The DCIT, Circle-2(1), Guntur V. M/s Sri Jayalakshmi Power Corp Ltd., Guntur

ITA 494/VIZ/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 2744 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 11 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-10-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 05-10-2010
• Assessment Year: 2002-2003
• Appeal Filed On: 26-10-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D S SUNDER SINGH
• Assessee Lawyers: B R MAHESH
• Keywords: Business income; Depreciation; Business expenditure
• Section: 80IA; 56

Judgement Text

ITA NO.494 OF 2009 SRI JAYALAKSHMI POWER CORPN. LTD., GUNTUR PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO.494/VIZAG/2009 ASSESSMENT YEAR: 2002-03 DY.COMMISSIONER OF INCOME TAX CIRCLE- 2(1) GUNTUR SRI JAYALAKSHMI POWER CORP. LTD GUNTUR (APPELLANT) PAN NO: AAFCS 5063 H (RESPONDENT) APPELLANT BY: SHRI D.S. SUNDER SINGH, DR RESPONDENT BY: SHRI B.R. MAHESH, CA ORDER PER SHRI B. R. BASKARAN, ACCOUNTANT MEMBER: THE APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 3 RD AUGUST, 2009 PASSED BY LEARNED CIT(A), GUNTUR AND IT RELATE S TO THE ASSESSMENT YEAR 2002-03. 2. THE EFFECTIVE GROUNDS RAISED BY THE REVENUE ARE STATED BELOW: 2. THE HON'BLE CIT (A) HAS NOT APPRECIATED THE FAC T THAT THE REVISED PROFIT & LOSS ACCOUNT HAS NOT BEEN PREPARED IN ACCO RDANCE WITH PART- II AND PART-III OF SCHEDULE VI TO THE COMPANIES ACT TO A LLOW THE ASSESSEES REVISED CLAIM OF RS.12,76,310/- UNDER SE CTION 80IA OF THE ACT. THE REVISED PROFIT & LOSS ACCOUNT, REVISED BAL ANCE SHEET AND REVISED DEPRECIATION HAVE NOT BEEN CERTIFIED BY THE BOARD OF DIRECTORS AND THE CHARTERED ACCOUNTANT. 3. THE HON'BLE CIT (A) HAS NOT APPRECIATED THE FACT THAT THE INCOME FROM INSURANCE CLAIM ON LOSS OR PROFIT IS NOT DERIV ED BY THE UNDERTAKING OF THE ASSESSEE AND IT IS ONLY INCIDENT AL TO THE MAIN BUSINESS. IN ORDER TO CONSIDER AS PROFITS AND GAINS DERIVED FROM THE INDUSTRIAL UNDERTAKING, THERE MUST BE A DIRECT NEXU S BETWEEN THE OTHER INCOME IN QUESTION AND THE INDUSTRIAL UNDER TAKING. RELIANCE IS PLACED ON THE DECISION OF THE HON'BLE SUPREME CO URT IN THE CASE OF CIT VS. STERLING FOODS (237 ITR 579). 3. THE FACTS RELATING TO THE ISSUES ARE STATED IN BRIEF. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF GENERATION OF POWER. FOR THE YE AR UNDER CONSIDERATION, THE ITA NO.494 OF 2009 SRI JAYALAKSHMI POWER CORPN. LTD., GUNTUR PAGE 2 OF 5 ASSESSEE FILED THE RETURN OF INCOME DECLARING NIL IN COME AFTER CLAIMING DEDUCTION UNDER SECTION 80IA OF THE ACT TO THE TUNE OF RS.44, 32,510/-. THE ASSESSING OFFICER REOPENED THE ASSESSMENT, AS THE ASSESSEE HA D CLAIMED DEDUCTION UNDER SECTION 80IA OF THE ACT ON THE INCOME DESCRIBED AS OTHER INCOME ALSO. THE DETAILS OF OTHER INCOME ARE FURNISHED BELOW: REFUND MADE BY COMMISSIONER OF CUSTOMS - 11,93,688 