The Dy. Commissioner of Income Tax, Gandhinagar Circle, Gandhinagar V. M/s. Sardar Sarovar Narmada Nigam Ltd., Gandhinagar

ITA 3281/AHD/2016

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 4623 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 10 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: misc
• Appeal Filed On: 06-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAGDISH
• Keywords: Depreciation; Revised return; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH BEFORE: MAHAVIR PRASAD , JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER THE DCIT, GANDHINAGAR CIRCLE, GANDHINAGAR (APPELLANT) VS M/S. SARDAR SAROVAR NARMADA NIGAM LTD. 7 TH FLOOR, BLOCK NO. 12, NEW SACHIVALAYA COMPLEX, GANDHINAGAR - 382010 PAN: AACCS6704L (RESPONDENT) REVENUE BY : S H RI JAGDISH , CIT - D . R. ASSESSEE BY: MS. ARTI SHAH, A.R. DATE OF HEARING : 09 - 10 - 2 018 DATE OF PRONOUNCEMENT : 16 - 10 - 2 018 / ORDER P ER : AMARJIT SINGH, ACCOU NTANT MEMBER : - THIS REVENUE S APPEAL FOR A. Y. 2013 - 14 , ARI SES FROM ORDER OF THE CIT(A) , GANDHINAGAR, AHMEDABAD DATED 26 - 09 - 2 016 , IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . 2. THE REVENUE HAS RAISED FOLLOWING G ROUNDS OF APPEAL: - 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN APPLYING THE COST SHARING FORMULA FOR DETERMINING THE COST OF ASSERT OWNED BY THE ASSESSES FOR THE PURPOSE OF DEPRECIATION 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN ALLOWING COMMON EXPENDITURE IN FULL INCLUDED IN PENDING CAPITALIZATION. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 4. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LD. CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED TO THE ABOVE EXTENT. I T A NO . 3281 / A HD/20 16 A SS ESSMENT YEAR 2013 - 14 I.T.A NO. 3281 /AHD/20 16 A.Y. 2013 - 14 PAGE NO D CIT VS. M/S. SARDAR SAROVAR NARMADA NIGAM LTD. 2 3 . THE BRIEF FACT OF THE CASE IS THAT RETURN OF INCOME DECLARING NIL INCOME WAS FILED ON 30 TH SEP, 2013. THEREAFTER, ASSESSEE HAS FI L E D REVISED RETURN OF IN COME ON 14 TH OCTOBER, 2013. THE BRIEF FACT S OF THE C ASE IN RESPECT OF TWO SUBSTANTIVE GROUNDS OF APPEAL ARE DISCUSSED UNDER RESPECTIVE GROUND OF APPEAL AS UNDER. 1 ST GROUND OF APPEAL: SHARING OF COST FOR THE PURPOSE OF DEPRECIATION 4 . DURING THE COURSE OF ASSESSMENT, THE ASSESSING OFFICER NOTICED THAT TH E POWER HOUSE , THE DAM AND MAIN CANAL WERE THE JOINT PROPERTIES OF S TATES OF MAHARASTRA, MADHYA PRADESH, GUJARAT AND RAJASTHAN. THE ASSESSEE EXPLAINED THA T THE FIXED ASSETS OF THE COMPANY WERE OWNED ENTIR ELY AND EXCLUSIVELY BY THE COMPANY. IT WAS ALSO EXPLAINED THAT THE ENTIRE COST OF ACQUIRING THE FIXED ASSET WAS MADE BY THE C OMPANY AND NOT SHARED BY ANY OTHER PERSONS . IT IS ST A TED THAT SECTION 43(1) OF THE I T ACT DEFINES THE ACTUAL COST TO MEAN THE A CTUAL COST INCURRED BY THE ASSESSEE AS REDUCED