IN THE ITAT HYDERABAD BENCH ‘B’
G.V.K. Industries Ltd.
Assistant Commissioner of Income-tax
IT APPEAL NOS. 1579, 1580, 1659 & 1660 (HYD.) OF 2008
[ASSESSMENT YEARS 2002-03 AND 2006-07]
MARCH 30, 2012
Assessee’s Appeal – ITA No.1659/Hyd/2008:
2. There are three grounds in this appeal of the assessee. Grounds No. 1 and 3 are general and do not call for separate adjudication and that leaves the singular Ground No. 2 for consideration and it has three sub-grounds and they read as under:
2(a) The CIT(A) grossly erred in confirming the action of the AO in making addition of Rs. 2,40,45,266/- representing Income tax Receivable from AP TRANSCO as income for the AY 2002-03 ignoring the submissions of the appellant.
(b) The CIT(A) grossly ought to have seen that the reimbursement of the income tax is disputed by AP TRANSCO and since it is not reimbursed so for, the said amount has neither accrued not crystalised and therefore cannot be taken as the appellant’s income for the AY 2002-03.
(c) The CIT(A) grossly erred in holding that the Income tax receivable from AP TRANSCO is assessable under the head income from other sources but not as income from business.
3. The first limb mentioned in ground 2 vide the sub-grounds 2(a) and 2(b) relates to making of an addition on account of income tax receivable from A.P. Transco as income of the assessment year 2002-03 under the correct head of income. Other limb mentioned in sub-ground 2(c) relates to the decision of the AO in changing the head of income in the respect of the above receipt and taxing the same under the head ‘income from other sources’.
4. Briefly stated, relevant facts of the case are that the assessee is engaged in the business of generation of electricity and selling the same to APTRANSCO, a subsidiary of APSEB. During the assessment proceedings, AO made an addition of Rs. 2,40,45,266/- representing the ‘income tax receivable’ from AP TRANSCO. Factually, the Power Purchase Agreement provides for reimbursement by the AP TRANSCO of the ‘income tax payable’ to the assessee and accordingly, the assessee raised the bill in respect of the tax paid under MAT provisions also and the AP TRANSCO refused to reimburse the same. Of course, there is no dispute on the tax paid under normal provisions. Thus, there is dispute on the very payability of the MAT segment of tax by AP TRANSCO to the assessee, who of course incessantly demanded for reimbursement and the matter reached the judicial forum for arbitration first before the APERC and then to the AP High Court. Therefore, assessee has disputed the issue and the impugned MAT was never reimbursed till date and the issue is still pending for finality. Ignoring the above facts, on accrual basis, the AO taxed the same and the CIT(A) confirmed the said decision.
5. AO in taxing the said receivable ignored the assessee’s argument that the said income tax (MAT) receivable is a disputed one and the same has never been reimbursed to the assessee at all. The CIT(A) ignored the fact that the said receipt neither accrued nor crystallized in the year under consideration. Under the factual matrix of the above, Shri Shiv Kumar, Ld counsel for the assessee, at the very outset, narrated the issue and made a mention that there is a case for setting aside the issue to the file of the assessing officer for one more round of proceedings. For strengthening his arguments, Ld counsel for the assessee drew our attention to the paper-book filed before us on the day of hearing on these appeals, viz. 6.3.2012, and took us through the annexure to the said covering letter dated 5.3.2012. The contents of that covering letter are reproduced hereunder-
“Petition seeking admission of additional evidence under rule of Income Tax Appellate Tribunal Rules, 1963
The above numbered appeal has been filed by the assessee. The assessee is contesting the decision of the CIT(A) who held the reimbursement of income tax to which the assessee is entitled as per Power purchase agreement between the assessee and APSEB is to be treated as income accrued to the assessee inspite of the fact that the liability pay the same has been repudiated by the APTRANSCO (one of the successors top APSEB)
2. The assessee has filed copy of a letter issued by APTRANSCO in support of its contention as part of the paper book filed by it. APTRANSCO has issued more than one letter in successive years, returning the bills submitted by the assessee without payment, based on the earlier letter dated 20.11.2003 issued by it. It is submitted that these documents proposed to be filed before the Hon’ble Income Tax Appellate Tribunal as addl. evidence constitute vital evidence to show the APTRANSCO repeatedly declined to pay the amounts of Income tax reimbursable to the assessee as per Power Purchase Agreement with APSEB. The assessee submits that copies of two bills submitted by the assessee and copies of letters issued by APTRANSCO as per table given below are proposed to be introduced as additional evidence. The assessee prays that the undermentioned documents may kindly be admitted as addl. evidence and taken into account while adjudicating the appeal.
