Gujarat State Energy Generation Ltd., Ahmedabad V. The Jt.CIT., Gandhinagar Range, Gandhinagar

ITA 307/AHD/2014

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 0030 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-12-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 28-06-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 31-01-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUMEET KUMAR VERMA
• Assessee Lawyers: S N SOPARKAR
• Keywords: Depreciation; Initiation of penalty proceedings; Rule 8D
• Section: 271(1)(c); 143(3); 244A; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI PRAMOD KUMAR, VICE PRESIDENT & MS. MADHUMITA ROY, JUDICIAL MEMBER I.T.A. NO.307/AHD/2014 (ASSESSMENT YEAR : 2009-10) GUJARAT STATE ENERGY GENERATION LTD. GSEGL 3 RD FLOOR, BLOCK NO.15, UDYOG BHAVAN, SECTOR 11, GANDHINAGAR. VS. JOINT COMMISSIONER OF INCOME TAX, GANDHNAGAR RANGE, GANDHINAGAR. [ PAN NO. AABCG 1359 A ] ( APPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SHRI S. N. SOPARKAR & PARIN SHAH, A.R. RESPONDENT BY : SHRI SUMEET KUMAR VERMA, SR. D.R. DATE OF HEARING 24.10.2019 DATE OF PRONOUNCEMENT 27.12.2019 O R D E R PER MS. MADHUMITA ROY - JM: THE INSTANT APPEAL FILED BY THE ASSESSEE IS DIRECTE D AGAINST THE ORDER DATED 11.11.2013 PASSED BY THE COMMISSIONER OF INCO ME TAX (APPEALS) GANDHINAGAR UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED AS TO THE ACT) ARISING OUT OF THE ORDER DATED 30.12.2011 PASSED BY THE JCIT, GANDHINAGAR RANGE, GANDHINAGAR FOR ASSESS MENT YEAR 2009-10. GROUND NO. 1:- 2. DISALLOWANCE UNDER SECTION 14A OF THE ACT RS. 1, 88,087/- AS PER PROVISION OF RULE 8D. ITA NO.307/AHD/2014 GUJARAT STATE ENERGY GENERATION LTD. VS. JCIT ASSESSMENT YEAR 2009-10 - 2 - GROUND NO. 2:- 3. DISALLOWANCE OF PRIOR PERIOD EXPENSES RS.26,40,0 10/- WHILE CALCULATING INCOME UNDER THE NORMAL PROVISION OF TH E ACT. GROUND NO. 3:- 4. ADDITION OF RS.14,92,00,000/- TOWARDS AMOUNT REC EIVED ON ACCOUNT OF ADVANCE AGAINST DEPRECIATION. GROUND NO. 4:- 5. LEVY OF INTEREST UNDER SECTION 234D AND RECOVERY OF INTEREST UNDER SECTION 244A OF THE ACT. GROUND NO. 5:- 6. INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. 7. GROUND NO.1: AT THE TIME OF HEARING OF THE INSTANT APPEAL THE LEARNED SR. COUNSEL APPEARING FOR THE ASSESSEE SUBM ITTED BEFORE US THAT HE DOES NOT WANT TO PROCEED AGAINST GROUND NO.1. HENCE , THE SAID GROUND IS DISMISSED AS NOT PRESSED. 8. GROUND NO.2 THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF PRI OR PERIOD EXPENSES OF RS.26,40,010/- WHILE CALCULATING INCOME UNDER THE NORMAL PROVISION OF THE ACT. 9. THE BRIEF FACTS LEADING TO THIS CASE IS THIS THA T THE ASSESSEE HAS CLAIMED PRIOR PERIOD EXPENSE OF RS.26,40,010/- WHIC H HAS BEEN CLAIMED GET CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION AN D HENCE THE SAME ARE ITA NO.307/AHD/2014 GUJARAT STATE ENERGY GENERATION LTD. VS. JCIT ASSESSMENT YEAR 2009-10 - 3 - ALLOWABLE EXPENSES. HOWEVER, THE LEARNED AO REJECT ED SUCH CONTENTION MADE BY THE ASSESSEE, AND ADDED THE SAID AMOUNT OF RS. 26,40,010/- IN THE HAND OF THE ASSESSEE WHICH WAS FURTHER CONFIRMED BY THE LEARNED FIRST APPELLATE AUTHORITY; HENCE, THE INSTANT APPEAL BEFO RE US. 10. AT THE TIME OF HEARING OF THE INSTANT APPEAL, T HE LEARNED COUNSEL APPEARING FOR THE ASSESSEE SUBMITTED BEFORE US THAT THOUGH SUCH EXPENSES ARE RELATED TO THE EARLIER YEARS BUT THE SAME HAS B EEN INCURRED DURING THE YEAR AND THUS CRYSTALLIZED DURING THE YEAR UNDER CO NSIDERATION. LEARNED SR. COUNSEL FURTHER SUBMITTED THAT THE LEA RNED CIT(A) THOUGH RELIED UPON THE JUDGMENT PASSED IN THE MATTE R OF CADILA PHARMACEUTICAL LTD. REPORTED IN 25 TAXMAN 519, THE SAID JUDGMENT HAS NO MANNER OF APPLICATION. RATHER, HE RELIED UPON THE JUDGMENT PASSED IN THE MATTER OF KEDARNATH JUTE MFG. CO. LTD.-VS-CIT REPOR TED IN 82 ITR 363 (SC). ON THE OTHER HAND, LD. DR RELIED UPON THE ORDER PA SSED BY THE AUTHORITIES BELOW. 11. HEARD THE RESPECTIVE PARTIES, PERUSED THE RELEV ANT MATERIALS AVAILABLE ON RECORD. IT APPEARS FROM THE RECORDS THAT WHILE R EJECTING THE CASE OF THE ASSESSEE, THE LEARNED AO OBSERVED THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM WHERE EXPENDITURE IS RECORDED IF IT IS DUE D URING THE PREVIOUS YEAR IRRESPECTIVE OF FACT WHETHER IT IS PAID DURING THE PREVIOUS YEAR OR NOT. UNDER THE ABOVE CIRCUMSTANCES, SINCE THE ASSESSEE IS CONS ISTENTLY FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING, EXPENSES INCURRED PRIOR TO RELEVANT ITA NO.307/AHD/2014 GUJARAT STATE ENERGY GENERATION LTD. VS. JCIT ASSESSMENT YEAR 2009-10 - 4 - ACCOUNTING PERIOD ARE NOT ALLOWABLE AS EXPENSES IN SUBSEQUENT YEARS. ON THIS ISSUES HE RELIED UPON THE JUDGMENT PASSED IN T HE MATTER OF INDERMANI JATIA VS. CIT, 351 ITR 298 (SC). THE VIEW HAS BEEN REITERATED BY THE LD. CIT(A) AS WELL. 12. IT IS A SETTLED PRINCIPLE OF LAW THAT WHEN THE ASSESSEE FOLLOWED THE MERCANTILE SYSTEM OF ACCOUNTING, EXPENDITURE INCURR ED DURING THE PREVIOUS YEAR THOUGH PERTAINING TO AN EARLIER PERIOD IS DEDU CTABLE. WE HAVE CAREFULLY CONSIDERED THE JUDGMENT PASSED IN THE MATTER OF KED ARNATH JUTE MFG. CO. LTD.-VS-CIT REPORTED IN 82 ITR 363 (SC) WHERE IT WA S HELD THAT WHERE THE ASSESSEE HAS FOLLOWED MERCANTILE SYSTEM OF ACCOUNTI NG AND DISTRIBUTING THE LIABILITY TO PAY TO SALES TAX AND NOT MAKING PROVIS ION IN ITS BOOKS OF ACCOUNTS PARTICULARLY WHEN THE DEMAND RAISED ON THE BASIS OF THE SALES MADE DURING THE ACCOUNTING YEAR THE ASSESSEE ENTITLED TO DEDUCT THE AMOUNT OF SALES TAX ON THE BASIS OF THE LIABILITY INCURRED AN D EVEN IN THE ABSENCE OF ENTRIES IN THE BOOKS OF ACCOUNTS, THE SAME IS ADMIS SIBLE. WE HAVE FURTHER CAREFULLY CONSIDERED THE ORDER PASSED BY THE JURISD ICTIONAL HIGH COURT IN THE MATTER OF SAURASHTRA CEMENT & CHEMICAL INDUSTRIES L TD.