BY THE PORTION OF C OST WHICH IS MET BY THE ANOTHER PERSON. IT WAS FURTHER SUBMITTED THAT THE COMPANY HAS NOT RECEIVED ANY PORTION OF THE COST OF FIXING ASSETS FROM THE S TATES OF MAHARASTRA, MADHYA PRADESH AND RAJASTHAN. IT WA S EXPLAINED THAT ENTIRE PROJECT HAD BEEN E NV ISAGED FOR TWO MAIN PURPOSES POWER AND IRRIGATION. THE ASSESSING OFFICER OBSERVED T HAT THE CLAIM OF THE ASSESSEE THAT T H E CANALS WERE USED FOR THE PURPOSE OF BUSINESS IRRIGATION DURING THE Y E AR DOES NOT APPEAR TO BE TRUE AS T HE ASSESSEE HAS TO ESTABLISH THAT THE DISTRIBUTARIE S AND BRANCH CANALS ARE ALSO IN OPERATION TO CARRY THE WATER OF THE MAIN CANAL FOR IRRIGATION. HE HAS FURTHER STATED THAT IN CASE OF DAM THE SHARE RATIO OF COST FOR IR RIGATION AND POWER FOR GOV. OF GUJARAT HAS BEEN FIXED BY TRIBUNAL AND STATED THAT IT WAS FOUND THAT ONLY 16% SHARE OF GUJARAT WAS ACCOUNTED IN THE BOOKS OF ACCOUNT OF THE ASSSESSEE. THEREFORE HE WAS OF THE VIEW THAT TO T AL USE OF 16 % OF POWER HOUSE TO BE TREATED AS USED FOR THE PURPOSE OF BUSINESS. THE ASSESSIN G OFFICER HAS ALSO STATED THAT THE U S E OF MAIN CANAL FOR THE PURPOSE OF BUSINESS RELATED TWO MAIN CAN AL BRANCHES AND DISTRIBUTORS WERE NOT ESTABLISHED , THEREFORE, DEPRECIATION OF MAIN I.T.A NO. 3281 /AHD/20 16 A.Y. 2013 - 14 PAGE NO D CIT VS. M/S. SARDAR SAROVAR NARMADA NIGAM LTD. 3 CANAL AND COST BRANCHES AND DISTRIBUT ARIE S CANALS CANNOT BE ALLOWED AS CLAIMED BY THE ASSESSEE DURING THE YEAR 2 ND GROUND OF APPEAL: COMMON EX PENDITURE INCLUDED IN PENDING CAPITALIZATION 5 . THE ASSESSING OFFICER HAS NOTICED THAT THESE EXPENDITURE HAVE BEEN INC URRED TOWARDS COST OF ASSETS . T HE A SSESSEE HAS NOT SHOWN ANY P & L A/C AND HAS NOT APPROPRIATED THESE EXPENDITURE TOWARDS REVENUE EXPENDITURE . T HE ASSESSING OFFICER HAS TREATED THESE EXPENDITURE AS CAPITAL EXPENDITURE INCURRED TOWARDS COST OF ASSETS. TH E ASSESS ING OFFICER HAS MADE ALLOCATION OF COMMON EXPENDITURE BEING ALLOWABLE AS REVENUE EXPENDITURE AS UNDER : - SR. DESCRIPTION OF UNITS OF ALLOCATION OF % USE OF ASSETS COMMON NO PROJECT COMMON AS DISCUSSED EXPENDITURE EXPENDITURE AS AB OVE ALLOWED AS PER COMPARISON REVENUE SHEET EXPENSES 1. DAM 143531291 FULL 143531291 2. MAIN CANAL 155584538 NIL 0 3. POWER HOUSE 96986912 FULL 96986912 4. BRANCH & DISTRIBUTARIES 98564728 NIL 0 TOTAL 4946674 69 240518203 THE ASSESSING OFFICER HAS ALLOWED ONLY COMMON REVENUE EXPENDITURE TO THE EXTENT OF R S. 24 , 05 , 18 , 203 . 6 . AGGRIEVED ASSESSEE HAS FILED APPEAL BEFORE T H E LD. CIT(A). T HE LD. CIT(A) HAS ALLOWED THE APPEAL OF THE ASSESSEE. THE RELEVANT P ART OF THE DECISION OF THE LD. CIT(A) IS REPRODUCED AS UNDER: - I.T.A NO. 3281 /AHD/20 16 A.Y. 2013 - 14 PAGE NO D CIT VS. M/S. SARDAR SAROVAR NARMADA NIGAM LTD. 4 4. THE FIRST TWO GROUNDS AND ITS SUB - PARTS ARE AGAINST THE ACTION OF THE AO IN HOLDING THAT THE MAIN CANAL WAS NOT USED FOR THE PURPOSE OF BUSINESS OF IRRIGATION DURING* THE YEAR AND, REDUCING , THE COST FOR THE PURPOSE OF ALLOWING DEPRECIATION. 4.1 THE APPELLANT HAS SUBMITTED THAT THE ISSUES HAVE BEEN DECIDED IN ITS FAVOUR IN THE APPEAL ORDERS FOR EARLIER YEARS, WHEREIN IT HAS BEEN HELD THAT THE BUSINESS OF IRRIGATION HAS COMMENCED. 4.2 ON CARE FUL CONSIDERATION OF THE MATTER, IT IS SEEN THE MATTER HAS BEEN GIVEN DUE CONSIDERATION AND IT IS CORRECT THAT THE ISSUES ARE COVERED BY THE CIT(A)'S DECISION FOR AY YEAR 2005 - 06 VIDE APPEAL NO.CIT(A)GNR/312/2007 - 08 DATED 29/10/2008, FOLLOWED FOR AY 2006 - 07 VIDE APPEAL NO.CIT(A)GNR/239/2008 - 09 DATED 01/12/2009 AND ALSO FOR AY 07 - 08 VIDE APPEAL NO.OT(A)/GNR/189/2009 - 10. DATED 20/12/2010; IN APPEAL NO.CIT(A)/GNR/90/2010 - LL DATED 02/11/2011 AY 2008 - 09; APPEAL NO. CIT(A)/GNR/304/2011 - 12 DATED 02/11/2013; APPEA L NO. CIT(A)/GNR/ 160/2012 - 13 DATED 12/06/2014 FOR AY 2010 - 11; AND APPEAL NO, CIT(A)/GNR/487/13 - 14 DATED 27/11/2014. REGARDING THE ISSUE OF COMMENCEMENT OR OTHERWISE OF BUSINESS OF IRRIGATION, IT WAS HELD IN PARA 2.3 OF THE ORDER FOR AY 2005 - 06 AS UNDER: 2.3 THE MATTER HAS BEEN GIVEN DUE CONSIDERATION. MY PREDECESSOR VIDE HIS ORDER DATED 14/12/2005 FOR ASSESSMENT YEAR 2002 - 03 HAS ANALYSED THE ISSUE IN DETAIL, INCLUDING THE DECISION OF I.T.A.T., AHMEDABAD B BENCH IN THE APPELLANT'S CASE FOR ASSESSMENT YEAR 1989 - 90 TO 2000 - 01, AS REPORTED IN 93 ITD 329. 'AFTER EXAMINING THE FACTS BROUGHT ON RECORD, THE CIT(A) HELD THAT THE APPELLANT HAD EXECUTED IT S INFRASTRUCTURE PROJECT TO A SUBSTANTIAL EXTENT AND COMMERCIAL ACTIVITY HAD ALSO STARTED BY GENERATING REVENUE FROM WATER SUPPLY IN THE PERIOD RELEVANT TO ASSESSMENT YEAR TO COMPEL HIM TO DEVIATE FROM THE FINDIN G OF CIT(A) FOR EARLIER YEAR. HENCE THE BUSINESS IS HELD TO HAVE BEEN COMMENCED FOR A.Y. 2002 - 03. SUCH A FINDING H AVING BEEN GIVEN IN AN EARLIER YEAR OBVIO USLY SHALL BE APPLICABLE TO THIS YEAR ALSO AS THERE CAN NOT BE REVERSAL OF FACTS. IF THE PROJECT AS IT STOOD IN THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2002 - 03 MEANT USE OF 'IRRIGATION' PORTION OF PROJECT ALSO, LATE F P ERIOD CAN ONLY LEAD TO FURTHER CONSTRUCTION ON VARIOUS AREAS LIKE BRANCH CANALS AND HENCE THE FINDING FOR ASSESSMENT YEAR 2002 - 03 WOULD BE VALID FOR THIS YEAR ALSO. HENCE IT IS HELD THAT THE APPELLANT HAS USED ITS VARIOUS APPARATUS FOR THE BUSINESS PURPOSE OF IRRIGATION.' ON THE ISSUE OF RESTRICTING THE DEPRECIATION BY LIMITING THE COST OF THE ASSETS TO THE SHARE OF THE GOVERNMENT OF GUJARAT IN THE INTER - STATE DISPUTE, AS PER THE RATIO DETERMINED BY THE TRIBUNAL, THE MATTER WAS DECIDED VIDE PARAS - 3.3 AND 3.3.1 OF THE APPELLATE ORDER FO R AY 2005 - 06, WHICH IS REPRODUCED BELOW: '3.3. THE MATTER HAS BEEN GIVEN DUE CONSIDERATION. NO DOUBT THE PROJECT IN QUESTION IS THE PRODUCT OF ADMINISTRATIVE - POLITICO DECISION OF GOVERNMENTS OF GUJARAT, MAHARASHTRA, MADHYA PRADESH AND RAJASTHAN. IT IS ALS O PART OF THE SAME DECISION THAT IT SHALL BE IMPLEMENTED BY GOVERNMENT OF GUJARAT. IN ORDER TO IMPLEMENT THE SAME, THE GOVERNMENT OF GUJARAT DECIDED TO SETUP SARDAR SAROVAR NARMADA NIGAM LTD. AS A PUBLIC LIMITED COMPANY. IT SHOULD BE NOTED THAT ENTIRE SHAR E CAPITAL OF THE NIGAM WAS SUBSCRIBED TO BY THE GOVERNMENT OF GUJARAT AND THE NIGAM WAS TO EXECUTE THE ENTIRE PROJECT. SO THERE ARE TWO SEPARATE AREA OF OPERATION, ONE AMONG THE PARTICIPATING STATES FOR TAKING UP SUCH A PROJECT AND FOR COST SHARING AMONGST THEM AND THE OTHER FOR A LEGALLY INDEPENDENT COMPANY TO IMPLEMENT THE PROJECT. TO THE COMPANY THE COST OF THE ASSETS REMAINS THE SAME, NOTWITHSTANDING ANY ARRANGEMENT AMONG THE PARTICIPANT STATES BECAUSE THE COST OF THE ASSETS IS BEING MET BY THE FUNDS OF THE COMPANY EQUITY PROVIDED BY GOVERNMENT OF GUJARAT AND BORROWED FUN D AS IN A NY COMMERCIAL VENTURE. IF ANY FUND S ARE TRANSFERRED FROM ONE OF THE STATES TO THE GOVERNMENT OF GUJARAT, THE SAME SHALL NEITHER BE REFLECTED IN THE BOOKS OF THE APPELLANT NOR SH ALL EFFECT THE COST OF ASSETS IN 'THE HANDS OF THE APPELLANT. THE I.T.A NO. 3281 /AHD/20 16 A.Y. 2013 - 14 PAGE NO D CIT VS. M/S. SARDAR SAROVAR NARMADA NIGAM LTD. 5 A SSESSING OFFICER'S ASSERTION THAT APPELLANT'S SHARE IN PROJECT CANNOT EXCEED THE SHARE OF GOVERNMENT OF GUJARAT OVERLOOKS THE DISTI NCTION OF FINANCIAL RELATIONSHIP BET WEEN STATES VI S - A - V IS MANNER OF IMPLEMENTING A PROJECT THROUGH A CARRIER, IN THIS CASE A COMPANY. THEREFORE, I DO NOT AGREE F WITH THE ASSESSING OFFICER'S ACTION OF HOLDING THAT COST OF ASSET S IN THE HANDS OF THE APPELLANT HAS TO BE RESTRICTED AS PER COST - SHARING FORMULA DETER MINED BY THE TRIBUNAL. 3. 3.1. AS FAR AS THE ISSUE OF 'INDIRA SAGAR - DAM' IS CONCERNED, OBVIOUSLY THE ACCOUNTING TREATMENT GIVEN BY THE APPELLANT IS INCORRECT ON THE BASIS OF APPELLANT'S OWN LOGIC. HENCE WHILE GIVING APPEAL EFFECT, THE ASSESSING OFFICER IS DIRECTED NOT TO TREAT THOSE ASSETS AS BELONGING TO THE APPELLANT, WITH ITS DUE FOLLOW UP CONSEQUENCES LIKE WITHDRAWAL OF DEPRECIATION' THEREFORE, AS HELD IN APPEAL FOR EARLIER YEARS AND FOLLOWED BY MY PREDECESSORS AND A LSO BY ME FOR THE PRECEDING YEAR , T HE SAME FINDING SHALL HAVE TO BE APPLICABLE TO THIS YEAR AS WELL, AS THE ACTIVITIES HAVE BEEN CARRIED OUT AT THE SAME LEVEL AND IN THE SAME MANNER AS IN THOSE YEARS. IT IS THEREFORE, HELD THAT THE MAIN CANAL WAS USED FOR THE PURPOSE OF BUSINESS OF IRRIGATI ON DURING THE YEAR. THE APPELLANT WOULD BE ENTITLED FOR DEPRECIATION ON ITS BLOCK OF ASSETS, BOTH FOR POWER AND IRRIGATION PORTION, AS CLAIMED. THE RELEVANT GROUNDS OF APPEAL ARE THEREFORE, ALLOWED IN FAVOUR OF THE APPELLANT. 7 . DURIN G T H E COURSE OF APP ELLATE PROCEEDINGS BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE HAS SUPPORTED THE ORDER OF ASSESSING OFFICER. ON THE OTHER HAND , THE LD. COUNSEL HAS FURNISHED PAPER BOOK CONTAINING DETAILS AND INFORMATION FURNISHED TO ASSESSING OFFICER AND LD. CIT(A) AT THE TIME OF ASSESSMENT PROCEEDINGS AND APPE LLATE PROCEEDINGS. SHE HAS ALSO FURNISHED COPY OF JUDICIAL PRONOUNCEMENTS PERTAINING TO CASE OF THE ASSESSEE ITSELF. SHE HAS CONTENDED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE I TAT I N THE C ASE OF 1803/AHD/2016 ASSESSMENT YEAR 2012 - 13 AND IT A NO. 265/AHD/2015 ASSESSMENT YEAR 2011 - 12. 8 . WE HAVE HEARD THE BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD CAREFULLY AND NOTICED THAT IDENTICAL ISSUES OF BOTH THE GROUNDS OF APPEAL HAVE BEEN DECIDED BY THE CO - ORDINATE BENCH OF THE ITAT IN FAVOR OF THE ASSESSEE VIDE ITA NO. 1803/AHD/2016 ASSESSMENT YEAR 2012 - 13 IN THE CASE OF ASSESSEE ITSELF. THE RELEVANT PART OF THE DECISION IS REPRODUCED AS UNDER: - 4. WE HAVE CAREFULLY CONSIDERED THE ORDER OF THE LD. CIT(A). WE FIND FORCE IN THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE. THESE TWO ISSUES HAVE BEEN CONSIDERED BY THE CO - ORDINATE BENCHES OF THIS TRIBUNAL IN ASSESSEE S OWN CASE FILED BY THE REVENUE IN ITA NO.944/AHD/2011 FOR A. Y. 2007 - 08 VIDE ORDER DATED 05.09.2014, ITA NO.420 & CO NO.80/AHD/2012 FOR A.Y. 2008 - 09 VIDE ORDER DATED 29.04.2016, ITA NOS.717 & 911/AHD/2014 FOR A.Y. 2009 - 10 VIDE ORDER DATED 21.12.2016 & ITA NO.265/AHD/2015 FOR I.T.A NO. 3281 /AHD/20 16 A.Y. 2013 - 14 PAGE NO D CIT VS. M/S. SARDAR SAROVAR NARMADA NIGAM LTD. 6 A.Y. 2011 - 12 VIDE ORDER DATED 15.09.2017 AND DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 9. REGARDING COMMON EXPENDITURE INCLUDED IN INCIDENTAL EXPENDITURE , THE CO - ORDINATE BENCH OF THE ITAT VIDE ITA NO. 265/AHD/2015 DATED 11 TH SEP, 2017 HAS DECIDED THE IDENTICAL ISSUE IN FAVO UR OF THE ASSESSEE. RELEVANT PART OF THE DECISION OF THE CO - ORDINATE BENCH IS REPRODUCED AS UNDER: - 5. WE HAVE CAREFULLY CONSIDERED THE ORDER OF THE LD. CIT(A). WE FIND FORCE IN THE CONTENTION OF THE LD. COUNSEL. THE HON BLE HIGH COURT OF GUJARAT IN ASSE SSEE S OWN CASE IN TAX APPEAL NO. 449 OF 2004 WITH 477 OF 2004 WITH 479 OF 2004 TO 488 OF 2004 HAD THE OCCASION TO CONSIDER SIMILAR ISSUES AND HAS DECIDED THE ISSUES IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. THIS HAS BEEN FOLLOWED BY THE CO - ORDINA TE BENCH IN ITA NO. 717 AND 911/AHD/2014. RESPECTFULLY FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH OF THE ITAT AS SUPRA , WE DO NOT FIND ANY ERROR IN THE DECISION OF THE LD. CIT(A), THEREFORE, THIS GROUND APPEAL OF THE REVENUE IS ALSO DISMISSED. 1 0 . IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 16 - 10 - 201 8 SD/ - SD/ - ( MAHAVIR PRASAD ) ( AMARJIT SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER AH MEDABAD : DATED 16 /10 /2018 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,