|Copy of AP TRANSCO letter dated 9-4-2002||
|Copy of AP TRANSCO letter dated 16.8.2005||
|Copy of AP TRANSCO letter dated 19.8.2005||
|Copy of AP TRANSCO letter dated 6.7.2006||
|Copy of AP TRANSCO letter dated 12.9.2006||
|Copy of AP TRANSCO letter dated 01/03.12.2007||
|Copy of AP TRANSCO letter dated 17/19.4.2008||
|Copy of assessee’s letter dated 2.9.2006 with enclosures||
8 to 10
|Copy of assessee’s letter dated 30.6.2006 with enclosures||
11 to 15
. . . . .”
6. Taking cue from the above extract, learned counsel mentioned that the enclosures to the said letter constitutes additional evidence and these auxiliary documents are directly linked to the issue of accrual of impugned income tax receivable. Further, he mentioned that the said information is set to go into the root of the matter and strengthen the papers already on the records of the AO. As per the counsel, these papers shall help in adjudication of the issue properly. Further, he mentioned that the admission of the above documents does not require any investigation into the facts. In fact, they only contribute to the rendering of the justice in proper perspective. Further, the learned counsel took us through the contents of the relevant paragraphs of the order of the CIT(A) and mentioned that the first appellate authority erroneously held that the matter is not sub-judice. In this regard, learned counsel mentioned that the CIT(A) is factually incorrect, as the assessee carried the matter to the APERC and then to the AP High Court. Consequently, the matter if pending in dispute now as stated by the counsel at BAR. In this regard, the learned counsel prayed for grant of one more chance to be given by remitting the matter to the file of the assessing officer, with permission to file the relevant correspondence/documents.
7. On the other hand, the Learned Departmental Representative for the Revenue opposed vehemently not only the admission of the additional evidence, but also for the proposal for setting aside the matter to the file of the assessing officer. DR is of the firm view that the Income tax receivable whether it is a tax paid under normal provisions or under the MAT provisions, constitutes a taxable receipt in the hands of the assessee.
8. We heard both the parties and perused the orders of the Revenue authorities and the documents filed before us. We have also considered the written submissions on the merits of the issue filed before us. On consideration, we find it relevant to first adjudicate if the additional evidences should be entertained and the consequences of the said decision thereof. Without going into the merits of the issue, the preliminary matter to be decided relates to the admissibility of the impugned additional evidence and the request of the assessee’s counsel for setting aside the matter to the file of the assessing officer. In this regard, we have examined the additional evidences furnished before us. These papers constitute the correspondence that took place between the assessee and the APTRANSCO. Further, there is categorical submission by the Ld Counsel that the matter is sub-judice unlike the way the CIT(A) mistakenly concluded stating that there is no dispute on the issue of reimbursebility of the MAT paid by the assessee. Considering the nature of the papers filed before us, we find that the said documents do not require any investigation into the basic facts of the issue as they are merely the correspondence between the assessee and the APTRANSCO. In fact, these documents will help in arriving at a right decision regarding the accrual or otherwise of the receivable. Considering the decision of the Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. (NTPC) v. CIT  229 ITR 383 (SC), we are of the opinion that the papers filed before us should be admitted.
9. The other limb of the prayer relates to is the request for remanding to the AO is to be allowed or not. In this regard, we find that the same should be considered favorably considering the principles of natural justice. In this view of the matter, we set aside the impugned order of the CIT(A) and restore the matter to the file of the assessing officer for deciding the issue, duly considering, among other things, the additional evidence filed before us, in accordance with law, and giving reasonable opportunity of hearing to the assessee.
10. Regarding the issue relating to the correct head of income (sub ground 2c), the assessee claimed that the said income tax receivable in principle is a business receipt and accordingly, it should be dealt under the head ‘profits and gains from business or profession”. Assessee relies heavily on the Purchase Price Agreement and various clauses embedded in it. On the other hand, the AO is of the view the said income is not only accrued but also it is unrelated to the business of the assessee i.e. Power generation and transmission. Therefore, it is taxable under head “income from other sources”. Sri Shiv Kumar, Ld counsel for the assessee made exhaustive submission on the merits of decision of the AO on this issue and finally mentioned that this issue succeeds the core issue i.e. whether the said ‘income tax receivable’ indeed is chargeable to tax at all or not. He also submitted that the issue raised in ground 2(c) is contingent on the decision on the said core issue raised in sub ground 2(a) and 2(b). Ld DR relied heavily on the orders of the AO and the CIT(A).
11. We have heard the parties and perused the orders and the written submissions of the parties. It is true that the issue of head of income succeeds the issue of chargeability of a receipt i.e. income tax receivable from the APTRANSCO. On the issue of chargeability, we have set aside the relevant sub grounds 2(a) and 2(b) of this appeal. Therefore, we agree with the view of Ld. Counsel that sub-ground 2(c) must also be set aside for fresh look into all the issues raised in the grounds and in the arguments before us. In that sense of the matter, in our opinion, this issue is consequential to the core issue of taxability of the sum of the income tax receivable. Accordingly, all the sub-grounds extracted above are set aside.
12. In the result, assessee’s appeal for assessment year 2002-03 is allowed for statistical purposes.
Revenue’s Appeal ITA No.1579/Hyd/2008
13. Grounds No. 1 and 5 in this appeal of the Revenue are general in nature, and therefore, they do not call for specific adjudication.
14. Ground No.2 relates to the action of CIT(A) in entertaining an additional ground, which was not raised before the assessing officer. According to the Revenue, the admission of such additional ground and adjudication thereon is not proper. In this regard, learned counsel for the assessee mentioned that the CIT(A) is free to entertain any issue which was not raised before the assessing officer, and therefore, the same is proper.
15. We heard the parties and perused the orders of the revenue and the paper book filed before us. On finding that the impugned claim is not made in the original return or by way of filing the revised return, the AO denied the claim and the CIT(A) entertained and adjudicated the issue with which the revenue is aggrieved in the present appeal. For this the CIT(A) relied on the binding judgment in the case of Goetze (India) Ltd. v. CIT  284 ITR 323. In this regard, we have perused the relevant portions of the judgment and the relevant portions i.e. para 17 on page 4, of the judgment of the Supreme Court are extracted as under.
“17. In Goetze (India) Ltd. v. CIT  204 CTR (SC) 182 :  284 ITR 323 (SC), wherein deduction claimed by way of a letter before AO, was disallowed on the ground that there was no provision under the Act to make amendment in the return without filing a revised return. Appeal to the Supreme Court, as the decision was upheld by the Tribunal and the High Court, was dismissed making clear that the decision was limited to the power of assessing authority to entertain claim for deduction otherwise than by revised return, and did not impinge on the power of Tribunal”
16. In view of the above judgment of the Apex court, it is evident that the making of a new claim if any before the AO is required to be done only by way of filing the revised return of income and not by way of letters or by way of filing revised computation etc. But when comes to the Tribunal or for that matter the CIT(A), who is also not the assessing officer, but who is the appellate authority, assessee does not have to initiate a new claim before them by way of filing the revised return of income. As such the returns or revised returns are filed under the provisions of section 139 of the Act and it is done before the AO and not before the first or second appellate authorities i.e. CIT(A), ITAT or Higher judiciary. Therefore, in our opinion, the CIT(A) is justified in entertaining and adjudicating and therefore, the ground raised by the revenue is required to be dismissed. Accordingly, the ground two of the revenue’s appeal is dismissed.
17. Ground No. 3 relates to granting of deductions under S. 80IA in respect of income brought to tax under S. 41(1) of the Act. The case of the Revenue is that the credit brought to tax under S. 41(1), being insurance premia, are not derived form the manufacturing activity of the undertaking. Therefore, in respect of such deemed income, assessee is not entitled for deduction under S. 80IA of the Act. He further mentioned that the CIT(A) erroneously granted relief to the assessee, by netting the receipt under S. 41(1) against the insurance premia paid during the year, relying on the decision of the Special Bench (Delhi) of the Tribunal in the case of Lalson Enterprises v. Dy. CIT  89 ITD 25.
18. During the proceedings before us, in response to a query from the Bench, about the applicability of the decision of the Apex Court in the case of Liberty India v. CIT  317 ITR 218, the learned counsel mentioned that the receipt involved in the present case, being insurance premia paid, is connected with the manufacturing activity of the undertaking, and therefore, the same is operational income of the assessee, and consequently, the said judgment of the Apex Court is distinguishable on facts.
19. We perused the facts of the case and issues raised by the parties before us. On understanding the issue, we find that the orders do not speak of the basic findings relevant for adjudication of this tax refund and if it constitutes an eligible profit or “ineligible ancillary profit” in view of the Supreme Court decision in the case of Liberty India (supra). It is also evident that the authorities at relevant point of time did not have the benefit of the said judgment of the Apex Court in the case of Liberty India (supra), which is dated August 2009. We have also perused the operational portion of the said decision given on page 219 of the reported said ITR which reads as follows:-
“Incentive profits are not profits derived from eligible business under section 80-IB: they belong to the category of ancillary profits of such undertaking. Profits derived by way of incentives such as DEPB/Duty drawback cannot be credited against the cost of manufacture of goods debited in the profit and loss account and they do not fall within the expression “profits derived from industrial undertaking” under section 80-IB.”
20. From the above, it is evident that every receipt of the industrial undertaking is not an eligible profits derived from the said undertaking. With the categorization done by the Supreme Court based on a logic i.e. eligible profits and ineligible ancillary profits, the said distinction has to be looked into by the AO while adjudicating the issue. The receipt in question being insurance premia paid and the same is operational income of the assessee. Despite the finding of the Revenue authority that it is not derived from the business of the undertaking, there is no clarity as to whether the said income falls as operational income or ineligible ancillary profit, which is the expression used by the Apex Court in the case of Liberty India (supra). Accordingly, the A.O is directed to gather the relevant facts and decide the issue afresh after granting reasonable opportunity of being heard to the assessee. Accordingly, this part of the ground is set aside.
21. Ground No. 4 of the Revenue relates netting of the excess premium received against the insurance premium amount paid during the year, for taking into account only the differential amount for exclusion from the income eligible for relief under S. 80IA of the Act. We find that the CIT(A) has accepted the plea of the assessee for the benefit of netting relying on the decision of the Special Bench of the Tribunal in the case of Lalsons Enterprises (supra). In the absence of any decision to the contrary brought to our notice, we find no infirmity in the order of the CIT(A) in this behalf. We accordingly uphold the same, and reject the ground of the Revenue in this behalf.
22. In the result, Revenue’s appeal is partly allowed.
23. Now, we may take up the cross appeals for AY 2006-07.
Assessee’s Appeal : ITA No.1660/Hyd/2008
24. There are three grounds raised in this appeal. Grounds No. 1 and 3 are general and do not call for separate adjudication. That leaves Ground No. 2 for consideration. The said ground has three sub-grounds. The first issue mentioned in grounds 2(a) 2(b) and 2(c) relates to the decision of the authorities in making addition on account of income tax receivable from A.P. Transco as income of the assessment year 2002-03.
25. Except for the amount involved, this issue is identical to the one considered by us, in the context of the assessee’s appeal for the assessment year 2002-03 in the foregoing paras of this order. In the circumstances, for the detailed reasons discussed in paras above of this order, this issues for the assessment year 2006-07 also have to be set aside to the file of the assessing officer for fresh consideration, considering inter alia the additional evidence that the assessee has filed before us, in accordance with law and after giving reasonable opportunity of hearing to the assessee.
26. This appeal of the assessee is allowed for statistical purposes.
Revenue’s Appeal : ITA No.1580/Hyd/2008
27. In this appeal also, Grounds No.1 and 5 are general in nature, and do not call for separate adjudication.
28. Ground No. 2 relates to the action of the CIT(A) in entertaining an additional ground not raised before the assessing officer. This ground is similar to the one raised by the Revenue for the assessment year 2002-03. Hence, for the reasons discussed while dealing with the corresponding ground of the Revenue in its appeal for the assessment year 2002-03, in para hereinabove, this ground of the Revenue is rejected.
29. Ground No. 3 relates to granting of deductions under S. 80IA in respect of income brought to tax under S. 41(1) of the Act. This ground again is similar to the one raised by the Revenue on this very issue for the assessment year 2002-03. Hence, for the reasons discussed while dealing with the corresponding ground of the Revenue in its appeal for the assessment year 2002-03, in para hereinabove, this ground of the Revenue is allowed for statistical purposes.
30. Ground No. 4 relates to netting of the excess premium received against the insurance premium amount paid during the year, for taking into account only the differential amount for exclusion from the income eligible for relief under S. 80IA of the Act. This ground again is similar to the one raised by the Revenue on this very issue for the assessment year 2002-03. Hence, for the reasons discussed while dealing with the corresponding ground of the Revenue in its appeal for the assessment year 2002-03, in para hereinabove, this ground of the Revenue is allowed for statistical purposes.
31. In the result, Revenue’s appeal for the assessment year 2007-08 is partly allowed for statistical purposes.
32. To sum up, appeals of the assessee for assessment years 2002-03 and 2006-07 are allowed for statistical purposes and appeals of the Revenue for assessment years 2002-03 and 2006-07 are partly allowed for statistical purposes.