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Judgment
PER SATBEER SINGH GODARA, JM:
The instant batch of five cases involves the single assessee herein M/s Gujarat Guardian Limited. This taxpayer's solitary appeal 3103/Del/2025 for assessment year A.Y. 2014-15 and the Revenue’s four cases ITA Nos. 4784 to 4786 & 4812/Delhi/2025 arise against the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre [in short, the “CIT(A)/NFAC”], New Delhi’s as many orders, dated 11.03.2025, 26.05.2025, 26.05.2025, 27.05.2025 & 27.05.2025; passed in DINs & Orders Nos. ITBA/NFAC/S/250/2024-25/1074359023(1), ITBA/NFAC/S/250/2025-26/1076447222(1), ITBA/NFAC/S/250/2025-26/1076456392(1), ITBA/NFAC/S/250/2025-26/1076481994(1), ITBA/NFAC/S/250/2025-26/1076483917(1) involving proceedings under sections 154 (A.Y. 2014-15) and under sections 143(3), 143(3), 143(3) & 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) in A.Ys. 2016-17, 2017-18, 2018-19 & 2020-21, respectively.
Heard both the parties. Case files perused.
The assessee’s appeal herein ITA 3103/Del/2025 raises the following substantive grounds of appeal:
1.That the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre [‘CIT(A), NFAC’] erred on facts and in law in upholding the action of the assessing officer in passing a rectification order under section 154 of the Income tax Act, 1961 (‘the Act’), regarding the disallowance of claim of depreciation to the extent of Rs. 53,75,832.
Re: CIT(A) order passed without granting an opportunity of being heard
2.That on the facts and circumstances of the case and in law, the order dated 11.03.2025 passed under section 250 of the Act (‘CIT(A) order’) is in violation of the principles of natural justice and therefore illegal and bad in law.
2.1.That the CIT(A), NFAC erred on facts and in law in passing the order dated 11.03.2025 without providing an opportunity of virtual hearing to the appellant.
2.2.That on the facts and circumstances of the case and in law, the CIT(A), NFAC erred in passing the order dated 11.03.2025 without considering the request for oral/personal hearing filed by the appellant vide submissions dates 11.09.2023, thereby in violation of Faceless Appeal Scheme, 2021.
Re: Validity of rectification order
3.That on the facts and circumstances of the case and in law, the CIT(A), NFAC erred in confirming the rectification order passed under section 154 of the Act, without appreciating that disallowances made by the assessing officer in the said order were out of the purview of rectification.
3.1That on the facts and circumstances of the case and in law, the CIT(A), NFAC erred in not appreciating that the disallowance of depreciation to the extent of Rs. 53,75,832 made by assessing officer in the rectification order does not pertain to mistake apparent from record, therefore the same is not covered within the scope of section 154 of the Act.
3.2That on the facts and circumstances of the case and in law, the CIT(A), NFAC erred in even though the issue regarding depreciation was duly examined and accepted by the assessing officer during the original assessment under section 143(3) of the Act.
3.3That on the facts and circumstances of the case and in law, the CIT(A), NFAC erred in not appreciating that the issue of claim of depreciation involves complex facts and legal issues, and therefore, the rectification under section 154 was not applicable on the same.
Re: Without prejudice - on merits
4.That on the facts and circumstances of the case and in law, the CIT(A), NFAC erred in upholding the disallowance of depreciation claimed to the extent of Rs. 53,75,832 without appreciating the detailed submissions filed by the appellant along with auditor certificates and reconciliation reports.
4.1.That on the facts and circumstances of the case and in law, the CIT(A), NFAC erred in upholding the disallowance of depreciation claimed to the extent of Rs. 53,75,832 without appreciating that the difference in depreciation arose on account of retrospective capitalization of 86 percent of the Engineering Fees paid in respect of Cold Tank Repairs carried out in the financial year 2010-11 which led to revision of written down values of block of fixed assets on which depreciation was computed.
4.2.That on the facts and circumstances of the case and in law, the CIT(A), NFAC erred not appreciating that vide order dated 31.12.2017 issued under section 143(3)/254 for assessment year 2009-10, the entire engineering fees was treated to be in nature of capital expenditure on which the appellant was entitled to depreciation once the plant, in respect whereof cold tank repair work was completed in assessment year 2011-12, was put to use.
4.3.That on the facts and circumstances of the case and in law, the CIT(A), NFAC erred in not appreciating the certificate issued by tax auditors of the appellant company explaining the reasons for difference between depreciation claimed as per income tax return and tax audit report.
Re: Incorrect levy of interest under section 234B of the Act
5.That on the facts and circumstances of the case and in law, the assessing officer erred in levying consequential interest under section 234B of the Act.
The appellant craves leave to add, amend, alter or vary, any of the aforesaid grounds of appeal before or at the time of hearing of the appeal.
It is in this factual backdrop that the learned counsel vehemently submits that we ought to reverse the impugned rectification as neither the relevant facts herein warranted any such exercise nor the assessee had been afforded adequate opportunity(ies) of hearing in the lower appellate proceedings. We find no merit in the assessee's instant twin contentions as the learned Assessing Officer as well as the CIT(A); as the case may be, have given detailed reasoning in respect of the impugned rectification involving the sole issue of excess depreciation amounting to Rs. 53,75,832/-. Rejected accordingly.
Learned counsel next submits that the impugned difference in the assessee's depreciation claim arose on account of retrospective capitalisation of 86% of the engineering fees paid in respect of cold tank repairs carried out in F.Y. 2010-11 leading to revision of written down value of block of fixed assets herein. We are of the considered view in this factual backdrop that this clinching fact needs afresh factual verification at learned Assessing Officer’s end. We thus deem it appropriate to restore the same for his afresh appropriate factual verification subject to a rider that the assessee shall plead and prove all the relevant facts within three effective opportunities of hearing; at its own risk and responsibility in consequential proceedings. The assessee’s instant appeal 3103/Del/2025 for A.Y. 2014-15 partly succeeds for statistical purposes therefore.
We now advert to the Revenue’s four appeals ITA Nos. 4784 to 4786 & 4812/Del/2025 in assessment years A.Ys. 2016-17, 2017-18, 2018-19 & 2020-21; respectively. Its twin substantive grounds raised herein in the instant first and foremost case seek to revive section 14A r.w. Rule 8D disallowance/addition of Rs. 1,19,23,833/- and section 80IA r.w.s. 80A disallowance of Rs. 14,02,08,848/- made in the assessment order and upheld in the lower appellate discussion. The CIT(A)’s lower appellate discussion in the “lead” appeal ITA No. 4784/Del/2025; reads as under:
Ground No. 02 to 11: Addition of Rs. 1,19,23,833/- u/s 14A r.w Rule 8D of the Act.
During the year under consideration, the appellant earned exempt dividend income of Rs.12,32,18,073/-(after deduction of fund management charges) from investments made in mutual funds. The appellant, in its return of income, had suo-motu disallowed Rs.7,96,140/- under section 14A of the Act towards 25% of the salary of one accounting person along with 5% remuneration of the Finance Director. However, the assessing officer made an additional disallowance of Rs.1,19,23,833/- in the impugned order by invoking provisions of section 14A of the Act read with Rule 8D of the Rules. The appellant has submitted that it had no borrowings during the year under considerationand investments were made out of available surplus funds. It has been submitted that during the financial year the surplus funds available with the company were more than the amount invested in mutual funds. The appellant during the beginning of relevant previous yearhad interest free surplus funds amounting to Rs.686,73,71,826/- out of which it had invested in mutual fund.
The appellant had made suo-moto disallowance u/s. 14A of the Act to the tune of Rs.7,96,140/-. It has been submitted that this disallowance has been consistently made by them since 2007-08 and this approach of computing income has been upheld by the Hon'ble Tribunal in assessment year(s) 2007-08 to 2011-12 (further affirmed by the Hon'ble Delhi High Court for the assessment year 2009-10 by dismissing Revenue's appeal having ITA No. 1106/2017.
The Hon'ble ITAT vide its order dated 27.07.2020 in ITA No.5794/Del./2016 for the A.Y. 2012-13 while considering the disallowance u/s. 14A of the Act in the case of appellant has allowed the appeal of the assessee and deleted the addition made under this head. The Hon'ble ITAT while deleting the addition has observed as under:
"15.We have perused the order passed by the coordinate Bench of the Tribunal in assessee's own case for AYs 2009-10 & 2010-11, available at pages 2.1 to 2.29 and 3 to 46 respectively of the paper book, having identical facts deleting similar addition made by the AO/CIT(A), which order has been affirmed by the Hon'ble Delhi High Court vide order dated 05.12.2017 passed in ITA 1106/2017, available at pages 1 & 2 of the paper book.
16.We are further of the considered view that since there is no change in the suo-moto disallowance by the assessee as has been made in AYs 2010-11 & 2011-12, which has been confirmed by the Hon'ble Delhi High Court, making disallowance by the AO without recording satisfaction mandatory u/s 14A(2), is not sustainable.
17.So, in view of what has been discussed above and following the orders passed by the coordinate Bench of the Tribunal for AYs 2010-11 & 2011-12, affirmed by the Hon'ble Delhi High Court, we are of the considered view that disallowance made by the AO and confirmed by the Id. CIT (A) is not sustainable, hence ordered to be deleted. Grounds No.1 to 1.10 are determined in favour of the assessee."
The appellant has made investment out of own surplus fund only in Debt Mutual Funds and has earned income by way of dividends. No investment has been made by the company in equity oriented mutual funds. The Hon'ble Supreme Court in its judgement in the case of South Indian Bank Ltd. Vs CIT (Civil Appeal No 9606 of 2011 dated 09.11.2021) has held as under:
"17.In a situation where the assessee has mixed fund (made up partly of interest free funds and partly of interest bearing funds) and payment is made out of that mixed fund, the investment must be considered to have been made out of the interest free fund. To put it another way, in respect of payment made out of mixed fund, it is the assessee who has such right of appropriation and also the right to assert from what part of the fund a particular investment is made and it may not be permissible for the Revenue to make an estimation of a proportionate figure. For accepting such a proposition, it would be helpful to refer to the decision of the Bombay High Court in Pr. CIT v. Bombay Dyeing and Mfg. Co. Ltd where the answer was in favour of the assessee on the question, whether the Tribunal was justified in deleting the disallowance under Section 80M of the Act on the presumption that when the funds available to the assessee were both interest free and loans, the investments made would be out of the interest free funds available with the assessee, provided the interest free funds were sufficient to meet the investments. The resultant SLP of the Revenue challenging the Bombay High Court judgment was dismissed both on merit and on delay by this Court. The merit of the above proposition of law of the Bombay High Court would now be appreciated in the following discussion.
18.In the above context, it would be apposite to refer to a similar decision in Commissioner of Income Tax (Large Tax Payer Unit) Vs. Reliance Industries Ltd where a Division Bench of this Court expressly held that where there is finding of fact that interest free funds available to assessee were sufficient to meet its investment it will be presumed that investments were made from such interest free funds. ...
27.The aforesaid discussion and the cited judgments advise this Court to conclude that the proportionate disallowance of interest is not warranted, under Section 14A of Income Tax Act for investments made in tax free bonds/ securities which yield tax free dividend and interest to Assessee Banks in those situations where, interest free own funds available with the Assessee, exceeded their investments. With this conclusion, we unhesitatingly agree with the view taken by the learned ITAT favouring the assessees."
The Hon'ble Supreme Court in above case has clearly held that if investment in securities is made out of common fund and the taxpayer available fund larger than the investments made in tax-free securities then in such case, disallowances u/s. 14A cannot be made. In the present case also there is sufficient fund available with appellant which was invested in mutual fund and as per ratio laid down by the Hon'ble Supreme Court in the aforesaid judgement addition is not warranted.
Hence, considering the judgement of Hon'ble Delhi High Court in the appellant own case and the ratio laid down by the Hon'ble Supreme Court in the case of South Indian Bank Ltd. Vs CIT the disallowance of Rs. 1,19,23,833 made u/s. 14A of the Act is not sustainable and hence ordered to bedeleted.These grounds of appeal from 2 to 11 is allowed.
Ground No. 12 to 17:
During the year under consideration, the appellant had four wind power Mills. It has claimed deduction u/s 80IA for Rs. 25,86,38,457/- in respect of profits and gains derived from its windmill power generation projects- I &II. This deduction includes an amount of Rs. 13,88,83,441/- with respect to Windmill Project-I and Rs.11,01,78,327/- with respect to Windmill Project-II. The A.O. had discussed at length the agreement with observed that the unit rate of the electricity generated from wind power was taken by the assessee company for purpose of computing the profit u/s 80IA at notional value of Rs. 7.32 per unit. The A.O. has found that the assessee company has inflated profits by showing notional value of Rs. 7.32 per unit being the market value of electricity per unit, when the assessee was supplying power to the Electricity board at Rs. 3.37 per unit thereby an excessive claim of deduction of Rs. 3.95 per unit was made. Hence, the A.O. has disallowed the excess claim of deduction of Rs.14,02,08,848/-.
The appellant has taken the market value at which the electricity was supplied to the assessee by the Electricity Board whereas the A.O. has determined the price at which electricity was supplied by the assessee to the Electricity Board. The assessee in his submission filed has raised the issue section 80IA(8) of the Act. As per Section 80IA-(8), if the internal transfer of goods or services is not at market value, then profits or gains of transacting units shall be computed, as if, transfer, in either case, had been made at market value of such goods or services. In the present case the issue involved is regarding determination of the market value of electricity per unit so as to compute the income accrued to an assessee on electricity supply made by it to its own manufacturing units.
The relevant provision of sec.80IA(8) of the Income-tax Act, 1961 is reproduced as under :
"80IA(8) Where any goods or services held for the purposes of the eligible business are transferred to any other business carried on by the assessee, or where any goods or services held for the purposes of any other business carried on by the assessee are transferred to the eligible business and, in either case, the consideration, if any, for such transfer as recorded in the accounts of the eligible business does not correspond to the market value of such goods or services as on the date of the transfer, then, for the purposes of the deduction under this section, the profits and gains of such eligible business shall be computed as if the transfer, in either case, had been made at the market value of such goods or services as on that date : Provided that where, in the opinion of the Assessing Officer, the computation of the profits and gains of the eligible business in the manner hereinbefore specified presents exceptional difficulties, the Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit. Explanation.—For the purposes of this sub-section, "market value", in relation to any goods or services, means—
(i)the price that such goods or services would ordinarily fetch in the open market; or
(ii)the arm's length price as defined in clause (ii) of section 92F, where the transfer of such goods or services is a specified domestic transaction referred to in section 92BA."
The appellant in its submission has stated that it has opted to wheel the wind energy generated in Wind power Project-1 & II to its own manufacturing units in accordance with the option given in clause 3 of the Wind Power Generation Policy 2002 issued under the Resolution No-EDA-10-2001-3054-B(Part-II) government of Gujarat. The appellant has also submitted that Ld. A.O reference to Order No-2 of 2006 wherein the price of procurement of power from Wind energy has been fixed at Rs. 3.37 per KWh for the entire life of project of 20 years is not applicable in the case of the appellant. The appellant has contended that as per provision of section 80-IA(8) of the Act, the revenue has been correctly recorded the revenue in project I & II at the rates at which electricity was supplied by GEB to industrial consumers i.e market rate of power. The appellant has also submitted that price charged by GEB from various industrial consumers, being levied without any restriction/condition could reasonably be said to be true reflective of the market price of electricity.
As per the appellant, the sub-section 8 of section 80-IA of the Act seek to provide that the profit of the eligible business should be computed on the basis of inter unit transfer of goods and services at the price such goods and services at the price such goods would ordinarily fetch on sale in the open market. Hence, the appellant has submitted that Ld. A.O taking the value of electricity at 3.37 which is not as per provision of the Act and hence needs to be deleted. The appellant has relied upon various case law to canvass the point that legally the market rate adopted by the appellant to calculate the value of deduction under section 80IA of the Act is justified and as per mandate of the law.
