DLF Power Ltd., Gurgaon V. CIT-IV, New Delhi

ITA 678/DEL/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 0719 (ITAT-DELHI)
• Duration Of Justice: 10 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-01-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 29-12-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 15-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: STEPHEN GEORGE
• Keywords: Business income; Bad and doubtful debts; Difference of opinion; Change of opinion; Set aside
• Section: 143(3); 115JB; 80IA; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B : NEW DELHI DELHI BENCH B : NEW DELHI DELHI BENCH B : NEW DELHI DELHI BENCH B : NEW DELHI BEFORE SHRI G.E.VEERABHADRAPPA, VICE PRESIDENT AND BEFORE SHRI G.E.VEERABHADRAPPA, VICE PRESIDENT AND BEFORE SHRI G.E.VEERABHADRAPPA, VICE PRESIDENT AND BEFORE SHRI G.E.VEERABHADRAPPA, VICE PRESIDENT AND SHRI I.P.BANSAL, JUDICIAL MEMBER SHRI I.P.BANSAL, JUDICIAL MEMBER SHRI I.P.BANSAL, JUDICIAL MEMBER SHRI I.P.BANSAL, JUDICIAL MEMBER ITA NO.678/DEL/2010 ITA NO.678/DEL/2010 ITA NO.678/DEL/2010 ITA NO.678/DEL/2010 ASSESSMENT YEAR : 2005 ASSESSMENT YEAR : 2005 ASSESSMENT YEAR : 2005 ASSESSMENT YEAR : 2005 - -- - 06 0606 06 M/S DLF POWER LIMITED, M/S DLF POWER LIMITED, M/S DLF POWER LIMITED, M/S DLF POWER LIMITED, (NOW CALLED EASTERN INDIA (NOW CALLED EASTERN INDIA (NOW CALLED EASTERN INDIA (NOW CALLED EASTERN INDIA POWERT POWERT POWERT POWERTECH LTD.), ECH LTD.), ECH LTD.), ECH LTD.), DLF GALLERIA, DLF GALLERIA, DLF GALLERIA, DLF GALLERIA, 12 1212 12 TH THTH TH FLOOR, DLF CITY, FLOOR, DLF CITY, FLOOR, DLF CITY, FLOOR, DLF CITY, PHASE PHASE PHASE PHASE- -- -IV, IV,IV, IV, GURGAON GURGAON GURGAON GURGAON 122 002. 122 002. 122 002. 122 002. PAN NO.AAACD0465F. PAN NO.AAACD0465F. PAN NO.AAACD0465F. PAN NO.AAACD0465F. VS. VS. VS. VS. ADDL.COMMISSIONER OF INCOME TAX, ADDL.COMMISSIONER OF INCOME TAX, ADDL.COMMISSIONER OF INCOME TAX, ADDL.COMMISSIONER OF INCOME TAX, RANGE RANGE RANGE RANGE- -- -10, 10, 10, 10, NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI AJAY VOHRA, ADVOCATE. RESPONDENT BY : SH RI STEPHEN GEORGE, CIT - DR. ORDER ORDER ORDER ORDER PER I.P.BANSAL, JM : PER I.P.BANSAL, JM : PER I.P.BANSAL, JM : PER I.P.BANSAL, JM : THIS IS AN APPEAL FILED BY THE ASSESSEE. IT IS DI RECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX, DELHI-IV, NEW DELHI DATED 31.12.2009 FOR AY 2005-06 UNDER THE PROVISIONS OF S ECTION 263 OF THE INCOME TAX ACT, 1961 (ACT). 2. GROUNDS OF APPEAL READ AS UNDER:- 1. THAT THE COMMISSIONER OF INCOME-TAX (CIT) ERR ED ON FACTS AND IN LAW IN ASSUMING JURISDICTION UNDER SECTION 263 OF THE INCOME-TAX ACT, 1961 (THE ACT) TO SET ASIDE THE ASSESSMENT FRAMED BY THE ASSESSING UNDER SECTIO N 143(3) OF THE ACT AND TO DIRECT FRESH ASSESSMENT. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT FAILED TO APPRECIATE THAT THE ASSES SMENT ORDER PASSED BY THE ASSESSING OFFICER WAS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTERESTS OF THE R EVENUE AND CONSEQUENTLY, THERE WAS NO WARRANT TO REVISE TH E SAME UNDER SECTION 263 OF THE ACT. ITA-678/DEL/2010 2 2.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT FAILED TO APPRECIATE THAT THE ASSES SMENT ORDER DATED 26.12.2007 HAD BEEN PASSED BY THE ASSES SING OFFICER AFTER DUE AND ADEQUATE ENQUIRIES/INVESTIGAT ION AND APPLICATION OF MIND, INTER ALIA, TO THE ISSUE OF AL LOWABILITY OF DEDUCTION UNDER SECTION 80-IA OF THE ACT IN RESPECT OF INTEREST INCOME AND OTHER INCOME. 2.2 THAT THE CIT ERRED IN HOLDING THAT THE ASSESSIN G OFFICER FAILED TO MAKE ENQUIRY/INVESTIGATION ON THE ISSUES OF ALLOWABILITY OF DEDUCTION UNDER SECTION 80IA OF THE ACT ON INTEREST AND OTHER INCOME. 2.3 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT FURTHER FAILED TO APPRECIATE THAT A SSUMPTION OF JURISDICTION UNDER SECTION 263 WAS EVEN OTHERWIS E NOT WARRANTED SINCE (I) TWO VIEWS WERE POSSIBLE ON THE ISSUE OF ALLOWABILITY OF DEDUCTION UNDER SECTION 80-IA OF TH E ACT IN RESPECT OF INTEREST INCOME AND OTHER INCOME; AND, ( II) THE CIT HIMSELF ACCEPTED THAT THERE WAS PRIMA FACIE STR ENGTH IN THE SUBMISSIONS MADE BY THE APPELLANT. 3. WITHOUT PREJUDICE AND IN THE ALTERNATIVE, THAT O N THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT ERRED IN LAW IN SETTING ASIDE THE ASSESSMENT ORDER DATED 26.12.2007 IN ENTIRETY AND IN ORDERING FRESH ASSESS MENT OF INCOME OF APPELLANT COMPANY. 3. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDER ATION WAS FILED BY THE ASSESSEE ON 29.10.2005 DECLARING LOSS OF ` 4 7,83,774/- UNDER THE NORMAL PROVISIONS OF THE ACT AND BOOK PROFIT WA S COMPUTED AT ` 7,32,22,716/- UNDER THE PROVISIONS OF SECTION 115JB OF THE ACT. IN THE ASSESSMENT FRAMED U/S 143(3) OF THE ACT VIDE ORDER DATED 26.12.2007, THE NORMAL INCOME OF THE ASSESSEE WAS COMPUTED AT N IL BY GRANTING THE DEDUCTION U/S 80IA OF ` 17,82,47,622/- IN RESPE CT OF POWER GENERATION UNIT OPERATED BY THE ASSESSEE. SINCE TH E ASSESSEE HAS INCURRED LOSSES IN RESPECT OF ITS ANOTHER UNIT NAME D AS ENERGY SYSTEM UNIT, THE DEDUCTION U/S 80IA CLAIMED IN RESPECT OF POWER GENERATION UNIT WAS RESTRICTED TO ` 17,82,47,622/- AGAINST THE CLAIMED DEDUCTION OF ` 18,30,31,396/- BEING RESTRICTED TO GROSS TOTAL IN COME SHOWN BY THE ITA-678/DEL/2010 3 ASSESSEE. UNDER SECTION 115JB, THE BOOK PROFIT WAS COMPUTED AT ` 19,25,37,634/- BY INCLUDING AN AMOUNT OF ` 11,92,14 ,918/- ON ACCOUNT OF PROVISION FOR DOUBTFUL DEBTS. IT IS IN THESE CI RCUMSTANCES THE INCOME OF THE ASSESSEE WAS ASSESSED AT A BOOK PROFIT OF ` 19,25,376,634/-. 4. VIDE NOTICE ISSUED U/S 263 OF THE ACT, LEARNED C IT REQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY THE POWERS U/S 263 SH OULD NOT BE INVOKED AS THE EXAMINATION OF INCOME TAX RECORDS OF THE ASSESSEE FOR AY 2005-06 HAS REVEALED THAT DEDUCTION U/S 80IA HAS EXCESSIVELY BEEN ALLOWED ON THE FOLLOWING TWO ITEMS:- (I) INTEREST INCOME OF RS.157.521 LACS CREDITED TO THE PROFIT & LOSS ACCOUNT HAS BEEN INCLUDED FOR THE PURPOSE OF CALCULATION OF DEDUCTION U/S 80IA OF THE INCOME TAX ACT. THIS AMOUNT SHOULD HAVE BEEN EXCLUDED WHILE CALCULA TING THE DEDUCTION IN CONFORMITY WITH DEPARTMENTAL STAND ON THE ISSUE. (II) OTHER INCOME OF RS.141.64 LACS HAS ALSO NOT BEEN EX CLUDED FOR THE PURPOSE OF CALCULATION OF DEDUCTION U/S 80I A, THEREBY ALLOWING AN EXCESS DEDUCTION. 