPTS TO TAX AND INCLUDED IT IN ITS GROSS TOTAL INCOME. IN SUCH A SITUATION, THE A SSESSEE CANNOT PLEAD NOW THAT SINCE THE REVENUE HAS DENIED THE DEDUCTION HOLDING THAT SUCH RECEIPTS ARE NOT DERIVED FROM THE ELIGIBLE BUSINESS , THE ASSESSEE SHOULD ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 73 BE ALLOWED TO CONTEND THAT SUCH RECEIPTS ARE NOT IN CLUDIBLE IN GROSS TOTAL INCOME ITSELF BEING IN THE NATURE OF CAPITAL RECEIP TS. FURTHER, NO ARGUMENTS HAVE BEEN CANVASSED BEFORE US TO CONTROVE RT THE FINDINGS OF THE LOWER AUTHORITIES THAT THESE RECEIPTS ARE NOT D ERIVED FROM THE ELIGIBLE BUSINESS OF POWER PLANTS. INFACT, THE DEC ISION OF THE HONBLE KARNATAKA HIGH COURT IN CASE OF MY HOME POWER LTD ( SUPRA) HOLDS SUCH RECEIPTS AS NOT EVEN BUSINESS RECEIPT AT FIRST PLAC E. IN SUCH A CASE, THE QUESTION OF SUCH RECEIPTS DERIVED FROM ELIGIBLE BUS INESS ALSO DOESNT ARISE. IN LIGHT OF ABOVE, WE CONFIRM THE FINDINGS OF THE LD CIT(A) IN THIS REGARD AND CONFIRM THE DISALLOWANCE OF DEDUCTION UN DER SECTION 80IA(4) IN RESPECT OF THE INCOME AMOUNTING TO RS 1,12,06,08 5 RECEIVED BY THE ASSESSEE COMPANY FROM SALE OF CARBON FINANCIAL INST RUMENTS/ STOCK OF SUCH INSTRUMENTS WHICH HAS BEEN SUO-MOTO OFFERED TO TAX AS BUSINESS RECEIPTS IN ITS RETURN OF INCOME. 84. IN RESPECT OF THE THIRD ISSUE, IT WAS SUBMITTED THAT OUT OF THE SEVEN POWER PLANTS ESTABLISHED BY THE ASSESSEE, FOU R POWER PLANTS ARE IN THE DISTRICT OF JAISALMAR AND ONE EACH IN THE DI STRICT OF RAJSAMAND, JODHPUR AND JHUNJHUNU. ALL THE PLANTS HAVE BEEN GIV EN TO THE OPERATORS FOR OPERATION AND MAINTENANCE AS PER THE AGREEMENT EXECUTED BY THEM. AS PER THE AGREEMENT, ASSESSEE IS LIABLE TO PAY SPE CIFIED AMOUNTS AS PER THE GENERATION OF POWER FOR OPERATING AND MAINT AINING EXPENSES OF THE PLANT. THEREFORE, ASSESSEE IS NOT REQUIRED TO E MPLOY ANY PERSON FOR DAY TO DAY OPERATION OF PLANT OR TO INCUR ANY OTHER EXPENDITURE IN RELATION TO IT. ALL THE DIRECT EXPENSES RELATING TO THESE POWER PLANTS I.E. EXPENDITURE ON OPERATION AND MAINTENANCE, REPAIR AN D MAINTENANCE, INTEREST AND FINANCIAL EXPENSES, DEPRECIATION, INSU RANCE PREMIUM AND ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 74 LEASE RENT AGGREGATING TO RS.21,92,74,325/- HAS BEE N CONSIDERED BY THE ASSESSEE FOR WORKING OUT THE ELIGIBLE PROFIT OF THE SE POWER GENERATING UNITS. THEREFORE, NO PART OF THE EXPENDITURE ON PAY MENT TO EMPLOYEES AND ADMINISTRATIVE/ESTABLISHMENT EXPENSES NEEDS TO BE ALLOCATED AGAINST THE POWER GENERATING UNITS. 85. SO FAR AS THE EXPENDITURE OF RS.2,97,08,935/- O N ACCOUNT OF PAYMENT AND PROVISION TO EMPLOYEES ARE CONCERNED, I T WAS SUBMITTED THAT SUCH EXPENDITURE IS ON ACCOUNT OF OTHER PROMOT IONAL ACTIVITIES OF THE ASSESSEE AGAINST WHICH ASSESSEE HAS DECLARED AN INCOME OF RS.12,01,48,172/-. FROM THE EMPLOYEE-WISE DETAILS O F THE EXPENDITURE ENCLOSED HEREWITH, IT CAN BE NOTED THAT SALARY TO T HE EMPLOYEES WHO ARE EXCLUSIVELY EMPLOYED TOWARDS PROMOTIONAL ACTIVI TIES IS OF RS.2,62,33,210/-. HENCE, THIS AMOUNT CANNOT BE ALLO CATED TOWARDS THE POWER PROJECT. THE REMAINING SALARY OF RS.26,22,075 /- IS BOTH TOWARDS THE PROMOTIONAL ACTIVITIES AND THE POWER PROJECT. T HEREFORE, ONLY THIS AMOUNT OF SALARY CAN AT THE MOST BE ALLOCATED TOWAR DS THE POWER PLANTS IN THE RATIO OF THE TURNOVER OF THE POWER PLANTS TO THE TOTAL TURNOVER OF THE ASSESSEE. THE CIT(A) IS NOT CORRECT IN ALLOCATI NG THE ENTIRE EXPENDITURE ON SALARY ON PROPORTIONATE BASIS INSTEA D OF ALLOCATING ONLY A PART OF SUCH SALARY. IF THIS AMOUNT OF RS.26,22,075 /- IS ALLOCATED IN THE RATIO OF THE TURNOVER, THE EXPENDITURE RELATING TO THE POWER GENERATING UNIT WOULD BE RS.17,44,509/- (26,22,075*28,33,95,22 5/42,59,55,582). BEFORE THE CIT(A) ASSESSEE REQUESTED THAT CONSIDERI NG THE INVOLVEMENT OF THE EMPLOYEES TOWARDS POWER PROJECT, ONLY 5% OF THE SALARY I.E. RS.14,85,447/- BE CONSIDERED IN WORKING OUT THE DED UCTION U/S 80IA. IN THESE CIRCUMSTANCES, CONSIDERING THE SPECIFIC DETAI LS, ONLY AN AMOUNT OF ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 75 RS.17,44,509/- CAN BE CONSIDERED AS EXPENSES ON SAL ARY ATTRIBUTABLE TO THE POWER GENERATING UNDERTAKINGS. 86. SO FAR AS EXPENDITURE OF RS.88,61,651/- UNDER T HE HEAD ADMINISTRATIVE/ESTABLISHMENT AND OTHER EXPENSES IS CONCERNED, AN AMOUNT OF RS.33,02,080/- IS ALREADY CONSIDERED BY T HE ASSESSEE IN WORKING OUT THE INCOME FROM POWER PROJECT AND AN AM OUNT OF RS.5,27,172/- EXCLUSIVELY RELATE TO THE INCOME FROM PROMOTIONAL AND OTHER ACTIVITIES. THIS HAS BEEN ACCEPTED BY THE LD. CIT(A) ALSO. AFTER EXCLUDING THE SAME, THE REMAINING EXPENDITURES ARE RS.50,32,399/-. THESE EXPENDITURE ARE IN NATURE OF FEES AND SUBSCRI PTION (RS.4,95,825/- ), LEGAL AND PROFESSIONAL EXPENSES (RS.8,63,914/-), PRINTING AND STATIONARY (RS.1,72,703/-) AND OTHER EXPENSES LIKE AUDIT FEES, ELECTRICITY CHARGES, FAX, COURIER AND PHOTO STATE EXPENSES, REP AIRS OF OFFICE EQUIPMENTS/BUILDING ETC. THESE EXPENSES HAVE NO REL ATION WITH THE POWER GENERATING UNDERTAKING. STILL THE ASSESSEE ON A FAIR BASIS REQUESTED THE CIT(A) TO CONSIDER ONLY 5% OF SUCH EX PENSES OF RS.50,32,399/- I.E. RS.2,51,619/- AS ATTRIBUTABLE T O POWER GENERATING UNITS. HOWEVER, THE CIT(A) WITHOUT ANY BASIS AND WI THOUT CONSIDERING THE NATURE OF THE EXPENDITURE HELD ON THE BASIS OF HIS FINDING IN AY 2011-12 THAT THE CLAIM OF ASSESSEE IS WITHOUT ANY B ASIS. THIS FINDING OF THE CIT(A) IS NOT CORRECT AND THEREFORE EVEN IF AN ALLOCATION IS TO BE MADE, IT SHOULD BE RESTRICTED TO RS.2,51,619/- ONLY . IN VIEW OF ABOVE, THE AO BE DIRECTED TO REWORK OUT THE CLAIM OF DEDUC TION U/S 80-IA IN LIGHT OF THE SUBMISSION GIVEN ABOVE. ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 76 87. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. REGARDING ALLOCATION OF EMPLOY EE COSTS AND ADMINISTRATIVE/ESTABLISHMENT EXPENSES ARE CONCERNED , WE HAVE DEALT WITH THE ISSUE IN AY 2011-12 IN GREAT DETAIL. IT I S NOTED THAT COMMON HEAD OFFICE EXPENSES PERTAINING TO EMPLOYEES HAS BE EN STATED TO BE RS 26,22,075 AND PERTAINING TO ADMINISTRATIVE/ESTABLIS HMENT EXPENSES COMES TO RS 50,32,399. THE AO IS ACCORDINGLY DIREC TED TO ALLOCATE THESE COMMON EXPENSES TO THE POWER GENERATING UNITS IN THE RATIO OF THEIR TURNOVER TO THE TOTAL TURNOVER OF THE ASSESSE E COMPANY. 88. THE GROUNDS OF ASSESSEE AND REVENUE ARE ACCORDI NGLY DISPOSED OFF WITH ABOVE DIRECTIONS. REVENUES APPEAL ( ITA NO. 88/JP/16) IN ITS APPEAL FOR AY 2012-13, THE REVENUE HAS TAKEN FOLLOWING GROUNDS OF APPEAL: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN DELETING DISALL OWANCE OF CONTRIBUTION TO STATE RENEWAL FUND OF RS. 20,00,000 /- AS MADE BY AO. 2. (A) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCE S OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN DELETING ADDITI ON OF RS. 1,26,059/- MADE FOR DEPOSITING THE EMPLOYEES CONT RIBUTION TO FP &ESI BEYOND THE PRESCRIBED TIME LIMIT PROVIDED I N THE RESPECTIVE ACTS. (B) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN HOLDING THAT EM PLOYEES CONTRIBUTION TO PF &ESI ARE GOVERNED BY THE PROVISI ON OF SECTION 43B AND NOT BY SECTION 36(1) (VA) R.W.S. 2(24)(X) O F I.T.ACT. ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 77 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN DELETING DISALLOWAN CE OF EXPENSES ON RURAL VILLAGE ELECTRIFICATION (RVE) OF RS. 19,02 ,871/- AS MADE BY AO. 4. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN DELETING DISALLOWAN CE OF RVE TRAVELLING EXPENSES OF RS. 58,221/- AS MADE BY AO. 5. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN DELETING DISALLOWAN CE OF REIMBURSEMENT OF CONVEYANCE EXPENSES ( RVE) OF RS. 36,835/- AS MADE BY AO. 6. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN DELETING DISALLOWAN CE OF RVE TRAINING EXPENSES OF RS. 3,02,380/- AS MADE BY AO. 7. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN DELETING DISALLOWAN CE OF CONTRIBUTION TO ENERGY CONSERVATION FUND OF RS. 1,0 0,00,000/- AS MADE BY AO. 8. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN DELETING DISALLOWAN CE OF EXPENSES FOR INFORMATION, EDUCATION AND COMMUNICATION PLAN 2 011-12 (IEC) OF RS. 18,50,580/- AS MADE BY AO. 9. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN DELETING DISALLOWAN CE OF PUBLICITY AND ADVERTISEMENT EXPENSES RS. 3,25,71,656/- AS MA DE BY AO. ASSESSEES GROUND ( ITA NO. 97/JP/16) IN ITS CROSS APPEAL, THE ASSESSEE HAS TAKEN FOLLOWI NG GROUNDS OF APPEAL: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED ON FACTS AND IN LAW IN NOT ALLOWING CLAIM OF DEDUCTION OF RS. 93,32,447/- ON SHORTFALL IN GENERATION AND LOW GENE RATION U/S ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 78 80IA(4) OF INCOME TAX ACT, 1961 HOLDING THAT NOT DE RIVED FROM THE BUSINESS OF POWER GENERATION. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED ON FACTS AND IN LAW AND ITS OWN PRESUMPTIONS AND IG NORING THE FACTS NOT ALLOWING THE CLAIM OF DEDUCTION OF INDIRE CT POWER RELATED INCOME OF RS. 9,40,31,183/- U/S 80IA(4) OF INCOME T AX ACT, 1961. 89. THE RELEVANT FINDINGS OF THE LD. CIT(A) ARE REP RODUCED AS UNDER:- 2.3 I HAVE PERUSED THE FACTS OF THE CASE, THE ASSE SSMENT ORDER AND THE SUBMISSIONS OF THE APPELLANT. IN THE ASSESS MENT YEAR 2011-12 IN ASSESSEES OWN CASE THIS ISSUE HAS BEEN DEALT WITH BY THE CIT(A) AS FOLLOWS:- THE FACTS OF THIS ISSUE ARE SIMILAR TO THE FACTS I N THE CASE OF M/S RAJASTHAN STATE SEEDS CORPORATION LTD. IN A.Y. 2006 -07. IN THIS CASE, THE ITAT, JAIPUR (IN ITA NO. 233/JP/2009) HAS DECIDED THE MATTER IN FAVOUR OF THE ASSESSEE BY HOLDING AS UNDE R:- AS PER THE MEMORANDUM OF STATE RENEWAL FUND SET UP BY THE STATE GOVERNMENT, IT IS CREATED WITH THE OBJECT OF PROVIDING A SAFETY NET FOR THE WORKERS LIKELY TO BE AFFECTED BY RESTRUCTURING IN THE PUBLIC ENTERPRISES. WE ARE THUS OF THE VIEW THA T CONTRIBUTION MADE TO THE SAID FUND IS SOLELY FOR THE PURPOSE OF THE WELFARE AND BENEFIT OF THE EMPLOYEES. THE RAJASTHAN HIGH COURT IN CASE OF CIT V. RAJASTHAN SPINNING AND WEAVING MILLS LIMITED 274 ITR 465 HAS OBSERVED THAT IT IS FOR THE ASSESSEE TO DECIDE WHETHER ANY EXPENDITURE SHOULD BE INCURRED IN COURSE OF BUSINES S. THE EXPENDITURE CAN BE INCURRED VOLUNTARILY AND WITHOUT NECESSITY. ANY CONTRIBUTION MADE BY THE ASSESSEE TO A PUBLIC W ELFARE FUND WHICH IS CONNECTED OR RELATED WITH THIS BUSINESS IS AN ALLOWABLE DEDUCTION U/S 37. AGAIN THE COURT IN THE CASE OF CI T V. SHRI RAJASTHAN SYNTEX LIMITED 221 CTR 410 ( RAJ.) HELD T HAT WHERE ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 79 ASSESSEE GAVE CONTRIBUTION TO THE EMPLOYEES WELFAR E FUND, THE SAME IS ALLOWABLE AS BUSINESS EXPENDITURE. THE CASE RELIED BY AO OF CIT V. JODHPUR CO-OPERATIVE MARKETING SOCIETY 27 5 ITR 372 (RAJ.) IS DISTINGUISHABLE AS IN THIS CASE THE AMOUN T WAS SET APART FOR THE SHAREHOLDERS OF THE SOCIETY WHEREAS IN THE PRESENT CASE AMOUNT WAS PROVIDED FOR THE BENEFIT OF THE EMPLOYE ES. IN VIEW OF THIS THE CONTRIBUTION MADE TO STATE RENEWAL FUND IS ALLOWABLE U/S 37(1). FOLLOWING THE ABOVE JUDGMENT, THE DISALLOWANCE ON A CCOUNT OF CONTRIBUTION TO STATE RENEWAL FUND OF RS. 20,00,000 /- MADE BY THE ASSESSING OFFICER IS DIRECTED TO BE DELETED. TH IS GROUND IS ALLOWED. 