AGRICULTURAL INCOME - 26,467 REFUND ON CANCELLATION OF RAILWAY TICKET - 153 RECEIPT OF INSURANCE CLAIM - 56,000 ------------- 12,76,308 ====== THE ASSESSEE FILED A REVISED STATEMENT, A REVISED D EPRECIATION STATEMENT AND THE AUDIT REPORT AS REQUIRED UNDER SECTION 80IA AND MOD IFIED THE CLAIM OF DEDUCTION UNDER SECTION 80IA TO RS.32,52,941/- IT WAS EXPLAIN ED BY THE ASSESSEE THAT THE REFUND OF RS.11,93,688/- RECEIVED FROM COMMISSIONER OF CUSTOMS PERTAINS TO AN EQUIPMENT IMPORTED FROM FRANCE AND THE CUSTOMS DEPO SIT WAS ORIGINALLY INCLUDED IN THE COST OF MACHINERY. HENCE, ON REFUND OF THE SAME, IT SHOULD HAVE BEEN REDUCED FROM THE COST OF THE CONCERNED MACHINERY. HOWEVER, INADVERTENTLY IT WAS WRONGLY CREDITED TO THE PROFIT AND LOSS ACCOUNT . ACCORDINGLY IT WAS SUBMITTED THAT IN THE REVISED STATEMENT, BOTH THE D EPRECIATION AS WELL AS THE DEDUCTION UNDER SECTION 80IA WERE RECALCULATED AFTE R MAKING THE NECESSARY CORRECTIONS. HOWEVER, THE ASSESSING OFFICER DID NO T ACCEPT THE EXPLANATIONS OF THE ASSESSEE FOR THE REASON THAT THE REVISED PROFIT AND LOSS ACCOUNT HAS NOT BEEN PREPARED IN ACCORDANCE WITH PART II AND PART III OF S CHEDULE VI TO THE COMPANIES ACT AND FURTHER THEY HAVE NOT BEEN CERTIFIED BY THE BOARD OF DIRECTORS AND THE CHARTERED ACCOUNTANT. THE ASSESSING OFFICER ALSO F URTHER STATED THAT THE IMPUGNED OTHER INCOME IS NOT DERIVED FROM THE IND USTRIAL UNDERTAKING. ACCORDINGLY, THE ASSESSING OFFICER DISALLOWED THE C LAIM OF DEDUCTION UNDER SECTION 80IA TREATED THE ENTIRE OTHER INCOME OF RS.12,76,30 8/- AS THE TOTAL INCOME OF THE ASSESSEE. 4. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER I N APPEAL. WITH REGARD TO THE AMOUNT OF RS.11,93,688/- RELATING TO THE REFUND OF CUSTOM DUTY, THE LEARNED CIT(A) ACCEPTED THE REVISED COMPUTATION OF THE ASSE SSEE WITH THE FOLLOWING OBSERVATIONS.: ITA NO.494 OF 2009 SRI JAYALAKSHMI POWER CORPN. LTD., GUNTUR PAGE 3 OF 5 7. I HAVE GONE THROUGH THE DETAILS OF THE REFUND RE CEIVED BY THE APPELLANT. THERE IS NO DOUBT THAT THE AMOUNT OF RS. 11,93,688/- IS REFUND OF DEPOSIT LYING WITH THE CUSTOMS DEPARTMENT FOR IMPORT OF MACHINERY. THE DEPOSIT WHEN MADE WAS WRONGLY TAKEN AS PART OF THE COST OF MACHINERY WHEN IN FACT IT SHOULD HAVE B EEN SHOWN SEPARATELY AS A DEPOSIT. A REFUND OF SUCH DEPOSIT C ANNOT CONSTITUTE INCOME OF THE APPELLANT; NO MATTER THE ACCOUNTING E NTRIES ARE MADE. THEREFORE, THE APPELLANT WAS RIGHT IN CORRECTING TH E WRONG ENTRIES EARLIER MADE, REDUCING THE DEPOSIT AMOUNT FROM THE COST OF THE MACHINERY AND REWORKING THE DEPRECIATION CLAIM AND THEREBY THE PROFITS. IN ORDER TO DECIDE WHETHER A PARTICULAR ITE M CONSTITUTES INCOME OR NOT, IT IS THE NATURE OF THE RECEIPT AND THE PROVISIONS OF LAW WHICH WILL DETERMINE WHETHER OR NOT THAT PARTIC ULAR ITEM CONSTITUTES INCOME. THE ACCOUNTING ENTRIES BY THEMS ELVES WILL NOT DETERMINE WHETHER A