The Dy.CIT., GNR Circle, Gandhinagar V. M/s. Gujarat Power Corporation Ltd., Gandhinagar

ITA 61/AHD/2020

AI Insights

The case involves the Deputy Commissioner of Income Tax (DCIT) as the appellant and Gujarat Power Corporation Ltd. as the respondent. The dispute centered on the penalty levied under section 271(1)(c) of the Income Tax Act, 1961, following disallowances made under sections 35D and 35E, and on account of rent, rates, and taxes for the Assessment Year 2005-06. The Assessing Officer initially levied a penalty which was later cancelled by the CIT(A). The Revenue appealed against this cancellation, but the Tribunal found that the penalties were not sustainable due to the deletions of the corresponding additions in the quantum appeals.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 114148 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-02-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 01-02-2023
• Assessment Year: 2005-2006
• Appeal Filed On: 07-01-2020
• Other Referred Cases: Agro Transport Ltd. v CIT, DCIT v. Gujarat Narmada Valley Fertilizers Co. Ltd., Saurashtra Cement & Chemical Industries Ltd. v. CIF, Sundaram Finance Ltd. v. CIT, Jivanlal and Sons v. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Rule of consistency; Set aside
• Section: 263; 271(1)(c); 143(3); 208; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “B” BENCH Before: Ms. Annapurna Gupta, Accountant Member And Shri T.R. Senthil Kumar, Judicial Member The Dy. CIT, GNR Circle, Gandhinagar (Appellant) Vs M/s. Gujarat Power Corporation Ltd. Block No. 8, 6 th Floor, Udhyog Bhavan, Sector-11, Gandhinagar-382011 PAN: AAACG5596J (Respondent) Assessee Represented : Shri S.N. Soparkar, Sr. Adv. & Shri Parin Shah, A.R. Revenue Represented : Shri Rakesh Jha, Sr.D.R. Date of hearing : 02-02-2023 Date of pronouncement : 10-02-2023 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:- This appeal is filed by the Revenue as against the Appellate order dated 26.09.2019 passed by the Commissioner of Income Tax (Appeals)-7, Ahmedabad as against the cancellation of levy of penalty under section 271(1)(c) of the Income Tax Act, 1961 ITA No. 61/Ahd/2020 Assessment Year 2005-06 I.T.A No. 61/Ahd/2020 A.Y. 2005-06 Page No DCIT Vs. M/s. Gujarat Power Corporation Ltd. 2 (hereinafter referred to as ‘the Act’) relating to the Assessment Year (A.Y) 2005-06. 2. The brief facts of the case is that the respondent-assessee is a Government Company mainly acting as Nodal Agency for augmenting power generation in the state of Gujarat. For the Assessment Year 2005-06, the assessee filed its Return of Income on 24.10.2005 declaring total income of Rs. 22,19,87,638/-. Assessment was completed under section 143(3) on 27.12.2007 whereas income was determined at Rs. 27,08,18,876/- on various disallowances were made by the Assessing Officer. 2.1. On further appeal before Ld. CIT(A) and Hon’ble ITAT the assessee partly succeed its appeal. The Assessing Officer issued a letter dated 07.12.2013 as to why penalty u/s. 271(1)(c) should not be imposed on the various disallowances confirmed by the Appellate Authorities as follows: Particulars Amount Rs. Disallowance u/s. 35D 25,16,488/- Disallowance of deduction u/s. 35E 77,83,160/- Disallowance of Rent & taxes 2,72,81,590/- 2.2. The assessee sought for some time to reply to the show cause notice. However the Assessing Officer levied a penalty of Rs. 1,37,51,914/- u/s. 271(1)(c) of the Act. I.T.A No. 61/Ahd/2020 A.Y. 2005-06 Page No DCIT Vs. M/s. Gujarat Power Corporation Ltd. 3 2.3. Aggrieved against the same, the assessee filed an appeal before Ld. CIT(A), who cancelled the penalty levied u/s. 271(1)(c) as follows: 6.2 So far as levy of penalty u/s. 271(1)(c) on disallowance u/s 35D of the Act, it is observed that Hon’ble Ahmedabad ITAT AY 2003-04 has held as under: 16.1 From the mindful reading of the above section 35D of the Act, it can be construed that ROC fee is allowable only when paid for registration of the company printing charges are to be for printing of Memorandum or Article of Association or printing of prospectus. There is no specific mention about the allowance of stamp fee in the given section. We observe that the payment made to the ROC is not for registration and the same has been established by the AO in his order which is not disputed by the LA. AR. Moreover, it is also noted that these expenditures were incurred post commencement of business Besides this, the same could not be substantiated to have been incurred in connection with the setting up or extension of an industrial undertaking. In the light of above observation, it is evident that the deduction claimed u/s.35D of the Act was not eligible and ought not to have been allowed in the very first assessment u/s.143(3) of the Act. 1 is further observed that the case of Hon'ble Rajasthan HC in Agro Transport Ltd. v CIT (224 ITR 90) was in context to expenditure for obtaining registration which is different from present case hence the same cannot aid the present case in hand. 16.2 The contention of the Ld. AR is primarily on the doctrine of consistency that since the assessee has been allowed the deduction, the same has to be maintained for subsequent years. The deduction u/s.35D is quite different from other deductions. Since in other cases, the expenditures incurred in a financial year is in respect to that year only and its allowability is validated based on that very year. But expenditure u/s.35D is a different case, expenditure incurred in one financial year is spread evenly over 10/5 financial years. In this case, the first year in which the claim originated is very crucial to determine the deductibility or non- deductibility. Where it is verified, probed and after satisfaction allowed in the first year of claim or in any subsequent year of claim, a different view on same would be difficult to take. This is because the subsequent claims for deduction has rooted from expenditure incurred, verified and allowed in an earlier year and there will be no change in facts as the triggering event has attained finality The issue in hand is fit for applicability of doctrine of consistency and M/s. Gujarat Power Corporation Ltd. [AY 2005-06) I.T.A No. 61/Ahd/2020 A.Y. 2005-06 Page No DCIT Vs. M/s. Gujarat Power Corporation Ltd. 4 the AO cannot take a different view since the claim would flow from same initial expenditure which have been probed and allowed in earlier assessment u/s.143(3) of the Act by him. Strength and guidance has been lent from the judgement of Hon'ble Gujarat HC in case of DCIT v. Gujarat Narmada Valley Fertilizers Co. Ltd. (2014) 42 taxmann.com 438 (Gujarat)/(2014) 222 Taxman.com 30 (Gujarat) (MAG), the relevant extract is reproduced as under:- It is an undisputed position that claim under Section 35D of the Act did not arise for consideration for the first time. Since last several years, the Assessing Officer had granted such claim on the same consideration. The Tribunal therefore, correctly held that such claim could not have been suddenly disallowed. We may refer to a decision of this Court in case of Saurashtra Cement & Chemical Industries Ltd. u. CIF (1980) 123 ITR 669/(1979) 2 Taxman.com 22 (Guj.), wherein, in the context of successive claim of tax holiday, the Court held that the ITO was not justified in refusing to continue the benefit of such tax holiday granted to the assessee in the earlier years, without disturbing the relief granted for the initial years. We are conscious that the issue is not identical in nature. However, the Income-tax Act recognizes the principle of consistency. 16.3 We also took a note that where the view taken by AO was incorrect at the first allowance, it could have been cured then and there by Ld. CIT, if found erroneous and prejudicial to the interest of revenue with the aid of section 263 of the Act but the Ld. CIT did not invoke the provisions of section 263 of the Act. In the light of the above observation, we are of the view that the AO is bound by the doctrine of consistency, the appeal of revenue is dismissed." Similar observation is made by Hon'ble ITAT in AY 2005-06 in very same order. It is observed that addition u/s 35D of the Act made by AO is now settled in favour of appellant and addition is already deleted by Hon'ble ITAT, penalty u/s 271(1)(c) levied by AO to that extent does not survive and AO is directed to delete such penalty. 2.4. On disallowance made on rate and taxes as follows: 6.4. So far as levy of disallowance of rent & taxes for Rs. 2,72,81,590/- is observed that Hon'ble Ahmedabad ITAT in AY 2005-06 has held as under 29. We have heard the rival contentions of both the parties and perused the materials available on record. The issue in the present case relates whether the rent and taxes paid by the assessee with respect to the land where the activity has not been commenced are liable to be capitalised. From the preceding discussion, we note that the assessee has been incurring such expenditure year after year and it is not getting any benefit of enduing nature out of such I.T.A No. 61/Ahd/2020 A.Y. 2005-06 Page No DCIT Vs. M/s. Gujarat Power Corporation Ltd. 5 expenditure. We also note that the purchase of land for the business purpose in routine activity of the assessee and its commercial activities are already in operation in respect of other projects. Therefore, in our considered view the expenditure claimed by the assessee are revenue in nature. Accordingly, there cannot be any disallowance on account of such expenses treating them as capital in nature. Hence, we upheld the finding of the ld. CIT(A). Thus, the ground of appeal of the Revenue is dismissed it is observed that addition of rent and taxes of the Act made by AD now settled in favour of appellant and addition is already deleted by Hon'ble ITAT, penalty u/s. 271(1)(c) levied by AO to that extent does not survive and AO is directed to delete such penalty. 2.5. However the ld. CIT(A) confirmed the penalty levied u/s. 35E of the Act since the ITAT has upheld the disallowance made by the Assessing Officer u/s. 35E of the Act and relying upon Hon’ble Supreme Court Judgment in the case of Sundaram Finance Ltd. reported in 99 taxmann.com 152 and Hon’ble Supreme Court in the case of Jivanlal and Sons reported in 103 taxmann.com 208 and confirmed the levy of penalty u/s. 271(1)(c) of the Act. 3. Aggrieved against the same, the Revenue is in appeal before the raising the following Grounds of Appeal: i) "Whether, the Ld. Commissioner of Income Tax(appeals) has erred in law and on facts in deleting the penalty of u/s.271(1)(c) of Rs.9,21,035/- levied on addition of Rs.25,16,488/- on account of disallowance u/s.35D of the Act." ii) "Whether, the Ld. Commissioner of Income-Tax(appeals) has erred in law and on facts in deleting the penalty of u/s.271(1)(c) of Rs.99,81,402/- levied on addition of Rs.2,72,71,402/- on account of disallowance of rent, rate and taxes of the Act." iii) On the facts and circumstances of the case, the Ld. Commissioner of Income Tax(appeals) ought to have upheld the order of the Assessing Officer. iv) It is, therefore prayed that the order of the Ld. Commissioner of Income-tax (Appeals) may be set aside and that of the Assessing Officer be restored. I.T.A No. 61/Ahd/2020 A.Y. 2005-06 Page No DCIT Vs. M/s. Gujarat Power Corporation Ltd. 6 3.1. The Ld. Sr. D.R. Shri Rakesh Jha appearing for the Revenue fairly admitted the quantum appeal u/s. 35D and disallowance on rate and taxes were being deleted by the ITAT in assessee’s own case for the assessment year 2005-06. However he could not give any further details of any appeal filed by the Revenue before the High Court of Gujarat. 4. Per contra, Ld. Senior counsel Mr. S.N. Soparkar appearing for the assessee submitted before us a Paper Book which contains that the various details including the Jurisdictional High Court judgment in assessee’s own case in Tax Appeal No. 203 of 2013 and Others dated 13.08.2013 filed by the Revenue, wherein the Hon’ble High Court set aside the matter back to the Tribunal. Thereafter the Ld. ITAT vide its common order dated 31.07.2019 held as follows: Coming to the appeal filed by the Revenue bearing No ITA. No. 3578/AD/2008 AY 2005-06 The Revenue has raised the following effective ground of appeal: 1. The learned CIT(Appeals) his erred in law and on facts of the case in deleting the addition of Rs.25,16,488/- made by the AO on account of disallowance of claim u/s., 35D of the Act. 2. The learned CIT(Appeals) has erred in line and on facts of the caser in deleting the addition of Rs.2,72,81,590/- made by the A.O. on account of disallowance of expenses under rates and taxes The issue raised by the Revenue is that the learned CIT (A) erred in deleting the addition made by the AO for the claim made by the assessee of Rs.25,16,488.00 under section 35D of the Act. 25. At the outset, we note that, the identical issue has already been adjudicated by us in the own cane of the assessee bearing ITA No. 84/AHD/2007 vido paragraph number 16 of this order. The issue was decided against the Revenue. For detailed discussion, please refer the I.T.A No. 61/Ahd/2020 A.Y. 2005-06 Page No DCIT Vs. M/s. Gujarat Power Corporation Ltd. 7 relevant paragraph Respectfully following the same, we uphold the order of the Id. CIT-A, Hence the ground of appeal of the Revenue is dismissed. The 2 issue raised by the Revenue is that the learned CIT (A) erred in deleting the addition of 2.72,81,590.00 on account of rates and taxes. 26. The assessee possesses several pieces of land for establishing the power projects including the lands located at Bhavnagar and Amreli Districts where the activities of the assessee was not commenced till the year under consideration despite the fact that these lands were acquired by it in earlier years. Accordingly, the AO was of the view that the rent and taxes paid to the Revenue Authorities in respect of such lands needs to be capitalized. Hence the AO, disallowed the expenses towards the rent and taxes with respect to such lands amounting to 2,72,81,590.00 and added to the total income of the assessee. Aggrieved assessee preferred an appeal to the learned CIT (A). 27. The assessee before the learned CIT (A) submitted that the project on such land is likely to be executed with the strategic partner Ms Nirma Chemicals Works Limited. As such it has already received a sum of 3,37,83,784.00 in order to the execute the project. 27.1 The assessee also claimed that these expenditures are incurred year after year and there does not come into existence any new fixed assets 27.2 The learned CIT (A) after considering the submission of the assessee deleted the addition made by the AO by observing an under: “5.3. The matter has been gen de consideration and I am inclined to agree with the arguments of the Authorized Representative. Besides the fact that the expenses involved are recurring in nature and do bring into existence any new fixed assets, emphasized by the Authored Representative, laying out of such expense is a necessity to keep control of the cuts Payment of taxes of any kind whether one time or recurring nature, never enhance the value of the asset being used in question nor brings in to existence of any advantage of enduring nature. Clearly, land revenue though levied on the land a fixed asset for the appellant in itself is not a capital expense but it only revenue expense pad out to fulfil the statutory requirement emanating out of the ownership of the land. Hence, after considering in totality, I hold that the sum of 2,72,81,590/- is revenue in nature and hence an allowable expense.” Being aggrieved by the order of the learned CIT (A), the Revenue is in appeal before us I.T.A No. 61/Ahd/2020 A.Y. 2005-06 Page No DCIT Vs. M/s. Gujarat Power Corporation Ltd. 8 28. Both the learned DR and the AR before us relied on the order of the authorities below as favourable to them. 29. We have heard the rival contentions of both the parties and perused the materials available on record. The issue in the present case relates whether the rent and taxes paid by the assessee with respect to the land where the activity has not been commenced are liable to be capitalized. From the preceding discussion, we note that the assessee h been incurring such expenditure year after year and it is not getting a benefit of enduring nature out of such expenditure. We also note that purchase of the land for the business purposes is routine activity of assessee and its commercial activities are already in operation in rest other projects. Therefore, in our considered view the expenditure claimed by the assessee are revenue in nature. Accordingly there cannot be any disallowance on account of such expenses treating the capital in nature. Hence, we uphold the finding of the learned CIT Thus the ground of appeal of the Revenue is dismissed. In the result, the appeal filed by the Revenue is dismissed. 5. Thus Ld. Senior Counsel submitted since the quantum appeal of the Revenue having been dismissed and additions are deleted consequently the question of levy of penalty cannot survive. Therefore the Revenue appeal liable to be dismissed. 6. We have given our thoughtful consideration and perused the materials available on record including the Paper Book filed by the Assessee and the judgment passed by the Hon’ble High Court of Gujarat and consequential decision of the Co-ordinate Bench in the quantum appeal, filed by the Revenue, which was also dismissed. 6.1. Respectfully following the same, the penalty levied u/s. 271(1)(c) has no legs to stand, therefore the same are liable to be deleted. Thus the grounds raised the Revenue is devoid of merits, hence the same is dismissed. I.T.A No. 61/Ahd/2020 A.Y. 2005-06 Page No DCIT Vs. M/s. Gujarat Power Corporation Ltd. 9 7. In the result, the appeal filed by the Revenue is hereby dismissed. Order pronounced in the open court on 10-02-2023 Sd/- Sd/- (ANNAPURNA GUPTA) (T.R. SENTHIL KUMAR) ACCOUNTANT MEMBER True Copy JUDICIAL MEMBER Ahmedabad : Dated 10/02/2023 आदेश कȧ ĤǓतͧलͪप अĒेͪषत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपीलȣय अͬधकरण, अहमदाबाद