3.3 I HAVE PERUSED THE FACTS OF THE CASE, THE ASSE SSMENT ORDER AND THE SUBMISSIONS OF THE APPELLANT. ADMITTEDLY, C ONTRIBUTION OF PF HAS BEEN PAID BY THE APPELLANT, IN ALL INSTANCES , BEFORE THE DUE DATE OF FILING THE RETURN OF INCOME U/S 139(1). THI S FACT IS THEREFORE, NOT IN DISPUTE. IN VIEW OF THE JUDGMENTS OF THE RAJASTHAN HIGH COURT IN THE CASE JAIPUR VIDHYUT VIT HRAN NIGAM LTD. 265CTR 62 (RAJ.), CIT VS. STATE BANK OF BIKANE R & JAIPUR (2014) 99 DTR 131 (RAJ.), AND OTHER CASE LAWS ON TH IS ISSUE, THE CLAIM OF THE APPELLANT IS ALLOWABLE. ACCORDINGLY, T HIS DISALLOWANCE MADE BY THE ASSESSING OFFICER IS, DIRECTED TO BE DE LETED. THIS GROUND IS ALLOWED. 4.3 I HAVE PERUSED THE FACTS OF THE CASE, THE ASSE SSMENT ORDER AND THE SUBMISSIONS OF THE APPELLANT. IN THE ASSESS MENT YEAR 2011-12 IN ASSESSEES OWN CASE THIS ISSUE HAS BEEN DEALT WITH BY THE CIT(A) AS FOLLOW:- THE ASSESSING OFFICER HAS DISALLOWED THE ABOVE EX PENDITURE U/S 37(1) BY HOLDING THAT THIS EXPENDITURE HAS NOT BEEN MADE IN CONNECTION WITH BUSINESS OF THE ASSESSEE VIZ GENERA TION OF ELECTRICITY AND IS NOT DIVERSION BY OVERRIDING TITL E. THE ASSESSING ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 80 OFFICER HAS OVERLOOKED THAT THE APPELLANT IS THE NO DAL AGENCY FOR MNRE AND BEE FOR PROMOTION OF NON CONVENTIONAL AND RENEWABLE ENERGY AS WELL AS FOR THE PROMOTION OF ENERGY CONSE RVATION. THE ASSESSING OFFICER HAS TOTALLY OVERLOOKED THE REVENU E STREAMS ARISING FROM THE ABOVE ACTIVITIES WHILE DECIDING TH AT THESE EXPENDITURES HAVE NOT BEEN INCURRED FOR BUSINESS PU RPOSES. THE ISSUE RELATING TO DIVERSION BY OVERRIDING TITLE DOE S NOT ARISE IN THIS MATTER IN DECIDING THE ALLOWABILITY OF THE ABOVE EX PENDITURE U/S 37(1) AND ALSO THE CASE LAW OF CIT VS. SITALDAS TIR ATHDAS 41 ITR 367 (SC, CITED REPEATEDLY BY THE ASSESSING OFFICER HAS NO RELEVANT TO THE ISSUE AT HAND. THE ASSESSING OFFICE R HAS NOT DOUBTED THE GENUINENESS OF THE EXPENDITURE INCURRED . THE EXPENDITURE ON ACCOUNT OF RURAL VILLAGE ELECTRI FICATION (RVE) FOR F.Y. 2009-10, 2010-11 & RVE TRAVELLING AND VEHI CLE EXPENSES HAS BEEN INCURRED IN ACCORDANCE WITH THE PROGRAMME S OF MNRE RELATING TO RENEWABLE ENERGY (FOR WHICH THE APPELLA NT IS A NODAL AGENCY FOR THE STATE OF RAJASTHAN). THE APPELLANT H AS EARNED INCOME FROM SERVICE CHARGES AS WELL AS FROM APPLICA TION, PROCESSING AND REGISTRATION FEES FROM NEW APPELLANT S. THEREFORE, IT IS HELD THAT THE ABOVE EXPENDITURES HAVE BEEN IN CURRED FOR BUSINESS PURPOSES. AS REGARDS, THE EXPENDITURE ON R VE FOR F.Y. 2009-10, THE ASSESSING OFFICER HAS ALSO STATED THAT THIS EXPENDITURE RELATES TO AN EARLIER PREVIOUS YEAR AND IS IN THE NATURE OF PRIOR PERIOD EXPENSES. THE ITAT HAS HELD IN THE CASE OF RAJASTHAN SAHKARI KRAY VIKRAY SANGH LTD. FOR A.Y. 2 003-04, 2004- 05 AND 2006-07 THAT PRIOR PERIOD EXPENSES ARE ALLOW ABLE ESPECIALLY IN CASES OF GOVERNMENT COMPANIES WHERE A PPROVAL OF EXPENDITURE HAS TO BE TAKEN FROM HIGHER AUTHORITIES BEFORE DEBITING THE BOOKS WHICH MAY TAKE TIME LEADING TO P RIOR PERIOD EXPENSES BEING BOOKED IN A LATER YEAR. THIS SYSTEM OF ACCOUNTING OF EXPENDITURE HAS BEEN REGULARLY FOLLOWED BY THE A PPELLANT. THE GENUINENESS OF THESE EXPENSES HAS NOT BEEN DOUBTED BY THE ASSESSING OFFICER. NOTHING HAS BEEN BROUGHT ON RECO RD TO SHOW THAT THERE HAS BEEN A DISTORTION OF PROFITS OR THAT THE BOOKS OF ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 81 ACCOUNTS DO NOT REFLECT THE CORRECT PICTURE. IN VI EW OF THE ABOVE DISCUSSION, IT IS HELD THAT THE DISALLOWANCE MADE B Y THE ASSESSING OFFICER OF THE ABOVE EXPENDITURE, IS WITHOUT ANY BA SIS AND IS DIRECTED TO BE DELETED. GROUND NO. 3,6,& 7 ARE ALLO WED. FOLLOWING THE ABOVE JUDGMENT, ADDITION MADE BY THE ASSESSING OFFICER ON GROUND 3,6,7 & 8 IS DIRECTED TO BE DELET ED. GROUND NO. 3,6,7 & 8 ARE ALLOWED. 90. IN RESPECT OF GROUND OF APPEAL NO. 1 TO 6, IN A Y 2011-12, SIMILAR GROUNDS OF APPEAL HAVE BEEN RAISED BY THE REVENUE A ND AFTER EXAMINING THE MATTER IN GREAT DETAIL, WE HAVE DISMI SSED THESE GROUNDS OF APPEAL. OUR FINDINGS AND DIRECTIONS CONTAINED I N ITA NO. 159/JP/15 SHALL APPLY MUTATIS MUTANDIS TO THIS APPEAL AS WELL. THE GROUND OF APPEAL NO. 1 TO 6 THE REVENUE ARE THUS DISMISSED. 91. IN RESPECT OF GROUND NO. 7, THE REVENUE HAS CHA LLENGED THE ACTION OF LD CIT(A) IN DELETING DISALLOWANCE OF CON TRIBUTION TO ENERGY CONSERVATION FUND OF RS. 1 CRORE. BRIEF FACTS OF TH E CASE ARE THAT THE ASSESSEE CONTRIBUTED RS.1 CRORE TO STATE ENERGY CON SERVATION FUND TO BE SPENT ON CONSERVATION OF ENERGY AS AND WHEN REQU IRED. THE AO HELD THAT THE CONTRIBUTION SO MADE IS NOT WHOLLY & EXCLU SIVELY FOR ASSESSEE BUSINESS OF GENERATING RENEWABLE ENERGY. HE THEREFO RE, DISALLOWED THE SAME. ON APPEAL, THE LD. CIT(A) BY RELYING ON THE D ECISION OF COORDINATE BENCH IN ASSESSEES OWN CASE IN ITA NO.9 83/JP/13 FOR AY 2008-09 DELETED THE DISALLOWANCE. 92. THE LD AR SUBMITTED THAT THE ISSUE IS COVERED B Y THE DECISION OF HONBLE ITAT IN ASSESSEES OWN CASE FOR AY 2008-09. IT WAS FURTHER ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 82 SUBMITTED THAT THE CONTRIBUTION IS MADE TO RAJASTHA N STATE ENERGY CONSERVATION FUND CONSTITUTED AS PER SECTION 16 OF THE ENERGY CONSERVATION ACT, 2001. THE OBJECT OF THE FUND IS M ENTIONED AT PG 11- 12 OF THE CIT(A) ORDER. THE ASSESSEE IS INCORPORATE D WITH THE OBJECT OF PROMOTING THE NON CONVENTIONAL AND RENEWABLE ENERGY SOURCES AND THEREFORE THE CONTRIBUTION SO MADE IS WHOLLY & EXCL USIVELY FOR THE PURPOSE OF BUSINESS. OTHERWISE ALSO, ANY CONTRIBUTI ON MADE TO A STATUTORY FUND IS ALLOWABLE AS DEDUCTION AS HELD BY SUPREME COURT IN CASE OF CIT VS. NEW HORIZON SUGAR MILLS PVT. LTD.26 9 ITR 397 WHERE IT WAS HELD THAT AMOUNT SET APART TOWARDS MOLASSES STO RAGE RESERVE FUND IS TO BE EXCLUDED FROM ASSESSEES TOTAL INCOME ON T HE PRINCIPLE OF DIVERSION OF INCOME BY OVERRIDING TITLE. IN VIEW OF ABOVE, CIT(A) HAS RIGHTLY DELETED THE DISALLOWANCE AND THUS THE GROUN D OF THE DEPARTMENT BE DISMISSED. 93. THE RELEVANT FINDING OF THE LD. CIT(A) ARE REPR ODUCED AS UNDER:- 5.3 I HAVE PERUSED THE FACTS OF THE CASE, THE ASS ESSMENT ORDER AND THE SUBMISSIONS OF THE APPELLANT. THE FACT OF T HIS ISSUE IS SIMILAR TO THE FACT IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2008-09, APPEAL NO. ITA NO. 983/JP/2013. THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE AS FOLLOW:- THIS AMOUNT WAS PAID TOWARDS ENERGY CONVERSATION C ONTRIBUTION FUND, WHICH IS STATUTORY LIABILITY AS PER PROVISION S OF ENERGY CONSERVATION ACT, 2001. THE CASE LAW RELIED BY THE ASSESSEE OF THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COU RT IN THE CASE OF CIT VS. RAJ SHIPPING AND WEAVING MILLS LTD. (SUP RA) IS SQUARELY APPLICABLE IN THE CASE OF THE ASSESSEE WHEREIN IT H AS BEEN HELD THAT CONTRIBUTION TO THE FUND SET UP FOR PRODUCTS W HICH WAS ALSO ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 83 THE BUSINESS OF THE ASSESSEE HAS DIRECT NEXUS TO TH E ADVANCEMENT OF THE ASSESSEE BUSINESS. FOLLOWING THE ABOVE JUDGMENT, THE DISALLOWANCE ON A CCOUNT OF CONTRIBUTION TO ENERGY CONSERVATION FUND OF RS. 1,0 0,00,000/- MADE BY THE ASSESSING OFFICER IS DIRECTED TO BE DEL ETED. THIS GROUND IS ALLOWED. 94. UNDISPUTEDLY, THERE IS NO CHANGE IN THE FACTS A ND CIRCUMSTANCES OF THE CASE OR ANY AUTHORITY WHICH HAS BEEN BROUGHT TO OUR NOTICE SUBSEQUENT TO THE DECISION OF THE COORDINATE BENCH IN ASSESSEES OWN CASE IN AY 2008-09. RESPECTFULLY FOLLOWING THE DEC ISION OF THE COORDINATE BENCH REFERRED SUPRA, WE AFFIRM THE FIND INGS OF THE LD CIT(A) AND THE GROUND TAKEN BY THE REVENUE IS DISMISSED. 95. IN RESPECT OF GROUND NO. 8, THE REVENUE HAS CHA LLENGED THE ACTION OF LD CIT(A) IN DELETING DISALLOWANCE OF EXP ENSES FOR INFORMATION, EDUCATION & COMMUNICATION PLAN 2011-12 (IEC) OF RS. 18,50,580/-. THE OBJECTIVE OF THE PLAN WAS MASS COMMUNICATION AND PU BLIC AWARENESS FOR THE USE OF RES AND ENERGY CONSERVATION FOR WHICH VA RIOUS TOOLS LIKE NEWSPAPERS, BROCHURES, LEAFLETS, POSTERS, MAGAZINES , TELEVISION, FM RADIO, CINEMA SLIDES, DISPLAY BOARDS ETC. WERE DEPL OYED. FOR THIS PURPOSE, ASSESSEE INCURRED EXPENDITURE OF RS.18,50, 580/- ON ACCOUNT OF IEC PLAN 2011-12 AND CLAIMED THE SAME IN ITS P&L A/C. THE AO MADE DISALLOWANCE OF RS.18,50,580/- BY HOLDING THAT THE EXPENDITURE HAS NOT BEEN INCURRED WHOLLY AND EXCLUSIVELY IN CON NECTION WITH THE GENERATION OF ELECTRICITY WHICH IS THE BUSINESS OF THE ASSESSEE, THE EXPENDITURE IS NOT INCIDENTAL TO THE BUSINESS OF TH E ASSESSEE, THE ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 84 ASSESSEE IS MIXING APPLICATION OF INCOME WITH THE E XPENDITURE WHEN IT IS A CLEAR CUT CASE OF APPLICATION OF INCOME, THE EXPE NDITURE NEITHER HAS ANY BUSINESS EXPEDIENCY NOR IT IS DIVERSION OF INCO ME BY OVERRIDING TITLE AND MERELY BECAUSE SOMETHING IS INCLUDED IN THE OBJ ECTS OF THE ASSESSEE CANNOT JUSTIFY THE ALLOWABILITY OF CLAIM U /S 37(1) OF THE IT ACT, 1961. 96. THE LD. CIT(A) DELETED THE DISALLOWANCE BY FOL LOWING HIS ORDER FOR AY 2011-12 WHERE FOLLOWING FINDINGS WERE GIVEN:- 6.3 I HAVE PERUSED THE FACTS OF THE CASE, THE ASS ESSMENT ORDER AND THE SUBMISSIONS OF THE APPELLANT. IN THE ASSESS MENT YEAR 2011-12, APPEAL NO. 334/13-14 IN ASSESSEES OWN CAS E THIS ISSUE HAS BEEN DEALT WITH BY THE CIT(A) AS FOLLOW:- THE APPELLANT IS THE NODAL AGENCY OF MNRE FOR POPU LARIZING THE USAGE OF RENEWABLE ENERGY SOURCE (RES) AND ALSO THE STATE DESIGNATED AGENCY FOR ENERGY CONSERVATION. THIS EXP ENDITURE UNDER THE IEC PLAN HAS BEEN INCURRED FOR GENERATING PUBLIC AWARENESS ABOUT RES AND ENERGY CONSERVATION. A PART OF THIS EXPENDITURE WAS CONTRIBUTED BY MNRE AND OTHER AGENC IES WHILE THE BALANCE AMOUNT HAS TO BE CONTRIBUTED BY THE APP ELLANT. IT IS THIS SUM CONTRIBUTED BY THE APPELLANT WHICH HAS BEE N DISALLOWED BY THE ASSESSING OFFICER WITHOUT UNDERSTANDING THE NATURE OF THE BUSINESS OF THE APPELLANT AND TAKING INTO CONSIDERA TION THE REVENUE STREAMS ARISING FROM THESE ACTIVITIES. THER EFORE, IT IS HELD THAT THE ABOVE EXPENDITURE HAS BEEN INCURRED FOR BU SINESS PURPOSES. IN VIEW OF THE ABOVE DISCUSSION, IT IS HE LD THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER OF THE A BOVE EXPENDITURE, IS WITHOUT ANY BASIS AND IS DIRECTED T O BE DELETED. GROUND NO. 5 IS ALLOWED. ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 85 97. DURING THE COURSE OF HEARING, THE LD. AR SUBMIT TED THAT THE ASSESSEE IS ENGAGED IN THE ACTIVITY OF SALE OF ELEC TRICITY GENERATED THROUGH WIND/SOLAR BASED POWER PROJECTS AND ACTIVIT Y OF PROVIDING ASSISTANCE TO VARIOUS ENTREPRENEURS FOR SETTING UP POWER GENERATION PLANTS THROUGH NON-CONVENTIONAL ENERGY SOURCES. THE EXPENDITURE THUS INCURRED BY THE ASSESSEE ON MASS COMMUNICATION AND PUBLIC AWARENESS FOR THE USE OF RENEWABLE ENERGY SOURCES AND ENERGY CONSERVATION UNDER IEC PLAN 2011-12 IS WHOLLY AND EXCLUSIVELY FOR TH E PURPOSE OF ITS BUSINESS MORE SO WHEN THE SAME IS AS PER ITS OBJECT AS STATED IN THE MOA AND THE ASSESSEE IS A STATE NODAL AGENCY OF MNR E AND ALSO A STATE DESIGNATED AGENCY REQUIRED FOR POPULARIZING THE USE OF RENEWABLE ENERGY SOURCES AND PROMOTE ENERGY CONSERVATION MEAS URES. THE AO HAS NOT DOUBTED THE GENUINENESS OF THE EXPENDITURE. HENCE, THE EXPENDITURE INCURRED BY THE ASSESSEE IS ALLOWABLE T O IT U/S 37(1). 