I have gone through the assessment order passed by the Assessing Officer and detailed submission made by the appellant. The only issue for decision is related to price which needs to be adopted for calculating the eligible gain under section 80-IA of the Act. In this regard, the reliance is placed on the decision of Hon'ble Supreme Court in case of Commissioner Of Income Tax v M/s Jindal Steel & Power Limited[2023] 157 taxmann.com 207 (SC) wherein the Hon'ble Court has dealt the similar issue of price to be adopted for the claim of deduction under section 80-IA of the Act. The Hon'ble Court while dealing with the issue of what shall be reckoned as market value of power has held that market value shall be price that power would fetch in an open market i.e., the rate at which power is supplied by State Electricity Board to various consumers in open market and not price paid by State Electricity for purchasing the power from the assessee. It noted that explanation to section 80-IA(8) defines market value as price that goods or services would ordinarily fetch in open market. The relevant portion of the Hon'ble Supreme Court's judgment are reproduced as under :
"25.Therefore, the expression "market value" in relation to any goods as defined by the explanation below the proviso to sub-section (8) of Section 80 IA would mean the price of such goods determined in an environment of free trade or competition. "Market value" is an expression which denotes the price of a good arrived at between abuyer and a seller in the open market i.e., where the transaction takes place in the normal course of trading. Such pricing is unfettered by any control or regulation; rather, it is determined by the economics of demand and supply. 26. Under the electricity regime in force, an industrial consumer could purchase electricity from the State Electricity Board or avail electricity produced by its own captive power generating unit. No other entity could supply electricity to any consumer. A private person could set up a power generating unit having restrictions on the use of power generated and at the same time, the tariff at which the said power plant could supply surplus power to the State Electricity Board was also liable to be determined in accordance with the statutory requirements. In the present case, as the electricity from the State Electricity Board was inadequate to meet power requirements of the industrial units of the assessee, it set up captive power plants to supply electricity to its industrial units. However, the captive power plants of the assessee could sell or supply the surplus electricity (after supplying electricity to its industrial units) to the State Electricity Board only and not to any other authority or person. Therefore, the surplus electricity had to be compulsorily supplied by the assessee to the State Electricity Board and in terms of Sections 43 and 43A of the 1948 Act, a contract was entered into between the assessee and the State Electricity Board for supply of the surplus electricity by the former to the latter. The price for supply of such electricity by the assessee to the State Electricity Board was fixed at Rs. 2.32 per unit as per the contract. This price is, therefore, a contracted price. Further, there was no room or any elbow space for negotiation on the part of the assessee. Under the statutory regime in place, the assessee had no other alternative but to sell or supply the surplus electricity to the State Electricity Board. Being in a dominant position, the State Electricity Board could fix the price to which the assessee really had little or no scope to either oppose or negotiate. Therefore, it is evident that determination of tariff between the assessee and the State Electricity Board cannot be said to be an exercise between a buyer and a seller in a competitive environment or in the ordinary course of trade and business i.e., in the open market. Such a price cannot be said to be the price which is determined in the normal course of trade and competition.
27.Another way of looking at the issue is, if the industrial units of the assessee did not have the option of obtaining power from the captive power plants of the assessee, then in that case it would have had to purchase electricity from the State Electricity Board. In such a scenario, the industrial units of the assessee would have had to purchase power from the State Electricity Board at the same rate at which the State Electricity Board supplied to the industrial consumers i.e., Rs. 3.72 per unit.
28.Thus, market value of the power supplied by the assessee to its industrial units should be computed by considering the rate at which the State Electricity Board supplied power to the consumers in the open market and not comparing it with the rate of power when sold to a supplier i.e., sold by the assessee to the State Electricity Board as this was not the rate at which an industrial consumer could have purchased power in the open market. It is clear that the rate at which power was supplied to a supplier could not be the market rate of electricity purchased by a consumer in the open market. On the contrary, the rate at which the State Electricity Board supplied power to the industrial consumers has to be taken as the market value for computing deduction under Section 80 IA of the Act.
Hence, it is very clear from the order of Hon'ble Court that the market value would be the rate at which electricity was supplied by the Gujarat Electricity Board to the Industrial customers in open market, or the rate at which the surplus electricity was supplied by the Assessee to the Gujarat Electricity Board. Hence, in the present case also the market value of power should be taken for computing the deduction u/s. 80IA(8) of the Act. Hence, the rate adopted by the Assessing Officer based on to Order No-2 of 2006 by Gujarat Electricity Regulatory Commission is not applicable in the case of the appellant. Hence, the addition of Rs. 14,02,08,848/- made under this head is directed to be deleted. In the result, appeal of the assessee is allowed.
Ground No. 18 :
The ground relates to Excess Levy of Interest under section 234D of the Income-tax Act, 1961. The assessee has contended that the interest u/s. 234D of the Act has been erroneously charged. The charging of interest under section 234D is mandatory in consequence to the assessment framed. However, the A.O is directed to calculate interest based on the decision arrived in this case. Hence, this ground of appeal is allowed for statistical purpose.
Ground No. 19 :
This ground relates to computation of interest u/s. 115 of the Income-tax Act, 1961. The appellant submitted that interest amounting to Rs.6,58,410/- has been erroneously charged upon the appellant under section 115P of the Act on account of late deposit of Dividend Distribution Tax ('DDT'). It has been submitted by the appellant that in the income tax return filed on 26.11.2016, the date of declaration of dividend had been inadvertently mentioned as 30.06.2015 instead of 22.07.2015 due to a clerical error. Consequently, interest of Rs.8,50,182 had been charged under section 115P of the Act on account of delay in deposit of DDT liability and net refund of Rs.69,32,030 was computed.
The A.O. is directed to verify the claim of the assessee about the date of declaration of dividend from the documents submitted by the appellant and interest u/s. 115 of the Act should be charged accordingly. Hence the appeal of the assessee is allowed for statistical purpose.
This is what leaves the Revenue aggrieved.
We have given our thoughtful consideration to the Revenue's and the assessee's vehement submissions reiterating their respective stands. Suffice to say, the learned CIT(A)/NFAC has admittedly adopted judicial consistency thereby following this tribunal's order involving the assessee itself in the preceding assessment years deciding section 14A r.w. Rule 8D as well as section 80IA disallowance twin issue(s) against the department. There is admittedly no distinction pointed out at the Revenue's behest regarding both these issues in all these assessment years. We thus uphold the learned CIT(A)/NFAC's impugned findings in both these section 14A r.w. Rule 8D and section 80IA deduction disallowance in very terms.
The Revenue appears to have raised its identical twin substantive grounds in the remaining appeals which are hereby rejected in very terms. The only exception we note is in its twin appeals pertaining to assessment years 2017-18 & 2020-21 raising the third issue of allowability of interest paid on delayed TDS as business deduction and depreciation claim u/s 32 of the Act; respectively, which stands deleted in the lower appellate discussion. The Revenue could hardly dispute that the CIT(A)/NFAC has followed hon'ble Apex Court's landmark decision in Lachmandas Mathura Vs. CIT 254 ITR 799 (SC) whilst holding the aforesaid interest on TDS deduction/payment claim as allowable which doesn't warrant any interference on our part. The outcome of the Revenue's depreciation issue in assessment year 2020-21 which also stands settled in the assessee's favour since the Revenue had not challenged the CIT(A) order in assessment years 2016-17 & 2018-19 on the very issue which has attained finality. Rejected accordingly. These Revenue's four appeals ITA 4784 to 4786 & 4812/Del/2025 fails therefore.
No other ground or argument has been pressed before us.
To sum up, this assessee's appeal ITA No. 3103/Del/2025 is partly allowed for statistical purposes and Revenue's four appeals ITA 4784 to 4786 & 4812/Del/2025 are dismissed in above terms.
A copy of this common order be placed in the respective case files.