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TMI Blog2017 (7) TMI 604X X X X Extracts X X X X X X X X Extracts X X X X ..... sider the expenditure and evidences filed by the assessee afresh and thereafter pass a reasoned order, in accordance with law. Expenses incurred on account of modernization and renovation of the project - capital v/s revenue expenditure - Held that:- CIT (Appeals) has deleted the impugned disallowance by simply accepting the assessee’s submissions, giving no reason for doing so, nor referring to any documents, which supports the assessee’s argument. Clearly, the CIT (Appeals) has not passed a well-reasoned order supporting his findings. The Ld. CIT (Appeals) has merely reiterated the assessee’s submissions that a part of interest had been capitalized by it, while the balance pertained to loans transferred by HSEB against completed scheme and hence is revenue in nature. There is no mention of how the CIT (Appeals) was satisfied on both the aspects of the matter or what documents produced before him lead him to concur/agree with the assessee’s submissions. Thus in view of the non-speaking order passed by the Ld. CIT (Appeals), we consider it fit to restore the matter back to the file of the CIT (Appeals) to consider the issue afresh Disallowance made on account of depreciation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the impugned expenses were incurred for availing working capital funds and hence were revenue in nature. We, therefore, find no reason to differ from the order of the Ld. CIT (Appeals) and uphold the disallowances - ITA No.454/Chd/2010, ITA No.453/Chd/2010, ITA No.398/Chd/2010, ITA No.1048/Chd/2010, ITA No.19/Chd/2011, ITA No.19/Chd/2011 And ITA No.698/Chd/2012 - - - Dated:- 21-11-2016 - SHRI SANJAY GARG, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER For The Assessee : Shri Harish Nayyar For The Department : Shri Manoj Mishra, CIT DR ORDER PER BENCH: The above mentioned seven appeals, out of which the appeal of the Revenue in ITA No.454/Chd/2010 is directed against the order of learned Commissioner of Income Tax (Appeals), Panchkula dated 16.2.2010 for assessment year 2004-05, the cross appeals in ITA No. 453/Chd/2010 ITA No.398/Chd/2010 are directed against the order of learned Commissioner of Income Tax (Appeals), Panchkula dated 12.2.2010 for assessment year 2005-06, the appeal of the Revenue in ITA No.1048/Chd/2010 is directed against the order of learned Commissioner of Income Tax (Appeals), Panchkula dated 17.5.2010 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing expenses of the previous year amounting to ₹ 44,89,932/- in respect of RLA study rendered by M/s Utility Tech had been claimed in the impugned year since the bills were received during the year. The assessee stated that the same was the position with regard to all the above expenses and further enclosed details of the same. The learned CIT (Appeals) after considering the assessee s argument and going through the details filed by the assessee held that the liability of the impugned expenses had in fact crystallized during the year and the Assessing Officer was, therefore, not justified in making these expenses. He, therefore, deleted the disallowance made. The relevant findings of the Ld. CIT (Appeals) at para 5 of the order is as follows : 5. The third ground of appeal Is regarding disallowance of ₹ 4,66,12,183/- being prior period expenses. The counsel for the appellant has explained that the liability of these expenses crystallized during the year under consideration. The counsel has filed details of all the expenses pertaining to the previous period the liability of which has crystallized during the assessment year under consideration. These details as discu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11. In view of the above, the ground of appeal of the Revenue is allowed for statistical purposes. 12. Revised ground No.2 raised by the Revenue reads as under : 2. Whether on the facts and circumstances of the case the Ld. C1T (A) was justified in deleting the addition of ₹ 2,01,88,372/- despite the fact that the expenses incurred and claimed by the assessee on account of modernization and renovation of the project are capital in nature since it gives the assessee a long benefit spread over a number of years. 13. Brief facts relating to the issue are that during the impugned assessment year, interest amounting to ₹ 2,01,88,372/-had been booked against renovation/modernization of project. The Assessing Officer held this expenditure to be capital in nature being on account of renovation and modernization of project which gave long term benefit to the assessee and, therefore, disallowed the same. 14. Before the learned CIT (Appeals), the assessee pleaded that out of the impugned expenses, a sum of ₹ 78,60,710/- had been capitalized by the assessee itself, while the balance pertained to interest incurred after the date of capitalization of assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by the AO is ordered to be deleted. This ground of appeal is allowed. 18. On going through the above, we find that the CIT (Appeals) has deleted the impugned disallowance by simply accepting the assessee s submissions, giving no reason for doing so, nor referring to any documents, which supports the assessee s argument. Clearly, the CIT (Appeals) has not passed a well-reasoned order supporting his findings. The Ld. CIT (Appeals) has merely reiterated the assessee s submissions that a part of interest had been capitalized by it, while the balance pertained to loans transferred by HSEB against completed scheme and hence is revenue in nature. There is no mention of how the CIT (Appeals) was satisfied on both the aspects of the matter or what documents produced before him lead him to concur/agree with the assessee s submissions. 19. In view of the non-speaking order passed by the Ld. CIT (Appeals), we consider it fit to restore the matter back to the file of the CIT (Appeals) to consider the issue afresh after giving due opportunity of hearing to the assessee and pass a reasoned order in accordance with law. 20. This ground of appeal raised by the Revenue is allowed fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n down value of assets from plant machinery and thus as a consequence reduced the depreciation allowable to the assessee by Rs,.1,57,47,347/-. 26. During the appellate proceedings the assessee submitted that out of total grant of ₹ 6,29,89,387/- received, only a part of it i.e. ₹ 1,17,44,719/- had been utilized and reduced from the cost of the assets and no depreciation had been claimed on the same. The remaining amount of ₹ 5,12,44,668/-, the assessee stated, had been transferred to other liabilities and provisions having been received for capital works which had not been initiated by the end of the relevant previous year i.e. 31.3.2005. The learned CIT (Appeals) rejected the contention of the assessee and held that in view of the Explanation 10 to section 43(1) of the Act, the Assessing Officer had rightly disallowed depreciation corresponding to the entire amount of the capital-grant-in-aid and, therefore, upheld the disallowance made by the Assessing Officer. 27. Before us, the learned counsel for the assessee, reiterated the contentions made before the CIT (Appeals) and stated that the entire grant-in-aid received had not been utilized for purchase of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 55.2 - - Grants towards cost of the capital assets as at the beginning of the year Add : Received during the year Less: Utilised Less : Transferred to deposits 55.2 55.3 1,923.035 1,923.035 59,200.00 3,789.387 11,744,719 51,244,668 Sub Total - - Grand Total - - 30. It is, therefore, clear that the assessee had utilized only a portion of the grant-in-aid for acquiring assets on which it had also not claimed depreciation. To this extent, we hold that the depreciation disallowed is incorrect and only tantamounts to denial of depreciation twice, once by the assessee itself when it reduced the grant-in-aid from the cost of the asset and the second time by the Revenue by applying Explanation-10 to section 43(1) on the same. This is totally unwarranted and denial of depreciation to this extent is, therefore, deleted. 31. As for the claim of the assessee that the balance amount was not utilized by it for purchas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that to the extent of grant-in-aid is not utilized for acquiring capital assets, the same will not be adjusted against cost of assets of the assessee and the denial of depreciation to this extent also is deleted. 33. In view of the above, we delete the disallowance of depreciation on the grants-in-aid received and allow the ground raised by the assessee. 34. The appeal of the assessee, therefore, stands allowed. ITA No.398/Chd/2010 : (Revenue s Appeal): 35. Ground Nos.(a) and (b) raised by the Revenue read as under : (a) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the deletion of addition of ₹ 13,92,00,000/- made by the AO u/s 40(a)(ia) on account of transport charges ignoring the substance of the transaction which is essentially a payment for the transport changes and not a payment for the purchase of goods ? (b) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the deletion of addition of ₹ 13,92,00,000/- made by the AO u/s 40(a)(ia) ignoring the fact that the inclusion of transportation charges in the sales bill does not change the nature of pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Coal India Limited to deduct TDS on the transportation charges incurred by them which was duly complied with by them and the assessee further annexed a letter to this effect from them. The assessee submitted that it had not entered into any contract with transporter nor made any payment to them nor received any bills from them and, therefore, the payment made on account of transportation charges could not be termed to be on account of any work contract for transportation of the goods liable to deduction of TDS under section 194C of the Act. The assessee further relied upon decision of the I.T.A.T., Chandigarh Bench in the case of Haryana Tourism Corporation Ltd. in ITA No.1056/Chd/2008, wherein the Hon'ble I.T.A.T. vide its order dated 25.3.2009 for assessment year 2005-06 had decided an identical issue in favour of the assessee. The Ld. CIT (Appeals) after considering the assessee s submissions held that the contract of the assessee with Coal India Limited and Central Coal Fields Limited was contract for sale of goods and not contract of work. Relying upon the decision of the I.T.A.T., Chandigarh Bench in the case of Haryana Tourism Corporation Limited (supra) held that where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntical set of facts held that there was no work contract between the assessee and supplier of goods, but only contract for sale of goods and transport cost included in the bills was part of the cost of the commodity sold and thus no liability to deduct tax under section 194C of the Act. The Hon'ble High Court in the case of Assistant Manager (Accounts) Food Corporation of India (supra) held at paras 2 and 3 of its order as follows : 2. The assessee in the present case is Food Corporation of India which is engaged in procurement of food grains for the Central pool. The food grains is procured through the State agencies and directly as well. Proceedings were initiated under s. 201 of the IT Act, 1961, with the allegations that the assessee had failed to deduct tax at source on the interest, rent and transportation charges paid by it to various agencies. The order came to be passed by the ITO (TDS) on 25th Feb., 2005, raising a demand of ₹ 12,34,814. The order was upheld by the CIT(A). In further appeal before the Tribunal, the plea set up by the assessee was accepted. It was noticed that in the invoices raised by various State agencies who procured food grains on behalf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mstances of the case, the Ld.CIT(A) was justified in deleting the addition of ₹ 2,01,88,372/- despite the fact that the expenses incurred and claimed by the assessee on account of modernization and renovation of project are capital nature since it gives the assessee a long benefit spread over a number of years. (e) Whether on the facts and in the circumstances of the case, the Ld.CIT(A) was justified in deleting the addition of ₹ 68,45,000/- (out of ₹ 2,01,88,372/-) despite the fact that there is no mention in the schedule 22/notes on account attached to the balance sheet of the assessee that ₹ 68,45,000/- has been capitalized on account of renovation and modernization of the project under APDRP Scheme, Faridabad. (f) Whether on the facts and circumstances of the case, the CIT(A) was justified in deleting the addition of Rs. l,31,58,372/-(out of ₹ 2,01,88,372/)- despite the fact that there is nothing on record to show that these expenses relate to completed projects and not to the capital work-in-progress. 44. In the above grounds, we find that the Revenue has challenged deletion of addition of ₹ 2,01,88,372/- on account of mode ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken by HSEB for renovation and modernization during the financial year 1985-86 to 1987 88, which was put to use in March, 1991 and, therefore, the interest expenditure of the impugned year relating to assets already put to use was to be treated as revenue expenditure. The Ld. DR has countered by stating that neither was the interest capitalized and reflected in Schedule-22 of the Balance Sheet, nor any evidence brought on record and referred to by the CIT (Appeals) to prove that the remaining interest was incurred on account of completed projects. 49. We find merit in the contentions of the Ld. DR that the Ld. CIT (Appeals) has deleted the disallowance by simply accepting the contentions of the assessee without any corroborating evidence relating to the same. Neither the capitalization of interest to the extent of ₹ 68,45,000/- allegedly reflected in Schedule-22 of the Balance Sheet was shown to us, nor any evidence filed before us to prove that the balance interest paid pertained to loans which had been utilized to acquire assets in earlier years. Further, we find that even the Ld. CIT (Appeals) has made no reference to any evidence proving the same except for Schedule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case are similar to that in ITA No.398/Chd/2010. We, therefore, hold that the findings given in ITA No.398/Chd/2010,vis-a vis disallowance of transportation charges u/s 40(a)(ia) of the Act given at para 41 42 of the order and vis- -vis disallowance of interest on modernization and renovation of projects, given at para 48-50 of the order, shall apply to this case also with equal force. 54. The appeal of the Revenue is therefore partly allowed for statistical purposes. ITA No.19/Chd/2011 : (Revenue s Appeal): 55. In this appeal the Revenue has raised the following grounds of appeal : 1. On the basis of the facts and in the circumstances of the case, the Ld. C.I.T.(A)is not justified in deleting the addition of ₹ 23,03,69,578/- made under section 40(a)(ia)of the I.T.A.T. on account of transport charges ignoring the substance of the transaction which is essentially a payment for transport charges and not a payment for the purchase of goods and further ignoring the fact that the inclusion of transport charges with the sale bill does not change the nature of payment and the sum being paid for the purpose of transport. 2. On the basis of the facts and in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raves to add, delete, concede, modify and alter any or all the grounds of appeal at the time of hearing. 59. The assessee in the present appeal has challenged the disallowance made of guarantee commission expenses amounting to ₹ 27,05,917/- and commitment charges of ₹ 6,94,164/- made by holding the same to be in the nature of capital expenditure. 60. Briefly stated, the facts relating to the issue are that the Assessing Officer made the impugned disallowances by holding the same to be capital in nature and by following his orders in the previous years. The Ld. CIT (Appeals) upheld the disallowance following the order passed by the CIT (Appeals) in preceding year in the case of the assessee. The Ld. CIT (Appeals) upheld the disallowance by holding at paras 6 and 7 of his order as follows : 6. This ground of appeal is regarding addition of ₹ 27,05,917/- on account of Guarantee commission by treating the same as capital expenditure. The AO has mentioned that this expenditure is capital in nature. The counsel on the other hand argued that this amount have been paid to the Haryana Govt. for borrowing money for funding working capital requirement. My prede ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edly, identical disallowances were made in assessment year 2004-05 and 2006-07, which, in assessment year 2006 07,were upheld by the CIT (Appeals) and not further challenged by the assessee before the I.T.A.T. while in assessment year 2004-05,the addition was not challenged before the CIT(A), thus implying that the assessee has accepted that the nature of the guarantee commission and commitment charges paid was capital. Further, before us, no distinguishing facts have been brought to show how the facts in the present case are different from that in the preceding years, nor any evidence adduced to show that the impugned expenses were incurred for availing working capital funds and hence were revenue in nature. We, therefore, find no reason to differ from the order of the Ld. CIT (Appeals) and uphold the disallowance of guarantee commission of ₹ 27,05,917/- and commitment charges of ₹ 6,94,164/-. In view of the above, both the grounds of the assessee are dismissed. 64. The appeal of the assessee, therefore, stands dismissed. ITA No.698/Chd/2012 : (Assessee s Appeal): 65. In this appeal, the assessee has raised the following grounds of appeal : 2. That t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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