DCIT, New Delhi V. M/s. NTPC Electric Supply Company Ltd., New Delhi

ITA 6981/DEL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 4113 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2011-2012
• Appeal Filed On: 26-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHEFALI SWAROOP
• Assessee Lawyers: ASHISH CHADDHA
• Keywords: Question of law; Valuation report

Judgement Text

IN THE INCOME - TAX APPELLATE TRIBUNAL, DELHI BENCH E , NEW DELHI BEFORE : SHRI BHAVNESH SAINI , JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA NO. 6981/DEL./2014 ASSESSMENT YEAR: 2011 - 12 D.C.I.T., CIRCLE 18(2), NEW DELHI. (APPELLANT) VS. NTPC ELECTRIC SUPPLY CO. LTD., NTPC BHAWAN, CORE - 7, SCOPE COMPLEX, LODHI ROAD, NEW DELHI. PAN AABCN7520Q (RESPONDENT) C.O. NO. 222/DEL./2015 (IN ITA NO. 6981/DEL./2014 ) ASSESSMENT YEAR: 2011 - 12 NTPC ELECTRIC SUPPLY CO. LTD., NTPC BHAWAN, CORE - 7, SCOPE COMPLEX, LODHI ROAD, NEW DELHI. (APPELLANT) VS. D.C.I.T., CIRCLE 18(2), NEW DELHI. (RESPONDENT) REVENUE BY MS. SHEFALI SWAROOP, CIT/DR ASSESSEE BY MS. RANO JAIN, ADVOCATE & SH. ASHISH CHADDHA, C.A. ORDER PER L.P. SAHU, A.M.: THE APPEAL BY THE REVENUE AND CROSS - OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF LD. CIT(A) - XVI, DELHI FOR THE ASSESSMENT YEAR 2011 - 12 . THE REVENUE HAS RAISED FOLLOWING GROUNDS IN ITS APPEAL : DATE OF HEARING 25.09.2017 DATE OF PRONOUNCEMENT 16 .10.2017 ITA NO. 6981/DEL./2014 2 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. CIT(A) HAS ERRED IN NOT APPRECIATING THE PROVISIONS LAID DOWN IN SECTION 5 OF THE INCOME TAX ACT, WHEREIN IT HAS BEEN CLEARLY MENTIONED THAT THE TOTAL INCOME OF A PERSON INCLUDES ALL THE INCOME EARNED (RECEIVED) OR DEEMED TO BE EARNED (RECEIVED) BY THE PERSON IN THE PREVIOUS YEAR? 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. CIT(A) HAS ERRED IN NOT CONSIDERING THE FACTS THAT INTEREST EA RNED IS ULTIMATELY AN INCOME IN SOMEONE'S HAND, IF NOT IN THE HANDS OF THE ASSESSEE COMPANY? 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE ID. CIT(A) HAS ERRED AND HAS FAILED TO MENTION THE PROVISIONS OF INCOME TAX ACT UNDER WHICH SUCH EXEMPTION MAY BE GRANTED TO THE ASSESSEE? THE ASSESSEE HAS RAISED FOLLOWING GROUNDS IN ITS CROSS - OBJECTION : 1 . ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ORDER PASSED BY LEARNED CIT(A) IS BAD BOTH IN THE EYE OF LAW AND ON FACTS. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) HAS ERRED BOTH ON FACTS AND IN LAW IN DIRECTING THE AO TO VERIFY THE DISALLOWANCE OF AN AMOUNT OF RS. 1 ,53,77,518/ - MADE BY AO ON ACCOUNT OF GRATUITY AND LEAVE ENCASHED. 3. (I) THAT THE ABOVE DISALLOWA NCE WAS MADE DESPITE THE FACT THAT THE ASSESSEE HAS BEEN FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING AND THE LIABILITY TO PAY HAS ARISEN DURING THE YEAR UNDER CONSIDERATION. (II) THAT THE ABOVE DISALLOWANCE HAS BEEN MADE REJECTING THE CONTENTION OF APPE LLANT THAT THE SAME ARE DEFINITE AND DETERMINED LIABILITY AND HAS BEEN QUANTIFIED AS PER AS - 15. 2. IN THE APPEAL OF THE REVENUE, THE ONLY ISSUE INVOLVED IS WITH REGARD TO THE ADDITION OF RS. 45,17,84,557/ - MADE ON ACCOUNT OF INTEREST RECEIVED ON DEPOSIT ITA NO. 6981/DEL./2014 3 FROM REC LTD. THE BRIEF FACTS ARE THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE RECEIVED INT EREST ON DEPOSIT OF ADVANCES FROM REC LTD . FOR RAJEEV GANDHI GRAM VIDHYUTIKARAN YOGNA. THE ASSESSEE HAD EARNED TOTAL INTEREST OF RS. 51,32,73,198/ - FROM INDIAN BANKS , WHICH COMPRISES THE INTEREST OF RS.45,17,84,557/ - EARNED ON THE ADVANCES RECEIVED FROM RE C LTD. AS PER NOTE APPENDED TO SCHEDULE 13, AN AMOUNT OF RS. 45,17,84,557/ - TOWARDS INTEREST EARNED ON INVESTMENT OF ADVANCES RECEIVED FROM REC LTD., WAS NOT THE INCOME OF THE ASSESSEE COMPANY, AS IT WAS ATTRIBUTABLE TO REC LTD. THEREFORE, THE ASSESSEE RED UCED THE INTEREST AMOUNTING TO RS.45,17,84,557/ - FROM THE TOTAL INTEREST OF RS.51,32,73,198/ - AND OFFERED THE BALANCE OF RS.6,14,88,641/ - FOR TAXATION. THE ASSESSING OFFICER, AFTER CONSIDERING THE DETAILED REPLY OF ASSESSEE, DID NOT GRANT EXEMPTION TO THE ASSESSEE FROM TAXATION OF SUCH INTEREST INCOME ON THE BANK DEPOSITS AND ADDED THE SUM OF RS. 45,17,84,557/ - TO THE TOTAL INCOME OF THE ASSESSEE. THE LD. CIT(A) DELETED THE ADDITION RELYING ON HIS OWN ORDER FOR THE ASSESSMENT YEAR 2009 - 10 , OBSERVING AS UNDE R : 4.2.2 IDENTICAL ADDITION WAS MADE BY THE AO IN A.Y. 2009 - 10 WHICH WAS DECIDED BY ME IN FAVOUR OF THE ASSESSEE AS UNDER: - 'THE CONDITION STIPULATED FOR GRANTS OF FUNDS TO THE APPELLANT CLEARLY PROVIDES THAT THE INTEREST EARNED ON THE DEPOSITS SHALL BE USED FOR COST OF THE PROJECTS BY WAY OF ADJUSTMENT IN THE LAST INSTALLMENT. THEREFORE, THERE IS BASICALLY NO DIFFERENCE BETWEE N FUNDS GRANTED BY GOVT. AND THE INTEREST CREDITED BY THE BANK IN THE ACCOUNT OF THE APPELLANT, SO FAR AS THE APPELLANT IS CONCERNED. BOTH THE ITEM ARE TO BE UTILIZED TOWARDS COST OF THE PROJECTS. BOTH THE ITEMS ARE NOT AVAILABLE TO BE USED AS ITA NO. 6981/DEL./2014 4 INCOME OF TH E APPELLANT. GOVT. OF INDIA'S LETTER TO THE CEO OF THE APPELLANT ALSO CLARIFIES THAT INTEREST ACCRUED ON FUNDS DEPOSITED IS NOT THE INCOME OF THE APPELLANT COMPANY. THEREFORE, THE AO HAS ERRED IN TREATING THE INTEREST COMPONENT AS INCOME OF THE APPELLANT. IN VIEW OF THE ABOVE, I AM OF THE CONSIDERED OPINION THAT THE AO IS NOT JUSTIFIED ADDING THE INTEREST OF RS. 19,87,59,4077 - CREDITED IN THE ACCOUNTS MAINTAINED BY THE APPELLANT FOR RGGVY PROJECTS. IN VIEW OF THE ABOVE, THE ADDITION OF INTEREST RS.19,87,59, 407/ - MADE BY THE AO IS DELETED AND APPEAL IS ALLOWED ON THIS GROUND.' FURTHER THE AO'S REFERENCE TO SEC 60 OF THE IT ACT IS MISPLACED. SEC 60 OF THE ACT SAYS; - 'TRANSFER OF INCOME WHERE THERE IS NO TRANSFER OF ASSETS. 60. ALL INCOME ARISING TO ANY PERSON BY VIRTUE OF A TRANSFER WHETHER REVOCABLE OR NOT AND WHETHER EFFECTED BEFORE OR AFTER THE COMMENCEMENT OF THIS ACT SHALL, WHERE THERE IS NO TRANSFER OF THE ASSETS FROM WHICH THE INCOME ARISES, BE CHARGEABLE TO INCOME - TAX AS THE INCOME OF THE TRANSFE ROR AND SHALL BE INCLUDED IN HIS TOTAL INCOME.' FROM THE ABOVE PROVISION IT IS CLEAR THAT WHERE THERE IS NO TRANSFER OF THE ASSETS FROM WHICH THE INCOME ARISES THE INCOME SHALL BE CHARGEABLE TO INCOME - TAX AS THE INCOME OF THE TRANSFEROR AND NOT THAT OF TH E TRANSFEREE. IN THE INSTANT CASE, THE FUNDS TRANSFERRED BY REC IS FOR EXECUTION OF PROJECTS UNDER THE RGGYY. THE FUNDS WERE NOT TRANSFERRED AS ASSETS OF THE ASSESSEE COMPANY. THEREFORE, THE FUNDS ARE NOT ASSETS OF THE ASSESSEE. FURTHER, UNDER THE SCHEME T HE APPELLANT DOES NOT HAVE ANY RIGHT TO USE THE INTEREST INCOME. THE ASSESSEE IS A PUBLIC SECTOR ENTERPRISE AND BOUND BY THE INSTRUCTION OF THE GOVERNMENT TO UTILIZE THE INTEREST ON DEPOSITS TOWARDS THE PROJECT COST. AS SUCH THE INTEREST INCOME THAT ARISES FROM SUCH FUNDS IS NOT TAXABLE IN THE HANDS OF THE ASSESSEE. IN VIEW OF THE ABOVE, AS THE ISSUE IS IDENTICAL TO THE ISSUE DECIDED IN AY 2009 - 10, THEREFORE, FOLLOWING THE DECISION OF AY 2009 - 10., THE ISSUE IS DECIDED IN THE FAVOUR OF THE ASSESSEE. 3. THE REVENUE HAS CHALLENGED THE ABOVE ORDER OF LD. CIT(A) BY WAY OF THIS APPEAL. ITA NO. 6981/DEL./2014 5 4. THE LD. DR RELIED ON THE ORDER OF THE ASSESSING OFFICER AND SUBMITTED THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION IGNORING THE FACT THAT THE ASSESSEE COULD NOT BE ABLE TO SUBSTANTIATE AS TO UNDER WHAT PROVISIONS OF THE ACT, SUCH INTEREST EARNED BY THE ASSESSEE IS EXEMPT FROM TAX. 5. ON THE OTHER HAND, THE LD. AR RELIED ON THE ORDER OF THE LD. CIT(A) AND SUBMITTED THAT ON THE IDENTICAL ISSUE AND FACTS & CIRCUMSTANCES, THE ORDER OF LD. CIT(A) FOR A.Y. 2009 - 10 WAS CONFIRMED BY ITAT IN ITA NO. 240/DEL./2013 DATED 11.01.2017 AND THE SAID ORDER OF TRIBUNAL ALSO STOOD CONFIRMED BY HON BLE DELHI HIGH C OURT IN ITA NO. 511/2017 DA T ED 22 ND AUGUST, 2017. ACCORDINGL Y, THE ISSUE UNDER CONSIDERATION IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF HON BLE DELHI HIGH COURT IN ASSESSEE S OWN CASE FOR A.Y. 2009 - 10. 6. WE HAVE HEARD BOTH THE PARTIES AND HAVE GONE THROUGH THE ENTIRE MATERIAL AVAILABLE ON RECORD AND WE FIND THAT THE ISSUE UNDER CONSIDERATION IS SQUARELY COVERED BY THE DECISION OF HON BLE DELHI HIGH COURT (SUPRA) IN THE CASE OF ASSESSEE ITSELF FOR A.Y.2009 - 10. THE OBSERVATIONS OF THE HON BLE COURT ARE REPRODUCED BELOW FOR READY REFERENCE : THE UNDISPUTED FACTS, AS NOTED BY THE ITAT, IS THAT THE SAID INTEREST INCOME WAS EARNED BY THE ASSESSEE ON THEDEPOSIT OF ADVANCES RECEIVED FROM REC LTD. FOR RAJIV GANDHI GRAMIN VIDYUTIKARAN YOJANA ( RGGVY ). A MEMORANDUM OF UNDERSTANDING ( MOU ) WAS SIGNED ON 16 TH AUGUS T, 2004 BETWEEN REC AND ITA NO. 6981/DEL./2014 6 THE ASSESSEE WHEREBY INTER ALIA IT WAS AGREED THAT INTEREST EARNED ON THE DEPOSITS WOULD BE USED AS PART OF THE COST OF THE PROJECTS AND NO OTHER PURPOSE. 4. IN THE CIRCUMSTANCES, THE VIEW TAKEN BY THE CIT(A) AND AFFIRMED BY THE I TAT, DOES NOT SUFFER FROM LEGAL INFIRMITY SO AS TO GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. RESPECTFULLY FOLLOWING THE DECISION OF HON BLE DELHI HIGH COURT, WE FIND NO SUBSTANCE IN THE APPEAL OF THE REVENUE AND THE SAME IS ACCORDINGLY LIABLE TO FAIL . 7. IN THE CROSS OBJECTION, THE ONLY ISSUE INVOLVED IS WITH RESPECT TO THE AMOUNT OF RS.1,53,77,518/ - ADDED BY THE AO ON ACCOUNT OF GRATUITY AND LEAVE ENCASHMENT. THE LD. CIT(A) WHILE DEALING WITH THE SAID ISSUE IN HIS ORDER DIRECTED THE AO TO VERIFY TH E ACTUAL PAYMENT MADE BY THE ASSESSEE DURING THE YEAR ON ACCOUNT OF GRATUITY AND LEAVE ENCASHMENT. HE FURTHER DIRECTED THE AO TO ALLOW THE LIABILITIES IN THE HANDS OF THE ASSESSEE TO THE EXTENT OF ACTUAL PAYMENTS MADE DURING THE YEAR. THE ASSESSEE HAS ASSA ILED THIS ORDER OF LD. CIT(A) BY WAY OF CROSS OBJECTION. 8. HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE LD. AR OF THE ASSESSEE SUBMITTED THAT THERE IS A CONTRADICTION IN THE FINDINGS GIVEN BY THE LD. CIT(A) AS HE HIMSELF ACCEPTS THE FA CT THAT THE PAYMENTS WERE BEING MADE BY THE ASSESSEE TO ITS HOLDING COMPANY ON ACCOUNT OF GRATUITY AND LEAVE ITA NO. 6981/DEL./2014 7 ENCASHMENT ON YEARLY BASIS AND IN SUCH CIRCUMSTANCES THERE WAS NO OCCASION FOR THE CIT(A) TO GIVE THE DIRECTION TO THE AO TO VERIFY, RATHER HE HIMS ELF COULD HAVE GIVEN RELIEF TO THE ASSESSEE. WE DO NOT FIND ANY SUBSTANCE IN THESE SUBMISSIONS OF THE ASSESSEE. WE HAVE GONE THROUGH THE RELEVANT FINDINGS OF THE LD. CIT(A) AND WE FIND THAT THE LD. CIT(A) HAS NOWHERE ACCEPTED THE FACT THAT THE PAYMENTS OF GRATUITY AND ENCASHMENT WERE MADE BY THE ASSESSEE ON YEARLY BASIS. RATHER THE LD. CIT(A) HAS POINTED OUT THE CONTRADICTION BETWEEN THE SUBMISSIONS MADE ASSESSEE BEFORE THE AO AND THOSE MADE AT THE STAGE OF FIRST APPEAL, AS IS CONSPICUOUS FROM THE FOLLOWIN G FINDINGS OF THE LD. CIT(A) : THE APPELLANT PROVIDED FOR THESE LIABILITIES AS PRESENT OBLIGATIONS AND QUANTUM HAS BEEN ASCERTAINED BASED ON ACTUARIAL VALUATION REPORT. THE ABOVE LIABILITIES INCLUDE RS.77,01,848/ - ON ACCOUNT OF LEAVE ENCASHMENT AND RS.76,75,670/ - ON ACCOUNT OF GRATUITY. UNDER SECTION 40A(7) AND 43B(F), THE GRATUITY AND ENCASH MENT OF LEAVE LIABILITY ARE ALLOWABLE ON PAYMENT BASIS. SINCE THE ABOVE LIABILITIES OF LEAVE ENCASHMENT AND GRATUITY HAVE BEEN PROVIDED BY THE APPELLANT ON THE BASIS OF ACTUARIAL VALUATION AND NO PAYMENTS HAVE BEEN MADE, THEREFORE, THE ABOVE LIABILITIES ARE NOT ALLOWABLE IN VIEW OF THE PROVISIONS OF SECTION 40A(7) AND 43B(F). IN THIS REG A RD THE AR OF THE ASSESSEE SUBMITTED BEFORE THE AO (AS M ENTIONED IN PARA 3.2 OF PAGE 3 OF ASSESSMENT ORDER) THAT ALL THE EXPENSES ON POST RETIREMENT BENEFITS ARE PAID ON YE A RLY BASIS BASED ON DEMAND RAISED BY THE HOLDING COMPANY. IN VIEW OF THE ABOVE THERE IS A CONTRADICTION BETWEEN THE SUBMISSIONS BEFORE THE A O AND THE SUBMISSIONS MADE IN THE APPELLATE PROCEEDINGS. IN VIEW OF THE ABOVE, AO IS DIRECTED TO VERIFY THE ACTUAL PAYMENTS MADE BY THE ASSESSEE DURING THE YEAR ON ACCOUNT OF GRATUITY AND LEAVE ENCASHMENT. THEREFORE, DISALLOWANCE OF ABOVE LIABILITIES OF RS .77,01,848/ - ON ACCOUNT OF LEAVE ENCASHMENT AND RS.76,75,670/ - ON ACCOUNT OF GRATUITY IS SUSTAINED TO THE EXTENT OF PROVISIONS MADE. HOWEVER, TO THE EXTENT OF ACTUAL PAYMENTS MADE DURING THE YEAR, THE LIABILITIES ARE ALLOWABLE IN THE HANDS OF THE ASSESSEE. ITA NO. 6981/DEL./2014 8 9. THERE IS NO DISPUTE THAT AS PER PROVISIONS OF SECTION 40A(7) AND 43B(F), THE GRATUITY AND LEAVE ENCASHMENT ARE ALLOWABLE ON PAYMENT BASIS. THEREFORE, IN OUR OPINION, THERE SHOULD BE NO PREJUDICE TO THE ASSESSEE, TO GET THE ACTUAL PAYMENTS UNDER THESE HEADS VERIFIED FROM THE ASSESSING OFFICER, FOR ALLOWING THE LIABILITIES IN THE HANDS OF THE ASSESSEE. THE LD. CIT(A) HAS , THEREFORE, RIGHTLY DIRECTED THE AO TO VERIFY THE ACTUAL PAYMENTS FOR THE PURPOSE. THE ASSESSING OFFICER IS FURTHER DIRECTED TO ALLOW THE LIABILITIES AFTER VERIFICATION IN TERMS OF THE PROVISIONS OF SECTION 40A(7) AND 43B(F) OF THE IT ACT. ACCORDINGLY, THE CROSS OBJECTION OF THE ASSESSEE DESERVES TO BE DISMISSED. 10. IN THE RESULT, THE APPEAL OF THE REVENUE AND CROSS OBJECTION OF THE ASSESSEE , BOTH ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 16.10.2017 . SD/ - SD/ - ( BHAVNESH SAINI ) (L.P. SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 16.10.2017 *AKS* COPY OF ORDER FORWARDED TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES, NEW DELHI