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TMI Blog2019 (9) TMI 376X X X X Extracts X X X X X X X X Extracts X X X X ..... I 1096 - ITAT AHMEDABAD] CIT(A) deleted the addition and held that similar issue was decided by the CIT(A) in favour of the assessee in assessee s own case for the Asst.Year 2006-07 and 2007-08 Addition of the expenditure being the Provision made for Employees cost of arrears payable upto 31st March, 2009 - HELD THAT:- We grant relief to the assessee by allowing the expenditure of ₹ 45,81,84,000/- being the Provision made for employees cost of arrears payable upto 31st March, 2009. The addition made by the authorities below to that effect is, thus, deleted. Hence this ground of appeal is allowed. Addition on account of Capital Grants Subsidies and Consumers Contribution - appellant should transfer 15% of the total Grants/subsidies/consumer contribution received during the year as against 10% offered by the appellant - HELD THAT:- As decided in own case [ 2015 (6) TMI 1096 - ITAT AHMEDABAD] as per provisions of section 43(1) the capital grant should be reduced from the cost/WDV of the relevant asset, and thereafter the depreciation is to be calculated. Thus, the capital grant receipt in respect of asset, on which depreciation is allowable at the rate different f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... For the Appellant : Shri O. P. Sharma, CIT-D.R. For the Respondent : Shri Mehul K. Patel, A.R. ORDER PER MS. MADHUMITA ROY - JM: The bunch of appeals filed by the assessee and the revenue are directed against the order dated 17.12.2012 passed by the Asstt. Commissioner of Income Tax (Appeals)-1, Baroda under section 143(3) of the Income Tax Act, 1961 (hereinafter referred as to the Act ) and the orders dated 01.09.2013 passed by the ACIT(A)-1, Baroda u/s 143(3) r.w.s 157 of the Act, 1961 for A.Y. 2009-10 2007-08 respectively. Since both the appeals relate to the same assessee, hence the same are heard analogously and are being disposed of by a common order. ITA No. 633/Ahd/2013 for A.Y. 2009-10 : Revenue has filed following grounds of appeals: 1. On the facts and in the circumstances of the case and in law, the ld.CIT(Appeals) eared in holding that the amount of ₹ 5,11,39,000/- was a revenue expenditure and not a capital expenditure and thereby deleting the addition amounting to ₹ 5,11,39,000/- made on account of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... show cause notice to the assessee, the assessee submitted that erstwhile GEB has raised various loans, guarantee of which was given by Govt. of Gujarat, and for the guarantee given by the Govt. of Gujarat, the GEB is required to pay guarantee fees as per rules. After the split of the company, the said loan were still continued, which were guaranteed by the Govt. of Gujarat. Therefore, every year these guarantee fees become payable to Govt. of Gujarat on recurring basis. Regarding the cost of raising finance, the assessee submitted that the finance was raised during the year, and accordingly, the cost incurred for raising finance was charged to current year s profit loss account. The AO did not accept the above explanation of the assessee on the ground that the assessee did not furnish the details of the purpose for which the loans were taken for which the guarantee fees were claimed. Further, if the fees paid for loans facility in respect of fixed assets, nature of assets, the date of put-to-use has not been submitted. The assessee also failed to furnish any agreement with the Govt. of Gujarat for charging guarantee fees and method of its computation against the loan amounts. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that the ld.CIT(A) decided these issues in paras-5.2 5.3 and 6.2 respectively by observing as under:- 5.2. I have considered the submissions of the ld.AR and the facts of the case. The issue relating to whether an item of expenditure lies in the capital or the revenue field has exercised the courts in numerous cases. From an analysis of such cases a few guiding principles/tests can be identified. One of the important tests for categorizing any expenditure as capital in nature is whether the laying out of the impugned expenditure results in the acquisition of creation of any new asset. Where no such asset is created, it would be indicative of an expenditure which was not capital in nature. Another test relates to the principle of enduring benefit . Enduring benefit may be in the form of long lasting use of an asset or the acquisition of a right to exploit certain commercial processes, etc. In the instant case, the assessee did not acquire any right to exploit a commercial technology or process, and neither wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dingly, it is held that the AO was not justified in making the disallowance of ₹ 45,24,582/-, which is directed to be deleted. 6.1 The ld.CIT(A) has followed the decision of the Tribunal passed in ITA No.738/Ahd/2009 for AY 2006-07 in the case of Himalaya Machinery Pvt.Ltd., dated 5.6.2009 and in the case of Shri Rama Multi Tech vs. ACIT reported at 92 TTJ 568. 6.2. The ld.CIT-DR could not distinguish the facts of the case, therefore we do not see any reason to interfere with the order of the ld.CIT(A), same is hereby upheld. Thus, these two grounds raised in the Revenue s appeal are rejected. 36. DR could not point out any good reason as to why the above quoted order of the Tribunal should not be followed for the year under consideration. In the absence of distinguishing features being pointed out by the DR, and the facts being identical, respectfully following the above quoted decision of the Tribunal, we confirm the order of the CIT(A), and dismiss this ground of appeal of the Revenue. Since we find that the identical issue has already been decided in favour of the assessee, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 2007-08. Following the same, he deleted the disallowance of ₹ 1,41,15,000/-. 40. The DR relied on the order of the AO. He could not bring any material on record to how that the relief allowed by the CIT(A) in the Asstt.Year 2006-07 and 2007-08 was appealed against before higher forums, and the order of the CIT(A) was varied by any higher authority. In the absence of any such material, we do not find any good reason to interfere with the order of the CIT(A) on this issue, which is hereby confirmed and the ground of appeal of the Revenue is dismissed. We find that the Co-ordinate Bench has decided the issue in favour of the assessee. In the absence of any changed circumstances, we find no reason to interfere in the order passed by the Learned CIT(A) and hence case of the Revenue is found to be devoid of any merit and thus dismissed. 7. Ground No.3 : This ground is general in nature and no order need be passed. 8. In the result, Revenue s appeal is thus dismissed. ITA No.652/Ahd/2013 for A.Y. 2009-10: Assessee has filed following grounds of appeals: 1.0 Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yable upto 31st March, 2009. 10. It has been submitted by the Learned AR that the issue is covered in favour of the assessee in assessee s own case for A.Y. 2007-08 by the Coordinate Bench by the order passed by the Co-ordinate Bench in ITA No.2974/Ahd/2010 which has not been controverted seriously by the Learned DR. 11. Heard the respective parties, perused the relevant materials available on record. We have also perused the order relied upon, relevant portion whereof is reproduced as follows: 15.1. First ground of assessee s appeal is against confirming the disallowance of the expenditure of ₹ 61,00,00,000/- being the provision made for employees cost for arrears. The ld.counsel for the assessee submitted that this issue is squarely covered in favour of assessee by the judgement of Hon ble Kerala High Court rendered in the case of CIT vs. Kerala State Financial Enterprises Ltd. reported at (2008) 219 CTR 147(Ker.) and the judgement of Hon ble Delhi High Court rendered in the case of CIT vs. Bharat Heavy Electrical Ltd. reported at (2013) 352 ITR 88 (Delhi). 15.2. On the contrary, CIT-DR supported the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 53: - The question that concerns us is whether, while working out the net profits, a trader can provide from his gross receipts his liability to pay a certain sum for every additional year of service which he receives from his employees. This, in our view, he can do, if such liability is properly ascertainable and it is possible to arrive at a proper discounted present value. Even if the liability is contingent liability, provided its discounted present value is ascertainable, it can be taken into account. Contingent liabilities discounted and valued as necessary can be taken into account as trading expenses if they are sufficiently certain to be capable of valuation and if profits cannot be properly estimated without taking them into account. Contingent rights, if capable of valuation, can similarly be taken into account as trading receipts where it is necessary to do so in order to ascertain the true profits. In Bharat Earth Movers (supra) (decided by the Supreme Court), the question which the Court had to consider was whether the provision for meeting earned-leave-encashment by the employee was an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the date of expiry of the previous settlement and this case is no exception to it. What is important is not the date of signing the agreement nor the later approval granted by the Government, but the effective date of commencement of the wage revision under the agreement. There is no dispute that the wage increase was granted as a continuous measure from the date of expiry of the previous settlement, i.e. w.e.f. 1st Aug., 1992. Therefore, the liability for wage increase really accrued for the respondent assessee w.e.f. 1st Aug., 1992. The assessee is entitled to claim deduction of such wage increase attributable upto the end of the previous year, no matter exact amount was ascertained and payment made later. In the decision of the Supreme Court referred to above, it is made very clear that what is to be considered is whether the liability is attributable to the previous year or not and it is immaterial if the actual liability was ascertained and settled only in the next year. Even though the other two decisions cited by the assessee are not directly on the point, the principles laid down therein are applicable to the facts of this case. It is clear from the orders that by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (No.2) Act, 1998 w.e.f. 1.4.1999, decisions relied upon by the appellant in the case of P. 3. Chemicals etc. are no longer applicable and cost of assets met directly or indirectly by the Central Government or State Government in the form of subsidy or grant or reimbursement (by whatever name called) is not to be included in the actual cost of asset to the assessee. Accordingly, depreciation is to be allowed only after making necessary adjustment in written down value / actual cost of block of assets in accordance with Explanation 10 below section 43(1). In the case of Dakshin Gujarat Vij Co. Ltd. for A.Y.2006-07 referred to by the Assessing Officer, CIT(A) distinguished the treatment to be meted out to revenue grants and capital grants and held that revenue grants are to be taxed in entirety in the year of receipt and capital grant towards assets are to be reduced from actual cost of assets as per Explanation 10 below section 43(1). In the case of Dakshin Gujarat Vij Co. Ltd., after noting that grants were only towards cost of capital assets, CIT(A) had held that such grants ought to have been reduced from the cost of capital assets and by not doing so, extra depreciation @ 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seven companies, for the purpose of financial restructuring plan, and the approval was accorded to provide some financial/capital support to GUVNL. The grant was given in terms of the power reforms for the overall development of the power sector. Such grant was not granted to actually meet the cost of assets. Further, the grant was given to the holding company, GUVNL and then it was allocated to the assessee company, one of the subsidiary companies. The assessee was not entitled to an amount beyond a certain limit, even if it is spent large amount on purchase of fixed assets. Further, the grant was not with reference to any particular fixed assets. It was further submitted that the resolution sanctioning the grant no where indicated that the grant was meant to offset the cost of the capital assets purchased by the company. Reliance was placed on the decision of the Hon ble Supreme Court in the case of CIT Vs. P.J. Chemicals Ltd., 121 CTR 201, wherein the decision of the Gujarat High Court in the case of CIT Grace Paper Industries P. Ltd., 83 CTR 1, which was affirmed by the Hon ble Supreme Court by observing that the amount of subsidies and grants received by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of grant of ₹ 6427.94 lakhs being capital grant for capital support appearing in Schedule-2 of the balance sheet as on 31.3.2008 was offered as income nor it was reduced from the cost of assets, 15% of the same i.e. ₹ 964.191 lakh needed to be disallowed as excess depreciation claimed in respect of the same. The total disallowance towards excess depreciation, therefore, worked out to ₹ 9.289 crores plus ₹ 9.641 crores i.e. ₹ 18.93 crores. Thus, instead of net addition of ₹ 30,97,61,800/- made by the AO, addition of ₹ 18.93 crore was directed to be made on this count. 18. Before us, the AR of the assessee argued that uniform rate of 15% cannot be applied for making disallowance. He submitted that the grant should be apportioned according to the value of the asset given in the balance sheet. He argued that the rate of depreciation on land was zero percent, building was 5% and the plant machinery was 15%, and hence, the disallowance at the uniform rate at 15% is not justified. 19. On the other hand, the DR argued and submitted that the order of the CIT(A) was correct, and he after appreciating the entire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ased to rely upon the order passed by the Hon ble Tribunal in assessee s own case for A.Y. 2006-07 and 2007-08. Ultimately, the impugned addition therein was deleted. In fact, the Learned AO observed that the addition in respect of expenditure of 6th Pay Commission under normal provision of the Income Tax Act of ₹ 45,81,84,000/- was made and the same was also disallowable from the book profit u/s 115JB since it was the provision made for meeting liabilities other than ascertain liabilities. This particular ground was also consequential to the ground no.2 of that particular appeal. Finally the Learned Tribunal deleted such addition with the following observation: 21. The ground no.4 of the appeal of the assessee is directed against the order of the CIT(A) in confirming the enhancement of book profit computed under section 115JB of the Act by ₹ 75,38,35,000/-. 22. Brief facts of the case are that the AO observed that the addition in respect of expenditure of 6th Pay Commission under normal provisions of IT Act of ₹ 75,38,35,000/- was made, and same was also disallowable from book profit u/s.115JB, since it was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d loss account. At item No. 3(iv), it has been laid down that the profit and loss account shall disclose information relating to the amount provided for depreciation, renewals or diminution in the value of fixed assets. Schedule-XIV lays down the rates of depreciation in respect of various assets, both in terms of written down value (WDV) and straight line method (SLM). At the same time, the Department of Company Affairs has issued Circular dt. 7.3.2009 which allows depreciation to be claimed at higher rates on the basis of bona fide technological evaluation. It has been clearly stated therein that the rates prescribed in Schedule - XIV could be viewed as minimum rates. From Part B (wherein notes to the accounts have been disclosed) it is seen at item- 5(vii) relating to depreciation, that the company provides depreciation as per the rates notified by CERC, a regulatory commission by virtue of section 76 of Electricity Act, 2003, which are different from the rates prescribed under the Companies Act, 1956. During the year such rates were reduced, which could not however be implemented by the assessee during the year due to the fact that the notification was received very late. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the absence of changed circumstances relying upon the said order passed by the Hon ble Tribunal, we find no justification in making enhancement of book profit u/s 115JB to the impugned amount and hence the addition is hereby deleted. In the result, assessee s ground of appeal is allowed for statistical purposes. 16. Ground No.4: The assessee has challenged the order passed by the Learned CIT(A) in confirming the order passed by the Learned AO in treating the interest income from staff loans advances and others amounting to ₹ 1,45,85,000/- as income from other sources as against the business income and thereby disallowing the claim of set off of business losses of earlier years against the said income. 15. During the course of assessment proceeding, it was found that the assessee has shown interest income in the other income head but in the computation of income it was taken as business loss. It appears from the order passed by the Learned AO that the Learned Authorised Representative of the assessee on 12.12.2011 agreed to this fact that the interest on staff loans and advances of ₹ 145.53 lakhs and interest on advances to others ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 as base without considering the appellate orders for the said years. The learned Assessing Officer failed to appreciate that the appellant had preferred appeals against the orders of all these years and the said appeals have been allowed favorably by the appellate authorities consequent to which the position of carry forward losses and depreciation has gone changed. The appellant, therefore, prays that the learned Assessing Officer may be directed to allow the set off after giving proper effect to the orders passed by the appellate authorities for the Asst. Years 2003-04, 2004-05 and 2005-06. However, as it appears from the records that the interest income earned from loan to staff and from other loans has been treated to be the income from other sources since the appellant is not in the business of advancing loans to staff. The nature of business carried out by the assessee and the activities of granting loans to the staff is not in accretably linked with each other thus in the absence of direct nexus between the two, We find no reason to treat the income in question as business income and, therefore, we find no justification in interfering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18. Ground No.1 this Ground has already been decided against the assessee by us in ITA No.652/Ahd/2013 for A.Y. 2009-10 at para 13 hereinabove. In the absence of any change circumstances same shall apply mutatis mutandis. 19. Ground No.2 this Ground has already been decided in favour of the assessee by us in ITA No.652/Ahd/2013 for A.Y. 2009-10 at para 15 hereinabove. In the absence of any change circumstances same shall apply mutatis mutandis. 20. Ground No.3 This ground relates to the order passed by the Learned CIT(A) in not allowing the set off of unabsorbed depreciation of earlier years against interest income assessed as income from other sources. 21. It appears from the records that the Learned CIT(A) has already been pleased to direct the Learned AO to allow the set off of unabsorbed depreciation loss against the income from other sources of ₹ 1,77,06,000/- and hence the issue has become infructuous and dismissed as infructuous. 22. Ground No.4 The assessee has challenged the order passed by the Learned CIT(A) to revivify the claim of carry forward of unabsorbed business loss and de ..... X X X X Extracts X X X X X X X X Extracts X X X X
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