DCIT, Circle-1(1), , Hyderabad V. Andhra Pradesh Power Generation Corporation Limited, Hyderabad

ITA 1607/Hyd/2016

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 5515 (ITAT-HYDERABAD)
• Duration Of Justice: 4 year(s) 9 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2021
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB-B
• Next Hearing Date: 15-09-2021
• Assessment Year: 2012-2013
• Appeal Filed On: 29-11-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: Y V S T SAI
• Assessee Lawyers: M CHANDRAMOULESWARA RAO
• Keywords: Depreciation; Earning of tax free income; Capital receipt; Rule 8D
• Section: 143(3)

Judgement Text

ITA NOS 1606 TO 1608/HYD/2016 & ITA 1656/HYD/2016 PAGE 1 OF 8 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD (THROUGH VIDEO CONFERENCING) BEFORE SHRI S.S. GODARA, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER ITA NOS.1606 TO 1608/HYD/2016 ASSESSMENT YEARS: 2011-12 TO 2013-14 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1(1), HYDERABAD. VS. M/S. AP POWER GENERATION CORPORATION LIMITED, VIDYUT SOUDHA, KHAIRATABAD, HYDERABAD 500 082. PAN NO.AACCA2734J. (APPELLANT) (RESPONDENT / CROSS APPELLANT) ITA NO.1656/HYD/2016 ASSESSMENT YEAR: 2011-12 M/S. AP POWER GENERATION CORPORATION LIMITED, VIDYUT SOUDHA, KHAIRATABAD, HYDERABAD 500 082. PAN NO.AACCA2734J. VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1(1), HYDERABAD. (APPELLANT) (RESPO NDENT / CROSS APPELLANT) ASSESSEE BY: SRI M. CHANDRAMOULESWARA RAO, AR. REVENUE BY : SRI Y.V.S.T. SAI, DR. DATE OF HEARING: 15/09/2021 DATE OF PRONOUNCEMENT: 17/09/2021 O R D E R PER S. S. GODARA, J.M. THE INSTANT BATCH OF FOUR APPEALS PERTAINS TO A SIN GLE ASSESSEE NAMELY M/S. A.P. POWER GENERATION CORPORAT ION LIMITED. THE REVENUES THREE APPEALS ITA NOS.1606 TO 1608/HY D/2016 FOR ITA NOS 1606 TO 1608/HYD/2016 & ITA 1656/HYD/2016 PAGE 2 OF 8 A.YS. 2011-12 TO 2013-14 ARISE AGAINST THE CIT(A)-1 , HYDERABADS SEPARATE ORDERS; ALL DATED 17.08.2016, PASSED IN CA SE NOS.0169/2014-15/CIT(A)-1/HYD/16-17, 0015 AND 0239/ 2015- 16/CIT(A)-1/HYD/16-17 RESPECTIVELY; INVOLVING PROCE EDINGS U/S 143(3) OF INCOME TAX ACT, 1961 (IN SHORT, THE ACT ). THE ASSESSEE ON THE OTHER HAND HAS FILED ITS CROSS APPEAL ITA NO.16 56/HYD/2016 FOR A.Y.2011-12. HEARD BOTH THE PARTIES. CASE FILES PERUSED. 2. WE COME TO THE LEAD A.Y. 2011-12 INVOLVING REVEN UE AND ASSESSEES CROSS APPEALS ITA NOS.1606 AND 1656/HYD/ 2016. THE REVENUES AND ASSESSEES FORMER THREE SUBSTANTIVE G ROUNDS IN THEIR RESPECTIVE APPEALS RAISE THE ISSUE OF CORRECTNESS O F SEC.14A R.W. RULE 8D DISALLOWANCE OF RS.53,11,71,260/- MADE IN ASSESS MENT ORDER DATED 12.05.2014 AND PARTLY UPHELD IN THE LOWER APP ELLATE DISCUSSION. THERE DOES NOT APPEAR TO BE MUCH DISPU TE ABOUT THE CRUCIAL FACT THAT THE ASSESSEE HAD INDEED MADE ITS INVESTMENTS IN SISTER CONCERN(S) AS A STRATEGIC MEASURE AND IN SBI MUTUAL FUNDS. LEARNED COUNSEL VEHEMENTLY SUBMITTED IN LIGHT OF T HE ASSESSEES ANNUAL REPORT FOR THE IMPUGNED ASSESSMENT YEAR THAT THE ASSESSEE HAS NOT DECLARED ANY EXEMPT INCOME WHICH COULD TRIG GER APPLICATION OF SEC.14A R.W. RULE 8D OF THE I.T. RULES IN LIGHT OF CASE LAW CHEMNIVEST LTD. VS. CIT (2015) 378 ITR 33 (DEL), CI T VS. CORRTECH ENERGY PVT. LTD. 223 TAXMANN.COM 130 (GUJ) AND CIT VS. CIT VS. CHETTINAD LOGISTICS PVT. LIMITED (2017) 80 TAXMANN. COM 221 (MADRAS). THE REVENUES STAND ON THE OTHER HAND IS THAT THIS CLINCHING ASPECT HAS NOWHERE BEEN SEEN RAISED OR C ONSIDERED EITHER IN ASSESSMENT OR IN THE CIT(A)S ORDER. 3. FACED WITH THIS SITUATION, WE DEEM IT APPROPRIAT E TO RESTORE THE INSTANT FIRST COMMON ISSUE BACK TO THE ASSESSING OFFICER ITA NOS 1606 TO 1608/HYD/2016 & ITA 1656/HYD/2016 PAGE 3 OF 8 FOR HIS AFRESH FACTUAL VERIFICATION TO THE LIMITED EXTENT AS TO WHETHER THE ASSESSEE HAD DECLARED ANY EXEMPT INCOME IN ITS BOOKS OR NOT. WE FURTHER WISH TO MAKE IT CLEAR IN CASE IT IS FOU ND THAT THE ASSESSEE HAD NOT DECLARED ANY SUCH EXEMPT INCOME IN ITS BOOKS, THE IMPUGNED DISALLOWANCE WOULD STAND DELETED. AND IF IT EMERGES THAT IT HAD INDEED DISCLOSED SUCH EXEMPT INCOME, THE AS SESSING OFFICER WOULD DECIDE THE ISSUE AFRESH WHEREIN THE TAXPAYER WOULD BE AT LIBERTY TO RAISE ALL FACTUAL AS WELL AS LEGAL OBJE CTIONS. THE REVENUE AS WELL AS ASSESSEES INSTANT FORMER THREE SUBSTANT IVE GROUNDS IN THEIR RESPECTIVE APPEALS ARE ALLOWED FOR STATISTICA L PURPOSES IN ABOVE TERMS. 4. WE NEXT ADVERT TO REVENUES 4 TH AND 5 TH SUBSTANTIVE GROUNDS SEEKING TO REVERSE CIT(A)S ACTION IN DELET ING ACCRUED INTEREST ON MERCANTILE BASIS ADDITION(S) OF RS.20,0 0,04,00,000/- AND RS.36,57,00,000/- INVOLVING DISCOMS HAVING BY PPAS AGREEMENTS INVOLVING VARYING SUMS. THE CIT(A)S LOWER APPELLA TE DISCUSSION DELETING THE IMPUGNED ADDITION(S) READS AS FOLLOWS : 7. GROUND 3: ADDITION OF INTEREST RS.200,04,000/- & RS .36,57.00,000/- ON BELATED PAYMENT OF POWER SUPPLY BILLS BY DISCOMS : DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSING OFFICER DISALLOWED INTEREST CHARGES FOR THE DELAY BY THE DI SCOMS IN THE PAYMENT OF POWER SUPPLY BILLS. 'THE ASSESSING OFFIC ER CONTENDED THAT LATE PAYMENT CHARGES COLLECTIBLE FORM THE DISCOMS W AS MANDATE IN ACCORDANCE WITH THE PPAS BETWEEN THE APPLICANT COMP ANY AND DISCOMS. THE APPLICANT IS FOLLOWING MERCANTILE LAW OF ACCOUNTS AND THE AMOUNTS COLLECTED SHOULD BE OFFERED AS INCOME C REDITED TO PROFIT AND LOSS ACCOUNT, AS THE SAME STAND TAKEN IN THE EA RLIER YEARS, AS PER CLAUSE 3.1.15 OF POWER PROJECT AGREEMENT BETWEEN AN DHRA PRADESH POWER GENERATION CORPORATION LIMITED AND ANDHRA PRA DESH DISTRIBUTION COMPANIES DATED 22-12-2009, INTEREST F OR DELAYED PAYMENTS BEYOND A PERIOD TWO MONTH FROM THE DATE OF BILLINGS RECEIVABLE BY THE APPLICANT FROM THE DISCOMS AT THE RATE OF 1.25% PER MONTH SURCHARGE WITH EFFECT FROM 22-12-2009. BEFORE ME, THE APPLICANT SUBMITTED THAT COMPUTATION OF LATE PAYMENT INTEREST BY ADOPTING CERTAIN PERCENTAGE OF INTEREST IS FICTITIOUS AND THERE IS NO LEGALLY ENFORCEABLE POWER PURCHASE AGREEMENT ENABLING THE ASSESSEE COMPANY TO CHARGE SUCH LATE P AYMENT SURCHARGE IN FORCE. IN APPLICANTS OWN CASE FOR TH E ASSESSMENT YEAR ITA NOS 1606 TO 1608/HYD/2016 & ITA 1656/HYD/2016 PAGE 4 OF 8 2009-10, THE HON'BLE ITAT, HYDERABAD BENCH B IN ITA NO.600//HYD/14, DELETED THE ADDITION MADE ON LEVY O F INTEREST OR SURCHARGE FOR DELAYED PAYMENTS. THE APPLICANT FURTH ER SUBMITTED THAT THERE ARE NO FURTHER DIRECTIONS AVAILABLE TO THE AP PLICANT COMPANY FOR THE FINANCIAL YEAR ENDING 31-03-2011 RECEIVING FROM THE APERC GRANTING ENTITLEMENT FOR CLAIMING LATE PAYMENT SURC HARGE FROM DISCOMS UNTIL 2014. THEREFORE, IN THE ABSENCE OF AN Y DIRECTIONS FROM THE APERC ALLOWING THE APPLICANT COMPANY TO CHARGE LATE PAYMENT INTEREST FROM THE DISCOMS FOR DELAY IN PAYMENT OF P OWERS SUPPLY BILLS, THE APPLICANT CANNOT BE CHARGED TO INCOME TA X ON SUCH INTEREST AMOUNTS WHICH DID NOT ACCRUED OR EARNED IN THE RELE VANT PREVIOUS YEAR. ITS SEEN THAT IN APPLICANTS OWN CASE FOR THE ASSESSMENT YEAR 200910, THE HON'BLE ITAT, HYDERABAD BENCH-B IN ITA NO.600/HYD/14 DELETED THE ADDITION MADE ON LEVY OF INTEREST OR SU RCHARGE FOR DELAYED PAYMENTS ON DISCOMS. THE ITAT NOTED: 'HAVING REGARD TO THE FACTS OF THE CASE INCLUDING E SPECIALLY THE ABSENCE OF ANY CLAUSE IN THE RELEVANT AGREEMENT FOR THE LEVY OF INTEREST OR SURCHARGE FOR THE DELAYED PAYMENT AND T HE ORDER OF THE ANDHRA PRADESH ELECTRICITY REGULATORY COMMISSIO N, DENYING THE CLAIM OF THE ASSESSEE FOR SUCH INTEREST / SURCHARGE, WE ARE OF THE VIEW THAT THE ASSESSEE WAS NOT ENTITLED TO CLAIM ANY INTEREST ON THE DELAYED PAYME NTS FROM THE DISCOMS FOR THE YEAR UNDER CONSIDERATION, AND S UCH INTEREST INCOME CANNOT BE SAID TO HAVE ACCRUED TO T HE ASSESSEE FOR THE YEAR, AS RIGHTLY HELD BY THE LEARN ED CIT(A). FOLLOWING THE ABOVE DECISION OF THE HON'BLE ITAT, T HIS GROUND IS ALLOWED. 5. SUFFICE TO SAY, IT HAS COME ON RECORD THAT THE I NSTANT ISSUE IS NO MORE RES INTEGRA IN VIEW OF THE FACT TH AT THIS TRIBUNALS CO-ORDINATE BENCH (SUPRA) DECIDED THE SAME IN ASSES SEES FAVOUR AND AGAINST THE DEPARTMENT (DETAILED ORDER AVAILABLE AT PAGE 158 OF THE PAPER BOOK). WE THEREFORE ADOPT JUDICIAL CONSISTE NCY TO AFFIRM THE CIT(A)S ACTION IN DELETING THESE GROUNDS IN ABSEN CE OF DISTINCTION ON FACTS OR LAW; AS THE CASE MAY BE. THE REVENUE F AILS IN ITS 4 TH AND 5 TH SUBSTANTIVE GROUNDS. 6. LASTLY COME REVENUES GROUND NOS.VI TO VIII SEEK ING TO REVIVE THE ASSESSMENT FINDINGS ADDING AN AMOUNT OF RS.194.62 CRORES TOWARDS PENALTIES FOR NON-PERFORMANCE AND DE LETED IN THE CIT(A)S ORDER AS UNDER : ITA NOS 1606 TO 1608/HYD/2016 & ITA 1656/HYD/2016 PAGE 5 OF 8 GROUND-4: ADDITION OF RS.194,62,00,000/- TOWARDS N ON- PERFORMANCE PENALTIES FROM CONTRACTORS CREDITED IN THE PROJECT COST BY THE APPELLANT: DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSING OFFICER FOUND THAT THE ASSESSEE HAS RECOVERED RS.19 4.62 CRORES AS PENALTIES FROM THE CONTRACTORS / SUPPLIERS FOR N ON-PERFORMANCE / DAMAGES / DELAY IN SUPPLY OF MATERIALS. THE ASSES SING OFFICER DISMISSED THE ASSESSEE'S CONTENTION ON THE GROUND T HAT IT IS NOT CONSIDERED THE CLAIM OF THE SUPPLIER / CONTRACTORS AND AS LONG AS IT IS NOT CONSIDERED AND PAID THE DAMAGES SO COLLEC TED ARE REVENUE IN NATURE. THE CONTENTION OF THE ASSESSEE I S THAT THEY ARE TO BE CREDITED TO THE PROJECT COST IS ALSO NOT ACCE PTABLE BECAUSE IT HAS NOT DONE SO WHICH WOULD ULTIMATELY GO TO REDUCE THE DEPRECIATION LIABLE UNDER THE ACT. SINCE THESE ARE PENALTIES IN NATURE THEY ARE TO BE TREATED AS OTHER REVENUE RECO GNIZED BY THE ASSESSEE AND OFFERED TO TAX. BEFORE ME, THE APPLICANT SUBMITTED THAT THEY HAVE CREDITED SUCH RECOVERIES TO THE CONCERNED PROJECT C OST AND REDUCED THE COST OF THE PROJECT BY SUCH AMOUNTS. HO WEVER, IN THE ASSESSMENT, THE AMOUNT OF SUCH DAMAGES WERE ADDED T O THE TOTAL TAXABLE INCOME BY TREATING REVENUE IN NATURE AND WERE NOT REDUCED FROM THE CAPITAL COST OF THE PROJECT AND WE RE ONLY KEPT IN THE MISCELLANEOUS DEPOSITS ACCOUNT. THE APPLICANT R ELIED ON THE DECISION OF THE HON'BLE SUPREME COURT IN CIT VS. S AURASTRA CEMENT LIMITED (2010) 325 ITR 422(SC). IN THIS CASE , THE HON'BLE SUPREME COURT HELD THAT THE DAMAGES WERE DIRECTLY A ND INTIMATELY LINKED WITH THE PROCUREMENT OF CAPITAL A SSET AND THEREFORE THE DAMAGES ARE NOT RECEIVED / EARNED IN THE ORDINARY COURSE OF BUSINESS. THUS, IT IS A CAPITAL RECEIPT I N THE HANDS OF THE APPLICANT. IN THE LIGHT OF THE ABOVE, THE ASSESSING OFFICER IS DIRECTED TO VERIFY ETHER THIS AMOUNT WHICH IS CAPITAL RECEIPT, IS TO B E REDUCED FROM THE PROJECT COST OR NOT. THE ASSET COST HAS TO BE REDUCED BY THIS CAPITAL RECEIPT FOR WHICH THE RECEIPT HAS BEEN INVO KED. THE ADDITION OF RS.194,62,00,000/-AS RECEIPT OF NON-PER FORMANCE PENALTY IS DELETED AS A REVENUE INCOME, HOWEVER. TH E SAME IS TO BE REDUCED FROM THE CAPITAL COST OF THE ASSET/PROJE CT COST. 7. LEARNED CIT-DR FAILS TO REBUT THE CLINCHING FACT THAT THE CIT(A) HAS GONE BY HONBLE APEX COURTS DECISION IN SAURASTRA CEMENT LIMITED (SUPRA) THAT SUCH DAMAGE PERTAINING TO CAPITAL ITA NOS 1606 TO 1608/HYD/2016 & ITA 1656/HYD/2016 PAGE 6 OF 8 ASSET IS IN NATURE OF A CAPITAL RECEIPT THAN REVENU E. HE HAS FURTHER DIRECT THE ASSESSING OFFICER TO VERIFY THE NATURE O F ASSESSEES CORRESPONDING RECEIPTS. THE REVENUE CANNOT BE HELD TO BE AN AGGRIEVED PARTY PER SE SINCE THE NATURE OF THE RECE IPT IS YET TO BE DETERMINED I.E. WHETHER PERTAINING TO PROJECT COST OR NOT. WE THUS DECLINE THE REVENUES INSTANT THREE SUBSTANTIVE GRO UNDS AS WELL GOING BY THE VERY ANALOGY. NO OTHER GROUND HAS BEEN PRESSED BEFORE US. THIS REVENUES APPEAL ITA NO.1606/HYD/2016 IS PART LY ALLOWED FOR STATISTICAL PURPOSES IN ABOVE TERMS. 8. WE NOW ADVERT TO THE ASSESSEES 4 TH SUBSTANTIVE GROUND IN CROSS APPEAL ITA NO.1656/HYD/2016 CHALLENGING BA D DEBT DISALLOWANCE OF RS.64,35,000/-. BOTH THE ASSESSING OFFICER AS WELL AS CIT(A) HOLD THE SAME TO BE A MERE PROVISION THAN AN ACTUALLY WRITTEN OFF LIABILITY. WE FIND NO FORCE TO AFFIRM THE IMPUGNED DISALLOWANCE SINCE PAGES 137 TO 143 IN PAPER BOOK S UFFICIENTLY INDICATE THAT THE ASSESSEES BOARD OF DIRECTORS HAD DULY CONFIRMED THE AGENDA REGARDING WITHDRAWAL OF THE IMPUGNED CLA IM ON 16.08.2010 WHICH HAS NEITHER BEEN DISPUTED IN THE C OURSE OF ASSESSMENT NOR IN CIT(A)S ORDER. WE THUS HOLD THA T THE ASSESSEES IMPUGNED BAD DEBT CLAIM DESERVES TO BE ALLOWED. WE ORDERED ACCORDINGLY. ITS CROSS APPEAL ITA 1656/HYD/2016 IS PARTLY ALLOWED IN ABOVE TERMS. 9. NEXT COMES THE REVENUES TWIN APPEALS 1607 AND 1608/HYD/2016 SEEKING TO REVIVE IDENTICAL SEC.14A R.W. RULE 8D DISALLOWANCE (S) INVOLVING VARYING SUMS AND PENALT IES FOR NON - PERFORMANCE ADDITION(S) AMOUNTING TO RS.130.24 CROR ES AND RS.100.66 CRORES WHICH ALREADY STAND RESTORED TO TH E ASSESSING OFFICER QUA THE FIRST AND DISMISSED PERTAINING TO L ATTER ISSUE; ITA NOS 1606 TO 1608/HYD/2016 & ITA 1656/HYD/2016 PAGE 7 OF 8 RESPECTIVELY IN ITS LEAD A.Y. 2011-12S APPEAL ITA NO.1606/HYD/2016. WE THUS ADOPT JUDICIAL CONSISTEN CY IN ABSENCE OF ANY DISTINGUISHED FACTS OR LAW TO ACCEP T THE REVENUES INSTANT FORMER SUBSTANTIVE GROUNDS FOR STATISTICAL PURPOSES AND DECLINE THE LATTER IN THE VERY TERMS. THESE TWIN APPEALS ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES THEREFORE. NO OTHER GROUND HAS BEEN PRESSED BEFORE US. 10. TO SUM UP, THE REVENUES INSTANT THREE APPEALS IN ITA NOS.1606 TO 1608/HYD/2016 ARE PARTLY ALLOWED FOR ST ATISTICAL PURPOSES AND ASSESSEES CROSS APPEAL ITA NO.1656/HY D/2016 IN A.Y. 2011-12 IS PARTLY ALLOWED IN ABOVE TERMS. A C OPY OF THIS COMMON ORDER BE PLACED IN THE RESPECTIVE CASE FILES . ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH SEPTEMBER,2021. SD/- SD/- SD/- (LAXMI PRASAD SAHU) ACCOUNTANT MEMBER (S.S. GODARA) JUDICIAL MEMBER HYDERABAD, DATED 17 TH SEPTEMBER, 2021. TYNM / SPS COPY TO: S.NO ADDRESSES 1 M/S. AP POWER GENERATION CORPORATION LIMITED, VIDYUT SOUDHA, KHAIRATABAD, HYDERABAD 500 082. 2 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1(1 ), HYDERABAD. 3 CI T (A) - 1 , HYDERABAD 4 PR. CIT 1, HYDERABAD 5 DR, IT AT HYD ERABAD BEN CHES 6 GUARD FILE . BY ORDER 15.09.2021 2. 3 4 5 ITA NOS 1606 TO 1608/HYD/2016 & ITA 1656/HYD/2016 PAGE 8 OF 8 6. 7.