DCIT, CIRCLE- 1(4)(1), RISHIKESH V. THDC INDIA LTD., RISHIKESH

ITA 17/DDN/2019

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 8944 (ITAT-DEHRADUN)
• Duration Of Justice: 2 year(s) 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-02-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2015-2016
• Appeal Filed On: 06-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business expenditure
• Section: 80IA; 201

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DEHRADUN BENCH, DEHRADUN Before Sh. Amit Shukla, Judicial Member Dr. B. R. R. Kumar, Accountant Member (Through Video Conferencing) ITA No. 2675/Del/2017 : Asstt. Year : 2012-13 ITA No. 3404/Del/2017 : Asstt. Year : 2013-14 ITA No. 3020/Del/2018 : Asstt. Year : 2014-15 ITA No. 17/DDN/2019 : Asstt. Year : 2015-16 DCIT, Circle-1(4)(1), Rishikesh-249202 Vs M/s THDC India Ltd., Ganga Bhawan, Pragati Puram, Bye Pass Road, Rishikesh (APPELLANT) (RESPONDENT) PAN No. AAACT7905Q ITA No. 3188/Del/2018 : Asstt. Year : 2014-15 ITA No. 3376/Del/2019 : Asstt. Year : 2015-16 M/s THDC India Ltd., Ganga Bhawan, Pragati Puram, Bye Pass Road, Rishikesh Vs DCIT, Circle-1(4)(1), Rishikesh-249202 (APPELLANT) (RESPONDENT) PAN No. AAACT7905Q Assessee by : Sh. B. Panda, Sr. Adv. Revenue by : Sh. N. C. Upadhyay, Sr. DR Date of Hearing: 11.11.2021 Date of Pronouncement: 14.02.2022 ORDER Per Dr. B. R. R. Kumar, Accountant Member: The present appeals have been filed by the the assessee against the orders of the ld. CIT(A), Haldwani for the A.Y. 2012- 13 & 2013-14 dated 24.01.2017 & 29.03.2017 and the appeals of the Revenue and the assessee against the orders of ld. ITA Nos. 2675 & 3404/Del/2017 ITA Nos. 3020 & 3188/Del/2018 ITA No. 3376/Del/2019 & 17/DDN/2019 THDC India Ltd. 2 CIT(A), Dehradun for the A.Y. 2014-15 & 2015-16 dated 08.02.2018 and 28.02.2019. ITA No. 2675/Del/2017 (Department) ITA No. 3404/Del/2017 (Department) ITA No. 3020/Del/2018 (Department) ITA No. 17/DDN/2019 (Department) Issues involved: Deduction u/s 80IA: 1. Excess provision written back 2. Late payment surcharge. 2. These issues stands adjudicated by the order of the ITAT in ITA No.3956 & 6457/Del/2012 dated 03.03.2015 wherein the adaptations made by the AO were deleted. The ld. CIT(A) during the year before us, has relied upon the order of the ITAT and deleted the additions. 3. For the sake of brevity and ready reference, the said order of the ld. CIT(A) is reproduced herewith: “2.6 Excess provision written back: An amount of Rs. 51,45,792/- has been accounted for as excess provision written back. The Appellant is under a statutory obligation to adopt mercantile system of accounting whereby all the transactions are recorded for a particular previous year on accrual basis. According to this concept certain provision relating to expenses were made in financial year 2010-11 although the firm invoices relating thereto were received from vendors in the financial year 2011-12. The difference between year end provisions and firm liabilities were identified in the previous year relevant the subject ITA Nos. 2675 & 3404/Del/2017 ITA Nos. 3020 & 3188/Del/2018 ITA No. 3376/Del/2019 & 17/DDN/2019 THDC India Ltd. 3 assessment year and booked as excess provision written back in the financial year 2011-12. The Appellant submits that the aforesaid sums are not receipts but accounting entries for reduction of excess liabilities provided earlier. A sum of Rs. 51,45,792/- has been reversed during the year on account of excess provision created in the financial year 2011-12 relating to repair and maintenance. Since the nature of expenses are business expenditure deductible from revenue for the purpose of computing deduction u/s 80-IA the reversal thereof cannot assume any other character but expenditure directly related to the business of production and generation of electricity. A copy of appellate order u/s 250(6) of the Act passed by your Honour for assessment year 2011-12 in appeal no. 558/CIT(A)/DDN/2014-15 dated 18.12.2014 is also annexed herewith at page no 16-21 and the relevant extracts of the findings are covered in Para no 16. The said appellate order deserves to be followed by Your Honour. The findings of your Honour on the ground of deduction of excess provision written back under section 80IA for A.Y 2011-12 are reproduced herewith for your reference. 16. With regard to Excess provision Written Back, the assessee submitted that it was under a statutory obligation to adopt a mercantile system of accounting, whereby all the transactions are recorded for a particular previous year on accrual basis. It was submitted that according to this concept, certain provisions relating to expenses were made in F.Y. 2009-10, although the firm invoices relating thereto were received from vendors in F.Y. 2010-11. The difference between year end provisions and firm liabilities were identified in the previous year relevant to subject assessment year and book as excess provisions written back in the F. Y. 2010-11. It was submitted that the aforesaid sum was not a receipt, but an accounting entry for reduction of excess liability provided earlier and the sum of Rs. 10,34,829/- had been reversed on account of excess provisions created in the previous financial year relating to repair & maintenance. Since the nature of expenses were business expenditure deductible from revenue for the purpose of computing deduction u/s 80IA, the reversal thereof cannot assume any other character but expenditure directly relating to business of ITA Nos. 2675 & 3404/Del/2017 ITA Nos. 3020 & 3188/Del/2018 ITA No. 3376/Del/2019 & 17/DDN/2019 THDC India Ltd. 4 production and generation of electricity. My Ld. Predecessor had held that, since the provisions had been made on account of the operational expenditure that were incurred wholly and exclusively for the purpose of business thereof, if any part of it is found as excess paid and provided and is credited back to the accounts, it retains the same nexus and hence has been treated as part of profit derived from the eligible business. He also pointed out that there is another way of looking at this. If the excess provisions had not been made, the profit derived from the eligible business in the previous year would have been higher and the same would have been eligible for deduction u/s 80IA and the accounting practice for making a provision and writing it back is in accordance with established accounting principles. I am fully in agreement with the views of my Ld. Predecessor. The assessee cannot be denied the benefit of deduction because of such postponement in view of the aforesaid reasons. Accordingly, the Assessing Officer’s disallowance in this regard is unsustainable and he is directed to allow the benefit of deduction with reference to the excess provision written back. To conclude, it is submitted that having regard to above submission and also in light of the detailed arguments already submitted the appellant is entitled to claim deduction under section 80IA on the excess provision written back. 2.7 Late Payment Surcharges: An amount of Rs. 47,288,205/- have been credited to profit and loss account under the head late payment surcharge. As per Central Electricity Regulatory Commission (CERC) Regulation when beneficiaries were not paid the billed amount within certain period mentioned in the regulation then the generating company (i.e. the Appellant) would be entitled to late payment surcharge on the amount due from beneficiaries. The extracts of the clause 35 of the regulation is as follows: “In case the payment of any bill for charges payable under these regulations is delayed by a beneficiary beyond a period of 60 days from the date of billing a late payment surcharges at the rate of 1.25% per month shall be levied by the generating company.” ITA Nos. 2675 & 3404/Del/2017 ITA Nos. 3020 & 3188/Del/2018 ITA No. 3376/Del/2019 & 17/DDN/2019 THDC India Ltd. 5 Reliance is placed on the case of CIT vs. Bharat Rasayan Ltd. ITA No. 816 of 2007, decided on November 30, 2009 wherein the High Court of Delhi decided the substantial question of law. “Whether the IT AT was correct in law in holding that the interest earned by the assessee on late payment received from the customers is eligible for deduction under section 80-IA of the Income-tax Act, 1961 ”. The facts of the case were that the respondent assessee, which was an industrial undertaking, had supplied goods to its various customers which, had been manufactured by it. Some of these customers did not make payment in time. The dues which were payable by those buyers attracted interest on late payment charges. In this manner, ultimately the payments which were received by the assessee against the supply of goods also included interest on overdue payments. Precisely, this very issue came up for consideration before the Gujarat High Court in the case of Nirma Industries Ltd. Vs. Deputy Commissioner of Income Tax, (2006).283 ITR 402 (Guj). That was also a case where interest was received by the assessee from the debtors for late payment of the sale proceeds and the question was as to whether this interest can be treated as the income derived from the business for the purpose of Section 80-1 of the Act. The question was answered in favour of the assessee, the Gujarat High Court relied upon the judgment of the Apex Court in the case of Commissioner of Income Tax, Orissa Vs. Covinda Choudhury & Sons, Gosaninuagaon Orissa, (1993) 203 ITR 881 in which case the Supreme Court had held that interest was of the same nature as other trading receipts the following manner. Thus, according to the Gujarat High Court, when interest is paid on delayed payment, it can be treated as higher sale price which is converse situation to offering of cash discount because the transaction remains the same and there is no distinction as to the source looking from” this angle, the interest becomes part of the higher sale price and is clearly derived from the sales made and is not divorced there from. It is thus, the direct result of the sale of goods and the income is derived from the business of Industrial undertaking. ITA Nos. 2675 & 3404/Del/2017 ITA Nos. 3020 & 3188/Del/2018 ITA No. 3376/Del/2019 & 17/DDN/2019 THDC India Ltd. 6 Similar views have been expressed by various other High Court’s in the following rulings. (i) Phatela Cotgin Industries (P) ltd. Vs. Commissioner of Income Tax 303 (TR 411 (P&H)) (ii) Commissioner of income Tax Vs. Flender Macnsil Cears Ltd., 150 ITR 83 (Cal.) (iii) Tata ponge iron Ltd. Vs. Commissioner of Income Tax 292 ITR 175 (Orissa) (iv) Commissioner of Income Tax Vs. Indo Matsushita Carbon Co. Ltd., 286ITR 201 (Mad) It is also prayed that the reliance placed by the Ld. A.O on Apex Court decision in the case of Liberty India Vs. the Department 309 Taxman 317 ITR 218(SC)/[2009] is misplaced and erroneous in so far as the said case dealt only with the issue of eligibility of duty drawback for the purpose of deduction u/s 80-IB and the facts of the case are entirely different from those of the Appellant. A copy of appellate order u/s 250(6) of the Act passed by your Honour for assessment year 2011-12 in appeal no. 558/CIT(A)/DDN/2014-15 dated 18.12.2014 is also annexed herewith at page no 16-21 and the relevant extracts of the findings are covered in Para no 17. The said appellate order deserves to be followed by Your Honour.” To conclude, it is submitted that having regard to above submission and also in light of the detailed arguments already submitted the appellant is entitled to claim deduction under section 80IA on the late payment surcharge. 4.2 It further submitted in Appeal that there is no purpose in sending the Appellant to the same forum for the above disallowances, which had rendered its decision in the favour of the Appellant. Further that- “It is settled law that principle of judicial discipline where it demands that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not ‘acceptable ’ to the department - in -itself an ITA Nos. 2675 & 3404/Del/2017 ITA Nos. 3020 & 3188/Del/2018 ITA No. 3376/Del/2019 & 17/DDN/2019 THDC India Ltd. 7 objectionable phase and is the subject matter of an appeal can furnish no ground for not following it unless its operation has been suspended by a competent court. If this rule is not followed, the result will only be undue harassment to assessee and chaos in administration of tax laws. The authorities are prone to take the view that its pronouncement on law cannot be binding overlooking the fact