2021 (7) TMI 1181 - AT - Income Tax

Nature of expenditure - Disallowance of claim of guarantee fees paid to Government of Gujarat - disallowance as revenue expenditure as it is of enduring nature in the assessee's business and hence capital in nature - HELD THAT - The issue has already been subjected to judicial consideration in The DCIT vs. Gujarat Energy Transmission Corporation Ltd. 2019 (9) TMI 376 - ITAT AHMEDABAD concerning A.Y. 2009-10 and thus is no longer res integra. In parity with the view expressed by the co-ordinate bench, we do not see any error in the conclusion drawn by the CIT(A) in favour of the assessee. Disallowance of prior period expenses - disallowance made on the ground that the expenses under various heads as noted in the assessment order pertained to earlier years and the assessee which is following system of accounting ought to have made provision for expenses in those respective years for eligibility of claim - HELD THAT - As submitted that the majority of expenditure out of prior period expenses on account of excess provision written back. The explanation appears obscure in the absence of proper details. We simultaneously note that assessee is a State Government Undertaking and its accounts are subjected to review by CAG and therefore it cannot be postulated that there was any deliberateness in not furnishing relevant details before the revenue authorities. The bona fides of the Assessee is also augmented by the facts that the Assessee has reported staggering carry forward losses in its returned income. Thus, there is no immediate tax advantage accrued to the assessee by the claim of impugned prior period expenses per se. We therefore deem it expedient to restore the issue back to the file of A.O. for examining the issue de novo after verifying facts as may be considered necessary and expedient in accordance with law. See ADANI ENTERPRISES LTD. 2016 (7) TMI 1564 - GUJARAT HIGH COURT - The issue raised in its ground of appeal is thus set aside to the file of A.O. in terms of directions noted above. As a result, the ground of assessee's appeal is allowed for statistical purposes.

Summary

Issues Involved:
1. Disallowance of guarantee fees paid to Government of Gujarat as revenue expenditure.
2. Disallowance of prior period expenses claimed by the assessee.

Issue 1: Disallowance of guarantee fees paid to Government of Gujarat as revenue expenditure:

The Revenue's appeal concerned the disallowance of guarantee fees paid to the Government of Gujarat, contending it to be of enduring nature and hence capital in nature. The CIT(A) ruled in favor of the assessee, highlighting that the payment was for obtaining a loan and did not result in the acquisition of any new asset. The CIT(A) emphasized the principle of "enduring benefit," stating that the benefit derived from the payment lasted for only one year, making it a revenue expenditure. The decision was supported by judicial precedents and the Supreme Court's ruling on similar matters. The Tribunal, in line with a previous judgment, upheld the CIT(A)'s decision, dismissing the Revenue's appeal.

Issue 2: Disallowance of prior period expenses claimed by the assessee:

The assessee's appeal challenged the disallowance of prior period expenses amounting to ?31,01,27,000. The disallowance was based on the grounds that the expenses related to earlier years and should have been provided for in those years. The Tribunal observed that the explanations provided by the assessee lacked clarity and specific details regarding the nature of the claim. However, considering that the claim did not provide immediate tax advantage to the assessee and was revenue neutral, the Tribunal decided to remand the issue back to the Assessing Officer (AO) for a fresh examination. The AO was directed to verify the facts and adhere to the guidelines set by the Hon'ble Gujarat High Court in a relevant case while providing the assessee with a fair opportunity to present its case. Consequently, the assessee's appeal was allowed for statistical purposes.

In conclusion, the Appellate Tribunal ITAT Ahmedabad delivered a detailed judgment addressing the disallowance of guarantee fees and prior period expenses. The Tribunal upheld the CIT(A)'s decision in the Revenue's appeal regarding guarantee fees, emphasizing the revenue nature of the expenditure. For the assessee's appeal on prior period expenses, the Tribunal remanded the issue back to the AO for a fresh examination, considering the revenue neutrality of the claim. The judgments were thorough, citing legal principles and precedents to support the decisions rendered.