98. IT WAS FURTHER SUBMITTED THAT DUE TO THE EXPEND ITURE INCURRED BY THE ASSESSEE ON SUCH AWARENESS PROGRAMME, VARIOUS E NTREPRENEURS HAVE COME TO RAJASTHAN FOR DEVELOPMENT AND GENERATI ON OF ELECTRICITY THROUGH NON-CONVENTIONAL SOURCES OF ENERGY FROM WHO M THE ASSESSEE HAS RECEIVED REGISTRATION/PROCESSING FEES ON THE PL ANTS INSTALLED BY THEM WHICH IS A PART OF THE RECEIPT OF RS.16.77 CRO RES CREDITED TO THE P&L A/C. THE AO HAS COMPLETELY OVERLOOKED THIS REVE NUE STREAM OF THE ASSESSEE IN DISALLOWING THE EXPENDITURE. IN VIEW OF ABOVE, CIT(A) HAS RIGHTLY DELETED THE DISALLOWANCE AND THUS THE GROUN D OF THE DEPARTMENT BE DISMISSED. ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 86 99. IN ITA NO. 202/JP/15 FOR AY 2011-12, SIMILAR G ROUND OF APPEAL HAVE BEEN RAISED BY THE REVENUE AND AFTER EXAMINING THE MATTER IN GREAT DETAIL, WE HAVE DISMISSED THE SAID GROUND OF APPEAL. OUR FINDINGS AND DIRECTIONS CONTAINED IN ITA NO. 202/JP/15 SHALL APPLY MUTATIS MUTANDIS TO THIS APPEAL AS WELL. THE GROUND OF THE REVENUE IS THUS DISMISSED. 100. IN RESPECT OF GROUND NO. 9, THE REVENUE HAS CH ALLENGED THE ACTION OF LD CIT(A) IN DELETING DISALLOWANCE OF PUB LICITY AND ADVERTISEMENT EXPENSES OF RS. 3,25,71,656/- ON ACCO UNT OF TOPOGRAPHIC SURVEY, RECRUITMENTS, TECHNICAL INVESTIGATION, PRIN TING OF ENERGY POLICY, INVITING TENDERS, ETC. THE AO OBSERVED THAT THESE E XPENDITURES ARE IN THE NATURE OF DEVELOPMENT/EXPLORATION OF NEW BUSINE SS AND DISALLOWED THE SAME. THE LD. CIT(A) AFTER CONSIDERING THE NATU RE OF THE EXPENDITURE WHICH LARGELY RELATED TO PAYMENT TO ADV ERTISEMENT, PRINTING & PUBLISHING AGENCIES ALLOWED THE EXPENDITURE INCUR RED BY THE ASSESSEE. 101. DURING THE COURSE OF HEARING, THE LD AR SUBMI TTED THAT THE OBJECT OF THE ASSESSEE IS TO PROMOTE AND FACILITATE ENERGY CONSERVATION MEASURES. FOR THIS PURPOSE IT CARRIES OUT MASS COMM UNICATION IN PUBLIC AWARENESS PROGRAMS BY PUBLICATION OF AKSHAY URJA SA NDESH ON QUARTERLY BASIS, DISTRIBUTING BROCHURES, LEAFLETS & HAND BILLS AND ADVERTISING THROUGH TV, RADIO, CABLE NETWORK, CINEM A SLIDES, DISPLAY BOARDS, HOARDINGS, ETC. AS A RESULT, ASSESSEE RECEI VED A SUM OF RS.16.77 CRORES AS REGISTRATION FEES FROM VARIOUS ENTREPRENE URS FOR SETTING RENEWABLE ENERGY PLANTS. ONLY AN AMOUNT OF RS.3.50 LACS IS INCURRED FOR ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 87 TOPOGRAPHIC SURVEY WHICH IS ALSO A PART OF ITS BUSI NESS ACTIVITY. HENCE, THE EXPENDITURE INCURRED BY THE ASSESSEE ON ADVERTI SEMENT IS WHOLLY & EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND THE SAM E IS ALLOWABLE U/S 37(1). IN VIEW OF ABOVE, LD CIT(A) HAS RIGHTLY DELE TED THE DISALLOWANCE AND THUS THE GROUND OF THE DEPARTMENT BE DISMISSED 102. THE RELEVANT FINDING OF THE LD. CIT(A) ARE REP RODUCED AS UNDER:- 7.3 I HAVE PERUSED THE FACTS OF THE CASE, THE ASSE SSMENT ORDER AND THE SUBMISSIONS OF THE APPELLANT. THE ASSESSING OFFICER HAS MADE THE DISALLOWANCE UNDER THIS HEAD AS HE FOUND T HAT THE EXPENDITURE HAD BEEN INCURRED FOR TOPOGRAPHIC SURVE Y, RECRUITS MEMBERS, TECHNICAL INVESTIGATIONS, PRINTING OF ENER GY POLICY AND INVITING TENDERS ETC. AND WAS OF THE OPINION THAT T HIS SEEMED IN THE NATURE OF NEW BUSINESS DEVELOPMENT AND EXPLORAT ION OF BUSINESS OPPORTUNITY. FURTHER, IT WAS ALSO FELT THA T THIS EXPENDITURE HAD INCREASED EXCEPTIONALLY DURING THE YEAR ALMOST 4 TIMES. IN THE PRESENT PROCEEDINGS, THE AR IN HIS WRITTEN S UBMISSIONS HAS STATED THAT THE ASSESSEE COMPANY BEING THE STATE NO DAL AGENCY OF THE MINISTRY OF NEW & RENEWABLE ENERGY DEPARTMEN T, GOVT. OF INDIA, IS REQUIRED TO POPULARIZE THE USAGE OF RENEW ABLE ENERGY SOURCE & POLICY DEPLOYMENT TOO. FURTHER, IN THE F.Y. 2010-11, THE STATE GOVERNMENT OF RAJASTHAN, ISSUED RAJASTHAN SOLAR ENERGY POLICY, 2011 VIDE NO TIFICATION NO. F.20(6) ENERGY/2010 DATED 19.04.2011 FOR THE PROMOT ION THE SOLAR ENERGY IN RAJASTHAN, PRIOR TO ENACTMENT TO TH IS POLICY, THE PROMOTION OF SOLAR ENERGY WAS BEING DONE UNDER THE POLICY FOR PROMOTING GENERATION OF ELECTRICITY THROUGH NON-CON VENTIONAL ENERGY SOURCES, 2004. THE COMPANY WAS ALSO APPOINTED AS NODAL AGENCY FOR SINGLE WINDOW CLEARANCE OF PROJECT OF SOLAR POWER PROJECT SET UP IN THE STATE OF RAJASTHAN, AS PER RAJASTHAN SOLAR ENERGY P OLICY, 2011 AS ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 88 NOTIFIED AND ISSUED BY THE GOVERNMENT OF RAJASTHAN ENERGY DEPARTMENT VIDE DATED 19.04.2011. THE LEDGER ACCOUNT OF THE EXPENDITURE HAS BEEN FILE D AND PERUSED. LARGELY, THE EXPENDITURE IS RELATED TO PAY MENT TO ADVERTISING AGENCIES AND PRINTING AND PUBLISHING AG ENCIES. A SMALL AMOUNT OF 3.50 LAKHS APPROX. IS FIXED FOR TOP OGRAPHIC SURVEY GEO TECHNICAL INVESTIGATION WHICH HAS BEEN E XPLAINED BY AR AS IN PURSUANCE OF THE PROMULGATION OF THE NEW P OLICY. IN VIEW OF THE ABOVE THE DISALLOWANCE MADE BY THE A SSESSING OFFICER IS DELETED. 103. WE HAVE HEARD THE RIVAL CONTENTIONS AND PURUS ED THE MATERIAL AVAILABLE ON RECORD. ONE OF THE BUSINESS OBJECTS O F THE ASSESSEE COMPANY IS TO PROMOTE AND FACILITATE ENERGY CONSERV ATION AND POPULARIZE THE USAGE OF RENEWABLE ENERGY SOURCES & ENCOURAGE COMPANIES TO SET UP RENEWABLE ENERGY PLANTS. AS PA RT OF ITS ACTIVITIES, THE ASSESSEE COMPANY HAS INCURRED THE PUBLICITY AND ADVERTISEMENT EXPENDITURE DURING THE YEAR. THE LD CIT(A) HAS GIV EN A FINDINGS ON PERUSAL OF LEDGER ACCOUNT THAT THESE EXPENDITURE LA RGELY RELATED TO PAYMENT TO ADVERTISING AGENCIES AND PRINTING AND PU BLISHING AGENCIES. THE SAID FINDING OF THE LD CIT(A) REMAIN UNCONTROVE RTED BEFORE US. IN THE RESULT, WE CONFIRM THE ORDER OF THE LD CIT(A) A ND GROUND OF APPEAL TAKEN BY THE REVENUE IS DISMISSED. ASSESSEES APPEAL (ITA NO. 97/JP/16) 104. IN ITS APPEAL FOR AY 2012-13, THE ASSESSEE HAS CHALLENGED THE ACTION OF LD CIT(A) IN NOT ALLOWING CLAIM OF DEDUCT ION OF RS. 93,32,447/- ON SHORTFALL IN GENERATION/LOW GENERATION U/S 80IA( 4) BY HOLDING THAT IT IS NOT DERIVED FROM BUSINESS OF POWER GENERATION AN D NOT ALLOWING THE ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 89 CLAIM OF DEDUCTION OF INDIRECT POWER RELATED INCOME OF RS. 9,40,31,183/- U/S 80-IA OF THE ACT. 105. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CLAIMED DEDUCTION U/S 80-IA(4)(IV) IN RESPECT OF ITS POWER GENERATING UNDERTAKINGS AT RS.11,74,07,808/- AS PER THE WORKING AT PAGE 10 & 1 1 OF THE ASSESSMENT ORDER. IN THIS WORKING, RS.93,32,447/- I S INCLUDED TOWARDS SHORTFALL/LOW GENERATION OF ELECTRICITY. FURTHER, R S.9,40,31,183/- IS INCLUDED IN INCOME AS PROPORTIONATE INDIRECT INCOME RELATING TO THE POWER AND RS.7,11,35,342/- IS REDUCED TOWARDS INDIR ECT EXPENSES OF HEAD OFFICE AS PER THE COST AUDIT REPORT. THE AO EX CLUDED THE INCOME OF RS.10,33,63,630/- (93,32,447+9,40,31,183) FOR COMPU TING DEDUCTION U/S 80-IA BUT DID NOT EXCLUDE THE INDIRECT EXPENSES OF HEAD OFFICE OF RS.7,11,35,342/- AND THUS WORKED OUT THE CLAIM OF D EDUCTION U/S 80-IA AT RS.1,40,44,178/-. THE LD. CIT(A) CONFIRMED THE F INDINGS OF THE AO. 106. THE RELEVANT FINDING OF THE LD. CIT(A) WHICH A RE REPRODUCED AS UNDER:- 8.3 I HAVE PERUSED THE FACTS OF THE CASE, THE ASSE SSMENT ORDER AND THE SUBMISSIONS OF THE APPELLANT. THE ASSESSEE HAS INCLUDED THE OTHER INCOME, ON ACCOUNT OF SHORTFALL IN GENERA TION, LOW GENERATION, AMOUNTING TO RS. 93,32,447/- AS ELIGIBL E INCOME FOR DEDUCTION U/S 80IA. THE DEDUCTION U/S 80IA HAS BEEN DENIED BY THE ASSESSING OFFICER HOLDING THAT THESE INCOMES CA NNOT BE SAID TO BE DERIVED FROM THE POWER GENERATION INCOME AN D HAS PLACED RELIANCE ON THE DECISION OF THE APEX COURT IN THE C ASE OF LIBERTY INDIA VS. CIT 317 ITR 218 (SC). ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 90 THE ASSESSEE IN ITS WRITTEN SUBMISSION STATED THAT THE SHORTFALL/LOW GENERATION ARE BEING TAKEN UNDER THE GROUP HEAD APPLICATION/PROCESSING/REGISTERED FEES & OTHERS. THE AR WAS ASKED TO EXPLAIN THE EXACT NATURE OF INC OME UNDER THIS HEAD. THE AR STATED THAT THE COMPANY HAS AWARD ED ALL THE POWER PLANTS FOR OPERATION AND MAINTENANCE AND GENE RATION OF POWER TO THE VENDORS/OPERATORS AS PER AGREEMENT EXE CUTED BETWEEN THEM. AS PER EXECUTION OF THE AGREEMENTS, OPERATORS/VENDORS, WHO IS/ARE OPERATE TO THE POWER PLANTS, COMPANY HAS EXECUTED A ASSURANCE IN THE AGREEMENT T HAT THE VENDORS/AWARDS THAT INSTALLED POWER PLANT WILL GENE RATED A MINIMUM POWER GENERATION ON A PARTICULARS WIND FLOW IN A SPECIFIED AREAS AT WHERE POWER PLANTS ARE INSTALLED . AS PER THE EXECUTION OF AGREEMENT, BETWEEN THE COMPANY AND POW ER PLANT OPERATORS, IF THAT POWER PLANT WILL NOT OPERATE OR GENERATE A MINIMUM ASSURED POWER GENERATION, THAN THE OPERATOR WILL COMPENSATE FOR SUCH FALL OF GENERATION OF POWER. SU CH MINIMUM GENERATION IS CONSIDERED ON THE BASIS OF WIND FLOW RATING WORKED OUT BY THE CENTRAL GOVERNMENT AGENCY REPORTED ON YE AR TO YEAR BASIS. THEREFORE, WHATEVER RECOVERY IS RECOVERED O N ACCOUNT OF GENERATION OF SHORT FALL IS ON THE BASIS OF MINIMUM GUARANTEE OF POWER GENERATION, NOT ON OTHER WISE. HENCE IT ALSO NOT PRESUMED THAT THE MINIMUM POWER GENERATION HAS BEEN TAKEN ON ASSUMPTION AND/OR PRESUMPTION BASIS AND THE RECEIPT S OF SHORT FALL OF GENERATION/LOW GENERATION OF POWER PLANTS A RE BASICALLY IS RECEIPTS OF POWER GENERATION. THE AR WAS ASKED TO PRODUCE COPIES OF AGREEMENT WIT H THE OPERATOR. IN THE AGREEMENT IT IS SEEN THAT THESE ON E DEALT WITH CLAUSE NO. 8 PAGE 11 OF THE AGREEMENT. SEL SHALL COMMISSION A WIND MAST AT LOCAL APPROVED BY RREC WITHIN THE PROJECT SITE WITH SENSOR TO BE INSTALLED AT HUB HEIGHT EQUIVALENT OF WEG INSTALLED. THE ACTUAL WIND DATA G ENERATED ON MONTHLY BASIS WILL BE CONSIDERED TO CALCULATE THE E STIMATED ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 91 GENERATION FROM WIND FARM BASED ON CERTIFIED POWER CURVE OF THE INSTALLED MACHINE. THE CALCULATED GENERATION WILL B E COMPARED WITH ACTUAL MONTHLY GENERATION ACHIEVED FOR CORRESP ONDING PERIOD FROM THE WIND FARM. FOR SHORTFALL IN ANNUAL GENERAT ION BELOW 95% OF THE CALCULATED GENERATION, A PENALTY @ 110% OF T HE DEEMED REVENUE LOSS TO RREC SHALL BE LEVIED ON THE ANNUAL BASIS. THE PENALTY SHALL BE RECKONED AND RECOVERED ON A BLOCK OF EVERY 02 YEARS PERFORMANCE FROM SEL. IT WAS FURTHER EXPLAINED THAT THE LOW GENERATION AN D SHORT FALL WAS RECOGNIZED BASED ON AGENCY REPORT OF CENTRE FOR WIND ENERGY TEST (C-WET) WHICH CERTIFIED AND QUANTIFIES THE LOW GENERATION. FURTHER, THIS PROCESS TAKES ALMOST A YEAR AND THERE FORE THE SHORTFALL RECEIVED MAY NOT RELATE TO THE SHORTFALL IN GENERATION FOR THE PARTICULAR YEAR. IT IS ALSO SEEN THAT IN THE AS SESSMENT YEAR 2011-12 THIS AMOUNT WAS CLAIMED FOR THE FIRST TIME BY THE ASSESSEE AND EXCLUDED FROM THE INCOME ELIGIBLE FOR SECTION 10A BY THE ASSESSING OFFICER. THE ABOVE DISCUSSION CLEARLY SHOWS THAT THIS INCOME RELATES TO PENALTIES IMPOSED ON THE SELLER BY THE ASSESSEE COM PANY IF THE MACHINES DO NOT DELIVER AS PER THE PROMISED PERFORM ANCE. THESE CANNOT BE SAID TO BE DIRECTLY DERIVED FROM THE BUSI NESS OF POWER GENERATION AND DO NOT HAVE A FIRST DEGREE NEXUS WIT H THE ELIGIBLE BUSINESS. IN VIEW OF THE ABOVE, DEDUCTION UNDER SEC TION 80IA IS NOT ALLOWABLE ON THIS GROUND. 107. DURING THE COURSE OF HEARING, THE LD. AR SUBM ITTED THAT THE TWO ISSUES ARE INVOLVED. ONE IS WHETHER THE INCOME OF R S.93,32,447/- ON SHORTFALL/LOW GENERATION OF POWER IS INCOME DERIVED FROM BUSINESS OR NOT AND THE SECOND ISSUE IS WHETHER THE INDIRECT PO WER RELATED INCOME IS TO BE INCLUDED FOR COMPUTING THE DEDUCTION U/S 8 0-IA(4) OR NOT AND IF ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 92 NOT, THE INDIRECT EXPENSES OF HO OF RS.7,11,35,342/ - IS TO BE EXCLUDED IN COMPUTING THE DEDUCTION U/S 80-IA(4) OR NOT. 108. IN RESPECT OF ISSUE NO.1, IT WAS SUBMITTED T HAT ASSESSEE HAS AWARDED THE OPERATION, MAINTENANCE & GENERATION OF ALL THE POWER UNDERTAKINGS INSTALLED BY IT TO THE VENDORS/OPERATO RS AS PER THE AGREEMENT EXECUTED WITH THEM. AS PER THE AGREEMENT, THESE VENDORS/OPERATORS HAVE ASSURED THAT POWER PLANT INS TALLED BY THEM WILL GENERATE MINIMUM POWER ON A PARTICULAR WIND FLOW IN THE SPECIFIED AREA AND IF THEY DO NOT OPERATE OR GENERATE THE MINIMUM ASSURED POWER GENERATION, THEN OPERATOR WILL COMPENSATE FOR SUCH FALL OF GENERATION OF POWER. DURING THE YEAR ASSESSEE RECEIVED RS.93,32,4 47/- ON ACCOUNT OF SHORTFALL IN GENERATION AND LOW GENERATION OF ELECT RICITY ON WHICH IT CLAIMED DEDUCTION U/S 80IA. THE AO, HOWEVER, OBSERV ED THAT DEDUCTION U/S 80IA IS ALLOWABLE ONLY IN RESPECT OF PROFITS AN D GAINS DERIVED FROM SALE OF POWER AND THEREFORE RELYING ON THE DECISION OF SUPREME COURT IN CASE OF LIBERTY INDIA VS. CIT 317 ITR 218, HE HELD THAT SUCH INCOME WHICH IS NOT DERIVED FROM POWER GENERATION BUSINESS IS NOT ELIGIBLE FOR DEDUCTION U/S 80IA(4). 109. IT WAS SUBMITTED THAT THE SHORTFALL IN THE GEN ERATION OF ELECTRICITY IS PAID BY THE VENDORS/OPERATORS DUE TO SHORTFALL I N THE MINIMUM GUARANTEED GENERATION OF POWER UNITS INSTALLED BY I T. THESE CHARGES ARE THUS NOTHING BUT THE INCOME FROM SALE OF POWER ONLY , AS IT WAS THE COMMITMENT OF THE VENDORS/OPERATORS OF THE PLANT TH AT THE PLANT SUPPLIED BY HIM WOULD GENERATE MINIMUM GUARANTEED U NITS OF ELECTRICITY. IN CASE GENERATION IS LESS THAN FIXED GUARANTEED UNIT, THE ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 93 VENDORS/OPERATORS FULFILLED THE SHORTFALL BY MAKING PAYMENT OF FIXED AMOUNT PER UNIT WHICH IS GENERATED LESS. THE EXACT TERMS OF THE AGREEMENT AS REPRODUCED AT PG 23 OF THE CIT(A) ORDE R READS AS UNDER:- SUZLON ENERGY LTD. (SEL) SHALL COMMISSION A WIND M AST AT LOCATION APPROVED BY RREC WITHIN THE PROJECT SITE WITH SENSO R TO BE INSTALLED AT HUB HEIGHT EQUIVALENT OF WEG INSTALLED. THE ACTUAL WIND DATA GENERATED ON MONTHLY BASIS WILL BE CONSIDERED TO CALCULATE TH E ESTIMATED GENERATION FROM WIND FARM BASED ON CERTIFIED POWER CURVE OF THE INSTALLED MACHINE. THE CALCULATED GENERATION WILL B E COMPARED WITH ACTUAL MONTHLY GENERATION ACHIEVED FOR CORRESPONDIN G PERIOD FROM THE WIND FARM. FOR SHORTFALL IN ANNUAL GENERATION BELOW 95% OF CALCULATED GENERATION, A PENALTY @ 110% OF THE DEEMED REVENUE LOSS TO RREC SHALL BE LEVIED ON THE ANNUAL BASIS. THE PENALTY SH ALL BE RECKONED AND RECOVERED ON A BLOCK OF EVERY 2 YEARS PERFORMANCE F ROM SEL. FROM THE ABOVE CONDITION, IT CAN BE NOTED THAT AMOU NT RECEIVED ON ACCOUNT OF SHORTFALL IN GENERATION OF ELECTRICITY/L OW GENERATION OF ELECTRICITY IS NOTHING BUT THE ADDITIONAL AMOUNT RE ALIZED BY THE ASSESSEE TO RECOVER THE REVENUE LOSS INCURRED BY THE ASSESSE E. THE AMOUNT SO RECEIVED IS THEREFORE THE PROFIT OR GAIN DERIVED BY THE POWER UNDERTAKING FROM THE BUSINESS OF GENERATION AND DIS TRIBUTION OF POWER. 110. THE AO IN HOLDING THAT THE COMPENSATION SO REC EIVED IS NOT AN INCOME DERIVED FROM THE ELIGIBLE UNDERTAKING HAS RE LIED ON THE DECISION OF SUPREME COURT IN CASE OF LIBERTY INDIA LTD. HOWE VER, THIS CASE IS NOT APPLICABLE ON FACTS AS IT WAS A CASE IN WHICH IT WA S HELD THAT THE DUTY ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 94 DRAWBACK RECEIPT COULD NOT BE SAID TO BE PROFITS AN D GAINS DERIVED FROM AN ELIGIBLE BUSINESS. THUS, THIS CASE WAS CONCERNED WITH AN EXPORT INCENTIVE WHICH IS FAR REMOVED FROM THE REIMBURSEME NT OF AN ELEMENT OF COST. AS AGAINST THIS, IN THE SUBSEQUENT DECISIO N OF SUPREME COURT IN CASE OF CIT VS. MEGHALAYA STEELS LTD. (2016) 383 IT R 217, AFTER DISTINGUISHING THE JUDGMENT OF LIBERTY INDIA LTD., IT WAS HELD THAT TRANSPORT SUBSIDY, INTEREST SUBSIDY, POWER SUBSIDY AND INSURANCE SUBSIDY ARE REVENUE RECEIPTS WHICH ARE REIMBURSED T O THE ASSESSEE FOR ELEMENTS OF COST RELATING TO MANUFACTURE AND SALE O F ITS PRODUCTS. THERE IS CERTAINLY A DIRECT NEXUS BETWEEN THE PROFITS AND GAINS OF THE INDUSTRIAL UNDERTAKING OR BUSINESS AND SUCH SUBSIDIES. WHAT IS TO BE SEEN FOR THE APPLICABILITY OF SECTIONS 80-IB & 80-IC IS WHETHER THE PROFITS AND GAINS ARE DERIVED FROM THE BUSINESS. SO LONG AS PROFITS A ND GAINS EMANATE DIRECTLY FROM THE BUSINESS ITSELF, THE FACT THAT TH E IMMEDIATE SOURCE OF THE SUBSIDIES IS THE GOVERNMENT WOULD MAKE NO DIFFE RENCE, AS IT CANNOT BE DISPUTED THAT THE SAID SUBSIDIES ARE ONLY IN ORD ER TO REIMBURSE, WHOLLY OR PARTIALLY, COSTS ACTUALLY INCURRED BY THE ASSESSEE IN THE MANUFACTURING AND SELLING OF ITS PRODUCTS. THE PRO FITS AND GAINS REFERRED TO IN SECTIONS 80-IB AND 80-IC HAVE REFERE NCE TO NET PROFIT. AND NET PROFIT CAN ONLY BE CALCULATED BY DEDUCTING FROM THE SALE PRICE OF AN ARTICLE ALL ELEMENTS OF COST WHICH GO INTO MANUFACT URING OR SELLING IT. THEREFORE, THE AMOUNT RECEIVED BY THE ASSESSEE AS S UBSIDIES QUALIFY FOR DEDUCTION U/S 80-IB & 80-IC. IN VIEW OF THIS DECISI ON OF SUPREME COURT, THE AMOUNT RECEIVED FROM THE SUPPLIER OF PLANT AGAI NST SHORTFALL IN THE GENERATION OF ELECTRICITY IS ONLY TO REIMBURSE THE COST RELATING TO THE GENERATION AND SALE OF ELECTRICITY AND THEREFORE IT HAS A DIRECT NEXUS ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 95 WITH THE PROFIT AND GAINS OF THE POWER GENERATING U NDERTAKING ELIGIBLE FOR DEDUCTION U/S 80IA. 111. FURTHER RELIANCE IS PLACED ON THE FOLLOWING CA SES:- CIT VS. PRAKASH OILS LTD. 58 DTR 279 (MP) CIT VS. ADVANCE DETERGENTS LTD. 339 ITR 81 (2011)(D EL.) 112. IT WAS ALSO SUBMITTED THAT ITAT, DELHI BENCH IN CASE OF DCIT VS. M/S ANDHRA EXPRESSWAY LTD. IN ITA NO.3805/DEL/2009 DT. 26.03.2010, WHERE DEDUCTION U/S 80IA WAS CLAIMED ON THE INCOME DERIVED BY THE ASSESSEE BY WAY OF BONUS FROM NHAI FOR EARLY COMPLE TION OF THE PROJECT AND COMPENSATION FROM THE CONTRACTOR FOR DELAY IN C OMPLETING THE WORK ASSIGNED TO IT, HELD THAT SUCH RECEIPT IS DIRECTLY RELATED TO THE COST OF THE PROJECT AND THEREFORE WOULD GO TO REDUCE THE COST O F PROJECT AND TO THAT EXTENT THE DEPRECIATION WOULD BE LOWER AND THE INCO ME WOULD BE MORE WHICH WOULD BE ENTITLED FOR DEDUCTION U/S 80IA. IN PRESENT CASE, THE AMOUNT IS GIVEN BY THE SUPPLIER OF POWER PLANTS FOR SHORTFALL IN THE MINIMUM GUARANTEED GENERATION PER ANNUM AND THEREFO RE IT IS DIRECTLY RELATED TO THE INCOME DERIVED FROM THE OPERATION OF THE WINDMILL AND THEREFORE ON SUCH INCOME, ASSESSEE IS ELIGIBLE TO C LAIM DEDUCTION U/S 80IA. IN VIEW OF ABOVE, THE AO BE DIRECTED TO ALLOW THE CLAIM OF DEDUCTION U/S 80IA ON THE AMOUNT OF SHORTFALL IN TH E GENERATION/LOW GENERATION OF ELECTRICITY RECEIVED BY ASSESSEE. 113. IT WAS FURTHER SUBMITTED THAT SO FAR AS INCLUD ING INDIRECT INCOME RELATING TO POWER OF RS.9,40,31,183/- AND REDUCING THE INDIRECT HEAD OFFICE EXPENSES OF RS.7,11,35,342/- IN COMPUTING DE DUCTION U/S 80-IA ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 96 BY THE ASSESSEE IS CONCERNED, THE SAME IS DONE AS P ER THE CALCULATION OF COST AUDITORS. THIS CALCULATION IS NOT AS PER SECTI ON 80-IA. THE COST AUDITOR PULLED THE INDIRECT INCOME LIKE INTEREST, F ORFEITURE OF SECURITY DEPOSIT, ETC. ON PROPORTIONATE BASIS AND ALSO CONSI DERED THE INDIRECT HEAD EXPENSES ON PROPORTIONATE BASIS WHICH IS INCOR RECT. THEREFORE, THE INCOME OF RS.9,40,31,183/- IS TO BE EXCLUDED IN COM PUTING THE DEDUCTION U/S 80-IA(4) BUT AT THE SAME TIME THE IND IRECT EXPENSES OF HO ALLOCATED AT RS.7,11,35,342/- IS ALSO INCORRECT AS PART OF SUCH EXPENDITURE IS DIRECTLY RELATED TO PROMOTIONAL & OT HER ACTIVITIES. ONLY EXPENDITURE OF RS.4,56,79,816/- CAN BE CONSIDERED T OWARDS THE COMMON EXPENSES AND IF 5% OF SUCH EXPENSES IS ALLOC ATED TOWARDS POWER GENERATING INCOME, ONLY RS.22,83,990/- CAN BE ALLOCATED TOWARDS HO EXPENSES FOR COMPUTING DEDUCTION U/S 80-IA(4) AS AGAINST RS.7,11,35,342/- ALLOCATED BY THE COST AUDITOR. ON THIS BASIS THE DEDUCTION U/S 80-IA(4) WOULD BE WORKED OUT AT RS.9, 22,77,975/- (9,45,61,966-22,83,990) AS PER THE CALCULATION ENCL OSED. HENCE, THE AO BE DIRECTED TO REWORK THE DEDUCTION U/S 80-IA(4) OF THE ACT. 114. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE MATERIAL AVAILABLE ON RECORD. BOTH THE ISSUES UNDER CONSIDER ATION HAVE BEEN DEALT WITH IN DETAIL IN AY 2011-12. 115. FOLLOWING OUR FINDINGS IN AY 2011-12, THE AMO UNT OF RS 93,32,447 BEING THE RECEIPTS ON ACCOUNT OF SHORTFALL/LOW GENE RATION OF ELECTRICITY IS HELD ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA(4) O F THE ACT. REGARDING INDIRECT INCOME OF HEAD OFFICE RS 9,40,31,183, THE ASSESSEE COMPANY HAS CONCEDED THAT THE SAME HAS BEEN WRONGLY CLAIMED BASED ON THE ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 97 COST AUDITORS CALCULATION. HENCE, THE SAME IS DIRE CTED TO BE EXCLUDED AND HELD NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 8 0IA(4) OF THE ACT. 116. REGARDING HEAD OFFICE EXPENSES, IT WAS AGAIN CONTENDED THAT RS 7,11,85,342 HAS BEEN WRONGLY CONSIDERED AS PER THE COST AUDITORS CALCULATION AS PART OF SUCH EXPENDITURE IS DIRECTLY RELATED TO PROMOTIONAL & OTHER ACTIVITIES AND ONLY RS 4,56,79,816 SHOULD B E CONSIDERED AS COMMON HEAD OFFICE EXPENDITURE AND 5% SHOULD BE ALL OCATED TOWARDS POWER GENERATING UNITS. AS WE HAVE HELD IN AY 2011- 12, THE COMMON HEAD OFFICE EXPENSES NEED TO BE ALLOCATED TO THE PO WER GENERATING UNITS BASED ON ITS TURNOVER AS A PERCENTAGE OF TOTAL TURN OVER OF THE ASSESSEE COMPANY. GIVEN THAT THERE IS NO FINDING OF EITHER THE AO OR THE LD CIT(A) REGARDING THE QUANTUM OF COMMON HEAD OFFICES EXPENSES, WE ARE SETTING ASIDE THE MATTER TO THE FILE OF THE AO TO EXAMINE THE CONTENTIONS OF THE ASSESSEE COMPANY AFRESH AND ONCE THE COMMON EXPENSES ARE DETERMINED, THE AO IS DIRECTED TO ALLO CATE THE SAME TO THE POWER GENERATING UNITS BASED ON ITS TURNOVER. THE ASSESSEES GROUNDS ARE DISPOSED OFF WITH ABOVE DIRECTIONS. THE RESPECTIVE APPEALS OF THE REVENUE AND THE ASSES SEE ARE DISPOSED OFF WITH ABOVE DIRECTIONS. ORDER PRONOUNCED IN THE OPEN COURT ON 18/08/2017. SD/- SD/- DQY HKKJR FOE FLAG ;KNO (KUL BHARAT) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17 M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. 98 TK;IQJ@ JAIPUR FNUKAD@ DATED:- 18/08/2017. * SANTOSH. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD., E-166, AKSHAY URJA BHAWAN, YUDIST ER MARG, C- SCHEME, JAIPUR. 2. IZR;FKHZ@ THE RESPONDENT- DCIT/ACIT/ITO, CIRCLE-6, JAIPUR. 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE {ITA NO. ITA NO. 159&202/JP/2015 & 95,96,87,97,88/JP/16 &125/JP/17} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR