ACIT 2(3), MUMBAI V. TATA POWER CO. LTD, MUMBAI

ITA 3035/MUM/2009

• Counselvise Citation: 303519914 RSA 2009
• Duration Of Justice: 2 year(s) 11 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-04-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 12-04-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 11-05-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AVINASH C TEJWANI
• Assessee Lawyers: DINESH VYAS
• Keywords: Business expenditure; Opportunity of being heard; Rule of consistency; Earning of tax free income; Retrospective amendment; Commercial expediency; Revenue expenditure
• Section: 143(3); 244A; 14A; 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH E, MUMBAI BEFORE SHRI P.M.JAGTAP (A.M) & SHRI N.V.VASUDEVAN( J.M) ITA NO. 3035/MUM/2009(A.Y.2002-03) THE ACIT 2(3), AAYKAR BHAVAN, MK ROAD, MUMBAI - 20 (APPELLANT) VS. M/S. THE TATA POWER CO. CORPORATE CENTRE, B-BLOCK, 5 TH FLOOR, 34, SANT THUKARAM ROAD, CARNAC BUNDER, MUMBAI - 09. PAN:AAACT 0054A (RESPONDENT) ITA NO. 3079/MUM/2009(A.Y.2002-03) M/S. THE TATA POWER CO. CORPORATE CENTRE, B-BLOCK, 5 TH FLOOR, 34, SANT THUKARAM ROAD, CARNAC BUNDER, MUMBAI - 09. PAN:AAACT 0054A (APPELLANT) VS. THE ACIT 2(3), AAYKAR BHAVAN, MK ROAD, MUMBAI - 20 (RESPONDENT) REVENUE BY : SHRI AVINASH C. TEJWANI ASSESSEE BY : SHRI DINESH VYAS DATE OF HEARING : 12/04/2012 DATE OF PRONOUNCEMENT : ORDER PER N.V.VASUDEVAN, J.M ITA NO.3035/M/09 IS AN APPEAL BY THE REVENUE WHIL E ITA NO.3079/M/09 IS AN APPEAL BY THE ASSESSEE . BOTH T HESE APPEALS ARE DIRECTED AGINST THE ORDER DATED 27//2/2009 OF CIT(A )-30, MUMBAI RELATING TO THE ASSESSMENT YEAR 2002-03. ITA NO. 3035& 3079/MUM/2009(A.Y.2002-03) 2 2. FIRST WE SHALL TAKE UP FOR CONSIDERATION THE ASS ESSEES APPEAL IN ITA NO.3079/MUM/09(ASSESSEES APPEAL). THE GROUND NO.1 RAISED BY THE ASSESSEE IS WITH REGARD TO DISALLOWANCE MADE BY THE AO UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 (THE ACT) OF EXPENSES INC URRED IN EARNING INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE ASSESSEE EARNED EXEMPT DIVIDEND INCOME OF RS.36,52,60,046/- AND TAX FREE INTEREST INCOME OF RS.52,71,579/-. THE AO CALLED UPON THE A SSESSEE TO EXPLAIN AND SUBMIT DETAILS OF EXPENDITURE INCURRED FOR EARNING THE ABOVE EXEMPT INCOME. THE ASSESSEE SUBMITTED THAT THE INVESTMENT WHICH YI ELDED INTEREST INCOME AS WELL AS DIVIDEND INCOME WERE MADE OUT OWN FUNDS AN D NOT OUT OF BORROWED FUNDS AND, THEREFORE, NO INTEREST EXPENSES CAN BE S AID TO HAVE BEEN INCURRED FOR EARNING EXEMPT INCOME. THE ASSESSEE ALSO SUBMI TTED THAT IT DID NOT INCUR ANY OTHER EXPENDITURE TO EARN EXEMPT INCOME. THE AO HELD THAT ADMINISTRATIVE MANAGEMENT, RECURRING OR OVER HEAD E XPENSES ARE COMMON TO EARNING OF INCOME FROM BUSINESS AS WELL AS INCOME F ROM OTHER SOURCES. THE AO ALSO HELD THAT THE ASSESSEE DID NOT DISCHARGE IT S ONUS OF PROVING THAT NO EXPENSES WERE INCURRED IN EARNING EXEMPT INCOME. T HE AO, THEREFORE, TREATED 5% OF THE EXEMPT INCOME AS EXPENSES INCURRE D IN EARNING EXEMPT INCOME WHICH RESULTED IN AN ADDITION OF RS. 1,85,26 ,581/- TO THE TOTAL INCOME OF THE ASSESSEE. 3. ON APPEAL BY THE ASSESSEE THE CIT(A) FOUND THAT ON AN IDENTICAL ISSUE IN A.Y 2001-02 THE CIT(A) FOLLOWING THE DECISION OF THE SPECIAL BENCH OF ITAT IN THE CASE OF DAGA CAPITAL MANAGEMENT 26 SOT 603(B OM) DIRECTED THE AO TO APPLY RULE 8D OF THE INCOME TAX RULES, 1962 AND DISALLOW ADMINISTRATIVE MANAGEMENT RECURRING OR OVERHEAD EXPENSES ACCORDING LY. FOLLOWING THE SAID ORDER THE CIT(A) DIRECTED THE AO TO MAKE DISALLOWAN CE AS DIRECTED IN THE SAID ORDER OF CIT(A) FOR AY 01-02. 