The ACIT, GNR Circle, Gandhinagar V. Sardar Sarovar Narmada Nigam Ltd., Gandhinagar

ITA 166/AHD/2009

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 67674 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 7 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 30-04-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 16-01-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHELLEY JINDAL
• Keywords: Business income; Depreciation; Carry forward of business losses; Unabsorbed depreciation
• Section: 143(3); 234B; 32

Judgement Text

ITA NO. 166/A/2010, 838/A/2010 & C O. NO. 33/A/2009 A.Y. 2005-06 & 2006-07 1 IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD (BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL C HATURVEDI, A.M.) I.T. A. NO. 166/AHD/2009 & 838/AHD/2010 & CO. NO. 33/AHD/2009) (ASSESSMENT YEAR: 2005-06 & 2006-07) THE ACIT, GNR CIRCLE, GANDHINAGAR (APPELLANT) VS. SARDAR SAROVAR NARMDA NIGAM LTD. 7 TH FLOOR, BLOCK NO- 12, NEWS SACHIVALYA COMPLEX, GANDHINAGAR. (RESPONDENT) SARDAR SAROVAR NARMDA NIGAM LTD. 7 TH FLOOR, BLOCK NO-12, NEWS SACHIVALYA COMPLEX, GANDHINAGAR. (APPELLANT) VS. THE ACIT, GNR CIRCLE, GANDHINAGAR (RESPONDENT) PAN: AACCS6704L APPELLANT BY : SHRI SHELLEY JINDAL CIT D. R. RESPONDENT BY : MS. URVASHI SHODHAN ( )/ ORDER DATE OF HEARING : 21-06-2013 DATE OF PRONOUNCEMENT : 05 -09-2013 PER SHRI ANIL CHATURVEDI,A.M. ITA NO. 166/A/2010, 838/A/2010 & C O. NO. 33/A/2009 A.Y. 2005-06 & 2006-07 2 1. THESE TWO APPEALS ARE FILED BY THE REVENUE AGAIN ST THE ORDER OF CIT-(A), AHMEDABAD DATED 29.10.2008 & 01.12.2009 FOR ASSESSM ENT YEARS 2005-06, 2006-07 RESPECTIVELY. ASSESSEE HAS ALSO FILED CO FO R A.Y. 2005-06. 2. BEFORE US AT THE OUTSET BOTH THE PARTIES SUBMITT ED THAT THE GROUNDS RAISED IN BOTH THE APPEALS THOUGH RELATE TO DIFFERENT YEARS A RE IDENTICAL EXCEPT FOR THE AMOUNTS AND THEREFORE THE SUBMISSIONS AND ARGUMENTS MADE IN ONE CASE WILL BE EQUALLY APPLICABLE TO THE OTHER. WE THEREFORE PR OCEED TO DISCUSS THE FACTS OF THE CASE OF A.Y. 2005-06 AND PROCEED. 3. FACTS AS CULLED OUT FROM THE ORDERS ARE AS UNDER : 4. ASSESSEE IS A COMPANY WHOLLY OWNED BY GUJARAT GO VERNMENT AND IS ESTABLISHED FOR EXECUTION OF SARDAR SAROVAR PROJECT COMPRISING OF DAM ACROSS RIVER NARMADA FOR PROVIDING DRINKING WATER AND WATE R FOR IRRIGATION IN FOUR STATES OF INDIA. ASSESSEE FILED RETURN OF INCOME FO R AY 2005-06 ON 29.10.2005 DECLARING LOSS OF RS 590,55,01,979/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED U/S 143(3) VID E ORDER DATED 31.12.2007 AND THE TOTAL INCOME WAS DETERMINED AT R S 32,17,25,820/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) VIDE ORDER DATED 29.10.2008 GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE AFORESAID ORDER OF CIT(A), REVENUE IS NOW IN APPEAL BEFORE US AND THE ASSESSEE HAS ALSO FILED CROSS OBJECTIONS (CO). THE EFFECTIVE GROUNDS RAISED BY THE REVENUE READ AS UNDER: 1. THE LEARNED CIT(APPEALS) HAS ERRED IN LAW AND ON FA CTS IN DIRECTING THE A.O. TO ALLOW THE CLAIM OF THE ASSESSEE UNDER THE HEAD 'INC IDENT EXPENDITURE PENDING CAPITALIZATION' HOLDING THAT THE ASSESSEE CORPORATI ON WAS ALREADY SET UP AND COMMENCED BUSINESS. 2. THE LEARNED CIT(APPEALS) HAS ERRED IN LAW AND ON FA CTS OF THE CASE IN DIRECTING THE A.O. TO TREAT THE INCOME FROM OTHER SOURCES CR RS.26.35 CRORES AS BUSINESS INCOME AND ALLOW EXPENDITURE BEING INCIDENTAL EXPEN DITURE PENDING CAPITALIZATION IN COMPUTING INCOME/LOSS UNDER THE H EAD BUSINESS. 3. THE LEARNED CIT(APPEALS) HAS ERRED IN LAW AND ON FA CTS OF THE CASE IN DIRECTING THE A.O. NOT TO APPLY THE COST SHARING FORMULA AS D ETERMINED BY THE NARMADA ITA NO. 166/A/2010, 838/A/2010 & C O. NO. 33/A/2009 A.Y. 2005-06 & 2006-07 3 WAFER TRIBUNAL FOR DETERMINING THE COST OF ASSETS O WNED BY THE ASSESSEE FOR THE PURPOSE OF DEPRECIATION. 4. THE LEARNED CIT(APPEALS) HAS ERRED IN LAW AND ON FA CTS OF THE CASE IN DIRECTING THE A.O. TO VERIFY THE DATE OF ACQUISITION OF LAND AND TO VERIFY AS TO WHETHER THE ASSESSEE HAS SEPARATELY SOLD ANY PIECE OF LAND AND ALSO VERIFY OF APPLICABILITY OF SECTION 43F6J AND SECTION 50 OF THE I.T. ACT, 1961. 5. THE LEARNED CIT(APPEALS) HAS ERRED IN LAW AND ON FA CTS OF THE CASE IN DIRECTING THE A.O. TO QUANTIFY THE LOSS AND UNABSORBED DEPREC IATION TO BE SET OFF AND CARRY FORWARD. 5. 1 ST GROUND IS WITH RESPECT TO HOLDING THAT THE CORPORA TION WAS ALREADY SET UP AND COMMENCED BUSINESS: 6. THIS GROUND IS IDENTICAL TO THE GROUND NO 1 & 4 OF ITA NO 838/AHD/2010 FOR A.Y. 2006-07. 7. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AO N OTICED THAT ASSESSEE HAS INCURRED CERTAIN EXPENDITURE WHICH IT HAD TERMED AS 'INCIDENTAL EXPENSES PENDING CAPITALISATION' TOWARDS THE COST OF ASSET. THE TOTAL OF THE EXPENDITURE PENDING CAPITALISATION WAS RS 1732.90 CRORES. HE AL SO NOTICED THAT ASSESSEE HAD AN INCOME OF RS 160.17 CRORES, NET TRANSFER TO CAPITAL WORK IN PROGRESS OF RS 430.32 CRORES (GROSS RS 549.16 CRORE) AND HAD CL AIMED RS 109.90 CRORE AS EXPENSES OUT OF THE INCIDENTAL EXPENSES AS REVEN UE EXPENSES AGAINST THE INCOME EARNED. HE ALSO NOTICED THAT ASSESSEE HAS NO T DRAWN ANY PROFIT AND LOSS ACCOUNT AND THEREFORE ACCORDING TO ASSESSING O FFICER THERE WAS NO COMMITMENT BY THE ASSESSEE THAT THE INCIDENTAL EXPE NSES PENDING CAPITALIZATION WILL NEVER BE ADDED BACK TO THE COST OF ASSETS AT A LATER STAGE. WITHOUT THIS COMMITMENT, HE WAS OF THE VIEW THAT IT WAS ALWAYS POSSIBLE THAT THE SAME EXPENDITURE MAY BE CLAIMED AS REVENUE EXPE NDITURE NOW AND IS AGAIN CLAIMED IN FUTURE IN THE FORM OF DEPRECIATION WHEN THE SAME IS CAPITALIZED. HE WAS THEREFORE OF THE VIEW THAT TILL THE TIME THE ASSESSEE WRITES ITS PROFIT AND LOSS ACCOUNT AND ACTUALLY EXCLUDES T HE INCIDENTAL EXPENSES FROM THE ACCOUNT OF INCIDENTAL EXPENSES PENDING CAPITAL IZATION SUCH EXPENSES ITA NO. 166/A/2010, 838/A/2010 & C O. NO. 33/A/2009 A.Y. 2005-06 & 2006-07 4 CANNOT BE ALLOWED AS REVENUE EXPENSES. HE THUS DID NOT ALLOW ANY EXPENSES FOR DEDUCTION. AGGRIEVED BY THE ORDER OF AO, THE M ATTER WAS CARRIED BEFORE CIT(A). CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE BY HOLDING AS UNDER: 5.4 THE MATTER HAS BEEN GIVEN DUE CONSIDERATION. AS STA TED EARLIER, THE APPELLANT SEEMS TO HAVE AGREED TO THE FACT THAT THE INCIDENTA L EXPENDITURE ALLOWABLE AS REVENUE EXPENSES, I.E. WHICH ARE EITHER NOT LIKELY TO BE CA PITALIZED OR ARE NOT DISALLOWABLE, ARE RS. 48.69 CR. ONLY. THEREFORE, THE DISPUTE PRIMARIL Y IS CONCERNING THE ASSESSING OFFICER NOT EVEN ALLOWING THIS AMOUNT. THE ACTION O F THE ASSESSING OFFICER IN REFUSING THE SET OFF OF THESE EXPENSES ON THE GROUND THAT AS SESSEE MAY. IN FUTURE, CAPITALIZE SOME OF THEM AND MAY CLAIM DEPRECIATION THEREOF, MA Y NOT BE A VERY SOUND LOGIC. IF A CLAIM IS VALID AND LEGAL, THE DEPARTMENT IS DUTY BO UND TO ALLOW IT AND IT IS FOR THE DEPARTMENT TO DEVELOP ITS SYSTEM IN TERMS OF PROPER RECORDING IN THE ASSESSMENT ORDER OR IN INTERNAL NOTES THAT IF THERE IS A DUPLI CATE CLAIM IN THE SUBSEQUENT YEAR, THE SAME CAN BE CHECKED AND COUNTER ACTED. FURTHER, THE ASSESSING OFFICER'S ACTION IN THEORETICALLY REDUCING THE CLAIM TO THE EXTENT OF T HE GOVERNMENT OF GUJARAT'S SHARE IN THE OVERALL COST OF THE PROJECT VIS-A-VIS THE OTHER PARTICIPATING STATES IS ALSO NOT UPHELD IN VIEW OF HAVING HELD EARLIER THAT THE APPE LLANT-COMPANY IS A DISTINCT ENTITY FROM THE GOVERNMENT OF GUJARAT. - THEREFORE, CONSID ERING ALL THE FACTS, I THINK, THE ASSESSEE IS ENTITLED FOR THE CLAIM OF EXPENSES TO T HE EXTENT OF RS.48.69 CR; AGAINST ITS BUSINESS INCOME. 8. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE IS NOW IN APPEAL BEFORE US. 9. BEFORE US, THE LD.D.R. RELIED ON THE ORDER OF A O AND ON THE OTHER HAND THE LD.AR RELIED ON THE ORDER OF CIT(A) AND SUBMITTED T HAT ON IDENTICAL FACTS, THE TRIBUNAL IN ASSESEE'S OWN CASE FOR AY 02-03 TO 04-0 5 (ITA NO 696,2106/A/06, CO 128 & 271/A/06 & 1466/A/07 & CO 140/A/07) HAS AL LOWED IDENTICAL ISSUE IN FAVOUR OF ASSESSEE. HE ALSO PLACED ON RECORD THE AFORESAID ORDERS. HE THUS URGED THAT FOLLOWING THE EARLIER YEARS ORDER, THE O RDER OF CIT(A) BE UPHELD. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE CO- ORDINATE BENCH OF TRIBUNAL IN ASS ESSEES OWN CASE ON IDENTICAL FACTS, HAS DECIDED THE ISSUE IN ASSESSEE S FAVOUR BY HOLDING AS UNDER IN (ITA NO 696 ; 2106/A/06, CO 128 & 271/A/06 & 1466/A/07 & CO 140/A/07): THE GROUND RAISED BY R READS AS UNDER: ITA NO. 166/A/2010, 838/A/2010 & C O. NO. 33/A/2009 A.Y. 2005-06 & 2006-07 5 2. '1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT THE ASSESSEE HAS STARTED HIS BUSINESS ACTIVITIES AND IN CONSEQUENTLY ALLOWING THE CLAIM OF BUSINESS LOSS OF RS.8,96,56,43,446/- MADE BY THE ASSESSEE IN ITS RETURN OF INCOME.' 6 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD AND THE DECISION CITED BY LD. COUNSEL FOR TH E ASSESSEE. WE FIND THAT HON'BLE SPECIAL BENCH OF ITAT AHMEDABAD BENCHES IN ASSESSEE 'S OWN CASE (SUPRA) FOR AY 2001-02 HAS DECIDED THIS ISSUE IN FAVOUR OF ASSESSE E. IN THIS VIEW OF THIS MATTER AND RESPECTFULLY FOLLOWING THE DECISION OF HON'BLE SPEC IAL BENCH OF THIS TRIBUNAL WE DO NOT FIND ANY MERIT IN THE GROUNDS OF REVENUE'S APPE AL. HENCE, THIS GROUND OF REVENUE'S APPEAL IS DISMISSED. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS:- '/. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN DIRECTING THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSEE UNDER TH E HEAD 'INCIDENTAL EXPENDITURE PENDING CAPITALIZATION' HOLDING THAT THE ASSESSEE C ORPORATION WAS ALREADY SET UP AND COMMENCED BUSINESS. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN DIRECTING THE AO TO TREAT THE INCOME FROM OTHER SOURCES OF RS.733,78,35 8/- AS BUSINESS INCOME AND ALLOW EXPENDITURE BEING INCIDENTAL EXPENDITURE PENDING CA PITALIZATION IN COMPUTING INCOME/LOSS UNDER THE HEAD BUSINESS.' 13. WE HAVE ALREADY DISCUSSED THIS GROUND OF REVENUE'S APPEAL IN ITA NO.696/AHD/2006 AND RESPECTFULLY FOLLOWING THE DECI SION OF HON'BLE SPECIAL BENCH OF THIS TRIBUNAL IN ASSESSEE'S OWN CASE (SUPRA) AND TA KING A CONSISTENT VIEW IN TERMS OF DECISION OF HON. SPECIAL BENCH IN ASSESSEES OWN CA SE (SUPRA). HENCE, THIS GROUND OF REVENUES APPEAL IS DISMISSED. 11. BEFORE US, THE REVENUE COULD NOT BRING ANY MATE RIAL ON RECORD TO CONTROVERT THE FINDING OF CIT(A). IN VIEW OF THE AFORESAID FAC TS, AND RESPECTFULLY FOLLOWING THE DECISION OF CO-ORDINATE BENCH, WE FIND NO REASO N TO INTERFERE WITH THE ORDER OF CIT(A) AND THUS UPHOLD THE ORDER OF CIT(A) . THUS THIS GROUND OF REVENUE IS DISMISSED FOR BOTH THE YEARS. 12. 2 ND GROUND IS WITH RESPECT TO TREATING INCOME OF RS 26 .35 CRORE AS BUSINESS INCOME: 13. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AO NOTICED THAT THE CANAL HAS BEEN BUILT FOR THE PURPOSE OF IRRIGATION. HE WAS OF THE VIEW THAT THERE SHOULD BE PROOF THAT THE DISTRIBUTARIES AND BRANCH CANALS WHICH HAVE BEEN BUILT ARE IN OPERATION TO CARRY THE WATER OF THE MAIN CANAL FOR IRRIGATION. HE WAS OF THE ITA NO. 166/A/2010, 838/A/2010 & C O. NO. 33/A/2009 A.Y. 2005-06 & 2006-07 6 VIEW THAT THE INCOME EARNED FROM SALE OF WATER BY P UMPING OUT THE WATER FROM THE DAM OR CANAL TO WATER RESOURCE WATER SUPPL Y AND KAPSAR DEPARTMENT WAS ONLY AN INCIDENTAL INCOME FROM THE S ALE OF WATER AND CANNOT BE TERMED AS PROOF OF USE OF MAIN CANAL FOR THE PUR POSE OF BUSINESS OF IRRIGATION. HE WAS FURTHER OF THE VIEW THAT MAIN CA NAL, BRANCH CANAL AND DISTRIBUTARIES FORM AN INTEGRATED SYSTEM AND UNLESS THE DISTRIBUTARIES ALSO START FUNCTIONING TOGETHER WITH MAIN CANAL, THE MAI N CANAL CANNOT BE SAID TO BE USED FOR THE PURPOSE OF IRRIGATION. HE ACCORDING LY CONSIDERED THE INCOME FROM SALE OF WATER AMOUNTING TO RS. 17.86 CRORE AS INCOME FROM OTHER SOURCES INSTEAD OF BUSINESS INCOME. AGGRIEVED BY T HE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) D ECIDED THE ISSUE IN FAVOUR OF ASSESSEE BY HOLDING AS UNDER: 2. 3 THE MATTER HAS BEEN GIVEN DUE CONSIDERATION, 'MY PREDECESSOR VIDE HIS ORDER DATED 14/12/2005 FOR ASSESSMENT YEAR 2002-03 HAS AN ALYSED. THE ISSUE IN DETAIL, INCLUDING THE DECISION OF I.T.A.T., AHMEDABAD B BEN CH IN THE APPELLANT'S CASE FOR ASSESSMENT YEAR 1989-90 TO 2000-01, AS REPORTED IN 93 ITD 329. AFTER EXAMINING THE FACTS BROUGHT ON RECORD, THE CIT(A) HELD THAT THE A PPELLANT HAD EXECUTED ITS INFRASTRUCTURE PROJECT TO A SUBSTANTIAL EXTENT AND COMMERCIAL ACTIVITY HAD ALSO STARTED BY GENERATING REVENUE FROM WATER SUPPLY IN RHE PERI OD RELEVANT TO ASSESSMENT YEAR TO COMPEL HIM TO DEVIATE FROM THE FINDING OF CIT(A) FO R EARLIER YEAR. HENCE THE BUSINESS IS HELD TO HAVE BEEN COMMENCED FOR A. Y. 2002-03. S UCH A FINDING HAVING BEEN GIVEN IN AN EARLIER YEAR OBVIOUSLY SHALL BE APPLICABLE TO THIS YEAR ALSO AS THERE CAN NOT BE REVERSAL OF FACTS. IF THE PROJECT AS IT STOOD IN TH E PREVIOUS YEAR-RELEVANT TO ASSESSMENT YEAR 2002-03 MEANT USE OF 'IRRIGATION' PORTION OF P ROJECT ALSO, LATER PERIOD CAN ONLY LEAD TO FURTHER CONSTRUCTION ON VARIOUS AREAS LIKE BRANCH CANALS AND HENCE THE FINDING FOR ASSESSMENT YEAR 2002-03 WOULD BE VALID FOR THIS YEAR ALSO. HENCE IT IS HELD THAT THE APPELLANT HAS USED ITS VARIOUS APPARATUS F OR THE BUSINESS PURPOSE OF IRRIGATION. THE IMMEDIATE COROLLARY OF THIS WOULD B E THAT SALE OF WATER TO THE EXTENT OF RS. 17,86 CR. SHALL BE TREATED AS BUSINESS INCOME O F THE APPELLANT . 14. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE IS NO W IN APPEAL BEFORE US. BEFORE US, THE ID D.R.RELIED ON THE ORDER OF AO. THE LD. A .R. ON THE OTHER HAND SUBMITTED THAT CIT(A) FOR AY 2002-03 TO 2004-05 HAS DECIDED THE ISSUE IN FAVOUR OF ASSESSEE AFTER RELYING ON THE TRIBUNALS DECISION IN ASSESSEES OWN CASE. HE FURTHER SUBMITTED THAT IF IN A PARTICULAR YEAR IT IS HELD THAT BUSINESS HAS COMMENCED, THEN IN SUBSEQUENT YEARS THERE CANNO T BE A DIFFERENT CONCLUSION OF THE SAME FACTS.. HE FURTHER SUBMITTED THAT SPECIAL BENCH IN ITA NO. 166/A/2010, 838/A/2010 & C O. NO. 33/A/2009 A.Y. 2005-06 & 2006-07 7 ASSESSEES OWN CASE (ITA NO. 2654/AHD/2004 ORDER DA TED 7.09.2012 HAS HELD THAT THE BUSINESS OF ASSESSEE WAS SET UP ON 21 .02.2001 WHEN WATER WAS SUPPLIED THROUGH THE MAIN CANALS. HE THUS SUPPO RTED THE ORDER OF CIT(A) 15. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT CIT(A) WHILE GRANTING RELIEF HAS NOTED TH AT HIS PREDECESSOR AFTER RELYING ON THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE HAS DECIDED THE APPEAL IN ASSESSEES FAVOUR. FURTHER THE SPECIAL B ENCH OF TRIBUNAL ITA NO. 2654/AHD/2004 ORDER DATED 7.09.2012 HAS HELD THAT T HE BUSINESS OF ASSESSEE WAS SET UP ON 21.02.2001 WHEN WATER WAS SU PPLIED THROUGH THE MAIN CANALS. BEFORE US, THE LD. D.R. COULD NOT BRIN G ORDER OF HIGH COURT WHERE THE DECISION ON THE AFORESAID ISSUE HAS BEEN REVERSED. IN VIEW OF THE AFORESAID FACTS, WE FIND NO REASON TO INTERFERE WIT H THE ORDER OF CIT(A). THUS THIS GROUND OF REVENUE IS DISMISSED. 16. 3 R GROUND IS WITH RESPECT TO NON APPLICATION OF COST SHARING FORMULA FOR THE PURPOSE OF DEPRECIATION: 17. THIS GROUND IS IDENTICAL TO THAT OF GROUND NO 2 & 3 OF ITA NO 838/AHD/2010. 18. AO NOTED THAT 'SARDAR SAROVAR NARMADA PROJECT' WAS IN THE NATURE OF JOINT VENTURE OF GOVERNMENTS OF GUJARAT, MAHARASHTRA, M.P . AND RAJASTHAN AND THE COST OF PROJECT HAS ALREADY BEEN DETERMINED BY TRIBUNAL. SINCE THE ASSESSEE WAS AN INSTITUTION OF GUJARAT GOVERNMENT, ASSESSING OFFICER WAS OF THE VIEW ITS SHARE CANNOT BE MORE THAN THE SHARE OF GUJARAT GOVERNMENT IN THE PROJECT AND THEREFORE THE DEPRECIATION U/S 32 W AS ONLY ALLOWABLE TO THE EXTENT OF ITS SHARE. HE ALSO NOTED THAT ASSESSEE HA S INCLUDED THE SHARE OF COST IN 'INDIRA SAGAR DAM' BUILT BY MP GOVERNMENT T O WHICH ACCORDING TO AO, THE ASSESSEE WAS NOT ELIGIBLE FOR DEPRECIATION ON T HE ENTIRE COST. HE ACCORDINGLY RE-WORKED THE DEPRECIATION. AGGRIEVED B Y THE ORDER OF AO, ITA NO. 166/A/2010, 838/A/2010 & C O. NO. 33/A/2009 A.Y. 2005-06 & 2006-07 8 ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) D ECIDED THE ISSUE IN FAVOUR OF ASSESSEE BY HOLDING AS UNDER: 3.3 THE MATTER HAS BEEN GIVEN DUE CONSIDERATION. NO DOU BT THE PROJECT IN QUESTION IS THE PRODUCT OF ADMINISTRATIVE-POLITI CO DECISION OF GOVERNMENTS OF GUJARAT, MAHARASHTRA, MADHYA PRADESH AND RAJASTHAN. IT IS ALSO PART OF THE SAME DECISION THA T IT SHALL BE IMPLEMENTED BY GOVERNMENT OF GUJARAT. IN ORDER TO I MPLEMENT THE SAME, THE GOVERNMENT OF GUJARAT DECIDED TO SETUP SA RDAR SAROVAR NARMADA NIGAM LTD. AS A PUBLIC LIMITED COMPANY-IT S HOULD BE NOTED THAT ENTIRE SHARE CAPITA! OF THE NIGAM-WAS SU BSCRIBED TO BY THE GOVERNMENT OF GUJARAT AND THE NIGAM WAS TO EXEC UTE THE ENTIRE PROJECT. SO THERE ARE TWO SEPARATE AREA OF OPERATIO N, ONE AMONG THE PARTICIPATING STATES FOR TAKING UP SUCH A PROJECT A ND FOR COST SHARING AMONGST THEM AND THE OTHER FOR A LEGALLY IN DEPENDENT COMPANY TO IMPLEMENT THE PROJECT. TO THE COMPANY TH E COST OF THE ASSETS REMAINS THE SAME, .NOTWITHSTANDING ANY ARRAN GEMENT AMONG THE PARTICIPANT STATES BECAUSE THE COST OF HE ASSET S IS BEING MET BY THE FUNDS OF THE CORNPANYEQUITY PROVIDED BY GOVERN MENT OF GUJARAT AND BORROWED FUNDS AS IN ANY COMMERCIAL VEN TURE. IF ANY FUNDS ARE TRANSFERRED FROM ONE OF THE STATES TO THE GOVERNMENT OF GUJARAT, THE SAME SHALL NEITHER BE REFLECTED IN THE BOOKS OF .THE APPELLANT NOR SHALL EFFECT THE COST OF ASSETS IN TH E HANDS OF THE APPELLANT. THE ASSESSING OFFICER'S ASSERTION THAT A PPELLANT'S SHARE IN PROJECT CANNOT EXCEED THE SHARE OF GOVERNMENT OF GUJARAT OVERLOOKS THE DISTINCTION OF FINANCIAL RELATIONSHIP BETWEEN STATES VIS-A-VIS MANNER OF IMPLEMENTING A PROJECT THROUGH A CARRIER, IN THIS CASE A COMPANY. THEREFORE, I DO NOT AGREE WITH THE ASSESSING OFFICER'S ACTION OF HOLDING THAT COST OF ASSETS IN THE HANDS OF THE APPELLANT HAS TO BE RESTRICTED AS PER COST-SHARING FORMULA DETERMINED BY THE TRIBUNAL. 3.3.1 AS FAR AS THE ISSUE OF INDIRA SAGAR DAM IS CONCERNED , OBVIOUSLY THE ACCOUNTING TREATMENT GIVEN BY THE APP ELLANT IS INCORRECT ON THE BASIS OF APPELLANTS OWN LOGIC. HE NCE WHILE GIVING APPEAL EFFECT, THE ASSESSING OFFICER IS DIRECTED NO T TO TREAT WHOSE ASSETS AS BELONGING TO THE APPELLANT, WITH ITS DUE FOLLOW UP CONSEQUENCES LIKE WITHDRAWAL OF DEPRECIATION. ITA NO. 166/A/2010, 838/A/2010 & C O. NO. 33/A/2009 A.Y. 2005-06 & 2006-07 9 19. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE IS NO W IN APPEAL BEFORE US. BEFORE US, ID.D.R. RELIED ON THE ORDER OF AO. ON THE OTHER HAND ID.A.R. REITERATED THE SUBMISSIONS MADE BEFORE CIT(A) AND SUPPORTED HIS OR DER. 20. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. CIT(A) WHILE GRANTING THE RELIEF TO ASSESSEE HAS NO TED THAT THE ASSESSEE IS A SEPARATE COMPANY FOR IMPLEMENTATION OF THE PROJECT AND ITS SHARE CAPITAL WAS SUBSCRIBED BY GOVT OF GUJARAT. HE HAS FURTHER NOTED THAT THE COSTS ARE MET BY THE ASSESSEE WHICH IS INDEPENDENT OF THE ARRANGEMEN T AMONG THE PARTICIPATING STATES AND THE TRANSFER OF FUNDS BETW EEN ONE OF THE STATES TO GUJARAT IS NOT REFLECTED IN THE BOOKS OF THE ASSESS EE AND DOES NOT EFFECT THE COST OF ASSETS. BEFORE US, REVENUE COULD NOT PRODUC E ANY MATERIAL TO CONTROVERT THE FINDINGS OF CIT(A). WE THUS FIND NO REASON TO INTERFERE WITH THE ORDER OF CIT(A) AND THUS DISMISS THIS GROUND OF REV ENUE FOR A.Y. 05-06 & 06- 07. 21. 4 TH GROUND IS WITH RESPECT TO DIRECTION TO AO TO VERIF Y THE DATE OF ACQUISITION OF LAND: 22. AO NOTICED THAT ASSESSEE HAS SOLD LAND AND BUIL DING DURING THE YEAR UNDER CONSIDERATION. HE ALSO NOTICED THAT THE LAND WHICH HAS BEEN SOLD PERTAINS TO 'BRANCH AND DISTRIBUTARIES' WHICH HAS SO FAR NOT BE EN USED IN BUSINESS. ASSESSEE HAD TREATED THE PROFIT ON SALE OF LAND AS LONG TERM CAPITAL GAINS. SINCE THE DATE OF PURCHASE OF LAND WAS NOT SUBMITTE D BY ASSESSEE BEFORE AO, HE TREATED THE PROFIT AMOUNTING TO RS 9,70,25,8 17 (ON SALE OF LAND RS 3,31,57,442 AND ON BUILDING RS 6,38,68,375) AS SHOR T TERM CAPITAL GAIN. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF ASSESSE E DIRECTED AS UNDER: 7.3 THE MATTER HAS BEEN GIVEN DUE CONSIDERATION. FIRSTL Y, WE HAVE THE ISSUE THAT ASSESSING OFFICER HAS REJECTED THE APPEL LANT'S STAND TO ITA NO. 166/A/2010, 838/A/2010 & C O. NO. 33/A/2009 A.Y. 2005-06 & 2006-07 10 ADJUST THE SALES IN THE BLOCK OF ASSETS ON THE GROU ND THAT DEPRECIATION WAS NOT ALLOWED FOR NON-USE. I THINK T HIS STAND MAY NOT BE CORRECT. THE SCHEME OF THE ACT IS TO TREAT T HE ASSETS OF A BUSINESS FOR WHICH 'RATES OF DEPRECIATION IS PRESCR IBED IN BLOCK OF ASSETS AND DEAL WITH ITS SALE AS PER SECTION 43(6} OR SECTION 50. THERE CAN ALWAYS ARISE A SITUATION WHEN THE DEPRECI ATION IS NOW ALLOWED IN A YEAR BECAUSE OF NON-USE BUT THAT WILL NOT MEAN NON- APPLICATION OF SECTIONS 43(6) OR 50. 7.3.1HOWEVER, LAND IS ONE ASSET WHERE DEPRECIATION' WOULD NOT BE ALLOWABLE. .THE APPELLANT HAS MADE A VERY STRONG ST ATEMENT THAT 'NO SEPARATE LAND WAS SOLD BY THE 'APPELLANT'. THIS REQUIRES VERIFICATION. APPARENTLY, AT THE ASSESSMENT STAGE, THE COMPLETE DETAILS OF THE TRANSACTION HAD NEITHER BEEN OBTAINE D NOR SUBMITTED. THEREFORE, IN CASE WE HAVE ANY TRANSACTION OF TRANS FER OF ONLY LAND, THE SAME SHALL HAVE TO BE COVERED U/S.45. WHETHER S UCH TRANSACTION, IF ANY, SHALL RESULT IN SHORT-TERM CAP ITAL GAIN OR LONG- TERM CAPITAL GAIN DEPEND ON THE DETAILS OF THE PURC HASE /ACQUISITION. 7.3.2HENCE, TO SUM UP, AT THE APPEAL EFFECT STAGE, THE ASSESSING OFFICER SHALL SCRUTINIZE THE INSTANCES OF LAND SALE INVOLVED AND SEE WHETHER THESE DEALS INVOLVED BUILDINGS AND THE LAND APPURTENANT OR THE LAND WAS SOLD SEPARATELY. IN CASE OF THE FOR MER POSITION, APPELLANT'S STAND SHALL BE CORRECT. IN CASE OF LATT ER, CAPITAL GAINS SHALL BE CHARGEABLE FOR THE TRANSACTION CONCERNED. 23. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE IS NO W IN APPEAL BEFORE US. BEFORE US, LD.D.R. RELIED ON THE ORDER OF AO AND ON THE OT HER HAND LD.A.R. SUBMITTED THAT CIT(A) HAS DIRECTED THE ASSESSING OF FICER TO MAKE CERTAIN VERIFICATION AND THEN DECIDE THE ISSUE AND THEREFOR E NO PREJUDICE WAS CAUSED TO REVENUE. HE THUS SUPPORTED THE ORDER OF CIT(A). 24. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT CIT(A) HAS DIRECTED THE AO TO SCRUTINIZE THE DETAILS OF SALE OF LAND AND VERIFY AS TO WHETHER THE SALE WAS OF LAND ALONE OR IT INCLUDED BUILDING AND WHETHER THE LAND AND BUILDING WERE SOLD SEPARATELY. CIT(A) HAS THUS DIRECTED TO DECIDE THE ISSUE AFTER VERIFICATION OF FACTS. BE FORE US ID D.R. COULD NOT POINT ITA NO. 166/A/2010, 838/A/2010 & C O. NO. 33/A/2009 A.Y. 2005-06 & 2006-07 11 OUT ANY SHORTCOMING/ERROR IN THE ORDER OF CIT(A). W E THEREFORE FIND NO REASON TO INTEREFERE WITH HIS ORDER. THUS THIS GROUND OF R EVENUE IS DISMISSED. 25. 5 TH GROUND IS WITH RESPECT TO DIRECTION TO AO TO QUANT IFY LOSS AND UNABSORBED DEPRECIATION TO BE CARRIED FORWARD. 26. CIT(A) NOTED THAT AGAINST THE ASSESSEE'S CLAIM OF DEPRECIATION OF RS 520.25 CRORES (ROUNDED OFF) AO RESTRICTED IT TO RS 18.72 C RORES ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION. CIT(A) ALLOWED THE CL AIM OF THE ASSESSEE AND ACCORDINGLY DIRECTED THE AO TO WORK OUT THE DEPRECI ATION AS PER DIRECTIONS GIVEN IN PARA 4.3.3 OF HIS ORDER. HE ACCORDINGLY HE LD THAT AFTER GIVING THE RELIEF AS PER HIS DIRECTIONS, THERE WAS LIKELIHOOD OF ASSE SSEES TOTAL INCOME TO BE A LOSS. HE WAS FURTHER OF THE VIEW THAT SINCE THE ASS ESSEE'S BUSINESS OF POWER AND IRRIGATION HAS ALREADY COMMENCED, ASSESSEE WOUL D BE ENTITLED TO SET OFF AND CARRY FORWARD OF BUSINESS LOSSES AS PER LAW BY HOLDING AS UNDER. 8. 1 NO SPECIFIC FINDING HAS BEEN GIVEN BY THE ASSESSING OFFICER IN THIS ASPECT. CONSEQUENT TO RELIEF ACCORDED TO THE APPELL ANT ON MOST OF THE GROUNDS, THERE IS A LIKELIHOOD OF THE APPELLANT'S T OTAL INCOME TAMING OUT TO BE A LOSS. IN SUCH A.CASE, THERE WOULD NOT BE AN Y SITUATION OF SET OFT' OF EARLIER YEAR'S LOSSES, IT IS A MATTER OF FACT THAT IT HAS BEEN HELD THAT: THE APPELLANT'S BUSINESS OF BOTH POWER AND IRRIGATION H AS COMMENCED. IF THAT BE SO, PRIMA-FACIE, THE APPELLANT IS ENTITLED FOR T HE SET OFF AND CARRY FORWARD OF THE BUSINESS LOSSES AS PER PROVISIONS OF SECTION 70 TO SECTION 80, WHICHEVER IS APPLICABLE.. THEREFORE, THE ASSESS ING OFFICER IS DIRECTED THAT AT THE TIME OF GIVING APPEAL EFFECT, DUE BENEF IT OF SET OFF AND CARRY FORWARD OF LOSSES BE GIVEN TO THE APPELLANT, AS PER LAW, AFTER APPROPRIATE VERIFICATION. 27. AGGRIEVED BY THE AFORESAID DIRECTION OF CIT(A), REVENUE IS NOW IN APPEAL BEFORE US. BEFORE US, ID D.R COULD NOT POINT OUT AN Y MISTAKE IN THE DIRECTIONS OF CIT(A). IN VIEW OF THE AFORESAID FACTS WE FIND N O REASON TO INTERFERE WITH THE ORDER OF CIT(A) AND THUS THIS GROUND OF REVENUE IS DISMISSED. ITA NO. 166/A/2010, 838/A/2010 & C O. NO. 33/A/2009 A.Y. 2005-06 & 2006-07 12 28. IN THE RESULT, THE APPEAL OF THE REVENUE FOR BO TH THE YEARS ARE DISMISSED. CO NO 33/AHD/2009 FOR A.Y. 05-06:- 29. THE EFFECTIVE GROUNDS RAISED READS AS UNDER: 1. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT 'INDIRA SAGAR DAM' HAS BEEN BUILT BY MADHYA PRADESH GOVERNM ENT AND HENCE THE APPELLANT IS NOT ENTITLED TO THE CLAIM OF DEPRECIAT ION. 2. HE HAS FURTHER ERRED IN HOLDING THAT THE RENT OF RE SIDENTIAL BUILDING, INCOME ON INVESTMENTS AND MISCELLANEOUS RECEIPTS ARE TO BE ASSESSED AS INCOME FROM OTHER SOURCES AND NOT AS INCOME FROM BUSINESS & PRO FESSION OF THE NIGAM. 3. THE LEARNED CIT(A) HAS ALSO ERRED IN HOLDING THAT I NTEREST U/S. 234B & 234DARE MANDATORY INSPITE OF THE FACT THAT THE APPE LLANT HAS SUBMITTED THAT INTEREST IS NOT CHARGEABLE. 4. THE LEARNED CIT(A) HAS ALSO ERRED IN NOT CONSIDER ING AN ALTERNATIVE GROUND OF APPEAL THAT PROFIT ARISING ON ACCOUNT OF BUSINES S OF POWER GENERATION HAS TO BE HELD AS EXEMPT U/S. 80IA(4) OF THE INCOME TAX ACT, 1961 30. GR. NO 1 IS INTER-CONNECTED WITH GROUND NO 3 OF ITA NO 166/AHD/2009. SINCE THE GROUND OF REVENUE HAS BEEN DECIDED AGAINST REVE NUE AND IN FAVOUR OF THE ASSESSEE THE PRESENT GROUND OF ASSESSEE BECOMES INFRUCTUOUS AND THEREFORE DISMISSED. 31. GR. NO 2 IS WITH RESPECT TO HOLDING RENT OF RES IDENTIAL BLDG AND OTHER MISC. RECEIPTS AS INCOME FROM OTHER SOURCES. 32. CIT(A) DECIDED THE ISSUE BY HOLDING AS UNDER: ITA NO. 166/A/2010, 838/A/2010 & C O. NO. 33/A/2009 A.Y. 2005-06 & 2006-07 13 6.2 IT IS SEEN THAT THE APPELLANT HAS SHOWN ITS ENTIRE INCOME AS BUSINESS INCOME. AS PER THE STATEMENT OF COMPUTATION OF INC OME, THE SOURCES OF BUSINESS INCOME HAVE BEEN CLAIMED TO BE THE FOLLOWING: PARTICULARS AMOUNT RS. (CR.) SALE OF WATER 17.86 SALE OF ELECTRICITY 8.38 SALE OF RESIDENTIAL BUILDINGS 0.64 INCOME ON INVESTMENTS 8.49 TENDER FEES 1.57 MISC. RECEIPTS 2.68 INCOME ON DEPOSITS 0.04 PROFIT ON SALE OF ASSETS 15.17 PRIOR PERIOD ADJUSTMENTS - LESS: TREATED SEPARATELY - PROFIT ON SALE OF ASSETS 15.17 6. 3 THE ASSESSING OFFICER HAS ACCEPTED THE RECEIPTS OF RS.8,38 CR, .FROM SALE OF ELECTRICITY AS BUSINESS INCOME AND HAS TREA TED THE REST AS 'INCOME FROM ETHER SOURCES', IN ONE OF THE FOREGOING GROUND S OF APPEAL IT HAS ALREADY BEEN DECIDED THAT THE ASSESSEE'S BUSINESS O F IRRIGATION HAS BEGUN AND TO THAT EXTENT THE RECEIPTS OF SALE OF WATER AM OUNTING TO RS. 17.86 CR. IS TO BE TREATED AS BUSINESS RECEIPTS. OF THE BALAN CE OF THE ITEMS, IT IS VERY CLEAR THRU ONLY TENDER FEE TO THE EXTENT OF RS. 1.5 7 CR. COULD BE INCLUDED IN BUSINESS INCOME WHILE OTHER RECEIPTS LIKE RENT O N RESIDENTIAL BUILDING, INCOME ON INVESTMENTS, INCOME ON DEPOSITS AND MISCE LLANEOUS RECEIPTS CANNOT BE STATED AS BUSINESS INCOME OF THE APPELLAN T. THESE ARE DEFINITELY NOT DERIVED FROM THE BUSINESS OF POWER GENERATION O R IRRIGATION. IN FACT IT IS; ALSO DIFFICULT TO SAY THAT THE INCOME IS ATTRIB UTABLE TO ITS BUSINESS. THESE ARE THE INCOMES DERIVED OUT OF THE SURPLUS MO NIES OF THE APPELLANT AND ARE NOT THEREFORE INTERLINKED WITH THE BUSINESS OF THE ASSESSEE. ITA NO. 166/A/2010, 838/A/2010 & C O. NO. 33/A/2009 A.Y. 2005-06 & 2006-07 14 THEREFORE, OUT OF RS.31.28 CR. ASSESSED AS 'INCOME FROM OTHER SOURCES'. RS.L7.86 CR. I RS.8.49 CR., I.E. SALE OF-WATER AND TENDER FEE, TOTALING RS.26.35 CR. IS TREATED AS BUSINESS INCOME. THE RES T OF THE AMOUNT OF R.S.4.93 CR. SHALL CONTINUE TO BE TAXED UNDER THE H EAD INCOME FROM OTHER SOURCES'. 33. BEFORE US, LD. A R. COULD NOT CONTROVERT THE FI NDINGS OF CIT(A) AND ON THE OTHER HAND LD. D.R. SUPPORTED THE ORDER OF CIT(A). WE THEREFORE FIND NO REASON TO INTERFERE WITH THE ORDER OF CIT(A) AND TH US THIS GROUND OF ASSESSEE IS DISMISSED. 34. THUS THE CO OF ASSESSEE IS DISMISSED. 35. IN THE RESULT, BOTH THE APPEALS OF REVENUE AND CO OF ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 05 -09 - 2013. SD/- SD/- (G.C.GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT ,AHMEDABAD