9911796707
TMI Blog2020 (11) TMI 301X X X X Extracts X X X X X X X X Extracts X X X X ..... Loss Account, the learned Assessing Officer has considered the year-end balance as per the Annual Accounts without reducing the additions/disallowances made in earlier years. 2.0 The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the action of Assessing Officer in treating the interest income from staff loans & advances, advances to others and interest income from other advances aggregating to Rs. 15,33,19,000/- 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. 3.0 The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the disallowance of prior period expenses amounting to Rs. 4,08,01,000/- without appreciating the fact that such expenditure crystallized during the year and that the same has never been claimed in earlier years. Further, the learned Commissioner of Income Tax (Appeals) failed to appreciate that the appellant had offered net prior income after considering the prior period expense for tax during the year. Thus the learned Commissioner of Income Tax (Appeals) has erred i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al grant and it should have been reduced from the capital asset as per explanation 10 of section 43(1) of the Act. The Assessing Officer has further stated that the government of Gujarat provide capital grant to GUVNL and GUVNL further passes the grant to its subsidiary i.e. assessee company which was involved in transmission of power and stated that in the case of M/s. Dakshin Gujarat Vij Co. Ltd. the issue has been confirmed by the ld. CIT(A) @ 15%. grant to offer for the P & L A/c. out of every yearend balance. The detailed break-up of the balance government grant/subsidy available to the assessee company was given at page no. 7 of the assessment order totaling to the amount of Rs. 1,03,081.53 lacs out of which the assessee has taken to profit and loss account grant amounting to Rs. 12,868.89 lacs. However, the Assessing Officer has computed the disallowance at 15% of the total grant yearend balance of Rs. 1,03,081.53 lacs which worked out at Rs. 15,462.22 lacs. Accordingly, the remaining amount of Rs. 25,93,63,950/- was added back to the income of the assessee. 5. Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. In Schedule-3 of the printed balance sheet as on 31.3.2009, it is clearly mentioned that grants were towards cost of capital assets. Appellant's contention that the grants were not actually for meeting cost of assets is therefore not at all tenable. After insertion of Explanation 10 below section 43(1) by the Finance (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onnected with power section were making consistent losses, the Government decided to introduce reforms in the direction of State PSUs. Accordingly, under the provision of Gujarat Electricity Industrial (Reorganisation & Regulation) Act, 2000, the erstwhile GEB was split into 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 nowhere 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 15% of Rs. 1,76,62,04,718/- i.e. Rs. 26,49,30,708/-. The net disallowance on this count worked out Rs. 26,49,30,708/- minus Rs. 17,20,37,655/-, the amount already offered for taxation i.e. Rs. 9,28,93,053/-. Since no portion of grant of Rs. 6,427.94 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. Rs. 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 Rs. 9.289 crores plus Rs. 9.641 crores i.e. Rs. 18.93 crores. Thus, instead of net addition of Rs. 30,97,61,800/- made by the AO, addition of Rs. 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 u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal is allowed for statistical purposes. Ground No. 2(treating interest income from staff loan and advances income from other sources and not as business income of Rs. 15,33,19,000/-) 8. During the course of assessment, the Assessing Officer noticed from the P & L account that assessee has shown interest income and miscellaneous receipt under the head other income but subsequently in the computation of statement the same was shown as income under the head business income. The break up of such income is as under:- Interest on Staff Loans and advances Rs. 247.57 lakh Interest from Other's Rs. 2.04 lakh Miscellaneous receipts Rs. 1283.58 lakh On query, the assessee explained that it was an ordinary business income because the employee's were retained to run the business of the company and accordingly, these loans were given out of business expediency, therefore, interest earned was treated as business income. The Assessing Officer has not accepted the contention of the assessee stating that from the particular of income it is clear that such income had no direct relation with the business of the assessee, therefore, the same was treated as income from other sources. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as under:- "14. On perusal, the CIT(A) as well as the Tribunal held that the interest income is required to be treated as business income instead of income from other sources. The tribunal in its order observed as under:- "10. We have heard the rival contentions and perused the material on record on this issue. The Assessing Officer has treated the aforesaid income under the head income from other sources without controverting the submission of the assessee on the basis of which it was claimed that these income were of nature of business income as elaborated in para seven of its order. The ld. CIT(A) has decided the issue in favour of the assessees taking that this issue was decided in favor of the assessee for assessment year 2009-10. During the course of appellate proceedings, the Revenue has failed to controvert the aforesaid contention and the findings of the ld. CIT(A), therefore after considering the material fact that interest earned on loan and advances from deposit placed with Mega Power Project towards sits sharing of power and interest of UL pool account received from M/s. Power Grid Corporation India Ltd. were directly related to the business of the assessee, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat assessee company has shown prior period income of Rs. 130.05 lacs after adjustment of prior period expenses for Rs. 408.01 lacs. On query, the assessee has explained that all expenditure booked under this head crystallized in the hands of the company only during the year under consideration therefore same expenditure cannot be added back. The Assessing Officer has not accepted the submission of the assessee stating that assessee was following mercantile system of accounting in which the expenses related to the prior period were not an allowable expenses. Therefore, the prior period expenses amounting to Rs. 408.01 lacs was disallowed and added to the total income of the assessee. 13. Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee stating that assessee has not made any submission showing that the prior period income was crystallized in the previous year relevant to the assessment year under consideration. 14. During the course of appellate proceedings before us, the ld counsel has submitted that similar issue in the case of Group concern Gujarat Urja Vikas Nigam Ltd. was adjudicated by the Co-ordinate Bench of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iate 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 AO for examining the issue de novo after verifying facts as may be considered necessary and expedient in accordance with law. The AO shall bear in mind the ratio laid down by the Hon'ble Gujarat High Court in the case of Adani Enterprises Ltd. (supra) while adjudicating the issue. Needless to say, reasonable opportunity shall be provided to the assessee while adjudicating the issue. Hence, all the contentions of the assessee are kept open. The issue raised as per Ground No. 4 is thus set aside to the file of AO in terms of directions noted above. As a result, Ground No. 4 is allowed for statistical purposes." In the light of the decision of Co-ordinate Bench as cited above, we restore this issue to the file of Assessing Officer for deciding de-novo after verification the facts and material as per the ratio laid down by the Hon'ble Gujarat High Court in the case of above cited case of Adani Enterprises Ltd. As a result, this ground of appeal of the assessee is allowed for statistical purposes. 16. In the r ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