4. AGGRIEVED BY THE ORDER OF THE CIT(A) THE ASSESSE E HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. ITA NO. 3035& 3079/MUM/2009(A.Y.2002-03) 3 5. BEFORE US LD. COUNSEL FOR THE ASSESSEE SUBMITTE D THAT IN ASSESSMENT YEAR 2006-07 AND 2007-08 ON AN IDENTICAL ISSUE THE CIT(A)-6, MUMBAI AFTER TAKING INTO CONSIDERATION THE DECISION OF THE HONB LE BOMBAY HIGH COURT IN THE CASE OF GODREJ BOCYE LTD. VS. DCIT, 328 ITR 81 (BOM) APPLIED THE FOLLOWING FORMULA OF DISALLOWANCE UNDER SECTION 14A OF THE ACT NAMELY TOTAL EXEMPT INCOME X TOTAL OTHER OPERATION AND ADMINIS TRATIVE EXPENSES / TOTAL INCOME. ACCORDING TO HIM THIS WAS A VERY REASONABL E BASIS ON WHICH DISALLOWANCE UNDER SECTION 14A OF THE ACT COULD BE MADE AND SHOULD BE ADOPTED IN THE PRESENT ASSESSMENT YEAR. 6. WE HAVE CONSIDERED HIS SUBMISSIONS. WE FIND TH AT IN THE IMPUGNED ORDER OF CIT(A) HE HAS FOLLOWED THE ORDER OF CIT(A) FOR A.Y 2001-02. AS AGAINST THE ORDER OF CIT(A) FOR A.Y 2001-02 THE ASS ESSEE HAD PREFERRED AN APPEAL BEFORE THE HONBLE ITAT IN ITA NO.4497/M/08 AND THIS TRIBUNAL HAS HELD AS FOLLOWS: 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE PROVISIONS OF SEC.14-A OF THE ACT AS IT EXISTED FROM TO TIME IS A S FOLLOWS: 14A. EXPENDITURE INCURRED IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME.(1) FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDER THIS CHAPTER, NO DEDUCTION SHALL BE AL LOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. ( INSERTED BY FA 2001, W.E.F. 1-4-1962) (2) THE ASSESSING OFFICER SHALL DETERMINE THE AMOUN T OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHI CH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT IN ACC ORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED, IF THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS N OT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE I N RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES N OT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. (3) THE PROVISIONS OF SUB-SECTION (2) SHALL ALSO AP PLY IN RELATION TO A CASE WHERE AN ASSESSEE CLAIMS THAT NO EXPENDIT URE HAS BEEN INCURRED BY HIM IN RELATION TO INCOME WHICH DO ES NOT FORM ITA NO. 3035& 3079/MUM/2009(A.Y.2002-03) 4 PART OF THE TOTAL INCOME UNDER THIS ACT.(SUB-SECTIO N 2 AND 3 WERE INSERTED BY FA 2006 W.E.F 1-4-2007 AND ORIGIN AL SECTION 14A WAS NUMBERED AS SUB-SECTION (1)) PROVIDED THAT NOTHING CONTAINED IN THIS SECTION SHA LL EMPOWER THE ASSESSING OFFICER EITHER TO REASSESS UN DER SECTION 147 OR PASS AN ORDER ENHANCING THE ASSESSMENT OR RE DUCING A REFUND ALREADY MADE OR OTHERWISE INCREASING THE LIA BILITY OF THE ASSESSEE UNDER SECTION 154, FOR ANY ASSESSMENT YEAR BEGINNING ON OR BEFORE THE 1ST DAY OF APRIL, 2001. (PROVISO WAS INSERTED BY F.A. 2002, W.E.F. 3-2-2001 ) RULE 8-D WAS ENACTED BY THE I.T. (5TH AMEND.) RULES , 2008, WEF. 24-3- 2008, PURSUANT TO THE PROVISIONS OF SUB-SECTION (2) AND IT READS AS FOLLOWS: 8D. METHOD FOR DETERMINING AMOUNT OF EXPENDITURE I N RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME.(1) WHERE THE ASSESSING OFFICER HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE OF THE PREVIOUS YEAR, IS NOT SATISFIED WITH (A) THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MAD E BY THE ASSESSEE ; OR (B) THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDIT URE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF T HE TOTAL INCOME UNDER THE ACT FOR SUCH PREVIOUS YEAR, HE SHA LL DETERMINE THE AMOUNT OF EXPENDITURE IN RELATION TO SUCH INCOM E IN ACCORDANCE WITH THE PROVISIONS OF SUB-RULE (2). (2) THE EXPENDITURE IN RELATION TO INCOME WHICH DOE S NOT FORM PART OF THE TOTAL INCOME SHALL BE THE AGGREGATE OF FOLLOWING AMOUNTS, NAMELY : (I) THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME ; (II) IN A CASE WHERE THE ASSESSEE HAS INCURRED EXPE NDITURE BY WAY OF INTEREST DURING THE PREVIOUS YEAR IS NOT DIR ECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT, A N AMOUNT COMPUTED IN ACCORDANCE WITH THE FOLLOWING FORMULA, NAMELY : B A X--- C WHERE A = AMOUNT OF EXPENDITURE BY WAY OF INTEREST OTHER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE (I) INCUR RED DURING THE PREVIOUS YEAR ; B = THE AVERAGE OF VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME , AS APPEARING IN THE BALANCE-SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR ; ITA NO. 3035& 3079/MUM/2009(A.Y.2002-03) 5 C = THE AVERAGE OF TOTAL ASSETS AS APPEARING IN THE BALANCE- SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAS T DAY OF THE PREVIOUS YEAR ; (III) AN AMOUNT EQUAL TO ONE-HALF PER CENT. OF THE AVERAGE OF THE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE-SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. 3. FOR THE PURPOSES OF THIS RULE, THE TOTAL ASSETS SHALL MEAN, TOTAL ASSETS AS APPEARING IN THE BALANCE-SHEET EXCL UDING THE INCREASE ON ACCOUNT OF REVALUATION OF ASSETS BUT IN CLUDING THE DECREASE ON ACCOUNT OF REVALUATION OF ASSETS.. 8. THE HONBLE BOMBAY HIGH COURT HAD TO CONSIDER S EVERAL ISSUES IN THE CASE OF GODREJ AND BOYCE (SUPRA) ON SEC.14-A OF THE ACT AND RULE-8D OF THE RULES, AND IT LAID DOWN THE FOLLOWIN G PROPOSITIONS: RULE 8D R.W. S. 14A (2) IS NOT ARBITRARY OR UNREAS ONABLE BUT CAN BE APPLIED ONLY IF ASSESSEES METHOD NOT SATISFACTO RY. RULE 8D IS NOT RETROSPECTIVE AND APPLIES FROM AY 2008-09. FOR EARLIER YEARS, DISALLOWANCE HAS TO BE WORKED OUT ON REASONABLE BA SIS U/S 14A (1) IN AY 2002-03, THE ASSESSEE CLAIMED THAT NO DISALLO WANCE U/S 14A IN RESPECT OF THE TAX-FREE DIVIDEND EARNED BY I T COULD BE MADE AS IT HAD NOT INCURRED ANY EXPENDITURE TO EARN THE DIVIDEND. THE AO REJECTED THE CLAIM AND MADE A DISA LLOWANCE U/S 14A. THIS WAS DELETED BY THE CIT (A). ON APPEAL BY THE DEPARTMENT, THE TRIBUNAL FOLLOWED THE JUDGEMENT OF THE SPECIAL BENCH IN DAGA CAPITAL 117 ITD 169 (MUM) ( WHERE IT HAD BEEN HELD THAT S. 14A(2) & (3) & RULE 8D ARE PROCEDURAL IN NATURE AND HAVE RETROSPECTIVE EFFECT ) AND REMANDED THE MATTER TO THE AO FOR RE-COMPUTING THE DISALLOWANCE. THE ASSESSEE CHALLEN GED THE DECISION OF THE TRIBUNAL. HELD: (1) THE ARGUMENT THAT DIVIDEND ON SHARES / UNITS IS NOT TAX-FREE IN VIEW OF THE DIVIDEND-DISTRIBUTION TAX PAID BY TH E PAYER U/S 115-O IS NOT ACCEPTABLE BECAUSE SUCH TAX IS NOT PAI D ON BEHALF OF THE SHAREHOLDER BUT IS PAID IN RESPECT OF THE PA YERS OWN LIABILITY; (2) S. 14A SUPERSEDES THE PRINCIPLE OF LAW THAT IN THE CASE OF A COMPOSITE BUSINESS EXPENDITURE INCURRED TOWARDS TAX -FREE INCOME COULD NOT BE DISALLOWED AND INCORPORATES AN IMPLICIT THEORY OF APPORTIONMENT OF EXPENDITURE BETWEEN TAXA BLE AND ITA NO. 3035& 3079/MUM/2009(A.Y.2002-03) 6 NON-TAXABLE INCOME. ONCE A PROXIMATE CAUSE FOR DISA LLOWANCE IS ESTABLISHED WHICH IS THE RELATIONSHIP OF THE EXPE NDITURE WITH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME A DISALLOWANCE U/S 14A HAS TO BE EFFECTED ; (3) THE ARGUMENT THAT A LITERAL INTERPRETATION OF S . 14A LEADS TO ABSURD CONSEQUENCES IS NOT ACCEPTABLE. S 14A IS FOU NDED ON A VALID RATIONALE THAT THE BASIC PRINCIPLE OF TAXATIO N IS TO TAX NET INCOME I.E GROSS INCOME MINUS EXPENDITURE; (4) THE ARGUMENT THAT THE METHOD IN RULE 8D R.W.S 1 4A (2) FOR DETERMINING EXPENDITURE RELATING TO THE TAX-FREE IN COME IS ARBITRARY AND VIOLATIVE OF ARTICLE 14 IS NOT ACCEPT ABLE BECAUSE THERE IS AN ADEQUATE SAFEGUARD BEFORE RULE 8D CAN B E INVOKED. THE AO CANNOT IPSO FACTO APPLY RULE 8D BUT CAN DO SO ONLY WHERE HE RECORDS SATISFACTION ON AN OBJECTIVE BASIS THAT THE ASSESSEE IS UNABLE TO ESTABLISH THE CORRECTNESS OF ITS CLAIM . ALSO A UNIFORM METHOD PRESCRIBED TO RESOLVE DISPUTES BET WEEN ASSESSEES AND THE DEPARTMENT CANNOT BE SAID TO BE A RBITRARY OR OPPRESSIVE. THERE IS A RATIONALE IN RULE 8D AND ITS METHOD IS FAIR & REASONABLE. IT CANNOT BE SAID THAT THERE I S MADNESS IN THE METHOD OF RULE 8D SO AS TO RENDER IT UNCONSTITU TIONAL; (5) RULE 8D, INSERTED W.E.F 24.3.2008 CANNOT BE REG ARDED AS RETROSPECTIVE BECAUSE IT ENACTS AN ARTIFICIAL METHOD OF ESTIMATIN G EXPENDITURE RELATABLE TO TAX-FREE INCOME. IT APPLIE S W.E.F AY 2008-09 ; (6) FOR THE AYS WHERE RULE 8D DOES NOT APPLY, THE A O WILL HAVE TO DETERMINE THE QUANTUM OF DISALLOWABLE EXPENDITUR E BY A REASONABLE METHOD HAVING REGARD TO ALL FACTS AND CIRCUMSTANCES; (7) ON FACTS, THOUGH IN THE EARLIER YEARS, THE TRIB UNAL HAD HELD THAT THE TAX-FREE INVESTMENTS HAD BEEN MADE OUT OF THE ASSESSEES OWN FUNDS, THIS DID NOT MEAN THAT THERE WAS NO EXPENDITURE INCURRED TO EARN TAX-FREE INCOME. EVEN THOUGH RULE 8D DID NOT APPLY TO AY 02-03, THE AO HAD TO CONSIDE R WHETHER DISALLOWANCE COULD BE MADE U/S 14A (1) . ALSO, THE PRINCIPLE OF CONSISTENCY WOULD NOT APPLY AS S. 14A HAD INTRODUCE D A MATERIAL CHANGE IN THE LAW. 9. WE ARE OF THE VIEW THAT THE DECISION OF THE TRIB UNAL IN ASSESSEES OWN CASE AND THE OTHER DECISIONS RENDERED BY THE TR IBUNAL ON WHICH ITA NO. 3035& 3079/MUM/2009(A.Y.2002-03) 7 RELIANCE WAS PLACED BY THE LEARNED COUNSEL FOR THE ASSESSEE NO LONGER HOLDS GOOD IN VIEW OF THE LATER EXPOSITION OF THE L AW ON THE ISSUE AS LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE O F GODREJ & BOYCE (SUPRA). WE ARE OF THE VIEW THAT IT WOULD BE JUST AND PROPER TO REMAND THE ISSUE OF DISALLOWANCE U/S.14-A OF THE ACT TO TH E AO FOR FRESH CONSIDERATION IN THE LIGHT OF THE LAW AS LAID DOWN BY THE HONBLE BOMBAY HIGH COURT. THE AO WILL AFFORD OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND DECIDE THE ISSUE IN ACCORDANCE WIT H THE LAW AS LAID DOWN BY THE HONBLE BOMBAY HIGH COURT. 7. WE ARE OF THE VIEW THAT IT WOULD BE APPROPRIATE TO FOLLOW AFORESAID ORDER OF THE TRIBUNAL AS THE FACTS AND CIRCUMSTANCES ARE IDE NTICAL IN THE PRESENT ASSESSMENT YEAR. WE ORDER ACCORDINGLY AND REMAND T HE ISSUE TO THE AO FOR FRESH CONSIDERATION IN THE LIGHT OF THE DIRECTIONS GIVEN BY THE TRIBUNAL IN A.Y 2001-02 REFERRED TO ABOVE. 8. GROUND NO.2 RAISED BY THE ASSESSEE READS AS FOL LOWS: 2. THE CIT(A) ERRED IN IGNORING OTHER INCOME A ND NET ADJUSTMENTS IN RESPECT OF EARLIER YEARS OF RS. 62,38,200 OF T HE ELIGIBLE UNITS FOR THE PURPOSE OF GRANTING DEDUCTION UNDER SECTION 80IA. 9. THE ASSESSEE CLAIMED DEDUCTION UNDER SECTION 80I A OF THE ACT IN RESPECT OF ITS TROMBAY UNIT 7, COMBINED CYCLE POWER PLANT (CCPP). THE A.O HAS ALLOWED DEDUCTION UNDER SECTION 801A IN RESPEC T OF THE FOLLOWING UNDERTAKINGS: A. TROMBAY UNIT 7 (CCPP) B. 150MW BHIRA UNIT (BPSU) C. JOJOBERA 67.5 MW UNIT HOWEVER, FOR THE PURPOSE OF GRANTING DEDUCTION UNDE R SECTION 801A, THE ACIT IGNORED OTHER INCOME OF RS.79,17,985 AND NE T ADJUSTMENTS IN RESPECT OF EARLIER YEARS OF RS.25,57,573 OF THE EL IGIBLE UNITS. THE DETAILS OF ITA NO. 3035& 3079/MUM/2009(A.Y.2002-03) 8 OTHER INCOME AND NET ADJUSTMENTS IN RESPECT OF E ARLIER YEARS CONSIDERED FOR COMPUTING DEDUCTION U/S 8OIA ARE TROMBAY UNIT 7 COMBINED CYCLE POWER PLANT, BHIRA PUMPED STORAGE UNIT AND JOJOBERA 67.5 MW UNIT WERE FURNISHED AS ANNEXURES 3(A) TO 3(D) ALONGWITH THE S TATEMENT OF FACTS FILED BEFORE CIT(A). 10. THE CIT(A) ALLOWED RELIEF IN PART TO THE ASSESS EE AGAINST WHICH THE ASSESSEE HAS RAISED GROUND NO.2 BEFORE THE TRIBUNAL . 11. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE WOULD LIKE TO PRESS RELIEF ONLY IN RES PECT OF PROFITS UNDER SECTION 80IA OF THE UNITS OF TROMBAY UNIT 7, COMBINED CYC LE POWER PLANT (CCPP). THE BREAKUP OF THE ADJUSTMENT MADE BY THE AO WHILE COMPUTING DEDUCTION UNDER SECTION 80IA OF THE ACT IS GIVEN AS ANNEXURE TO THIS ORDER. IN THE FORESAID ANNEXURE IT CAN BE SEEN THAT ONE OF THE IT EMS OF INCOME INCLUDED IN THE INCOME DERIVED BY THE INDUSTRIAL UNIT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA IS THE MATERIALS ISSUED IN THE PREVIOUS YEAR WHICH WERE RETURNED TO THE WORKS. THIS IS A SUM OF RS. 12,04,554/-. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN RESPECT OF THIS ITEM ALONE RELIEF IS PRAYED FOR AND FOR NO OTHER ITEMS. IT WAS SUBMITTED BY HIM THAT THE MATE RIALS ISSUE IN THE PREVIOUS YEAR WOULD HAVE GONE TO REDUCE THE PROFITS IN THE PAST AND WHEN THE SAME MATERIAL IS RETURNED IT SHOULD BE CONSIDER ED AS INCOME DERIVED BY THE ELIGIBLE UNIT AND DEDUCTION UNDER SECTION 80IA SHOULD BE ALLOWED. 12. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LD. C OUNSEL FOR THE ASSESSEE AND ARE OF THE VIEW THAT THE PLEA OF THE A SSESSEE IS ACCEPTABLE AND ACCORDINGLY WE DIRECT THE AFORESAID ITEM OF INCOME SHOULD BE TREATED AS PART OF THE INCOME OF THE TROMBAY UNIT 7, COMBINED CYCL E POWER PLANT (CCPP) ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA OF THE AC T. THUS GROUND NO.2 IS PARTLY ALLOWED. 13. IN THE RESULT, APPEAL BY THE ASSESSEE IS PARTLY ALLOWED. ITA NO. 3035& 3079/MUM/2009(A.Y.2002-03) 9 ITA NO.3035/M/09: 14. GROUND NO.1 RAISED BY THE REVENUE IN THIS APPEA L READS AS FOLLOWS THE LD. CIT(A) HAS ERRED IN ALLOWING THE DISALLOWA NCE OF EXPENDITURE MADE BY THE ASSESSING OFFICER OF RS. 25,86,759/- ON MAINTENANCE OF GARDEN WITHOUT APPRECIATING THE FACT THAT THE EXPEN DITURE HAD NOT BEEN INCURRED WHOLLY, NECESSARILY AND EXCLUSIVELY F OR THE PURPOSE OF ASSESSEES BUSINESS. 15. IT IS NOT IN DISPUTE BEFORE US THAT IDENTICAL I SSUE HAD COME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y 2001-02 IN ITA NO.4572/M/08 AND THIS TRIBUNAL BY ITS ORDER DAT ED 9/9/2011 HAD TAKEN A VIEW THAT EXPENDITURE ON MAINTENANCE OF GARDEN HA S TO BE CONSIDERED AS EXPENDITURE INCURRED WHOLLY, NECESSARILY AND EXCLUS IVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THE FOLLOWING ARE THE RE LEVANT OBSERVATION OF THE TRIBUNAL IN THIS REGARD. 24. GROUND NO.2 RAISED BY THE REVENUE READS AS FOL LOWS: 2.THE LEARNED CIT(A) ERRED IN DELETING THE DISALLO WANCE OF EXPENDITURE ON MAINTENANCE OF GARDEN AMOUNTED TO RS.23,98,364/- WITHOUT APPRECIATING THAT THE EXPEND ITURE HAS NOT BEEN INCURRED WHOLLY , NECESSARILY AND EXCLUSIV ELY FOR THE PURPOSE OF BUSINESS. 25. THE AO HAS DISALLOWED AN AMOUNT OF RS. 23,98,36 4/- BEING COMMUNITY WELFARE EXPENSES ON MAINTENANCE OF GARDEN S ON THE GROUND THAT THE EXPENDITURE HAS NOT BEEN INCURRED W HOLLY, NECESSARILY AND EXCLUSIVELY FOR THE PURPOSE OF ASSESSEES BUSIN ESS. THE ASSESSEE SUBMITTED THAT WITH THE PRESENT EMPHASIS OF THE GOV ERNMENT ON POLLUTION CONTROL, THE EXPENDITURE IS NECESSARY AS PART OF THE ASSESSEE COMPANYS COMMUNITY WELFARE ACTIVITIES. IT WAS FUR THER CLAIMED THAT THE EXPENDITURE WAS ALSO INCIDENTAL TO THE ASSESSEE S MAIN BUSINESS OF GENERATION, TRANSMISSION AND DISTRIBUTION OF ELECTR ICITY. THE ASSESSEE FURNISHED A DETAILED NOTE TO EXPLAIN WHY MAINTENANC E OF GARDEN IS NECESSARY, CONSIDERING THE ASSESSEES LINE OF BUSIN ESS. THE MAIN REASONS HIGHLIGHTED WAS DUST CONTROL, CORRECT OPERA TION OF PROTECTIVE RELAYS, ELIMINATION OF ENCROACHMENT ALONG THE RIGHT WAY AND TO COUNTER THE OBJECTIONS RAISED BY MUMBAI GRAHAK PANCHAYAT AN D ENVIRONMENT PROTECTION CELL OF HINDUSTANI ANDOLAN ALLEGING THA T THE COMPANYS ITA NO. 3035& 3079/MUM/2009(A.Y.2002-03) 10 THERMAL PLANTS ARE POLLUTING THE ENVIRONMENT OF BOM BAY AND ITS SURROUNDING AREAS. 26. THE CIT(A) FOUND THAT IN AY 1995-96, TO 97-98 A ND 2000-01, THE TRIBUNAL HAD ALLOWED SIMILAR CLAIM OF THE ASSESSEE AND FOLLOWING THE SAID DECISION, THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE FOR DEDUCTION. 27. BEFORE US, IT IS NOT IN DISPUTE THAT THE FACTS AND CIRCUMSTANCES UNDER WHICH THE DISALLOWANCE WAS MADE IS IDENTICAL IN THE PRESENT A.Y. AS THE FACTS AS IT PREVAILED IN AY 95-96 TO 97 -98 AND 2000- 01(COPIES OF TRIBUNALS ORDER PLACED IN ASSESSEES PAPER BOOK). IN SUCH CIRCUMSTANCES, WE DO NOT FIND ANY REASON TO TA KE A DIFFERENT VIEW. RESPECTFULLY, FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE, WE UPHOLD ORDER OF CIT(A) AND DISMISS GR. NO.2 RAISED BY THE REVENUE. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL WE UPHOLD THE ORDER OF THE CIT(A) AND DISMISS GROUND NO.1 RAISED BY THE REVEN UE. 16. GROUND NO.2 RAISED BY THE REVENUE READS AS FOLL OWS: THE LD. CIT(A) HAS ERRED IN ALLOWING THE EXPENSES ON SHELVED PROJECT AMOUNTING TO RS. 17,26,02,558/- AND EXPENSE S ON FEASIBILITY STUDIES AMOUNTED TO RS. 5,27,462/- WITHOUT APPRECIA TING THAT THESE EXPENSES ARE CAPITAL EXPENSES. 17. AS FAR AS EXPENSES ON SHELVED PROJECTS OF RS. 1 7,26,02,558/- AND EXPENDITURE OF RS. 5,27,462/- ON ACCOUNT OF FEASIBI LITY STUDIES ARE CONCERNED THE ISSUE HAS ALREADY BEEN CONSIDERED BY THE TRIBUNAL IN A.Y 2001-02 IN ITA NO.4497/M/2008 & ITA NO.4572/M/2008 AND THIS TRIBUNAL HAS HELD AS FOLLOWS: 30. THE ASSESSEE HAS CLAIMED EXPENDITURE INCURRED IN RESPECT OF CERTAIN PROJECTS WHICH WERE SUBSEQUENTLY SHELVED ON GROUNDS OF COMMERCIAL EXPEDIENCY, AS REVENUE EXPENDITURE. THE ASSESSEE HAS SUBMITTED THAT WHEN IT WAS FOUND THAT THE PROJECTS WERE NOT LIKELY TO BE PROFITABLE, THEY WERE GIVEN UP IN ORDER THAT THE COMPANIES COULD CONCENTRATE ON OTHER MORE PROFITABLE PROJECTS TO F ACILITATE THE CARRYING ITA NO. 3035& 3079/MUM/2009(A.Y.2002-03) 11 ON OF THE BUSINESS OF THE COMPANIES. THE ASSESSEE FURNISHED THE FOLLOWING LIST OF PROJECTS WHICH WERE SHELVED DURIN G THE YEAR ENDED 31 ST MARCH, 2001. SHELVED PROJECTS AMOUNT (RS.) ACC-KYMORE POWER PROJECT 4,58,113 INDAL- HIRAKUD POWER PROJECTS HARYANA VIDYUT PRASARAN 2,20,281 5,00,000 MSEB POWER PROJECT POWERGEN 14,66,566 2,74,73,477 BIDDING REGARDING RVPNL POWER PROJECT-JAIPUR 8,33,333 BATHINDA POWER PROJECT OMAN POWER PROJECT 1,49,773 67,130 HAZIRA POWER PROJECTS STUDY FOR EVALUATION OF 2 HYDRO PROJECTS AT ZAMBIA 10,078 86,546 100MW CCPP AT THAKURLI MINI HYDRO PLANT AT KHOPOLI TOTAL 1,50,889 42,216 3,14,58,402 FURTHER THE ASSESSEE, UNDER COVER OF ITS LETTER DAT ED 27 TH NOVEMBER, 2007 HAD ALSO FURNISHED A MEMO FROM SENIOR GENERAL MANAGER, PROJECTS DATED 18 TH APRIL, 2001 INDICATING THE JOBS WHICH HAVE BEEN CLOSED, ON THE BASIS OF WHICH, THE ABOVE EXPENDITUR E HAS BEEN CHARGED OFF. THE ASSESSEE HAD CLARIFIED VIDE ITS LETTER DA TED 27 TH NOV. 2007 THAT THE MAJOR AMOUNT (RS. 2,74,73,477) IN THE ABOVE LI ST PERTAINS TO POWERGEN. THIS EXPENDITURE WAS IN CONNECTION WITH ACQUISITION OF 655 MW COMBINED CYCLE POWER PLANT BELONGING TO POWE RGEN IN GUJRAT. THIS PROJECT WAS PUT UP FOR SALE OF POWERG EN, FOR WHICH BIDS HAD BEEN INVITED. THE ASSESSEE WAS ONE OF THE BIDD ERS, FOR WHICH DETAILED STUDIES WERE CARRIED OUT MAINLY BY ARTHUR ANDERSON AND LITTLE & CO. THE PROJECT WAS FINALLY AWARDED TO CHINA LI GHT POWER (CLP) AND HENCE, THE EXPENDITURE INCURRED IN CONNECTION WITH THE BIDDING PROCESS WAS WRITTEN OFF AS EXPENDITURE ON SHELVED P ROJECT. THE OTHER AMOUNTS PERTAIN TO POWER PROJECTS AT THE LOCATIONS INDICATED THERE AGAINST, WHICH HAVE FINALLY NOT MATERIALIZED. THE ASSESSEE SUBMITTED THAT ALL THE ABOVE PROJECTS ARE CONNECTED WITH THE EXISTING BUSINESS OF THE ASSESSEE I.E. GENERATION, TRANSMISSION AND DIST RIBUTION OF ELECTRICITY. THE EXPENSES ARE MAINLY IN THE NATURE OF PRE-BID ENGINEERING SERVICES. THESE EXPENSES HAVE BEEN CLA IMED AS REVENUE EXPENDITURE BASED ON THE DECISION OF THE MADRAS HIG H COURT IN THE ITA NO. 3035& 3079/MUM/2009(A.Y.2002-03) 12 CASE OF B.NAGI REDDY VS. CIT (199 ITR 451) WHICH AC CORDING TO THE ASSESSEE WAS DIRECTLY ON THE ISSUE. 31. THE ASSESSEE HAS CLAIMED EXPENDITURE INCURRED O N FEASIBILITY REPORTS AS REVENUE EXPENDITURE. THE ASSESSEE FURN ISHED THE FOLLOWING DETAILS OF EXPENDITURE ON FEASIBILITY REPORTS AND P RELIMINARY STUDIES INCURRED DURING THE YEAR ENDED 31 ST MARCH, 2001. PROJECTS AMOUNT (RS.) AUGMENTATION OF AIR CONDITIONING LSHS TANK AUGMENTATION FLUE GAS DESULPHYURIZATION- 3 RD STREAM LNG TERMINAL 6,46,990 7,00,344 3,13,473 2,30,543 PROPOSED BOX CULVERT IN TROMBAY MAIN DRAINAGE ELECTRO-CHLORINATION PLANT MINI HYDRO SCHEME AT BHIRA 18,972 35,153 2,56,187 MINI HYDRO SCHEME AT MULSHI STUDY FOR EVALUATION OF 2 HYDRO PROJECTS AT ZAMBIA MINI HYDRO POWER PLANT SCHEME ON TAILRACE OF KHOPOLI POWER PLANT 2,56,646 17,767 1,73,318 TOTAL 26,18,393 THE ASSESSEE ALSO FURNISHED STATEMENTS INDICATING T HE BREAK UP OF THE ABOVE EXPENDITURE UNDER COVER OF ITS LETTER DATED 2 7 TH NOVEMBER, 2007 AND HAS PROVIDED COPIES OF SOME OF THE INVOICES UND ER COVER OF ITS LETTER DATED 18 TH FEB.2008. THE ABOVE PAYMENTS HAVE BEEN MADE TO TATA CONSULTING ENGINEERS (TCE) FOR VARIOUS FEASIBI LITY REPORTS. THE ASSESSEE HAS SUBMITTED THAT THE ABOVE PROJECTS ARE CONNECTED WITH THE EXISTING BUSINESS OF THE ASSESSEE I.E. GENERATION, TRANSMISSION AND DISTRIBUTION OF ELECTRICITY. THE EXPENSES HAVE BEE N CLAIMED AS REVENUE EXPENDITURE BASED ON THE FOLLOWING DECISIONS: 1. KARNATAKA HIGH COURT IN THE CASE OF CIT VS. KARNATA KA STATE INDUSTRIAL & INVESTMENT DEVELOPMENT CORPN. (163 ITR 657) 2. KERALA HIGH COURT IN THE CASE OF CIT VS. KERALA STA TE INDUSTRIAL AND INVESTMENT DEVELOPMENT CORPORATION. (182 ITR 62 ) 3. CALCUTTA HIGH COURT IN THE CASE OF KESHORAM INDUSTR IES AND COTTON MILLS LTD. VS. CIT (196 ITR 845) 4. GAUHATI HIGH COURT IN THE CASE OF DY. CIT VS. ASSAM ASBESTOS LTD. (263 ITR 357) 5. CALCUTTA HIGH COURT IN THE CASE OF ASIATIC OXYGEN L TD. (190 ITR 328) 32. THE AO DID NOT ALLOW THE CLAIM OF THE ASSESSEE FOR DEDUCTION AS IN HIS VIEW THE EXPENDITURE WAS IN CONNECTION WITH EXP LORING A DIFFERENT ITA NO. 3035& 3079/MUM/2009(A.Y.2002-03) 13 LINE OF BUSINESS AND THEREFORE NOT INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE ASSESSEES BUSINESS. THE CIT(A ) HOWEVER ALLOWED THE CLAIM OF THE ASSESSEE AS HE FOUND THAT ON IDENT ICAL ISSUE THE TRIBUNAL HAS ALREADY HELD IN ASSESSEES CASE THAT T HE EXPENDITURE WAS IN CONNECTION WITH THE EXISTING LINE OF BUSINESS OF THE ASSESSEE AND HAD TO BE ALLOWED AS A DEDUCTION. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENUE HAS RAISED GROUND NO.3 BEFORE THE TRIBU NAL. 33. WE HAVE HEARD THE RIVAL SUBMISSIONS. IT IS NO T IN DISPUTE BEFORE US THAT MUMBAI ITAT IN ASSESSEES OWN CASE FOR A.Y S 1997-98,1999- 2000 AND 2000-01 HAD HELD THAT IDENTICAL EXPENSES O N SHELVED PROJECT REPORT WAS NOT FOR STARTING ANY NEW BUSINESS BUT IT WAS CLOSELY CONNECTED WITH EXISTING ELECTRICITY GENERATING BUSI NESS OF THE ASSESSEE. SIMILARLY THE FEASIBILITY REPORT EXPENSES WERE ALSO HELD TO BE NOT FOR STARTING A NEW BUSINESS BUT CLOSELY CONNECTED WITH THE EXISTING ELECTRICITY GENERATING BUSINESS OF THE ASSESSEE BY THE MUMBAI ITAT IN ITS OWN CASE FOR A.YS 1997-98, 1999-2000 AND 2000- 01. COPIES OF THESE ORDERS HAVE BEEN PLACED IN THE PAPER BOOK. I N VIEW OF THE ABOVE GR.NO.3 OF THE REVENUE IS DISMISSED. FACTS AND CIRCUMSTANCES BEING IDENTICAL RESPECTFULL Y FOLLOWING THE ORDER OF THE TRIBUNAL WE UPHOLD THE ORDER OF THE CIT(A) AND DISMISS GROUND NO.2 RAISED BY THE REVENUE. 18. GROUND NO.3 IS AN ASSIE WHICH AROSE IN A.Y 200 1-02 DOES NOT IN A.Y 2002-03. THE GROUND OF APPEAL IS TAKEN AS GROUND B Y MISTAKE AND THE PARTIES AGREED BEFORE US THAT THE AFORESAID GROUND HAS BEEN TAKEN BY MISTAKE. CONSEQUENTLY, GROUND NP.3 IS DISMISSED AS NOT ARISING OUT OF THE ORDER OF THE CIT(A). 19. GROUND NO.4 RAISED BY THE REVENUE READS AS FOLL OWS: 4. THE LD. CIT(A) HAS DIRECTED THE ASSESSING OFF ICER TO ALLOW INTEREST U/S. 244 OF RS.8,27,591/- FROM APRIL, 2002 TO FEBRU ARY 2005 WITHOUT APPRECIATING THE FACT THAT UNDER PROVISIONS OF SUB- SECTION 20 OF SECTION 244A, THE LD. CIT(A) HAS NO JURISDICTION TO DIRECT THE ASSESSING OFFICER NOT TO RESTRICT THE PERIOD FROM OCT.2004 TO FEB. 20 05. ITA NO. 3035& 3079/MUM/2009(A.Y.2002-03) 14 20. THE ASSESSEES GRIEVANCE BEFORE CIT(A) WAS THA T THE AO HAS GRANTED INTEREST UNDER SECTION 244A OF RS.8,6739,757 IN PLA CE OF GRANTING INTEREST OF RS.8,68,88,725. AS PER THE ASSESSEE, THE SHORTFALL OF INTEREST OF RS.1 ,48968 IS DUE TO THE FACT THAT INTEREST ON PART TDS REFUND OF RS.8,27,591 HAS BEEN GRANTED FROM OCTOBER 2004 TO FEBRUARY 2005 INSTEAD OF GRANTING INTEREST FROM APRIL 2002 TO FEBRUARY 2005. THE INTEREST ON R S.8,271591 HAS BEEN GRANTED FROM OCTOBER 2004 SINCE TDS CERTIFICATES AG GREGATING TO RS.8,27,591 WERE FILED ON 11TH OCTOBER, 2004. 21. THE ASSESSEE HAD SUBMITTED BEFORE CIT(A) THAT T HOUGH THE TDS CLAIM HAD BEEN REVISED, THE ENTIRE AMOUNT HAD BEEN DEDUCT ED AT SOURCE DURING THE FINANCIAL YEAR ENDED 31 ST MARCH, 2002 ITSELF AND HENCE, INTEREST UNDER SECTION 244A SHOULD BE GRATED FROM APRIL 2002 AND N OT MERELY FROM OCTOBER 2004. IT WAS FURTHER SUBMITTED THAT PROVISIONS OF SUB-SECTION (2) OF SECTION N 244A CANNOT BE INVOKED AS THE PROCEEDINGS RESULTING IN THE REFUND HAVE NOT IN ANY WAY BEEN DELAYED FOR REASONS ATTRIBUTABLE TO THE ASSESSEE. IT WAS ALSO BEEN POINTED OUT BY THE ASSESSEE THAT THE ASSESSMEN T ORDER U/S. 143(3) WAS PASSED ON 24/2/2005 I.E. ALMOST 4 MONTHS AFTER ADD ITIONAL TDS CERTIFICATES AGGREGATING TO RS. 8,27,591/- WERE FILED. IT WAS SU BMITTED THAT THE CORRECT AMOUNT OF INTEREST U/S. 244A SHOULD BE RS.8,68,88, 725 AND NOT RS.8,67,39,757 AS GRANTED BY THE ACIT. 22. THE CIT(A) ACCEPTED THE PLEA OF THE ASSESSEE A ND HE HELD AS FOLLOWS: 15. THE ASSESSEES SUBMISSIONS HAVE BEEN CONSID ERED. SINCE THE PROCEEDINGS RESULTING IN THE REFUND HAVE NOT, IN AN Y WAY, BEEN DELAYED FOR REASONS ATTRIBUTABLE TO THE APPELLANT, THE PROV ISIONS OF SUB-SECTION (2) OF SECTION 244A CANNOT BE INVOKED. HENCE, BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, IT IS HELD THAT INTEREST ON RS.8,27,591 BE GRANTED FROM APRIL 2002 TO FEBRUARY 2005 AND NOT BE RESTRICTED 3.THE PERIOD OCTOBER 2004 TO FEBRUARY 2005. THIS GROUND O F APPEAL IS ALLOWED. 23. AGGRIEVED BY THE ORDER OF THE CIT(A) THE REVEN UE HAS PREFERRED GROUND NO.4 BEFORE THE TRIBUNAL. WE HAVE HEARD THE SUBMIS SIONS OF LD. D.R, WHO ITA NO. 3035& 3079/MUM/2009(A.Y.2002-03) 15 REITERATED THE STAND OF THE REVENUE AS REFLECTED IN THE GROUNDS OF APPEAL. WE HAVE CONSIDERED HIS SUBMISSIONS AND WE FIND THAT UN DER THE PROVISIONS OF SECTION 244A (2) OF THE ACT, IF AO WANTS TO EXCLUDE FROM THE PERIOD FOR WHICH INTEREST IS PAYABLE UNDER SECTION 244A(1) OF THE AC T, HE HAS TO SEEK THE OPINION OF THE CHIEF COMMISSIONER. THE AO HAS NOT DONE SO. THE REVENUE CANNOT THEREFORE, QUESTION THE JURISDICTION OF THE CIT(A) NOT TO EXCLUDE THE PERIOD FOR WHICH INTEREST HAS TO BE GRANTED UNDER S ECTION 244A OF THE ACT. FOR THIS REASON AND ALSO FOR THE REASON THAT THE AM OUNT IN QUESTION WAS TAX DEDUCTED AT SOURCE AND THERE WAS NO DELAY ON THE PA RT OF THE ASSESSEE, WE ARE OF THE VIEW THAT THE ORDER OF THE CIT(A) SHOULD BE SUSTAINED. WE ORDER ACCORDINGLY. 24. IN THE RESULT, THE APPEAL OF THE REVENUE IS DI SMISSED. 25. IN THE RESULT, APPEAL BY THE ASSESSEE IS PARTL Y ALLOWED AND APPEAL BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 20 TH DAY OF APRIL 2012 SD/- SD/- (P.M.JAGTAP ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 20 TH APRIL 2012 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RE BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM.