DCIT, New Delhi V. M/s. Maithon Power Ltd., New Delhi

ITA 2318/DEL/2015

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5833 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 1 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-06-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 20-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHEFALI SWAROOP
• Assessee Lawyers: MANONEET DALAL; ANKIT GOYAL
• Keywords: Capital asset; Business income; Depreciation; Cost of acquisition
• Section: 143(3); 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: C , NEW DELHI BEFORE SHRI RS SYAL, VICE PRESIDENT AND SMT. BEENA A PILLAI, JUDICIAL MEMBER ITA NO. 2318/DEL/2015 A.Y. 2011 - 12 DCIT, CIRCLE 16(1) ROOM NO.318 C.R.BUILDING IP ESTATE NEW DELHI VS . MAITHON POWER LTD. 124, TOWER ONE 10 TH FLOOR JEEVAN BHARTI BLDG. CONNAUGHT PLACE NEW DELHI 110 001 PAN: AACCM8705H (APPELLANT) (RESPONDENT) DEPARTMENT BY SMT. SHEFALI SWAROOP, CIT, DR. ASSESSEE BY SH. MANONEET DALAL AND SH. ANKIT GOYAL, A.R. DATE OF HEARING 05/06/2018 DATE OF PRONOUNCEMENT 07/06/ 2018 ORDER PER BEENA A PILLAI, JUDICIAL MEMBER THE PRESENT APPEAL HAS BEEN FILED BY REVENUE AGAINST THE ORDER DATED 2 9.01.2015 PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - 6 , NEW DELHI PERTAINING TO THE ASSESSMENT YEAR (A.Y.) 2011 - 12 ON THE FOLLOWING GROUNDS. ITA 2318/DEL/2015 A.Y.: 2011 - 12 DCIT, CIRCLE 16(1) VS. MAITHON POWER LTD., NEW DELHI PAGE 2 OF 7 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.25,81,79,070/ - MADE IN THE ASSESSMENT ORDER U/S 5 READ WITH SECTION 28(III C) OF THE INCOME TAX ACT, 1961. 2. WHETHER LD.CIT(A) HAS ERRED IN NOT APPRECIATING THE FACT THAT SETTING UP OF BUSINESS AND COMMENCEMENT OF COMMERCIAL OPERATION ARE TWO DISTINCT CONCEPTS AND THAT THE ASSESSEE ITSELF HAS CLAIMED DEPRECIATION DURING THE YEAR WHICH COULD NOT HAVE BEEN CLAIMED WITHOUT THE SETTING UP OF TH E BUSINESS. 3. THAT THE ORDER OF LD.CIT(A) IS ERRONEOUS AND IS NOT TENABLE ON FACTS AND IN LAW. 2. BRIEF FACTS OF THE CASE ARE AS UNDER. THE RETURN OF INCOME FOR THE A.Y. 2011 - 12 WAS FILED ON 21.9.2011 DECLARING AN INCOME OF RS. 3,82,54,100/ - . SUBSEQUENTLY, CASE WAS SELECTED FOR SCRUTINY AND STATUTORY NOTICE U/S 143(2) AND 142(1) OF THE INCOME TAX ACT, 1961 (THE ACT) WERE ISSUED ON 14.9.2012 AND 20.9.2012 AND SERVED. THEREAFTER, NOTICES U/S 142(1) DATED 30.4.2013 ALONG WITH SPECIFIC QUESTIONNAIR E WERE ISSUED AND DULY SERVED UPON ASSESSEE. AGAIN NOTICES U/S 143(2) WERE ISSUED ON 18.07.2013 AND 21.11.2013 AND SERVED. IN RESPONSE TO THE NOTICES, REPRESENTATIVES OF ASSESSEE ATTENDED THE PROCEEDINGS FROM TIME TO TIME AND PLACED WRITTEN SUBMISSIONS. THE APPELLANT COMPANY IS A JOINT VENTURE OF THE TATA POWER COMPANY LIMITED AND DAMODAR VALLEY CORPORATION WITH 74% AND 26% SHAREHOLDING RESPECTIVELY. THE APPELLANT COMPANY WAS INCORPORATED ON 26.07.2000 TO OPERATE AND MAINTAIN ELECTRIC POWER GENERATING STA TIONS BASED ON CONVENTIONAL I NON - CONVENTIONAL RESOURCES, TIE - LINES, SUBSTATIONS AND TRANSMISSION LINES CONNECTED THEREWITH. THE COMPANY IS SETTING UP A THERMAL POWER GENERATION PLANT AT MAITHON, JHARKHAND WITH A TOTAL CAPACITY OF 1050 MW. ITA 2318/DEL/2015 A.Y.: 2011 - 12 DCIT, CIRCLE 16(1) VS. MAITHON POWER LTD., NEW DELHI PAGE 3 OF 7 A SSESSMENT WAS COMPLETED U/S 143(3) VIDE ORDER DATED 31.01.2014 BY THE LD. AO AT AN INCOME OF RS.29,64,33,170/ - MAKING ADDITION OF RS.25,81,79,070/ - . 2.1 . AGGRIEVED BY THE ORDER OF LD.A O ASSESSEE PREFERRED APPEAL BEFORE LD.CIT(A), WHO ALLOWED THE APPEAL. 3. AGGRIEVED BY THE ORDER OF LD.CIT(A) REVENUE IS IN APPEAL BEFORE US . 4 . AT THE OUTSET LD.A.R. SUBMITTED THAT I DENTICAL ISSUE HAD ARISEN FOR CONSIDERATION FOR A.Y. 2009 - 10 BEFORE THIS TRIBUNAL AND THIS ISSUE IS SQUARELY COVERED BY ORDER OF THIS TRIBUNAL IN ITA NO. 2644/DEL/2013 DATED 9 /05/ 2014 . HE PLACED COPY OF THE ORDER BEFORE US FOR PERUSAL. IT HAS BEEN SUBMITTED THAT APPEAL FILED BY REVENUE BEFORE HON BLE DELHI HIGH COURT AGAINST THIS ORDER, HAS BEEN DISMISSED. 6. LD.SR.D.R. FAIRLY CONCEDED THE ISSUE BEING SQUARELY COVERED BY THE ORDER OF THIS TRIBUNAL IN ASSESSEE S OWN CASE FOR THE IMMEDIATELY PRECEDING A.Y. 7. WE HAVE PERUSED THE SUBMISSIONS ADVANCED BY BOTH THE SIDES IN THE LIGHT OF THE RECORDS PLACED BEFORE US. 8. ON PERUSAL OF THE ORDER OF THIS TR IBUNAL IN ASSESSEE S OWN CASE IN ITA NO. 2644 /DEL/1 6 (SUPRA), WE OBSERVE THAT THE FACTS ARE SIMILAR AND IDENTICAL FOR THE YEAR UNDER CONSIDERATION. IT IS OBSERVED THAT THIS TRIBUNAL HAS DECIDED THE ISSUE AS UNDER: 6. THE ISSUE THAT ARISES BEFORE US IS WHETHER EXCISE DUTY REFUND CLAIM MADE BY THE ASSESSEE IS INCOME UNDER THE ACT U/S 28(III). THE LD.CIT(APPEALS) AT PARA 5.2 AND 5.3 BROUGHT OUT THE BRIEF FACTS WHICH IS EXTRACTED FOR READY REFERENCE. 5.2 A BRIEF BACKGROUND OF THE NATURE OF BUSINESS AND I TS OPERATIONS IS DESCRIBED BELOW: ITA 2318/DEL/2015 A.Y.: 2011 - 12 DCIT, CIRCLE 16(1) VS. MAITHON POWER LTD., NEW DELHI PAGE 4 OF 7 'THE APPELLANT COMPANY IS A POWER GENERATION COMPANY THAT WAS INCORPORATED ON 26.07.2000 TO OPERATE AND MAINTAIN ELECTRIC POWER GENERATING STATIONS BASED ON CONVENTIONAL/NON - CONVENTIONAL RESOURCES, TIE - LINES, SUBSTATIONS AND TRANSACTIONS LINES CONNECTED THEREWITH. DURING THE CURRENT ASSESSMENT YEAR THE COMPANY WAS SETTING UP A THERMAL POWER GENERATION PLANT AT MAITHON, JHARKHAND. THE PROJECT WAS STARTED ON 25.10.2007. THE PLANT CONSISTS OF TWO INDEPENDENT UNITS OF 525 MW E ACH. THE CONSTRUCTION ACTIVITY FOR POWER PLANT OF SUCH SCALE TAKES 4 TO 5 YEARS FOR COMPLETION. SUBSEQUENTL Y THE COMPANY HAS COMMISSIONED THE COMMERCIAL OPERATION OF UNIT - 1 ON 1ST SEPTEMBER 2011 AND THAT OF UNIT - 2 ON 24TH JULY 2012.DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2009 - 10, THE PROJECT WAS UNDER CONSTRUCTION PHASE. ' 5.3 THE APPELLANT EXPLAINED THAT IT HAD APPLIED TO THE MINISTRY OF POWER, GOI, FOR GRANT OF MEGA POWER STATUS. THE PROPOSAL OF THE ASSESSEE WAS UNDER CONSIDERATION DURING THE RELEVANT A.Y. PENDING THE SAME, THE ASSESSEE REMAINED LIABLE TO PAY EXCISE AND CUSTOM DUTY WHEREVER APPLICABLE. ACCORDINGLY, THE ASSESSEE HAS PAID EXCISE DUTY OF RS.26,06,45,349/ - TO ITS VENDORS ON THE SUPPLIED MATERIALS USED FOR THE CONSTRUCTION, ERE CTION OF THE PROJECT. OF THE ABOVE, THE COMPANY HAS LODGED A CLAIM OF RS.12,46,29,0001 - WITH THE DIRECTOR GENERAL OF FOREIGN TRADE (DGFT). DGFT VIDE LETTER DATED 24 FEB., 2009 HAD ADMITTED THE CLAIM OF RS.1 0,59,34,9301 - WHICH WAS TO BE REIMBURSED TO THE C OMPANY ONLY AFTER FUNDS ARE RECEIVED BY THE DGFT BY THE CONCERNED DEPARTMENT. 6.1. LATER AT PARA 5.8 IT IS HELD AS FOLLOWS. 5.8 AS PER THE NOTIFICATION NO L - 7/145(160/200B OF CENTRAL ELECTRICITY REGULATORY COMMISSION (CERC) DATED 19TH JANUARY 2009 (RE LEVANT EXTRACT OF THE NOTIFICATION IS MENTIONED BELOW), DEFINITION OF DATE OF COMMERCIAL OPERATIONS IS GIVEN AS UNDER: A) IN RELATION TO A UNIT OR BLOCK OF THE THERMAL GENERATING STATION, THE DATE DECLARED BY THE GENERATING COMPANY AFTER DEMONSTRATING THE MAXIMUM CONTINUOUS RATING (MCR) OF THE INSTALLED CAPACITY (LC) THROUGH A SUCCESSFUL TRIAL ITA 2318/DEL/2015 A.Y.: 2011 - 12 DCIT, CIRCLE 16(1) VS. MAITHON POWER LTD., NEW DELHI PAGE 5 OF 7 RUN AFTER NOTICE TO THE BENEFICIARIES, FROM 0000 HOURS OF WHICH SCHEDULING PROCESS AS PER THE INDIAN ELECTRICITY GRID CODE (IEGC) IS FULLY IMPLEMENTED, AND IN RELATI ON TO THE GENERATING STATION AS A WHOLE, THE DATE OF COMMERCIAL OPERATION OF THE LAST UNIT OR BLOCK OF THE GENERATING STATION. B) AS PER THIS DEFINITION THE DATE OF COMMERCIAL OPERATIONS OF THE APPELLANT WERE WHEN THE COMPANY HAS COMMISSIONED ITS UNITS, THESE WERE AS UNDER: 2. THE COMMERCIAL OPERATION OF UNIT - 1 ON 1ST SEPTEMBER 2011 3. THE COMMERCIAL OPERATION OF UNIT - 2 ON 24TH JULY 2012. IN A LETTER FILED BY THE APPELLANT COMPANY TO CERC IT WAS STATED THAT COMMERCIAL PRODUCTION OF THE UNIT WAS DECLARED TO BE 1ST SEPTEMBER 2011. THIS HAS BEEN ACCEPTED BY CERC. 6.2. BASED ON THESE FACTS THE LD.CIT(APPEALS) HELD THAT WHEN THE BUSINESS OF TH E ASSESSEE IS NOT YET SET UP THEN THE QUESTION ON ASSESSING INCOME OF THE ASSESSEE COMPANY TO THE PREVIOUS YEAR DOES NOT ARISE. EVEN OTHERWISE THE EXCISE DUTY ON THE QUESTION WAS OF MATERIAL USED FOR CONSTRUCTION/ERECTION OF THE PROJECT, WHICH IS IN THE CAPITAL FILED AND THE REFUND OF THE SAME GOES TO REDUCE TH E COST OF THE ASSESSEE. HENCE WE UPHOLD THE ORDER OF THE FIRST APPELLATE AUTHORITY AND DISMISS THIS APPEAL BY THE REVENUE. 8.1 . FURTHER, AFORE STATED VIEW O F THIS TRIBUNAL HAS BEEN UPHELD BY HON B LE JURISDICTIONAL HIGH COURT VIDE ORDER DATED 21.07.2015 IN ITA NO.05/2015 , BY HOLDING AS UNDER. 8. CONSEQUENTLY, THE FINDING OF CIT(A) THAT THE BUSINESS OF ASSESSEE HAD YET NOT BEEN SET UP DURING THE A.Y. 2009 - 10 AND THAT ALL THE COSTS INCURRED BY IT WOULD HAVE TO BE TAKEN AS CAPITAL WORK IN PROGRESS CANNOT BE FAULTED. WHERE THERE IS A REFUND OF EXCISE DUTY IT WOULD GO TO REDUCE THE PROJECT COST/CAPITAL WORK IN PROGRESS ITA 2318/DEL/2015 A.Y.: 2011 - 12 DCIT, CIRCLE 16(1) VS. MAITHON POWER LTD., NEW DELHI PAGE 6 OF 7 SINCE IT IS RELATABLE ONLY TO THE CAPITAL ASSETS. EVEN FOR PURPOSE OF S.28(IIIC) OF THE ACT, THE EXCISE DUTY REPAID TO THE ASSESSEE AS DRAW BACK WOULD HAVE TO RELATE TO THE BUSINESS INCOME OF THE ASSESSEE IN ORDER TO BE CHARGEABLE TO TAX UNDER THE HEAD OF PROFITS AND GAINS OF BUSINESS . IN THE PRESENT CASE, HOWEVER, IT RELATES TO THE COST OF ACQUISITION OF A CAPITAL ASSET WHICH FORMS PART OF OVERALL PROJECT COST INCURRED IN THE PRE - COMMISSIONING PHASE OF THE PROJECT. THE DUTY DRAW BACK WOULD THEREFORE TO THAT EXTENT REDUCE THE PROJECT COST AND THEREFORE CANNOT, IN THE A.Y. IN QUESTIO N, BE TREATED AS BUSINESS INCOME. 8.2. FURTHER, ON PERUSAL OF ORDER OF LD.CIT(A), IT IS OBSERVED THAT APPEAL OF THE ASSESSEE HAS BEEN ALLOWED BY PLACING RELIANCE UPON THE ORDER OF THIS TRIBUNAL IN ASSESSEE S OWN CASE FOR A.Y. 2009 - 10(SUPRA). WE, THEREFORE, DO NOT FIND ANY INFIRMITY IN THE DECISION OF LD.CIT(A), AND THE SAME IS UPHELD. 8.3. ACCORDINGLY, GROUNDS RAISED BY REVENUE STAND DISMISSED. 9. IN THE RESULT APPEAL FILED BY THE REVENUE STANDS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 0 7 T H JUNE, 2018. S D / - S D / - (R.S.SYAL) (BEENA A PILLAI) VICE PRESIDENT JUDICIAL MEMBER DT. 0 7 T H JUNE, 2018 *MV ITA 2318/DEL/2015 A.Y.: 2011 - 12 DCIT, CIRCLE 16(1) VS. MAITHON POWER LTD., NEW DELHI PAGE 7 OF 7 COPY FORWARDED TO: - 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5 . DR, ITAT - TRUE COPY - BY ORDER, ASSISTANT REGISTRAR ITAT DELHI BENCHES