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2018 (9) TMI 1858 - AT - Income TaxReplacement of old machineries with new one - nature of expenditure - revenue or capital expenditure - HELD THAT - Appeal allowed in favour of assessee as relying on assessee own case 2018 (5) TMI 1902 - ITAT SURAT replacement of old machine with any new one will not constitute bringing into existence of new asset of enduring benefit to the assessee. Reliance placed in the case of Sri Mangayarkasi Mills (P) Ltd 2009 (7) TMI 17 - SUPREME COURT by Revenue is not applicable, as in that case replacement of old machinery with new machinery was treated as capital expenditure, whereas, in the instant case, there is replacement of damaged part of Turbine and machinery, hence, facts are distinguishable. Therefore, the appeal of the revenue dismissed. Carbon credit income - taxability as capital receipt - HELD THAT - We find that the ITAT has held in A.Y. 2009-10 2018 (5) TMI 1902 - ITAT SURAT in the case of the assessee that carbon credit is capital receipts not taxable to tax, hence, written off by the assessee of the same in A.Y. under consideration on the ground of receivable written off is not legally tenable, hence, the findings of CIT (A) is upheld. This grounds of appeal is therefore, dismissed. Disallowance of expenditure incurred towards Corporate Social Responsibility (CSR) - allowable revenue expenses - HELD THAT - Identical issue has come up before the tribunal in assessment year 2009-10 as held the expenditure has been incurred on account of various relief materials like food items, kerosene, blankets etc. to the flood affected people of Bihar. Therefore, this expenditure has been incurred on behest of the State Government of Gujarat as the assessee is a public undertaking of Gujarat Government. The assessee is conscious of its corporate social responsibility and makes contributions in the ordinary course of its business towards socially useful activities and in view of very nature the expenditure incurred for corporate social responsibility is allowable as business expenditure as it was incurred for making the image of the company and towards its social responsibility reliance placed on the decision in the case of Shri Venkata Satyanarayana Rice Mills Contractors Co. vs. CIT 1996 (10) TMI 2 - SUPREME COURT wherein contribution to the public welfare fund at the instance of the Government Authorities was allowed as the deduction on the ground that it was motivated by commercial contribution - Appeal of the Revenue is dismissed. TDS u/s 194H - non deduction of tds on discount given to the dealers - HELD THAT - Identical issue has come up before the tribunal in assessment year 2009-10 not possible to accept the contention of the revenue that the definition of commission or brokerage as contained in Explanation to section 194H is so wide that it would include any payment receivable, directly or indirectly, for services in the course of buying or selling of goods and that, therefore, the discount availed of by the stamp ve,ndors constitutes commission or brokerage within the meaning of section 194H. Appeal of the Revenue is dismissed. Accrual of income - Addition on account of Insurance Claim Lodged - whether assessee follows mercantile system of accounting A.O. has correctly added insurance claim lodged by the assessee on accrual basis? - HELD THAT - This amount was accordingly offered to tax for the A.Y. 2013-14. This shows that actual receipt is far less than claim, hence accrual amount is not certain. Therefore, the mere lodging claim with insurance company does not result in accrual of income to the assessee unless it is settled by the insurance company. CIT(A) has held that mere lodging of insurance claim on the basis of surveyors assessment does not result into accrual of income of the assessee. There is a change of accounting policy in respect of insurance claim by the assessee but there is no change in method of accounting employed by the assessee. We are in agreement with the findings recorded by the CIT(A), accordingly same is upheld, this ground of Revenue is therefore dismissed which is also supported by the case laws relied by the assessee as mentioned above. - Decided against revenue.
Issues Involved:
1. Treatment of capital expenditure as revenue expenditure. 2. Exclusion of carbon credit income written off. 3. Disallowance of expenditure towards Corporate Social Responsibility (CSR). 4. Disallowance of depreciation on leased assets. 5. Loss on sale of fertilizer bonds. 6. Depreciation on goodwill. 7. Disallowance under Section 40(a)(ia) for non-deduction of TDS. 8. Additional depreciation on captive power plant. 9. Treatment of insurance claims on accrual vs. cash basis. Issue-wise Detailed Analysis: 1. Treatment of Capital Expenditure as Revenue Expenditure: The Revenue's appeal for A.Y. 2003-04 involved the treatment of ?3,03,04,544/- as capital expenditure instead of revenue expenditure. The CIT(A) treated the expenditure on Rotor Assembly, Impeller Assembly, Gas Chromatograph, and relay and control panel board as revenue expenditure, considering them replacements for existing machinery. The Tribunal upheld this view, distinguishing it from the Supreme Court case of Sri Mangayarkarasi Mills (P) Ltd., where replacement of old machinery with new machinery was treated as capital expenditure. The Tribunal found that the replacements did not bring into existence new assets of enduring benefit but were necessary for the smooth functioning of existing machinery. 2. Exclusion of Carbon Credit Income Written Off: For A.Y. 2010-11, the assessee's appeal involved the rejection of the claim of exclusion of carbon credit income written off amounting to ?5,10,73,986/-. The Tribunal upheld the CIT(A)'s decision, noting that the ITAT had previously held carbon credits as capital receipts not taxable to tax. Therefore, the write-off was not legally tenable, and the addition by the AO was confirmed. 3. Disallowance of Expenditure Towards Corporate Social Responsibility (CSR): The assessee's appeal for A.Y. 2010-11 included a ground on the disallowance of CSR expenditure amounting to ?17,45,86,756/-, with a net disallowance of ?9,02,16,424/-. The Tribunal found that the expenditure was incurred out of commercial expediency and was deductible under section 37 of the Act. The Tribunal relied on the Gujarat High Court's decision in the assessee's case for earlier years and upheld the CIT(A)'s decision allowing the expenditure. 4. Disallowance of Depreciation on Leased Assets: For A.Y. 2010-11, the Revenue's appeal included the disallowance of ?4,14,207/- on depreciation claimed on assets given on lease. The Tribunal found that the issue was covered by earlier decisions in favor of the assessee, where the lease was considered an operative lease, not a financial lease. The CIT(A)'s order allowing the depreciation was upheld. 5. Loss on Sale of Fertilizer Bonds: The Revenue's appeal for A.Y. 2010-11 also involved the disallowance of ?14,00,30,337/- claimed as a loss on fertilizer bonds. The Tribunal noted that the bonds were received in lieu of subsidy, which was part of the sale price. The loss on sale of bonds was considered a business loss, not a capital loss, and the CIT(A)'s decision allowing the deduction was upheld. 6. Depreciation on Goodwill: For A.Y. 2010-11, the Revenue's appeal included the disallowance of ?1,78,13,526/- on depreciation on goodwill. The Tribunal restored the issue to the CIT(A) to examine it in light of the Supreme Court's decision in Smifs Securities Ltd., which held that goodwill is an asset eligible for depreciation. 7. Disallowance Under Section 40(a)(ia) for Non-Deduction of TDS: The Revenue's appeal for A.Y. 2010-11 included the disallowance of ?3,86,99,035/- under Section 40(a)(ia) for non-deduction of TDS on discounts given to dealers. The Tribunal found that the discounts were not in the nature of commission and were not liable for TDS under Section 194H. The CIT(A)'s decision to delete the disallowance was upheld. 8. Additional Depreciation on Captive Power Plant: The Revenue's appeal for A.Y. 2010-11 included the disallowance of ?2,24,296/- on additional depreciation claimed on a captive power plant. The Tribunal found that the issue was covered by earlier decisions allowing additional depreciation on power plants, considering the generation of electricity as production of an article or thing. The CIT(A)'s decision allowing the additional depreciation was upheld. 9. Treatment of Insurance Claims on Accrual vs. Cash Basis: For A.Y. 2011-12, the Revenue's appeal included the addition of ?3,47,27,000/- on account of insurance claims lodged by the assessee. The Tribunal upheld the CIT(A)'s decision, noting that mere lodging of an insurance claim does not result in accrual of income. The change in accounting policy to account for insurance claims on a cash basis was considered justified. Conclusion: - Appeals in ITA No.1060/Ahd/2015 and ITA No.1556/Ahd/2014 by Revenue were dismissed. - Appeal in ITA No.2505/Ahd/2014 by Assessee was partly allowed. - Appeal in ITA No.2636/Ahd/2014 by Revenue was partly allowed.
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