Appeal details
Counselvise Citation
[2019] 117 COUNSELVISE.COM (IT) 8471 (ITAT-CHANDIGARH)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
9 month(s) 25 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
29-03-2019
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
B
Next Hearing Date
20-02-2019
Assessment Year
2014-2015
Appeal Filed On
04-06-2018
Judgement Text
, , IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH B , CHANDIGARH , ! '# $ % & '# , BEFORE: SHRI SANJAY GARG, JUDICIAL MEMBER AND SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER ./ ITA NO.826/CHD/2018 / ASSESSMENT YEAR : 2013-14 THE A.C.I.T., CIRCLE SHIMLA. M/S SATLUJ JAL VIDYUT NIGAM LTD., SHAKTI SADAN, SHANAN, NEW SHIMLA. ./PAN NO: AAICS1307F ./ ITA NO.834/CHD/2018 / ASSESSMENT YEAR : 2013-14 SJVN LTD. (FORMERLY SATLUJ JAL VIDYUT NIGAM LTD.), SHAKTI SADAN, CORPORATE OFFICE COMPLEX, SHANAN, SHIMLA. THE A.C.I.T., CIRCLE SHIMLA. ./PAN NO: AAICS1307F ./ ITA NO.827/CHD/2018 / ASSESSMENT YEAR : 2013-14 THE A.C.I.T., CIRCLE SHIMLA. M/S SATLUJ JAL VIDYUT NIGAM LTD., SHAKTI SADAN, SHANAN, NEW SHIMLA. ./PAN NO: AAICS1307F & ./ ITA NO.835/CHD/2018 / ASSESSMENT YEAR : 2013-14 SJVN LTD. (FORMERLY SATLUJ JAL VIDYUT NIGAM LTD.), SHAKTI SADAN, CORPORATE OFFICE COMPLEX, SHANAN, SHIMLA. THE A.C.I.T., CIRCLE SHIMLA. ./PAN NO: AAICS1307F ITA NO.826,827,834 & 835/CHD/2018 A.YS.2013-14 & 2014-15 2 /ASSESSEE BY : SHRI RAJIV SOOD, CA / REVENUE BY : SMT.MONA MOHANTI, CIT DR ! /DATE OF HEARING : 20.02.2019 '#$% ! /DATE OF PRONOUNCEMENT:29.03 .2019 /ORDER PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER THE CAPTIONED CROSS APPEALS, BY THE ASSESSEE AND TH E REVENUE, HAVE BEEN FILED AGAINST THE CONSOLIDATED O RDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS), SHIML A(IN SHORT REFERRED TO AS CIT(A),PASSED U/S 250(6) OF TH E INCOME TAX ACT,1961,(HEREINAFTER REFERRED TO AS ACT) DAT ED 23.3.2018 AND RELATES TO ASSESSMENT YEARS(A.Y) 2013 -14 AND 2014-15. 2. IT WAS COMMON GROUND THAT THE ISSUE INVOLVED IN THE CROSS APPEALS WAS IDENTICAL. THEY WERE THEREFORE HE ARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS COMMON AND CONSOLIDATED ORDER. 3. WE SHALL BE DEALING WITH THE FACTS IN THE CROSS APPEALS RELATING TO A.Y 2013-14 IN ITA NO.834 & 826/CHD/201 8 AND OUR DECISION RENDERED THEREIN WILL APPLY MUTATI S MUTANDIS TO THE OTHER CROSS APPEAL ALSO. 4. WE SHALL FIRST TAKE UP THE APPEAL OF THE ASSESSE E IN ITA NO.834/CHD/2018. ITA NO.834/CHD/2018(ASSESSEES APPEAL): 5. GROUND NO.I(1) RAISED BY THE ASSESSEE READS AS UNDER: ITA NO.826,827,834 & 835/CHD/2018 A.YS.2013-14 & 2014-15 3 I. COMPUTATION OF GROSS TOTAL INCOME AS PER NORMAL PROVISIONS. 1. CSR EXPENSES RS.16,03,01,431/- THE CLARIFICATORY EXPLANATION NO.2 ADDED TO SECTION 27 WAS INSERTED BY FINANCE BILL (NO.2) ACT, 2014 AND WAS APPLICABLE W.E.F. 01.03.2015 AND AS SUCH WAS NOT APPLICABLE FOR THE RELEVANT AY 2013-14. THE GENUINE EXPENDITURE INCURRED AS PER STATUTORY DIRECTIUONS HAS A CLEAR NEXUS WITH THE EARNINGS. 6. THE ABOVE GROUND RAISED RELATES TO DISALLOWANCE OF CSR EXPENSES AMOUNTING TO RS.16,03,01,431/-. THE FACTS RELATING TO THE SAME ARE THAT THE ASSESSEE HA D INCURRED THE IMPUGNED CSR EXPENSES, BEING CORPORATE SOCIAL RESPONSIBILITY EXPENSES, BY PAYING TO SJVN C SR TRUST AND THE SAME WAS DISALLOWED BY THE A.O. HOLDI NG THAT IT HAD NOT BEEN INCURRED FOR THE PURPOSE OF CARRYING ON BUSINESS. THE LD.CIT(A) UPHELD THE ORDE R OF THE A.O. STATING THAT THE LEGISLATURE HAD BROUGHT A N AMENDMENT TO SECTION 37 OF THE ACT BY INSERTING EXPLANATION.2 THEREIN, DISALLOWING CSR EXPENSES W.E .F. 1.4.2015. THE LD.CIT(A) STATED THAT THIS EXPLANATIO N WAS CLARIFICATORY AMENDMENT BROUGHT ON THE STATUTE ONLY FOR REMOVAL OF DOUBTS AND, THEREFORE, HELD THE SAME TO BE RETROSPECTIVE IN ITS OPERATION. 7. BEFORE US, LD. COUNSEL FOR THE ASSESSEE POINTED OUT THAT THE EXPLANATION 2 TO SECTION 37 OF THE ACT WHICH WAS NOT EFFECTIVE FOR THE IMPUGNED ASSESSMENT YEAR, COULD NOT BE HELD TO BE CLARIFICATORY IN NATU RE AND WAS ONLY PROSPECTIVE IN ITS APPLICATION AND FURTHER THAT EVEN OTHERWISE THE EXPENSES HAD BEEN INCURRED FOR T HE ITA NO.826,827,834 & 835/CHD/2018 A.YS.2013-14 & 2014-15 4 PURPOSE OF BUSINESS AND WERE HENCE ALLOWABLE U/S 37 (1) OF THE ACT. THE LD. COUNSEL FOR ASSESSEE STATED THA T IDENTICAL ISSUE HAD COME UP FOR CONSIDERATION BEFOR E THE I.T.A.T. IN A NUMBER OF CASES WHEREIN THE EXPEN SES HAD BEEN HELD ALLOWABLE U/S 37(1) OF THE ACT AND TH E IMPUGNED EXPLANATION HAD BEEN HELD TO BE PROSPECTIV E IN ITS OPERATION. IN THIS REGARD OUR ATTENTION WAS DRAWN TO THE DECISION OF THE I.T.A.T., RAIPUR BENCH IN TH E CASE OF ACIT, CIRCLE-1(1), BILASPUR VS. JINDAL POWER LIM ITED IN ITA NO.99/BLPR/2012 DATED 23.6.2016 AND THE ITAT DELHI BENCH, IN THE CASE OF NATIONAL SEEDS CORPORAT ION LTD. VS. ADDL.CIT IN ITA NOS.6794 & 6970/DEL/2014 DATED 4.4.2018. THE LD. COUNSEL FOR ASSESSEE, THEREFORE, CONTENDED THAT THE ISSUE WAS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND, THEREFORE, REQUESTED THAT THE ORDER OF THE LD.CIT(A) BE SET AS IDE ON HIS ACCOUNT. 8. THE LD. DR, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE CIT(A). 9. WE HAVE CONSIDERED THE RIVAL CONTENTIONS, PERUSE D THE ORDERS OF THE AUTHORITIES BELOW AND GONE THROUG H THE CASE LAWS REFERRED TO BEFORE US. THE ISSUE BEFO RE US RELATES TO ALLOWABILITY OF CSR EXPENSES AS BUSINESS EXPENSES U/S 37 OF THE ACT. THAT SUCH EXPENSES ARE NOT ALLOWABLE W.E.F. 1.4.2015 ON ACCOUNT OF THE INSERTION OF EXPLANATION.2 TO SECTION 37 OF THE ACT , IS NOT DISPUTED. THE DISPUTE IS WHETHER THE NATURE OF THE ITA NO.826,827,834 & 835/CHD/2018 A.YS.2013-14 & 2014-15 5 EXPENSE IS FOR THE PURPOSE OF BUSINESS AND WHETHER THE EXPLANATION 2 TO SECTION 37 OF THE ACT, IS RETROSPE CTIVE IN ITS APPLICATION AS CONTENDED BY THE REVENUE OR PROSPECTIVE AS ARGUED BY THE LD.COUNSEL FOR THE ASSESSEE. 10. BOTH THESE ASPECTS, WE FIND, HAVE BEEN DEALT WI TH IN THE ORDER OF THE I.T.A.T. IN THE CASE OF NATIONA L SEEDS CORPORATION LTD. (SUPRA) AND JINDAL POWER LIMITED (SUPRA), RULING IN FAVOUR OF THE ASSESSEE. THE TRIBUNAL, WE FIND, HAS CATEGORICALLY HELD THAT THE CSR EXPENSES ARE TO BE TREATED AS INCURRED FOR THE PURP OSE OF BUSINESS OF THE ASSESSEE AND THAT THE EXPLANATIO N DID NOT HAVE A RETROSPECTIVE APPLICATION AND WAS TO BE APPLIED PROSPECTIVELY ONLY. RELEVANT FINDINGS OF TH E I.T.A.T. IN THE CASE OF JINDAL POWER LIMITED (SUPRA ) AT PARAS 17 TO 19 OF THE ORDER IS AS UNDER: 17. THE NEXT ISSUE IS WHETHER IT IS FOR THE PURPOS ES OF BUSINESS OR NOT. WE MAY, IN THIS REGARD, USEFULLY REFER TO T HE OBSERVATIONS OF A COORDINATE BENCH OF THIS TRIBUNAL, SPEAKING TH ROUGH ONE OF US (I.E. THE ACCOUNTANT MEMBER) AND IN THE CASE OF HINDUSTAN PETROLEUM CORPORATION LTD VS DCIT [(2005) 96 ITD 18 6 (BOM)], AS FOLLOWS: 7. WE FIND THAT AS HOLD BY HON'BLE KARNATAKA HIGH COURT IN THE CASE OF MYSORE KIRLOSKAR LTD. V. CIT [1987] 166 ITR 836 1, WHILE 'THE BASIC REQUIREMENTS FOR INVOKING SECTIONS 37(1) AND 80C ARE QUITE DIFFERENT', 'BUT NONETHELESS THE TWO SECTIONS ARE NOT MUTUALLY EXCLUSIV E'. THUS, THERE ARE OVERLAPPING AREAS BETWEEN THE DONATIONS GIVEN BY THE ASSESSEE AND THE BUSINESS EXPENDITURE INCURRED BY THE ASSESSEE. IN OTHER WORDS, THERE CAN BE CERTAIN AMOUNTS, THOUGH IN THE NATURE OF DONATIONS, AND NONETHELESS, THESE AMOUNTS MAY BE DEDUCTIBLE UNDER SECTION 37(1) AS WELL. THEREFORE, MEREL Y BECAUSE AN EXPENDITURE IS IN THE NATURE OF DONATION, O R. TO USE THE WORDS OF THE CIT(A), 'PROMOTED BY ALTRUIST IC MOTIVES', IT DOES NOT CEASE TO BE AN EXPENDITURE DEDUCTIBLE UNDER SECT/ON 37(1). IN MYSORE KIRLOSKAR ITA NO.826,827,834 & 835/CHD/2018 A.YS.2013-14 & 2014-15 6 LTD.'S CASE THE CONTRIBUTIONS BY THE ASSESSED IS IN THE FORMS OF DONATIONS BUT IF IT COULD BE TERMED AS EXPENDITURE OF THE CATEGORY FALLING IN SECTION 37(1 ), THEN THE RIGHT OF THE ASSESSEE TO CLAIM THE WHOLE O F IT AS A DEDUCTION UNDER SECTION 37(1) CANNOT BE DECLINED . WHAT IS MATERIAL IN THIS CONTEXT IS WHETHER OR NOT T HE EXPENDITURE IN QUESTION WAS NECESSITATED BY BUSINES S CONSIDERATIONS OR NOT. ONCE IT IS FOUND THAT THE EXPENDITURE WAS DICTATED BY COMMERCIAL EXPEDIENCIES , THE DEDUCTION UNDER SECTION 37(1) CANNOT BE DECLINE D AS TO WHAT SHOULD BE RELEVANT FOR EXAMINING THIS ASPECT OF THE MATTER, WE MAY ONLY REFER TO THE OBSERVATIONS OF HON'BLE SUPREME COURT IN THE CASE O F SRI VENKATA SATYANARAYNA RICE MILL CONTRACTORS CO. V. C/T [1997] 223 ITR 101 2: . . . ANY CONTRIBUTION MADE BY AN ASSESSCE TO A PUBLIC WELFARE FUND . WHICH IS DIRECTLY CONNECTED O R RELATED WITH THE CARRYING ON OF THE ASSESSEE'S BUSINESS OR WHICH RESULTS IN THE BENEFIT TO THE ASSESSEE'S BUSINESS HAS TO BE REGARDED AS AN ALLOWABLE DEDUCTION UNDER SECTION 37(1) OF THE ACT. SUCH A DONATION, WHETHER VOLUNTARY OR AT THE INSTAN CE OF THE AUTHORITIES CONCERNED, WHEN MADE TO A CHIEF MINISTER'S DROUGHT RELIEF FUND OR A DISTRICT WELFAR E FUND ESTABLISHED BY THE DISTRICT COLLECTOR OR ANY OTHER FUND FOR THE BENEFIT OF THE PUBLIC AND WITH A VIEW TO SECURE BENEFIT TO THE ASSESSES'S BUSINESS, CANNO T BE REGARDED AS PAYMENT OPPOSED TO PUBLIC POLICY. IT IS NOT AS IF THE PAYMENT IN THE PRESENT CASE HAD BEEN MADE AS AN ILLEGAL GRATIFICATION, (HERE IS NO LAW WHI CH PROHIBITS THE MAKING OF SUCH A DONATION. THE MERE FACT THAT MAKING OF A DONATION FOR CHARITABLE OR PUB LIC CAUSE OR IN PUBLIC INTEREST RESULTS IN THE GOVERNMENT GIVING PATRONAGE OR BENEFIT CAN BE NO GROUND TO DEN Y THE ASSESSCE A DEDUCTION OF THAT AMOUNT UNDER SECTION 37(1) OF THE ACT WHEN SUCH PAYMENT HAD BEEN MADE FO R THE PURPOSE OF ASSESSEE'S BUSINESS. 8. IN THE CASE OF CIT V. MADRAS REFINERIES LTD. [2004] 266 ITR 170 1, HON'BLE MADRAS HIGH COURT HAS UPHELD DEDUCIBILITY OF THE AMOUNT SPENT BY THE ASSESSEE EVEN ON BRINGING DRINKING WATER TO LOCALITY AND IN AIDING LOCAL SCHOOL. WHILE DOING SO, THEIR LORDSHIPS OBSERVED AS FOLLOWS: THE CONCEPT OF BUSINESS IS NOT STATIC. IT HS EVOLVE D OVER A PERIOD OF TIME TO INCLUDE WITHIN ITS FOLD TH E CONCRETE EXPRESSION OF CARE AND CONCERN FOR THE SOCIETY AT LARGE AND THE LOCALITY IN WHICH BUSINESS IS LOCATED IN PARTICULAR. BEING A GOOD CORPORATE CITIZ EN BRINGS GOODWILL OF THE LOCAL COMMUNITY AS A/SO WITH THE REGULATORY AGENCIES AND SOCIETY AT LARGE THEREBY CREATING AN ATMOSPHERE IN WHICH THE BUSINESS CAN SUCCEED IN A GREATER MEASURE WITH THE AID OF SUCH GOODWILL. . . . ITA NO.826,827,834 & 835/CHD/2018 A.YS.2013-14 & 2014-15 7 9. LET US NOW AKE A LOOK AT THE UNDISPUTED FACTS OF THIS CASE. THE ASSESSEE IS A COMPANY OWNED BY THE GOVERNMENT OF INDIA AND WORKING UNDER THE CONTROL AND DIRECTIONS OF THE GOVERNMENT OF INDIA. AS THE STATEMENT OF FACTS CLEARLY SETS OUT, THE EXPENDITUR E ON 20 POINT PROGRAMMES WAS INCURRED IN VIEW OF SPECIFIC DIRECTIONS OF THE GOVERNMENT OF INDIA. THIS FACTUAL ASPECT IS NOT EVEN DISPUTED OR CHALLENGED BY THE REVENUE AT ANY STAGE. IT CANNOT BUT BE IN THE BUSINE SS INTEREST OF THE ASSESSEE COMPANY TO ABIDE BY THE DIRECTIONS OF THE GOVERNMENT OF INDIA WHICH A/SO OWNS THE ASSESSEE-COMPANY. IN ANY EVENT, AS OBSERVED BY THE HON'BLE MADRAS HIGH COURT IN MADRAS REFINERIES LTD.'S CASE (SUPRA), MONIES SPENT BY THE ASSESSES A S A GOOD CORPORATE CITIZEN AND TO EARN THE GOODWILL OF THE SOCIETY HELP CREATING AN ATMOSPHERE IN WHICH THE BUSINESS CAN SUCCEED IN A GREATER MEASURE WITH THE HELP OF SUCH GOODWILL. THE MONIES SO SPOUT THEREFORE ARE REQUIRED TO BE TREATED AS BUSINESS EXPENDITURE ELIGIBLE FOR DEDUCTION UNDER SECTION 37(1) OF THE ACT . WHAT IS THE EXPENDITURE FOR THE IMPLEMENTATION OF 20 - POINT PLANT AFTER ALL? IT IS SOLELY FOR THE WELFARE O F THE OPPRESSED CLASSES OF SOCIETY, FOR WHICH EVEN THE CONSTITUTION OF INDIA SANCTIONS POSITIVE DISCRIMINATION, AND FOR CONTRIBUTION TO AIL AROUND DEVELOPMENT OF VILLAGES, WHICH HAS A/WAYS BEEN THE CENTRAL THEME O F GOVERNMENT'S DEVELOPMENT INITIATIVES. AN EXPENDITURE OF SUCH A NATURE CANNOT BUT BE. TO USE THE WORDS EMPLO YED BY THE HON'BLE MADRAS HIGH COURT IN MADRAS REFINERIE S LTD.'S CASE (SUPRA), 'A CONCRETE EXPRESSION OF CARE AND CONCERN FOR THE SOCIETY AT LARGE' AND AN EXPENDITURE TO DISCHARGE THE RESPONSIBILITIES OF A 'GOOD CORPORATE C ITIZEN WHICH BRINGS GOODWILL OF WITH THE REGULATORY AGENCIES AND SOCIETY AT LARGE, THEREBY CREATING AN ATMOSPHER E IN WHICH THE BUSINESS CAN SUCCEED IN A GREATER MEASURE WITH THE AID OF SUCH GOODWILL'. 18. WE HAVE ALSO TAKE NOTE OF THE FACT THAT IN VIEW O F INSERTION OF EXPLANATION 2 TO SECTION 37(1), WITH EFFECT FROM 1 ST APRIL 2015, WHICH PROVIDES THAT 'FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT FOR THE PURPOSES OF SUB-SECTIO N (1), ANY EXPENDITURE INCURRED BY AN ASSESSEE ON THE ACTI VITIES RELATING TO CORPORATE SOCIAL RESPONSIBILITY REFERRE D TO IN SECTION 135 OF THE COMPANIES ACT, 2013 (18 OF 2013) SHALL NOT BE DEEMED TO BE AN EXPENDITURE INCURRED BY THE ASSESSEE FOR THE PURPOSES OF THE BUSINESS OR PROFES SION', THE EXPENSES INCURRED IN DISCHARGING CORPORATE SOCIAL RESPONSIBILITY ARE NOT DEDUCTIBLE IN COMPUTATION OF BUSI NESS INCOME. LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITS THAT THIS AMENDMENT SHOULD BE TREATED AS CLARIFICATORY IN NATURE, AS IT IS STATED TO BE IN SO MANY WORDS, AND WE SHOULD , THEREFORE, HOLD THAT THE EXPENSES IN DISCHARGING CO RPORATE SOCIAL RESPONSIBILITY WERE OUTSIDE THE AMBIT OF EXP ENSES DEDUCTION UNDER SECTION 37(1). ITA NO.826,827,834 & 835/CHD/2018 A.YS.2013-14 & 2014-15 8 19. WE ARE UNABLE TO SEE LEGALLY SUSTAINABLE MERITS IN TH IS PLEA EITHER. THE AMENDMENT IN THE SCHEME OF SECTION 37(1), WHICH HAS BEEN INTRODUCED WITH EFFECT FROM 1ST APRIL 2015, C ANNOT BE CONSTRUED AS TO DISADVANTAGE TO THE ASSESSEE IN THE PERIOD PRIOR TO THIS AMENDMENT. THIS DISABLING PROVISION, AS SET OUT IN EXPLANATION 2 TO SECTION 37(1), REFERS ONLY TO SUCH CO RPORATE SOCIAL RESPONSIBILITY EXPENSES AS UNDER SECTION 135 OF THE COMPANIES ACT, 2013, AND, AS SUCH, IT CANNOT HAVE ANY APPLICATION FOR THE PERIOD NOT COVERED BY THIS STATUTORY PROVISION WHICH ITSELF CAME INTO EXISTENCE IN 2013. EXPLANATION 2 TO SECTION 37(1) IS, THEREFORE, INHERENTLY INCAPABLE OF RETROSPECTIVE APPLICATION ANY FURTHER. IN ANY EVENT, AS HELD BY HON'BLE SUPREME COURT'S FIVE JUDGE CONSTITUTIONAL BENC H'S LANDMARK JUDGMENT, IN THE CASE OF CIT VS VATIKA TOWNSHIPS PVT LTD [(2014) 367 ITR 466 (SC)], THE LEGAL POSITION IN TH IS REGARD HAS BEEN VERY SUCCINCTLY SUMMED UP BY OBSERVING THAT 'OF THE VARIOUS RULES GUIDING HOW LEGISLATION HAS TO BE INTER PRETED, ONE ESTABLISHED RULE IS THAT UNLESS A CONTRARY INTENTION APPEARS, LEGISLATION IS PRESUMED NOT TO BE INTENDED TO HAVE A RETROSPECTIVE OPERATION. THE IDEA BEHIND THE RULE IS T HAT A CURRENT LAW SHOULD GOVERN CURRENT ACTIVITIES. LAW PASSE D TODAY CANNOT APPLY TO THE EVENTS OF THE PAST. IF WE DO SO METHING TODAY, WE DO IT KEEPING IN VIEW THE LAW OF TODAY AND IN FORCE AND NOT TOMORROW'S BACKWARD ADJUSTMENT OF IT. OUR BE LIEF IN THE NATURE OF THE LAW IS FOUNDED ON THE BED ROCK THAT E VERY HUMAN BEING IS ENTITLED TO ARRANGE HIS AFFAIRS BY RELYING ON THE EXISTING LAW AND SHOULD NOT FIND THAT HIS PLANS HAVE BEEN RETROSPECTIVELY UPSET. THIS PRINCIPLE OF LAW IS KNOWN AS LEX PROSPICIT NON RESPICIT: LAW LOOKS FORWARD NOT BACKWARD. AS WAS OBSERVED IN PHILLIPS VS. EYRE [, A RETROSPECTIVE LEGIS LATION IS CONTRARY TO THE GENERAL PRINCIPLE THAT LEGISLATION BY WHICH THE CONDUCT OF MANKIND IS TO BE REGULATED WHEN INTRODUC ED FOR THE FIRST TIME TO DEAL WITH FUTURE ACTS OUGHT NOT TO CHANG E THE CHARACTER OF PAST TRANSACTIONS CARRIED ON UPON THE FAITH OF THE THEN EXISTING LAW.' IT MAY APPEAR TO BE SOME KIND O F A DICHOTOMY IN THE TAX LEGISLATION BUT THE WELL SETTLED LE GAL POSITION IS THAT WHEN A LEGISLATION CONFERS A BENEFI T ON THE TAXPAYER BY RELAXING THE RIGOUR OF PRE-AMENDMENT LA W, AND WHEN SUCH A BENEFIT APPEARS TO HAVE BEEN THE OBJECT IVE PURSUED BY THE LEGISLATURE, IT WOULD A PURPOSIVE INTE RPRETATION GIVING IT A RETROSPECTIVE EFFECT BUT WHEN A TAX LEGIS LATION IMPOSES A LIABILITY OR A BURDEN, THE EFFECT OF SUCH A LE GISLATIVE PROVISION CAN ONLY BE PROSPECTIVE. WE HAVE ALSO NOTED THAT THE AMENDMENT IN THE SCHEME OF SECTION 37(1) IS NOT SPECI FICALLY STATED TO BE RETROSPECTIVE AND THE SAID EXPLANATION IS INSERTED ONLY WITH EFFECT FROM 1ST APRIL 2015. IN THIS VIEW OF THE MATTER ALSO, THERE IS NO REASON TO HOLD THIS PROVISION TO BE RETROSPECTIVE IN APPLICATION. AS A MATTER OF FACT, THE AMENDMENT IN LAW, WHICH WAS ACCOMPANIED BY THE STATUTORY REQUIREMENT WITH REGARD TO DISCHARGING THE CORPORATE SOCIAL RESPONSIBI LITY, IS A DISABLING PROVISION WHICH PUTS AN ADDITIONAL TAX BURDE N ON THE ASSESSEE IN THE SENSE THAT THE EXPENSES THAT THE AS SESSEE IS REQUIRED TO INCUR, UNDER A STATUTORY OBLIGATION, IN T HE COURSE OF HIS BUSINESS ARE NOT ALLOWED DEDUCTION IN THE COMPUTAT ION OF INCOME. THIS DISALLOWANCE IS RESTRICTED TO THE EXPENSE S INCURRED BY THE ASSESSEE UNDER A STATUTORY OBLIGATION UNDER S ECTION ITA NO.826,827,834 & 835/CHD/2018 A.YS.2013-14 & 2014-15 9 135 OF COMPANIES ACT 2013, AND THERE IS THUS NOW A LIN E OF DEMARCATION BETWEEN THE EXPENSES INCURRED BY THE AS SESSEE ON DISCHARGING CORPORATE SOCIAL RESPONSIBILITY UNDER SUCH A STATUTORY OBLIGATION AND UNDER A VOLUNTARY ASSUMPTI ON OF RESPONSIBILITY. AS FOR THE FORMER, THE DISALLOWANCE UNDE R EXPLANATION 2 TO SECTION 37(1) COMES INTO PLAY, BUT, AS FOR LATTER, THERE IS NO SUCH DISABLING PROVISION AS LONG AS THE EXPENSES, EVEN IN DISCHARGE OF CORPORATE SOCIAL RESPO NSIBILITY ON VOLUNTARY BASIS, CAN BE SAID TO BE 'WHOLLY AND EXCLU SIVELY FOR THE PURPOSES OF BUSINESS'. THERE IS NO DISPUTE T HAT THE EXPENSES IN QUESTION ARE NOT INCURRED UNDER THE AFO RESAID STATUTORY OBLIGATION. FOR THIS REASON ALSO, AS ALSO FO R THE BASIC REASON THAT THE EXPLANATION 2 TO SECTION 37(1) COMES I NTO PLAY WITH EFFECT FROM 1ST APRIL 2015, WE HOLD THAT THE DISA BLING PROVISION OF EXPLANATION 2 TO SECTION 37(1) DOES NOT AP PLY ON THE FACTS OF THIS CASE. 11. IN VIEW OF THE AFORESAID TWO DECISIONS OF THE I.T.A.T. HOLDING THE CSR EXPENSES TO BE IN THE NATU RE OF BUSINESS EXPENSES AND EXPLANATION-2 TO SECTION 37 O F THE ACT AS BEING PROSPECTIVE IN NATURE AND THE LD. DR NOT HAVING BROUGHT OUR NOTICE ANY DIVERGENT VIEW OF THE I.T.A.T., NOR ANY DISTINGUISHING FACTS, THE DECISIO N RENDERED IN THE ABOVE TWO CASES WILL SQUARELY APPLY TO THE PRESENT CASE ALSO, FOLLOWING WHICH WE HOLD THAT THE CSR EXPENDITURE INCURRED BY THE ASSESSEE AMOUNTING TO RS.16,03,01,431/- WERE ALLOWABLE FOR THE IMPUGNED YEAR. THE DISALLOWANCE SO MADE IS THEREFORE DIRECTE D TO BE DELETED. THIS GROUND OF APPEAL NO.I.(1) RAISED BY THE ASSESSEE IS, THEREFORE, ALLOWED. 12. GROUND OF APPEAL NO.I(2) RAISED BY THE ASSESSEE RELATES TO TAXABILITY OF INTEREST OF INCOME TAX REF UND AMOUNTING TO RS.2,16,05,340/- AND THE SAME READS AS UNDER: ITA NO.826,827,834 & 835/CHD/2018 A.YS.2013-14 & 2014-15 10 2. INTEREST ON INCOME TAX REFUND RS.2,16,05,340/-. INTEREST U/S 244A WAS FOR THE AY 2009-10 AND AS SUCH THE AMOUNT BEIG A PAS THROUGH ITEM WAS PASSED OVOER TO THE BENEFICIARIES AS PER CERC REGULATION NO.L-7/25(5)/2003 DATED 26.03.2004. 13. THE FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSEE, DURING THE IMPUGNED ASSESSMENT YEAR, HAD RECEIVED AN AMOUNT OF RS.2,16,05,340/- AS INTEREST ON INCOME TAX REFUND WHICH WAS NOT OFFERED FOR TAXATIO N. WHEN CONFRONTED WITH THE SAME, THE ASSESSEE STATED THAT AS PER CERC TARIFF REGULATIONS, TAX WAS A PASS THOUGH ITEM AND RECOVERABLE AS A SEPARATE ITEM FROM THE BENEFICIARY STATES AND ANY INTEREST PAYABLE ON SHORT FALL OF TAX WAS RECOVERABLE FROM THE BENEFICI ARY AND SIMILARLY ANY INTEREST RECEIVED ON EXCESS TAX DEPOSITED WAS TO BE REFUNDED TO THE BENEFICIARY. ACCORDINGLY, IT WAS CONTENDED THAT THE INTEREST ON INCOME TAX REFUND DID NOT FORM PART OF THE INCOME O F THE ASSESSEE. THE A.O. DID NOT ACCEPT THE CONTENTIO N OF THE ASSESSEE AND TREATING THE SAME AS INCOME OF THE ASSESSEE MADE ADDITION OF RS.2,16,05,340/-TO THE INCOME OF THE ASSESSEE. 14. BEFORE THE LD.CIT(A), THE ASSESSEE REITERATED H IS CONTENTION. THE LD.CIT(A) REJECTED THE SAME STATING THAT THE REGULATION OF CERC RELIED UPON BY THE ASSESSEE WAS APPLICABLE FOR THE PERIOD OF 2005 TO 2009 AND THUS DID NOT APPLY FOR THE IMPUGNED YEAR, I.E. A.Y 2013-14. HE FURTHER POINTED OUT THAT AS PER ITA NO.826,827,834 & 835/CHD/2018 A.YS.2013-14 & 2014-15 11 THE APPLICABLE REGULATION/NOTIFICATION NO.L- 7/145(160)2008-CERC DATED 19-01-2009, THE TAX WAS NOT A PASS THROUGH ARRANGEMENT. HE, THEREFORE, UPHE LD THE ORDER OF THE A.O. 15. BEFORE US, THE LD. COUNSEL FOR ASSESSEE REITERA TED THE CONTENTIONS MADE BEFORE THE LD. COUNSEL FOR ASSESSEE WHILE THE LD. DR RELIED UPON THE ORDER OF THE LD.CIT(A). 16. WE HAVE HEARD THE CONTENTIONS OF BOTH THE PARTI ES. 17. THE ISSUE IN DISPUTE RELATES TO THE TAXABILITY OF INCOME TAX REFUND OF RS.2,16,05,340/- RECEIVED BY T HE ASSESSEE DURING THE IMPUGNED YEAR. THE UNDISPUTED FACT IS THAT THE ASSESSEE HAD SHOWN THE SAID TAX RE FUND AS OTHER INCOME IN ITS PROFIT AND LOSS ACCOUNT ,BUT AT THE SAME TIME HAD REDUCED IDENTICAL AMOUNT AS REFUNDABLE TO BENEFICIARIES. THE DISCLOSURE MADE BY THE ASSESSEE IN SCHEDULE 2.22 OF ITS AUDITED FINANCIAL STATEMENTS FOR THE IMPUGNED YEAR, COPY OF WHICH WAS PLACED BEFORE US, AS UNDER: 2.22 OTHER INCOME YEAR ENDED 31 ST MARCH, 2013 INTEREST FROM:- BANKS 21,026 EMPLOYEES 247 CONTRACTORS 6 BENEFICIARIES 211 21,490 INTEREST ON INCOME TAX REFUND 216 LESS: REFUNDABLE TO BENEFICIARIES 216 SURCHARGE ON LATE PAYMENT ITA NO.826,827,834 & 835/CHD/2018 A.YS.2013-14 & 2014-15 12 FROM CUSTOMERS 983 RECEIPT OF MAINTENANCES OF ICF 159 SALE OF SCRAP 43 MISCELLANEOUS INCOME # 279 FOREIGN CURRENCY FLUCTUATION ADJUSTMENT(CREDIT) 335 TOTAL 23,289 PRIOR PERIOD INCOME 163 TOTAL OTHER INCOME 23,452 # DETAILS OF MISCELLANEOUS INCOME: HIRE RENTAL CHARGES FROM CONTRACTOR - PROFIT ON SALE OF FIXED ASSETS - RENT RECOVERY FROM STAFF/OTHERS 62 EXCESS PROVISION WRITTEN BACK 140 LIQUIDATED DAMAGES RECOVERED 49 OTHER MISC. RECEIPTS 28 TOTAL 279 18. THE CONTENTION OF THE ASSESSEE FOR NOT INCLUDI NG INCOME TAX REFUND IN ITS INCOME,AS ABOVE, IS THAT T HE SAME HAS TO BE PASSED ON TO BENEFICIARY STATES AS P ER CERC GUIDELINES, WHICH GOVERN IT. 19. THE LD.CIT(A), WE FIND, HAS GIVEN A FACTUAL FIN DING THAT THE GUIDELINE RELIED UPON BY THE ASSESSEE WAS NOT APPLICABLE FOR THE IMPUGNED YEAR AND AS PER THE APPLICABLE GUIDELINE/NOTIFICATION, TAX WAS NOT A P ASS THROUGH ITEM THE SAME IS REPRODUCED AT PARA 5.3.4 & 5.3.5 OF HIS ORDER AS UNDER: 5.3.4 THE CONTENTION OF THE APPELLANT APPEARS T O BE TOTALLY MISPLACED. THE APPELLANT HAS RELIED ON THE CERC REG ULATIONS PLACED ON RECORD NO.L-7/25(5)/2003-CERC DATED 26.03 .2004. THE SAME ARE APPLICABLE FOR THE PERIOD 2005 TO 2009. THE YEAR IN CONSIDERATION IS ASSESSMENT YEAR 2013-14 AND THE SAME ARE CLEARLY NOT APPLICABLE. EVEN OTHERWISE A PERUSAL OF THE SAID REGULATIONS AT POINT 8 REQUIRES THE APPELLANT TO MAINTAIN A TAX ESCROW ACCOUNT IN A SCHEDULE BANK TO WHICH ALL AM OUNTS OF INTEREST WERE REQUIRED TO BE CREDITED. THE APPELLAN T HAS THUS FAILED TO COMPLY WITH EVEN THE REGULATIONS BEING RELIED ON B Y HIM. THE ARGUMENTS OF THE APPELLANT THUS FAIL. 5.3.5 HOWEVER, THE NOTIFICATION APPLICABLE FOR TH E YEAR UNDER CONSIDERATION IS NO.L-7/145(160)2008-CERC DATED 19.01.20 09 WHICH IS APPLICABLE FOR A PERIOD OF 5 YEARS STARTING FROM ITA NO.826,827,834 & 835/CHD/2018 A.YS.2013-14 & 2014-15 13 01.04.2009 AND HENCE ARE APPLICABLE FOR THE YEAR U NDER CONSIDERATION. THE MISC. PROVISIONS CONTAINED IN CH APTER -6 RELEVANT TO THE ISSUE AT HAND IN PARA 39 IS REPRODUCED AS UNDER: TAX ON INCOME. TAX ON THE INCOME STREAMS OF THE GENERATING COMPANY OR THE TRANSMISSION LICENSE, AS THE CASE MAY BE, SHALL NOT BE RECOVERED FROM THE BENEFI CIARIES, OR THE LONG TERM TRANSMISSION CUSTOMERS, AS THE CASE MAY BE: PROVIDED THAT THE DEFERRED TAX LIABILITY, EXCLUDING FR INGE BENEFIT TAX, FOR THE PERIOD UPTO 31 ST MARCH, 2009 WHENEVER IT MATERIALIZES, SHALL BE RECOVERABLE DIRECTLY FOR T HE BENEFICIARIES AND THE LONG-TERM CUSTOMERS; 5.3.6 A PERUSAL OF THE SAME, SHOWS THAT THE CONTENTION OF THE APPELLANT THAT THE TAX ON INCOME IS A PASS THROUGH ITEM AND HENCE INTEREST RECEIVED BY HIM U/S 24 4A OF THE INCOME TAX ACT IS NOT HIS INCOME CANNOT BE ACCE PTED. THE ACT OF THE A.O. IS UPHELD AND THIS GROUND OF THE APP EAL IS DISMISSED. 20. THE LD. COUNSEL FOR ASSESSEE HAS BEEN UNABLE T O CONTROVERT THIS FACTUAL FINDING OF THE LD.CIT(A). N O OTHER ARGUMENTS HAVE BEEN MADE BEFORE US. IN VIEW O F THE SAME, WE DO NOT FIND ANY MERIT IN THE CONTENTIO N OF THE LD.COUNSEL FOR THE ASSESSEE AND SEE NO REASON T O INTERFERE IN THE ORDER OF THE LD.CIT(A) IN THIS REG ARD. THE ADDITION MADE OF RS.2,16,05,340/- ON ACCOUNT OF INCOME TAX REFUND IS THEREFORE UPHELD. 21. THIS GROUND OF APPEAL IS, THEREFORE, DISMISSED. 22. GROUND NO.I(3) & GROUND NO.II WERE NOT PRESSED BEFORE US. THE SAID GROUNDS READ AS UNDER: 3. INCOME SET OFF AGAINST EXPENDITURE DURING CONSTRUCTION PERIOD TREATED AS REGULAR INCOME A) INTEREST FROM BANK FDR RS 2,71,493/- B) INTEREST FROM EMPLOYEES RS 53,99,144/- C) MISC INCOME RS 91,74,647/- THE ABOVE INCOME BEING OF CAPITAL NATURE NEEDS TO BE SET OFF AGAINST INCIDENTAL EXPENDITURE DURING CONSTRUCTION PE RIOD. II. COMPUTATION OF DEDUCTION U/S 80IA INCOME CONSIDERED INELIGIBLE FOR DEDUCTION U/S 80IA A) INTEREST RECEIVED FROM STAFF OF RS 2,46,77,323/-. (I) MISCELLANEOUS INCOME DERIVED FROM LICENCE FEE FROM QUARTERS, RECOVERY OF PRIVATE USE OF VEHICLES, INCOME FROM ITA NO.826,827,834 & 835/CHD/2018 A.YS.2013-14 & 2014-15 14 TRANSIT CAMPS, FORFEITURE OF SECURITY, POST RETIREMEN T MEDICAL SCHEME, RECEIPTS FROM BUSES RS.88,49,579/-. 23. THE ABOVE GROUNDS ARE THEREFORE DISMISSED A S NOT PRESSED 24. GROUND NO.III(1) RAISED BY THE ASSESSEE READS AS UNDER: III. INCOME AS PER PROVISIONS PF 115JB. 1. INTEREST ON INCOME TAX REFUND RS.2,16,05,340/- THE INTEREST EARNED ON INCOME TAX REFUND HAS BEEN A LREADY ADDED TO THE BOOK PROFIT WORKED OUT AS PER PRESCRIB ED ACCOUNTING STANDARD AND WHICH HAS BEEN DULY APPROVED AND ADOPTED IN THE ANNUAL GENERAL MEETING. THE RATIO OF AP POLO TYRES 255 ITR 273 NEEDS TO HAVE BEEN FOLLOWED. 25. THE ASSESSEE BY WAY OF THE ABOVE GROUND HAS CHALLENGED THE ACTION OF THE LD.CIT(A) IN ADDING T HE INTEREST EARNED ON INCOME TAX REFUND OF RS.2.16 CRO RES, TO ITS BOOK PROFITS ,FOR THE PURPOSES OF DETERMININ G MINIMUM ALTERNATE TAX (MAT)PAYABLE AS PER THE PROVISIONS OF SECTION 115JB OF THE ACT. 26. BEFORE US LD. COUNSEL FOR ASSESSEE CONTENDED TH AT THE ADDITION HAD BEEN MADE ON THE BASIS THAT THE ASSESSEE HAD NOT INCLUDED THE SAID INCOME IN ITS BO OK PROFITS, WHILE THE FACT WAS THAT IT HAD INCLUDED T HE SAME, REFLECTING IT AS OTHER INCOME IN SCHEDULE 2.2 2 OF THE AUDITED FINANCIAL STATEMENTS. IT WAS THEREFORE CONTENDED THAT THE ACTION OF THE LD.CIT(A) WAS IN G ROSS MISAPPRECIATION OF THE FACTS OF THE CASE AND NEEDED TO BE SET ASIDE. ITA NO.826,827,834 & 835/CHD/2018 A.YS.2013-14 & 2014-15 15 27. THE LD.DR WAS UNABLE TO CONTROVERT THE ABOVE FACTUAL CONTENTION OF THE LD. COUNSEL FOR THE ASSES SEE THOUGH OTHERWISE HE RELIED ON THE ORDER OF THE LD.CIT(A). 28. WE HAVE HEARD BOTH THE PARTIES. ADMITTEDLY THE ADDITION, OF INTEREST ON INCOME TAX REFUND OF RS.2. 16 CRORES RECEIVED BY THE ASSESSEE, TO THE BOOK PROFIT S OF THE ASSESSEE FOR THE PURPOSES OF MAT U/S 115JB OF T HE ACT, HAS BEEN MADE ON CONSIDERATION OF THE FACTUAL MATRIX THAT THE SAME WAS NOT INCLUDED IN IT. THIS F ACT HAS BEEN DEMONSTRATED BY THE LD. COUNSEL FOR THE ASSESSEE AS BEING INCORRECT, WHICH HAS NOT BEEN CONTROVERTED BY THE REVENUE. FURTHER EVEN WE HAVE NOTED THAT INTEREST ON INCOME TAX REFUND RECEIVED B Y THE ASSESSEE WAS REFLECTED AS OTHER INCOME IN ITS P ROFIT AND LOSS ACCOUNT AS PART OF SCHEDULE 2.22, IN PARA 14 ABOVE. 29. IN VIEW OF THE SAME, WE HOLD, THAT THE ADDITIO N TO THE BOOK PROFITS OF THE ASSESSEE OF THE INCOME TAX REFUND WAS WRONGLY MADE AND DIRECT DELETION OF THE SAME. THE ORDER OF THE LD.CIT(A) IN THIS REGARD IS THEREFORE SET ASIDE. 30. GROUND OF APPEAL NO III RAISED BY THE ASSESSEE IS ALLOWED 31. IN EFFECT APPEAL OF THE ASSESSEE IS PARTLY ALLO WED. ITA NO.826,827,834 & 835/CHD/2018 A.YS.2013-14 & 2014-15 16 32. WE SHALL NOW TAKE UP THE APPEAL OF THE REVENUE IN ITA NO.826/CHD/18 FOR A.Y 2013-14. 33. THE SOLE ISSUE RAISED, RELATES TO ALLOWANCE OF DEDUCTION U/S 80 IA OF THE ACT ON SCRAP SALES. THE FACTS RELATING TO THE SAME ARE THAT THE ASSESSEE HAD CRED ITED AN AMOUNT OF RS.43,06,075/- UNDER THE HEAD SCRAP SALES. THE AO DENIED THE CLAIM OF DEDUCTION U/S 80I A ON THE SAID INCOME BY HOLDING THAT THE INCOME WAS N OT DERIVED FROM THE MANUFACTURING ACTIVITY OF THE INDUSTRIAL UNDERTAKING. THE LD.CIT(A) ALLOWED THE C LAIM ON FINDING THAT THE ASSESSEE HAD CLEARLY BROUGHT OU T THE NATURE OF SCRAP GENERATED AND THE LINKAGES TO T HE MANUFACTURING ACTIVITY. AGGRIEVED BY THE SAME THE REVENUE HAS COME UP IN APPEAL BEFORE US RAISING THE FOLLOWING EFFECTIVE GROUND : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 43,06,075/- MADE BY THE A.O. BY DISALLOWING THE DEDUCTION CLAIMED BY THE ASSESSEE U/S 80IA ON THE I NCOME EARNED FROM SALES OF SCRAP, IGNORING THE FACT THAT THE ASSESSEE HAS NOT EARNED THE SAME FROM THE MANUFACTU RING ACTIVITIES, BUT FROM THE UNSERVICEABLE/DAMAGES SPARE S RETRIEVED FROM THE PLANT, WHICH IS CAPITAL IN NATURE , NOT IN THE NATURE OF SCRAP GENERATED FROM NORMAL WEAR AND TEAR . 34. BEFORE US LD.DR CONTENDED THAT THE SCRAP SOLD RELATED TO UNSERVICEABLE/DAMAGED SPARES RETRIEVED F ROM THE PLANT AT THE TIME OF REPAIR AND MAINTENANCE AND THE INCOME GENERATED FROM THE SALE THEREOF HAD THEREFO RE NO CONNECTION WITH THE MANUFACTURING ACTIVITY OF TH E ASSESSEE SO AS TO QUALIFY FOR DEDUCTION U/S 80IA OF THE ACT. LD.DR HEAVILY RELIED ON THE DECISION OF THE HO NBLE ITA NO.826,827,834 & 835/CHD/2018 A.YS.2013-14 & 2014-15 17 APEX COURT IN THE CASE OF LIBERTY INDIA 317 ITR 218 AND PANDIAN CHEMICALS LTD. FOR THE PROPOSITION THAT NO DEDUCTION U/S 80IA WAS ALLOWABLE IN THE ABSENCE OF FIRST DEGREE NEXUS BETWEEN THE IMPUGNED INCOME AND THE MANUFACTURING ACTIVITY. 35. LD.COUNSEL FOR THE ASSESSEE ON THE OTHER HAND DREW OUR ATTENTION TO THE CONTENTION MADE BEFORE TH E LD.CIT(A) AS REPRODUCED AT PARA 5.5.7 OF THE ORDER AS UNDER: 5.5.7 SALE OF SCRAP: THE A.O. HAS DISALLOWED THE BENEFIT OF DEDUCTION U/S 80IA ON THE SALE OF SCRAP AT RS.43,06,075/-. THE APPELLANT HAS ARGUED THAT SALE OF SCRAP IS MAINLY FROM THE UNSERVICEABLE/DAMAGED SPARES RETRIE VED FROM THE PLANT AT THE TIME OF REPAIR AND MAINTENANCE. HE FURTHER ARGUED THAT THE TOTAL COST OF NEW SPARES RE PLACED IN PLACE OF DAMAGED/UNSERVICEABLE SPARES IS FULLY CHARG ED TO PROFIT AND LOSS A/C INSTEAD OF REDUCING THE REPAIR AN D MAINTENANCE CHARGES FROM THE AMOUNT RECEIVED FROM SA LE OF UNSERVICEABLE/DAMAGED SPARES. THE SALE OF SCRAP IS A PART AND PARCEL OF INCOME DERIVED FROM INDUSTRIAL UNDERT AKING. INCOME FROM SALE OF SCRAP IS GENERATED OUT OF THE MANUFACTURING ACTIVITIES OF INDUSTRIAL UNIT AND IS DIRECT LY ATTRIBUTABLE TO THE ACTIVITIES OF THE INDUSTRIAL UNIT. THE GENERATION OF SCRAP HAD DIRECT LINK WITH THE MANUFA CTURING PROCESS CARRIED OUT BY THE ASSESSEE AND THEREFORE I NCOME ARISING FROM SALE OF SCRAP IS ELIGIBLE FOR DEDUCTION U/S 80 IA OF THE ACT. FURTHER RELIANCE WAS PLACED ON THE DECISION OF DELHI HIGH COURT REPORTED IN 336 ITR 444 IN THE CASE OF C IT VS. SADHU FORGING LTD. 36. REFERRING TO THE SAME IT WAS POINTED OUT THAT T HE NEXUS OF THE INCOME FROM SCRAP SALE WITH THE MANUFACTURING ACTIVITY HAD BEEN DULY DEMONSTRATED B Y POINTING OUT THAT THE COST OF SPARES WAS CHARGED FU LLY TO THE PROFIT AND LOSS ACCOUNT, AND THE INCOME GENERATED FROM THE SALE OF THESE SPARES ACTUALLY ON LY REDUCED THE COST OF SPARES BOOKED. THE INCOME FROM SALE OF SCRAP SPARES, SHOWN SEPARATELY WAS THEREFOR E ITA NO.826,827,834 & 835/CHD/2018 A.YS.2013-14 & 2014-15 18 NOTHING BUT PART AND PARCEL OF THE INCOME DERIVED F ROM MANUFACTURING ACTIVITY. OUR ATTENTION WAS DRAWN TO THE FINDINGS OF THE LD.CIT(A) APPRECIATING THIS CONTENT ION OF THE ASSESSEE AT PARA 5.5.8-5.5.10 OF THE ORDER A S UNDER: 5.5.8 THE SUBMISSIONS OF THE APPELLANT, THE ORDER OF THE A.O. AND THE FACTS OF THE CASE HAVE BEEN CAREFU LLY CONSIDERED. TO DECIDE THE ISSUE WHETHER THE SALE OF SCRAP IS ELIGIBLE FOR DEDUCTION U/S 801A OR NOT, IT IS MATERIAL TO SEE AS TO HOW THE SCRAP IS BEING GENERATED. IN CASE THE SCRA P IS GENERATED OUT OF THE MANUFACTURING ACTIVITY, THE SAME IS TO BE TAKEN AS DERIVED FROM INDUSTRIAL UNDERTAKING AND WIL L BE ELIGIBLE FOR DEDUCTION U/S 80IA. IN CASE, THE SCRAP IS NOT GENERATED OUT OF THE MANUFACTURING ACTIVITY, THE DE DUCTION U/S 80IA IS INELIGIBLE. THE ORDER OF THE AO DOES N OT STATE AS TO HOW THE SCRAP IS NOT GENERATED FROM THE MANUFACTURING ACTIVITY. NO DETAILS OR MENTION OF THE SALE BILLS OR AN Y FACTUAL INFORMATION HAS BEEN BROUGHT OUT IN THE ORDER TO SUBSTANTIATE THE DISALLOWANCE OF THE SCRAP FOR CLAIM OF DEDUCTION U/S 80IA,. THE A.O IS FIRST REQUIRED TO GIVE A FINDING THAT THE SCRAP GENERATED IS NOT DERIVED FROM MANUFA CTURING ACTIVITY BEFORE DISALLOWING DEDUCTION U/S 80IA. 5.5.9 IN THIS CASE, THE APPELLANT HAS CLEARLY BROU GHT OUT THE NATURE OF SCRAP BEING GENERATED AND THE LIN KAGES TO THE MANUFACTURING ACTIVITY. 5.5.10 THE ISSUE UNDER APPEAL HAS BEEN CONSIDERED AN D DECIDED BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN 17 TAXMANN.COM 253 IN THE CASE OF COMMISSIONER OF INCOME TAX 1 VS. M/S. MICRO TURNERS FOR A.Y. 2006- 07.WHILEDISALLOWINGTHEAPPEALOFTHE REVENUE ON THIS IS SUE, THE HON'BLE HIGH COURT HAS HELD AS UNDER: - 'IN THE PRESENT CASE, THE ASSESSEE IS ENGAGED IN TH E MANUFACTURING OF AUTOMOBILE SHAFTS' ACCESSORIES. IN SUCH PROCESS, SCRAP IS GENERATED. SUCH SCRAP HAS DIRECT L INK WITH THE MANUFACTURING PROCESS, I.E., MANUFACTURING OF SHAFTS IS BOUND TO BE GENERATED. THEREFORE, IN VIEW OF THE JUDGMENT OF THE MADRAS HIGH COURT, WITH WHICH WE RESPECTFULLY AGREE, NO SUBSTANTIAL QUESTION OF LAW ARISES FOR OUR CONSIDERATION. 6. LEARNED COUNSEL FOR THE REVENUE RELIED UPON ANOTHER JUDGMENT OF MADRAS HIGH COURT IN PANDIAN CHEMICALS LTD. V. C/T [2002] 254 ITR 562 /[2003] 128 TAXMAN 126 (MAD.). BUT IN THE SAID JUDGMENT, A FINDING WAS RECORDE D THAT THERE IS NO DETAIL IN RESPECT OF SCRAPS, GUNNY BAGS FOR WHICH ASSESSEE HAS CLAIMED DEDUCTION. THE JUDGMEN T IN FENNER INDIA'S CASE (SUPRA) IS APPLICABLE TO THE FA CTS OF THE PRESENT CASE AND NOT THE ONE IN PANDIAN ITA NO.826,827,834 & 835/CHD/2018 A.YS.2013-14 & 2014-15 19 CHEMICALS' CASE. IN VIEW THEREOF, NO SUBSTANTIAL QUESTION OF LAW ARISES FOR CONSIDERATION OF THIS COUR T. 7. CONSEQUENTLY, THE PRESENT APPEAL IS DISMISSED. THE APPELLANT HAS ALSO PLACED ON RECORD COPY OF BIL LS OF SALE OF SCRAP WHICH CLEARLY SHOWS THAT THE APPELL ANT HAS SOLD UNSERVICEABLE BRONZE SCRAP OF TURBINE ETC. WHIC H IS DIRECTLY RELATED TO THE BUSINESS UNDERTAKING OF THE APPELLANT. ACCORDINGLY, CONSIDERING THE JUDGMENT REFERRED SUPR A AND THE VARIOUS JUDGMENTS RELIED ON BY THE APPELLANT AND AL SO CONSIDERING THE FACTS OF THE CASE, THE CONTENTION OF THE APPELLANT FOR CLAIM OF DEDUCTION U/S 80IA ON SALE O F SCRAP IS ALLOWED. 37. IT WAS THEREFORE CONTENDED THAT THE LD.CIT(A) H AD RIGHTLY ALLOWED THE CLAIM OF THE ASSESSEE. 38. WE HAVE HEARD THE RIVAL CONTENTIONS. WE HAVE AL SO GONE THROUGH THE ORDER OF THE LD.CIT(A) .WE DO NOT FIND ANY INFIRMITY IN THE SAME .THE FACT THE SCRAP SOLD RELATED TO UNSERVICEABLE/DAMAGED SPARES RETRIEVED F ROM THE PLANT IS NOT DISPUTED. THAT THE COST OF NEW SPA RES REPLACED IN PLACE OF THE DAMAGED SPARES WAS BEING CHARGED FULLY TO THE PROFIT AND LOSS ACCOUNT HAS AL SO NOT BEEN CONTROVERTED BY THE REVENUE. THE SCRAP SOL D THEREFORE, WE AGREE WITH THE LD.CIT(A) RESULTED IN REDUCTION IN THE COST OF NEW SPARES PURCHASED, AND THUS HIGHER MANUFACTURING PROFITS TO THE ASSESSEE. AND MERELY BECAUSE THE SCRAP SALE WAS SHOWN SEPARATELY, IT DID NOT TANTAMOUNT TO A NEW SOURCE OF INCOME. THE R EAL AND ULTIMATE IMPACT OF THE SCRAP SOLD WAS REDUCTION IN COST OF SPARES PURCHASED DURING THE YEAR. THEREFORE , WE AGREE WITH THE LD.CIT(A) THAT THE PROFITS COMMENSUR ATE WITH THE SCRAP SOLD WAS DIRECTLY EARNED FROM THE MANUFACTURING ACTIVITY OF THE ASSESSEE AND THE ASSE SSEE ITA NO.826,827,834 & 835/CHD/2018 A.YS.2013-14 & 2014-15 20 WAS ENTITLED TO CLAIM DEDUCTION U/S 80IA OF THE AC T ON THE SAME. 39. GROUND OF APPEAL NO.1 RAISED BY THE REVENUE IS THEREFORE DISMISSED . 40. IN EFFECT THE APPEAL OF THE REVENUE IS DISMISSE D. 41. WE SHALL NOW TAKE UP CROSS APPEALS RELATING TO ASSESSMENT YEAR 2014-15, TAKING FIRST THE APPEAL OF THE ASSESSEE IN ITA NO.835/CHD/18 FOR A.Y 2014-15. THE GROUNDS OF APPEAL RAISED ARE AS UNDER: I. COMPUTATION OF GROSS TOTAL INCOME AS PER NORMAL PROVISIONS. 1. INCOME SET OFF AGAINST EXPENDITURE DURING CONSTRUCT ION PERIOD TREATED AS REGULAR INCOME A) INTEREST FROM BANK FDR RS 2,07,742/- B) INTEREST FROM EMPLOYEES RS 59,84,547/- THE ABOVE INCOME BEING OF CAPITAL NATURE NEEDS TO BE SET OFF AGAINST INCIDENTAL EXPENDITURE DURING CONSTRUCTI ON PERIOD. II. COMPUTATION OF DEDUCTION U/S 80IA INCOME CONSIDERED INELIGIBLE FOR DEDUCTION U/S 80IA ) A) INTEREST RECEIVED FROM STAFF OF RS 2,60,00,000/- B) INTEREST FROM BANK FDR RS 2,07,742/- C) INTEREST FROM EMPLOYEES RS 59,84,547/- D) MISC. INCOME (I) SUNDRY CREDITORS WRITTEN BACK 48,38,281/ - (II) DISALLOWANCE OF INSURANCE RECEIPTS FROM REPAIR S 1,64,46,808/- INSURANCE CLAIM RECEIVED AGAINST DAMAGES FOR PLANT AND MACHINERY NEEDS TO BE ALLOWED. RATIO OF CIT VS GANGO TRI TEXTILES LTD. 40 TAXMANN 399 IS NOT APPLICABLE (II) MISCELLANEOUS INCOME DERIVED FROM LICENSE FEE FROM QUARTERS, RECOVERY OF PRIVATE USE OF VEHICLES, INCO ME FROM TRANSIT CAMPS, FORFEITURE OF SECURITY, POST RETIREM ENT MEDICAL SCHEME, RECEIPTS FROM BUSES AND PROFIT FROM SALE OF FIXED ASSETS RS 1,15,65,350/- ITA NO.826,827,834 & 835/CHD/2018 A.YS.2013-14 & 2014-15 21 THE ABOVE INCOMES ARE DIRECTLY RELATED TO THE MAIN AC TIVITY AND CONSTITUTE ELIGIBLE BUSINESS. THE NATURE OF SUCH INCOME IS DIRECTLY RELATED TO BUSINESS AND THE RATIO OF THE JUDGMENT OF BOKARO STEEL LTD. CAN BE APPLIED IN THIS CASE AS WELL. FURTHER, THE AO HAS IGNORED THE FACT THAT IF THE EXPENDITURE WHICH IS DIRECTLY ATTRIBUTABLE TO SUCH S O CALLED INCOME WILL BE DEDUCTED FROM THIS INCOME, THE NET RE SULT AS PER SPECIFIC HEAD OF ACCOUNT WILL BE NEGATIVE. III) INCOME AS PER PROVISIONS OF 115JB. ADDITION TO BOOK PROFIT RS. 61,92,289/- LD. A.O HAS ERRED IN FACT AND LAW BY ADDING INTEREST REC EIVED FROM BANK (EDC) TO THE TUNE OF RS. 2,07,742/- AND INTERE ST FROM EMPLOYEES (EDC) TO THE TUNE OF RS. 59,84,547/- TO T HE BOOK PROFIT WHICH WAS WORKED OUT AS PER PRESCRIBED ACCOUNTING S TANDARD AND WHICH HAS BEEN DULY APPROVED AND ADOPTED IN THE ANNUAL GENERAL MEETING. THE RATIO OF APPOLO TYRES 255 ITR 273 NEEDS TO HAVE BEEN FOLLOWED. THIS ISSUE HAS NOT BEEN ADJUDIC ATED BY CIT(APPEALS) IN HIS ORDERS. 42. GROUND NO.1 AND GROUND NO.II(A),(B),(C) & (D)(I II) WERE NOT PRESSED BEFORE US AND THE SAME ARE, THEREF ORE, DISMISSED AS NOT PRESSED. 43. GROUND NO.2(D)(I) & (II) RELATE DISALLOWANCE OF DEDUCTION U/S 80IA OF THE ACT ON SUNDRY CREDITORS WRITTEN BACK AND INSURANCE CLAIM RECEIVED FROM REPA IRS. THE A.O. HAD DISALLOWED THE SAID CLAIM HOLDING THAT THE INCOME WAS NOT DERIVED FROM THE MANUFACTURING ACTIV ITY OF THE INDUSTRIAL UNDERTAKING. 44. BEFORE THE LD.CIT(A) THE ASSESSEE CONTENDED THA T THE AMOUNT OUTSTANDING WITH THE SECURITY CREDITORS CONSISTED OF UNCLAIMED SECURITY DEPOSITS, THE EXPENDITURE OF WHICH HAD BEEN DEBITED IN EARLIER YE ARS AND ACCORDINGLY, THE CLAIM OF DEDUCTION U/S 80IA OF THE ACT HAD BEEN REDUCED WITH THAT AMOUNT IN THOSE YEAR S. VIS--VIS THE INSURANCE CLAIM RECEIVED, IT WAS CONTENDED BY THE ASSESSEE THAT THE CLAIM HAD BEEN ITA NO.826,827,834 & 835/CHD/2018 A.YS.2013-14 & 2014-15 22 RECEIVED AGAINST DAMAGES CAUSED TO SECURITY BREAKER S OF THE MACHINERIES OF THE PLANT, THE REPAIR EXPENDI TURE ON WHICH HAD ALREADY BEEN DEBITED TO THE PROFIT & L OSS ACCOUNT AND CLAIM U/S 80IA REDUCED WITH THAT AMOUNT . THE ASSESSEE CONTENDED THAT BOTH THE CLAIMS WERE DIRECTLY AND INEXTRICABLY LINKED AND DERIVED FROM T HE MAIN BUSINESS OF THE ASSESSEE AND THE ASSESSEE, THEREFORE, WAS ELIGIBLE FOR DEDUCTION U/S 80IA OF T HE ACT. THE LD.CIT(A) DISMISSED THE CONTENTION OF THE ASSESSEE CONTENDING THAT THE ASSESSEE HAD BEEN UNAB LE TO ESTABLISH THAT THESE AMOUNTS WERE RECEIVED WHILE CARRYING OUT THE BUSINESS OF THE ASSESSEE. RELEVANT FINDINGS OF THE CIT(A) AT PARAS 8.2.1 AND 8.2.4 OF THE ORDER ARE AS UNDER: 8.2.1 (A) SUNDRY CREDITORS WRITTEN BACK OF RS.48,3 8,281/- THE APPELLANT HAS CLAIMED THAT THE SUNDRY CREDITOR S WRITTEN BACK MAINLY CONSISTS OF UNCLAIMED SECURITY DEPOSITS THE EXPENDITURE ON WHICH HAVE DEBITED IN EARLIER YEARS AND ACCORDIN GLY THE CLAIM OF SECTION 80 IA HAS BEEN REDUCED WITH THAT AMOUNT. HE NCE IT WAS ARGUED THAT THE SUNDRY CREDITORS WRITTEN BACK IS DI RECTLY RELATED IN GENERATION OF ELECTRICITY. I HAVE PERUSED THE FACTS OF THE CASE, THE ACTION OF THE A.O. AND THE SUBMISSIONS OF THE APPELLANT. A PERUSAL OF THE COPY OF ACCOUNTS OF SUNDRY CREDITORS BALANCES WRITTEN BACK SHOWS THAT THESE ARE MAINLY ON ACCOUNT OF SECURITY DEPOSITS LY ING UNCLAIMED WITH THE APPELLANT. THE APPELLANT HAS NOT BEEN ABLE TO ESTABLISH THAT THE RECEIPTS OF THESE DEPOSITS WAS WHILE CARRY ING OUT THE BUSINESS OF THE ASSESSEE AND ARE RELATED TO THE BUS INESS TRANSACTION. MAKING A SWEEPING STATEMENT WITHOUT AN Y CORROBORATIVE EVIDENCE CANNOT BE GIVEN ANY WEIGHT A GE DURING THE APPEAL PROCEEDINGS . THE APPELLANT IS MAKING A CLAI M FOR DEDUCTION U/S 801A ON THESE INCOMES. THE APPELLANT HAS TO DISCHARGE THE ONUS WHICH RESTS ON HIM TO BE ELIGIBLE F AR THE SAID DEDUCTION. HAVING FAILED TO DO SO, THE ACTION OF T HE A.O. IS UPHELD AND THIS GROUND OF APPEAL IS DISMISSED. DISALLOWANCE OF INSURANCE RECEIPTS FOR REPAIRS OF R S. 1,64,46,803 /-: ITA NO.826,827,834 & 835/CHD/2018 A.YS.2013-14 & 2014-15 23 THE APPELLANT CLAIMED THAT THE INSURANCE CLAIM HAS B EEN RECEIVED AGAINST THE DAMAGES CAUSED TO THE CIRCUIT BRE AKERS OF THE MACHINERIES OF THE PLANT THE REPAIR EXPENDITURE ON WHICH HAD ALREADY BEEN DEBITED TO THE P&L A/C AND ACCORDINGLY THE CLAIM OF SECTION 80 IA HAS BEEN REDU CED WITH THAT AMOUNT. HE ARGUED THAT THE NATURE OF CLAIM IS DIRECTLY LINKED AND INEXTRICABLY DERIVED FROM THE MAIN BUSINESS I. E. FOR PUTTING THE ASSETS OF THE GENERATING STATION BA CK TO WORKING CONDITION, HENCE THE RECEIPT IS DIRECTLY RE LATED WITH THE RUNNING AND MAINTENANCE OF THE PLANT ENGAGED IN GENERATION OF ELECTRICITY. ACCORDINGLY, THE INSURANC E RECEIPTS FOR REPAIR IS RIGHTLY CLAIMED BY THE COMPANY U/S 80 IA AND NEEDS TO BE ALLOWED. I HAVE PERUSED THE FACTS OF THE CASE, THE ACTION OF THE A.O. AND THE SUBMISSIONS OF THE APPELLANT. THIS CONTENTION OF THE APPELLANT CANNOT BE ACCEPTED. THE ISSUE IS SQUARELY COVERED BY THE DECISION REPORTED AT [2013] 40 TAXMANN.COM 399 (MADRAS) IN THE CASE OF CO MMISSIONER OF INCOME-TAX VS. GANGOTHRI TEXTILES LTD. WHEREIN THE FOLLOWING QUESTION OF LAW WAS RAISED BEFORE THE HIGH COURT: 8. 'WHETHER THE INSURANCE MONEY RECEIVED ON LOSS OF PRODUCTION IS ENTITLED FOR DEDUCTION UNDER SECTION 80IA ' 9. THE HIGH COURT WHILE ALLOWING THE APPEAL OF THE REVENUE HELD THAT IN THE ABSENCE OF ANY NEXUS SHOWN BETWEEN THE COMPENSATION RECEIVED AND THE BUSINESS ACTIVITIES OF THE INDUSTRIAL UNDERTAKING, THE COMPEN SATION COULD NOT BE HELD AS DERIVED FROM THE UNDERTAKING FOR THE PURPOSE OF INCLUSION UNDER SECTION 80-IA OF THE ACT. EVEN OTHERWISE, THE ISSUE IS SQUARELY COVERED BY THE DECISIONS OF THE APEX COURT RELIED ON BY THE A.O. IN HIS ORDER. THIS CONTENTION OF THE APPELLANT IS ACCORDINGLY REJEC TED AND APPEAL OF THE ASSESSEE ON THIS ISSUE IS DISMISSED. ACCORDINGLY, THESE GROUNDS OF APPEAL ARE DISMISSED E XCEPT FOR ON THE ISSUES MENTIONED IN PARA 8.2.2 TO 8.2.3. CONSIDERING THE DETAILED DISCUSSION ABOVE, THIS APEA L OF THE ASSESSEE IS PARTLY ALLOWED. TO CONCLUDE, APPEAL FOR THE A.Y. 2013-14 IS DISMISSED AND APPEAL FOR THE A.Y. 2014-15 IS PARTLY ALLOWED. 45. BEFORE US, THE LD. COUNSEL FOR ASSESSEE CONTEND ED THAT THE IDENTICAL ISSUE HAD ARISEN IN THE CASE OF THE ASSESSEE FOR A.Y 2008-09, VIDE ORDER IN ITA NO.583/CHD/2012 DATED 19-02-19,WHEREIN THE ISSUE HAD BEEN RESTORED BACK TO THE AO TO VERIFY WHETHER THE CLAIMS OF THE ASSESSEE AND ALLOW THE SAME IF FOUND TO ITA NO.826,827,834 & 835/CHD/2018 A.YS.2013-14 & 2014-15 24 BE RELATING TO TRADING ASSETS AND EXPENDITURE PERTAINING TO WHICH WAS CLAIMED IN EARLIER YEARS. C OPY OF THE ORDER WAS PLACED BEFORE US AND OUR ATTENTION WAS DRAWN TO PARA 7 OF THE ORDER . 46. THE LD. DR, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE CIT(A) THOUGH FAIRLY CONCEDED THAT IDENTICAL ISSUE HAD BEEN DECIDED IN PRECEDING YEAR. 47. CONSIDERING THE SAME ,WE RESTORE THE ISSUE OF CLAIM OF DEDUCTION U/S 80IA OF THE ACT ON SUNDRY CREDITORS WRITTEN BACK AND INSURANCE CLAIM RECEIVED ,BACK TO THE A.O TO ADJUDICATE THE SAME IN ACCORDAN CE WITH THE DIRECTION GIVEN BY THE ITAT IN THE CASE OF THE ASSESSEE IN A.Y 2008-09,IN ITA NO.583 & 596/CHD/2012 (SUPRA). 48. THESE GROUNDS ARE ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 49. IN GROUND NO.III, THE ASSESSEE HAS AGITATED THE ADDITION OF INTEREST RECEIVED FROM BANK AND INTERES T FROM EMPLOYEES TO THE BOOK PROFIT OF THE ASSESSEE F OR THE PURPOSE OF MINIMUM ALTERNATE TAX (MAT) AS PER T HE PROVISIONS OF SECTION 115JB OF THE ACT. 50. BRIEFLY STATED, THE A.O. HAD NOTED THAT THE ASSESSEE HAD ADJUSTED THE IMPUGNED RECEIPTS OF INCO ME WITH INTEREST AND FINANCE CHARGES PAID. THE A.O. DISALLOWED THE SET OFF OF THESE RECEIPTS OF INCOME S AGAINST THE EXPENSES AND TREATED THE SAME AS INCOME ITA NO.826,827,834 & 835/CHD/2018 A.YS.2013-14 & 2014-15 25 AND BOOK PROFIT OF THE ASSESSEE FOR THE PURPOSE OF MAT U/S 115JB OF THE ACT. THE ASSESSEE AGITATED THE SAM E BEFORE THE LD.CIT(A) IN GROUND NO.4(A) & (B) RAISED BEFORE IT BUT THE SAME WAS NOT ADJUDICATED UPON BY THE LD.CIT(A). 51. BEFORE US THE LD. COUNSEL FOR ASSESSEE CONTENDE D THAT AS PER THE FACTS OF THE CASE AS ENUMERATED IN THE ASSESSMENT ORDER ALSO, THE SAID RECEIPTS HAD BEEN REFLECTED IN THE PROFIT & LOSS ACCOUNT BUT INSTEAD OF SHOWING THEM SEPARATELY, THEY HAD BEEN SET OFF AGAI NST EXPENSES OF INTEREST. THEREFORE, IT COULD NOT BE SA ID THAT THEY DID NOT FORM PART OF THE BOOK PROFIT FOR THE PURPOSE OF SECTION 115JB OF THE ACT. 52. THE LD. DR WAS UNABLE TO CONTROVERT THIS FACTUA L CONTENTION OF THE ASSESSEE. FURTHER, WE FIND THAT T HIS FACT CLEARLY EMANATES FROM PARA 7 OF THE ASSESSMENT ORDER WHEREIN THE A.O. HAS MENTIONED THAT AS PER NO TE- 2.11 OF THE AUDITED ACCOUNTS RELATING TO EXPENDITU RE DURING CONSTRUCTION, IT WAS FOUND THAT THE ASSESSE E HAD ADJUSTED THE FOLLOWING RECEIPTS AGAINST INTERES T AND FINANCIAL CHARGES WHICH THE A.O. HAD DISALLOWED AND HELD THAT NO ADJUSTMENT OF THE SAME WAS ALLOWABLE A ND HAD TAXED THE ENTIRE INCOME RECEIVED. THE RELEVANT PORTION OF THE ASSESSMENT ORDER AT PARAS 7 AND 8.1 OF THE ASSESSMENT ORDER IS AS UNDER: 7. THE ASSESSEE WAS CONFRONTED THAT IN NOTE 2.11.1 . (EXPENDITURE DURING CONSTRUCTION) OF AUDITED ACCOUN TS, IT IS FOUND THAT THE ASSESSEE HAS ADJUSTED 'INTEREST AND FINANCE ITA NO.826,827,834 & 835/CHD/2018 A.YS.2013-14 & 2014-15 26 CHARGES' OF RS. 4,10,98,7297- FOR WHICH THE ASSESSEE WAS REQUESTED TO SUBMIT LEDGER & DETAILED BREAK UP OF EA CH OF THE ABOVE FIGURES AND EXPLAIN WITH EVIDENCE WHY SUCH RECE IPTS WILL NOT BE TAKEN SEPARATELY AS THE INCOME OF THE AS SESSEE. THE ASSESSEE EXPLAINED THAT: 'IN NOTE NO. 2.11.1. EXPENDITURE DURING CONSTRUCTION THE FOLLOWING RECEIPTS HAVE BEEN ADJUSTED AGAINST INTER EST AND FINANCIAL CHARGES. RECEIPTS & RECOVERIES INTEREST FROM : RUPEES BANK 2,07,742 EMPLOYEES 59,84,547 CONTRACTORS 3,49,06,440 TOTAL 4,10,98,729 DURING THE PREVIOUS YEAR INTEREST FROM CONTRACTOR W AS ALLOWED TO BE SET OFF AGAINST INTEREST EXPENSES IN THE LIGH T OF JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS BOKAR O STEEL LTD. AND NO OTHER INCOME WAS ALLOWED TO BE SET OFF AN D ADDED TO THE INCOME.' 8.1. THE SUBMISSION MADE BY THE ASSESSEE HAS BEEN CONSIDERED IN THE LIGHT OF THE JUDGMENT OF THE HON' BLE SUPREME COURT IN THE CASE OF CIT V. BOKARO STEEL LTD. RELIED U PON BY THE ASSESSEE. AS HELD IN THE ASSESSMENT YEAR 2013-14 THA T EXCEPT FOR THE INTEREST RECEIVED FROM CONTRACTORS, NO OTHE R INCOME WAS HELD TO BE ELIGIBLE FOR SET OFF IN THE SAID JUDGMENT. SINCE, NATURE OF INCOME IS SIMILAR AS DISCUSSED AT PARA 5 & 6 (SUPR A), THESE INCOMES ARE ALSO NOT INEXTRICABLY LINKED TO ASSESSEE 'S ELECTRICITY GENERATION ACTIVITY AND AS SUCH, NO DEDUCTION U/S 80IA IS ALLOWED ON THESE EXPENSES. HOWEVER, ADDIT IONAL EXPENSES ON SUCH ADJUSTMENT AMOUNT ARE ALLOWED TO BE CAPITALIZED. KEEPING IN VIEW THESE FACTS, INCOME ON A /C OF INTEREST FROM BANK AND INTEREST FROM EMPLOYEES AMOUN TING TO RS. 61,92,2897- IS ADDED BACK TO THE INCOME OF THE A SSESSEE. THE SAME IS ALSO ADDED TO THE 'BOOK PROFIT' FOR DET ERMINING TAX LIABILITY AS PER THE PROVISIONS OF SECTION 115JB OF THE INCOME TAX ACT, 1961. 52. SINCE IT IS AN ADMITTED FACT THAT THE IMPUGNED INCOMES WERE DISCLOSED IN THE PROFIT & LOSS ACCOUNT , IT IS BUT OBVIOUS THEY FORM PART OF THE BOOK PROFIT OF THE ASSESSEE ALSO. THE ADDITION MADE BY THE A.O., THEREFORE, IS NOTHING BUT A DOUBLE ADDITION AND THE SAME IS, THEREFORE, DIRECTED TO BE DELETED. GROUND NO.III RAISED BY THE ASSESSEE IS ALLOWED. ITA NO.826,827,834 & 835/CHD/2018 A.YS.2013-14 & 2014-15 27 53. IN EFFECT THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 54. TAKING UP APPEAL OF THE REVENUE IN ITA NO.827/CHD/2018 THE SOLE GROUND INVOLVED IN THIS APPEAL READS AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 1,83,00,0 00/- AND RS. 17,63,383/- MADE BY THE A.O. BY DISALLOWING THE DEDUCTION CLAIMED BY THE ASSESSEE U/S 80IA ON THE I NCOME EARNED FROM RECOVERY FROM M/S JP POWER VENTURES AND M/S KARCHAM WANGTOO, IGNORING THE FACT THAT PRIOR PERIO D INCOME WAS RIGHTLY ADDED TO THE INCOME BY THE AO, AS THE E XPENSE TO THIS EXTENT WAS CLAIMED BY THE ASSESSEE IN THE P & L ACCOUNT OF PREVIOUS ASSESSMENT YEAR. 55. BRIEF FACTS RELATING TO THE SAME ARE THAT THE ASSESSEE HAD RECEIVED RECOVERY FROM M/S JP POWER VENTURES AND M/S KARCHAM WANGTOO AMOUNTING TO RS.1.83 CRORES AND RS.17,63,383 WHICH WAS SHOWN AS MISCELLANEOUS INCOME DURING THE YEAR AND DEDUCTION CLAIMED U/S 80IA OF THE ACT ON THIS RECEIPTS. THE S AME WAS DENIED BY THE A.O. HOLDING THAT THE INCOME WAS NOT DERIVED FROM THE MANUFACTURING ACTIVITY OF THE INDUSTRIAL UNDERTAKING. THE LD.CIT(A) ALLOWED THE SAME ON NOTING THAT AS PER THE FACTS OF THE CASE TH E SAID RECOVERIES RELATED TO THE BUSINESS UNDERTAKING OF THE ASSESSEE. THE RELEVANT FINDINGS OF THE LD.CIT(A ) AT PARA 8.2.2 & 8.2.3 OF THE ORDER IS AS UNDER: 8.2.2 (B)RECOVERY FROM JP POWER VENTURE S OF RS. 1,83,00,000/- IT WAS ARGUED THAT THE SAID AMOUNT OF RS. 1,83,00,0 00/- HAS BEENREIMBURSED BY M/S JP POWER VENTURES LTD TOWARDS COST OF REPAIR OF R PHASE CIRCUIT BREAKERS AT BASPA-LL PROJECT. THE EXPENDITURE OF WHICH ALREA DY STANDS DEBITED TO PROFIT & LOSS A/C WHICH ENTAILS THAT IF THE ABOVE RECEIPTS WAS CREDITED TO THE SAID EXPENDITURE THE PROFIT WOULD BE MORE RESULTING IN S IMILAR DEDUCTION U/S 80IA. I HAVE PERUSED THE FACTS OF THE CASE, THE ACTION OF THE A.O. AND THE SUBMISSIONS OF THE APPELLANT. THE A.O. HAS NOT MENTIONED ANY FACTS WITH ITA NO.826,827,834 & 835/CHD/2018 A.YS.2013-14 & 2014-15 28 RESPECT TO RECEIPT OF THIS INCOME IN HIS ASSESSMENT ORDER WHILE HOLDING THAT THE SAME IS NOT ELIGIBLE FOR DEDUCTION U/S 80IA OF THE ACT. THE APPELLANT ON FURTHER QUERY DURING THE APPEAL PROCEEDINGS HAS SUB MITTED AS UNDER: INSURANCE CLAIM AND RECOVERY FROM JP POWER VENTURES HAS BEEN, RECEIVED AGAINST THE DAMAGES CAUSED TO THE CI RCUIT BREAKER WHICH WAS USED FOR EVACUATION OF POWER OF NATHPA JHAKRI HYDRO POWER PLANT AND JP HYDRO POWER PLANT. THE EXPENDITURE AND COST OF MAIN TENANCE OF POT HEAD YARD IS SHARED BY THE COMPANY AND JP POWER AS THE EVACUA TION OF POWER OF BOTH THE COMPANIES IS CARRIED OUT FROM THE SAME POT HEAD YARD. THE EXPENDITURE ON REPAIR OF CIRCUIT BREAKER WAS INITIALLY MADE BY THE COMPANY FROM THE YEAR 2008-09 ONWARDS (LEDGER COPIES ENCLOSED) AND BOOKED TO THE REPAIR AND MAINTENANCE EXPENDITURE IN THOSE YEARS AND CLAIM WA S FILED WITH THE INSURANCE COMPANY. DURING THE YEAR INSURANCE CLAIM AMOUNTING TO RS. 1,64,46,808/-WAS RECEIVED AND RECOVERY FROM JP POWE R VENTURES OF RS. 1,83,00,000/- WAS RECEIVED AS THEIR SHARE OF EXPEND ITURE ALREADY DEBITED TO PROFIT AND LOSS A/C IN EARLIER YEARS. THE NATURE OF CLAIM IS DIRECTLY LINKED AND INEXTRICABLY DERIVED FROM THE MAIN BUSINESS I.E. FO R PUTTING THE ASSETS OF THE GENERATING STATION BACK TO WORKING CONDITION. HENCE THE RECEIPT IS DIRECTLY RELATED WITH THE RUNNING AND MAINTENANCE OF THE PLA NT ENGAGED IN GENERATION OF ELECTRICITY. ACCORDINGLY, THE INSURANCE RECEIPTS FOR REPAIR AND RECOVERY FROM JP POWER VENTURES TOWARDS EXPENDITURE OF REPAI RS IS RIGHTLY CLAIMED BY THE COMPANY U/S 80 IA AND NEEDS TO BE ALLOWED. ONCE IT IS HELD THAT THE RECEIPTS OF RS.1,83,00,000 /- FROM M/S. JP POWER VENTURES IS ON ACCOUNT REIMBURSEMENT OF EXPENSES, T HE SAME IS DIRECTLY LINKED TO THE BUSINESS AND IS DERIVED FROM BUSINESS UNDERT AKING. THE ARGUMENT OF THE APPELLANT THAT IN THE PRECEDING YEAR THE AMOUNT STA NDS DEBITED IN THE P & L ACCOUNT AS REPAIR AND MAINTENANCE EXPENSE WHICH RED UCED HIS ELIGIBLE INCOME WILL HAVE TO BE INCREASE ON RECEIPT OF REIMBURSEMEN T FOR THE SAME. CONSIDERING THE FACTS OF THE CASE, THIS CONTENTION OF THE APPELLANT IS ACCEPTED AND THIS RECEIPT OF RS.1,83,00,000/- IS DIRECTED TO ELIGIBLE FOR DEDUCTION U/S 80IA OF THE I.T.ACT, 1961. 8.2.3 (C) RECOVERY FROM KARCHAM WANGTOO OF RS. 17,63,383/- WITH RESPECT TO THESE RECEIPTS IT WAS ARGUED BY THE APPELLANT THAT THIS AMOUNT OF RS. 17,63,383/- WAS RECOVERABLE FROM KARCHAM WANGTO O FOR WATER DISCHARGE DATA. THE APPELLANT INCURS EXPENDITURE TOWARDS RECO RDING THE WATER DISCHARGE AND SHARES THE DATA WITH OTHER COMPANIES IN SIMILAR LIN ES. THE EXPENDITURE ON COLLECTION OF DATA IS DEBITED TO P& L A/C. I HAVE PERUSED THE FACTS OF THE CASE, THE ACTION OF THE A.O. AND THE SUBMISSIONS OF THE APPELLANT. THE OBSERVATIONS MADE FOR THE RECEIPT OF RS.1,83,00,000/- FROM M/S. JP POWER VENTURES ARE AP PLICABLE HERE ALSO. FOLLOWING THE SAME, THIS RECEIPT OF RS.17,63,383/- IS DIRECTED TO BE HELD AS ELIGIBLE FOR DEDUCTION U/S 80IAOFTHE I.T.ACT, 1961. 56. BEFORE US THE LD. DR RELIED UPON THE ORDER OF T HE A.O. WHILE THE LD.COUNSEL FOR THE ASSESSEE RELIED O N THE ORDER OF THE LD.CIT(A). 57. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW.WE FIND NO REAS ON TO ITA NO.826,827,834 & 835/CHD/2018 A.YS.2013-14 & 2014-15 29 INTERFERE IN THE ORDER OF THE LD.CIT(A).THE FACTUAL FINDINGS OF THE LD.CIT(A) THAT BOTH THE RECOVERIES WERE RECEIVED ON ACCOUNT OF DAMAGES/EXPENSES INCURRED BY THE ASSESSEE ON ITS PROJECTS,WHICH HAD BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE,HAS NOT BEEN CONTROVERTED BY THE REVENUE. WE THEREFORE FIND NO INFIRMITY IN THE CONCLUSION OF THE LD.CIT(A),BASED ON THESE FACTS,THAT THE RECOVERIES WERE DIRECTLY RELAT ED WITH THE RUNNING OF PROJECTS /PLANTS OF THE ASSESSE E AND ARE THEREFORE ELIGIBLE FOR DEDUCTION U/S 80IA O F THE ACT. 58. THE GROUND RAISED BY THE REVENUE IS THEREFORE DISMISSED 59. IN THE RESULT APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- $ % & '# (SANJAY GARG) (ANNAPURNA GUPTA) /JUDICIAL MEMBER () /ACCOUNTANT MEMBER +$ /DATED: 29 TH MARCH, 2019 * # * #&' ()*) / COPY OF THE ORDER FORWARDED TO : 1. + / THE APPELLANT 2. ',+ / THE RESPONDENT 3. - / CIT 4. - ( )/ THE CIT(A) 5. )./' 0 , !0 , 123/4 / DR, ITAT, CHANDIGARH 6. /35 / GUARD FILE #& / BY ORDER, / ASSISTANT REGISTRAR
