The DCIT, GNR Circle, Gandhinagar V. Sardar Sarovar Narmada Nigam Ltd., Gandhinagar

ITA 944/AHD/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80331 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 5 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 22-08-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 31-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T P KRISHNA KUMAR
• Assessee Lawyers: M G PATEL
• Keywords: Capital asset; Business income; Depreciation; Capital expenditure
• Section: 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI G.C. GUPTA, VICE PRESIDENT AND SHRI ANI L CHATURVEDI, ACCOUNTANT MEMBER ITA NO.944/AHD/2011 A.Y.2007-08 DY. COMMISSIONER OF INCOME TAX, GANDHINAGAR. VS SARDAR SAROVAR NARMADA NIGAM LTD., 7 TH FLOOR, BLOCK NO.12, NEW SACHIVALAYA COMPLEX, GANDHINAGAR. PAN :AACCS 6704L (APPELLANT) (RESPONDENT) REVENUE BY : SHRI T.P. KRISHNA KUMAR, CIT-D.R., ASSESSEE(S) BY : SHRI M.G. PATEL, AR / // / DATE OF HEARING : 22/08/2014 / DATE OF PRONOUNCEMENT: 05/09 /2014 / O R D E R PER SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REVENUE ARISING FROM AN ORDER OF LD. CIT(APPEALS), GANDHINAGAR, DATED 20/12/2010 FOR A.Y .2007-08. 2. THE FACTS AS CULLED OUT FROM THE MATERIAL ON REC ORD AS UNDER. 3. THE ASSESSEE IS A COMPANY WHOLLY OWNED BY THE GO VERNMENT OF GUJARAT AND WAS ESTABLISHED FOR EXECUTION OF SARDAR SAROVAR PROJECT COMPRISING OF A DAM ACROSS THE RIVER NARMADA. THE P ROJECT IS AIMED FOR PROVIDING DRINKING WATER, WATER FOR IRRIGATION IN F OUR STATES OF INDIA. THE ASSESSEE FILED E-RETURN OF INCOME FOR A.Y.2007-08 O N 26.10.2007 DECLARING TOTAL LOSS OF RS.8,34,66,86,608/-. THE CA SE WAS SELECTED FOR SCRUTINY AND THEREAFTER ASSESSMENT WAS MADE U/S.143 (3), VIDE ORDER DATED ITA NO.944/AHD/2011 DCIT, GANDHINAGAR VS. SARDAR SAROVAR NARMADA NIGAM LTD. FOR A.Y. 2007-08 - 2 - 29.12.2009 AND THE TOTAL INCOME DETERMINED BEFORE S ET OFF OF BUSINESS LOSSES WAS RS.90,28,17,425/-. 4. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED T HE MATTER BEFORE LEARNED CIT(A). LEARNED CIT(A) VIDE ORDER DATED 20. 12.2010 GRANTED PART RELIEF TO THE ASSESSEE. AGGRIEVED BY THE AFORE SAID ORDER OF LEARNED CIT(A), REVENUE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING EFFECTIVE GROUNDS. (1) THE LEARNED CLT(APPEALS) .HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT THE ASSESSEE HAS COMMENCED ITS BUSINESS, EVEN AS THE MAIN OBJECT OF THE WORK DONE BY THE ASSESSEE HAS NOT BEEN COMMENCED DU RING THE YEAR. (2) THE LEARNED CIT(APPEALS) HAS ERRED IN LAW A ND ON FACTS OF THE CASE IN DIRECTING THE A.O. TO ALLOW EXPENDITURE OF RS.28,96 ,13,334/- AND RS.5,10,00,000/- BEING INCIDENTAL EXPENDITURE PENDI NG CAPITALIZATION IN COMPUTING INCOME/LOSS UNDER THE HEAD 'BUSINESS', HO LDING THAT THE ASSESSEE CORPORATION WAS ALREADY SET UP AND COMMENCED BUSINE SS. (3) THE LEARNED CIT(APPEALS) HAS ERRED IN LAW A ND ON FACTS OF THE CASE IN DIRECTING THE A.O. NOT TO APPLY THE COST SHARING FO RMULA AS DETERMINED BY THE NARMADA WATER TRIBUNAL FOR DETERMINING THE COST OF ASSETS OWNED BY THE ASSESSEE FOR THE PURPOSE OF DEPRECIATION. 5. AT THE OUTSET, LEARNED AR SUBMITTED THAT ALL THE GROUNDS RAISED BY THE REVENUE ARE COVERED IN ASSESSEES FAVOUR BY THE DECISION OF HONBLE TRIBUNAL IN THE ASSESSEES OWN CASE FOR EARLIER YEA RS. HE, THEREFORE, SUBMITTED THAT APPEAL OF THE REVENUE NEEDS TO BE DI SMISSED BY UPHOLDING THE ORDER OF LEARNED CIT(A). HE ALSO PLAC ED ON RECORD THE TRIBUNAL ORDER FOR EARLIER YEARS. 6. LEARNED AR SUBMITTED THAT GROUND NOS.1 AND 2 ARE INTERCONNECTED. DURING THE COURSE OF ASSESSMENT PRO CEEDINGS AND ON PERUSING THE ANNUAL REPORT, AO NOTICED THAT THE MAI N CANAL HAS NOT BEEN USED FOR THE PURPOSE OF BUSINESS DURING THE YEAR AN D THE SUPPLY OF THE WATER IN THE CANAL WAS INCIDENTAL TO THE ELECTRICIT Y GENERATION. HE HAS ALSO ITA NO.944/AHD/2011 DCIT, GANDHINAGAR VS. SARDAR SAROVAR NARMADA NIGAM LTD. FOR A.Y. 2007-08 - 3 - NOTED THAT THE PROJECT IS A JOINT VENTURE BETWEEN G OVERNMENT OF GUJARAT, M.P., RAJASTHAN AND MAHARASHTRA. THE COST OF SHARIN G OF THE PROJECT STANDS DETERMINED BY THE TRIBUNAL. THE SHARING ARRA NGEMENT WAS FURTHER SPLIT UP ALSO IN THE COST OF IRRIGATION AS WELL A S POWER. AO WAS OF THE VIEW THAT ASSESSEES SHARE IN THE PROJECT CANNOT EX CEED THE SHARE OF GOVERNMENT OF GUJARAT. HE WAS, THEREFORE, OF THE VI EW THAT FOR THE PURPOSE OF COMPUTATION OF DEPRECIATION THE OVERALL DEPRECIATION IS TO BE RESTRICTED FOR THE ASSESSEE TO THE PROPORTION OF SH ARE OF COST FOR THE IRRIGATION AND POWER PROJECT. HE WAS FURTHER OF THE VIEW THAT SINCE THE MAIN CANAL HAS NOT BEEN USED FOR IRRIGATION PURPOSE , THE ASSESSEES SHARE OF COST OF MAIN CANAL SHALL NOT BE ELIGIBLE FOR DEP RECIATION. HE ACCORDINGLY REWORKED THE TOTAL INCOME. 7. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED T HE MATTER BEFORE LEARNED CIT(A), LEARNED CIT(A) AFTER CONSIDERING TH E SUBMISSION OF THE ASSESSEE DELETED THE ADDITION BY HOLDING AS UNDER: 3.4. THE MATTER HAS BEEN GIVEN DUE CONSIDERATION AN D IT IS CORRECT THAT THE ISSUES ARE COVERED BY THE CIT(A)'S DECISION FOR ASS ESSMENT YEAR 2005-06 VIDE APPEAL NO. CIT(A)GNR/312/2007-08 DATED 29/10/2008 A ND FOLLOWED FOR ASSESSMENT YEAR 2006-07 VIDE APPEAL NO. CIT(A)GNR/2 39/2008-09 DATED 01/12/2009 . REGARDING THE ISSUE OF COMMENCEMENT OR OTHERWISE OF BUSINESS OF IRRIGATION, IT WAS STATED IN PARA 2.3 OF THE ORD ER FOR ASSESSMENT YEAR 2005- 06 AS FOLLOWS: '2.3. THE MATTER HAS BEEN GIVEN DUE CONSIDERATION. MY PREDECESSOR VIDE HIS ORDER DATED 14/12/2005 FOR ASSESSMENT YEAR 2002-03 HAS ANALYSED THE ISSUE IN DETAIL, INCLUDING THE DECISIO N OF I.T.A.T., AHMEDABAD B BENCH IN THE APPELLANT'S CASE FOR ASSES SMENT YEAR 1989- 90 TO 2000-01, AS REPORTED IN 93 ITD 329. AFTER EXA MINING THE FACTS BROUGHT ON RECORD, THE CIT(A) HELD THAT THE APPELLA NT HAD EXECUTED ITS INFRASTRUCTURE PROJECT TO A SUBSTANTIAL EXTENT AND COMMERCIAL ACTIVITY HAD ALSO STARTED BY GENERATING REVENUE FROM WATER S UPPLY IN THE PERIOD RELEVANT TO ASSESSMENT YEAR TO COMPEL HIM TO DEVIATE FROM THE FINDING OF CIT(A) FOR EARLIER YEAR. HENCE THE BUSIN ESS IS HELD TO HAVE BEEN COMMENCED FOR A. Y. 2002-03. SUCH A FINDING HA VING BEEN GIVEN IN AN EARLIER YEAR OBVIOUSLY SHALL BE APPLICABLE TO THIS YEAR ALSO AS THERE CAN NOT BE REVERSAL OF FACTS. IF THE PROJECT AS IT STOOD IN THE ITA NO.944/AHD/2011 DCIT, GANDHINAGAR VS. SARDAR SAROVAR NARMADA NIGAM LTD. FOR A.Y. 2007-08 - 4 - PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2002-03 M EANT USE OF 'IRRIGATION' PORTION OF PROJECT ALSO, LATER PERIOD CAN ONLY LEAD TO FURTHER CONSTRUCTION ON VARIOUS AREAS LIKE BRANCH C ANALS AND HENCE THE FINDING FOR ASSESSMENT YEAR 2002-03 WOULD BE VALID FOR THIS YEAR ALSO. HENCE IT IS HELD THAT THE APPELLANT HAS USED ITS VA RIOUS APPARATUS FOR THE BUSINESS PURPOSE OF IRRIGATION.' 3.5. THEREFORE, AS HAS BEEN HELD IN THE ASSESSMENT YEAR 2002-03 AND THEREAFTER FOLLOWED IN SUBSEQUENT YEARS ALSO THAT T HE BUSINESS OF IRRIGATION HAS COMMENCED, THE SAME FINDING SHALL HAVE TO BE APPLIC ABLE TO THIS YEAR AS WELL, AS THE ACTIVITIES HAVE BEEN CARRIED OUT AT THE SAME LEVEL AND IN THE SAME MANNER AS IN THOSE YEARS. 3.6. ON THE ISSUE OF RESTRICTING THE DEPRECIATION B Y LIMITING THE COST OF THE ASSETS TO THE SHARE OF THE GOVERNMENT OF GUJARAT IN THE INTER-STATE DISPUTE, AS PER THE RATIO DETERMINED BY THE TRIBUNAL, THE MATTE R WAS DECIDED VIDE PARAS- 3.3 AND 3.3.1 OF THE APPELLATE ORDER FOR ASSESSMENT YEAR 2005-06, WHICH ARE REPRODUCED BELOW: '3.3. THE MATTER HAS BEEN GIVEN DUE CONSIDERATION. NO DOUBT THE PROJECT IN QUESTION IS THE PRODUCT OF ADMINISTRATIV E-POLITICO DECISION OF GOVERNMENTS OF GUJARAT, MAHARASHTRA, MADHYA PRADESH AND RAJASTHAN. IT IS ALSO PART OF THE SAME DECISION THA T IT SHALL BE IMPLEMENTED BY GOVERNMENT OF GUJARAT. IN ORDER TO I MPLEMENT THE SAME, THE GOVERNMENT OF GUJARAT DECIDED TO SETUP SA RDAR SAROVAR NARMADA NIGAM LTD. AS A PUBLIC LIMITED COMPANY. IT SHOULD BE NOTED THAT ENTIRE SHARE CAPITAL OF THE NIGAM WAS SUBSCRIB ED TO BY THE GOVERNMENT OF GUJARAT AND THE NIGAM WAS TO EXECUTE THE ENTIRE PROJECT. SO THERE ARE TWO SEPARATE AREA OF OPERATIO N, ONE AMONG THE PARTICIPATING STATES FOR TAKING UP SUCH A PROJECT A ND FOR COST SHARING AMONGST THEM AND THE OTHER FOR A LEGALLY INDEPENDEN T COMPANY TO IMPLEMENT THE PROJECT. TO THE COMPANY THE COST OF T HE ASSETS REMAINS THE SAME, NOTWITHSTANDING ANY ARRANGEMENT AMONG THE PARTICIPANT STATES BECAUSE THE COST OF THE ASSETS IS BEING MET BY THE FUNDS OF THE COMPANY EQUITY PROVIDED BY GOVERNMENT OF GUJARAT AN D BORROWED FUNDS AS IN ANY COMMERCIAL VENTURE. IF ANY FUNDS AR E TRANSFERRED FROM ONE OF THE STATES TO THE GOVERNMENT OF GUJARAT, THE SAME SHALL NEITHER BE REFLECTED IN THE BOOKS OF THE APPELLANT NOR SHAL L EFFECT THE COST OF ASSETS IN THE HANDS OF THE APPELLANT. THE ASSESSING OFFICER'S ASSERTION THAT APPELLANT'S SHARE IN PROJECT CANNOT EXCEED THE SHARE OF GOVERNMENT OF GUJARAT OVERLOOKS THE DISTINCTION OF FINANCIAL RELATIONSHIP BETWEEN STATES VIS-A-VIS MANNER OF IMP LEMENTING A PROJECT THROUGH A CARRIER, IN THIS CASE A COMPANY. THEREFORE, I DO NOT AGREE WITH THE ASSESSING OFFICER'S ACTION OF HOLDIN G THAT COST OF ASSETS IN THE HANDS OF THE APPELLANT HAS TO BE RESTRICTED AS PER COST-SHARING FORMULA DETERMINED BY THE TRIBUNAL. 3.3.1. AS FAR AS THE ISSUE OF 'INDIRA SAGAR DAM' IS CONCERNED, OBVIOUSLY THE ACCOUNTING TREATMENT GIVEN BY THE APP ELLANT IS INCORRECT ON THE BASIS OF APPELLANT'S OWN LOGIC. HENCE WHILE GIVING APPEAL ITA NO.944/AHD/2011 DCIT, GANDHINAGAR VS. SARDAR SAROVAR NARMADA NIGAM LTD. FOR A.Y. 2007-08 - 5 - EFFECT, THE ASSESSING OFFICER IS DIRECTED NOT TO TR EAT THOSE ASSETS AS BELONGING TO THE APPELLANT, WITH ITS DUE FOLLOW UP CONSEQUENCES LIKE WITHDRAWAL OF DEPRECIATION' 3.7. SINCE THE ISSUE CONCERNS THE INTERPRETATION OF AN ARRANGEMENT, THE FINDING AS GIVEN FOR THE ASSESSMENT YEAR 2005-06 AND FOLLOW ED IN 2006-07 WILL AS MUCH BE APPLICABLE HERE ALSO AND THEREFORE IN LINE WITH THAT DECISION, IT IS HELD THAT THE ASSESSING OFFICER'S ACTION OF HOLDING THAT THE COST OF ASSETS IN THE HANDS OF THE APPELLANT HAS TO BE RESTRICTED AS PER THE COST SHARING FORMULA DETERMINED BY THE TRIBUNAL IS NOT CORRECT, SUBJECT TO EXCLUDING THE ASSETS BELONGING TO INDIRA SAGAR DAM. 3.8. FOLLOWING FROM THE ABOVE TWO DIRECTIONS, GIVEN IN PARA 3.5. AND 3.7., IT IS CLEAR THAT IN COMPUTING THE DEPRECIATION, THE ASSES SING OFFICER IS REQUIRED TO TAKE THE W.D.V. AS PER THE BLOCK OF ASSETS IN THE A SSESSEE'S BOOKS OF ACCOUNT. 3.9. COMING TO THE ASSESSING OFFICER'S OBSERVATION ABOUT RESTRICTING THE DEPRECIATION OF 1450 MW POWER PLANT, IT NEEDS TO BE APPRECIATED THAT IF THE BLOCK OF ASSETS CONTAINS ANY SUCH PORTIONS WHICH HA VE NOT BEEN UTILIZED, ONLY THEN THE DEPRECIATION CLAIM WOULD BE DISALLOWABLE. IN OTHER WORDS DEPRECIATION WILL NOT BE ALLOWABLE IF CERTAIN ASSET S ARE INCOMPLETE IN THE SENSE THAT THEY ARE NOT UTILIZED. THE DEPRECIATION WOULD BE ALLOWABLE FULLY EVEN IF THE ASSETS ARE UNDERUTILIZED. OTHERWISE, MERELY BEC AUSE THE PLANT IS FOR A 1450 MW, THE PRODUCTION OF LOWER LEVEL OF 1350 MW WOULD NOT LEAD TO A DISALLOWANCE, IF THE ASSETS ARE PART OF THE BLOCK O F ASSETS. AS THE FINDING IN THE ASSESSMENT ORDER IS NOT CLEAR, THE ASSESSING OFFICE R, AT THE APPEAL EFFECT STAGE, MAY VERIFY AND REWORK THE DEPRECIATION ACCORDINGLY. 3.10. FURTHER, AS DISCUSSED IN DETAIL LATER, THE SU M TOTAL OF 'INCIDENTAL EXPENDITURE PENDING CAPITALIZATION' EXPENDITURE FOR THE YEAR IS RS. 1472.66 CR. IN THE ORIGINAL COMPUTATION OF INCOME OUT OF TH IS RS.1262.3 CR. WAS TREATED AS ALLOCATED TO CAPITAL. IN THE REVISED COM PUTATION THIS AMOUNT WAS CHANGED TO RS.1238.62 CRORE. AS THE AMOUNT TAKEN TO CAPITAL EXPENDITURE HAS REDUCED, THE VALUE OF CAPITAL ASSETS AS WELL AS THE DEPRECIATION SHOULD HAVE BEEN REDUCED. THIS WAS NOT DONE. THE ASSESSING OFFICER IS DIRECTED TO REVISE THE DEPRECIATION AFTER CHECKING THE COMPUTAT ION AND GIVING DUE OPPORTUNITY TO THE ASSESSEE. 8 AGGRIEVED BY THE ORDER OF LEARNED CIT(A), REVENUE IS NOW IN APPEAL BEFORE US. 8.1 BEFORE US, LEARNED DR HAS SUPPORTED THE ORDER O F THE AO. ON THE OTHER HAND, LEARNED AR HAS SUPPORTED THE ORDER OF L EARNED CIT(A) AND SUBMITTED THAT SINCE THE ISSUE IN THE YEAR UNDER AP PEAL IS DIRECTLY COVERED ITA NO.944/AHD/2011 DCIT, GANDHINAGAR VS. SARDAR SAROVAR NARMADA NIGAM LTD. FOR A.Y. 2007-08 - 6 - BY THE SPECIAL BENCHS DECISION IN ASSESSEES OWN C ASE FOR EARLIER YEARS. THE ORDER OF LEARNED CIT(A) NEEDS TO BE UPHELD. HE HAS PLACED ON RECORD THE DECISION OF THE TRIBUNAL OF EARLIER YEARS. 9. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED T HE MATERIAL ON RECORD. WE FIND THAT ON IDENTICAL ISSUE, HONBLE IT AT IN THE ASSESSEES OWN CASE FOR A.YS.2005-06 AND 2006-07 FILED BY THE DEPARTMENT BEARING ITA NOS. 166/AHD/2010 AND 838/AHD/2010 DATED 5.9.20 13 DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY DISMISSING THE G ROUNDS OF REVENUE BY HOLDING AS UNDER: 5. 1 ST GROUND IS WITH RESPECT TO HOLDING THAT THE CORPORA TION WAS ALREADY SET UP AND COMMENCED BUSINESS: 6. THIS GROUND IS IDENTICAL TO THE GROUND NO.1 & 4 OF ITA NO. 838/AHD/2010 FOR A.Y. 2006-07. 7. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAS INCURRED CERTAIN EXPENDITURE WHICH IT HAD TERME D AS 'INCIDENTAL EXPENSES PENDING CAPITALISATION' TOWARDS THE COST OF ASSET. THE TOTAL OF THE EXPENDITURE PENDING CAPITALISATION WAS RS. 1732.90 CRORES. HE A LSO NOTICED THAT ASSESSEE HAD AN INCOME OF RS 160.17 CRORES, NET TRANSFER TO CAPITAL WORK IN PROGRESS OF RS 430.32 CRORES (GROSS RS. 549.16 CRORE) AND HAD C LAIMED RS. 109.90 CRORE AS EXPENSES OUT OF THE INCIDENTAL EXPENSES AS REVEN UE EXPENSES AGAINST THE INCOME EARNED. HE ALSO NOTICED THAT ASSESSEE HAS NO T DRAWN ANY PROFIT AND LOSS ACCOUNT AND THEREFORE ACCORDING TO ASSESSING O FFICER THERE WAS NO COMMITMENT BY THE ASSESSEE THAT THE INCIDENTAL EXPE NSES PENDING CAPITALIZATION WILL NEVER BE ADDED BACK TO THE COST OF ASSETS AT A LATER STAGE. WITHOUT THIS COMMITMENT, HE WAS OF THE VIEW THAT IT WAS ALWAYS POSSIBLE THAT THE SAME EXPENDITURE MAY BE CLAIMED AS REVENUE EXPE NDITURE NOW AND IS AGAIN CLAIMED IN FUTURE IN THE FORM OF DEPRECIATION WHEN THE SAME IS CAPITALIZED. HE WAS THEREFORE OF THE VIEW THAT TILL THE TIME THE ASSESSEE WRITES ITS PROFIT AND LOSS ACCOUNT AND ACTUALLY EXCLUDES T HE INCIDENTAL EXPENSES FROM THE ACCOUNT OF 'INCIDENTAL EXPENSES PENDING CAPITAL IZATION' SUCH EXPENSES CANNOT BE ALLOWED AS REVENUE EXPENSES. HE THUS DID NOT ALLOW ANY EXPENSES FOR DEDUCTION. AGGRIEVED BY THE ORDER OF AO, THE MA TTER WAS CARRIED BEFORE CIT(A). CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE BY HOLDING AS UNDER: 5.4 THE MATTER HAS BEEN GIVEN DUE CONSIDERATION. AS STATED EARLIER, THE APPELLANT SEEMS TO HAVE AGREED TO THE FACT THAT THE INCIDENTAL EXPENDITURE ALLOWABLE AS REVENUE EXPENSES, I.E. WHICH ARE EITHE R NOT LIKELY TO BE CAPITALIZED OR ARE NOT DISALLOWABLE, ARE RS. 48.69 CR. ONLY. THEREFORE, THE DISPUTE PRIMARILY IS CONCERNING THE ASSESSING OFFIC ER NOT EVEN ALLOWING THIS ITA NO.944/AHD/2011 DCIT, GANDHINAGAR VS. SARDAR SAROVAR NARMADA NIGAM LTD. FOR A.Y. 2007-08 - 7 - AMOUNT. THE ACTION OF THE ASSESSING OFFICER IN REFU SING THE SET OFF OF THESE EXPENSES ON THE GROUND THAT ASSESSEE MAY. IN FUTURE , CAPITALIZE SOME OF THEM AND MAY CLAIM DEPRECIATION THEREOF, MAY NOT BE A VE RY SOUND LOGIC. IF A CLAIM IS VALID AND LEGAL, THE DEPARTMENT IS DUTY BOUND TO ALLOW IT AND IT IS FOR THE DEPARTMENT TO DEVELOP ITS SYSTEM IN TERMS OF PROPER RECORDING IN THE ASSESSMENT ORDER OR IN INTERNAL NOTES THAT IF THERE IS A DUPLICATE CLAIM IN THE SUBSEQUENT YEAR, THE SAME CAN BE CHECKED AND COUNTE R ACTED. FURTHER, THE ASSESSING OFFICER'S ACTION IN THEORETICALLY REDUCIN G THE CLAIM TO THE EXTENT OF THE GOVERNMENT OF GUJARAT'S SHARE IN THE OVERALL CO ST OF THE PROJECT VIS-A-VIS THE OTHER PARTICIPATING STATES IS ALSO NOT UPHELD I N VIEW OF HAVING HELD EARLIER THAT THE APPELLANT-COMPANY IS A DISTINCT ENTITY FRO M THE GOVERNMENT OF GUJARAT. - THEREFORE, CONSIDERING ALL THE FACTS, I THINK, THE ASSESSEE IS ENTITLED FOR THE CLAIM OF EXPENSES TO THE EXTENT OF RS.4S.69 CR; AGAINST ITS BUSINESS INCOME. 8. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE IS NOW IN APPEAL BEFORE US. 9. BEFORE US, THE LD.D.R. RELIED ON THE ORDE R OF AO AND ON THE OTHER HAND THE LD.AR RELIED ON THE ORDER OF CIT(A) AND SUBMITT ED THAT ON IDENTICAL FACTS, THE TRIBUNAL IN ASSESEE'S OWN CASE FOR AY 02-03 TO 04-05 (ITA NO.696,2106/A/06, GO 128 & 271/A/06 & 1466/A/07 & C O T40/A/07) HAS ALLOWED IDENTICAL ISSUE IN FAVOUR OF ASSESSEE. HA A LSO PLACED ON RECORD THE AFORESAID ORDERS. HE THUS URGED THAT FOLLOWING THE EARLIER YEARS ORDER, THE ORDER OF CIT(A) BE UPHELD. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE CO- ORDINATE BENCH OF TRIBUNAL IN ASSESSEE'S OWN CASE ON IDENTICAL FACTS, HAS DECIDED THE ISSUE IN ASSESSEE' S FAVOUR BY HOLDING AS UNDER IN (ITA NO 696-2106/A/06, CO 128 & 271/A/06 & 1466/ A/07 & CO 140/A/07): ' THE GROUND RAISED BY R READS AS UNDER: 2. '1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT THE ASSESSEE HAS S TARTED HIS BUSINESS ACTIVITIES AND IN CONSEQUENTLY ALLOWING THE CLAIM OF BUSINESS LOSS OFRS.8,96,56,43,446/- MADE BY THE ASSESSEE IN ITS RETURN OF INCOME.' 6. W E HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD AND THE DECISION CITED BY LD. COUNSEL FOR THE ASSESSEE. WE FIND THAT HON'BLE SPECIAL BENCH OF ITAT AHMEDABAD BENCHES IN ASSESSEE'S OWN CASE (SUPR A) FOR AY 2001-02 HAS DECIDED THIS ISSUE IN FAVOUR OF ASSESSEE. IN THIS V IEW OF THIS MATTER AND RESPECTFULLY FOLLOWING THE DECISION OF HON'BLE SPEC IAL BENCH OF THIS TRIBUNAL WE DO NOT FIND ANY MERIT IN THE GROUNDS OF REVENUE' S APPEAL. HENCE, THIS GROUND OF REVENUE'S APPEAL IS DISMISSED. THE REVENU E HAS RAISED THE FOLLOWING GROUNDS :- 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN DIRECTING THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSE E WIDER THE HEAD 'INCIDENTAL EXPENDITURE PENDING CAPITALIZATION' HOLDING THAT TH E ASSESSEE CORPORATION WAS ALREADY SET UP AND COMMENCED BUSINESS. ITA NO.944/AHD/2011 DCIT, GANDHINAGAR VS. SARDAR SAROVAR NARMADA NIGAM LTD. FOR A.Y. 2007-08 - 8 - 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN DIRECTING THE AO TO TREAT THE INCOME FROM OTHER SOURCES OF RS.733 ,78,358/- AS BUSINESS INCOME AND ALLOW EXPENDITURE BEING INCIDENTAL EXPEN DITURE PENDING CAPITALIZATION IN COMPUTING INCOME/LOSS UNDER THE H EAD BUSINESS.' 11. WE HAVE ALREADY DISCUSSED THIS GROUND OF REVENU E'S APPEAL IN ITA NO.696/AHD/2006 AND RESPECTFULLY FOLLOWING THE DECI SION OF HONBLE SPECIAL BENCH OF THIS TRIBUNAL IN ASSESSEE'S OWN CASE (SUPR A) AND TAKING A CONSISTENT VIEW IN TERMS OF DECISION OF HON. SPECIAL BENCH IN ASSESSEE'S OWN CASE (SUPRA). HENCE, THIS GROUND OF REVENUE'S APPEAL IS DISMISSED. 9.1 SINCE THE FACTS OF THE CASE IN THE YEAR UNDER A PPEAL ARE IDENTICAL TO THAT OF EARLIER YEARS AND SINCE THE REVENUE HAS NOT BROUGHT ANY CONTRARY BINDING DECISION IN ITS SUPPORT, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF LEARNED CIT(A) AND THEREBY FOLLOWING THE O RDER OF CO-ORDINATE BENCH. THE GROUNDS OF THE REVENUE ARE DISMISSED. 10. GROUND NO.3 IS WITH RESPECT TO NON APPLICATION OF COST SHARING FORMULA FOR DETERMINATION OF THE COST OF ASSET FOR THE PURPOSE OF DEPRECIATION. 11. BEFORE US, LEARNED AR SUBMITTED THAT ON IDENTIC AL FACTS FOR A.Y.2005-06, THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE. SINCE THE FACTS OF THE CASE IN THE YEAR UNDER APPEAL ARE IDEN TICAL TO THAT OF EARLIER YEARS, THE GROUND OF THE REVENUE NEEDS TO BE DISMIS SED. HE HAS POINTED TO THE RELEVANT PARAGRAPHS OF TRIBUNALS ORDER FOR A.Y.2005-06 AND 2006- 07. THE LEARNED DR, ON THE OTHER HAND, RELIED UPON THE ORDER OF AO. 12. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WITH RESPE CT TO THE NON APPLICATION OF COST SHARING FORMULA FOR THE PURPOSE OF DEPRECIA TION. WE FIND THAT SIMILAR GROUND WAS TAKEN BEFORE THE HONBLE TRIBUNA L BY THE REVENUE IN ITA NO.944/AHD/2011 DCIT, GANDHINAGAR VS. SARDAR SAROVAR NARMADA NIGAM LTD. FOR A.Y. 2007-08 - 9 - A.YS. 2005-06 AND 2006-07 AND THE SAME WAS DECIDED IN FAVOUR OF THE ASSESSEE BY HOLDING AS UNDER: 16. 3 RD GROUND IS WITH RESPECT TO NON APPLICATION OF COST SHARING FORMULA FOR THE PURPOSE OF DEPRECIATION: 17. THIS GROUND IS IDENTICAL TO THAT OF GROUND NOS. 2 & 3 OF ITA NO 838/AHD/2010. 18. AO NOTED THAT 'SARDAR SAROVAR NARMADA PROJECT ' WAS IN THE NATURE OF JOINT VENTURE OF GOVERNMENTS OF GUJARAT, MAHARASHTR A, M.P. AND RAJASTHAN AND THE COST OF PROJECT HAS ALREADY BEEN DETERMINED BY TRIBUNAL. SINCE THE ASSESSEE WAS AN INSTITUTION OF GUJARAT GOVERNMENT, ASSESSING OFFICER WAS OF THE VIEW ITS SHARE CANNOT BE MORE THAN THE SHARE OF GUJARAT GOVERNMENT IN THE PROJECT AND THEREFORE THE DEPRECIATION U/S 32 W AS ONLY ALLOWABLE TO THE EXTENT OF ITS SHARE. HE ALSO NOTED THAT ASSESSEE HA S INCLUDED THE SHARE OF COST IN 'INDIRA SAGAR DAM' BUILT BY MP GOVERNMENT TO WHI CH ACCORDING TO AO, THE ASSESSEE WAS NOT ELIGIBLE FOR DEPRECIATION ON T HE ENTIRE COST. HE ACCORDINGLY RE-WORKED THE DEPRECIATION. AGGRIEVED B Y THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE C1T(A). CIT(A) D ECIDED THE ISSUE IN FAVOUR OF ASSESSEE BY HOLDING AS UNDER: 3.3 THE MATTER HAS BEEN GIVEN DUE CONSIDERATION. NO DOUBT THE PROJECT IN QUESTION IS THE PRODUCT OF ADMINISTRATIV E-POLITICO DECISION OF GOVERNMENTS OF GUJARAT, MAHARASHTRA, MADHYA PRADESH AND RAJASTHAN. IT IS ALSO PART OF THE SAME DECISION THA T IT SHALL BE IMPLEMENTED BY GOVERNMENT OF GUJARAT IN ORDER TO IM PLEMENT THE SAME, THE GOVERNMENT OF GUJARAT DECIDED TO SETUP SA RDAR SAROVAR NARMADA NIGAM LTD. AS A PUBLIC LIMITED COMPANY. IT SHOULD BE NOTED THAT ENTIRE SHARE CAPITAL OF THE NIGAM WAS SUBSCRIB ED TO BY THE GOVERNMENT OF GUJARAT AND THE NIGAM WAS TO EXECUTE THE ENTIRE PROJECT. SO THERE ARE TWO SEPARATE AREA OF OPERATIO N, ONE AMONG THE PARTICIPATING STATES FOR TAKING UP SUCH A PROJECT A ND FOR COST SHARING AMONGST THEM AND THE OTHER FOR A LEGALLY INDEPENDEN T COMPANY TO IMPLEMENT THE PROJECT. TO THE COMPANY THE COST OF T HE ASSETS REMAINS THE SAME, NOTWITHSTANDING ANY ARRANGEMENT AMONG THE PARTICIPANT STATES BECAUSE THE COST OF HE ASSETS IS BEING MET B Y THE FUNDS OF THE COMPANY EQUITY PROVIDED BY GOVERNMENT OF GUJARAT AN D BORROWED FUNDS AS IN ANY COMMERCIAL VENTURE. IF ANY FUNDS AR E TRANSFERRED FROM ONE OF THE STATES TO THE GOVERNMENT OF GUJARAT, THE SAME SHALL NEITHER BE REFLECTED IN THE BOOKS OF THE APPELLANT NOR SHAL L EFFECT THE COST OF ASSETS IN THE HANDS OF THE APPELLANT. THE ASSESSING OFFICER'S ASSERTION THAT APPELLANT'S SHARE IN PROJECT CANNOT EXCEED THE SHARE OF GOVERNMENT OF GUJARAT OVERLOOKS THE DISTINCTION OF FINANCIAL RELATIONSHIP BETWEEN STATES VIS-A-VIS MANNER OF IMP LEMENTING A PROJECT THROUGH A CARRIER, IN THIS CASE A COMPANY. THEREFORE, I DO NOT AGREE WITH THE ASSESSING OFFICER'S ACTION OF HOLDIN G THAT COST OF ASSETS ITA NO.944/AHD/2011 DCIT, GANDHINAGAR VS. SARDAR SAROVAR NARMADA NIGAM LTD. FOR A.Y. 2007-08 - 10 - IN THE HANDS OF THE APPELLANT HAS TO BE RESTRICTED AS PER COST-SHARING FORMULA DETERMINED BY THE TRIBUNAL. 3.3.1 AS FAR AS THE ISSUE OF 'INDIRA SAGAR DAM' IS CONCERNED, OBVIOUSLY THE ACCOUNTING TREATMENT GIVEN BY THE APP ELLANT IS INCORRECT ON THE BASIS OF APPELLANT'S OWN LOGIC. HENCE WHILE GIVING APPEAL EFFECT, THE ASSESSING OFFICER IS DIRECTED NOT TO TR EAT WHOSE ASSETS AS BELONGING TO THE APPELLANT, WITH ITS DUE FOLLOW UP CONSEQUENCES LIKE WITHDRAWAL OF DEPRECIATION. 19. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE I S NOW IN APPEAL BEFORE US. BEFORE US, ID. D.R. RELIED ON THE ORDER OF AO. ON T HE OTHER HAND ID. A.R. REITERATED THE SUBMISSIONS MADE BEFORE CIT(A) AND S UPPORTED HIS ORDER. 20. I HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE MATERIAL ON RECORD. CIT(A) WHILE GRANTING THE RELIEF TO ASSESSEE HAS NO TED THAT THE ASSESSES IS A SEPARATE COMPANY FOR IMPLEMENTATION OF THE PROJECT AND ITS SHARE CAPITAL WAS SUBSCRIBED BY GOVT. OF GUJARAT. HE HAS FURTHER NOTE D THAT THE COSTS ARE MET BY THE ASSESSEE WHICH IS INDEPENDENT OF THE ARRANGEMEN T AMONG THE PARTICIPATING STATES AND THE TRANSFER OF FUNDS BETW EEN ONE OF THE STATES TO GUJARAT IS NOT REFLECTED IN THE BOOKS OF THE ASSESS EE AND DOES NOT EFFECT THE COST OF ASSETS. BEFORE US, REVENUE COULD NOT PRODUC E ANY MATERIAL TO CONTROVERT THE FINDINGS OF CIT(A). WE THUS FIND NO REASON TO INTERFERE WITH THE ORDER OF CIT(A) AND THUS DISMISS THIS GROUND OF REV ENUE FOR A.Y. 05-06 & 06- 07. 12.1 SINCE THE FACTS OF THE YEAR UNDER APPEAL ARE I DENTICAL TO THAT OF EARLIER YEARS AND AS THE REVENUE HAS NOT BROUGHT AN Y CONTRARY BINDING DECISION IN ITS SUPPORT, WE FIND NO REASON TO INTER FERE WITH THE ORDER OF LEARNED CIT(A) AND THUS DISMISS THIS GROUND OF THE REVENUE. 13. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. SD/- SD/- (G.C. GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD; DATED 05/09/2014 PRABHAT KR. KESARWANI, SR. P.S. / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. !' / THE RESPONDENT. ITA NO.944/AHD/2011 DCIT, GANDHINAGAR VS. SARDAR SAROVAR NARMADA NIGAM LTD. FOR A.Y. 2007-08 - 11 - 3. #$#% ' '& / CONCERNED CIT 4. ' '&() / THE CIT(A)-III, AHMEDABAD 5. )*' %, ' ' % , ,-$ / DR, ITAT, AHMEDABAD 6. *./ 0 / GUARD FILE. / BY ORDER, 1 11 1/ // /,' #2 ,' #2 ,' #2 ,' #2 ( DY./ASSTT.REGISTRAR) ' ' % ' ' % ' ' % ' ' % , , , , ,-$ ,-$ ,-$ ,-$ / ITAT, AHMEDABAD