5. THUS, IT WAS PROPOSED THAT ASSESSMENT ORDER PASS ED BY THE AO DATED 26.12.2007 BEING ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE SHOULD BE REVISED BY PASSING A SUITABLE REM EDIAL ORDER AND THE OBJECTIONS OF THE ASSESSEE IN THIS REGARD WERE CALLED FOR. COPY OF SHOW CAUSE NOTICE IS FILED AT PAGE 58 OF THE PAPER BOOK. 6. THE ASSESSEE HAS FILED DETAILED REPLY OF THE AFO RESAID SHOW CAUSE NOTICE VIDE LETTER DATED 28.4.2009 COPY OF WHICH IS FILED AT PAGES 59 TO 72 OF THE PAPER BOOK. ITA-678/DEL/2010 4 7. AS THE INCUMBENCY HAD CHANGED, THE INCUMBENT COM MISSIONER AGAIN ISSUED NOTICE DATED 7.9.2009 PROPOSING TO INV OKE POWERS U/S 263 ON ALMOST IDENTICAL GROUNDS. IN ADDITION, IT WAS S TATED THAT EXAMINATION OF RECORD REVEALED THAT THE ISSUE REGAR DING ALLOWABILITY OF DEDUCTION U/S 80IA ON THE AFOREMENTIONED ITEMS WAS NEVER CONSIDERED BY THE AO WHILE FRAMING THE ASSESSMENT AND NO ENQUI RY/INVESTIGATION SEEMS TO HAVE BEEN CARRIED OUT WITH REGARD TO THOSE ISSUES AND REFERENCE WAS MADE TO SETTLED POSITION OF LAW ACCOR DING TO WHICH LACK OF ENQUIRY/INVESTIGATION MAKE THE ORDER OF AO ERRON EOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE, THEREFO RE THE POWERS WERE SOUGHT TO BE INVOKED AND ASSESSEE WAS AGAIN PROVIDE D WITH SHOW CAUSE NOTICE THE COPY OF WHICH IS PLACED AT PAGE 37 AND 34 OF THE PAPER BOOK. THE ASSESSEE AGAIN SUBMITTED LETTER DA TED 15.9.2009 MAKING REFERENCE TO EARLIER SUBMISSIONS AND SUBMITT ED THAT THE ASSESSEE WILL BE SUBMITTING IF ANY FURTHER ISSUE OR POINT IS RAISED. 8. ACCORDING TO THE SUBMISSIONS MADE BY THE ASSESSE E BEFORE THE CIT, IT WAS THE CASE OF THE ASSESSEE THAT ASSESSEE IS OPERATING FOLLOWING TWO UNITS:- (I) POWER GENERATION UNIT. (II) ENERGY SYSTEM UNIT. 9. IT WAS FURTHER SUBMITTED THAT POWER GENERATION U NIT IS ELIGIBLE FOR DEDUCTION U/S 80IA. THE ASSESSEE EARNED PROFIT FRO M POWER GENERATION UNIT TO THE EXTENT OF ` 18,30,31,396/-. A LOSS WAS INCURRED FROM ENERGY SYSTEM DIVISION OF ` 47,83,774/-, THEREFORE THE NET INCOME OF THE ASSESSEE FROM THOSE TWO UNITS WAS AN AMOUNT OF ` 17 ,82,47,622/-. THE DEDUCTION WAS CLAIMED AT ` 18,30,31,396/- U/S 80IA ON THE PROFITS OF POWER GENERATION DIVISION AND THUS, LOSS WAS RETURN ED AT ` 47,83,774/-. THE BOOK PROFIT WAS SHOWN AT ` 7,33,22,716/- U/S 11 5JB OF THE ACT. IT ITA-678/DEL/2010 5 WAS SUBMITTED THAT THE INTEREST INCOME OF ` 157.51 LAKHS ALLEGED TO BE NOT ELIGIBLE FOR DEDUCTION U/S 80IA COMPRISES OF TH E FOLLOWING INCOMES:- PARTICULARS POWER ENERGY GENERATION SYSTEM DIVISION DIVISION (RS. IN LACS) (RS. IN LACS) INTEREST ON LATE PAYMENT FROM CUSTOMERS/DEBTORS 144.41 NIL INTEREST ON BANK DEPOSITS KEPT AS MARGIN MONEY FOR IMPORTING STORES AND SPARES AND PURCHASING GAS, ETC. FOR RUNNING POWER PLANT. 