2019 (4) TMI 1840 - AT - Income Tax

TDS u/s 194C - Allowing transmission charges expenses - Addition u/s 40(a)(ia) - assessee has not deduct tax on this payment - HELD THAT - For assessment year 2007-08 in assessee's own case 2012 (12) TMI 1198 - ITAT AHMEDABAD has held that the assessee was not liable for deduction of TDS on payment made for transmission charges as held wheeling and transmission charges paid by assessee state electricity distribution company in case of which provisions of Electricity Act 2003 is applicable are not liable for deduction of tax either u/s 194J or 194C . Correct head of income - interest earned on loan and advances from deposit placed with Mega Power Project towards its sharing of power and interest of UL pool account received - business income or capital gain - HELD THAT - CIT(A) has decided the issue in favour of the assessee stating that this issue was decided in favour of the assessee for assessment year 2009-10. During the course of appellate proceedings, the Revenue has failed to controvert the aforesaid contention and the findings of the ld. CIT(A),therefore after considering the material fact that interest earned on loan and advances from deposit placed with Mega Power Project towards its sharing of power and interest of UL pool account received from M/s. Power Grid Corporation India Ltd were directly related to the business of the assessee ,therefore, this ground of appeal of the Revenue stands dismissed. Disallowance of provision made of employees cost - enhancement of the Book Profit computed under section 115JB on account of disallowance of Expenses - The assessee company has claimed an estimated liability of ₹ 3339.00 lacs being employee cost and accounted the same on accrual basis. The assessing officer has disallowed the impugned claim on the ground that additional liability was yet to be ascertained. With the assistance of ld. representatives, we have gone through the material on record and it is noticed that the assessee company has made this provisions for arrears payable to the employee for the purpose of wage revision to be made according to the 6th Pay commission. The assessee has stated that the employee s union has submitted their charter of demands and negotiations with the union representatives were in progress during the year. The Ld. Counsel has submitted that identical issue has been decided in favour of the assessee in the case of Gujarat Energy Transmission Corp. Ltd. for A. Y. 2008-08 2015 (6) TMI 1096 - ITAT AHMEDABAD In the light of the aforesaid facts and circumstances, we restore this issue to the file of the assessing officer for adjudicating a fresh after consideration Disallowance of prior period expenses - HELD THAT - It will be appropriate to restore this issue to the file of assessing officer for deciding de-novo after verification/examination of the complete details with specific findings/reasons after affording adequate opportunities to the assessee Disallowance of depreciation of computer - HELD THAT - This matter which was almost closed due to the submission made by assessee, was revived back by the assessee by raising ground against this addition before ld. CIT(A) and gave various details and documents supporting the ground that depreciation disallowed needs to be re-worked as various types of expenditure which are fully allowable during the year are included in addition of block of assets, computers and similarly there are various machines which are actually eligible for depreciation @ 60% have been subjected to depreciation @ 15% only. We further observe that ld. CIT(A) has looked into this aspect and has open the way for examining the relates facts towards calculation of correct depreciation in the block of assets relating to computers - this issue is also restored to the file of assessing officer for deciding afresh as directed in the aforesaid decision by the Co-ordinate Bench after affording adequate opportunity to the assessee. Therefore, this ground of appeal of the assessee is allowed for statistical purposes.

Summary

Issues Involved:
1. Allowing transmission charges expenses without TDS compliance.
2. Treatment of interest income as business income versus income from other sources.
3. Disallowance of provision for employee costs and its impact on book profit computation.
4. Disallowance of prior period expenses.
5. Disallowance under Section 14A read with Rule 8D.
6. Treatment of capital grants and their impact on income.
7. Classification of guarantee fees as capital or revenue expenditure.
8. Charging of interest under Sections 234B, 234C, and 234D.
9. Depreciation on computerized operational plant and machinery.

Detailed Analysis:

1. Allowing Transmission Charges Expenses Without TDS Compliance:
The assessing officer disallowed ?629,26,15,912/- for non-deduction of TDS on transmission charges paid to Gujarat Energy Transmission Company Ltd. (GETCO) under Section 40(a)(ia). The CIT(A) allowed the appeal, referencing a prior ITAT decision which held that TDS was not applicable on such charges. The ITAT upheld CIT(A)'s decision, noting that the Revenue failed to present contrary evidence.

2. Treatment of Interest Income as Business Income Versus Income from Other Sources:
The assessing officer classified ?13352.48 lacs as income from other sources, arguing it was not related to business activities. The CIT(A) and ITAT found that the interest was directly related to the business, as it arose from deposits placed with Mega Power Project and from M/s. Power Grid Corporation India Ltd. Hence, it was treated as business income.

3. Disallowance of Provision for Employee Costs and Its Impact on Book Profit Computation:
The assessing officer disallowed ?339.00 lacs as a contingent liability for employee costs pending the 6th Pay Commission decision, affecting both normal income and book profit under Section 115JB. The CIT(A) upheld this disallowance. The ITAT restored the issue to the assessing officer for fresh adjudication, considering the ITAT's prior decision in a similar case.

4. Disallowance of Prior Period Expenses:
The assessing officer disallowed ?220.54 lacs of prior period expenses. The CIT(A) enhanced the disallowance, including administrative expenses and power purchase costs. The ITAT restored the issue to the assessing officer for de novo verification, directing consideration of judicial precedents cited by the assessee.

5. Disallowance Under Section 14A Read With Rule 8D:
The assessing officer disallowed ?167.56 lacs under Section 14A for expenses related to exempt income. The CIT(A) directed exclusion of ?124.26 crores (interest on working capital loans) and ?1280.28 crores (investments in subsidiaries) from the disallowance calculation. The ITAT restored the issue to the assessing officer for fresh examination, adhering to the principle that disallowance should not exceed the exempt income earned.

6. Treatment of Capital Grants and Their Impact on Income:
The assessing officer considered 15% of ?2500 lacs as revenue income, arguing that the grant should be reduced from capital assets or treated as revenue. The CIT(A) deleted the addition, noting the grant was for equity investment in subsidiaries, not for acquiring fixed assets. The ITAT upheld CIT(A)'s decision, confirming the grant could not be treated as income.

7. Classification of Guarantee Fees as Capital or Revenue Expenditure:
The assessing officer treated ?3.34 crores of guarantee fees as capital expenditure. The CIT(A) allowed it as revenue expenditure, subject to verification that loans were used for power plant construction. The ITAT upheld CIT(A)'s decision, referencing a similar case where guarantee fees were deemed revenue expenditure.

8. Charging of Interest Under Sections 234B, 234C, and 234D:
The ITAT dismissed the assessee's ground against charging interest under Sections 234B, 234C, and 234D, stating these charges are mandatory under the Income Tax Act.

9. Depreciation on Computerized Operational Plant and Machinery:
The assessing officer restricted depreciation on computerized machinery to 15% instead of 60%. The CIT(A) confirmed this disallowance. The ITAT restored the issue to the assessing officer for re-examination, following a similar decision where the matter was remanded for proper verification.

Conclusion:
The ITAT dismissed the revenue's appeals and partly allowed the assessee's appeals for statistical purposes, directing fresh adjudication on several issues by the assessing officer. The judgment emphasized adherence to legal precedents and proper verification of facts.