RECEIPT CONSTITUTES INCOME OR N OT. IN THE CASE OF TUTICORIN ALKALIES VS. CIT (272 ITR 172), THE SU PREME COURT OBSERVED THAT IT IS TRUE THAT THIS COURT HAS VERY OFTEN REFERRED TO ACCOUNTING PRACTICE FOR ASCERTAINMENT OF PROFIT MAD E BY A COMPANY OR VALUE OF THE ASSETS OF A COMPANY. BUT WHEN THE Q UESTION IS WHETHER A RECEIPT OF MONEY IS TAXABLE OR NOT OR WHE THER CERTAIN DEDUCTIONS FROM THAT RECEIPT ARE PERMISSIBLE IN LAW OR NOT, THE QUESTION HAS TO BE DECIDED ACCORDING TO THE PRINCIP LES OF LAW AND NOT IN ACCORDANCE WITH ACCOUNTANCY PRACTICE. ACCOUNTING PRACTICE CANNOT OVERRIDE SECTION 56 OR ANY OTHER PROVISION OF THE A CT. AS WAS POINTED OUT BY LORD RUSSELL IN THE CASE OF B.S.C. FOOTWEAR LTD., (1970) 77 ITR 857, 860 (C.A), THE INCOME-TAX LAW DOES NOT MAR CH STEP BY STEP IN THE FOOTPRINTS OF THE ACCOUNTANCY PROFESSION. I N THIS CASE, THE ACCOUNTING EMPLOYED IN THE YEAR IN WHICH THE DEPOSI T WAS MADE WAS OBVIOUSLY FAULTY AND THEREFORE RECTIFIED IN THE ANN UAL ACCOUNTS FOR THE YEAR 2009-2010. THEREFORE, I HAVE TO HOLD THAT THE ASSESSING OFFICER ERRED IN HOLDING THAT THE AMOUNT OF REFUND RECEIVED BY THE APPELLANT FROM THE CUSTOMS DEPARTMENT, CONSTITUTED OTHER INCOME. THE ADDITION MADE ON THIS ACCOUNT IS DELETED. THE A PPELLANT IS TO BE ALLOWED DEDUCTION UNDER SECTION 80 IA AFTER REDUCIN G THE REFUND AMOUNT FROM THE COST OF MACHINERY AND THE PROFITS R ECOMPUTED THEREAFTER. 5. WE HAVE HEARD THE PARTIES ON THIS ISSUE AND PERU SED THE RECORD. ACCORDING TO THE ASSESSEE THE CUSTOM DUTY ORIGINALLY PAID WAS INCLUDED IN THE COST OF MACHINERY. IF THAT BE THE CASE, AS POINTED OUT BY T HE LEARNED CIT (A), THE REFUND OF CUSTOM DUTY CANNOT CONSTITUTE THE INCOME OF THE ASSESSEE. HOWEVER, IT IS NOT BORNE OUT OF RECORD WHETHER THE TAX AUTHORITIES HAV E VERIFIED THE SAID CLAIM OF THE ASSESSEE. HENCE, THOUGH WE ARE IN AGREEMENT WITH T HE DECISION OF THE LEARNED CIT (A) WITH REGARD TO THE PRINCIPLES OF THE TAXABI LITY OF THE IMPUGNED AMOUNT OF RS.11,93,688/-, YET WE ARE OF THE VIEW THAT THE CL AIM OF THE ASSESSEE WITH REGARD TO THE ACCOUNTING TREATMENT GIVEN BY IT REQUIRES VE RIFICATION. ACCORDINGLY, WE ITA NO.494 OF 2009 SRI JAYALAKSHMI POWER CORPN. LTD., GUNTUR PAGE 4 OF 5 MODIFY THE ORDER OF THE LEARNED CIT (A) AND DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSEE AFTER GETTING SATISFIED W ITH THE CLAIM OF THE ASSESSEE AFTER MAKING NECESSARY VERIFICATION IN THIS REGARD. THE ASSESSEE IS ALSO DIRECTED TO FURNISH THE REQUIRED INFORMATION TO THE ASSESSIN G OFFICER. 6. THE NEXT ISSUE RELATES TO THE ALLOWABILITY OF DE DUCTION 80 IA ON INSURANCE CLAIM AMOUNT OF RS.56,000/- RECEIVED BY THE ASSESSE E. THE LEARNED CIT (A) ALLOWED THE CLAIM OF THE ASSESSEE BY FOLLOWING THE THIRD MEMBER DECISION OF THIS BENCH IN THE CASE OF JOCIL LTD., IN ITA NO.224/VIZA G/2002. THE RELEVANT OBSERVATIONS OF LEARNED CIT (A) ARE EXTRACTED BELOW : 10. I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE APPELLANT. IN THE I.T.A.T DECISION OF THE VIZAG BENCH FOR THE A SSESSMENT YEAR 2001-02, IN THE APPELLANTS OWN CASE, THE INSU RANCE CLAIM WAS RECEIVED TOWARDS LOSS OF PROFIT POLICY, WHEREAS IN THIS YEAR, THE INSURANCE CLAIM HAS BEEN RECEIVED AS COMPENSATI ON FOR DAMAGE TO MACHINERY. HOWEVER, THE I.T.A.T. VIZAG BEN CH IN A THIRD MEMBER DECISION IN THE CASE OF JCIT (SPL. RAN GE) VS. JOCIL LTD., HELD THAT DEDUCTION UNDER SECTION 80 I OF THE ACT WAS AVAILABLE ON INSURANCE CLAIM RECEIVED TOWARDS BREAK DOWN OF A GENERATOR IN A FIRE ACCIDENT. IN THAT CASE, THE THI RD MEMBER HELD THAT SINCE THE RECEIPT FROM THE INSURANCE COMPANY IS TOWARDS REIMBURSEMENT OF LEGITIMATE BUSINESS EXPENDITURE, T HE SAID RECEIPT HAS ALSO BE CONSIDERED AS A PART OF BUSINES S INCOME. IF IT IS TO BE CONSIDERED AS A PART OF BUSINESS INCOME, I T CANNOT BE EXCLUDED FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80 I OF THE ACT. THE MEMBER ALSO OBSERVED THAT VIEWED FROM AN OTHER ANGLE. THE RECEIPT OF INSURANCE CLAIM IS NOT AN IN DEPENDENT SOURCE OF RECEIPT OR INCOME WHICH HAS TO BE EXCLUDE D FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80 I OF THE ACT. THE DAMAGE TO THE GENERATOR HAS ARISEN IN THE COURSE OF THE BU SINESS AND THE CLAIM RECEIVED FROM THE INSURANCE COMPANY IS TO MIT IGATE THE FINANCIAL LOSS THE COMPANY WAS PUT TO. THEREFORE, T HE CLAIM CANNOT BE TREATED AS AN INDEPENDENT SOURCE SO AS TO BE EXCLUDED FROM BUSINESS INCOME. FOLLOWING THE I.T.A.T. VIZAG BENCH IN ITA NO.224/VIZAG/2002 (THIRD MEMBER) DATED 1.02.2008, I HOLD THAT THE RECEIPT FROM INSURANCE CLAIM IS TO BE CONSIDERE D FOR DEDUCTION UNDER SECTION 80 IA OF THE ACT. 7. THE LEARNED AUTHORISED REPRESENTATIVE ALSO BRO UGHT TO OUR NOTICE THAT AN IDENTICAL ISSUE HAS BEEN DECIDED BY THIS BENCH, VID E ITS ORDER DATED 25-01-2008 IN THE ASSESSEES OWN CASE FOR THE IMMEDIATELY PRECEDI NG ASSESSMENT ORDER. THE LEARNED AUTHORISED REPRESENTATIVE ALSO PLACED A COP Y OF THE SAID ORDER BEFORE US. WE HAVE GONE THROUGH THE SAID ORDER AND NOTICE THAT THE DECISION RENDERED BY ITA NO.494 OF 2009 SRI JAYALAKSHMI POWER CORPN. LTD., GUNTUR PAGE 5 OF 5 LEARNED CIT(A) IS IN ACCORDANCE WITH DECISION RENDE RED IN THE ASSESSEES OWN CASE. HENCE WE DO NOT FIND ANY REASON TO INTERFERE WITH THIS DECISION ON THIS ISSUE. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS TREAT ED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 22 ND OCTOBER, 2010. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM, DATE: 22-10-2010 COPY TO 1 THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-2(1) , GUNTUR 2 M/S. SRI JAYALAKSHMI POWER CORPORATION LTD., PB N O.6, TOBACCO COLONY, MANGALAGIRI ROAD, GUNTUR 3 4. THE CIT GUNTUR THE CIT(A), GUNTUR 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM