Neyveli Lignite Corporation Ltd., Cuddalore V. DCIT, CHENNAI

ITA 2140/CHNY/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4702 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 4 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2017
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 20-02-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 11-12-2013
• Court: TRIBUNAL
• Department Lawyers: R VIJAYARAGHAVAN
• Keywords: Depreciation; Earning of tax free income; Revenue expenditure; Capital expenditure
• Section: 14A; 12A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: CHENNAI . . . , '.. % , * BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S.SUNDER SINGH, ACCOUNTANT MEMBER ./ ITA NO.1983/MDS/2011 /ASSESSMENT YEAR: 2008-09 & ITA NOS.2029, 855 & 2077/MDS/2013 /ASSESSMENT YEARS: 2007-08, 2009-10 & 2010-11 THE DY. COMMISSIONER OF INCOME TAX, LARGE TAXPAYER UNIT, CHENNAI-600 034. VS. M/S.NEYVELI LIGNITE CORPORATION LTD., (F&AB), INCOME TAX SECTION, CORPORATE CIRCLE, NEYVELI-607 801. [PAN: AAACN 1121 C ] ( , /APPELLANT) ( -., /RESPONDENT) ./ ITA NO.2140/MDS/2013 /ASSESSMENT YEAR: 2010-11 M/S.NEYVELI LIGNITE CORPORATION LTD., (F&AB), INCOME TAX SECTION, CORPORATE CIRCLE, NEYVELI-607 801. [PAN: AAACN 1121 C] VS. THE DY. COMMISSIONER OF INCOME TAX, LARGE TAXPAYER UNIT, CHENNAI-600 034. ( , /APPELLANT) ( -., /RESPONDENT) , / / APPELLANT BY : MR.B.KOTESWARA RAO, CIT -., / /RESPONDENT BY : MR.R. VIJAYARAGHAVAN, ADV. / /DATE OF HEARING : 23.02.2017 / /DATE OF PRONOUNCEMENT : 28.04.2017 ITA NO.1983/MDS/2011 & ITA NOS.2029, 855, 2077 & 2140/MDS/2013 :- 2 -: / O R D E R PER D.S.SUNDER SINGH , ACCOUNTANT MEMBER : THESE ARE THE CROSS APPEALS FILED BY THE REVENUE A S WELL AS THE ASSESSEE AGAINST THE ORDERS OF THE CIT(A) FOR THE A .Y 2007-08,2008- 09,2009-10(BY REVENUE) AND 2010-11(REVENUE AND THE ASSESSEE). SINCE THE COMMON ISSUES ARE INVOLVED, ALL THE ABOVE APPEA LS ARE CLUBBED, HEARD TOGETHER AND DISPOSED OFF IN COMMON ORDER FOR THE S AKE OF THE CONVENIENCE AS UNDER: REVENUE APPEALS: 2.0 THE FIRST ISSUE IS RELATED TO THE ADDITION RELATI NG TO THE DEPRECIATION ON WATER SUPPLY AND DRAINAGE. THE ASS ESSEE IS ENGAGED IN THE BUSINESS OF COAL MINING AND ELECTRICITY GENERAT ION. COMMON ISSUE INVOLVED FOR THE A.Y 2007-08 2009-10 AND 2010-11 I S THE DISALLOWANCE MADE ON ACCOUNT OF EXCESS DEPRECIATION ON WATER SUU PLY AND DRAINAGE FOR THE ABOVE AYS AS UNDER: ASSESSMENT YEAR AMOUNT OF DEPRECIATION DISALLOWED RS. 2007-08 1,23,50,917 2009-10 2,37,05,163 2010-11 2,90,90,542 2.1 DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING O FFICER (IN SHORT AO) FOUND THAT THE ASSESSEE HAS CLAIMED THE DEPRE CIATION @ 15% ON THE ASSETS GROUPED UNDER THE HEAD WATER SUPPLY AND DRAINAGE IN BLOCK OF ITA NO.1983/MDS/2011 & ITA NOS.2029, 855, 2077 & 2140/MDS/2013 :- 3 -: ASSETS. THE ASSESSEE GROUPED THE ASSETS UNDER THE H EAD WATER SUPPLY AND DRAINAGE CONSISTING OF CIVIL CONSTRUCTION WORKS L IKE STORAGE TANKS, CHECK DAMS, RCC APRONS AND CULVERTS, SEWERAGE AND DRAINAG E AND LARGE SIZE PIPELINES AND BORE WELLS ETC. AND TREATED THE SAME AS PLANT AND CLAIMED THE DEPRECIATION @15%. THE AO WAS OF THE VIEW THAT THE ALLOWABLE DEPRECIATION IS @10% AS APPLICABLE IN THE CASE OF N ON-RESIDENTIAL BUILDINGS. THE AO RELIED ON THE DECISION OF CIT VS . ANAND THEATRES (244 ITR 192) OF THE HONBLE APEX COURT AND RESTRICTED T HE DEPRECIATION TO 10% AS APPLICABLE FOR NON RESIDENTIAL BUILDINGS AND DIS ALLOWED THE BALANCE AMOUNT OF 5% DEPRECIATION AS PER THE DETAILS GIVEN ABOVE. 2.2 AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WEN T ON APPEAL BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEA LS) (IN SHORT LD.CIT(A)) AND THE LD.CIT(A) ALLOWED THE ASSESSEE S APPEAL HOLDING THAT THE ASSETS GROUPED UNDER THE WATER SUPPLY AND DRAIN AGE SERVES SPECIAL TECHNICAL REQUIREMENTS AND QUALIFY FOR TREATMENT OF PLANT AND ACCORDINGLY ALLOWED THE DEPRECIATION @15%. FOR READY REFERENCE, WE EXTRACT THE RELEVANT PARAGRAPHS NOS.5.2 & 5.3 OF THE LD.CIT(A) S ORDER (AY 2007-08) FOR THE SAKE OF CLARITY AND CONVENIENCE AS UNDER: 5.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE, SUBMISSIONS OF THE APPELLANT AND THE DECISIONS RELIED ON BY THE AO AND THE LD.AR. THE AO H AS RESTRICTED THE DEPRECIATION ON WATER SUPPLY AND DRAINAGE TO 10% TREATING IT AS B UILDING BUT NOT THE PLANT CITING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F CIT VS. ANAND THEATRES (2000) (244 ITR 192). THE AO HAS OBSERVED FROM THE BREAK-UP DETA ILS OF THE BLOCK OF ASSETS WATER SUPPLY & DRAINAGE WHICH SHOWS THAT THEY ARE CIVIL CONSTRUCTIONS LIKE, STORAGE TANKS, CHECK DAMS, RCC APRONS (BOX CULVERT) , SEWERAGES AND DRAINAGES, LARGE SIZED PIPELINES (24 INCHES) AND BORE-WELLS. THE POSITION OF THE RULE AS PER NOTE 1 TO THE NEW A PPENDIX-I OF IT RULES, STANDS AS UNDER, ITA NO.1983/MDS/2011 & ITA NOS.2029, 855, 2077 & 2140/MDS/2013 :- 4 -: BUILDINGS INCLUDE ROADS, BRIDGES, CULVERTS, WELLS AND TUBE-WELLS. 5.3 IT IS SEEN FROM THE ABOVE THAT BY SEEING ORDINA RILY THE ASSETS ON WHICH THE APPELLANT HAS CLAIMED HIGHER DEPRECIATION WILL SUFFICIENTLY F IT UNDER THE INCLUSIVE DEFINITION OF BUILDING MENTIONED AT NOTE 1 TO THE NEW APPENDIX- I OF IT RULES. HOWEVER, SINCE IT IS A CASE OF A MINING, WHERE THE WATER SUPPLY AND DRAINA GE SYSTEM ARE ASSOCIATED WITH THE EXCAVATION, GENERATION AND TRANSMISSION ACTIVITIES AS SUBMITTED BY THE APPELLANT AND THE SPECIAL TECHNICAL REQUIREMENT DEMANDS SUCH FACILI TIES AS INDISPENSIBLE, IT SHOULD BE TREATED AS PLANT AND DEPRECIATION AT THE RATE OF 15% SHOU LD BE ALLOWED. THE CASE LAW OF CIT V KARNATAKA POWER CORPORATION (2001) 247 ITR 268 (SC) RELIED ON BY THE APPELLANT WILL COME TO ITS RESCUE WHEREIN IT IS DECIDED THAT IF IT SERV ES AN ASSESSEES SPECIAL TECHNICAL REQUIREMENT, IT WILL QUALIFY TO BE TREATED AS PLAN T. THE CASE LAW RELIED ON BY THE AO IN THE CASE OF CIT VS. ANAND THEATRES (2000) (244 ITR 192) W HEREIN THE CINEMA THEATERS WERE NOT CONSIDERED AS PLANT WAS ALSO DISCUSSED IN THE SUPREME COURTS ABOVE DECISION. I ACCORDINGLY DIRECT THE A.O TO ALLOW IT. THIS ISSUE I S DECIDED IN FAVOUR OF THE APPELLANT. 2.3 AGGRIEVED BY THE ORDER OF THE LD.CIT(A), THE DEPAR TMENT IS ON APPEAL BEFORE US. THE LD.DR ARGUED THAT AS PER THE APPENDIX-I OF INC OME TAX RULES BUILDINGS INCLUDES ROADS, BRIDGES, CULVERTS, WELLS AND PIPELINES. THE LD.DR ARGUED THAT THE RATE OF DEPRECIATION FOR EACH TYPE OF ASSET HAS BEEN INCORPORATED IN THE APPENDIX OF INCOME TAX RULES, A FTER GETTING EXPERT OPINIONS EMANATING OUT OF VAST STATISTICAL DATA AND SERVICES AND PROFOUND RESEARCHES. THE RATES ARE TO BE APPLIED AS PER THE DESCRIPTION AND ALSO THE NOMENCLATURE OF THE ASSET. THE BUILDING AND PLANT ARE TREATED SEPARATELY FOR THE PURPOSE OF GRANT OF DEPRECIATION. HIGHER R ATE OF DEPRECIATION IS GRANTED TO MACHINERY AND PLANT AS AGAINST THE BUILD ING WHICH HAS MORE DURABLE. ON THE OTHER HAND, THE LD.AR ARGUED THAT CIVIL CONSTRUCTIONS IN MINING WORKS CANNOT BE TREATED AS MERE BUILDINGS. SINCE THEY HAVE TO CONSTRUCT FOR SPECIFIC PURPOSE IN THE MINING WHERE THE WATER SUPPLY AND DRAINAGE SYSTEMS ARE ASSOCIATED WITH THE EXCAVATION , GENERATION AND TRANSMISSION ACTIVITIES AS SUBMITTED BY THE ASSESSE E AND THE SPECIFIC ITA NO.1983/MDS/2011 & ITA NOS.2029, 855, 2077 & 2140/MDS/2013 :- 5 -: TECHNICAL REQUIREMENTS DEMAND SUCH FACILITIES AS IN DISPENSABLE. THE LD.AR RELIED ON THE KARNATAKA POWER CORPORATION V. CIT 24 7 ITR 268 AND ARGUED THAT THE ENTIRE CIVIL CONSTRUCTIONS MADE IN THE MIN ES WITH SPECIFIC TECHNICAL REQUIREMENTS REQUIRED TO BE TREATED AS PLANT. THE L D.AR ALSO RELIED ON THE FOLLOWING DECISIONS: INDO BURMA PETROLEUM CO. LTD.(112 ITR 755) INDORE MUNICIPAL CORPORATION (247 ITR 803) (SC) 2.4 WE HAVE CAREFULLY GONE THROUGH THE SUBMISSIONS MAD E BY BOTH THE PARTIES. THE CIVIL CONSTRUCTION IN THE MINES CANNOT BE TREATED ON PAR WITH THE RESIDENTIAL BUILDINGS OR NON-RESIDENTIAL BUILDI NGS USED FOR THE PURPOSE OF RESIDENCE OR COMMERCIAL USE. THEY ARE TO BE CON STRUCTED WITH A SPECIAL TECHNICAL REQUIREMENT FOR THE PURPOSE OF MINING ACT IVITY FOR EXCAVATION, GENERATION AND TRANSMISSION AS RIGHTLY OBSERVED BY THE LD.CIT(A). THE WEAR AND TEAR IS ALSO VERY HIGH IN THE MINES. THE HONBLE KARNATAKA HIGH COURTS DECISION SUPPORTS THIS VIEW. THEREFORE, WE HOLD THAT THE CIVIL CONSTRUCTIONS MADE FOR THE DRAINAGE AND WATER SUPPL Y IN THE MINES ARE TO BE TREATED AS PLANT AND ENTITLED FOR EXCESS DEPRECI ATION. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD.CIT(A ) AND THE SAME IS UPHELD. THE REVENUES APPEAL ON THIS GROUND FOR THE A.YS 20 07-08, 2009-10 AND 2010-11 IS DISMISSED. 3.0 THE NEXT ISSUE FOR THE AYS 2007-08 & 2010-11 IS HI GHER RATE OF DEPRECIATION ON ELECTRICAL INSTALLATIONS. FOR THE AYS 2007-08 & 2010-11, THE AO DISALLOWED THE DEPRECIATION ON ELECTRICAL IN STALLATIONS AS UNDER: ITA NO.1983/MDS/2011 & ITA NOS.2029, 855, 2077 & 2140/MDS/2013 :- 6 -: O A.Y 2007-08 - RS.2,76,04,266/- O A.Y 2010-11 - RS.5,29,14,848/- THE ASSESSEE CLAIMED THE DEPRECIATION @15% AND THE AO RESTRICTED THE SAME TO 10% AND THE BALANCE DEPRECIATION WAS DI SALLOWED AS ABOVE. THE AO WAS OF THE VIEW THAT THE ELECTRICAL INSTALL ATIONS MADE IN THE MINES SUCH AS PANELS, SWITCH GEARS AND VARIOUS TYPE S OF OTHER CABLES FOR TRANSMISSION OF POWER ARE NORMAL ELECTRICAL INSTALL ATIONS AND THE DEPRECIATION REQUIRED TO BE ALLOWED AT NORMAL RATES BUT THE ASSESSEE CLAIMED THE DEPRECIATION @15% INSTEAD OF 10% AS PER THE INCOME TAX RULES. THEREFORE, THE AO DISALLOWED THE EXCESS DEP RECIATION. 3.1 AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WEN T ON APPEAL BEFORE THE LD.CIT(A). THE LD.CIT(A) ALLOWED THE AS SESSEES APPEAL PLACING RELIANCE ON THE CASE OF KARNATAKA POWER CORPORATION VS. CIT 247 ITR 268 OF THE HONBLE KARNATAKA HIGH COURT. 3.2 AGGRIEVED BY THE ORDER OF THE LD.CIT(A), THE REVEN UE HAS FILED THE APPEAL BEFORE US. THE ASSESSEE ARGUED THAT THE LIGNITE IS EXCAVATED FROM MINES AND ITS FORCE WILL BE VERY HIGH AT RATE. THE OBSERVATI ON BORE-WELLS ARE DUG AROUND THE SPOT OF LIGNITE EXCAVATING AREA AND HIGH ER POWER SUBMERSIBLE MOTOR PUMPS ARE ENGAGED TO DRY UP THE AREA. THE LD .AR REITERATED THE ITA NO.1983/MDS/2011 & ITA NOS.2029, 855, 2077 & 2140/MDS/2013 :- 7 -: SUBMISSIONS MADE BEFORE THE LD.CIT(A) FOR THE AY 20 07-08 WHICH IS EXTRACTED FROM THE ORDER OF THE LD.CIT(A) IN PARA N O.5 AS UNDER: A. THE LIGNITE IS EXCAVATED AT LEVEL OF, WHERE THE WAT ER INTRUSION AND FORCE WILL BE AT HIGH RATE. THE OBSERVATION BORE WELLS ARE DUG AROUND TO THE SPOT OF LIGNITE EXCAVATING AREA AND HIGH POWER SUBMERSION ELECTRIC MOTOR PUMPS ARE ENGAGED TO DRY UP THE AREA. DURING THE TIME OF RAINS, MEGA ELECTRIC MOTOR PUMPS ARE ENGAGED TO PUMP OUT THE STORM WATER FROM LINES AND DRAINED OUT. THUS, THE G ROUND WATER CONTROL SYSTEM (GWC) AND STORM WATER CONTROL SYSTEM (SWC) ARE ENGAG ED IN MINING. B. VVHERE IT IS FOUND AS A FACT THAT A BUILDING HAS BE EN SO PLANNED AND CONSTRUCTED AS TO SERVE SPECIAL TECHNICAL REQUIREMENTS, IT WILL QUALI FY TO BE TREATED AS A PLANT. FOR THE PURPOSE OF THE SAME, FOLLOWING CASE LAWS WERE RELIE D UPON: I. CIT V. KARNATAKA POWER CORPORATION (2001) 247 ITR 2 68 (SC) (E-2) II. CIT V. INDO BURMA PETROLEUM CO.LTD (1978) 112 ITR 75 5 (CAL.) (E-3) III. CIT V. DR. B. VENKATA RAO (2000) 111 TAXMANN 635 (S C) IV. INDORE MUNICIPAL CORPORATION V. CIT (2001) 247 ITR 803 (SC) C. AS REGARDS ELECTRICAL INSTALLATIONS, THEY ARE ELECT RICAL EQUIPMENTS INSTALLED IN MINES & THERMAL POWER STATIONS FOR THE PURPOSE OF LIGNITE E XCAVATION AND GENERATION OF POWER. D. IN THE EXCAVATION OF LIGNITE, THE POWER SUPPLY IS F ED ON INSTALLATION OF HIGH VOLTAGE AND LOW VOLTAGE POWER LINES, WHICH ARE CONSISTING OF VA RIOUS SUB-STATIONS, TRANSFORMERS (120/MVA/230/ 11.55 KV), SWITCH YARDS, SWITCH GEARS AN D VARIOUS TYPES OF CONTROL PANELS. IN THE THERMAL POWER STATIONS, THE POWER SU PPLY IS FED ON INSTALLATIONS OF HIGH VOLTAGE POWER LINES, LOW VOLTAGE POWER LINES, SWITC H YARDS, SWITCH GEARS AND VARIOUS TYPES OF CONTROL PANELS. E. FURTHER, IN NLC TOWNSHIP (EMPLOYEE QUARTERS), VARIO US SUB-STATIONS SWITCH YARDS, SWITCH GEARS AND CONTROL PANELS ARE DEPLOYED FOR SU PPLY OF ELECTRICITY POWER. F. THE LEARNED AO OUGHT TO HAVE APPRECIATED THAT THE RA TE OF 10% IS APPLICABLE ONLY IN RESPECT OF ELECTRICAL FITTINGS AND NOT ELECTRICAL E QUIPMENT AND INSTALLATION. G. THE ELECTRICAL INSTALLATION AND EQUIPMENT ARE INTEG RAL PART OF THE POWER GENERATION TRANSFORMING AND TRANSMISSION SYSTEM AND CANNOT BE EQUATED PURE ELECTRICAL FITTINGS LIKE FANS, TUBE LIGHT ETC. H. CONSIDERING THE ABOVE FACTS WE PRAY THAT THE APPEAL OF THE ASSESSEE SHALL PLEASE BE ALLOWED. THE BUILDING HAS BEEN SO PLANNED AND CONSTR UCTED AS TO SERVE SPECIAL REQUIREMENT. ACCORDING TO THE ASSESSEE, IT QUALIFI ES FOR PLANT FOR THE PURPOSE OF DEPRECIATION. ON THE OTHER HAND, THE LD. DR ARGUED THAT AS PER THE NEW APPENDIX-1 OF INCOME TAX RULES, ELECTRICAL FITTINGS INCLUDE ELECTRICAL WIRES, SOCKET AND PHASE, ETC. ELECTRICA L INSTALLATIONS SHOULD NOT BE CLASSIFIED AS PLANT FOR HIGHER DEPRECIATION. TH E FUNCTIONS OF THE ITA NO.1983/MDS/2011 & ITA NOS.2029, 855, 2077 & 2140/MDS/2013 :- 8 -: ELECTRICAL FITTINGS, INSTALLATIONS ARE ONE AND THE SAME FOR THE BUILDINGS AND MINES. THEREFORE, ELECTRICAL FITTINGS REQUIRED TO B E ALLOWED AS DEPRECIATION @10% AS PER NEW INCOME TAX RULES. 3.3 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL PLACED BEFORE US. AS PER THE ASSESSMENT ORDER AND BREAKUP OF THE BLO CK OF ASSETS, THERE ARE TWO TYPES OF ELECTRICAL INSTALLATIONS. E LECTRICAL INSTALLATIONS INSTALLED IN MINES FOR THE PURPOSE OF EXCAVATION, G ENERATION AND TRANSMISSION ACTIVITIES AND THE ELECTRICAL INSTALLA TIONS INSTALLED IN THE BUILDING, GODOWN, BUS STATION, ETC. WE AGREE WITH THE LD.CIT(A) THAT THE ELECTRICAL INSTALLATIONS INSTALLED FOR THE PURPOSE OF EXCAVATION, TRANSMISSION OF MINING ACTIVITIES REQUIRED TO BE CONSIDERED AS A PLANT AS PER THE DECISIONS RELIED UPON BY THE ASSESSEE. WHEREAS, TH E ELECTRICAL INSTALLATIONS INSTALLED IN THE ADMINISTRATIVE BUILD INGS, BUS STATIONS, ETC., PERFORM THE FUNCTIONS OF NORMAL TRANSMISSION OF ELE CTRICITY CANNOT BE HELD AS A PLANT. THE ASSESSEE ALSO RELIED ON THE DECISI ON OF KUTTI SPINNERS PVT LTD 34 ITR 0470. THE CO-ORDINATE BENCH OF ITAT, CH ENNAI HELD IN THE CITED CASE THAT THE ELECTRICAL CABLES, FITTINGS AND OTHER ELECTRICAL WORKS CONNECTED WITH THE WIND MILL CONSIDERED AS A SINGLE CAPACITY UNIT AND ELIGIBLE FOR DEPRECIATION @80%. OUR VIEW IS SUPPORT ED BY THE CO-ORDINATE BENCH DECISION CITED SUPRA. THEREFORE, THE ISSUE IS REMITTED THE MATTER ITA NO.1983/MDS/2011 & ITA NOS.2029, 855, 2077 & 2140/MDS/2013 :- 9 -: BACK TO THE FILE OF THE AO AND TO EXAMINE THE ELECT RICAL INSTALLATIONS FOR THE PURPOSE OF MINING ACTIVITY AND INSTALLED FOR THE PU RPOSE OF NORMAL ELECTRICITY SUPPLY SUCH AS ADMINISTRATIVE BUILDINGS , CANTEEN AND BUS STATIONS, ETC., AND ALLOW THE DEPRECIATION @15% IN RESPECT OF THE INSTALLATIONS MADE IN THE MINES AND 10% IN RESPECT OF THE BUILDINGS, CANTEEN, BUS STATION, ETC. THE REVENUES APPEAL ON THIS ISSUE FOR THE A.YS 2007-08 AND 2010-11 IS PARTLY ALLOWED FOR STATISTIC AL PURPOSES. 4.0 THE NEXT ISSUE IS SURCHARGE RECOVERABLE FROM ELEC TRICITY BILLS: DURING THE ASSESSMENT PROCEEDINGS, THE AO F OUND FROM THE ANNUAL REPORT THAT THE SURCHARGE RECOVERED FROM THE BELATE D SETTLEMENT OF POWER BILLS AMOUNTING TO RS.118 CR. HAS NOT RECKONED AS I NCOME SINCE THERE IS UNCERTAINTY IN REALIZATION AND THE SAME WOULD BE AC COUNTED ON REALIZATION. THE ASSESSEE IS FOLLOWING THE MERCANTILE SYSTEMS OF ACCOUNTING. AS PER THE MERCANTILE SYSTEM OF ACCOUNTING, ALL THE INCOME ACC RUED REQUIRED TO BE TAXED AS INCOME IN THE YEAR OF ACCRUAL. IN THE CAS E OF THE ASSESSEE, THOUGH INCOME HAS BEEN ACCRUED SINCE THE RECOVERY W AS UNCERTAIN THE SAME WAS NOT OFFERED AS INCOME BY THE ASSESSEE. WH EREAS THE AO HELD THAT THE INCOME RELATED TO BELATED PAYMENT (I.E. SU RCHARGE) OF THE POWER BILL WAS ACCRUED AS PER THE SYSTEM OF ACCOUNTING FO LLOWED BY THE ASSESSEE AND THE ASSESSEE DID NOT ESTABLISH THE UNCERTAINTY OF RECOVERING THE BILLS. THEREFORE, THE AO HELD THAT AS PER THE TRIPARTITE A GREEMENT ENTERED INTO BY THE ASSESSEE WITH RBI, GOVERNMENT OF INDIA AND T HE STATE GOVERNMENTS ITA NO.1983/MDS/2011 & ITA NOS.2029, 855, 2077 & 2140/MDS/2013 :- 10 -: ON BEHALF OF ELECTRICITY BOARDS. THERE WAS NO UNCE RTAINTY IN THE ACCRUAL OF SURCHARGE AND HELD THAT RS.118 CR. IS AN ACCRUED IN COME REQUIRED TO BE BROUGHT TO TAX FOR THE ASSESSMENT YEAR UNDER CONSID ERATION. ACCORDINGLY, ADDED BACK TO THE INCOME. THE ABOVE ISSUE IS INVOL VED FOR THE ASSESSMENT YEARS 2007-08 TO 2010-11 AS UNDER: ASSESSMENT YEAR AMOUNT IN RS. 2007-08 118.00 CRORES 2008-09 15.11 CRORES 2009-10 1.17 CRORES 2010-11 116.83 CRORES THE LD.AO RELIED ON THE DECISION OF KERALA HIGH COURT IN THE CASE OF CIT VS SOUTHERN CABLES AND ENGINEERING WORKS 289 I TR 167. 4.1 AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WE NT ON APPEAL BEFORE THE LD.CIT(A) AND THE LD.CIT(A) DELETED THE ADDITION FOLLOWING THE ORDER OF THE LD.CIT(A) FOR THE ASSESSMENT YEARS 200 8-09. IN THE ASSESSMENT YEAR 2008-09, THE LD.CIT(A) RELIED ON TH E HONBLE SUPREME COURT JUDGMENT IN THE CASE OF GODHRA ELECTRICITY CO . LTD. VS. CIT 225 ITR 0746 AND DELETED THE ADDITION AND HELD THAT THE IMP ROBABILITY OF REALIZATION HAS TO BE CONSIDERED IN REALISTIC MANNE R AND IN PRACTICAL POINT OF VIEW. SINCE THE PAYMENT HAS NOT BEEN RECEIVED T ILL THE DATE OF THE DECISION, THE HONBLE SUPREME COURT JUDGMENT IN THE CASE OF GODHRA ELECTRICITY CO. LTD. VS. CIT 225 ITR 0746 HELD TO B E SQUARELY APPLICABLE AND ACCORDINGLY DELETED THE ADDITION. ITA NO.1983/MDS/2011 & ITA NOS.2029, 855, 2077 & 2140/MDS/2013 :- 11 -: 4.2 APPEARING FOR THE REVENUE, THE LD.DR ARGUED THAT T HE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND THE I NCOME HAS BEEN ACCRUED AS PER THE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE. IN THE CASE OF THE ASSESSEE, THE IMPROBABILITY OF RECOVERY DOES NOT ARISE BECAUSE OF THE LIABILITY HAS BEEN ASCERTAINED AND THE INCOM E HAS BEEN ACCRUED AS PER THE CERC NOTIFICATION. THE RECOVERY IS ALSO AS SURED BY TRIPARTITE AGREEMENT BETWEEN THE RBI, GOVERNMENT OF INDIA AND THE STATE GOVERNMENTS. IT WAS ALSO MENTIONED IN THE TRIPARTI TE AGREEMENT DATED 17.04.2002 THAT THE PAYMENTS REMAINING OUTSTANDING AFTER 90 DAYS FROM THE DATE OF BILLING SHALL BE RECOVERED ON BEHALF OF CPSUS BY MINISTRY OF FINANCE, THROUGH ADJUSTMENT AGAINST RELEASE DUE TO RESPECTIVE STATE GOVERNMENTS ON ACCOUNT OF PLAN ASSISTANCE OF STATES SHARE OF CENTRAL TAXES AND ANY OTHER GRANT OR LOAN HENCE THE DR CONTENDED THAT THERE IS NO CASE OF UNCERTAINTY AND IN THE REAL INCOME THEOR Y ALSO THE SAME HAS BEEN ACCRUED AND ARGUED THAT THE AO HAS RIGHTLY BRO UGHT TO TAX. ON THE OTHER HAND, THE LD.AR ARGUED THAT SUBMITTED THAT NL C SUPPLIES ELECTRICITY POWER TO VARIOUS ELECTRICITY BOARDS. AS PER CERC OR DER, THE SURCHARGE IS RECOVERABLE FROM THEM FOR DELAY IN PAYMENTS OF BILL S DUE. THIS IS THE PAST EXPERIENCE OF NLC THAT THERE WAS FINANCIAL CRISIS A MONG E.BS. DURING THE YEAR 2003, THE SURCHARGE ACCUMULATED FOR PRIOR PERI ODS, NOTHING WAS REALIZED FROM E.BS AND AN AMICABLE SETTLEMENT (SECU RITIZATION BY RBI) AMONG THE STATE GOVERNMENTS (ON BEHALF OF E.BS) AND THE GOVERNMENT OF INDIA AND THE RBI, FOR THE REPAYMENT OF ELECTRICITY BILLS (OVER DUES), NLC ITA NO.1983/MDS/2011 & ITA NOS.2029, 855, 2077 & 2140/MDS/2013 :- 12 -: WAS IN POSITION TO RECEIVE BACK ONLY 40% OF SUCH SU RCHARGE ACCUMULATED UP TO SEPTEMBER 2001, WITH THE INTERVENTION OF GOVE RNMENT OF INDIA ALONG WITH OTHER POWER GENERATORS VIDE TRIPARTITE AGREEME NT. AS PER AS-9, THE REVENUE WHICH IS TO BE RECOGNIZED SHOULD BE ON CERT AINTY OF RECOVERY. SINCE THERE IS A CLEAR UNCERTAINTY AND COMPLETE DEP ENDENCE ON THE ELECTRICITY BOARDS FOR PAYMENTS, THE ASSESSEE CANN OT RECOGNIZE SURCHARGE AS INCOME AND THE ASSESSEE RELIED ON THE DECISION O F THE HONBLE SUPREME COURT IN THE CASE OF GODHRA ELECTRICITY CO. LTD. VS . CIT 225 ITR 0746 CITED SUPRA. 4.3 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL PLACED BEFORE US. IN THIS CASE THERE IS PROVISION FOR LEVY OF SURCHA RGE IN DELAYED PAYMENTS AND THE ASSESSEE HAS NOT RECKONED THE SURC HARGE AS INCOME. THE ASSESSING OFFICER HAS ASSESSED THE SURCHARGE ON THE BASIS OF THE ACCOUNTING SYSTEM FOLLOWED BY THE ASSESSEE. THE TAR IFF IN RESPECT OF NLC WHICH IS CENTRAL GENERATING STATION IS GOVERNED BY THE CENTRAL ELECTRICITY REGULATION COMMISSION (IN SHORT CERC) WHICH IS GE NERALLY NOTIFIES ONCE IN THREE YEARS. ACCORDINGLY, CERC HAS NOTIFIED TARIFF REGULATIONS 2001 FOR THE PERIOD 2001-04, TARIFF REGULATIONS-2004 FOR THE PER IOD 2004-09 AND TARIFF REGULATIONS 2009 FOR THE PERIOD OF 2009-14 AND PRES ENTLY TARIFF REGULATIONS 2014 IS VALID TILL 31.03.2019. IN ALL THE ABOVE NO TIFICATION CERC HAS PROVIDED LATE PAYMENT SURCHARGE AND THE ASSESSEE HA S LEVIED SURCHARGE, ITA NO.1983/MDS/2011 & ITA NOS.2029, 855, 2077 & 2140/MDS/2013 :- 13 -: BUT COULD NOT RECOVER FROM THE ELECTRICITY BOARDS. ACCORDING TO THE TARIFF REGULATIONS OF THE CERC, THE POWERS ARE CONFERRED U /S.178 OF ELECTRICITY ACT, 2003 R.W.S.61. THE CERC HAS TO FIX THE TARIFF ACCORDINGLY AND THE CERC NOTIFIED THE REGULATIONS AS UNDER: IN EXERCISE OF POWERS CONFERRED UNDER SECTION 178 O F THE ELECTRICITY ACT 2003 READ WITH SECTION 61 THEREOF CERC NOTIFIES (TE RMS AND CONDITIONS OF TARIFF) REGULATIONS. THESE REGULATIONS APPLY IN CASES WHERE TARIFF FOR A GENERATING STATION OR A UNIT THEREOF IS REQUIRED TO BE DETERMINED BY THE COMMISS ION UNDER SECTION 62 OF THE ACT READ WITH SECTION 179 THEREOF. THE RELEVANT EXTRACTS ATTACHED. C) HOW TARIFF FOR SUPPLY TO ELECTRICITY BOARD IS FI XED: STEPS INVOLVED: PLANT SPECIFIC TARIFF PETITION / APPLICATION IS PRE PARED BASED ON THE CAPITAL COST OF THE PLANT AND NORMS OF OPERATION OF THE APPLICAB LE CERC (TERMS & CONDITIONS OF THE TARIFF REGULATIONS) AND IS FILED BEFORE CERC AS PER THE STIPULATED PROCEDURES. COPIES OF THE PETITIONS FILED ARE SENT TO THE RESPO NDENT BENEFICIARIES. ANY ADDITIONAL INFORMATION SOUGHT BY CERC IS FILED WITH A COPY TO THE RESPONDENTS. CERC ISSUES RECORD OF PROCEEDINGS AND DIRECTS RESPO NDENTS TO FILE THEIR REPLIES AND PETITIONER TO FILE REJOINDER IF ANY. THEREAFTER CERC WILL SCHEDULE HEARING FOR HEARING T HE ARGUMENTS OF BOTH PARTIES (PETITIONER AND RESPONDENTS) AND ISSUE TARI FF ORDER. IF PARTIES ARE AGGRIEVED OVER THE TARIFF ORDER PART IES CAN FILE FOR REVIEW OF ORDER BEFORE CERC OR CHALLENGE THE IMPUGNED ORDER BEFORE APTEL/SUPREME COURT. D) WHETHER SURCHARGE IS LEVIED UNDER THE STATUTE AS IT IS ONLY BROAD GUIDELINE: CERC TARIFF REGULATIONS WHICH IS NOTIFIED IN EXERCI SE OF THE POWER GIVEN UNDER THE ELECTRICITY ACT 2003 STIPULATE LEVY OF LATE PAY MENT SURCHARGE. FROM THE ABOVE, IT IS SEEN THAT CERC IS EMPOWERED TO FIX THE TARIFF AS PER THE ELECTRICITY ACT AND THE REGULATIONS OF T HE CERC HAS PROVIDED FOR LATE PAYMENT SURCHARGE BEYOND THE PERIOD OF 60 DAYS FROM THE DATE OF BILLING @ 1.5% PER MONTH. THE REGULATIONS OF THE C ENTRAL ELECTRICITY REGULATORY COMMISSION ARE BINDING ON THE ELECTRICIT Y BOARDS AS WELL AS THE ASSESSEES COMPANY. ACCORDINGLY, THE ASSESSEE HAS RAISED THE BILLS FOR ITA NO.1983/MDS/2011 & ITA NOS.2029, 855, 2077 & 2140/MDS/2013 :- 14 -: SURCHARGE BUT NOT ACCOUNTED/OFFERED FOR THE PURPOSE OF INCOME ON THE PLEA THAT THE PAST EXPERIENCE SHOWS THE NON-PAYMENT OF E LECTRICITY BILLS WHICH IS UNTENABLE. THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND AS PER THE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE, THE INCOME IS ACCRUED. NOW THE QUESTION IS WHETHER THE RECOVE RY OF SURCHARGE LEVIED OR LEVIABLE BY THE ASSESSEE IS UNCERTAIN OR CERTAIN ? IS THERE ANY UNCERTAINTY IN ACCRUAL OR COLLECTING THE SURCHARGE? IN THIS CONNECTION, THE AO BROUGHT OUT THE LIST OF CONDITIONS, STIPULATIONS AND STRICT GUIDELINES TO THE ELECTRICITY BOARDS IN PARA NO.8.3 TO 8.6 FROM T HE TRIPARTITE AGREEMENT IN THE ASSESSMENT ORDER WHICH IS EXTRACTED AS UNDER : 8.3 HOWEVER, THE TRIPARTITE AGREEMENT ALSO STIPULAT ES STRICT GUIDELINES TO THE ELECTRICITY BOARDS FOR MAKING PAYMENT OF CURRENT DUES, I.E., DU ES PAYABLE ON OR AFTER 1ST OCTOBER 2001. FOR READY REFERENCE, LIST OF SUCH CONDITIONS AND GUIDELINES GIVEN IN THE TRIPARTITE AGREEMENT DATED 17.04.2002 ARE GIVEN BELOW. 12. ALL CPSUS ( VIZ., ASSESSEE COMPANY AND OTHER P OWER SUPPLIERS) WILL CONTINUE TO RAISE AND COLLECT THEIR CURRENT BILLS AGAINST THE S EBS OR THEIR SUCCESSOR ENTITIES IN ACCORDANCE WITH THE EXISTING PRACTICE OR SUCH OTHER ARRANGEMENT AS MAY BE MUTUALLY DETERMINED. NOTWITHSTANDING ANY MUTUAL ARR ANGEMENT, PAYMENT OF SUCH BILLS SHALL BE MADE NO LATER THAN 60 DAYS FROM THE DATE OF BILLING, OR WITHIN 45 DAYS OF THEIR RECEIPT, WHICHEVER IS LATER. 13.1 SEBS OR THEIR SUCCESSOR ENTITIES SHALL OPEN AN D MAINTAIN IRREVOCABLE LETTER OF CREDITS (L.CS) THAT ARE EQUAL TO 105 PERCENT OF THEI R AVERAGE MONTHLY BILLING FOR THE PRECEDING 12 MONTHS. THE AMOUNT SHALL BE REVISED ON CE IN SIX MONTHS, BASED ON THE SAID AVERAGE. 13.2 THE REQUISITE L.CS SHALL BE OPENED NO LATER TH AN 30.09.2002 AND FAILURE TO DO SO SHALL ATTRACT REDUCTION IN SUPPLIES FROM ALL CPS US EQUAL TO 2.5 PERCENT OF THE AVERAGE DAILY SUPPLY FOR THE PRECEDING 90 DAYS, IN ADDITION TO THE SUSPENSION OF APDRP AS MENTIONED IN PARAGRAPH 16 BELOW. THESE PEN AL PROVISIONS SHALL ALSO APPLY IF THE L.CS ARE NOT MAINTAINED IN FUTURE. 14. PAYMENTS MADE AFTER THE PERIOD SPECIFIED IN PAR AGRAPH 12 ABOVE, SHALL ATTRACT INTEREST AT THE RATE OF 15 PERCENT PER ANNUM, COMPO UNDED QUARTERLY. 15.1 IN THE EVENT THAT PAYMENTS ARE NOT MADE WITHIN THE PERIOD SPECIFIED IN PARAGRAPH 13 ABOVE, THE SUPPLY OF ELECTRICITY SHALL BE REDUCED FORTHWITH BY 5 PERCENT (INCLUSIVE OF THE REDUCTION, IF ANY, UNDER THE PROVISIONS OF PARAGRAPH 13 ABOVE) AS COMPARED TO THE AVERAGE DAILY SUPPLY FOR T HE PRECEDING 90 DAYS. THE REDUCTION IN SUPPLY SHALL BE INCREASED TO 10 PERCEN T AND 15 PER CENT AFTER 75 AND 90 DAYS OF BILLING RESPECTIVELY. SUPPLIES OF COAL, LIGNITE, ETC., SHALL ALSO BE REDUCED IN A SIMILAR MANNER. 15.2 IN CASE SUPPLIES ARE MADE BY A CPSU WITHOUT MA KING THE AFORESAID REDUCTIONS, PAYMENTS IN RESPECT OF THE SUPPLIES THAT ARE EQUIVA LENT TO THE SPECIFIED REDUCTION SHALL BE COMPUTED SEPARATELY, AND SHALL NOT QUALIFY FOR THE MEASURES STIPULATED IN THIS SCHEME. SUCH PAYMENTS WOULD HAVE TO BE RECOVER ED BY THE RESPECTIVE CPSUS ENTIRELY ON THEIR ACCOUNT AND NO INTERVENTION EITHE R FROM THE CENTRAL GOVERNMENT OR FROM THE RESPECTIVE STATE GOVERNMENTS SHALL BE SOUG HT FOR THIS PURPOSE. ITA NO.1983/MDS/2011 & ITA NOS.2029, 855, 2077 & 2140/MDS/2013 :- 15 -: 16. SUSPENSION OF APDRP: DEFAULTS IN MAKING CURRENT PAYMENTS SHALL ATTRACT SUSPENSION OF ACCELERATED POWER DEVELOPMENT & REFOR MS PROGRAMME (APDRP). AS SUCH, ANY CPSU FACING A PAYMENT DEFAULT BEYOND 90 D AYS FROM THE DATE OF BILLING SHALL REQUEST THE MINISTRY OF POWER TO SUSPEND APDR P DISBURSEMENTS TO THE DEFAULTING STATE, WHEREUPON THE CENTRAL GOVERNMENT SHALL WITHHOLD ANY FURTHER RELEASES UNTIL THE DEFAULT IS CURED. RECOVERY OF OVERDUES FROM THE STATE GOVERNMENTS: PA YMENTS THAT REMAIN OUTSTANDING AFTER 90 DAYS FROM THE DATE OF BILLING SHALL BE RECOVERED ON BEHALF OF THE CPSUS BY THE MINISTRY OF FINANCE THROUGH ADJUST MENT AGAINST RELEASES DUE TO THE RESPECTIVE STATE GOVERNMENT ON ACCOUNT OF PLAN ASSISTANCE. STATES SHARE OF CENTRAL TAXES AND ANY OTHER GRANT OR LOAN. 8.4 FROM THE ABOVE GUIDELINES AND CONDITIONS AS GIV EN IN THE TRIPARTITE AGREEMENT, PARTICULARLY IN PARA 14 (HIGHLIGHTED) IT IS AMPLY CL EAR THAT INTEREST (OR SURCHARGE) BECOMES PAYABLE FROM ELECTRICITY BOARDS IF PAYMENTS DUE TO THE ASSESSEE COMPANY ARE NOT MADE WITHIN 60 DAYS FROM THE DATE OF BILLING OR WITHIN 4 5 DAYS OF RECEIPT OF BILL, WHICHEVER IS LATER. IT IS ALSO PROVIDED IN PARA 17 OF THE AGREEMENT THA T PAYMENTS THAT REMAIN OUTSTANDING AFTER 90 DAYS FROM THE DATE OF BILLING SHALL BE REC OVERED, ON BEHALF OF THE ASSESSEE COMPANY, BY THE MINISTRY OF FINANCE THROUGH ADJUSTM ENT AGAINST RELEASES DUE TO THE RESPECTIVE STATE GOVERNMENT ON ACCOUNT OF PLAN ASSI STANCE, STATES SHARE OF CENTRAL TAXES AND ANY OTHER GRANT OR LOAN. THIS TRIPARTITE AGREEM ENT WOULD BE IN FORCE TILL 31.10.2006 AND HENCE, THE YEAR UNDER CONSIDERATION IS COVERED BY T HIS AGREEMENT. 8.5 IN VIEW OF THE ABOVE, IT CANNOT BE SAID THAT TH ERE IS UNCERTAINTY IN RECOVERY OF SURCHARGE. EVEN ASSUMING THAT THE ELECTRICITY BOARD S DEFAULTS IN MAKING PAYMENTS DUE TO THE ASSESSEE COMPANY, THE TRIPARTITE AGREEMENT PROV IDES FOR RECOVERY OF THE SAME THROUGH ADJUSTMENT BY MINISTRY OF FINANCE. THUS, THERE IS N O REASON FOR THE ASSESSEE COMPANY IN NOT RECOGNIZING THE SURCHARGE ON ACCRUAL BASIS. AFT ER RECOGNIZING THE SURCHARGE ON ACCRUAL BASIS, IF FOR SOME GENUINE REASON THE SAME COULD NO T BE REALIZED, THEN THE ASSESSEE CAN WRITE OFF THE SAME AS BAD DEBT. BUT EVEN FOR MAKING SUCH A CLAIM, SEC.36(2) STIPULATES A CONDITION THAT THE CORRESPONDING INCOME SHOULD HAVE BEEN OFFERED TO TAX. 8.6 IN VIEW OF THE ABOVE DISCUSSION, THE SURCHARGE RECOVERABLE BY THE ASSESSEE COMPANY FROM ELECTRICITY BOARDS DURING THE RELEVANT YEAR ON THE BELATED SETTLEMENT OF THE POWER BILL, AMOUNTING TO RS.118 CRORES, IS TREATED AS INCOME AC CRUED TO THE ASSESSEE AND ADDED TO THE TOTAL INCOME. FROM THE DISCUSSION OF THE AO, AS PER CLAUSE-16 OF THE GUIDELINES OF THE TRI-PARTITE AGREEMENTS PAYMENTS REMAINED OUTSTA NDING AFTER 90 DAYS FROM THE DATE OF BILLING REQUIRE TO BE RECOVERED TH ROUGH ADJUSTMENT THE FROM THE PLAN ASSISTANCE OF RESPECTIVE STATE GOVERN MENTS, HENCE, THERE WAS AN ASSURANCE CREATED THROUGH THE TRI-PARTITE AG REEMENT AND THE GOVERNMENT OF INDIA HAS TO RECOVER THE AMOUNT BY AD JUSTMENT AND REMIT THE SAME TO THE CPSUS. HENCE, THE ASSESSEES CONTEN TION THAT THERE WAS NO CERTAINTY IN RECOVERY OF THE DUES IS ILL-FOUNDED AND THE QUANTUM OF INTEREST IS ALSO FIXED IN PARA NO.14 IN TRI-PARTITE AGREEMENT ENTERED INTO ITA NO.1983/MDS/2011 & ITA NOS.2029, 855, 2077 & 2140/MDS/2013 :- 16 -: BETWEEN THE GOVERNMENT OF INDIA AND RBI AND STATE G OVERNMENTS ON BEHALF OF THE ELECTRICITY BOARDS. THEREFORE, THERE IS NO DOUBT REGARDING THE PAYMENT OF DUES WHEN THERE IS BINDING TRI-PARTITE A GREEMENT. SOME SANCTITY AND CREDENCE HAS TO BE GIVEN TO THE TRIPAR TITE AGREEMENT. THEREFORE, WE ARE UNABLE TO ACCEPT THE CONTENTION O F THE ASSESSEE THAT THERE IS NO CERTAINTY IN ACCRUAL OF SURCHARGE TO TH E ASSESSEE COMPANY. THE ASSESSEE HAS NOT DEMONSTRATED WITH THE FACTS TH AT RECOVERY THROUGH MINISTRY OF FINANCE IS UNENFORCEABLE. THE ASSESSEE RELIED ON THE JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF GODHRA ELE CTRICITY CO. LTD. VS. CIT 225 ITR 0746 CITED SUPRA. THE FACTS OF THE CASE AR E CLEARLY DISTINGUISHED BY THE AO IN HIS ASSESSMENT ORDER. IN THE CITED CA SE LAW AS STATED IN THE ASSESSMENT ORDER, THE CONSUMERS HAVE GONE TO THE CO URT AND THE HONBLE COURT HAS DECREED IN FAVOUR OF THE CONSUMERS AGAINS T THE INCREASE OF ELECTRICITY CHARGES ON ACCOUNT OF ELECTRICITY DUES. THE TARIFF COULD NOT BE REALIZED EITHER BY COURT ORDERS OR GOVERNMENT ORDER S, SINCE THERE WAS A DECREE GRANTED BY THE TRIAL COURT WHICH WAS AFFIRME D BY THE APPELLATE COURT AND THERE WAS AN UNCERTAINTY IN RELEASING THE DUES IN THE CASE OF GODHRA ELECTRICITY CO. LTD. THERE WAS NO TRI-PARTIT E AGREEMENT, AS IF, IN THE CASE OF THE ASSESSEE TO ENSURE RECOVERY BY MINISTRY OF FINANCE THROUGH ADJUSTMENT IN THE CASE OF GODHRA ELECTRICITY CO. LT D.. THEREFORE, THE CASE LAW RELIED UPON BY THE ASSESSEE CANNOT COME TO HELP OF THE ASSESSEE. THE TRIPARTITE AGREEMENT ENTERED IN TO WITH THE GOVERNM ENT OF INDIA, RESERVE BANK OF INDIA AND THE STATE GOVERNMENTS HAS TO BE G IVEN DUE CREDENCE ITA NO.1983/MDS/2011 & ITA NOS.2029, 855, 2077 & 2140/MDS/2013 :- 17 -: AND SIMPLY CANNOT BE BRUSHED ASIDE. CONSIDERING ALL THE FACTS AND MERITS OF THE CASE WE HOLD THAT THERE WAS NO UNCERTAINTY I N REALIZING THE TARIFF OR SURCHARGE BY THE ASSESSEE COMPANY AND ACCORDINGLY W E HOLD THAT THE INCOME IS ACCRUED AND THE ASSESSING OFFICER HAS RIG HTLY BROUGHT TO TAX. THEREFORE WE SET-ASIDE THE ORDERS OF THE LD.CIT(A) AND RESTORE THE ASSESSMENT ORDER. 4.4 IN THE RESULT, THE GROUND OF APPEAL RAISED BY THE REVENUE ON THE ISSUE OF SURCHARGE RECOVERY FROM ELECTRICITY BOARDS IS ALLOWED FOR THE AYS 2007-08 TO 2010-11. 5.0 FOR THE AYS 2008-09, 2009-10 AND 2010-11, THE REVE NUE RAISED THE GROUNDS RELATING TO THE ISSUE OF DEDUCTION U/S.80IA . DURING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESS EE HAS CLAIMED THE DEDUCTION U/S 80IA PERTAINING TO THE UNIT TPS-I EXP ANSION. AO WAS OF THE VIEW THAT THE UNIT TPS-I WAS AN EXPANSION OF THE EX ISTING UNIT AND HENCE NOT ELIGIBLE FOR DEDUCTION U/S80IA.THE AO DISALLOWE D THE DEDUCTION HOLDING THAT THE EXPANSION CANNOT BE CONSIDERED AS A NEW UN IT. THE DISALLOWANCE MADE BY THE AO U/S.80IA FOR THE AYS 2008-09, 2009-1 0 & 2010-11 IS AS UNDER: ASSESSMENT YEAR AMOUNT IN RS. 2008-09 147,36,91,926 2009-10 209,94,46,495 2010-11 246,92,76,304 ITA NO.1983/MDS/2011 & ITA NOS.2029, 855, 2077 & 2140/MDS/2013 :- 18 -: 5.1 FOR THE SAKE OF CONVENIENCE, THE REASONING GIV EN BY THE AO IS EXTRACTED FROM THE ASSESSMENT ORDER MADE AVAILABLE IN PAGE NO.5 OF THE A.Y.2008-09 ASUNDER: IN THE INSTANT CASE ALSO, THE ASSESSEE HAS CLAIMED DEDUCTION U/S 80-IA OF THE INCOME-TAX ACT ON THE PROFIT OF POWER GENERATED IN THE TPS-L E XPANSION UNIT BY TREATING THE SAME AS SEPARATE UNIT / UNDERTAKING, EVEN THOUGH THE FINAL P RODUCT MANUFACTURED IS SAME I.E. POWER. FURTHER, THERE IS INTERCONNECTION OF MANAGEM ENT, FINANCIAL, ADMINISTRATIVE AND PRODUCTION ASPECTS. THEREFORE, THE ABOVE DECISION O F THE HONOURABLE HIGH COURT IS SQUARELY APPLICABLE IN THE INSTANT CASE. ACCORDINGLY, THE TP S-L EXPANSION UNIT CANNOT BE CONSIDERED AS NEW/SEPARATE UNIT FOR THE PURPOSE OF PROVISION OF SECTION 80-LA OF THE INCOME-TAX ACT. II) IT HAS BEEN OBSERVED THAT, DEDUCTION U/S 80-IA OF THE IT ACT TO THE TUNE OF RS.147.36 CRORES HAS BEEN CLAIMED FOR THE UNIT TPS-I EXPANSIO N. HENCE, IT IS CLEAR THAT, THE ASSESSEE COMPANY ITSELF HAS STATED THAT THE ABOVE UNIT IS NO THING BUT THE EXPANSION OF THE ALREADY EXISTING TPS-I UNIT. THEREFORE, THE UNIT TPS-L EXPA NSION CANNOT BE CONSIDERED AS SEPARATE UNDERTAKING FOR THE PURPOSE OF CLAIM OF DEDUCTION U /S.801A OF THE INCOME-TAX ACT. IN THE INSTANT CASE ALSO, THE ASSESSEES TPS-I EXPA NSION UNIT CANNOT BE CONSIDERED AS SEPARATE UNDERTAKING BASED ON THE REASONS CITED IN THE PARAGRAPH (I) & (II) ABOVE. ACCORDINGLY, THE DEDUCTION CLAIMED BY THE ASSESSEE U/S.80-IA OF THE INCOME-TAX ACT CANNOT BE ACCEPTED. IV) THE DECISION OF THE SUPREME COURT IN THE CASE OF TEXTILE MACHINERY CORPORATION LTD VS CIT (107 ITR 195) CANNOT BE ACCEPTED IN THE ASSESSEE S CASE DUE TO THE FACT THAT THE ABOVE SAID DECISION OF THE HONORABLE SUPREME COURT WAS PU RELY RELATED TO THE RESTRUCTURING OF THE BUSINESS. HENCE, THE FACTS OF THE SAID CASE ARE NOT APPLICABLE IN THE INSTANT CASE. THEREFORE, IT IS CLEAR THAT THE PROVISIONS OF SECTI ON 80-LA SHALL BE APPLICABLE ONLY TO THE ASSESSEES WHO HAVE STARTED NEW BUSINESS OF GENERATI ON OF POWER AND ACCORDINGLY, THE SAID PROVISIONS OF SECTION 801A(4) OF THE ACT IS NOT APPL ICABLE TO THE ASSESSEES WHO ARE EXPANDING THEIR BUSINESS BY WAY OF ESTABLISHING NEW PLANT & MACHINERIES AND ALSO BY WAY OF INTRODUCING NEW TECHNIQUES FOR ENHANCING ITS ALR EADY EXISTING PRODUCTIVITY. 5.2 AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WEN T ON APPEAL BEFORE THE LD.CIT(A) AND THE LD.CIT(A) DELETED THE ADDITION AS UNDER: 4.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE AND THE SUBMISSIONS OF THE LD.AR. I HAVE ALSO GONE THROUGH THE DECISIONS RELIED ON BY T HE LD.AR AND THE AO. THE MAIN OBJECTION OF THE AO IS THAT THE NEW UNIT STARTED CAN NOT BE CONSIDERED AS SEPARATE UNDERTAKING BECAUSE IT IS USING THE SAME MANUFACTUR ING TECHNOLOGY AND THE FINISHED GOODS ARE ALSO THE SAME, I.E., POWER. THE NEW UNIT, I.E., UNIT TPS-I EXPANSION IS NOTHING BUT THE EXPANSION OF THE ALREADY EXISTING TPS-L UNIT. HE FU RTHER STATED THAT BENEFIT OF SEC 80-LA SHALL BE APPLICABLE ONLY TO THE ASSESSEE WHO HAVE S TARTED NEW BUSINESS OF GENERATION OF POWER AND NOT TO THOSE EXPANDING THEIR BUSINESS BY ESTABLISHING NEW PLANT AND MACHINERY AND ALSO BY INTRODUCING NEW TECHNOLOGY FOR ENHANCIN G EXISTING PRODUCTIVITY. BUT READING OF THE SECTION, IN MY OPINION, DOES NOT LEAD TO THE IN TERPRETATION AS EXPOUNDED BY THE AO. RELIEF U/S 80-LA(1) IS IN RESPECT OF PROFITS AND GAIN S DERIVED BY AN UNDERTAKING FROM BUSINESS REFERRED TO IN SUBSECTION (4) OF SEC 80-LA. IN THE PRESENT CASE, AS PER CLAUSE(IV) OF SUB-SEC (4), DEDUCTION IN RESPECT OF AN UNDERTAKING WHICH IS SET UP IN ANY PART OF INDIA FOR ITA NO.1983/MDS/2011 & ITA NOS.2029, 855, 2077 & 2140/MDS/2013 :- 19 -: THE GENERATION OR GENERATION AND DISTRIBUTION OF PO WER IF IT BEGINS TO GENERATE POWER AT ANY TIME DURING THE PERIOD BEGINNING ON THE 1 ST DAY OF APRIL, 1993 AND ENDING ON 31 ST DAY OF MARCH, 2011 SHALL BE 100% OF THE PROFIT FOR A PERIO D OF TEN CONSECUTIVE ASSESSMENT YEARS OUT OF FIFTEEN YEARS BEGINNING FROM THE YEAR IN WHI CH THE UNDERTAKING OR THE ENTERPRISE GENERATES POWER OR COMMENCES TRANSMISSION OR DISTRI BUTION OF THE POWER. THEREFORE, DEDUCTION IS CLEARLY FOR THE PROFITS OF AN UNDERTAK ING AND NOT FOR AN UNDERTAKING ENGAGED IN A NEW BUSINESS. SIMILAR EXPRESSIONS AS FOUND IN SEC 80-IA ARE FOUND IN SECTIONS 80HH, 80I AND 80J. FOR EXAMPLE, IN SECTION 80J, DEDUCTION IS IN RESPECT OF NEW UNDERTAKING AND THE SECTION ALSO HAS SIMILAR PROVISO REFERRED TO BY THE AO. THE SUPREME COURT WHILE INTERPRETING THE SECTION 80J IN THE CASE OF TEXTILE MACHINERY CORPORATION LTD V. CIT, 107 ITR 195 (SC) HAS HELD THAT EXPANSION OF THE EXISTING BUSINESS WILL ALSO BE ENTITLED TO RELIEF UNDER SECTION 80J. IN THE CASE OF CIT V. GANGA SUGA R CORPORATION LTD, 92 ITR 173 (DEL.), IT WAS POINTED OUT THAT THE CONCEPT OF RECONSTRUCTION OF BUSINESS IS NOT ATTRACTED WHEN A COMPANY WHICH IS ALREADY RUNNING ONE INDUSTRIAL UNI T SETS UP ANOTHER INDUSTRIAL UNIT. THE INDUSTRIAL UNIT, IT WAS POINTED OUT, WOULD NOT LOSE ITS SEPARATE AND INDEPENDENT IDENTITY EVEN THOUGH IT HAS BEEN SET UP BY A COMPANY WHICH I S ALREADY RUNNING AN INDUSTRIAL UNIT. IT WAS FURTHER POINTED OUT THAT THE OBJECT OF THE SECT ION WAS TO PROVIDE AN INCENTIVE FOR SELLING UP OF NEW INDUSTRIES SO AS TO ACCELERATE THE PROCES S OF INDUSTRIALIZATION AND THAT IT DOES NOT APPEAR OR TO HAVE BEEN THE INTENTION OF THE LEGISLA TURE THAT THE BENEFIT OF THE SECTION WOULD BE CONFINED ONLY TO PARTIES WHO HAD NOT ALREADY SET UP SUCH INDUSTRIAL UNDERTAKINGS AND NOT TO PARTIES WHO HAD PAST EXPERIENCE OF RUNNING SIMIL AR INDUSTRIAL UNDERTAKING. THIS PRINCIPLE HAS SINCE BEEN APPROVED BY THE SUPREME COURT IN THE CASE OF TEXTILE MACHINERY CORPORATION LTD(SUPRA). APPLYING THE PRINCIPLES OF T HE ABOVE DECISION OF THE HONBLE SUPREME COURT, IT HAS BEEN HELD THAT MERE FACT THAT THE SECOND UNIT MANUFACTURED SOME OF THE ITEMS WHICH WERE MANUFACTURED BY THE FIRST, DID NOT MAKE IT AN INTEGRAL PART OF THE FIRST UNIT AS IT COULD SURVIVE INDEPENDENTLY OF THE FIRST UNIT. REFERENCE MAY BE MADE TO (THE DECISION IN CIT V. INDIAN ALUMINIUM CO LTD, 108 ITR 367(SC), CIT V. GEDORE TOOLS (INDIA) P. LTD, 126 ITR 673, CIT V. AMBUR COOPERATIVE SUGAR MILLS LTD, 127 ITR 495(MAD.), CIT V. HUTTI GOLD MINES CO.LTD, 128 ITR 476(KAR). IN THE CA SE OF THE APPELLANT, THE MAIN SECTION GRANTS RELIEF IN RESPECT OF PROFITS AND GAINS OF AN UNDERTAKING. EXPLANATION 2 UNDER SUB- SECTION (3) OF SEC 80-IA CANNOT GOVERN OR RESTRICT T HE RELIEF AVAILABLE UNDER THE MAIN SECTION. IT IS NOT CORRECT TO INTERPRET THE RELIEF THAT CAN BE GRANTED U/S.80-IA ON THE BASIS OF A WORDING IN AN EXPLANATION TO A SUB-SECTION CONCER NED ONLY WITH REGARD TO TRANSFER OF MACHINERY PREVIOUSLY USED FOR ANY OTHER PURPOSE TO A NEW BUSINESS. VARIOUS HONBLE COURTS INCLUDING THE HONBLE SUPREME COURT, ON ISSUES RELA TING TO DEDUCTIONS U/S. 80HH, 80I AND 80J, HAVE CONSISTENTLY HELD THAT EXPANSION IN PRODU CTION OF THE EXISTING PRODUCT IN A GEOGRAPHICALLY SEPARATE AND INDEPENDENT UNDERTAKING WILL BE ENTITLED TO RELIEF UNDER THOSE SECTIONS. IN FACT, THE HEADING OF THESE SECTION AS WELL AS 80-LA IS DEDUCTION IN RESPECT OF PROFITS AND GAINS FROM INDUSTRIAL UNDERTAKINGS OR E NTERPRISE ENGAGED IN INFRASTRUCTURE DEVELOPMENT, ETC.. AND NOT PROFITS AND GAINS FROM CERTAIN NEW BUSINESS. IN THESE CIRCUMSTANCES, I AM OF THE CONSIDERED OPINION THAT THE APPELLANT IS ENTITLED TO RELIEF UNDER SECTION 80-LA IN RESPECT OF TPS-L EXPANSION. THE RE QUIREMENT REGARDING INVESTMENT IN THE PLANT AND MACHINERY AND OTHER CONDITIONS FOR AVAILI NG BENEFIT OF DEDUCTION U/S.80-IA HAVE ALSO BEEN SATISFIED AND THE AO HAS NOT RAISED ANY O THER OBJECTION REGARDING THESE CONDITIONS. IN VIEW OF THE ABOVE FACTUAL POSITION A ND AUTHORITATIVE PRECEDENTS, THE DEDUCTION CLAIMED BY THE APPELLANT US 80-IA IS ALLO WED. ACCORDINGLY, THE GROUND IS ALLOWED. 5.3 THE ISSUE IS SQUARELY COVERED BY THIS TRIBUNAL OR DER IN THE ASSESSEES OWN CASE FOR THE AY 2001-02 IN ITA NO.23 15/MDS/2003 DATED 18.08.2004. RESPECTFULLY FOLLOWING THE DECISION OF CO-ORDINATE BENCH, WE DISMISS THE APPEAL OF THE REVENUE FOR THE AYS 2008- 09, 2009-10 AND 2010-11. ITA NO.1983/MDS/2011 & ITA NOS.2029, 855, 2077 & 2140/MDS/2013 :- 20 -: 6.0 THE NEXT ISSUE IN THIS APPEAL IS DISALLOWANCE U/S. 14A. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS DISALLOWED THE EXPENDITURE U/S.14A R.W.R.8D AS UNDER: ASSESSMENT YEAR AMOUNT IN RS. 2008-09 11,09,71,085 2009-10 18,34,49,174 2010-11 4,64,08,250 6.1 THE AO BROUGHT OUT THE FACTS CLEARLY IN THE AS SESSMENT ORDER PAGE NO.10 PARA NO.5 OF THE AY 2008-09 WHICH IS EXTRACTE D AS UNDER: THE ASSESSEE HAS REDUCED IN THE STATEMENT OF INCOME , AN AMOUNT OF RS.76,75,18,764/- ON ACCOUNT OF INCOME FROM TAX FREE BONDS. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE EXPENDITURE RELATED TO THE ABOVE EXEMPT INCOME SHOU LD NOT BE DISALLOWED IN VIEW OF PROVISIONS OF SECTION 14A OF THE IT ACT READ WITH R ULE 8D OF THE L.T. RULES. THE ASSESSEES REPRESENTATIVE HAS STATED THAT THIS AMOUNT REPRESEN TS 8.5% TAX FREE INTEREST FROM TAX FREE BONDS. THESE BONDS WERE ISSUED BY RESPECTIVE STATE GOVERNMENTS. THE INTEREST THEREON IS BEING CREDITED DIRECTLY AND NO EXPENDITURE HAS BEEN INCURRED THEREON. THEREFORE, IT WAS ARGUED THAT AS THERE WAS NO EXPENDITURE INCURRED IN RELATION TO THIS INCOME, NO DISALLOWANCE IS CALLED FOR U/S.14A OF THE INCOME-TAX ACT. THE ABOVE REFERRED ARGUMENTS OF THE ASSESSEE ARE NO T ACCEPTABLE IN VIEW OF RULE 8D INTRODUCED IN THE L.T. RULES. AS PER PROVISIONS OF SECTION 14A(1), FOR COMPUTING TOTAL INCOME UNDER CHAPTER-IV, NO DEDUCTION SHALL BE ALLO WED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NO T FORM PART OF TOTAL INCOME. AS PER PROVISIONS OF SECTION 14A(2), THE ASSESSING OFFICER IS EMPOWERED TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED AS PER RULE 8D OF THE L.T. RULES, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IF HE IS NOT SATISFIED WITH THE CORRE CTNESS OF THE AMOUNT CLAIMED BY THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. FURTHER, THE LAW HAS NOT DISTINGUISHED WHETHER THE INVESTMENT FOR THE PURPOSE OF EARNING THE EXEMPTED INCOME WAS MADE BY WAY OF COMPULSORY I NVESTMENT OR BY WAY OF PARKING THE SURPLUS FUNDS AVAILABLE WITH THE ASSESSEE. AS PER PROVISIONS OF SECTION 14A(3), THE PROVISIONS OF SUB-SECTION (2) SHALL NOT APPLY IN RELATION TO A CASE WHERE IN THE ASSESSEE CLAIMS THA T NO EXPENDITURE HAS BEEN INCURRED BY HIM IN RELATION TO SUCH INCOME. CONSIDERING THE HUG E AMOUNT OF INTEREST INCOME INVOLVED, I AM NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE AND THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED IN R ELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. ITA NO.1983/MDS/2011 & ITA NOS.2029, 855, 2077 & 2140/MDS/2013 :- 21 -: 6.2 THE ASSESSEE WENT ON APPEAL BEFORE THE LD.CIT(A) A ND THE LD.CIT(A) ALLOWED THE ASSESSEES APPEAL AS PER THE DISCUSSION MADE IN PARA NO.8.2 OF THE LD.CIT(A)S ORDER FOR THE AY 200 8-09 AS UNDER: 8.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE AND THE SUBMISSIONS OF THE LD.AR. I HAVE ALSO GONE THROUGH THE DECISIONS RELIED ON BY T HE LD.AR. THERE IS NO DISPUTE REGARDING THE FACT THAT RULE 8D IS APPLICABLE FOR THE SUBJECT ASST.YEAR. THE METHOD FOR ALLOCATING EXPENDITURE IN RELATION TO EXEMPT INCOME IS PRESCRI BED IN RULE 8D AND SEC.14A(2). WHERE THE AO, HAVING REGARD TO THE ACCOUNTS OF THE ASSESS EE, IS SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF EXPENDITURE OR HE IS SATISFIED THAT NO EXPENDITURE HAS BEEN INCURRED FOR SUCH EXEMPT INCOME, NO FURTHER ACTION IS NEEDED BY THE A O IN THIS REGARD. ON THE OTHER HAND, IF THE AO IS NOT SATISFIED AS REGARDS THE ABOVE CONDITI ONS, HE SHALL DETERMINE THE QUANTUM OF EXPENDITURE AS PER THE METHOD PRESCRIBED UNDER RULE 8D. LET US NOW EXAMINE THE FACTS OF THE APPELLANT AGAINST THE ABOVE STATUTORY BACKGROUN D. 8.2.1 THE BONDS WERE AUTOMATICALLY ISSUED PURSUANT TO GOVERNMENT ORDER DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2004- 05 AND THEY WERE HELD IN DEMATERIALIZED FORM. INTEREST ON THE SAME IS AUTOMA TICALLY CREDITED TO THE BANK ACCOUNT OF THE APPELLANT. THE LOANS ON WHICH THE INTEREST HAVE BEEN PAID ARE NOT GENERAL PURPOSE LOANS. ALL THESE LOANS ARE SPECIFIC TO VARIOUS PROJ ECTS AND HENCE THE QUESTION OF ALLOCATING INTEREST FOR ANY OTHER INVESTMENT DOES NOT ARISE. 8.2.2 IT IS CLEAR FROM THE ABOVE THAT NO EXPENDITUR E HAS BEEN INCURRED BY THE APPELLANT TO EARN SUCH EXEMPT INCOME. THE BONDS WERE AUTOMATICAL LY ISSUED IN F.Y.2003-04 BY STATE GOVERNMENTS TO DISCHARGE THE POWER BILLS DUE AND SU RCHARGE DUES FROM THE ELECTRICITY BOARDS. THE BONDS WERE RECEIVED IN DEMATERIALIZED F ORM IN F.Y.2003-04 AND ACCOUNTED AS INVESTMENT IN THAT YEAR. NO FRESH INVESTMENT WAS MA DE IN THE SUBJECT ASSESSMENT YEAR. MOREOVER, THE INVESTMENT IS BEING HELD WITH INDIAN BANK FREE OF COST. INTEREST IS AUTOMATICALLY CREDITED TO THE BANK ACCOUNT. THE LOA NS ARE ALSO NOT GENERAL PURPOSE LOANS. THEY ARE SPECIFIC TO VARIOUS PROJECTS AND HENCE THE QUESTION OF ALLOCATING INTEREST DOES NOT ARISE. IN VIEW OF THE ABOVE, I AM OF THE CONSIDERED OPINION THAT THERE WAS NO OBJECTIVE REASON FOR NON-SATISFACTION OF THE AO TO INVOKE RULE 8D. ON SIMILAR FACTS, ADDITIONS MADE IN AYS 2006-07 AND 2007-08 WERE DELETED BY CIT(A). THE DECISIONS RELIED ON BY THE APPELLANT IN THE CASES OF CIT V. HERO CYCLES LTD, 323 ITR 518 (P&H) AND CIT V. RELIANCE UTILITIES AND POWER LTD, 221 CTR 435(BOM) ALSO SUPPORTS THE CASE O F THE APPELLANT. IN VIEW OF THE ABOVE FACTUAL AND LEGAL POSITIONS, THE ADDITION IS DELETE D AND THE GROUND IS ALLOWED. 6.3 BOTH THE LD.AR AND THE LD.DR BROUGHT TO OUR NOTICE THAT ON THE SAME FACTS IN THE ASSESSEES OWN CASE IN ITA NOS.71 2 & 713/2010 DATED 11/04/2013 THE ISSUE WAS REMITTED BACK TO THE FILE OF THE AO TO RE- COMPUTE THE DISALLOWANCE. THE RELEVANT PART OF THE DECISION OF THE COORDINATE BENCH IS EXTRACTED AS UNDER: 13. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. INSOFAR AS GROUND OF THE REVENUE THAT LD. CIT(APPEALS) HAD NOT CONSIDERED THE DECISION OF SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF DAGA CAPITAL MANAGEMENT (P) LTD. (SUPRA), WE FIND THAT THIS DECISION, INSOFAR AS IT RELATES TO APPLICABILITY OF RULE 8D FOR YEARS PRIOR TO ASSESSMENT YEAR 2008-09, STANDS REVERSED BY HONBLE BOMBAY HIGH COU RT IN THE CASE OF GODREJ AND BOYCE ITA NO.1983/MDS/2011 & ITA NOS.2029, 855, 2077 & 2140/MDS/2013 :- 22 -: MFG. CO. LTD VS. DY. CIT (328 ITR 81). HONBLE BOMBA Y HIGH COURT CLEARLY HELD IN THE SAID DECISION THAT RULE 8D WHICH CAME WITH EFFECT FROM 2 4 TH MARCH, 2008, WILL BE APPLICABLE ONLY AFTER THE PERIOD 2008-09. NEVERTHELESS, THEIR LORDSHIP HAS CLEARLY NOTED THAT EVEN PRIOR TO THAT YEAR, A.O. WAS DUTY BOUND TO COMPUTE D ISALLOWANCE UNDER SECTION 14A BY APPLYING A REASONABLE METHOD HAVING REGARD TO THE F ACTS AND CIRCUMSTANCES OF THE CASE. THEREFORE, DESPITE THE ARGUMENT OF LEARNED A.R. THA T 12 I.T.A. NOS.711, 712 & 713/MDS/10 ELECTRICITY BONDS WERE TAKEN UNDER COMPULSION AND T HERE WAS NO EXPENSES INCURRED FOR EARNING THE INTEREST INCOME, WE ARE INCLINED TO REM IT THE ISSUE BACK TO THE FILE OF A.O. FOR CONSIDERATION AFRESH. WE, THEREFORE, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND REMIT ON THIS ASPECT BACK TO A.O. FOR CONSIDERATION AFRESH IN ACCORDANCE WITH LAW. ASSESSEE CAN BRING TO THE NOTICE OF THE A.O. ANY CASE LAW RELEVAN T TO THE ISSUE AND A.O. SHALL PROCEED IN ACCORDANCE WITH LAW. RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDI NATE BENCH, WE REMIT THE MATTER BACK TO THE FILE OF THE AO TO DECI DE THE ISSUE AFRESH ON MERITS AS PER THE DIRECTIONS GIVEN IN THE ORDER CIT ED. THE APPEALS OF THE REVENUE ON THIS ISSUE OF DISALLOWANCE U/S14A FOR TH E ASSESSMENT YEARS 2008-09 TO 2010-11 ARE ALLOWED FOR STATISTICAL PURP OSES. 7.0 THE NEXT ISSUE IN THE REVENUE APPEAL FOR THE AY 2008-09 IS DISALLOWANCE OF PRE-PAID EXPENDITURE: FOR THE AY 2008-09, THE AO NOTICED THAT THE ASSESS EE HAS DEBITED THE PRE-PAID EXPENDITURE OF RS.1,31,16,000/- TO THE PROFIT & LOSS A/C WHICH WAS DISALLOWED BY THE AO STATING THAT THE EXP ENDITURE WAS NOT ASCERTAINED. THE FACTS ARE EXTRACTED FROM THE ORDER OF THE LD.AO IN PAGE NO.9 PARA NO.3 AS UNDER: IT HAS BEEN OBSERVED THAT DURING THE CURRENT YEAR, THE ASSESSEE HAS CLAIMED AN AMOUNT OF RS.131.60 LAKHS OF PREPAID EXPENDITURE RELATED TO T HE INSURANCE PREMIUM AS THE EXPENDITURE OF THE CURRENT YEAR. SINCE THE ABOVE EX PENDITURE IS RELATED TO THE FUTURE LIABILITY, THE ASSESSEE WAS SHOW CAUSED TO EXPLAIN WHY THE SAME SHOULD NOT BE DISALLOWED AND ADDED TO THE TOTAL INCOME. IN RESPONSE TO THE S AME, THE ASSESSEE HAS SUBMITTED ITS REPLY VIDE LETTER DATED 12.10.2010, WHICH IS AS UND ER: INSURANCE PREMIUM EXPENSES ARE ACCOUNTED UNDER PRE PAID EXPENSES ONLY WHERE THE AMOUNTS RELATING TO UNEXPIRED PERIOD EXCEED RS.1 CR ORE IN EACH CASE. ITA NO.1983/MDS/2011 & ITA NOS.2029, 855, 2077 & 2140/MDS/2013 :- 23 -: ACCORDINGLY, DURING THE PREVIOUS YEAR RELEVANT TO T HE AY 2008-09, INSURANCE PREMIUM PAID LESS THAN 1 CRORE HAS BEEN DEBITED TO THE PROFIT AN D LOSS ACCOUNT WHICH IS AMOUNTING TO RS.131.60 LAKH ON PAYMENT BASIS. CONSIDERING THE VO LUME OF BUSINESS, THE CHARGED AMOUNT IS INSIGNIFICANT, HENCE THE SAME MAY BE ALLO WED AS DEDUCTION. IN THE EVENT OF CONTINUING THE SAME STAND, WHICH THE DEPARTMENT TOO K IN THE AY 2007-08, AND DISALLOWED RS.131.60 LAKH, IT IS REQUESTED THAT THE AMOUNT DIS ALLOWED IN THE AY 2007-08 AMOUNTING TO RS.231.52 LAKH MAY PLEASE BE ALLOWED. 7.1 THE LD.CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE PLACING THE RELIANCE ON THE ORDER OF THE ITAT,CHENNAI IN ASSESS EES OWN CASE IN ITA NO. 482 & 483/MDS/2010 DATED 30/06/2011. BOTH THE L D.DR AND THE LD.AR ACCEPTED DURING THE APPEAL HEARING THAT THE ASSESSEES CASE COVERED BY THIS TRIBUNAL ORDER ITA NO.482 & 483/MD S/2010. SINCE THE ISSUE IS COVERED BY THIS TRIBUNAL ORDER AND THE LD. CIT(A) FOLLOWED THE ORDER THIS TRIBUNAL WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD.CIT(A) AND THE APPEAL OF THE REVENUE ON THIS ISS UE IS DISMISSED. 8.0 THE NEXT ISSUE OF REVENUES APPEAL FOR THE A.Y.201 0-11 IS OVER BURDEN REMOVAL OF RAJASTHAN MINE AMOUNTING TO RS.43 ,93,11543/-.THE ASSESSEE CLAIMED EXPENDITURE OF RS.43,93,11,543/- I N THE MEMO OF INCOME TOWARDS ADVANCE OB REMOVAL RAJASTHAN. FURT HER, IT IS SEEN FROM SCH.12A TO BALANCE SHEET- MISCELLANEOUS EXPENDITURE THAT SUCH EXPENSES WERE CAPITALIZED IN THE BOOKS. THE AO ASKED THE ASS ESSEE TO EXPLAIN THE NATURE OF EXPENDITURE AND THE SUBMITTED THE REPLY. THE SUBMISSIONS MADE BY THE ASSESSEE IN THIS REGARD ARE GIVEN BELOW: 9. DISALLOWANCE OF ADVANCE OVERBURDEN REMOVAL OF RAJ ASTHAN MINE: THE ASSESSEE CLAIMED EXPENDITURE OF RS.43,93,11,543 IN THE MEMO OF INCOME TOWARDS ADVANCE OB REMOVAL RAJASTHAN. FURTHER, IT IS SEEN FROM SCH.12A TO BALANCE SHEET- MISCELLANEOUS EXPENDITURE THAT SUCH EXPENSES WERE C APITALIZED IN THE BOOKS. THE ASSESSEE WAS ASKED TO EXPLAIN WHY PART OF SUCH CAPITALIZED E XPENSES IS CLAIMED IN THE MEMO OF ITA NO.1983/MDS/2011 & ITA NOS.2029, 855, 2077 & 2140/MDS/2013 :- 24 -: INCOME AND SHOW CAUSE WHY THE CLAIM SHOULD NOT BE D ISALLOWED. THE SUBMISSIONS MADE BY THE ASSESSEE IN THIS REGARD ARE GIVEN BELOW: MINE DEVELOPMENT EXPENDITURE: OVER BURDEN REMOVAL COST ARE CLASSIFIED UNDER MINE D EVELOPMENT ACCOUNT TILL ACHIEVEMENT OF QUANTITY PARAMETERS AS APPROVED FOR EACH PROJECT , CLASSIFIED AS MINE DEVELOPMENT EXPENDITURE AND CAPITALIZED IN THE BOOKS OF ACCOUNT S. THE SAME WILL BE AMORTIZED OVER THE PERIOD OF LIFE OF THE MINES AT THE RATE ARRIVED ON THE BASIS OF ESTIMATED RESERVE OF LIGNITE (REFER PAGE 52 OF ANNUAL REPORT). THIS AMOUNT WILL BE QUALIFIED FOR DEDUCTION UNDER S ECTION 35E FROM THE YEAR OF COMMERCIAL COMMISSIONING OF THE PROJECT SUBJECT TO THE PROVISI ONS OF SECTION 35E. OVERBURDEN REMOVAL EXPENDITURE: THE ABOVE EXPENDITURE INCURRED AFTER COMMISSIONING OF MINES IS CALLED OVERBURDEN REMOVAL EXPENDITURE AND THE SAME HAS BEEN CLAIMED AS REVENU E. SOMETIMES, THE CONNECTED THERMAL PROJECT IS NOT READY TO TAKE LIGNITE, DUE T O DELAY IN COMMISSIONING OF THE PROJECT. AT THAT TIME, THE OVERBURDEN REMOVAL ACTIVITIES ARE CA RRIED OUT CONTINUOUSLY, FOR FUTURE OPERATIONS. SUCH EXPENDITURES ARE KEPT AS ADVANCE O VERBURDEN REMOVAL EXPENDITURE IN THE ACCOUNTS AND IT WILL BE WRITTEN OFF OVER THE PERIOD OF 3 YEARS FROM THE DATE OF EXCAVATION OF LIGNITE OR COMMISSIONING OF THERMAL PROJECT. AS SUCH THERE IS NO PROVISION IN THE INCOME TAX ACT , WITH REGARD TO DEFERRED REVENUE EXPENDITURE, HENCE THE ADVANCE OB REMOVAL AMOUNTS AR E CLAIMED AS EXPENDITURE, DURING THE PERIOD OF INCURRENCE AND THE SAME WILL BE DEDUC TED FROM THE INCOME. MINE DEVELOPMENT OF BARSINGSAR MINES COMPLETED DURI NG NO.2008 AND ADVANCE OB REMOVAL EXPENDITURE BOOKED UP TO NOV2009. HENCE, ADVANCE OB REMOVAL ACCOUNTED DURING THE PERIOD 2008-09 AND 2009-10 HAD BEEN CLAIMED AS REVE NUE EXPENDITURE. IN THE FINANCIAL YEAR 2008-09 RELEVANT TO THE ASSES SMENT YEAR 2009-10 AN AMOUNT OF RS.18.26 CR HAD BEEN CLAIMED AS REVENUE EXPENDITURE AND IN THE FINANCIAL YEAR 2009-10 AN AMOUNT OF RS.43.93 CR HAD BEEN CLAIMED AS REVENUE E XPENDITURE. DETAILED SUBMISSION HAD ALSO BEEN MADE DURING THE ASSESSMENT PROCEEDING FOR THE AY 2009-10 VIDE LETTER DATED 18/10/2011. IN THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YE AR 2010-11, AN AMOUNT OF RS.6.91 CRORE CHARGED IN THE PROFIT AND LOSS ACCOUNT HAD BEEN OFF ERED AS INCOME IN THE COMPUTATION STATEMENT. BALANCE AMOUNT OF RS.55.27 CORES IS SHOW N IN THE BALANCE SHEET AS ADVANCE OVERBURDEN REMOVAL EXPENDITURE UNDER SCHEDULE 12A T O BE CHARGED IN THE SUBSEQUENT YEARS. EXPENDITURE OF RS.50.18 CRORES SHOWN AS OVER BURDEN REMOVAL EXPENDITURE IN THE SCHEDULE 19 ARE AS UNDER: EXPENDITURE INCURRED FOR MINE I OVERBURDEN REMOVAL OUTSOURCED- EXISTING OPERATION 6,32,456.001 EXPENDITURE INCURRED FOR BARSINGSAR MINE DURING THE PERIOD OF ADVANCE OVERBURDEN REMOVAL STAGE- TRANSFERRED TO DE FERRED EXPENDITURE (INCLUDED IN THE EXPENDITURE CAPITALIZE D VIDE PAGE NO.57 OF ANNUAL REPORT) 43,93,11,542.00 EXPENDITURE INCURRED FOR BARSINGSAR MINE AFTER 1-12 -2009 6,18,27,485.00 TOTAL 50,17,71,483.00 ITA NO.1983/MDS/2011 & ITA NOS.2029, 855, 2077 & 2140/MDS/2013 :- 25 -: 8.1 AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WEN T ON APPEAL BEFORE THE LD.CIT(A) AND THE LD.CIT(A) ALLOWED THE APPEAL PLACING RELIANCE ON ITAT ORDER FOR THE AY 2002-03 IN ITA NO.198/MDS /2008 IN ASSESSEES OWN CASE. THE HONBLE ITAT HELD AS UNDER: EXPENDITURE ON REMOVING OVERBURDEN IN THE CONTINUO US PROCESS OF MINING LIGNITE FROM AN OLD OPEN CAST MINE IS NOT EXPENDITURE FOR PROSPECTI NG, ETC. OF MINERALS WITHIN THE MEANING OF S.35E AND ALSO NOT CAPITAL EXPENDITURE BUT SAME IS ALLOWABLE REVENUE EXPENDITURE UNDER S.37(1). 8.2 FOLLOWING THE ORDER OF THE CO-ORDINATE BENCH, WE D ISMISS THE REVENUES APPEAL ON THIS GROUND. 9.0 AY 2010-11 ASSESSEES APPEAL: GROUND NOS.1 & 2 IS RELATED TO THE EXCLUSION OF OT HER INCOME A) INTEREST INCOME RECEIVED FROM EMPLOYEES : RS.33.57 LACS B) HANDLING CHARGES RECEIVED FOR FLYASH : RS.252. 02 LACS C) MISC INCOME : RS.35.69 LACS FOR THE PURPOSE OF DEDUCTION 9.1 DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND TH AT THE ASSESSEE HAS RECEIVED RS.33.57 LAKHS FROM THE INTEREST ON LO AN GIVEN TO EMPLOYEES AND RS.35.69 LAKHS MISCELLANEOUS INCOME AND FLY ASH OF RS.2,25,02,000/- WHICH WAS NOT CONSIDERED FOR THE DEDUCTION U/S.80IA BY THE AO. THE AO DISALLOWED THE DEDUCTION CLAIMED BY THE ASSESSEE AS PER THE DISCUSSION MADE IN THE ASSESSMENT ORDER IN PARA NO.2.9 TO 2.10 AS UNDER: 2.9 THE ASSESSEES REPLY IS CAREFULLY CONSIDERED BU T NOT FOUND TO BE ACCEPTABLE. AS PER SEC.80-IA, DEDUCTION OF AN AMOUNT EQUAL TO HUNDRED PERCENT OF THE PROFITS AND GAINS DERIVED FROM BUSINESS REFERRED IN SUBSECTION (4) IS ALLOWABLE FOR TEN CONSECUTIVE YEARS. ITA NO.1983/MDS/2011 & ITA NOS.2029, 855, 2077 & 2140/MDS/2013 :- 26 -: UNDER SEC.80-LA(4)(IV) OF THE ACT, GENERATION OR GENE RATION AND DISTRIBUTION OF POWER IS MENTIONED AS ONE OF THE ELIGIBLE BUSINESS. IT CANNO T BE SAID THAT THE INTEREST INCOME DERIVED FROM ADVANCES GIVEN TO EMPLOYEES IS ALSO EL IGIBLE FOR DEDUCTION ULS 80-IA. THE ASSESSEE ITSELF HAD CLASSIFIED THIS RECEIPT AS PART OF OTHER INCOME. THE HONBLE SUPREME COURT, IN THE CASE OF LIBERTY INDIA V. CIT-317 ITR 218, HELD THAT PROFITS FROM SALE OF DUTY DRAWBACK ARE NOT ELIGIBLE FOR DEDUCTION U/S.80-IA. THE APEX COURT HELD THAT THE EXPRESSION DERIVED FROM INDUSTRIAL UNDERTAKING USED IN SEC.8 0-LA IS NARROWER IN CONNOTATION AND INTENDS TO COVER SOURCE NOT BEYOND THE FIRST DEGREE . THE RELEVANT PORTION OF THE DECISION ARE GIVEN BELOW: ANALYSING CHAPTER VL-A, ONE MAY FIND THAT SECTIONS 80-LB AND 80-IA ARE THE CODES BY THEMSELVES AS THEY CONTAIN BOTH SUBSTANTIVE AS WELL AS PROCEDURAL PROVISIONS. IT IS EVIDENT THAT SECTION 80-LB PROVIDES FOR ALLOWING OF DEDUCTI ON IN RESPECT OF PROFITS AND GAINS DERIVED FROM THE ELIGIBLE BUSINESS. THE WORDS DERIVED FROM ARE NARROWER IN CONNOTATION AS COMPARED TO THE WORDS ATTRIBUTABLE TO. IN OTHER W ORDS, BY USING THE EXPRESSION DERIVED FROM THE PARLIAMENT INTENDED TO COVER SOURCES NOT B EYOND THE FIRST DEGREE. [PARA 14] FURTHER, SUB-SECTION (13) OF SECTION 80-LB PROVIDES FOR APPLICABILITY OF THE PROVISIONS OF SUBSECTION. (5) AND SUB-SECTIONS (7) TO (12) OF SECTIO N 80-LA, SO FAR AS MAY BE APPLICABLE TO THE ELIGIBLE BUSINESS UNDER SECTION 80-LB. THEREFOR E, ONE NEEDS TO READ SECTIONS 80-I, 80-IA AND 804B AS HAVING A COMMON SCHEME. ON PERUSAL OF SU B-SECTION (5) OF SECTION 80-LA, IT MAY BE NOTICED THAT IT PROVIDES FOR MANNER OF COMPU TATION OF PROFITS OF AN ELIGIBLE BUSINESS. ACCORDINGLY, SUCH PROFITS ARE TO BE COMPUTED AS IF SUCH ELIGIBLE BUSINESS IS THE ONLY SOURCE OF INCOME OF THE ASSESSEE. THEREFORE, THE DEVICES A DOPTED TO REDUCE OR INFLATE THE PROFITS OF ELIGIBLE BUSINESS HAVE GOT TO BE REJECTED IN VIEW O F THE OVERRIDING PROVISIONS OF SUB-SECTION (5) OF SECTION 80-LA, WHICH ARE ALSO REQUIRED TO BE READ INTO SECTION 80-IB. SECTIONS 80-I, 80-IA AND 80-LB HAVE A COMMON SCHEME AND IF SO READ , IT IS CLEAR THAT THE SAID SECTIONS PROVIDE FOR INCENTIVES IN THE FORM OF DEDUCTION(S) W HICH ARE LINKED TO PROFITS AND NOT TO INVESTMENTS. ON ANALYSIS OF SECTIONS 80-LA AND 80-IB IT BECOMES CLEAR THAT ANY INDUSTRIAL UNDERTAKING, WHICH BECOMES ELIGIBLE ON SATISFYING S UBSECTION (2), WOULD BE ENTITLED TO DEDUCTION UNDER SUB-SECTION (1) ONLY TO THE EXTENT O F PROFITS DERIVED FROM SUCH INDUSTRIAL UNDERTAKING AFTER SPECIFIED DATE(S). HENCE, APART FR OM ELIGIBILITY, SUB-SECTION(1) PURPORTS TO RESTRICT THE QUANTUM OF DEDUCTION TO A SPECIFIED PE RCENTAGE OF PROFITS. THIS IS THE IMPORTANCE OF THE WORDS DERIVED FROM INDUSTRIAL UN DERTAKING AS AGAINST WORDS PROFITS ATTRIBUTABLE TO INDUSTRIAL UNDERTAKING. 2.10 GOING BY THE ABOVE PRINCIPLES LAID DOWN BY THE HONBLE SUPREME COURT, THE INTEREST INCOME OF RS.33.57 LAKHS EARNED OUT OF ADVANCES GIV EN TO EMPLOYEES IS TREATED AS NOT DERIVED FROM THE INDUSTRIAL UNDERTAKING. THE ASSESS EE HAD UTILIZED THE FUNDS AVAILABLE WITH IT TO GIVE INTEREST BEARING ADVANCE TO THE EMPLOYEE S AND HAD EARNED INTEREST INCOME. THIS INTEREST INCOME IS BEYOND THE FIRST DEGREE OF NEXUS WITH THE PROFIT DERIVED FROM THE ACTIVITY OF THE INDUSTRIAL UNDERTAKING, VIZ., GENERATION OF POWER. HENCE, THE SAME IS EXCLUDED FROM THE PROFITS FOR COMPUTATION OF DEDUCTION U/S 80-IA. ON SIMILAR ANALOGY, RECEIPTS FROM HANDLING CHARGES I.E, SALE OF FLY ASH (RS.225.02 LA KHS), IS TREATED AS A SOURCE OF INCOME BEYOND THE FIRST DEGREE (AS HELD BY HONBLE SUPREME COURT) AND EXCLUDED FROM THE PROFITS FOR COMPUTATION OF DEDUCTION U/S 80-IA. THE ASSESSEE HAS NOT GIVEN ANY SUBMISSION AS TO HOW MISCELLANEOUS INCOME OF RS.35.69 LAKHS WOULD BE ELIGIBLE FOR DEDUCTION U/S.80-IA. IN VIEW OF THE DISCUSSION ON NON-ELIGIBILITY OF HANDLI NG CHARGES AND INTEREST INCOME FOR DEDUCTION U/S.80-IA, THE MISCELLANEOUS INCOME, GROUP ED UNDER OTHER INCOME IS ALSO EXCLUDED FROM PROFITS FOR COMPUTATION OF DEDUCTION U/S.80-IA. TO SUMMARISE, THE FOLLOWING RECEIPTS ARE EXCLUDED FROM THE PROFITS OF TPS I EXP ANSION UNIT, FOR COMPUTATION OF DEDUCTION U/S.80-LA. HANDLING CHARGES :: RS.225.02 LAKHS INTEREST RECEIVED FROM EMPLOYEES RS. 33.57 IA KHS MISCELLANEOUS INCOME :: RS. 35.69 LAKHS ------------------- TOTAL :: RS.294.28 LAKHS ------------------- ITA NO.1983/MDS/2011 & ITA NOS.2029, 855, 2077 & 2140/MDS/2013 :- 27 -: 9.2 SINCE THE AO HAS DISALLOWED THE ENTIRE DEDUCTION C LAIMED BY THE ASSESSEE U/S.80IA, NO SEPARATE DISALLOWANCE WAS MAD E BY THE AO TOWARDS OTHER INCOME. THE AO COMMENTED IN THE ASSESSMENT OR DER THAT IN THE EVENT OF ALLOWING THE DEDUCTION U/S 80IA SUBSEQUENT LY CONSEQUENT TO APPEALS, THE NECESSARY ADJUSTMENTS REQUIRED TO BE M ADE FOR QUANTIFYING THE DEDUCTION U/S.80IA BY EXCLUDING AMOUNTS RELATIN G TO OTHER INCOME I.E. HANDLING CHARGES, INTEREST RECEIVED FROM EMPLOYEES AND MISCELLANEOUS INCOME. 9.3 THE LD.CIT(A) DISMISSED THE ASSESSEES APPEAL A S PER THE REASONING GIVEN IN PARA 5.2 WHICH IS REPRODUCED AS UNDER: 5.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE AND THE SUBMISSIONS OF THE LD.AR. I HAVE ALSO GONE THROUGH THE DECISION RELIED ON BY TH E AO AND THE STAND OF THE LAW. I FULLY AGREE WITH THE REASONING OF THE AO THAT 80-IA IS A SPECIAL PROVISION AND THE DEDUCTION WILL BE POSSIBLE ONLY WHEN THE PROFITS ARE DERIVED FROM THE INDUSTRIAL UNDERTAKING. THE OTHER INCOME SHOWN BY THE APPELLANT GOES BEYOND ANY STRE TCH OF IMAGINATION THAT THEY HAVE BEEN DERIVED FROM THE INDUSTRIAL ACTIVITY FROM THE POINT OF VIEW OF THE EXISTING PROVISIONS AND THE JUDICIAL RULINGS. THEREFORE, THOSE RECEIPTS ARE TO BE EXCLUDED FROM THE PROFITS OF TPS-L EXPANSION UNIT FOR COMPUTATION OF DEDUCTION U /S.80-IA. THE AO IS DIRECTED ACCORDINGLY. DISALLOWANCE MADE BY THE AO IS UPHELD A ND THE GROUND RAISED BY THE APPELLANT IS DISMISSED. 9.4 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL PLACED BEFORE US. THE INTEREST RECEIVED FROM THE EMPLOYEES AND MISCE LLANEOUS INCOME CANNOT BE HELD TO BE DERIVED FROM INDUSTRIAL ENTITY FOR THE PURPOSE OF DEDUCTION U/S.80IA. THE ASSESSEE IS ELIGIBLE FOR DE DUCTION U/S.80IA ONLY ON POWER PROJECT TPS-I. HANDLING CHARGES, INTEREST REC EIVED FROM EMPLOYEES ITA NO.1983/MDS/2011 & ITA NOS.2029, 855, 2077 & 2140/MDS/2013 :- 28 -: AND MISCELLANEOUS INCOME IS NOT INTER LINKED TO THE INDUSTRIAL ACTIVITY OF POWER GENERATION THEREFORE, WE DO NOT FIND ANY INFI RMITY IN THE ORDER OF THE AO AND THE SAME IS CONFIRMED. THE HONBLE SUPR EME COURT IN THE CASE OF LIBERTY INDIA VS. 317 ITR 218 HELD THAT THE PROFITS ON SALE OF DUTY DRAWBACK ARE NOT ELIGIBLE FOR DEDUCTION U/S.80IA. THE WORD USED IN SEC.80IA FOR DEDUCTION OF THE PROFITS AND GAINS DER IVED FROM UNDERTAKING OR ENTERPRISE FROM ANY BUSINESS REFERRED TO SEC.4 O F 80IA IS USED IN NARROWER, CONNOTATION AND INTEND TO COVER NOT BEYON D THE FIRST DEGREE OF THE SOURCE. HANDLING CHARGES, INTEREST RECEIVED FRO M EMPLOYEES AND MISCELLANEOUS INCOME ARE NOT THE DIRECT SOURCE OF I NCOME FROM POWER GENERATION. THEREFORE, WE ARE UNABLE TO ACCEPT TH E CONTENTION OF THE ASSESSEE TO ALLOW THE DEDUCTION U/S.80IA ON THE OTH ER INCOME. ACCORDINGLY, THE ASSESSEE GROUND ON ALLOWING DEDUCT ION U/S.80IA ON THE OTHER INCOME IS DISMISSED. 10.0 THE NEXT GROUND RAISED BY THE ASSESSEE ON THIS APP EAL IS ALTERNATIVELY TO EXCLUDE THE EXPENDITURE RELATING TO EARNING THE OTHER INCOME FOR THE PURPOSE OF COMPUTING THE DEDUCTION U /S 80IA. THOUGH, THE ASSESSEE HAS ARGUED THAT EXPENDITURE RELATED TO OTH ER INCOME REQUIRED TO BE EXCLUDED. THE LD.AR OF THE ASSESSEE HAS NOT FUR NISHED THE DETAILS OF EXPENDITURE FOR EARNING THE OTHER INCOME. THE ENTI RE EXPENDITURE HAS BEEN DEBITED TO THE PROFIT & LOSS A/C RELATING TO T HE EARNING OF GROSS TOTAL INCOME. UNLESS A SPECIFIC DETAILS ARE FURNISHED RE LATING TO THE EXPENDITURE ITA NO.1983/MDS/2011 & ITA NOS.2029, 855, 2077 & 2140/MDS/2013 :- 29 -: OF OTHER INCOME. THE ASSESSEE REQUEST CANNOT BE AC CEDED TO. HOWEVER, THE FACT CANNOT BE DENIED THAT THERE WOULD BE EXPEN SES RELATABLE TO THE EARNING OF INCOME ESPECIALLY IN HANDLING CHARGES AN D OTHER MISCELLANEOUS INCOME. CONSIDERING THE FACTS AND MERITS OF THE CA SE, WE ARE INCLINED TO ESTIMATE THE EXPENSES @10% OF OTHER INCOME AND DIRE CT THE AO TO EXCLUDE 10% OF OTHER INCOME AS EXPENSES WHILE COMPU TING THE DEDUCTION U/S.80IA. 11.0 IN THE RESULT, THE APPEALS OF THE REVENUE AS WELL AS THE APPEAL OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH APRIL, 2017, AT CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( ' . . % ) (D.S.SUNDER SINGH) /ACCOUNTANT MEMBER /CHENNAI, 5 /DATED: 28 TH APRIL, 2017. TLN / -%6 76 /COPY TO: 1. , /APPELLANT 4. 8 /CIT 2. -., /RESPONDENT 5. 6 - /DR 3. 8 ( ) /CIT(A) 6. < /GF