that judicial discipline involving the recognition of the hierarchical principle would require that, where the higher authority has taken a view as regards interpretation of law, such view, if not in all matters before the assessing officer, should certainly govern the same case for a later year, though it may be permissible to make a protective assessment, so as to meet the time bar, where the matter has been taken up the revenue to the High Court. The Principle of hierarchy applies not only to a judicial forum but also to a quasi-judicial forum or even in an any administrative field in that a seniors view should prevail over a junior incumbent, who is obliged to obey and carry out the order and/ or observation made by the superior authority.” Appellant favoring its contention place reliance on the decisions in Voest- Alphine Ind. Gmbh Vs. ITP [2000] 246 ITR 745 (Cal) and Khalid Automobiles Vs Union of India [1995] 4 SCC (Suppl.) 653. 4.3 The contentions of the Appellant, his submissions and case laws relied upon have been considered. It is seen that the AO has disallowed the deduction claimed by the Appellant u/s 801A in respect of various heads of income. The same have however been considered in Appeal in the Appellant’s own case for AY 2008-09 /2009-10 and allowed by the CIT(A), and his order confirmed by the ITAT also in its order ITA Nos. 3956 & 6457/Del/2012 dated 03 March, 2015. The same is mentioned as under- I. Excess provision written back: 8. This amount represented reversal of excess provision of salary made in the past in respect of pay revision which was implemented during the previous year under consideration. ITA Nos. 2675 & 3404/Del/2017 ITA Nos. 3020 & 3188/Del/2018 ITA No. 3376/Del/2019 & 17/DDN/2019 THDC India Ltd. 8 The claim of the asses see before the Id. CIT(A) was that since the provision was found to be in excess, it was written back in the accounts as 'Income' during the previous year. There is hardly any need to emphasize that salary paid by an undertaking is part of expenditure otherwise deductible in computing the income derived from the eligible undertaking. If in the preceding year, the deduction was claimed for a higher sum, which reduced the eligible profit with such higher amount of deduction and the actual expenditure turned out to be less with the result that the excess provision gets written back in the instant year, it cannot be characterized as anything other than part and parcel of profit derived from eligible enterprise. In reality, the ITA No.3956 & 6457/Del/2012 CO Nos.91 & 92/Del/2014 excess provision written back is not an income in itself, but, a reduced amount of eligible deduction in the computation of profits derived from eligible enterprise. We, therefore, approve the view taken by the Id. CIT(A) on this issue. II. Late payment charges: 9. The Id. CIT(A) has recorded that this receipt represented extra payment received by the assessee from its customers on account of late payment of their dues. The character of this receipt has not been disputed by the Id. DR. In essence, the late payment charges are nothing, but, part of sale consideration which cannot be viewed differently. Once deduction is available on sale consideration, there can be no reason to deny deduction on such late payment charges, which are part and parcel of such sale consideration. We, therefore, uphold the impugned order allowing deduction u/s 80IA on this amount.” Accordingly respectfully following the above decision of the Hon’ble ITAT, the disallowance made by the AO towards Excess provision written back of Rs.51,45,792/- and Late payment surcharge of Rs. 4,72,88,205/-is deleted.” 4. Since, the order of the ld. CIT(A) is in consonance with the order of the ITAT, in the absence of any material change in the ITA Nos. 2675 & 3404/Del/2017 ITA Nos. 3020 & 3188/Del/2018 ITA No. 3376/Del/2019 & 17/DDN/2019 THDC India Ltd. 9 facts and legal proposition of the issue, we decline to interfere with the order of the ld. CIT(A). 