-VS-CIT REPORTED IN 213 ITR 523 (GUJ. HIGH COURT) WHERE IT HAS BEEN HEL D THAT LIABILITY IS ALLOWABLE ONLY IN THE YEAR IN WHICH IT HAS CRYSTALL IZED AND DETERMINED PARTICULARLY WHEN THE MERCANTILE SYSTEM OF ACCOUNTI NG IS PRACTICED BY THE ASSESSEE. THE EXPENDITURE IS NOT TO BE DISALLOWED M ERELY BECAUSE IT RELATED TO EARLIER PREVIOUS YEAR. IN SHORT UNDER MERCANTILE SYSTEM OF ACCOUNTING THE LIABILITY IS ALLOWABLE IN THE YEAR IT CRYSTALLIZED AND THUS THE CLAIM OF THE ASSESSEE SEEMS TO BE JUSTIFIED AND HENCE ALLOWABLE. THE ADDITION MADE IN THIS RESPECT IS, THEREFORE, DELETED. ITA NO.307/AHD/2014 GUJARAT STATE ENERGY GENERATION LTD. VS. JCIT ASSESSMENT YEAR 2009-10 - 5 - 14. GROUND NO.3: THE ADDITION OF RS.14,92,00,000/- TOWARDS AMOUNT RECEIVED ON ACCOUNT OF ADVANCE AGAINST DEPRECIATION WHICH HAS BEEN UPHELD BY THE LEARNED CIT(A) HAS BEEN CHALLENGED BEFORE US . 15. AT THE TIME OF HEARING OF THE INSTANT APPEAL TH E LEARNED SR. COUNSEL APPEARING FOR THE ASSESSEE SUBMITTED BEFORE US THAT WHEN THE QUERY WAS RAISED AS REGARD SUCH ADVANCE DEPRECIATION THE ASSE SSEE STATED AS FOLLOWS AS IT APPEARS AT PAGE 128 OF THE PAPER BOOK FILED BEFO RE US: REPLY: AS PER POWER PURCHASE AGREEMENT - PPA WITH GUJARAT URJA VIKAS NIGAM LTD. - GUVNL, GSEG RAISED INVOICES TO GUVNL B ASED ON THE CALCULATION OF FIXED CHARGE AS MENTIONED IN PPA. ON E OF THE COMPONENTS OF FIXED CHARGE IS DEPRECIATION. NOW, AS PER RE-NEGOTI ATED POWER PURCHASE AGREEMENT - PPA WITH GUJARAT URGA VIKAS NIGAM LTD. - GUVNL IT WAS AGREED THAT THE YEAR IN WHICH GSEG WILL BE FACING H EAVY CASH OUT FLOW DUE TO REPAYMENT OF DEBENTURES, GUVNL WILL GIVE SOME AMOUN T IN ADVANCE TO GSEG BY WAY OF ADVANCE DEPRECIATION AND SHALL RECOVER IT AGAINST THE FUTURE BILLS. HOWEVER FOR THE YEAR UNDER ASSESSMENT, THERE IS A ' 'MAXIMUM CEILING OF RS. 14.92 CR AS PER CALCULATION ATTACHED, I.E. GUVNL WI LL NOT PAY MORE THAN RS. 14.92 CR BY WAY OF ADVANCE DEPRECIATION. THUS, IN T HE CURRENT YEAR, GSEG MADE REPAYMENT OF RS. 98.81 CRORES AS PER REPAYMENT SCHEDULE. AS AGREED GUVNL PAID 14.92 CR. AS ADVANCE AND THE SAME WAS SH OWN UNDER THE H - LONG TERM LIABILITY BY GSEG, WHICH WILL BE ADJUSTED AGAINST FUTURE BILLS. (ANNEXURE - 7). FURTHER THAT, THE SCHEDULE L COLUMN 2.2 OF THE BA LANCE SHEET OF THE COMPANY ALSO SPECIFIES THAT DURING THE YEAR THE COM PANY HAS RECEIVED AN AMOUNT OF RS.14.92 CR. TOWARDS ADVANCES AGAINST DEP RECIATION WHICH HAS SHOWN LONG TERM LIABILITY AND WAS TO BE ADJUSTED IN RESPECTIVE YEARS. HOWEVER, THE LEARNED CIT(A) HAS BEEN PLEASED TO DIR ECT THE LEARNED AO TO VERIFY THE CLAIM OF THE APPELLANT IN THE EVENT THE APPELLANT IS ABLE TO PROVE THAT ANY INCOME HAS BEEN TAXED IN THE SUBSEQUENT AS SESSMENT YEAR IS IN FACT ADJUSTED AGAINST ADVANCE OF RS.14.92 CRORES, SUCH I NCOME WOULD NOT BE ITA NO.307/AHD/2014 GUJARAT STATE ENERGY GENERATION LTD. VS. JCIT ASSESSMENT YEAR 2009-10 - 6 - LIABLE TO BE TAXED IN THE YEAR IN WHICH THE APPELLA NT COMPANY HAS SHOWN ANY INCOME. BEING AGGRIEVED BY THE SAME THE ASSESSEE IS BEFORE US. 16. WE HAVE HEARD THE RESPECTIVE PARTIES PERUSED TH E RELEVANT MATERIALS AVAILABLE ON RECORD. IN TERMS OF THE POWER PROJECTS AGREEMENT AS IT APPEARS FROM THE RECORDS THE APPELLANT COMPANY HAS BEEN RAI SING INVOICES TO GUJART URJA VIKAS NIGAM LTD. (GUVNL) ON THE CALCULATION OF FIXED CHARGES AS MENTIONED THEREIN. ONE OF SUCH COMPONENTS OF FIXED CHARGES IS DEPRECIATION. IT WAS FURTHER AGREED BETWEEN THE TWO PARTIES THAT IN THE YEAR THE APPELLANT SINCE HAS BEEN FACING HEAVY CASH FLOW DUE TO REPAYMENT OF DEBENTURE, GUJARAT URJA VIKAS NIGAM LTD. (GUVNL) WI LL GIVE AMOUNT IN ADVANCE TO THE APPELLANT BY WAY OF ADVANCE DEPRECIA TION AND THE SAME WOULD BE RECOVERED AGAINST FUTURE BILL. HENCE, THE AMOUNT OF RS.14.92 HAS BEEN RECEIVED AS ADVANCE BY THE APPELLANT. HOWEVER, AS IT APPEARS FROM THE ORDERS THAT THE APPELLANT HAS NOT BEEN ABLE TO PROV E THAT ADVANCES RECEIVED ARE IN FACT ADJUSTED AGAINST FUTURE BILLS OR HOW TH IS PARTICULAR AMOUNT HAS BEEN RECEIVED IN CURRENT YEAR AND TREATED AS ADVANC E IS ULTIMATELY SETTLED IN THE SUBSEQUENT ASSESSMENT YEAR. IN THAT VIEW OF THE MATTER, THE LEARNED CIT(A) PASSED THE FOLLOWING ORDERS: THE APPELLANT IN ITS ALTERNATE SUBMISSION HAS ARGU ED THAT IF ADDITION MADE BY ASSESSING OFFICER IS UPHELD, SAME MAY BE ALLOWED TO BE REDUCED FROM INCOME OF THE FUTURE YEAR IN WHICH SUCH ADVANCE IS ACTUALLY SET OFF AGAINST ELECTRICITY BILL AND CONSIDERED AS INCOME OF THAT P ARTICULAR FUTURE YEAR AS THE SAME CANNOT BE TAXED TWICE. IN THIS REFERENCE ASSES SING OFFICER IS DIRECTED TO VERIFY THE CLAIM OF APPELLANT AND IF APPELLANT IS A BLE TO PROVE THAT ANY INCOME HAS BEEN TAXED IN SUBSEQUENT ASSESSMENT YEAR IS IN FACT ADJUSTED AGAINST ADVANCE OF RS. 14.92 CRORES, SUCH INCOME WOULD NOT BE LIABLE TO BE TAXED IN THE YEAR IN WHICH APPELLANT HAS SHOWN ANY INCOME. T HUS, THE RELATED GROUND OF APPEAL IS PARTLY ALLOWED. ITA NO.307/AHD/2014 GUJARAT STATE ENERGY GENERATION LTD. VS. JCIT ASSESSMENT YEAR 2009-10 - 7 - HOWEVER, IT IS THE CASE OF THE ASSESSEE THAT SUCH A DVANCES TO BE ADJUSTED WITH THE POWER SO SUPPLIED IN THE FUTURE. WE, THUS, HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE FIND NO INF IRMITY IN THE ORDER PASSED BY THE LEARNED CIT(A) IN MAKING SUCH DIRECTION UPON THE LD. AO WITH THE GUIDELINES FRAMED THEREIN IN ORDER TO GRANT RELIEF TO THE ASSESSEE IF PERMISSIBLE UNDER THE LAW, SO AS TO WARRANT INTERFE RENCE. HENCE, WE CONFIRM THE ORDER PASSED BY THE LD. CIT(A). 17. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED. THIS ORDER PRONOUNCED IN OPEN COURT ON 27/12/2019 SD/- SD/- ( PRAMOD KUMAR ) ( M S. MADHUMITA ROY ) VICE PRESIDENT JUDICIAL MEMBER AHMEDABAD; DATED 27/12/2019 TANMAY, SR.PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A)- 5. , , / DR, ITAT, AHMEDABAD 6. !' #$ / GUARD FILE. / BY ORDER //TRUE COPY// / (DY./ASSTT.REGISTRAR) , !' / ITAT, AHMEDABAD