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TMI Blog2018 (9) TMI 1858X X X X Extracts X X X X X X X X Extracts X X X X ..... ff 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see are directed against the order of learned Commissioner of Income tax (Appeals) 3, Vadodara (in short the CIT (A) ) dated 05.01.2015 and 05.02.2015 pertaining to Assessment Year 2003-04 and 2011-12 respectively and appeal for A.Y. 2010-11 is directed against the order of Commissioner of Income Tax (Appeals)-VI, Baroda dated 05.02.2015. 2. First, we take up Revenue s appeal for A.Y.2003-04 in ITA No.1060/Ahd/2015/SRT for A.Y. 2003-04 (by Revenue): 3. Grounds raised by the Revenue read as under : 1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in treating capital expenditure of ₹ 3,03,04,544/- the purported parts were independent machine giving enduring benefit to the assessee. 2. The Ld. CIT(A) failed to appreciate that the A.O. has adhered to the direction of the ITAT and investigated that the machines were independent aspects capable of functioning for a long period and thus were not replacement items. 3. The Ld.CIT(A) misguided himself in holding that huge machinery worth ₹ 3,03,04,544/- were replacement items of existing assets disregarding the finding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure. The CIT(A) was of the view that these parts are for replacement for existing parts of the Turbines and no new asset has come into existence. Similarly, with regard to Gas Chromatograph of ₹ 12,44,744/- and relay and control panel board of ₹ 1,32,44,486/-, these were held to be incurred for replacement of existing assets which had become obsolete / got damage and their replacement was necessary to restore the existing facilities for the smooth running and original state of efficiency. Further, such expenditure were already been held to be revenue expenditure by the CIT(A) in the appellants own case for A.Y. 2010-11. In view of these facts and the decision quoted by the appellant, the AO was directed to treat above net expenditure of ₹ 2,31,99,073/- after reducing depreciation as revenue expenditure. 7. Being aggrieved, the Revenue filed this appeal before the Tribunal. The ld.Departmental Representative (DR) submitted that the CIT(A) was not justified in treating the capital expenditure as revenue expenditure. Further, the Hon'ble Supreme Court in the case of CIT vs. Sri Mangayarkarasi Mills Pvt. Ltd. 315 ITR 114 (SC) has held that re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r for A.Y. 1999-2000 passed u/s.143(3) read with section 250 of the Act dated 29.12.2009 (paper book, page 630 para 4.5 of the order). Since, the revenue has accepted this issue in the set-aside assessment proceedings, therefore, we do not find any infirmity in the order of CIT(A). Accordingly, this ground of Revenue is dismissed. 10. Since the issue is covered against the revenue by the above order of Tribunal. Therefore, following same, issue is dcided against the Revenue. Further, reliance placed in the case of Sri Mangayarkasi Mills (P) Ltd (supra) 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 in respect of Ground No.1 to 3 are dismissed. 11. In the result, appeal of Revenue for A.Y. 2003-04 is dismissed. I.T.A.No. 2505/Ahd/2014 A.Y. 2010-11 by Assessee: 12. Ground No. 1 relates to rejection of claim of exclusion of carbon credit income written off of ₹ 5,10,73,986/-. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of Apex Court in the case of Shri Venkata Satyanarayana Rice Mills Contractors Co. vs. CIT 223 ITR 101 (SC) 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. Similarly, the Hon'ble Jurisdictional High Court in the case of assessee in Tax Appeal No.770/1999 with Tax appeal No.77 78 / 2008 dated 06.05.2011 has upheld the order of Tribunal wherein the Tribunal has upheld the contribution made to the Chief Minis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s relied on the order of the AO. 28. On the other hand, the ld.AR submitted that the issue is covered in favour of the assessee by the order of the Tribunal as well as High Court. 29. We have heard the rival contentions and find that this issue is continued from the earlier assessment years and covered in favour of the assessee in his own case by ITAT for A.Y. 2008-09 and the decision of ITAT has also been confirmed by the Hon'ble Gujarat High Court. In view of these facts and on the basis of finding of ITAT, we held that it is an operative lease and not a financial lease, hence the disallowance based on the same lease agreement, are allowable as deduction. Further, the AO has allowed the depreciation claimed by the assessee. Hence, following the decision of ITAT for A.Y 2008-09, the order of the CIT(A) is upheld, accordingly this ground of Revenue is dismissed. 30. Ground No.1 (iii) relates to deleting the disallowance of ₹ 14,00,30,337/- claimed on account of loss on fertilizer bonds being received in lieu of subsidy which were invested by assessee to earn interest income. 31. The AO observed that the assessee has claime ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... record and heard the rival submissions, we find that the loss on allotment of fertilizers bond as incurred on account of difference between market value as on the date of allotment and face value of the bond. Therefore, the assessee in fact has received subsidy amount of face value of bonds but the market value of bonds on the date of allotment/receipt of subsidy in the form of bond. Hence, the contention of the AO that it is notional loss is not correct. Further, we find that in A.Y. 2008-09, the AO has already allowed the loss of ₹ 7,71,16,280/- incurred on allotment of 8.30% and 7.95% bond as business loss or revenue loss. Therefore, the actual loss of ₹ 18,62,04,574/- is allowable as business loss. With regard to loss of ₹ 37,77,73,348/- is concerned, the bonds are received in lieu of subsidy which was the additional sale price received from Government of India. The appellant company had offered to tax the subsidy accordingly as part of the sale price, therefore, the realisation to additional sale price by way of subsidy in the form of fertilizer bonds does not make bond an investment, because the bonds were never acquired by the assessee as investment f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case are that the assessee has claimed depreciation of ₹ 1,78,13,526/- of goodwill. However, the AO has disallowed depreciation of goodwill of ₹ 1,78,13,526/- mainly on the ground that goodwill has arisen because of cancellation of investment of ₹ 6955 lakhs made by appellant company in shares of NCPL being promoter company. If they would not have cancelled investment, the same would have resulted in amalgamation reserve of ₹ 5,266.01 lakhs instead of goodwill of ₹ 1688.99 has claimed by the assessee. 39. Being aggrieved, the assessee filed appeal before CIT(A). The CIT(A) observed that the issue is covered by the decision of his predecessor in the case of the Assessee in A.Y.2009-10, vide order dated 27.02.2013. Since the facts of the present case are exactly similar to those as in A.Y. 2009-10, therefore following the same it was held that difference between the cost of an asset and the amount paid in the process of amalgamation constituted goodwill and the same is eligible for depreciation. The AO has misperceived that goodwill arose because of cancellation of investment made by the appellant company, the goodwill cancellation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal. The ld.CIT-DR submitted that the decision of CIT(A) is not acceptable as the AO has rightly pointed out that the goodwill has arisen because of cancellation of investment made by it and investment made in a company is not an asset on which depreciation allowable. The assessee should have allotted shares in proportion of shareholding in NCPL has been done for the other shareholders of NCPL. These shares so allotted could have been kept by the assessee has treasury stock which could have been sold out by the assessee whenever deemed fit. Then while selling the shares, the assessee would have paid capital gain tax or capital gain loss, but the assessee has reduced the value of investment in NCPL just to create goodwill and claimed the depreciation thereon. Had the assessee not resorted to this, the same would have resulted in amalgamation reserves of ₹ 5266.01 lakhs instead of goodwill of ₹ 1688.99 lakhs as claimed by the assessee. 41. On the other hand, the ld.Counsel for the assessee submitted that the goodwill has arisen because of merger of erstwhile Narmada Chematur Petro Chemicals Ltd. with the assessee by approval of Hon'ble Gujarat High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of reasoning as given by the Tribunal in A.Y.A 2009-10, this ground of appeal is therefore set-aside to the file of the CIT(A) to examine the issue in the light of decision of Hon ble Supreme Court in the case of Smifs Securities Ltd. 44. Ground No.1(v) relates to deleting the disallowance of ₹ 3,86,99,035/- u/s.40(a)(ia) of the Act. Even though the nature of payment was commission payment to the dealers attracting provision of section 194H of that Act. 45. The AO observed that the assessee has deducted TDS on commission payments made by to its dealers, it had failed to deduct TDS u/s.194H of the Act on discounts allowed to its dealers on sales effected through them. The AO held that the discounts were in the nature of commission and the assessee was liable to deduct on the same u/s.194H of the Act which it had failed to do so. Consequently the AO made an addition ₹ 3,86,99,035/-. 46. Being aggrieved, the assessee went into appeal before the CIT(A) wherein detailed submissions were made. The Commissioner of Incometax (Appeals) noted that the issue is covered by the decision of ITAT Ahmedabad vide its order dated 31.10.2013 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dition made may be deleted. In support of this contention, the ld.Counsel has placed reliance in the case of Accme Uravashi Pumps Engineering Private Ltd. vs. JCIT 90 taxmann.com 198 (Jaipur) and Punjab Goods Transport (P) Ltd. vs. ITO 77 taxmann.com 37 (Kol). 50. We have considered the facts and find that the issue is covered by the decision of Tribunal in the appellant s own case for A.Y. 2009-10 dated 17.05.2018 in which it was held as under : 55. We have considered the facts and arguments of the parties, we have observed that the sale transactions are regularly taking place between the assessee and the dealers on principle to principle basis. The assessee makes sales to dealers and dealers makes purchases from the assessee. Both the assessee as well as the dealer consistently capture the transaction accordingly in the books of accounts. It is the dealer who makes the payment to assessee i.e. GNF. credit note and debit note if any for the agreed terms are issued by the assessee in favour of dealers only. Thus, for all the purpose dealer is a debtor of the company, similarly in case of dealers for all the purpose, the assessee is a creditor, therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame this ground of appeal of the Revenue is dismissed. 52. Ground No.1 (vi) relates to deleting the disallowance of ₹ 2,24,296/- on account of additional depreciation claimed u/s.32(1)(iia) on captive power plant disregarding that such plant has not actually manufacture any article or nothing. 53. The AO has observed that the company installed Core Engine in its Captive Power Plant (CPP) for generative electricity and the electricity generated from the CPP amounts to manufacture or production of article or thing . 54. Being aggrieved, the assessee went into appeal before the CIT(A) wherein detailed submissions were made. The Commissioner of Incometax (Appeals) noted that the issue of whether generation of electricity is production of electricity has been decided by his predecessor in the case of the assessee itself in A.Y. 2009-10, where the CIT(A) has held as under on the issue as under : The legislature has given the benefit of additional depreciation for attracting more and more investment. This being beneficial provision it should be construed liberally. Simple language of the section says that for claiming the additional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this appeal before us. The ld.CIT-DR relied on the order of AO. 57. Per contra, the ld.Counsel relied on the decisions of Hon'ble Madras High Court in case of CIT Vs. VTM Ltd (319 ITR 36); Delhi ITAT in case of NTPC Ltd (ITA No.1438/Del/2009) and Hon'ble Gujarat High Court in the case of Diamines Chemicals Ltd 42 taxmann.com 193 and submitted that the issue has been allowed in favour of the assessee, by Tribunal in A.Y.2009-10. 58. We have considered the facts and find that the issue is covered by the decision of Tribunal in the appellant s own case for A.Y. 2009-10 dated 17.05.2018 in which it was held as under : 25. We have heard the rival contentions and perused the material on record. The AO has disallowed the claim of the additional depreciation on the ground that wind mill does not produce article or thing but generates electricity whereas the provisions of section 32 (1)(iia) requires that the assessee should produce article or thing. We now refer to the provisions of section 32(1)(ii)(a) of the Act which reads as under: (iia) In the case of any new machinery or plant (other than ships and aircraft) which has been acquire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions of the Act allowed depreciation only in case of any new machinery or plant (other than ships and aircraft) and not for wind mill, which was engaged in power generation. It was held that in view of the decision of Madras High Court rendered in case of CIT Vs. VTM Ltd. [2009] 319 ITR 336, assessee was entitled to additional depreciation on the wind mill. 28. We find that Hon`ble Madras High Court in the case of CIT Vs. VTM Ltd. (2009) 319 ITR 336 (Mad.)(HC): In this case, assessee is a company engaged in the business of manufacture of textile goods. It set up a windmill for generation of power and claimed additional depreciation u/s 32(1)(iia). AO held that setting up of a windmill has absolutely no connection with the manufacturing of textile goods and thus assessee is not entitled to claim additional depreciation u/s 32(1)(iia). It was held that to claim additional depreciation u/s 32(1)(iia), what is required to be satisfied is that setting up of a new machinery or plant should have been acquired and installed after 31st March, 2002 by an assessee, who was already engaged in the business of manufacture or production of any article or thing. The said provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts of the case are that the assessee incurred expenses in replacement items of existing assets of ₹ 2,42,80,892/- and claimed that items replaced are not stand alone machinery but part of the bigger plant, no new independent machinery/assets came into existence but it maintains the existing machine. And further claimed that it falls under the current repairs as per section 31(i) of the Act and allowable as revenue expenditure. However, the AO has disallowed ₹ 2,42,80,892/- on the ground that the items are in the nature of independent machine and average life span is 6 years or more and in one item life span is 15 years which suggests that these items can be used independently. 63. The assessee went in to appeal before the CIT(A). The CIT(A) after examining the facts of the case and items of machinery to replace component and relying on various case laws examined the explanation of the assessee and on the basis of explanation furnished by the assessee, deleted the disallowance made by the AO. 64. Being aggrieved, the Revenue has filed this appeal before us. The ld.CIT-DR strongly relied on the orders of the AO. 65. On the other h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Goodwill of ₹ 1,688.99 as claimed by the appellant. 70. The assessee went in to appeal before the CIT(A), wherein the CIT(A) after examining the facts of the case that the issue is covered in favour of the appellant by decision of his predecessor in the case of the appellant for A.Y. 2009-10 and 2010-11 and respectfully following the same, the AO directed to allow depreciation on goodwill as eligible business expense. 71. Being aggrieved, the Revenue has filed this appeal before us. The ld.CIT-DR strongly relied on the orders of the AO. 72. On the other hand, the ld.Counsel for the assessee submitted that the issue is covered by the order of ITAT in assessee s own case for A.Y. 2009-10. 73. We have considered the facts and find that the issue is covered by the decision of Tribunal in the appellant s own case for A.Y. 2009-10 dated 17.05.2018 in which it was held as under : 50. We have considered the facts and heard the rival submissions we find that this issue regarding depreciation of goodwill was claimed to have been covered by the order of Tribunal in assessee s own case for A.Y. 2007-08. However, the same by way ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also recognizes the need for making payment for making payment for discharging CSR, or individual social responsibility. For this reason there is specific section 80G in the Act itself, wherein payments made to specified organizations are eligible for deduction of the entire amount of payment. It there is specific section for allowability of certain payments, then it overrules any general section. Any donation paid otherwise than in conformity with section 80G would not be an allowable deduction, but would only be application of income. 78. The assessee went in to appeal before the CIT(A), wherein the CIT(A) after examining the facts of the case directed the AO to delete the disallowance of expenditure of ₹ 16,42,500/-. 79. Being aggrieved, the Revenue has filed this appeal before us. The ld.CIT-DR strongly relied on the orders of the AO. 80. Per contra, the ld.Counsel relied on the decisions of CIT Vs. Madras Refinery Ltd (266 ITR 170) (Mad HC), CIT Vs. Kattabomman Transport Corporation Ltd (2004) (268 ITR 507) (Mad), CIT Vs. Cheran Transport Corporation Ltd (219 ITR 203)(Mad.), dcit Vs. Bajaj Hindustan Ltd (2009)(2009- TIOL -505-ITATIM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law in deleting disallowance of ₹ 4,38,56,790/- made u/s.40(a)(ia) of the Income-tax Act by ignoring CBDT s Circular No.715, wherein it has been clearly stated that section 194C 194J refer to any sum paid and therefore, tax at source under these sections is to be deducted from the sum paid reimbursement cannot be separated out. 84. Brief facts of the case are that the assessee company had given discounts of ₹ 4,38,56,790/- to its dealers on the sales made to them for which the ld.AO disallowed the discount amount of ₹ 4,38,56,790/- u/s.40(a)(ia) as tax was not deducted u/s.194H of the Act. 85. The assessee went in to appeal before the CIT(A), wherein the CIT(A) after considering the facts of the case and submissions made by the appellant stated that the issue is covered in favour of the appellant by decision of his predecessor in the case of the appellant for A.Y. 2009-10 and 2010-11 and respectfully following the same, the AO directed to delete the disallowance of ₹ 4,38,56,790/- made u/s.40(a)(ia) of the Income Tax Act, because the discount given to the dealers is not in the nature of commission liable for deduction of tax at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in the case of Ahmedabad Stamp Vendors Association vs. Union of India [2002] 257 ITR 202 where it was observed as under : It was also 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. To fall within the Explanation, the payment received or receivable, directly or indirectly, is by a person acting on behalf of another person (i) for services rendered (not being professional services), or (ii) for any services in the course of buying or selling of goods, or (iii) in relation to any transaction relating to any asset, valuable article or thing. The element of agency is to be there in case of all services or transactions contemplated by Explanation (i) to section 194H. 89. In the light of above facts and respectfully following the decision of Hon'ble Courts and ITAT, the issue is covered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Normally, there is not much lag of the time between the acceptance of the claim and settlement of the claim by the company. Under these circumstances, the change of accounting policy in respect of the insurance claim by the appellant is totally justified. Therefore, the CIT(A) held that the claim of the appellant that it does not amount to change in method of accounting regularly employed by the appellant is upheld. Accordingly, addition of ₹ 347,27 lakhs made by the AO was deleted. 93. Being aggrieved, the Revenue filed this appeal before the Tribunal. The ld.DR vehemently relied on the assessment order and submitted that the note 14 of the accounting policy clearly laid down that there is change in accounting policy. Hence, AO has rightly brought to tax Insurance claim on accrual basis. 94. On the other hand, the ld.AR relied on the submissions made before the CIT(A) and submitted that in major claims there is a prolonged survey procedure coupled with bulky documentation which leads to delay in settlement of claim. Further, the amount actually sanctioned by the insurance company is far lower than the assessed value. Therefore, there is no chang ..... X X X X Extracts X X X X X X X X Extracts X X X X
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