5. In the result, the appeals of the revenue are dismissed. ITA No. 3188/Del/2018 (Assessee) ITA No. 3376/Del/2019 (Assessee) Issues involved: 1. Interest from employees 2. Interest from others 3. Machine hire charges 4. Rent receipts 5. Sundry receipts 6. These issues stands adjudicated by the order of the ITAT in ITA No.3956 & 6457/Del/2012 dated 03.03.2015 wherein the adaptations made by the AO were deleted. The ld. CIT(A) during the year before us, has relied upon the order of the ITAT and denied the deduction u/s 80IA in respect of the items above. 7. For the sake of brevity and ready reference, the said order of the ld. CIT(A) is reproduced herewith: 5. With respect to the claim of deduction on Interest from Employees, Machine Hire Charges, Rent Receipts and Sundry Receipts also the same has been adjudicated upon by the CIT(A) in AY 2008-09 and the same has been upheld by the Hon ITAT in ITA No. 3956 & 6457/DEL/2012 dated 3.03.2015 as under:- “11. The first item is interest which was received against advances to its employees for various purposes, such as, house building, purchase of computer, etc. Even though the employees were engaged in power ITA Nos. 2675 & 3404/Del/2017 ITA Nos. 3020 & 3188/Del/2018 ITA No. 3376/Del/2019 & 17/DDN/2019 THDC India Ltd. 10 generation, the fact remains that the interest received by the assessee on loans advanced by the assessee to its employees cannot be characterized as income 'derived from' eligible undertaking. There is no directnexus of such interest income with the eligible undertaking inasmuch as the immediate source of such income is not the eligible undertaking. Such income may be attributable to the business of the eligible undertaking, but, cannot be held as derived from the eligible undertaking. The view taken by the Id. CIT(A) on this issue is upheld. 7.1 Same applies to other interest received also. II. Machines hire charges: 12. The assessee received hire charges in respect of certain machines which were given on hire to its contractors who were engaged in the erection and construction of the power generation facility. We fail to appreciate as to how such machine hire charges can be considered as ITA No. 3956 & 6457/Del/2012 CO Nos.91 & 92/Del/2014 derived from eligible undertaking. These do not have any direct nexus with the eligible undertaking. The source of such income is hiring of machines, which is step away from the eligible undertaking. The view taken by the Id. CIT(A) on this score is upheld. III. Rent Receipt: 13. The asses see received rent from its employees' quarters as well as temporary sheds given to contractors at project sites. Even though such income may be considered as attributable to the eligible undertaking, but, it can by no stretch of imagination, be described as 'derived from' the eligible undertaking. We, therefore, approve the view taken by the Id. CIT(A) on this issue. IV. Sundry Receipts: 14. These amounts are in the nature of electricity charges, guest house receipts, subsidized transport and miscellaneous receipts from the employees and contractors. The reasons given by us hereinabove for not allowing ITA Nos. 2675 & 3404/Del/2017 ITA Nos. 3020 & 3188/Del/2018 ITA No. 3376/Del/2019 & 17/DDN/2019 THDC India Ltd. 11 deduction in respect of the items mentioned above apply with ITA No. 3956 & 6457/Del/2012 and CO Nos.91 & 92/Del/2014 full force in respect of such sundry receipts as well. These receipts cannot be considered as 'derived from' the eligible undertaking. We, therefore, approve the view taken by the Id. CIT(A) on this score.” Accordingly following these four issues the disallowance made by the AO in respect of Interest from employees of Rs.1,27,42,406/-, Machine Hire charges of Rs.1,04,380/-, Rent Receipts Rs.57,88,290/- and Sundry Receipts of Rs.1,45,48,988/- are confirmed.” 8. Since, the order of the ld. CIT(A) is in consonance with the order of the ITAT, in the absence of any material change in the facts and legal proposition of the issue, we decline to interfere with the order of the ld. CIT(A). 9. In the result, the appeals of the assessee are dismissed. Order Pronounced in the Open Court on 14/02/2022. Sd/- Sd/- (Amit Shukla) (Dr. B. R. R. Kumar) Judicial Member Accountant Member Dated: 14/02/2022 *Subodh Kumar, Sr. PS* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR