BHARAT PETROLEUM CORPORATION LTD, V. JCIT SP RG I,

ITA 492/COCH/2007

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88474 (ITAT-MUMBAI)
• Duration Of Justice: 7 year(s) 9 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-03-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: I
• Assessment Year: 1997-1998
• Appeal Filed On: 28-05-2007
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: KISHAN VYAS
• Keywords: Business income; Revision of order; Depreciation; Additional depreciation; Period of limitation; Revised return; Revenue expenditure; Reassessment proceedings; Capital expenditure
• Section: 244A; 80G; 263; 10

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES I , MUMBAI . . , , , BEFORE SHRI N.K.BILLAIYA , A M AND SHRI AMIT SHUKLA , J M ITA NO. 492 / COCH /20 0 7 : ASST.YEAR 1997 - 98 ITA NO. 493 / COCH /20 07 : ASST.YEAR 1998 - 99 M/S.KOCHI REFINERIES (NOW MERGED WITH M/S.BHARAT PETROLEUM CORPORATION LTD.) AMBALAMUGAL ERNAKULAM 682 302 PAN : AABCC1084G. / VS. THE JOINT COMMISSIONER OF INCOME - TAX (ASSTT) SPECIAL RANGE 1 ERNAKULAM. ( / APPELLANT) ( / RESPONDENT) /APPELLANT BY : SHRI GIRISH DAVE /RESPONDENT BY : SHRI KISHAN VYAS [CIT - DR] / DATE OF HEARING : 0 5 .02.2015 / DATE OF PRONOUNCEMENT : 05 .03 .2015. / O R D E R PER AMIT SHUKLA (JM) : THE AFORESAID APPEALS HAVE BEEN FILED BY THE ASSESSEE AGAINST SEPARATE IMPUGNED ORDERS DATED 26.03.2007 AND 28.03.2007, PASSED BY THE COMMISSIONER OF INCOME - TAX , KOCHI (CIT) U/S 263, FOR THE ASSESSMENT YEARS 1997 - 98 AND 1998 - 99 RESPECTIVELY. SINCE THE ISSUES INVOLVED ARE COMMON, THEREFORE, THE SAME WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY WAY OF THIS CONSOLIDATED ORDER. WE WILL FIRST TAKE UP THE APPEAL FOR THE ASSESSMENT YEAR 1997 - 98, BEING ITA NO.492/COCH/2007, VIDE WHICH FOLLOWING GROUNDS HAVE BEEN RAISED: - ITA NO S . 492 / COCH /200 7 & 493 / COCH /20 07 M/S.KOCHI REFINERIES (BHARAT PETROLEUM CORPN. LTD.) 2 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX DATED 26.03.2007 IS ILLEGAL, ARBITRARY AND UNAUTHORIZED. 2. THE IMPUGNED ORDER DOES NOT ATTRACT THE PROVISIONS OF SECTION 263 OF THE INCOME TAX ACT, 1961 AS THE COMMISSIONER HAS EXERCISED HIS POWERS WHEN THE ASSESSING AUTHORITY HAS GIVEN EFFECT TO THE ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL. IT IS SUBMITTED THAT THEREFORE, INVOKING PROVISIONS OF SECTION 263 IS BAD IN LAW. 3. IT IS SUBMITTED THAT TO INVOKE SECTION 263, TWO CONDITIONS ARE TO BE SATISFIED VIZ. THAT THE ORDER PASSED BY THE ASSESSING AUTHORITY IS ERRONEOUS AND THAT THE SAME IS PREJUDICIAL TO INTE REST OF REVENUE. IT IS FURTHER SUBMITTED THAT BOTH THESE CONDITIONS MUST EXIST SIMULTANEOUSLY. IN THE PRESENT CASE, THE OFFICER HAS GIVEN EFFECT TO THE ORDER PASSED BY THE INCOME TAX APPELLATE TRIBUNAL WHICH HAS BEEN FOLLOWING ITS EARLIER ORDERS. IT IS SUB MITTED THAT THE SUBJECT ORDERS OF ITAT HAVE BECOME FINAL AS THERE IS NO APPEAL FILED AGAINST THE SAID ORDER AND THEREFORE, THE IMPUGNED ORDER IS BAD IN LAW. 4. IT IS FURTHER SUBMITTED THAT FOR THE PREVIOUS YEARS THE OFFICER HAS GIVEN EFFECT TO THE ORDERS PASSED BY THE TRIBUNAL AND THE SAME HAS BECOME FINAL AND THEREFORE, THERE IS NO REASON FOR INVOKING SECTION 263. 2. BESIDES THIS, THE ASSESSEE HAS ALSO RAISED FOLLOWING AS ADDITIONAL GROUNDS CHALLENGING THE VALIDITY OF THE ORDER U/S 263, ON THE GROUND O F LIMITATION : - 1.1 THE COMMISSIONER OF INCOME - TAX HAS ERRED IN PASSING THE IMPUGNED ORDER U/S 263 OF THE INCOME - TAX ACT, 1961 BEYOND THE TIME LIMIT SPECIFIED IN SECTION 263 OF THE INCOME - TAX ACT, 1961. ITA NO S . 492 / COCH /200 7 & 493 / COCH /20 07 M/S.KOCHI REFINERIES (BHARAT PETROLEUM CORPN. LTD.) 3 1.2 THE APPELLANT SUBMITS THAT CONSIDERING THE FACTS AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING ON THE SUBJECT THE IMPUGNED ORDER PASSED BY THE COMMISSIONER OF INCOME - TAX U/S 263 OF THE INCOME - TAX ACT, 1961 IS TIME BARRED AND HENCE OUGHT TO BE STRUCK DOWN AS BAD - IN - LAW AND VOID AB - INITIO. 1 .3 THE APPELLANT SUBMITS THAT THE IMPUGNED ORDER PASSED BY THE COMMISSIONER OF INCOME - TAX U/S 263 OF THE INCOME - TAX ACT, 1961 SHOULD BE STRUCK DOWN. 3. THE BRIEF FACTS OF THE CASE ARE THAT , THE ASSESSEE IS A PUBLIC SECTOR UNDERTAKING, ENGAGED IN THE BUSI NESS OF REFINING OF CRUDE OIL TO PRODUCE VARIOUS PETROLEUM PRODUCTS. THE COMPANY HAS FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 1997 - 98 ON 28.11.1997 AT AN INCOME OF RS.34,10,92,480. THE SAID RETURN OF INCOME WAS REVISED ON 31.03.1999 , DISCLOSING T AXABLE INCOME AS PER SECTION 115JA AT RS.32,67,85,616. THE BUSINESS INCOME WAS SHOWN AT RS.34,85,46,038. FROM THE SAID INCOME, THE ASSESSEE HAD CLAIMED DEDUCTION U/S 80 - I ON AROMATIC UNIT AT RS.3,82,39,669 AND DEDUCTION U/S 80 - IA ON CAPACITY EXPANSION PROJ ECT ( CEP ). THIS ALSO INCLUDED CLAIM OF DEDUCTION FOR CAPTIVE POWER PLANT (CPP) AT RS.3,43,11,242. IN THE ASSESSMENT ORDER PASSED U/S 143(3), VIDE ORDER DATED 23.03.2000, THE ASSESSEE S BUSINESS INCOME AFTER DISALLOWING VARIOUS EXPENSES AND INCLUDING THE OC C RECEIPTS AS INCOME, WAS DETERMINED AT RS.192,84,13,774. AFTER DETERMINING THE GROSS TOTAL INCOME AT RS.196,02,06,836, WHICH INCLUDED INCOME FROM OTHER SOURCES ALSO, THE ASSESSING OFFICER (AO) ALLOWED DEDUCTION U/S 80 - I ON AROMATIC UNIT AT RS.3,82,39,669, WHICH WAS THE SAME AS CLA IMED BY THE ASSESSEE. SO FAR AS DEDUCTION U/S 80 - IA ON CEP UNIT, THE AO DETERMINED THE INCOME RELATING TO CEP UNIT AT RS.69,63,50,214, AND THEREBY ALLOWED DEDUCTION U/S 80 - IA AT ITA NO S . 492 / COCH /200 7 & 493 / COCH /20 07 M/S.KOCHI REFINERIES (BHARAT PETROLEUM CORPN. LTD.) 4 30%, WHICH WORKED OUT AT RS.20,89,05,064. SO FAR AS CLAIM OF DEDUCTION U/S 80 - IA FOR CPP UNIT, THE SAME WAS REJECTED BY THE AO. THUS, THE CLAIM OF DEDUCTION U/S 80 - IA GOT INCREASED DUE TO ENHANCEMENT OF BUSINESS INCOME BY THE AO. THE SAID ASSESSMENT ORDER WAS CHALLENGED IN THE FIRST APPEAL , WHEREIN THE LEARNED CIT(A) VIDE ORDER DATE D 28.03.2001 HA D PARTLY ALLOWED THE ASSESSEE S APPEAL . IN THE SECOND APPEAL BEFORE THE TRIBUNAL BY THE ASSESSEE, THE TRIBUNAL VIDE ORDER DATED 25.11.2004 ALLOWED MOST OF THE POINTS SPECIFICALLY , RELATING TO DISALLOWANCE OF VARIOUS EXPENDITURE AND EXCLUSION OF OCC RECEIPTS . THE AO VIDE ORDER DATED 28.02.2005 GAVE EFFECT TO THE ITAT ORDER DATED 25.11.2004, WHEREBY THE TOTAL INCOME WAS DETERMINED AT RS.11,33,87,900 AFTER ALLOWING THE DEDUCTION U/S 80 - I AND 80 - IA. THE WORKING OF THE AO FOR ARRIVING AT THE TOTAL INCOME AND DEDUCTIONS UNDER CHAPTER VI - A WAS AS UNDER: - BUSINESS INCOME AS PER ORDER DATED 8 - 6 - 2001 [CIT(A)] RS.189,36,96,537 LESS : REDUCTION BY ITAT: (1) DISALLOWANCE OF CAPITAL EXPENDITURE ON CURRENT REPAIRS ALLOWED AS REVENUE EXPENDITURE. RS. 76,97,392 (2) EXPENDITURE ON FEASIBILITY STUDIES ALLOWED AS REVENUE EXPENDITURE. RS. 8,50,000 (3) RECEIPTS FOR OIL CO - ORDINATION COMMITTEE EXCLUDED. RS. 145,96,00,000 (4) ADDL.AMOUNT TO BE ALLOWED ON EX PENDITURE ON VISBREAKER UNITS. RS. 25,13,70,150 ITA NO S . 492 / COCH /200 7 & 493 / COCH /20 07 M/S.KOCHI REFINERIES (BHARAT PETROLEUM CORPN. LTD.) 5 (5) DEPRECIATION ON BOILER CONNECTED FACILITIES. RS. 3,43,00,176 (6) OVERHEAD EXPENDITURE ALLOWED AS REVENUE RS. 38,36,941 (7) DISALLOWANCE OF PROVISIONS FOR GRATUITY DEBIT ED. RS. 5,07,423 ----------------------- RS.175,81,62,082 ------------------------ BALANCE BUSINESS IN COME RS. 13,55,34,455 INCOME FROM OTHER SOURCES RS. 3,17,93,062 ------------------------ GROSS TOTAL INCOME RS. 16,73,27,517 LESS : DEDUCTION UNDER CHAPTER VI - A (1) DEDUCTION U/S 80G RS.10,17,500 (2) DEDUCTION U/S.80 - IA IN RESPECT OF CEP BUSINESS INCOME RS.13,55,34,455 RATIO 0.3611 INCOME RELATING TO CEP RS. 4,89,41,492 30% TH EREO F RS. 1,46,82,497 (3) DEDUCTION U/S 80 - I ON AROMATIC UNIT RS.3,82,39,669 -------------------- RS. 5,39,39,616 ---------------------- REVISED TOTAL INCOME RS.11,33,87,900 ============= ITA NO S . 492 / COCH /200 7 & 493 / COCH /20 07 M/S.KOCHI REFINERIES (BHARAT PETROLEUM CORPN. LTD.) 6 4. FROM THE ABOVE, IT IS SEEN THAT SO FAR AS THE DEDUCTION U/S 80 - I ON AROMATIC UNIT, THERE IS NO CHANGE IN THE FIGURE. HOWEVER, SO FAR AS DEDUCTION U/S 80 - IA IN RESPECT OF CEP UNIT, THE DEDUCTION U/S 80 - IA HAS BEEN REDUCED TO RS.1,46,82,497, BECAUSE THE PROF IT RELATING TO CEP WAS REDUCED TO RS.4,89,41,492, AS AGAINST DETERMINED BY THE AO IN THE ORIGINAL ASSESSMENT ORDER AT RS.69,63,50,214. 5. THEREAFTER , THE LEARNED CIT UNDER REVISIONARY JURISDICTION U/S 263, HAS SOUGHT TO SET ASIDE THE ORDER DATED 25.11.2004 ON THE GROUND THAT THE AGGREGATE PROFIT OF ELIGIBLE UNIT, I.E., ARU AND CEP IS MORE THAN THE GROSS BUSINESS INCOME, WHICH IS IN VIOLATION OF THE PRO VISIONS OF SECTION 80AB AND SECTION 80B(5). THE LEARNED CIT OBSERVED THAT, THE AGGREGATE PROFIT OF THE ELIGIBLE UNIT S HAS BEEN WORKED OUT AT RS.20,19,00,172 AS AGAINST THE BUSINESS INCOME DETERMINED AT RS.13,55,34,455. THE ELIGIBLE DEDUCTION WHICH SHOULD H AVE BEEN WORKED OUT SH OULD BE RS. 3,63,30,688 AS AGAINST RS.5,29,22,166 (3,82,39,669 + 1,46,82,497), WHICH HAS BEEN ALLOWED BY THE AO. AFTER CONSIDERING THE ASSESSEE S SUBMISSION, THE LEARNED CIT HELD THAT THE ASSESSEE S CLAIM FOR 25% OF THE ARU AS DEDUCTIO N U/S 80 - I CANNOT BE ALLOWED BECAUSE THE PROVISIONS OF SECTION 80A(2), 80AB AND 80B(5) , PRESCRIBE THAT THE DEDUCTION UNDER CHAPTER VI - A HAS TO BE COMPUTED IN RELATION TO THE NET INCOME OF THE ELIGIBLE UNIT INCLUDED IN THE GROSS TOTAL INCOME AND AGGREGATE A MOUNT OF DEDUCTION UNDER CHAPTER VI - A SHALL NOT IN ANY CASE EXCEED THE GROSS TOTAL INCOME OF THE ASSESSEE. ACCORDINGLY, THE AOS ORDER DATED 28.02.2005 GIVING EFFECT TO THE ITAT ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE AS THE DEDUCT IONS UNDER CHAPTER VI - A HAD EXCEEDED THE GROSS TOTAL INCOME . THEREFORE, HE SET ASIDE THE SAID ITA NO S . 492 / COCH /200 7 & 493 / COCH /20 07 M/S.KOCHI REFINERIES (BHARAT PETROLEUM CORPN. LTD.) 7 ORDER WITH A DIRECTION TO REDO THE SAME, RESTRICTING THE DEDUCTION U/S 80 - I TO THE BUSINESS INCOME OF RS.13,55,34,455 . HE FURTHER HELD THAT , SINCE THE ASSESSEE IT SELF HAS SUBMITTED THAT PROFIT OF THE CEP IS IN NEGATIVE, THEREFORE, NO DEDUCTION IS TO BE COMPUTED U/S 80 - IA FOR CEP UNIT FOR THE CURRENT YEAR. 6. BEFORE US, THE LEARNED COUNSEL SHRI GIRISH DAVE, SUBMITTED THAT , HERE IN THIS CASE THE TIME LIMIT TO INITI ATE THE ACTION U/S 263 WOULD BEGIN FROM THE DATE OF COMPLETING THE ORIGINAL ASSESSMENT ORDER, WHICH IS DATED 23.03.2000 AND NOT THE ORDER GIVING EFFECT TO THE ITAT ORDER, BECAUSE NOTHING HAS BEEN DECIDED BY THE AO REGARDING DEDUCTION U/S 80 - IA IN HIS ORDER GIVING EFFECT TO TRIBUNAL ORDER . THE VARIATION IN THE CLAIM OF DEDUCTION U/S 80 - IA HAS OCCURRED DUE TO ENHANCEMENT OF BUSINESS INCOME AT VARIOUS STAGES. IF AT ALL, THE CLAIM OF DEDUCTION CAN BE SAID TO BE ERRONEOUS, THEN THE SAME SHOULD RECKONED OR S AID TO HAVE ARISEN IN THE ORIGINAL ASSESSMENT ORDER DATED 23.03.2000. HE SUBMITTED THAT, THERE IS ANOTHER ANGLE IN CLAIM OF DEDUCTION U/S 80 - IA , THAT , THE ASSESSEE HAS ALSO MADE A CLAIM FOR DEDUCTION U/S 80 - IA WITH REGARD TO CAPTIVE POWER PLANT (CPP), WHIC H WA S INCLUDED IN THE C APITAL E XPANSION P ROJECT (CEP) . IN THE ORIGINAL ASSESSMENT ORDER, THE AO HAS SPECIFICALLY DISALLOWED THE CLAIM OF DEDUCTION U/S 80 - IA WITH REGARD TO CPP. THIS CLAIM FOR DEDUCTION HAS ULTIMATELY BEEN ALLOWED BY THE TRIBUNAL FOLLOWING THE EARLIER YEAR TRIBUNAL ORDERS, WHEREIN DEDUCTION U/S 80 - IA ON CPP HAS BEEN ALLOWED. ONCE THE ISSUE OF SECTION 80 - IA HAS BEEN TOUCHED UPON BY THE TRIBUNAL, THEN THE ENTIRE ORDER OF THE AO MERGES WITH THE ORDER OF THE TRIBUNAL. THE CIT NOW IN REVISIONARY JURISDICTION U/S 263, CANNOT TOUCH UPON THE COMPUTATION OF DEDUCTION U/S 80 - IA AT ALL. THIS PROPOSITION IS COVERED BY THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF CIT V. ALAGENDRAN FINANCE LIMITED ITA NO S . 492 / COCH /200 7 & 493 / COCH /20 07 M/S.KOCHI REFINERIES (BHARAT PETROLEUM CORPN. LTD.) 8 [(2007) 293 ITR 1 (SC)], WHEREIN THE HON BLE AP EX COURT HELD THAT THE CIT, WHILE EXERCISING ITS REVISIONARY JURISDICTION, CAN REOPEN THE ORDER OF ASSESSMENT ONLY IN RELATION TO AN ISSUE WHICH WAS NOT THE SUBJECT MATTER OF REASSESSMENT PROCEEDINGS. THE PERIOD OF LIMITATION PROVIDED U/S 263(2) , THEN, WOULD BEGIN TO RUN FROM THE DATE OF ORDER OF ORIGINAL ASSESSMENT ORDER AND NOT FROM THE ORDER OF THE REASSESSMENT. HERE IN THIS CASE, THE CLAIM OF DEDUCTION U/S 80 - IA IS NOT A SUBJECT MATTER OF ORDER GIVING EFFECT BY THE AO, BECAUSE HE HAS MERELY GIVING E FFECT TO THE ORDER OF THE TRIBUNAL. IF AT ALL, THE LEARNED CIT WANTED TO RAISE THE ISSUE OF CLAIM OF DEDUCTION U/S 80 - IA, THE SAME SHOULD HAVE BEEN IN REFERENCE TO THE ORIGINAL ASSESSMENT ORDER, WHICH HAS BECOME TIME BARRED. EVEN THERE ALSO, HE CANNOT DIST URB THE FINDING OF THE AO BECAUSE THE COMPUTATION OF BUSINESS INCOME ITSELF WAS VARYING DUE TO DISALLOWANCE S AND ADDITIONS, WHICH WERE SUBJECT MATTER OF APPEAL BEFORE THE CIT(A) AND ITAT. THUS, ON THE FACE OF IT, THE ORDER OF THE CIT U/S 263 SHOULD BE QUAS HED, FIRSTLY, BEING BARRED BY LIMITATION, AND SECONDLY, HE CANNOT SET ASIDE OR DISTURB THE ORDER WHICH IS MERELY GIVING EFFECT TO THE ITAT ORDER . 7. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE, STRONGLY RELIED UPON THE ORDER OF THE CIT AND SUBMITTED THAT THE AO, WHILE GIVING EFFECT TO THE ORDER OF THE TRIBUNAL, WAS REQUIRED TO DETERMINE THE DEDUCTION UNDER CHAPTER VI - A IN ACCORDANCE WITH THE PROVISIONS OF LAW, I.E., DEDUCTION HAS TO BE COMPUTED IN RELATION TO THE NET INCOME OF THE ELIGIBLE U NIT INCLUDED IN THE GROSS TOTAL INCOME AND AGGREGATE AMOUNT OF DEDUCTION UNDER CHAPTER VI - A CANNOT EXCEED THE GROSS TOTAL INCOME OF THE ASSESSEE. ITA NO S . 492 / COCH /200 7 & 493 / COCH /20 07 M/S.KOCHI REFINERIES (BHARAT PETROLEUM CORPN. LTD.) 9 8. WE HAVE HEARD THE RIVAL SUBMISSIONS, AND PERUSED THE RELEVANT FACTS WHICH ARE CULLED OUT FROM THE MATERIAL PLACED ON RECORD. THE SUBJECT MATTER OF IMPUGNED ORDER U/S 263 , IS SETTING ASIDE THE ORDER PASSED BY AO GIVING EFFECT TO THE TRIBUNAL ORDER. THE SAID ORDER HAS BEEN HELD TO BE ERRONEOUS INSOFAR AS PREJUDICIAL TO THE INTEREST OF THE REVENUE BY THE LEARNED CIT ON THE GROUND THAT, THE DEDUCTION UNDER CHAPTER VI - A SHOULD BE RESTRICTED TO THE BUSINESS INCOME OF THE ASSESSEE FINALLY DETERMINED AND IT CANNOT EXCEED THE GROSS TOTAL INCOME OF THE ASSESSEE . THE CASE OF MR.DAVE BEFORE US IS THAT, THE IMPUGNED ORDER I S BARRED BY LIMITATION , BECAUSE THE TIME LIMIT TO INITIATE ACTION U/S 263 IN THIS CASE WOULD BEGIN FROM THE DATE OF COMPLETING OF THE ORIGINAL ASSESSMENT ORDER, I.E. 23.03.2000 AND NOT THE ORDER GIVING EFFECT TO THE TRIBUNAL ORDER . THE REASON BEING THAT, THE LATER ORDER HAD NOTHING TO DO WITH THE COMPUTATION OF INCOME OR DISALLOWING OR ALLOWING OF CLAIM OF DEDUCTION UNDER CHAPTER VI - A. FROM THE FACTS AS DISCUSSED ABOVE, IT IS SEEN THAT THE DEDUCTION UNDER CHAPTER VIA AND MORE SPEC IFICALLY DEDUCTION U/S 80 - IA WITH REGARD TO CEP UNIT HAVE BEEN VARIED RIGHT FROM THE STAGE OF FILING OF REVISED RETURN TO THE STAGE OF ITAT ORDER , DUE TO ENHANCEMENT AND REDUCTION OF THE GROSS TOTAL INCOME. IN THE ORIGINAL ASSESSMENT ORDER, THE AO HAS DETE RMINED THE GROSS TOTAL INCOME AND DEDUCTIONS UNDER CHAPTER VI - A IN THE FOLLOWING MANNER: - GROSS TOTAL INCOME: ---------------------------- (1) BUSINESS RS.1,92,84,13,774 (2) OTHER SOURCES RS. 3,17,93,062 ------------------------ - TOTAL INCOME RS.1,96,02,06,836 LESS : DEDUCTION U/S 80G AS PER CLAIM RS. 10,17,500 ------------------------- RS.1,95,91,89,336 ITA NO S . 492 / COCH /200 7 & 493 / COCH /20 07 M/S.KOCHI REFINERIES (BHARAT PETROLEUM CORPN. LTD.) 10 DEDUCTION U/S 80 - IA ON AROMATIC UNIT RS. 3,82,39,669 ------------------------- BALANCE INCOME RS.1,92,09,49,667 LESS : DEDUCTION U/S 80 - IA ------------------------------------- CAPACITY EXPANSION PROJECT: BUSINESS INCOME RS.1,92,84,13,774 RATIO OF BLOCK OF ASSETS TO NEW UNIT TO GROSS BLOCK OF ASSET. - 0.3611 INCOME RELATING TO CEP RS. 9,63,50,214 --------------------------- DEDUCTION U/S 80 - IA 30% OF ABOVE RS. 20,89,05,064 -------------------------- BALANCED TAXABLE INCOME RS.1,71,20,44,603 ============ == TOTAL INCOME ROUNDED OFF TO RS.1,71,20,44,600 =============== 8.1 SUCH A GROSS TOTAL INCOME WAS DETERMINED DUE TO DISALLOWANCE OF VARIOUS EXPENSES MADE BY THE AO. AFTER GIVING EFFECT TO THE ITAT ORDER, THE GROSS TOTAL INCOME HAS BEEN DETERMINED AND DEDUCTION UNDER CHAPTER VI - A HAS TO BE ALLOWED PROPORTIONATELY IN ACCORDANCE WITH PROVISIONS OF LAW . WHAT THE LEARNED CIT HAS OBSERVED IN HIS SHOW CAUSE NOTICE AND ALSO IN THE IMPUGNED ORDER IS THAT , ONCE THE ASSESSEE S BUSINESS INC OME HAS BEEN FINALLY DETERMINED, THEN THE DEDUCTIONS UNDER CHAPTER VI - A, WHICH IS TO BE ALLOWED, SHOULD BE IN ACCORDANCE WITH THE PROVISIONS OF SECTIONS 80A(2), 80AB AND 80B(5). HE HAS NOT GIVEN ANY DIRECTION TO EITHER RE - EXAMINE THE ISSUE OF DEDUCTION OR DETERMINATION OF PROFITS OF ELIGIBLE UNITS OR BUSINESS INCOME. HE HAS SIMPLY POINTED OUT TO THE AO THAT THE AGGREGATE PROFITS OF THE ELIGIBLE UNITS AFTER THE DETERMINATION FROM THE STAGE OF THE TRIBUNAL HAS ITA NO S . 492 / COCH /200 7 & 493 / COCH /20 07 M/S.KOCHI REFINERIES (BHARAT PETROLEUM CORPN. LTD.) 11 EXC EEDED THE TOTAL BUSINESS INCOME, T HE DEDUCTION S UNDER CHAPTER VIA TOO HAVE TO BE IN CONSONANCE WITH SUCH INCOME. WE DO NOT FIND ANY INFIRMITY IN SUCH DIRECTION OF THE CIT EITHER IN LAW OR IN FACTS. ONE VERY IMPORTANT FACT WHICH IS EVIDENT FROM THE IMPUGNED ORDER IS THAT , THE ASSESSEE ITSELF HAS ADMITTED THAT IN THE WAKE OF ITAT ORDER AND THE COMPUTATION OF INCOME THEREOF, THE PROFIT OF CEP UNIT IS IN NEGATIVE, AND THEREFORE, NO DEDUCTION IS TO BE COMPUTED U/S 80 - IA FOR CEP FOR THE CURRENT YEAR. IF THE AO IS GIVING EFFECT TO T HE APPELLATE ORDER S AND DETERMINES THE INCOME, THEN HE HAS TO COMPLY WITH THE PROVISIONS OF THE ACT UNLESS THERE IS A SPECIFIC DIRECTION BY THE APPELLATE AUTHORITY. HERE IN THIS CASE, THE ASSESSEE S CLAIM FOR DEDUCTION U/S 80 - I WITH REGARD TO CPP UNIT, WHI CH WAS DISALLOWED BY THE AO, HAS BEEN FINALLY ALLOWED BY THE TRIBUNAL. NOW THE AO HAS TO COMPUTE THE DEDUCTION U/S 80 - I OF SUCH UNIT S . IT HAS BEEN ADMITTED THAT THE CPP IS A PART OF CEP AND THE DEDUCTION U/S 80 - I IS INCLUDED IN THE OVERALL CLAIM OF DEDUCTI ON OF CEP UNIT. THEREFORE, THE AO HAS TO DETERMINE THE DEDUCTION U/S 80 - I AND SUCH A DEDUCTION HAS TO BE IN ACCORDANCE WITH THE PROVISIONS OF SECTION 80A(2) READ WITH SECTIONS 80AB AND 80B(5). ACCORDINGLY, WE AFFIRM THE ORDER OF THE LEARNED CIT. 8.2 NOW COMING TO THE ARGUMENT OF THE LEARNED COUNSEL, SHRI GIRISH DAVE, THAT THE IMPUGNED PROCEEDINGS U/S 263 IS BARRED BY LIMITATION AND THE CASE OF THE ASSESSEE IS COVERED BY THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF CIT V. ALAGENDRAN FINANCE LIMITED (SUPRA), WE FIND THAT FIRST OF ALL , THE LEARNED CIT HAS NOT TRANSGRESSED UPON THE ISSUE OF DETERMINATION OF EITHER THE PROFIT OF ELIGIBLE UNIT NOR THE ALLOWABILITY OF DEDUCTION U/S 80 - I / 80 - IA. HE HAS SIMPLY REQUIRED THE AO TO COMPUTE THE DEDUCTIO N IN ACCORDANCE ITA NO S . 492 / COCH /200 7 & 493 / COCH /20 07 M/S.KOCHI REFINERIES (BHARAT PETROLEUM CORPN. LTD.) 12 WITH CHAPTER VI - A. HE HAS NOT TOUCHED UPON ANY PART OF THE ORIGINAL ASSESSMENT ORDER SO AS TO HOLD IT TO BE ERRONEOUS IN SO FAR AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. HAD THE LEARNED CIT TOUCHED UPON ANY ISSUE, WHICH HAS BEEN RAISED IN THE ORIGINAL ASSESSMENT ORDER OR IS PART OF THE ORIGINAL ASSESSMENT ORDER, THEN DEFINITELY THE PERIOD OF LIMITATION WILL BE COUNTED FROM THAT DATE . AS DISCUSSED ABOVE, HERE IN THIS CASE, IT HAS NOT BEEN DISPUTED THAT PRIOR TO THE PASSING OF TRIBUNAL ORD ER, THE GROSS TOTAL INCOME AND BUSINESS INCOME HAD FAR EXCEEDED THE PROFITS OF THE ELIGIBLE UNITS. HENCE, THERE WAS NO OCCASION BY ANY OF THE LOWER AUTHORITIES TO TOUCH UPON THE ISSUE OF SECTION 80A(2) OR 80AB OR 80B(5). ITS IS ONLY WHEN THE EFFECT OF THE ITAT ORDER WAS GIVEN, THE BUSINESS INCOME GOT SUBSTANTIALLY REDUCED AND ACCORDINGLY THE DEDUCTIONS U/S 80 - I 80 - IA HAS TO BE IN CONSONANCE OF SUCH INCOME. THE LEARNED CIT HAS NEITHER RAKED ANY ISSUE PERTAINING TO ORIGINAL ASSESSMENT ORDER NOR ANY ISSUE WHI CH HAS MERGED WITH THE TRIBUNAL ORDER. THEREFORE, ON THE FACTS, NEITHER THE DECISION OF THE HON BLE SUPREME COURT IS APPLICABLE, NOR IT CAN BE HELD THAT THE IMPUGNED PROCEEDINGS U/S 263 IS BARRED BY LIMITATION. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESS EE IS DISMISSED AND THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 1997 - 98 AGAINST THE IMPUGNED ORDER IS DISMISSED. 9 . NOW WE WILL TAKE UP THE APPEAL FOR ASSESSMENT YEAR 1998 - 99 (ITA NO.493/COCH/2007). IN THIS YEAR ALSO, THE ASSESSEE HAS RAISED EXACT LY SIMILAR GROUNDS WHICH HAVE BEEN RAISED IN THE APPEAL FOR THE ASSESSMENT YEAR 1997 - 98 . HOWEVER, IN THIS YEAR, THE SUBJECT MATTER OF DISPUTE IN THE IMPUGNED ORDER PASSED U/S 263, IS WITH REGARD TO QUANTUM AND COMPUTATION OF DEDUCTION U/S 80 - I FOR CPP . IN THIS YEAR, THE ASSESSEE HAS FILED ITS RETURN OF ITA NO S . 492 / COCH /200 7 & 493 / COCH /20 07 M/S.KOCHI REFINERIES (BHARAT PETROLEUM CORPN. LTD.) 13 INCOME ON 30.11.1998 AT AN INCOME OF RS.201,78,54,234. SUBSEQUENTLY, SUCH A RETURN WAS REVISED ON 30.03.2000 AT AN INCOME OF RS.202,29,74,910. THE ASSESSMENT WAS COMPLETED U/S 143(3), VIDE ORDER DATED 30 .11.2000 , AT AN INCOME OF RS.262,64,52,050 AFTER ALLOWING DEDUCTION U/S 80 - IA ON CPP AT RS.31,20,05,772. IN THIS YEAR ALSO, THE AO HAS DISALLOWED THE CLAIM OF DEDUCTION U/S 80 - I IN RESPECT OF CPP. THE TRIBUNAL VIDE ORDER DATED 25.11.2004, ALLOWED THE ASSES SEE S CLAIM FOR DEDUCTION U/S 80 - I FOR CPP UNIT ON THE GROUND THAT , THE TRIBUNAL IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 1996 - 97 AND 1997 - 98 HAS ALLOWED THE SIMILAR DEDUCTION. ACCORDINGLY, THE AO WAS DIRECTED TO GRANT THE BENEFIT IN ACCORDANCE WITH THE LAW. IN THE ORDER GIVING EFFECT TO THE ITAT ORDER, THE AO HAS COMPUTED THE INCOME IN THE FOLLOWING MANNER: - BUSINESS INCOME AS PER ORDER DATED 8 - 3 - 200 2 BEFORE DEDUCTION UNDER CHAPTER VI - A RS.1 38 , 35, 6 3 , 753 LESS : REDUCTION BY ITAT: (1) DISA LLOWANCE OF CAPITAL EXPENDITURE ON CURRENT REPAIRS ALLOWED AS REVENUE EXPENDITURE. RS. 91,06,235 (2) EXPENDITURE ON FEASIBILITY STUDIES ALLOWED AS REVENUE EXPENDITURE. RS. 4,83,500 (3) RECEIPTS FOR OIL CO - ORDINATION C OMMITTEE EXCLUDED. RS. 47,86,03,000 (4) ADDL. DEPRECIATION ON PIPING, HEAT EXCHANGER ETC. RS. 2,04,59,587 ( 5 ) DISALLOWANCE OF PROJECTS CONSULTANCY/TECHNICAL ASSISTANCE FEE DELETED. RS. 1,37,33,625 ITA NO S . 492 / COCH /200 7 & 493 / COCH /20 07 M/S.KOCHI REFINERIES (BHARAT PETROLEUM CORPN. LTD.) 14 ( 6 ) INCOME FROM PETROLEUM INDIA INTERNATIONAL EXCLUDED RS. 86,00,000 (7 ) INTEREST U/S 244A OFFERED FOR 1997 - 98 EXCLUDED RS. 29,61,145 ( 8 ) ADDL. DEPRECIATION ON MODVAT REVERSAL . RS. 17,58,606 ---- ----------------------- RS. 53,57,05,698 ------------------------ BALANCE RS. 84,78,58,055 ADD : (1) RECEIPTS FROM OIL CO - ORDINATION COMMITTEE EXCLUDED FROM 1997 - 98 ASSESSABLE FOR THE YEAR RS.145,96,00,000 (2) 50% CLAIM OF DEPR ON VISBREAKER REVAMP UNIT WITHDRAWN, CONSEQUENT TO ITAT S ORDER FOR 97 - 98 RS. 17,33,61,514 (3) DEPRECIATION CLAIMED ON AAWMS DISALLOWED RS. 70,56,740 ------------------------- RS.164,00,18,254 ------------------------- TOTAL BUSINESS INCOME RS.248,78,76,309 ADD : INCOME FROM OTHER SOURCES RS. 5,83,82,918 ------------------------- GROSS TOTAL INCOME RS.254,62,59,227 LESS : DEDUCTION UNDER CHAPTER VI - A (1) DEDUCTION U/S 80G RS. 67,000 (2) DEDUCTION U/S.80 - IA IN RES PECT OF CEP BUSINESS INCOME RS. 248,78,76,309 RATIO 0.3611 ITA NO S . 492 / COCH /200 7 & 493 / COCH /20 07 M/S.KOCHI REFINERIES (BHARAT PETROLEUM CORPN. LTD.) 15 INCOME RELATING TO CEP RS. 89,83,72,135 30% TH EREOF RS. 26,95,11,640 (3) DEDUCTION U/S 80 - I I N RESPECT OF CPP BUSINESS INCOME RS. 248,78,76,309 LESS: PROFIT OF ARURS. 19,77,78,027 -------------------- ---- BALANCE RS.229,00,98,282 RATIO 0.6122 TAXABLE INCOME OF CPP RS. 14,01,99,816 30% THEREOF RS. 4,20,59,945 ------------------------ RS. 31,16,38,585 ---------------------- --- REVISED TOTAL INCOME RS. 223,46,20,640 ============= = 1 0 . THUS, THE PROFIT OF CPP WAS ARRIVED AT RS.14,01,99,816 AND DEDUCTION U/S 80 - I AT RS.4,20,59,945. THE AFORESAID ORDER OF THE AO DATED 01.03.2005 GIVING EFFECT TO THE ITAT ORDER , IS THE SUBJECT MATTER OF REVISION U/S 263 BY THE CIT. THE CASE OF THE CIT IS THAT , MAJOR PART OF THE ASSESSEE S CLAIM FOR DEPRECIATION ON ASSETS INSTALLED IN CPP HAS BEEN ALLOWED BY THE TRIBUNAL FOR THIS YEAR AS WELL AS FOR THE EARLIER YEA RS. AS A RESULT, THE COMPUTATION OF PROFIT IN THE RATIO OF ASSET IS NOT A CORRECT METHOD. THE PROFIT DERIVED FROM THE GENERATION OF POWER IN CPP CAN , THEREFORE BE FOUND OUT BY DEDUCTING THE EXPENSES INCURRED IN RELATION TO C PP UNIT, WHICH CAN BE FOLLOWING: - (I) DEPRECIATION ON ALL ASSETS INCLUDING DEPRECIATION ON ASSETS CLAIMED AT 100%. (II) FINANCE CHARGES INCURRED ON ACQUISITION OF ASSETS FOR CPP UNITS. ITA NO S . 492 / COCH /200 7 & 493 / COCH /20 07 M/S.KOCHI REFINERIES (BHARAT PETROLEUM CORPN. LTD.) 16 (III) COST OF REPAIRS AND MAINTENANCE OF ASSETS INCLUDING CAPITALIZED ITEMS CLAIMED AS REVENUE IN ACCOUNT. (IV) PERSONNEL EXPENSES OF WORKERS AND DIRECT EXPENSES. (V) PROPORTIONATE MANAGERIAL AND OVERHEAD EXPENSES. 1 0 . 1 HE HELD THAT THE METHOD OF COMPUTING THE PROFIT OF CPP UNIT FOR THE PURPOSE OF GRANTING DEDUCTION U/S 80 - I IN THE ORDER GIVI NG EFFECT IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. AFTER CONSIDERING THE ASSESSEE S SUBMISSION AND ON DETAILED REASONING , HE HELD THAT THE ASSESSEE S CLAIM THAT , TRIBUNAL HAS ACCEPTED THE METHOD OF COMPUTATION OF DEDUCTION U/S 80 - I ON THE P ROFIT OF CPP, IS NOT CORRECT. THE ONLY DIRECTION OF THE TRIBUNAL WAS TO ALLOW THE DEDUCTION U/S 80 - I IN ACCORDANCE WITH THE LAW. THE TRIBUNAL DID NOT CONSIDER THE ISSUE WHETHER THE OCC RECEIPTS OF RS.145.96 CRORE SHOULD BE INCLUDED IN THE COMPUTATION OF DE DUCTION U/S 80 - IA IN RESPECT OF CEP UNIT. ACCORDINGLY, HE DIRECTED THE AO TO RECOMPUTE THE DEDUCTION U/S 80 - I BY COMPUTING THE PROFITS OF THE CPP BY WORKING OUT THE TOTAL UNITS OF POWER GENERATED AND PURCHASED BY CPP , LESS EXPENSES INCURRED IN RELATION TO CPP UNIT. 1 1 . BEFORE US, THE LEARNED COUNSEL SHRI GIRISH DAVE, SUBMITTED THAT THE CLAIM OF DEDUCTION U/S 80 - IA WITH REGARD TO THE CPP WAS DISALLOWED BY THE AO. FINALLY, THE TRIBUNAL VIDE ORDER DATED 25.11.2004 HAS ALLOWED THE CLAIM OF DEDUCTION U/S 80 - I. THEREFORE, THE LEARNED CIT CANNOT SET ASIDE OR REVISE THE ORDER, WHICH IS MAINLY GIVING EFFECT TO THE ITAT ORDER. THUS, NOT ONLY THE LEARNED CIT HAS TRANSGRESSED HIS REVISIONARY JURISDICTION, BUT ALSO THE ITA NO S . 492 / COCH /200 7 & 493 / COCH /20 07 M/S.KOCHI REFINERIES (BHARAT PETROLEUM CORPN. LTD.) 17 IMPUGNED ORDER IS BARRED BY LIMITATION FOR THE REASON THAT, IF AT ALL, SECTION 263 IS CALLED FOR, THEN THE SAME SHOULD HAVE BEEN IN RELATION TO THE ORIGINAL ASSESSMENT ORDER DATED 30.11.2000. 1 2 . ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE, STRONGLY RELI ED UPON THE ORDER OF THE CIT. 1 3 . AFTER CONSIDERING THE RIVAL SUBMISSIONS, AND ALSO ON THE PERUSAL OF THE MATERIAL PLACED ON RECORD, WE FIND THAT , IN THE ORIGINAL ASSESSMENT ORDER, THE AO DID NOT ALLOW THE CLAIM OF DEDUCTION U/S 80 - IA IN RESPECT OF THE C PP UNIT . FINALLY, THE SAID DEDUCTION HAS BEEN ALLOWED BY THE TRIBUNAL FOLLOWING THE EARLIER YEAR ORDER OF THE TRIBUNAL IN ASSESSEE S OWN CASE. THE RELEVANT FINDING OF THE TRIBUNAL IN THIS REGARD IS AS UNDER: - 24. THE TENTH GROUND RAISED BY THE ASSESSEE - COMPANY IS THAT THE CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF DEDUCTION AVAILABLE U/S 80I IN RESPECT OF THE CAPTIVE POWER PLANT. THIS GROUND IS ALLOWED, IN VIEW OF THE DECISION TAKEN BY THE TRIBUNAL IN ASSES SEE S APPEALS FOR THE EARLIER ASSESSMENT YEARS 1996 - 97 AND 1997 - 98. THE ASSESSING OFFICER IS DIRECTED TO GRANT THE BENEFIT IN ACCORDANCE WITH LAW. 1 4 . THUS, THE CLAIM OF DEDUCTION U/S 80 - I IN RESPECT OF CPP STOOD ALLOWED. NOW IN THE IMPUGNED ORDER U/S 263, THE LEARNED CIT HAD OBSERVED THAT, FIRSTLY, THE TRIBUNAL HAS NOT ACCEPTED THE COMPUTATION OF DEDUCTION U/S 80 - I ON THE PROFITS OF CPP AND HAS MAINLY DIRECTED TO ALLOW THE DEDUCTION U/S 80 - IA IN ACCORDANCE W ITH LAW. HOW THE COMPUTATION OF PROFIT OF CPP HAS TO BE WORKED OUT, HAS BEEN DISCUSSED BY HIM IN DETAIL. IN OUR OPINION, SUCH AN OBSERVATION AND THE FINDING OF THE CIT IS NOT TENABLE IN LAW AND ON FACTS , ITA NO S . 492 / COCH /200 7 & 493 / COCH /20 07 M/S.KOCHI REFINERIES (BHARAT PETROLEUM CORPN. LTD.) 18 BECAUSE THE ASSESSEE S CLAIM FOR DEDUCTION U/S 80 - I ON CPP HAS BEEN SPECIFICALLY ALLOWED BY THE TRIBUNAL AND SECONDLY, THE RATIO AND METHOD OF DETERMINATION OF PROFIT OF CPP UNIT HAS ALREADY BEEN DECIDED IN THE EARLIER YEARS AND IT WAS ALSO NOT A SUBJECT MATTER OF DISPUTE OR DIFFERENCE BY THE DEPARTMENT . TH US, THE ISSUE OF CLAIM OF DEDUCTION U/S 80 - I INCLUDING THE DETERMINATION OF RATIO OF CPP STANDS MERGED WITH THE ORDER OF THE TRIBUNAL . T HE AO HAS MAINLY FOLLOWED THE DIRECTION OF THE TRIBUNAL AND ALLOWED THE DEDUCTION AS PER THE PROFIT DETERMINED . SUCH A V ARIATION OF DEDUCTION U/S 80 - I, NOW CANNOT BE DISTURBED BY EXAMINING THE CLAIM OF DEDUCTION OF EXPENSES DENOVO AS HELD BY HIM. THE RATIO OF ASSET OF GROSS BLOCK OF FIXED ASSETS HAS BEEN WORKED OUT IN THE MANNER , WHICH HAS BEEN DETERMINED AND UPHELD IN THE EARLIER YEARS . T HE SAME NOW CANNOT BE DISTURBED ON AN ENTIRELY DIFFERENT FOOTING SPECIALLY WHEN THE AO HAS SIMPLY CARRIED OUT THE COMPUTATION TO ALLOW THE DEDUCTION U/S 80 - I AS PER THE ORDER OF THE TRIBUNAL. SUCH AN OBSERVATION OF THE CIT WITH REGARD TO TH E ADJUSTMENT OF EXPENSES IS NEITHER BORNE OUT FROM THE ORIGINAL ASSESSMENT ORDER NOR FROM THE FIRST APPELLATE ORDER. IF AT ALL, SOME MISTAKE HAS OCCURRED ON THE RATIO OF DETERMINATION OF PROFIT , THEN THE SAME WOULD RELATE TO THE ORIGINAL ASSESSMENT ORDER D ATED 30.11.2000 AND NOT IN THE SECOND ORDER . SUCH AN ORDER , NOW CANNOT BE REVISED U/S 263, AS IT IS CLEARLY BARRED BY LIMITATION. ACCORDINGLY, ON THIS PRELIMINARY GROUND, THE ASSESSEE S APPEAL IS TREATED AS ALLOWED. 1 5 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. 1 6 . IN THE RESULT, THE ASSESSEE S APPEAL FOR ASSESSMENT YEAR 1997 - 98 IS DISMISSED, WHEREAS APPEAL FOR A SSESSMENT YEAR 1998 - 99 IS ALLOWED. ITA NO S . 492 / COCH /200 7 & 493 / COCH /20 07 M/S.KOCHI REFINERIES (BHARAT PETROLEUM CORPN. LTD.) 19 ORDER PRONOUNCED ON THIS 05 TH DAY OF MARCH , 2015 . SD/ - SD/ - ( N.K.BILLAIYA ) ( AMIT SHUKLA ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; DATED : 05 TH MARCH , 2015 . DEVDAS* / COPY OF THE ORDER FORWARDED TO : / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT 4. / CIT , KOCHI . 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE.