DCIT, New Delhi V. M/s. NTPC- Sail Power Co. Pvt. Ltd., New Delhi

ITA 5717/DEL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 4249 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 11 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2010-2011
• Appeal Filed On: 21-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S P GUPTA
• Keywords: Capital receipt
• Section: 43B; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: E NEW DELHI BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER & SHRI K.N. CHARY, JUDICIAL MEMBER ITA NO.-5717/DEL/2014 ( ASSESSMENT YEAR: 2010-11) DCIT CIRCLE 13(1) NEW DELHI. VS NTPC - SAIL POWER CO. PVT. LTD. 4 TH FLOOR, NBCC TOWER, 15, BHIKAJI CAMA PLACE, NEW DELHI. AABCN5467A ASSESSEE BY SH. M.P. RASTOGI, ADV. REVENUE BY SH. S.P. GUPTA, SR. DR ORDER PER SHRI K. NARSIMHA CHARY, J.M. CHALLENGING THE ORDER DATED 23.07.2014 IN APPEAL NO . 95/13- 14 PASSED BY THE LD. COMMISSIONER OF INCOME TAX (AP PEALS)-XVI, DELHI (HEREINAFTER FOR SHORT CALLED AS THE LD. CIT (A)). REVENUE FILED THIS APPEAL ON THE FOLLOWING GROUNDS: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN DELETING THE DISALLOWANCE OF INTEREST DURING CONSTRUCTION PERIOD AMOUNTING TO RS. 2,93,00 ,000/- BY NOT CONSIDERING THE DETAILED OBSERVATION OF THE AO THAT IN VIEW OF THE CLEAR DIRECTIONS CONVEYED VIDE PROVISO TO SECTION 36(1)(III) OF THE INCOME TAX ACT THAT THE INTEREST, PAID OR PAYABLE ON BORROWINGS IN RESPECT OF UNIT-II WHICH C ANNOT BE FIRST PUT TO USE TILL 31.03.2010, TO BE CAPITALIZED WITHOUT SET DATE OF HEARING 11.09.2017 DATE OF PRONOUNCEMENT 26.09.2017 2 ITA NO. 5717/DEL/2014 OFF OF INTEREST EARNED OF RS. 293 LAKH FROM THE BAN KS EVEN ON DEPOSIT OF TEMPORARILY SURPLUS FUNDS AND IS TAXA BLE UNDER THE HEAD INCOME FROM OTHER SOURCES. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT (A) HAS ERRED IN DELETING THE DISALLOWANCE OF INTEREST DURING CONSTRUCTION PERIOD AMOUNTING TO RS. 2,93,00 ,000/- BY NOT CONSIDERING THE OBSERVATION IN THE ASSESSMEN T ORDER THAT THE PROVISIONS OF PROVISO TO 36(1)(III) OF THE ACT AMENDED BY FINANCE ACT, 2003 W.E.F. 01.04.2004 ARE CLEARLY APPLICABLE IN THE CASE OF THE ASSESSEE. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD.CIT (A) IS CORRECT IN DELETING THE DISALLOWANCE OF PROVISION OF OTHER RETIREMENT BENEFITS AMOUNTING TO RS. 72,94 ,614/- BY HOLDING THAT NO RESTRICTION IS THERE UNDER THE A CT FOR NOT ALLOWING THE DEFINITE AND DETERMINED LIABILITY FOR LONG SERVICE AWARDS OR POST RETIREMENT MEDICAL BENEFITS BY NOT CONSIDERING THE OBSERVATION OF THE AO THAT AMENDMEN T IN CLAUSE (F) OF SECTION 43B WAS INTRODUCED IN AY 2002 -03 WITH REGARD TO ALLOWABILITY OF LEAVE ENCASHMENT ONLY UPO N PAYMENT BASIS WHICH SHOWS THE INTENTION OF THE LEGI SLATIVE THAT RETIREMENT BENEFIT OF GRATUITY AND LEAVE ENCAS HMENT ARE TO BE ALLOWED ONLY ON PAYMENT BASIS. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD.CIT (A) HAS ERRED IN DELETING THE DISALLOWANCE O F PROVISION OF OTHER RETIREMENT BENEFITS AMOUNTING TO RS. 72,94,614/- BY NOT CONSIDERING THE DETAILED OBSERVA TION IN THE ASSESSMENT ORDER THAT PROVISION MADE UNDER THE HEADS LONG SERVICE AWARD, POST RETIREMENT MEDICAL BENEFIT , TA ON RETIREMENT AND SOCIAL SECURITY BENEFIT IS AN UNASCE RTAINED LIABILITY AND IS TO BE GIVEN TREATMENT AT PAR WITH OTHER RETIREMENT BENEFITS MENTIONED IN AS 15. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE APP ELLANT CRAVES TO BE ALLOWED TO ADD ANY FRESH GROUNDS OF AP PEAL AND/OR DELETE OR AMEND ANY OF THE GROUNDS OF APPEAL . 2. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE COMPA NY IS A JV COMPANY SUPPLYING WHOLE OF THE POWER GENERATED BY I T FROM ITS OLD PLANTS TO SAIL AND THE NEWLY SET UP POWER PLANT TO SAIL AND THE STATE ELECTRICITY BOARDS AS PER AGREED RATIOS AT TH E TIME OF ITS APPROVAL. THE TARIFF TO BE CHARGED IS AS PER THE M ETHOD APPROVED 3 ITA NO. 5717/DEL/2014 BY CERC A STATUTORY BODY. FOR THE AY 2010-11 ASSE SSEE FILED THE RETURN OF INCOME ON 01.10.2010 DECLARING A TOTAL LO SS OF RS. 6,30,03,76,000/-, PAID TAX OF RS. 21,48,00,023/- U/ S 115JB ON THE DECLARED BOOK PROFITS OF RS. 126,39,01,289/-. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE COMMENCED POWER G ENERATION FROM NEWLY SET UP GENERATION UNITS THE PROFIT WHICH IS ELIGIBLE FOR DEDUCTION UNDER CHAPTER VIA. THE ASSESSEE HAS RAIS ED ADDITIONAL CAPITAL AS WELL AS BORROWED FUNDS FOR ITS SET UP. THE ASSESSEE CAPITALIZED THE INTEREST PAID ON THE BORROWINGS FOR NEW UNITS TILL THE DATE OF GENERATION OF POWER AND IT HAS MADE DEP OSITS WITH THE BANKS OUT OF BORROWED FUNDS AS SECURITIES FOR OPENI NG LETTERS OF CREDIT ETC. OR ADVANCES OF SETTING UP OF NEW UNITS ON WHICH THE ASSESSEE EARNED INTEREST. ASSESSEE TREATED THIS IN TEREST AS CAPITAL RECEIPT AND SET IT OFF AGAINST THE INTEREST PAID AN D OTHER EXPENSES DURING CONSTRUCTION WHICH WERE CAPITALIZED AND ACCO RDING TO THE ASSESSEE IT IS IN ACCORDANCE WITH THE VARIOUS ACCOU NTING STANDARDS AND JUDICIAL PRONOUNCEMENTS BY THE HONBL E SUPREME COURT AND THE JURISDICTION HIGH COURT, IN MANY CASE S INCLUDING THE CASE OF THE ASSESSEE. HOWEVER, DURING SCRUTINY THE AO MADE AN ADDITION OF RS. 293 LAKHS TOWARDS THE INTEREST E ARNED DURING 4 ITA NO. 5717/DEL/2014 THE CONSTRUCTION PERIOD WHICH ACCORDING TO THE ASSE SSEE HAS TO BE SET OFF AGAINST THE INTEREST THAT WAS PAID ON THE B ORROWED AMOUNTS. FURTHER THE AO MADE AN ADDITION OF RS. 72 ,94,614/- ON ACCOUNT OF NET PROVISION OF RETIREMENT BENEFITS BY DISALLOWING THE SAME. IN APPEAL LD. CIT (A) DELETED BOTH THESE ADD ITIONS BY FOLLOWING THE DECISIONS REPORTED IN CIT VS. BOKARO STEELS LTD. (SC) (1999) 236 ITR 315, CIT VS. KARNATAKA POWER CORPORA TION (SC) [2001] 247 ITR 268, INDIAN OIL PANIPAT POWER CONSO RTIUM LTD. VS. ITO (2009) 315 ITR 255 (DEL.) AND DECISION OF HONB LE JURISDICTIONAL DELHI HIGH COURT IN APPELLANTS OWN CASE OF NTPC SAIL POWER COMPANY (P) LTD. VS. CIT IN ITA NO. 1238 /2011 IN DECISION DATED 17/07/2012 FOR THE AY 2007-08 ON IDE NTICAL ISSUE IN RESPECT OF THE ADDITION OF INTEREST, AND CALCUTT A CO. LTD. VS. CIT 37 ITR 1, METAL BOX CO. OF INDIA LTD. VS. THEIR WOR KMEN 73 ITR 53 AND BHARAT EARTH MOVERS LTD. VS. CIT 245 ITR 428 IN RESPECT OF THE ADDITIONS MADE IN RESPECT OF THE NET PROVISION OF RETIREMENT BENEFITS. 3. AGGRIEVED BY THE IMPUGNED ORDER, THE REVENUE IS BEFORE US IN THIS APPEAL STATING THAT THE DETAILED OBSERVATIONS OF THE AO WERE NOT PROPERLY CONSIDERED BY THE LD. CIT (A) AND THE INTEREST PAID OR 5 ITA NO. 5717/DEL/2014 PAYABLE ON BORROWINGS IN RESPECT OF THE UNIT NO. 2 WHICH COULD NOT BE PUT TO USE TILL 31.03.2010 WAS TO BE CAPITALIZED WITHOUT SET OFF OF INTEREST EARNED TO A TUNE OF RS. 293 LAKHS FROM THE BANK AND SO ALSO THE PROVISION FOR RETIREMENT BENEFIT IS CONTIN GENT IN NATURE AND LD.CIT (A) ERRED IN TREATING THE SAME AS DEFINI TE AND DETERMINED. PER CONTRA, IT IS THE ARGUMENT OF THE LD. AR THAT WHILE FOLLOWING THE BINDING PRECEDENTS THE LD. CIT (A) REACHED THE CONCLUSIONS AS TO THE DELETION OF THE ADDITIONS, AS SUCH THEY CANNOT BE INTERFERED WITH. 4. WE HAVE CONSIDERED THE CONTENTIONS IN THE LIGHT OF THE RECORD AND THE DECISIONS RELIED UPON BY THE ASSESSEE. IN ASSESSEES OWN CASE RELATING TO THE AY 2007-08 THE HONBLE HIGH CO URT ALLOWED THE SET OFF OF INTEREST DURING THE CONSTRUCTION AND THE SAID DECISION IS REPORTED IN NTPC SAIL POWER CO. PVT. LT D. VS. CIT 210 TAXMANN 358 (DEL). FURTHER FOLLOWING THE SAID DECI SION, A COORDINATE BENCH OF THIS TRIBUNAL PASSED THE ORDER DATED 28.02.2014 IN ITA NOS. 1494 & 1495/DEL/2013 FOR THE ASSESSMENT YEARS 2008-09 & 2009-10, WHEREIN THE SET OFF WAS ALLOWED. THE HONBLE JURISDICTIONAL HIGH COURT DIS MISSED THE APPEAL PREFERRED BY THE DEPARTMENT QUESTIONING THE ORDER DATED 6 ITA NO. 5717/DEL/2014 28.02.2014 PASSED BY THIS TRIBUNAL IN ITA NOS. 1494 & 1495/DEL/2013. THERE IS NO DISPUTE AS TO THESE FAC TS AND WE HAVE GONE THROUGH THESE ORDERS SINCE THERE IS NO CH ANGE IN CIRCUMSTANCES, AND IN VIEW OF THE BINDING PRECEDENT SET BY THE HONBLE JURISDICTIONAL HIGH COURT IN ASSESSEES OWN CASE FOR THE AY 2007-08 AND FOLLOWED SUBSEQUENTLY, WE DO NOT FIN D ANY ILLEGALITY OR IRREGULARITY IN THE CONCLUSION REACHE D BY THE LD.CIT (A) THAT THE INTEREST DURING CONSTRUCTION HAS TO BE ALL OWED AS SET OFF AND UPHOLD THE SAME. WE, THEREFORE, DISMISS GROUND S NO. 1 & 2. 5. NOW TURNING TO THE OTHER GROUND RELATING TO THE ADDITION OF RS. 72,94,614/- ON ACCOUNT OF THE PROVISION OF OTHE R RETIREMENT BENEFITS, ORDER OF THE LD. CIT (A) CLEARLY READS TH AT WHILE REACHING SUCH A CONCLUSION THE LD. CIT (A) PLACED RELIANCE O N THE DECISIONS OF THE HONBLE APEX COURT IN CALCUTTA CO. LTD. VS. CIT 37 ITR 1, METAL BOX CO. OF INDIA LTD. VS. THEIR WORKMEN 73 IT R 53 AND BHARAT EARTH MOVERS LTD. VS. CIT 245 ITR 428, CIT V S. INSILCO LTD. 197 TAXMAN 55. 6. IN CIT VS. INSILCO LTD. 320 ITR 322/ 222 CTR 641 THE HONBLE JURISDICTIONAL HIGH COURT ON A REVIEW OF A CASE LAW CLEARLY HELD 7 ITA NO. 5717/DEL/2014 THAT THE LIABILITY PROVIDING FOR SERVICE AWARDS PAY ABLE IN FUTURE IS AN ALLOWABLE LIABILITY. IN VIEW OF THIS, WE FIND T HAT THERE IS NO ILLEGALITY OR PERVERSITY IN THE ORDERS OF THE LD. C IT (A), AS SUCH, WE UPHOLD THE SAME AND DISMISSED GROUNDS NO. 3 & 4. 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 26.09.2017 SD/- SD/- (N.K. SAINI) (K . N. CHARY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 26.09.2017 *KAVITA ARORA COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT TRUE COPY ASSISTANT REGISTRAR ITAT NEW DELHI DRAFT DICTATED ON 14.09.2017 DRAFT PLACED BEFORE AUTHOR 18.09.2017 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. APPROVED DRAFT COMES TO THE SR.PS/PS 26.09.2017 KEPT FOR PRONOUNCEMENT ON 26.09.2017 FILE SENT TO THE BENCH CLERK 26.09.2017 8 ITA NO. 5717/DEL/2014 DATE ON WHICH FILE GOES TO THE AR DATE ON WHICH FILE GOES TO THE HEAD CLERK. DATE OF DISPATCH OF ORDER.