4.95 -- INTEREST ON BANK DEPOSITS KEPT AS MARGIN MONEY FOR BIDDING FOR POWER PROJECTS -- 8.15 TOTAL 149.37 8.15 10. IT WAS SUBMITTED THAT OUT OF THE AFOREMENTIONED SUM OF ` 157.51 LAKHS, THE INTEREST INCOME OF ` 149.37 LAKHS RELATE S TO POWER GENERATION UNIT AND IS ELIGIBLE FOR DEDUCTION U/S 8 0IA, HENCE DEDUCTION U/S 80IA HAS RIGHTLY BEEN ALLOWED BY THE AO AND THE RE IS NO QUESTION OF THE ASSESSMENT ORDER BEING ERRONEOUS ON THAT COUNT. IT WAS SUBMITTED THAT FURTHER PORTION OF ` 8.15 LAKHS RELATES TO ENE RGY SYSTEM UNIT WHICH WAS NEVER CLAIMED AS ELIGIBLE FOR DEDUCTION U/S 80I A, THEREFORE ALSO, ON THAT PORTION, THERE IS NO QUESTION OF ASSESSMENT OR DER BEING ERRONEOUS. SO FAR AS IT RELATES TO ELIGIBILITY OF ` 144.41 LAK HS INTEREST EARNED BY THE ASSESSEE ON ACCOUNT OF LATE PAYMENT FROM CUSTOMERS/ DEBTORS, THE ASSESSEE PLACED RELIANCE ON VARIOUS JUDICIAL PRONOU NCEMENTS TO CONTEND THAT SUCH INTEREST BEING PART OF SALE PRICE IS ELIGIBLE FOR DEDUCTION U/S 80IA, HENCE THE ALLOWABILITY THEREOF CANNOT BE HELD TO BE ERRONEOUS. SO FAR AS IT RELATES TO ANOTHER AMOUNT OF ` 4.95 LAKHS BEING INTEREST ON BANK DEPOSITS KEPT AS MARGIN MONEY, THE ASSESSEE SUBMITTED THAT SAID AMOUNT IS ALSO ELIGIBLE FOR DED UCTION U/S 80IA AND TRIBUNAL IN ASSESSEES OWN CASE FOR AY 1998-99 HAS UPHELD THE CLAIM OF THE ASSESSEE RELATING TO DEDUCTION U/S 80IA. REFER ENCE WAS MADE TO ORDER DATED 30.11.2005 PASSED IN ITA NO.1195/DEL/20 02, THE COPY OF ITA-678/DEL/2010 6 WHICH IS ALSO FURNISHED IN WHICH IT WAS HELD THAT I NTEREST EARNED BY THE ASSESSEE ON FIXED DEPOSITS KEPT AS MARGIN MONEY WIT H THE BANK IN ORDER TO OBTAIN LETTER OF CREDIT/BANK GUARANTEE, TH E AMOUNT WAS ELIGIBLE FOR DEDUCTION U/S 80IA. 11. SO FAR AS IT RELATES TO OTHER INCOME OF ` 141.6 4 LAKHS, IT WAS SUBMITTED THAT THE BIFURCATION OF THE SAME IS AS UN DER:- (I) OTHER INCOME OF POWER GENERATION UNIT RS.10.59 LACS (II) OTHER INCOME OF ENERGY SYSTEM UNIT RS.13 1.05 LACS 12. IT WAS SUBMITTED THAT ONLY IN RESPECT OF ` 10.5 9 LAKHS RELATES TO POWER GENERATION UNIT ON WHICH DEDUCTION U/S 80IA H AS BEEN CLAIMED AND ON THE ANOTHER AMOUNT OF ` 131.05 LAKHS NO DEDU CTION WHATSOEVER U/S 80IA HAS BEEN CLAIMED. IT WAS SUBMITTED THAT T HE AMOUNT OF ` 10.59 LAKHS COMPRISES OF FOLLOWING INCOME:- PARTICULARS AMOUNT (RS.) SALE OF SCRAP 286082 MISC INCOME 24136 INSURANCE CLAIM OF GIDI COOLING TOWER 63173 STALE CHEQUE 15200 OTHER INCOME 670876 1059467 13. IT BEING INEXTRICABLY LINKED WITH THE BUSINESS OF ELIGIBLE UNDERTAKING WAS ALLOWABLE AS DEDUCTION U/S 80IA. W ITHOUT PREJUDICE, IT WAS SUBMITTED THAT AS THE CLAIM OF THE ASSESSEE REG ARDING DEDUCTION U/S 80IA HAS BEEN RESTRICTED FROM ` 18,30,31,396/- TO ` 17,82,47,622/-, THE ALLOWABILITY OR OTHERWISE OF ` 10.59 LAKHS WILL HAVE NO ADVERSE IMPACT ON THE TAX PAYABLE BY THE ASSESSEE AND THERE FORE TO THAT EXTENT, ORDER OF AO EVEN IF THE ALLOWANCE IS MADE E XCESSIVE CANNOT ITA-678/DEL/2010 7 HELD TO BE PREJUDICIAL TO THE INTEREST OF THE REVEN UE. REFERENCE WAS MADE TO VARIOUS DECISIONS TO CONTEND THAT POWER U/S 263 CANNOT BE INVOKED. IT WAS SUBMITTED BY THE ASSESSEE THAT PRO CEEDING U/S 263 SHOULD BE DROPPED. 14. LEARNED CIT HAS INCORPORATED ALL SUCH SUBMISSIO NS OF THE ASSESSEE IN THE ORDER PASSED BY HIM AND AFTER RECOR DING ALL THESE SUBMISSIONS OF THE ASSESSEE IN THE ORDER, LEARNED C IT HAS CONCLUDED THE APPLICABILITY OF SECTION 263 IN THE FOLLOWING O BSERVATIONS:- I HAVE HEARD THE AUTHORIZED REPRESENTATIVE, GONE T HROUGH THE SUBMISSION AS ALSO THE FACTS OF RECORDS. PRIMA FACIE THE ASSESSEE SUBMISSION HAS SOME STRENGTH AND NEEDS APPROPRIATE CONSIDERATION AS PER LAW. AT THE SAME TIME IT IS ALSO A MATTER OF RECORD THAT THERE IS A LACK OF ENQUIRY/INVESTIGATION ON THE PART OF THE ASSESSING OFFICER. TO THAT EXTENT IT CAN CERTAINLY BE HELD THAT THE OR DER OF THE AO IS BOTH ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF REVENUE. THEREFORE, THE PROVISION OF SECTION 26 3 OF THE ACT AND THE ORDER OF THE ASSESSING OFFICER IS SET A SIDE TO BE REDONE AFRESH. THE ASSESSEE SHALL BE GIVEN REASONA BLE OPPORTUNITIES OF BEING HEARD. 15. AFTER NARRATING THE FACTS, LEARNED AR ASSAILED THE ORDER PASSED BY CIT ON THE GROUNDS ON WHICH THE OBJECTIONS WERE RAI SED BEFORE CIT IN INVOCATION OF POWERS U/S 263. LEARNED AR HAS SUBMI TTED BEFORE US THE CALCULATION OF TAX ACCORDING TO WHICH IN NONE OF TH E CIRCUMSTANCES THERE WAS A LOSS OF REVENUE AND THE SAID CHART IS A S FOLLOWS:- DEDUCTION UNDER SECTION 80IA : ALLOWED IN ORIGINAL ASSESSMENT PARTICULARS POWER GENERATION UNIT ENERGY SYSTEM UNIT TOTAL PROFIT/LOSS FROM BUSINESS OR PROFESSION 18,30,31,396 (47,83,774) 17,82,47,622 GROSS TOTAL INCOME 17,82,47,622 ITA-678/DEL/2010 8 PROFITS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA OF THE INCOME-TAX ACT, 1961 (THE ACT) 18,30,31,396 -- DEDUCTION UNDER SECTION 80IA OF THE ACT, RESTRICTED TO GROSS TOTAL INCOME 17,82,47,622 -- 17,82,47,622 AMOUNTS SOUGHT TO BE EXCLUDED BY THE CIT UNDER SECT ION 263 PARTICULARS POWER GENERATION UNIT ENERGY SYSTEM UNIT REMARKS INTEREST ON LATE PAYMENT FROM CUSTOMERS 144.41 -- COVERED IN FAVOUR OF THE ASSESSEE BY THE JURISDICTIONAL HIGH COURT IN - CIT V. ADVANCE DETERGENTS 228 CTR 356 - CIT V. PODDAR PIGMENT : ITA 347/2010 INTEREST ON MARGIN MONEY 4.95 8.15* COVERED ON MERITS AGAINST THE ASSESSEE BY SHRIRAM HONDA POWER EQUIP 298 ITR 475 (DEL). OTHER INCOME 10.59 131.05* INEXTRICABLY LINKED WITH POWER GENERATION ACTIVITY AND THEREFORE ELIGIBLE. * NO DEDUCTION UNDER SECTION 80IA HAS BEEN CLAIMED. DEDUCTION UNDER SECTION 80IA AFTER FACTORING ADJUST MENTS PROPOSED BY THE CIT UNDER SECTION 263 (WITHOUT PREJUDICE) PARTICULARS POWER GENERATION UNIT ENERGY SYSTEM UNIT TOTAL PROFIT/LOSS FROM BUSINESS OR PROFESSION 18,30,31,396 (47,83,774) 17,82,47,622 LESS : (AS PROPOSED -- ITA-678/DEL/2010 9 BY THE CIT) - INTEREST ON MARGIN MONEY - OTHER INCOME (4,95,000) (10,59,000) PROFITS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA OF THE ACT 18,19,72,396 -- 18,19,72,396 DEDUCTION UNDER SECTION 80IA OF THE ACT, RESTRICTED TO GROSS TOTAL INCOME 17,82,47,622 16. THUS, IT WAS PLEADED BY HIM THAT THE POWERS HAVE WR ONGLY BEEN EXERCISED BY THE CIT AND ORDER PASSED BY HIM SHOULD BE QUASHED. 17. ON THE OTHER HAND, RELYING UPON THE ORDER OF CI T, IT WAS PLEADED BY THE LEARNED CIT-DR THAT HIS ORDER SHOULD BE UPHE LD. 18. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. WE HAVE GONE THROUGH THE DOCUMENTS SUBMITTED BY THE ASSESSE E IN THE PAPER BOOK. WE HAVE PERUSED THE SHOW CAUSE NOTICES ISSUE D BY THE LEARNED CIT AND THE REPLIES FURNISHED BY THE ASSESSEE. IT IS THE FIRST CONTENTION OF THE ASSESSEE THAT WHILE FRAMING THE ASSESSMENT, THE AO HAD GONE INTO THE QUESTION REGARDING ALLOWABILITY OF DEDUCTI ON U/S 80IA ON INTEREST AND IN THIS REGARD, REFERENCE WAS MADE TO THE REPLY SUBMITTED BY THE ASSESSEE BEFORE THE AO ON 6.9.2007, COPY OF WHICH IS PLACED AT PAGES 51 TO 52 OF THE PAPER BOOK. IN THE SAID LETT ER, THE ASSESSEE HAS SUBMITTED TO THE AO REGARDING CLAIM OF DEDUCTION U/ S 80IA ON THE INTEREST INCOME EARNED BY THE ASSESSEE AT ` 157.51 LAKHS. THE RELEVANT PORTION OF THE REPLY OF THE ASSESSEE AS CO NTAINED IN THE SAID LETTER IS AS UNDER:- ITA-678/DEL/2010 10 WE ARE ENCLOSING HEREWITH THE FOLLOWING INFORMATIO N AS REQUIRED BY YOU. 1. NOTE ON INTEREST INCOME OF RS.157.51 LACS, AND C OPY OF ORDER DATED 30.11.2005 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C : NEW DELHI. TH E BENCH HAS BEEN PLEASED TO ALLOW DEDUCTION UNDER SECTION 8 0-IA OF THE INCOME TAX ACT ON THE INTEREST INCOME EARNED BY THE COMPANY. 2. COPY OF OPINION OF SHRI S.S.BAGAI AN EMINENT PER SON IN THE FIELD OF TAXATION. SHRI BAGAI HAS OPINED TH AT THE ASSESSEE HAS RIGHTLY CLAIMED THAT THE LOSSES OF ENE RGY SYSTEM DIVISION SHOULD NOT BE SET OFF AGAINST THE I NCOME OF THE POWER GENERATION DIVISION AND BE CARRIED FORWAR D TO THE SUBSEQUENT YEAR(S). THE LEGAL POSITION OF THIS POINT IS ABUNDANTLY CLEAR. IF, SUB-SECTION 5 UNDER SECTION 80-IA HAD NOT BEEN THERE, THIS LOSS OF ENERGY SYSTEMS DIVISIO N WOULD HAVE BEEN ADJUSTED AGAINST THE INCOME OF POWER DIVI SION. BUT OUR CASE IS GOVERNED BY THIS SPECIAL PROVISION OF SUB- SECTION 5 OF SECTION 80-IA, WHICH OVERRIDES ALL THE OTHER PROVISIONS OF THE INCOME TAX ACT RELEVANT TO THIS S UBJECT. WE REPRODUCE BELOW SUB SECTION 5 BELOW: QUOTE : NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT, THE PROFITS AND GAINS OF AN ELIGIBLE BUSINESS TO WHICH THE PROVISIONS OF SUB-SECTION (1) APPLY SHALL, FOR THE PURPOSES OF DETERMINING THE QUANTUM OF DEDUCTION UNDER THAT SUB-SECTION FOR THE ASSESSMENT YEAR IMMEDIATELY SUCCEEDING THE INITIAL ASSESSMENT YEAR OR ANY SUBSEQUENT ASSESSMENT YEAR, BE COMPUTED AS IF SUCH ELIGIBLE BUSINESS WERE THE ONLY SOURCE OF INCOME OF THE ASSESSEE DURING THE PREVIOUS YEAR RELEVANT TO THE I NITIAL ASSESSMENT YEAR AND EVERY SUBSEQUENT ASSESSMENT YEA R AND INCLUDING THE ASSESSMENT YEAR FOR WHICH THE DETERMINATION IS TO BE MADE. UNQUOTE : THUS, ACCORDING TO SUB-SECTION 5, THE INCOME FROM T HE EXEMPTED UNDERTAKING IS TO BE QUARANTINED I.E., THE INCOME OR LOSS IS TO BE DEALT WITH INDEPENDENTLY. THE ASS ESSMENT ORDER PASSED ON 28.2.2005 WAS, THEREFORE, PERFECTLY CORRECT WITHIN LAW AND NO AMENDMENT IS CALLED FOR. ITA-678/DEL/2010 11 19. THE NOTE WHICH HAS BEEN REFERRED TO IN THE REPL Y READS AS UNDER:- SUB : INTEREST INCOME RS.157.51 LACS 1. INTEREST RS.144.41 LACS ON ACCOUNT OF DUE PAYMEN T OF RS.1827.00 LACS MADE BY OUR CUSTOMER ASSAM STATE ELECTRICITY BOARD (ASEB) IN 12 MONTHLY INTEREST BEA RING INSTALLMENTS, SO THE INTEREST INCOME CONSIDERED AS BUSINESS INCOME NOT OTHER INCOME. THE COMPANY HAS TAKEN LOA NS AGAINST SUNDRY DEBTORS AND INTEREST FOR THE SAME HA VE BEEN BOOKED IN FINANCE CHARGES AS EXPENSES. 2. INTEREST RS.4.95 LACS. THE COMPANY WAS REQUIRED TO OBTAIN LETTER OF CREDIT FOR IMPORTING STORES AND SP ARES AND PURCHASING GAS FOR RUNNING THE POWER PLANT IN ASSAM . IN ORDER TO OBTAIN LETTER OF CREDIT AND BANK GUARANTEE FOR ABOVE PURPOSE, THE BANK INSISTED FOR MARGIN MONEY W HICH WAS KEPT IN THE BANK IN THE FORM OF FIXED DEPOSIT O N WHICH THE COMPANY EARNED INTEREST. THE INTEREST EARNED I N THE ABOVE DEPOSIT IS THEREFORE, ELIGIBLE UNDER SECTION 80-IA OF THE INCOME TAX ACT. 3. INTEREST RS.8.15 LACS. THE COMPANY WAS REQUIRED TO OBTAIN BANK GUARANTEE FOR BIDING FOR POWER PROJECT. IN ORDER TO OBTAIN BANK GUARANTEE FOR ABOVE PURPOSE, T HE BANK INSISTED FOR MARGIN MONEY WHICH WAS KEPT IN TH E BANK IN THE FORM OF FIXED DEPOSIT ON WHICH THE COMPANY E ARNED INTEREST. 20. THE COPY OF THE ORDER OF THE TRIBUNAL UPHOLDING THE ALLOWABILITY OF SECTION 80IA IN RESPECT OF INTEREST EARNED ON FIXED DEPOSITS WAS ALSO ENCLOSED WITH THE REPLY. IN THIS MANNER, IT WAS TH E ARGUMENT OF THE LEARNED AR THAT IN THE PRESENT CASE, THE AO HAD ENQ UIRED INTO THE ISSUE RELATING TO ALLOWABILITY OF DEDUCTION U/S 80IA ON S UCH INTEREST INCOME AND A SUITABLE REPLY WAS FILED AND BASED UPON THAT REPLY, THE AO HAD GRANTED DEDUCTION TO THE ASSESSEE AND THEREFORE, ON E POSSIBLE VIEW WAS ADOPTED BY THE AO AND CIT COULD NOT SUBSTITUTE HIS VIEW FOR REVISING THE ORDER PASSED BY THE AO AS THE SAME WIL L BE A MERE CHANGE OF OPINION. ITA-678/DEL/2010 12 21. GOING INTO DETAILS, IT WAS THE SUBMISSION OF TH E LEARNED AR THAT MAJOR INTEREST OF ` 144.41 LAKHS RELATES TO INTERES T ON LATE PAYMENTS RECEIVED FROM CUSTOMERS AND ACCORDING TO VARIOUS DE CISIONS OF HON'BLE JURISDICTIONAL HIGH COURT, SUCH INTEREST IS ELIGIBL E FOR DEDUCTION U/S 80IA. REFERENCE IN THIS REGARD IS MADE TO THE DECISION IN THE CASE OF CIT VS. ADVANCE DETERGENT LTD. 228 CTR 356 (DEL) WHEREIN IT HAS BEEN HELD THAT INTEREST ON LATE PAYMENTS RECEIVED FROM CUSTOM ERS IS AN INCOME DERIVED FROM ELIGIBLE INDUSTRIAL UNDERTAKING, THERE FORE ENTITLED FOR DEDUCTION U/S 80IA. IT WAS SUBMITTED THAT SIMILAR PROPOSITION HAS BEEN LAID DOWN IN ANOTHER DECISION BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. PODDAR PIGMENTS LTD., A JUDGMENT DE LIVERED ON 7.4.2010 IN ITA NO.347/2010. THE COPY OF THE ORDER IS FILED AT PAGES 79 TO 82 OF THE PAPER BOOK. THUS, IT WAS SUBMITTED TH AT TO THAT EXTENT, THE ORDER CANNOT BE CONSIDERED TO BE ERRONEOUS. WE FIN D FORCE IN SUCH CONTENTION AND WE HOLD THAT TO SUCH EXTENT, THE ORD ER OF THE AO COULD NOT BE HELD ERRONEOUS BY THE CIT. ANOTHER AMOUNT O F ` 4.95 LAKHS EARNED BY THE ASSESSEE BEING INTEREST ON BANK DEPOS ITS KEPT AS MARGIN MONEY ALSO CANNOT BE CONSIDERED TO BE NOT ELIGIBLE FOR DEDUCTION U/S 80IA IN VIEW OF THE DECISION OF THE TRIBUNAL IN ASS ESSEES OWN CASE DATED 30.11.2005 IN RESPECT OF AY 1998-99. THUS, O UT OF ` 157.521 LAKHS, INTEREST OF ` 149.37 LAKHS COULD NOT BE CONS IDERED TO BE NOT ELIGIBLE FOR DEDUCTION U/S 80IA. REMAINING SUM OF ` 8.15 LAKHS WAS RELATED TO ENERGY SYSTEM DIVISION ON WHICH NO DEDUC TION U/S 80IA WAS CLAIMED, THEREFORE SO FAR AS IT RELATES TO ` 157.52 1 LAKHS, THE ORDER OF AO CANNOT BE SAID TO BE ERRONEOUS AS THE AO HAS COM MITTED NO WRONG IN ALLOWING DEDUCTION U/S 80IA IN RESPECT THEREOF. NOW COMING TO ANOTHER SUM OF ` 141.64 LAKHS, IT WAS DESCRIBED BY THE ASSESSEE THAT OUT OF SAID AMOUNT NO DEDUCTION WHATSOEVER WAS CLAI MED IN RESPECT OF SUM OF ` 131.05 LAKHS AS THE SAME RELATES TO THE IN COME OF ENERGY SYSTEM UNIT ON WHICH NO DEDUCTION U/S 80IA WAS CLAI MED. THEREFORE, OUT OF THE SAID AMOUNT THERE REMAINS ONLY A SUM OF ` 10.59 LAKHS. THOUGH IT HAS BEEN THE SUBMISSION OF THE ASSESSEE T HAT THE SAID ITA-678/DEL/2010 13 AMOUNT, THE DETAIL OF WHICH HAS ALREADY BEEN DESCRI BED IN THE ABOVE PART OF THIS ORDER, IS ALSO QUALIFYING FOR DEDUCTIO N U/S 80IA BUT DESPITE THAT EVEN IF IT IS NOT CONSIDERED BEING ELIGIBLE FO R DEDUCTION U/S 80IA, THEN ALSO THERE CANNOT BE ANY ADVERSE IMPACT ON THE REVENUE AS ULTIMATELY THE INCOME OF THE ASSESSEE HAS BEEN ASSE SSED U/S 115JB ON WHICH SUCH NON-ALLOWABILITY OF DEDUCTION WILL HAVE NO ADVERSE IMPACT ON THE REVENUE. MOREOVER, THE DEDUCTION U/S 80IA C LAIMED BY THE ASSESSEE HAS BEEN REDUCED TO THE EXTENT OF AVAILABL E PROFITS AND IT IS ALLOWED AT ` 17,82,47,622/- AGAINST THE TOTAL DEDUC TION OF ` 18,30,31,396/- AND IF THE CLAIM OF THE ASSESSEE AT ` 18,30,31,396/- IS REDUCED BY THE SUM OF ` 10,59,467/-, THEN THE REMAI NING ELIGIBLE DEDUCTION WILL BE ` 18,19,71,929/- WHICH IS A SUM S TILL EXCEEDING THE DEDUCTION ALLOWED AT ` 17,82,47,622/-. THEREFORE, THERE WILL BE NO LOSS OF REVENUE AND THUS, TO THAT EXTENT, ORDER OF AO CA NNOT BE HELD TO BE PREJUDICIAL TO THE INTEREST OF THE REVENUE. 22. AS PER WELL SETTLED LAW, POWER U/S 263 CAN BE I NVOKED ONLY IN A CASE WHERE TWIN CONDITIONS ARE SATISFIED VIZ. THE O RDER SHOULD BE ERRONEOUS AND IT SHOULD BE PREJUDICIAL TO THE INTER EST OF THE REVENUE. ABSENCE OF EVEN ONE CONDITION WILL NOT MAKE THE ASS ESSMENT ORDER PASSED BY THE AO AS ERRONEOUS. THEREFORE, FOR EXER CISE OF POWER U/S 263, THE ASSESSMENT ORDER SHOULD BE ERRONEOUS AS WE LL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. IN VIEW OF ABOVE D ISCUSSION, IT CAN BE HELD THAT THE ISSUE RELATING TO ALLOWABILITY OF INT EREST EARNED BY THE ASSESSEE FOR DEDUCTION U/S 80IA WAS CONSIDERED BY T HE AO DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS. EVEN ON MERITS, ASSESSEE IS ABLE TO EXPLAIN THAT APART FROM A SUM OF ` 10,59 ,467/-, THE OTHER AMOUNT OF INTEREST WAS ELIGIBLE FOR DEDUCTION U/S 8 0IA. IN RESPECT OF SUM OF ` 10,59,467/- EVEN IF IT IS CONSIDERED INELI GIBLE FOR DEDUCTION U/S 80IA, THEN ALSO THE ASSESSMENT ORDER CANNOT BE HELD TO BE PREJUDICIAL TO THE INTEREST OF THE REVENUE. THEREFORE, IN OUR CONSIDERED OPINION, THE POWERS U/S 263 HAVE WRONGLY BEEN EXERCISED BY T HE LEARNED CIT ITA-678/DEL/2010 14 AND ORDER PASSED BY HIM DESERVES TO BE QUASHED AND IS ACCORDINGLY QUASHED. 23. THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. DECISION PRONOUNCED IN THE OPEN COURT ON 7 TH JANUARY, 2011. SD/- SD/- (G.E.VEERABHADRAPPA) (G.E.VEERABHADRAPPA) (G.E.VEERABHADRAPPA) (G.E.VEERABHADRAPPA) (I.P.BANSAL) (I.P.BANSAL) (I.P.BANSAL) (I.P.BANSAL) VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER DATED : 07.01.2011. VK. COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR