2013 (7) TMI 34 - AT - Income Tax

Expenditure incurred on repairs & maintenance - as per assessee cost of the civil work for the de- botttle-necking of De-hydro generation section of existing Capro Expansion Plant (CEP is revenue in nature - revenue v/s capital - Held that - CIT(A) has decided this issue on this basis that it is not clear as to how excavation/earth removal was necessary for simply switching from one catalyst to another. He has also given a finding that in case, different equipment was required for utilizing the new catalyst, that is induction of new plant/machine for the purpose and in that situation, the expenditure will be capital expenditure. In spite of this clear finding of CIT(A), assessee could not establish that by way of excavation/earth removal, no new equipment was installed. Hence, no reason to interfere in the order of CIT(A)in confirming disallowance. Against assessee. Expenditure on the release of water and discharge of effluent and pollution control - revenue v/s capital - Held that - To be considered as revenue expenditure, with the observation that their expenditure did not result in the creation of any specific asset - this is now covered in favour of the assessee by Tribunal s decision rendered in assessee s own case for A.Y. 2001-02 and 2005-06. Against revenue. Expenditure on acquiring fire fighting equipments and on safety measures - revenue v/s capital - Held that - Tribunal in A.Y. 2000-01 also decided the issue on this basis that similar issue has arisen in the earlier assessment year and it was decided in favor of assessee and no appeal has been filed by Revenue. There is no discussion about the facts for A.Y. 2000-01 or A.Y. 2001-02. It is not clear as to whether in those years, the issue involved was regarding maintenance of fire fighting equipments or for replacing some parts of those equipments or whether full new equipments were acquired in those two years. Thus restore the matter back for a fresh decision. Disallowance u/s 14A towards interest and other expenses - Held that - In two years 2004-05 and 2005-06, the Tribunal has confirmed the disallowance of 5 lacs in each year u/s 14A in respect of other expenses. Since no difference in facts could be pointed out by D.R. of the revenue, in the present year also, thus confirm the disallowance of Rs. 5 lacs u/s 14A in respect of other expenses and decline to interfere in the order of CIT(A) on this issue regarding deletion of balance expenditure. This ground of revenue is partly allowed. Disallowance on account of replacement - CIT(A) deleted the addition - Held that - Clear finding is given by CIT (A) that these expenses pertained to water proofing, overhauling and renovation expenses. This finding of CIT (A) could not be controverted by D.R. of the revenue and hence, no infirmity in the order of CIT (A). Claim of assessee u/s. 80IA(4) by taking the price of electricity supplied by GEB - Held that - If this captive power generation plant is not there, the assessee has to purchase power from GEB at the rate at which power is supplied by GEB to its consumer. Hence, this is also true that on account of this captive power generation plant of the assessee, to the extent power is generated by it, there is a saving of the assessee company on account of power expenses to the extent of power produced in units @ power supply rate of GEB. Hence, the income of this power generation plant to compute deduction allowable to the assessee u/s 80IA(4) has rightly been computed by taking the price of electricity supplied by GEB. Estimated gratuity provision made on the basis of actuarial valuation - Adjustment of book profit u/s 115JB - Held that - In order to be eligible for reduction from book profit, the amount in question should be in respect in reserve/provision excluding a reserve created before the 1st April, 1997 otherwise than by way of debiting to the P & L account. No finding was given by the CIT (A) on this aspect. Hence, his order on this aspect cannot be sustained. This ground of the Revenue stands allowed for statistical purpose. Calculations of deduction u/s 80 IA - at Rs. 4.55 per unit as against correct purchase rate of power of Rs. 5.42 per unit on the basis of the cost of power purchased from GEB - Held that - there is a column regarding payment of charges and after adding the same, the total rate has been worked out for each month separately which ranges between the 4.50 in March, 2006 to 4.736 in the month of April and June, 2005. Electricity duty is separately shown in next column @ 15 % but consequential amount has not been worked out in this chart. We, therefore, feel that on this issue also, a fresh decision is required because Ld. CIT (A) has not given any basis as to how he has determined the rate of power sold by GEB to the assessee at Rs. 4.55 per unit. In favour of assessee for statistical purposes.

Issues Involved:
1. Disallowance of expenditure on repairs and maintenance as capital expenditure.
2. Non-decision on expenses for financial consultants.
3. Non-decision on quantification of unabsorbed loss under 'Capital Gains'.
4. Allowance of expenditure on water release and pollution control as revenue expenditure.
5. Allowance of expenditure on fire fighting equipment and safety measures as revenue expenditure.
6. Deletion of disallowance under Section 14A towards interest and other expenses related to exempted income.
7. Deletion of disallowance on account of replacement expenses.
8. Calculation of deduction under Section 80IA(4) for captive power generation.
9. Adjustment of book profit under Section 115JB by estimated gratuity provision and disallowance of expenses related to non-taxable income.
10. Correct rate for power purchase for deduction under Section 80IA.

Detailed Analysis:

1. Disallowance of Expenditure on Repairs and Maintenance:
The assessee contested the disallowance of Rs. 8,39,417/- as capital expenditure, arguing it was for civil work related to de-bottlenecking of an existing plant and should be considered as revenue expenditure. The tribunal upheld the CIT(A)'s decision, noting that the necessity of excavation/earth removal for switching catalysts was not explained, and the expenditure could be considered capital if new equipment was installed. The assessee failed to establish that no new equipment was installed, leading to the rejection of this ground.

2. Non-Decision on Expenses for Financial Consultants:
The assessee argued that the CIT(A) did not decide on the expense of Rs. 2.57 crores paid to financial consultants. The tribunal restored the matter to the CIT(A) for a fresh decision after hearing both sides.

3. Non-Decision on Quantification of Unabsorbed Loss:
The assessee did not press this ground, leading to its rejection.

4. Allowance of Expenditure on Water Release and Pollution Control:
The revenue challenged the CIT(A)'s decision to allow Rs. 98.08 lacs as revenue expenditure. The tribunal upheld the CIT(A)'s order, noting that similar issues in previous years were decided in favor of the assessee, with no new facts presented by the revenue.

5. Allowance of Expenditure on Fire Fighting Equipment and Safety Measures:
The revenue contested the allowance of Rs. 51.38 lacs as revenue expenditure. The tribunal found that previous tribunal decisions in favor of the assessee were based on similar issues without examining facts. The tribunal restored the matter to the CIT(A) for a fresh decision after examining the facts of the current and earlier years.

6. Deletion of Disallowance under Section 14A:
The revenue challenged the deletion of Rs. 1,42,82,040/- disallowed under Section 14A. The tribunal upheld the CIT(A)'s decision, noting that the assessee had sufficient interest-free funds and no direct nexus between borrowed funds and tax-free investments was established. The tribunal confirmed a disallowance of Rs. 5 lacs for other expenses.

7. Deletion of Disallowance on Account of Replacement Expenses:
The revenue contested the deletion of Rs. 38.12 lacs related to replacement expenses. The tribunal upheld the CIT(A)'s decision, noting that the expenses were for water proofing, overhauling, and renovation, and no new assets were created.

8. Calculation of Deduction under Section 80IA(4):
The revenue challenged the calculation of deduction under Section 80IA(4) based on the price of electricity supplied by GEB. The tribunal upheld the CIT(A)'s decision, noting that the assessee's income from the power generation plant was correctly computed using GEB's electricity rates.

9. Adjustment of Book Profit under Section 115JB:
The revenue contested the deletion of adjustments for gratuity provision and disallowance of expenses related to non-taxable income. The tribunal upheld the CIT(A)'s decision for gratuity provision based on previous tribunal orders. For disallowance of expenses, the tribunal confirmed an addition of Rs. 5 lacs and restored the matter to the CIT(A) for a fresh decision on the adjustment for take or pay rental charges.

10. Correct Rate for Power Purchase for Deduction under Section 80IA:
The assessee contested the rate of Rs. 4.55 per unit adopted by the CIT(A) for power purchase. The tribunal restored the matter to the CIT(A) for a fresh decision, directing a well-reasoned order after verifying the facts.

Conclusion:
The appeals and cross-objections were partly allowed for statistical purposes, with several issues restored to the CIT(A) for fresh decisions. The tribunal emphasized the need for detailed examination and reasoning in determining the nature of expenditures and adjustments.

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