SJVN Ltd., Shimla V. ACIT,Circle, Shimla

ITA 67/CHANDI/2020

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 9648 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 5 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-07-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 16-01-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revision of order; Opportunity of being heard; Set aside
• Section: 263; 143(3); 250; 80IA; 13

Judgement Text

आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरणआयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण,च瀃डीगढ़ 瀈यायपीठ च瀃डीगढ़ 瀈यायपीठच瀃डीगढ़ 瀈यायपीठ च瀃डीगढ़ 瀈यायपीठ , च瀃डीगढ़ च瀃डीगढ़च瀃डीगढ़ च瀃डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH ‘A’ CHANDIGARH BEFORE: SMT. DIVA SINGH, JUDICIAL MEMBER & SHRI VIKRAM SINGH YADAV, ACCOUNTANT MEMBER आयकर आयकरआयकर आयकर अपील अपीलअपील अपील सं संसं सं./ ITA No. 67/CHD/2020 Assessment Year : 2012-13 SJVN Ltd., Finance & Accounts Department, Shakti Sadan, Corporate Headquarters, Shanan, Shimla-6. बनाम VS The ACIT, Circle, Shimla. 瀡थायी लेखा सं./PAN /TAN No: AAICS1307F अपीलाथ牸/Appellant 灹瀄यथ牸/Respondent िनधा榁琇रती क琉 ओर से/Assessee by : Shri Rajiv Sood, CA राज瀡व क琉 ओर से/ Revenue by : Smt. Zeenia Handa, CIT-DR तारीख/Date of Hearing : 23.06.2022 उदघोषणा क琉 तारीख/Date of Pronouncement : 07.07.2022 आदेश आदेशआदेश आदेश/ORDER PER DIVA SINGH The present appeal has been filed by the assessee wherein the correctness of the order dated 25.11.2019 of CIT(A) Shimla pertaining to 2012-13 assessment year is assailed. 2. The ld. AR requested for substitution of Revised grounds for the original grounds raised by the assessee. It was conceded that in the original grounds inadvertently challenge was posed to the findings of the AO instead of the findings of the CIT(A). Attention was invited to the Revised Grounds filed vide covering letter dated 18.02.2022 moved by Shri Sanjay ITA 67 /CHD/2020 A.Y. 2012-13 Page 2 of 13 Kumar, GM (Finance). On a consideration of the original grounds and the Revised Grounds, it is seen that nothing new has been agitated by the assessee and there is no change except for the aforesaid mistake stated to have been made inadvertently. Accordingly, considering the record, Revised grounds are substituted for the original grounds raised by the assessee wherein there was a mistake. These substituted/Revised grounds filed read as under : 1 Computation of deduction u/s 80IA Deductions u/s 80IA not allowed under the following heads. i) Exchange rate variation of Rs. 7.54 crore ii) Hire rental charges from contractors of Rs. 0.42 crore. iii) Profit on sale of fixed assets of Rs. 0.72 crore iv) Excess provisions written back of Rs. 0.50 crore 2. That the ratio of the judgments of 'Liberty India Vs CIT' 317 ITR 218 has been wrongly applied in the assessee's case 3. The CIT(A) has not adjudicated on the following grounds of appeal. i) Interest income on Income Tax Refund of Rs. 3.71 crore. ii) Liquidated mages recovered of Rs. 3.39 crore 4. That the assessee craves to add, delete, amend any other ground of appeal with the permission of the chair. 3. The ld. AR assailing the findings arrived at on ground No. 1 further submitted that on ground No.3, no finding has been given by the ld. CIT(A). Accordingly, it was his limited prayer that the issue may be restored back for adjudication before the First Appellate Authority. Addressing the deduction claimed u/s 80IA addressed vide ground No.1, it was his submission that this is the very first year wherein the claim of deduction has been disallowed. He agreed that it was in pursuance to the ITA 67 /CHD/2020 A.Y. 2012-13 Page 3 of 13 order passed by ld. PCIT u/s 263. It was clarified on query that the order passed u/s 263 was not challenged by the assessee and in the fresh round of proceedings before the AO for the first time the deduction was disallowed. This disallowance, it was submitted, has been confirmed in appeal by the ld. CIT(A). On query, it was submitted that the preceding and subsequent years have not been disturbed by the Revenue. 4. The ld. CIT-DR on query was unable to address whether any 263 proceedings on this issue in the earlier or subsequent years are pending before the ITAT. 5. The ld. AR submitted that while passing the order, the ld. CIT(A) has not taken into consideration the past history of the assessee on this issue. It was submitted that it was a continuing issue and in view of lack of a discussion on the relevant points, it was his prayer that this issue also may be remanded back. 6. The ld. AR inviting attention to copy of Form No.35 which is copy of the grounds filed before the ld. CIT(A) submitted that these issues were agitated before the First Appellate Authority and the fact that there is no finding on ground No. 3 it was submitted, is not disputed by the Revenue also. In the circumstances, it was his prayer that the issues may be remanded back to the CIT(A). ITA 67 /CHD/2020 A.Y. 2012-13 Page 4 of 13 7. The ld. CIT-DR Ms. Zinnia Handa considering the record had no objection to the prayer of the assessee for a remand back of the issues not decided by the First Appellate Authority. On the issue decided, remand back was initially opposed. However, when she was unable to address the past history of the assessee on this issue, she agreed that remand back may be directed. 8. We have heard the rival submissions and perused the material available on record. A perusal of the record shows that the assessee was incorporated on 24th May 1988 as a joint venture of the GOI and Govt. of Himachal Pradesh with the main object to generate hydro electric power. The equity contribution as per record is shared GOI & GOHP in the ratio of 3:1. The company claimed deduction u/s 80-IA (4)(iv)(a). The date of commencement of operation by the company is 06.10.2003 and initial assessment year when deduction is claimed, it is seen is A. Y. 2005-06. A perusal of the order further shows that in view of the proceedings u/s 263 of the Act, the deduction claimed by the assessee u/s 80IA was reduced. Relevant discussion in para 4, 4.1 and 4.2 of the assessment order is reproduced as under : “ 4. Order passed u/s 263 4.1 On perusal of the case records ,as per Annexure-H of the assessee's reply dated 07.08.2014 it was noticed that the assessee had included exchange rate variation of Rs. 7,54,00,000/- in its income from business and profession. As per the provisions of section 80IA (4}(iv)(a) of ITA 67 /CHD/2020 A.Y. 2012-13 Page 5 of 13 the Act, the deduction is allowable only in case of undertaking which is set up in any part of the country for the generation or generation and distribution of power if it begins to generate power at any time during the period beginning on 01.04.1993 to 31.03.2013. It was further noticed that the exchange rate variation realized as its income during the year under consideration on foreign exchange exposure in respect of the interest on foreign currency loan and repayment of foreign loan in the shape of external commercial borrowing was assessee's "income from other sources" and not in the nature of its "income from business or profession". Therefore, the assessee was not eligible for deduction u/s 80IA (4)(iv)(a) of the Act on such income from other sources. It was further noticed that the AO had neither called for the details of such income nor had given any findings on the same before allowing the said deduction in the assessment order under consideration. Hence, the order passed by the AO was erroneous and prejudicial to the interest of the revenue within the meaning of the provisions of section 263 of the Act. 4.2 It was also noticed that the assessee has shown miscellaneous income of Rs. 6,43,06,088/- in the computation of income filed before the AO. The details thereof are as under:- Sr.No. Particulars Total (Rs. in Crore) 1 Hire Rental Charges From Contractors 0.42 2 Profit on Sale of Fixed Assets 0.72 3 Rent Recovery from Staff/Others 1.14 4 Excess Provision written back 0.50 5 Liquidated damages recovered 3.39 6 Other Misc Receipts 0.26 Total 6.43 The AO has disallowed a sum of Rs. 3.39 Crores being liquidated damages recovered and other miscellaneous receipt of Rs. 0.26 Crores for the purpose of computing income eligible for deduction u/s 801A (4)(iv)(a) instead of considering the entire miscellaneous income of Rs. 6,43,06,088/- for this purpose. Therefore, for allowing deduction u/s 80IA (4)[iv)(a) on a sum of Rs. 2.78 Crores (i.e. 6.43-3.39-0.26] being in the nature of income from other sources, without making proper enquiry or verification, the assessment order was found to be erroneous and prejudicial to the interest of revenue as per the provisions of section 263 of the Act.” 8.1 In the said background, the assessment was set aside vide order dated 09.03.2017 passed u/s 263 which factual history has been captured in the impugned order vide paras 4.3 and 4.4. These read as under : ITA 67 /CHD/2020 A.Y. 2012-13 Page 6 of 13 4.3 In view of the above facts, a show cause notice dated 19.10.2016 u/s 263 was issued to the assessee by the Pr. CIT. After considering the submission of the assessee, the Pr. CIT, Shimla has held that the exchange rate variation credited to the P&L a/c is on account of change in the foreign exchange rate against outstanding external commercial borrowings at the end of the accounting year and the gain realized due to exchange rate variation is not "derived from" assessee's business of generation of power as required u/s 80IA of the Act. The Pr. CIT has further held that hire rental charges from contractor, profit on sale of fixed assets, rent recovery from staff/ others and excess provision written back, as per the facts placed on record are realized not directly or "derived from" the business of generation of electricity, therefore, the assessee is not eligible for deduction u/s80IA (4)(iv)(a) on such income. 4.4 Thus the Pr. CIT, Shimla passed an order u/s 263 of the IT Act, 1961on 09.03.2017 holding that the order passed u/s 143(3) of the IT Act,1961 dated 24.03.2015 was erroneous as well as prejudicial to interest of revenue within the meaning of the provision of section 263 of the Act The Pr. CIT, Shimla has set aside the order passed u/s 143(3) of the IT Act,l 961 and has directed the AO to pass afresh assessment order after providing reasonable opportunity of being heard to the assessee. 8.2 The submissions advanced on behalf of the assessee were not accepted by the AO holding as under : 8.1 The exchange rate variation credited to the P&L a/c is on account of change in the foreign exchange rate against the assessee's outstanding external commercial borrowings at the end of the accounting year. The external commercial borrowings raised is not a revenue item and further the gain realized is not "derived from" the assessee’s business of generation of power as required u/s 801A 01 contention of the assessee that as per the CERC notification the exchange rate variation is a pass through item and recoverable from the beneficiaries, is completely misplaced and therefore not tenable. In the case of the assessee, the said variation is not an expenditure/loss but a gain/profit, therefore, not recoverable from the beneficiaries. Para 40 of the CERC notification dated 19.01.2009 clarifies that a generating company or the transmission licensee may hedge foreign exchange exposure in respect of the interest on foreign currency loan and repayment o f foreign loan acquired for the generating station or the transmission system, in part or full in the discretion of the generating company or the transmission licensee. It is also clarified that every generating company and transmission licensee shall recover the cost o f hedging o f foreign exchange rate variation corresponding to the normative foreign debt, in the relevant year on year to year basis as expense in the period in which it arises and extra rupee liability corresponding to such foreign exchange variation shall not be allowed against the hedged foreign debt. Therefore, on account of the said clarification of the CERC, the submission of the assessee as noted above is found completely misplaced and untenable. The CERC notification is only in respect of expenditure incurred by the assessee on account o f foreign currency loan and not in respect of income realized on such foreign exchange rate variation. Similarly, the decision in the case of ITA 67 /CHD/2020 A.Y. 2012-13 Page 7 of 13 Rachana U dyog relied upon by the assessee is not applicable in the case of the assessee since the foreign exchange rate variation in the said case is on account of sale / export of goods i.e. revenue in nature and not on account of variation in foreign currency loan i.e. capital in nature, therefore, on account of such distinguishable facts, the case law cited by the assessee is not applicable. In the instant case the exchange rate variation is on account of repayment of loan and not on account of purchase/sale. Hence, the exchange rate variation credited to P&L account is not "derived from" the business of power generation. 8.2 As regards the four items of income namely hire rental charges from contractor, profit on sale of fixed assets, rent recovery from staff/ others and excess provision written back, they are not directly realized or "derived from" the business of generation of electricity. The assessee has only given a general statement that there four receipts are directly related to business and attributable to the main activity o f electricity generation. However, the assessee has not submitted any documentary evidence to prove its points.” 8.3 As a result thereof, it was held that the receipts shown on account of exchange rate variation; Hire Rental Charges from Contractors; Profit on sale of fixed assets; rent recovery from Staff/others and Excess Provision written back was considered to be not derived from the business of power generation. Accordingly, as opposed to the claimed deduction u/s 80IA, deduction to the extent of Rs.10.32 Crores was made in the following manner : ITA 67 /CHD/2020 A.Y. 2012-13 Page 8 of 13 8.4. We have seen that all these issues were carried in appeal before the First Appellate Authority. These have been summed up in the impugned order and specifically referred to in para 2. These are reproduced hereunder for completeness : 2. Grounds of Appeal 1)Interest Income on income tax refund of Rs.3.71 Crore. 2)Other misc. Receipts of Rs.0.35 Crore 3) Liquidated Damages Recovered of Rs.3.39 Crore. 4)Exchange Rate Variation ofRs.7.54 Crore 5)Hire Rental Charges From customers of Rs.0.42 Crores 6)Profit on sale of fixed assets of Rs.0.72 Crores 7)Rent Recovery from staff of Rs.1.14 Crore 8)Excess provision written back of Rs.0.50 Crores. All the above Incomes are inextricable attributable to the business of the assessee and needs to be considered as eligible for deduction u/s 80IA. 8.5 A perusal of the same shows that on the issues raised in ground No.3 admittedly there is no finding. The ld. CIT-DR has tried to draw strength from the aforesaid findings/observations made by the ld. CIT(A) so as to argue that since the finding of the AO was being confirmed, separate reasons were not given. For ready reference, said finding relied upon is reproduced for completeness and reads under : “ 5 . 3 With respect to the items of income at Sr. No. 2,3, 4 and 5 also, the comments made with respect to Sr. No. 1 are equally applicable. Accordingly, for the detailed reasons mentioned by the A.O., the action of the A.O. is upheld and appeal of the assessee on these issues are dismissed. 5.4 With respect to the submission of the appellant on the other issues, it is held that they do not emanate out of the order in appeal and hence the same are dismissed.” 8.6 We find on a reading of the above that the manner of adjudication of the issues, admittedly raised before the First ITA 67 /CHD/2020 A.Y. 2012-13 Page 9 of 13 Appellate Authority cannot be upheld. Sub sub-section (6) of Section 250 of the Act mandates that, “Commissioner(Appeals) disposing of the appeal shall be in writing and shall state the points for determination, the decision thereon and the reason for the decision.”. By no stretch of imagination, it can be said that it meets the statutory requirement. Neither has the ld. CIT(A) made an effort to set out the issue for consideration nor has the First Appellate Authority brought on record the arguments supposedly advanced on behalf of the aggrieved party i.e. the assessee. Reasoning for agreeing with the submissions made or disagreeing with the submissions is also consequently not set out in the order. In the absence of any discussion in terms of the statutory mandate, the conclusion drawn is open to the challenge of being arbitrary. The conclusion without the aforesaid discussion cannot be said to meet the statutory requirements as set out in the Act. An adjudicating authority when called upon to consider the aforesaid decision making process in the absence of any reasons in the order, cannot be expected to infer the reasons for dismissal or allowance of the ground. Such an order where reasoning is absent, cannot be sustained in law. Accordingly, the said finding is set aside and the issues are restored back to the file of the First Appellate Authority with a direction to pass a speaking order in ITA 67 /CHD/2020 A.Y. 2012-13 Page 10 of 13 accordance with law after giving the assessee a reasonable opportunity of being heard. 8.7 On the sole issue on which there is a finding arrived at by the ld. CIT(A), it is seen that the assessee's arguments that it was only a pass through item are found discussed in para 5.2 which reads as under : 5.2 With respect to the exchange rate gains, mentioned at Sr. No. 1, during the year the appellant has argued that the gains are only a pass through item for the appellant and mil have Nil effect as far as computation of income is concerned. I have perused the CERC notification number L-7/145 (160)/2008 -CERC dated 19.01.2009. The relevant extracts of which reproduced as under- 40. Foreign Exchange Rate Variation. (1) The generating company or the transmission license, as the case may be, may hedge foreign exchange exposure m respect of the interest on foreign currency ban and repayment of foreign loan acquired for the generating station or the transmission system, in part or full in the discretion of the generating company or the transmission license. (2) Every generating company and transmission license shall recover the cost of hedging of foreign exchange rate variation corresponding to the normative foreign debt, in the relevant year on year to year basis as expense in the period in which it arises and extra rupee liability corresponding to such foreign exchange rate variation shall not be allowed against the hedged foreign debt. (3) To the extent the generating company or the transmission license is not able to hedge the foreign exchange exposure, the extra rupee liability towards interest payment and loan repayment corresponding to the normative foreign currency loan in the relevant year shall be permissible provided it is not attributable to the generating company or the transmission license or its suppliers or contractors. (4) Every generating company and the transmission licensee shall recover the cost of hedging and foreign exchange rate variable ion year to year basis as income or expense in the period in which it arises. 4.1 Recovery of cost of hedging and foreign exchange rate variation shall be made directly by the generating company or the transmission license, as the case may be, from the beneficiaries or the transmission customers, as the case may be, without making any application before the commission Provide that in case of any objections by the beneficiaries to the amounts claimed on account of cost of hedging or foreign exchange ITA 67 /CHD/2020 A.Y. 2012-13 Page 11 of 13 rate variation, the generating company or the transmission licensee, as the case may be, may make an appropriate application before the Commission for its decision. 8.8 Considering the same, it is seen that the CIT(A) has upheld the disallowance made by the AO holding as under: “5.2.1 A perusal of the above notification clearly shows that the foreign exchange variation related to the generating cost is eligible for recovery of the same. It is pertinent to mentioned here that a perusal of the balance sheet of the company reveals that while the total tangible assets of the company have a book value of Rs.622982 lacs, the total work-in- progress as on 31.03.2012 is 203007 lacs i.e. almost 30% of the capital assets are in work-in-progress which cannot be treated as a generating station giving rise to income eligible for deduction u/s 80IA of the I.TAct, 1961. The appellant further has failed to clarify and segregate the foreign exchange gains relatable to the assets in use and the assets which are under the capital work-in-progress. In the given facts of the case, the general and sweeping comments of the appellant do not help the appellant unless he is able to establish that the foreign exchange gain are relatable to the loans for the assets which have already been considered and allowed while determining the tariffs as per the CERC. In the given facts and circumstances of the case, the action of the A.O. is thus upheld and the contention of the appellant with respect to this issue is accordingly dismissed.” 8.9 The said issue admittedly was a recurring issue over the years. On a reading thereof, however, it is seen that no effort has been made by the ld. CIT(A) to discuss the past history of the assessee on the said issue. The ld. AR has on query stated that on a similar issue over the years, similar manner of presentation of accounts has always been accepted by the Department and has never been disturbed. Picking only the year under consideration, the position becomes disturbed. It has been argued that only this specific assessment year was picked up on account of the fact that the proceedings u/s 263 were not challenged by the assessee. We find on a perusal of ITA 67 /CHD/2020 A.Y. 2012-13 Page 12 of 13 the impugned order that there is no discussion on the past history of the issue by the ld. CIT(A). Accordingly, in the interests of substantial justice, we deem it appropriate to set aside this order and restore the same back to the file of the ld. CIT(A) to discuss the past history of the assessee on this issue and pass a reasoned speaking order in accordance with law. Needless to say that assessee shall be afforded a reasonable opportunity of being heard. 9. It is hoped that the assessee shall participate fully and fairly before the First Appellate Authority and does not abuse the trust reposed. While directing a remand, it is made clear that in the eventuality of abuse of the same, the CIT(A) shall be at liberty to pass an order on the basis of the material available on record. Said order was pronounced in the Open Court at the time of hearing itself. 10. In the result, appeal of the assessee is allowed for statistical purposes. Order pronounced in the Open Court on 07 July,2022. Sd/- Sd/- (VIKRAM SINGH YADAV) (DIVA SINGH) लेखा लेखालेखा लेखा सद瀡य सद瀡यसद瀡य सद瀡य/ Accountant Member 瀈याियक 瀈याियक瀈याियक 瀈याियक सद瀡य सद瀡यसद瀡य सद瀡य/ Judicial Member “Poonam” आदेश क琉 灹ितिलिप अ灡ेिषत/ Copy of the order forwarded to : 1. अपीलाथ牸/ The Appellant 2. 灹瀄यथ牸/ The Respondent ITA 67 /CHD/2020 A.Y. 2012-13 Page 13 of 13 3. आयकर आयु猴/ CIT 4. आयकर आयु猴 (अपील)/ The CIT(A) 5. िवभागीय 灹ितिनिध, आयकर अपीलीय आिधकरण, च瀃डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड榁 फाईल/ Guard File आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar