Case Law Details
Tata Sponge Iron Limited Vs DCIT (ITAT Cuttack)
The fundamental requirement of showing the income from “eligible” unit in the gross total income is mandatory which was not complied by the assessee in order to claim deduction u/s.80IA of the amount equal to the income generated by the eligible unit.
Facts-
The appellant is company engaged in the business of manufacturing and sale of sponge iron. It has also installed a power plant to produce LCD basing on the hot gas emitted from the furnace used in the Sponge Iron Smelter plant.
During the course of scrutiny assessment AO found that the assessee has not maintained separate books of account in respect of Power plant and the expenses incurred for running the power plant and income received from such power plant was deducted from the net profit of consolidated P & L account amounting to ₹34,25,63,787. Accordingly gross total income was arrived at ₹24,13,99,264 after taking various adjustments and withdrawing the receipt and expenditure in respect of power plant. The assessee was found to have again deducted a sum of ₹7,59,27,674 as deduction u/s.80IA towards 100% deduction of income from power plant. This amount of ₹7,59,27,674 was not included in the total income returned by the assessee.
Therefore, the AO has disallowed the claim made by the assessee u/s.80IA of the I.T.Act. The AO has also denied a sum of ₹120,57,792 which was stated to have been incurred for peripheral development by the assessee. The AO has also disallowed a sum of ₹11,19,048 out of expenses claimed under the head Garden, Park, Lake and Garden Expenses, Vegetable. Having been aggrieved with this assessment order, the assessee went in appeal before the CIT(A) and is unsuccessful and hence, the present appeal is filed by the assessee before the Tribunal.
Conclusion-
It is found that undisputedly the assessee has not shown the income derived by it from the power plant unit in the gross total income shown by the assessee for taxation purposes. Therefore, the assessee’s computation of deduction u/s.80IA is not in conformity with Section 80AB as well. The contention raised by the assessee regarding the claim u/s.80IA made before the authorities below is only of academic interest whereas the fundamental requirement of showing the income from “eligible” unit in the gross total income is mandatory which was not complied by the assessee in order to claim deduction u/s.80IA of the amount equal to the income generated by the eligible unit. Therefore, we are of the considered view that the rejection of the claim of the assessee u/s.80IA is justified
The Departmental Authorities found that these expenses were incurred towards celebration of different festivals and panchayat level sports etc., which are not at all connected to the project approved by National Committee for Promotion of Social Economic Welfare. Therefore, we are of the considered view that the disallowance of such expenditure by the Departmental Authorities is very much right.
The facts made out by the Departmental Authorities are that the sale proceeds of vegetable grown was not brought to account by the assessee. Therefore, the Departmental Authorities have disallowed the same, which in our view rightly.
FULL TEXT OF THE ORDER OF ITAT CUTTACK
This appeal is filed by the assessee having been aggrieved by the order of the Commissioner of Income-tax (Appeals) dt.20.1.2010 in the case of the assessee for the Assessment Year 2006-07.
2. The assessee has raised the following grounds of appeal.
“1. That the Order of the id. CIT (Appeals) is bad in law as the Ld. CIT (A) has ignored to properly adjudicate Ground No.1 of Appeal before him, which read as : “That the assessment is bad in law as the same has been completed in an arbitrary manner, in violation of principles of natural justice, ignoring the books o f account, documents & material produced and without application of judicial mind.”
2. (a) That the Ld. CIT (Appeals) was not justified in sustaining the disallowance of the claim of deduction of ₹ 7,59,17,674 u/s 80-IA in respect of the income from the Power Plant undertaking of the assessee company.
(b) That the id. CIT (Appeals) was not justified in holding that the appellant did not comply with the requirements of section 80-IA(7), by misquoting the provision and the Form of Audit Report.
3. (a) Without prejudice to Ground 2 (a) and (b) above, the id. CIT (Appeals) was not justified in directing the Assessing Officer to recompute the income from power plant by looking into and examining the indirect expenses for allocating part of it to power plant in case it is held that deduction u/s 80-IA is admissible to the power plant.
(b) That Without prejudice to Ground 2 (a) and (b) above, that the Ld. CIT (Appeals) was not justified in directing the Assessing Officer to recompute the income from power plant by looking into and examining the rate at which electricity is being charged for computation u/s 80-IA, in case it is held that deduction u/s 80-IA is admissible to the power plant.
4. That the Ld. CIT (Appeals) was not justified in sustaining the disallowance to the extent of ₹10,01,592 out of the claim of deduction of Expenditure amounting to ₹ 10,57,792 relating to peripheral development, which is admissible u/s 37(1) of the Income Tax Act.
5. That the Ld. CIT (Appeals) was not justified in sustaining the disallowance to the extent of ₹ 5,06,276 on vegetable garden from the disallowance of Garden expenditure amounting to ₹11,19,048 made in assessment, despite the fact that these were incurred for the purpose 6I’ business, for maintaining ambience and good environment and allowable u/s. 37(1).
6. a) That the Learned CIT (Appeals) has erred by not admitting the plea of the appellant for properly computing the depreciation as required under the Income Tax Act and not allowing the depreciation to the extent of ₹ 16,92,39,751 allowable as per Annexure 3 to Tax Audit Report in Form 3CD.
b) That, without prejudice to Ground 6(a), the CIT (Appeals) has erred by not admitting to allow the depreciation of ₹ 36,21,510 on account of power plant undertaking, though the depreciation of ₹ 1,68,55,274 for power plant as per books was added back in computation of income furnished by the assessee company.
7. That the Ld. CIT (Appeal) was not justified in ignoring and not properly & judicially considering the plea that the Revised computation of Income furnished before the ld. Assessing Officer in course of hearing on 11th November, 2008 in which income was recomputed and also segregated in respect of power plant undertaking and of Sponge Iron undertaking.
8. a) That the CIT (Appeals) was not justified in holding that the A.O. was right in computing the income in order u/s 143(3) by ignoring the Returned Income and taking the income as per Intimation u/s 143(1)(a) as a starting point.
b) That as a result of the CIT(Appeals) upholding the assessment on the basis of Income computed in Intimation u/s 143(1), the Id. CIT (Appeals) erred]/failed to apply his mind that the adjustment/additions of following items (relating to power plant) to the income as made in the original computation and not allowing the same though these are otherwise allowable, tantamount to uncalled for addition —
i) Salary & wages .. ₹ 54,96,820
ii) Insurance .. ₹ 7,88,456
iii) Administrative Expenses ₹ 4,22,166
iv) Repairs & maintenance ₹ 42,34,666
₹ l,09,42,108
c) That the ld.CIT(Appeals) omitted to consider and adjudicate the adjustment /reduction from the income of a sum of ₹ 74,03,840 being Revenue from sate of power to third parties as made in the original computation and taken in Intimation u/s 143(1) by the ld. A.O. and the income should have been recomputed by the ld. CIT (Appeals) after ignoring the same.
9. That the Ld.CIT(Appeals) erred in rejecting the appellant’s plea that for the ends of justice the Income of the power plant undertaking and the other Income of the Company should have been properly computed as per law and then deduction u/s 80 IA should have been allowed.”
3. Both the parties were heard regarding the issues raised by the assessee and their legal implications.
4. On careful consideration of the material made available to the Tribunal and analyzing the same in the light of the rival submissions of both the parties, the undisputed facts relating to the issues are that the assessee is a Company incorporated under the Companies Act and derives income from manufacturing and sale of sponge iron. It has also installed a power plant to produce LCD basing on the hot gas emitted from the furnace used in the Sponge Iron Smelter plant. The assessee had originally filed return by electronic media showing total income of ₹17,22,50,.294 on 25.9.2007. The printout copy of the return was filed on 8.10.2007. Subsequently the assessee filed revised return on 15.11.2007 and 21.11.2007 showing total income of ₹17,43,13,477.The said return was processed by the Assessing Officer by issuing intimation u/s.143(1). Thereafter the case was selected for scrutiny by issuing notices u/s.143(2) and 142(1) of the Income-tax Act,1961. A detailed questionnaire dt.23.9.2008 was served on the assessee along with the notice u/s.142(1). It was complied by the assessee. During the course of assessment proceedings, the Assessing Officer found from the audited Profit & Loss account and computation of total income/statement of income furnished by the assessee the net profit was ₹34,25,63,787. After making various adjustment and claiming deduction u/s.80IA the net taxable income was arrived at ₹17,43,13,477. The Assessing Officer found that the assessee has not maintained separate books of account in respect of Power plant and the expenses incurred for running the power plant and income received from such power plant was deducted from the net profit of consolidated P & L account amounting to ₹34,25,63,787. Accordingly gross total income was arrived at ₹24,13,99,264 after taking various adjustments and withdrawing the receipt and expenditure in respect of power plant. The assessee was found to have again deducted a sum of ₹7,59,27,674 as deduction u/s.80IAtowards 100% deduction of income from power plant. This amount of ₹7,59,27,674 was not included in the total income returned by the assessee.
Therefore, the Assessing Officer has disallowed the claim made by the assessee u/s.80IA of the I.T.Act. The Assessing Officer has also denied a sum of ₹120,57,792 which was stated to have been incurred for peripheral development by the assessee. The Assessing Officer has also disallowed a sum of ₹11,19,048 out of expenses claimed under the head Garden, Park, Lake and Garden Expenses, Vegetable. Having been aggrieved with this assessment order, the assessee went in appeal before the CIT(A) and is unsuccessful and hence, the present appeal is filed by the assessee before the Tribunal.
5. During the course of hearing, the learned AR of the assessee has vehemently argued reiterating the contentions raised before the lower authorities with reference to the various citations relied on in support of his contentions. He further submitted that the Departmental Authorities have erred in not appreciating the contention of the assessee that the cost of production of power produced by power plant unit valued at the market rate at which the power is being supplied to the general public by the State Electricity Board. The provisions contained in Section 80IA(7) clearly mandates that the valuation of the project by the individual unit which the inputs of the units of the power plant are to be valued at current prevailing market rate only. In that way, the assessee has valued the power produced by the assessee at the market rate of power in which the State Electricity Board is concerned supplying the power. Therefore, the Departmental Authorities are not at all appreciated the method followed by the assessee in its right perspective in the light of the provisions contained in Section 80IA(7). The observation of the lower authorities that the assessee has not shown the income from power plant in the consolidated P & L account while calculating the income taxable in its hands is not correct in as much as the assessee has computed the total expenditure incurred in the power plant unit debited to the P & L account and thereby balance in the figure will not have, in fact, to the resultant figure taxable in the hands of the assessee. The assessee has valued the power produced by the power plant at the rate on which the power is being supplied by the State Electricity Board which is not disputed by the lower authorities is correct and therefore the claim made u/s.80IA is correct and the denial of such deduction of the assessee by the Departmental Authorities is not proper and justified.
6. Regarding the denial of peripheral expenses the learned AR of the assessee submitted that undisputedly the assessee has incurred the expenses on peripheral development on the basis of project approved by the National Committee for Promotion of Social & Economic Welfare. Hence, the deduction claimed u/s.35AC of the Act is very much right. The said amount also included the sum of ₹120,57,792 being expenses incurred voluntarily by the assessee towards peripheral development. The details were also submitted to the Departmental Authorities. The contention of the assessee is that these expenses were incurred for payment to persons for peripheral job and to assist in peripheral activities. Therefore they are very much allowable under the Act. But the Departmental Authorities have denied and disallowed that claim on the ground that the expenditure is not supported by any project approved by the National Committee for Promotion of Social & Economic Welfare. All the details furnished by the assessee disclosed that they are incurred towards celebration of festivals and panchayat level sports etc., which represents only charity and donation and therefore, the Departmental Authorities have disallowed the same. Apart from that the claim of the assessee for a sum of ₹11,19,048 consisting of expenses relating to garden, park and lake and garden expenses (vegetables). The claim of the assessee is that the garden expenses for vegetable were for conversion of waste generated from the factory operation manure for cultivating vegetables. But the assessee is not able to give explanation regarding the income from vegetables though expenditure incurred for the cultivation of vegetables was shown. As this income from vegetable was not disclosed in the P & L account, the Departmental Authorities have disallowed the expenses of ₹11,19,048.
7. The learned AR of the assessee has contended that the expenses of ₹10,57,792 was incurred by the assessee towards peripheral development is allowable expenditure as this amount was spent for carrying out the approved project by the National Committee for Promotion of Social & Economic Welfare. So, the assessee is entitled for claim of the said amount. He further contended that to maintain ecological balance, the assessee is bound to maintain gardens, parks and lakes and therein the assessee has grown vegetables also. As the expenses were maintained for ecological balance, the expenses are allowable deduction. While explaining the non-inclusion of income from vegetable, it was stated that vegetables being utilised by the employees of the assessee who are residing in that area for their house hold purpose and the Company is not charging anything because they are growing them without charging extra and therefore, there is no receipts from those vegetables and therefore, there is no mention in the P & L account. This contention of the assessee was not found favour by the Departmental Authorities and they disallowed the expenses claimed by the assessee on account of maintenance of garden, park, lake and garden expenses. Therefore, he contended that the disallowance made by the Departmental Authorities is unjustified taking into consideration of the totality of the facts and circumstances of the case. Therefore, he sought for allowing the appeal of the assessee by setting aside the order of the Departmental Authorities.
8. Contrary to this, the learned DR has vemently argued supporting the orders passed by the Departmental Authorities and contending inter alia that both the Departmental Authorities had thread bare examined the issues raised by the assessee and after analyzing the facts in the light of the submissions of the assessee have come to a right conclusion that the assessee is not entitled to the claims. Therefore, the orders passed by the Departmental Authorities are very much just and justifiable under the law. As they are not infirm in any way, therefore does not warrant any interference. Since the assessee has not shown the income derived from the power plant unit for computation of the income tax in the hands of the assessee, the assessee is not entitled to any deduction u/s.80IA as Section 80IA clearly mandate that when the gross total income of the assessee consists of income derived from “eligible business” then only the assessee is entitled to deduction/s.80IA. Applying the said provision, the lower authorities have correctly found that as the assessee has not shown the income in the P & L account, it is not entitled to claim the benefit under Section 80IA. There afterwards it was contended by the learned DR that as the assessee has spent ₹10,57,792 for different festival and panchayat sports etc., which is not at all form part and parcel of the project approved by National Committee for Promotion of Social & Economic Welfare, the Departmental Authorities are within their cover in disallowing these expenses. Now coming to the disallowance of garden, park, lake and vegetables of ₹11,19,048, the Departmental Authorities have noticed that admittedly the assessee growing vegetables in the parks and gardens and at the same time it has not shown receipts from sale of vegetables and therefore, the Departmental Authorities are well within their powers for not allowing the incurred expenditure. In that view of the mater, the Departmental Authorities has passed well reasoned order and it does not warrant any interference. Hence, the learned DR sought for dismissal of the appeal by upholding the orders passed by the Departmental Authorities.
9. On careful analysis of the orders passed by the Departmental Authorities in the light of the rival submissions of both the parties, it is found that undisputedly the assessee has not shown the income derived by it from the power plant unit in the gross total income shown by the assessee for taxation purposes. Therefore, the assessee’s computation of deduction u/s.80IA is not in conformity with Section 80AB as well. The contention raised by the assessee regarding the claim u/s.80IA made before the authorities below is only of academic interest whereas the fundamental requirement of showing the income from “eligible” unit in the gross total income is mandatory which was not complied by the assessee in order to claim deduction u/s.80IA of the amount equal to the income generated by the eligible unit. Therefore, we are of the considered view that the rejection of the claim of the assessee u/s.80IA is justified in the facts and circumstances narrated in detail in the impugned orders of the Departmental Authorities.
10. Now coming to the disallowance of peripheral expenses of ₹10,57,792, it is seen that the assessee has claimed a sum of ₹37,26,330.03 was incurred on the basis of project approved by National Committee for Promotion of Social & Economic Welfare. The other expenses of rs.10,57,792, the assessee explained before the Departmental Authorities that they were payments made to different persons for peripheral jobs and assist them in peripheral activities. The Departmental Authorities found that these expenses were incurred towards celebration of different festivals and panchayat level sports etc., which are not at all connected to the project approved by National Committee for Promotion of Social & Economic Welfare. Therefore, we are of the considered view that the disallowance of such expenditure by the Departmental Authorities is very much right and we uphold the findings of the Departmental Authorities finding the grounds of appeal of the assessee devoid of merits.
11. Now coming to the other issue of disallowance of ₹11,19,048 being expenses under the head Garden, Park, Lake and Vegetable, undisputedly the assessee has incurred this amount for maintaining the garden, park, lake and garden expenses and growing vegetables directly. The facts made out by the Departmental Authorities are that the sale proceeds of vegetable grown was not brought to account by the assessee. Therefore, the Departmental Authorities have disallowed the same, which in our view rightly. Hence, we are of the considered view that the action taken by the Departmental Authorities is not at all unjustified on the facts and circumstances of the case.
12. For the reasons discussed above, we uphold the order of the learned CIT(A) and dismiss the appeal of the assessee having found the issues raised by the assessee to be devoid of merits.
13. In the result, the appeal of the assessee is dismissed.
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