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TMI Blog2020 (11) TMI 940X X X X Extracts X X X X X X X X Extracts X X X X ..... axation of sales and interest income relating to new plan - As during the relevant previous year a new plant namely LPG plant at Pata was commissioned - HELD THAT:- Assessee has rightly netted off the expenditure during trial run with the income of trial run and the balance has been rightly transferred to capital work in progress. We accordingly, direct the AO to delete the revenue of ₹ 15.09 crores from the head income from other sources Deduction of the provision of wage revision - HELD THAT:- As decided in GAIL INDIA LTD. VERSUS CIT, DELHI-IV [ 2015 (4) TMI 152 - ITAT DELHI] Provision for wages made towards impending pay revision, should be allowed as a deduction. The Ld. CIT(A) has not made any effort to prove that the quantum of provision made is unrealistic or imaginary. Under these circumstances we hold that the claim of the assessee is allowable Expenditure on new project - part of its business of exploration and production of gas, explores, on a regular basis, various business opportunities and possibilities for further developing the existing business - HELD THAT:- There is no dispute that the assessee is engaged in the business of exploration, product ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is deemed acquisition of any fixed asset. Considering the facts in totality, we direct the AO to allow the claim of the assessee. Payment in connection with LAN/WAN - Allowable revenue expenses - HELD THAT:- As relying on EMPIRE JUTE COMPANY LIMITED [ 1980 (5) TMI 1 - SUPREME COURT] the said consultancy payment made by the assessee to EIL was to enhance the existing infrastructure of the assessee in IT segment. This was definitely for the benefit of the management to conduct the business of the appellant in the more efficient manner. We are therefore, of the considered view that such consultancy fee should be allowed as revenue expenditure and accordingly we direct the AO to do the same Expenditure on right of use - HELD THAT:- Only the right to use of land is acquired by the Central Government and not by the appellant. The assessee is merely incurred the expenditure to obtain the right to use i.e. right to lay the pipeline and nothing more. No title or interest has been passed from the owners to the assessee. Therefore, on the given facts the said expenditure deserve to be allowed. We accordingly direct the AO to delete the impugned addition. The ground no. 12 is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no question of any disallowance. We accordingly, direct the AO to delete the addition. Prior period adjustments - AO was of the opinion that this being prior period expenditure cannot be allowed in the year under consideration - HELD THAT:- Such disallowance and claim in the year of incurring the liability would add much add paper work and unnecessary rounds of assessment when the effect is tax neutral and revenue neutral. We accordingly direct the AO to allow the expenditure in this year. It is to avoid unnecessary ground work. Interest levied u/s. 234C - HELD THAT:- As cheque no. 985562 dated 14.9.2001 was deposited and acknowledged by the Bank on 15.09.2001 which is the due date of payment for the advance tax. Merely because the amount was credited in the Government Treasury on 17.9.2001 since 16.09.2001 was a Bank Holiday, it cannot be considered that assessee has defaulted any payment of advance tax. On given facts, we direct the AO to delete the interest levied u/s. 234C Levy of interest u/s. 234D - HELD THAT:- We are in the assessment year 2002-03 and section 234D was inserted in the Act w.e.f. 01.06.2003. Since the provisions is not applicable in the year un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lakh on account of wage settlement of pay revision arrears of staff holding it as contingent expense. 7. That on the facts and circumstances of the case and in law, the CIT(A)erred in confirming the expenditure on new projects of ₹ 35.80 lakh incurred on purchase of data packages to facilitate in bidding for gas block offered by MOP NG as capital expenditure in absence of production sharing agreement between GAIL and Central Govt. 8. That on the facts and circumstances of the case and in law, the CIT(A) erred in confirming the expenditure on consultancy for newly commissioned plant of 803.47 lakh on account of technical fee and traveling to tide over the initial glitches as capital expenditure. 9. That on the facts and circumstances of the case and in law, the CIT(A)erred in confirming disallowance u/s 14A of₹ 2629.80 lakh on notional interest burden and administrative charge calculated by assessing authority in its own way to earn tax free dividends. 10. That on the facts and circumstances of the case and in law, the CIT(A) erred in confirming disallowance of ₹ 873.39 lakh of depreciation on account of the capitalization affected due to excha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uring the relevant previous year a new plant namely LPG plant at Pata was commissioned. The trial runs in relation to the above plant, commenced in November, 1999 and were concluded with the commissioning of the above project for commercial production in March, 2000. During this period, the assessee earned the following revenue:- i. Sales ₹ 10.23 crores ii. Interest income ₹ 0.92 crores iii. Misc. Income R s. 3.84 crores ₹ 15.09 crores During this trial run, the assessee has also incurred certain expenditure which was revenue in nature totalling to ₹ 72.92 crores. The excess of expenditure over income amounting to ₹ 57.83 crores was transferred to Capital Work In Progress. However, the AO treated the income of ₹ 15.09 crores as income from other sources. The Ld. CIT(A) upheld the action of the AO. 4.1 Before us, the counsel for the assessee stated that netting off of revenue and the expenditure were transferred to Capital Work In Progress which is supported by the decision of the Hon ble Supreme Court of India in the case of Bokaro Steel 236 ITR 315 and Karnal Cooperative Sugar 243 ITR 2. 4.2 Per contra, Ld. DR suppor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Ld. CIT it is clear that, by way of internal office order passed on 28.12.1998, a Committee was constituted for holding discussions with the Representatives of Employees for formulating an approach of the Board of Directors, towards the pending pay revision w.e.f. 1.1.1997. The Department of Public Enterprises, issued an office memo on 14.1.1999, authorizing the Public Sector Undertaking to start wage revision negotiations with the workers. It was thereafter on 17.8.1999, that the annual accounts of the company were certified by the Directors, wherein a provision for the above pay revision liability, was made in the accounts. The issue is whether a provision made towards impugned pay revision is allowable as a deduction or not. ...... 8.4 In our considered view, though the date of signing of the MOU i.e. 24.09.2000, which is done after the approval of the Department of Public Enterprises, the negotiations were completed during the year and the liability was known as liability accrued from the effective date of commencement. It is also to be pointed out that the provisions for salary was not a contingent liability. It was in respect of outcome of the decision of the DPE. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee is engaged in the business of exploration, production and distribution of gas. In furtherance, of its business ONGC was engaged to collect seismtic data for different contract areas for which ONGC incurred expenditure of ₹ 35.80 lacs which was reimbursed by the assessee and claimed as expenditure. In our considered opinion, the authorities below have erred in treating the same as being incurred in respect of new line of business as the same was very much for the existing business. A similar view was taken by the Tribunal in assessment year 1996-97 (Supra). Therefore, we find merit in the claim of the assessee and accordingly direct the AO to delete the addition of ₹ 35.80 lacs. The ground no. 7 is accordingly allowed. 7. Ground no. 8 relates to claim of expenditure of technical / consultancy fees of ₹ 8.03 crores in respect of newly commissioned plant. The underlying facts in this issue show that a new plant namely UP Petrochemicals Plant at Pata was commissioned. However, after commissioning of the said plant some expenditure on consultancy fees and travelling a technical experts. The AO was of the opinion that since the capitalised value of the said plant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act. 8.2 Per contra, Ld. DR strongly supported the findings of the AO. It is a say of the Ld. DR that a reasonable disallowance has to be made for earning exempt dividend income. 8.3 We have carefully considered the orders of the authorities below. We find that the AO has applied the adhoc interest @12% per annum for computing the disallowance. The AO has nowhere examined the availability of own funds with the assesee. In our considered opinion, if sufficient interest free funds are available and even if there are borrowed funds, the presumption would be that the investment have been made out of own funds. Our view is fortified by the decision of the Hon ble Bombay High Court in the case of Reliance Utility and Power 313 ITR 340. However, we are of the view that certain administrative expenses has to be disallowed for earning this exempt income. In our considered opinion, the disallowance of ₹ 5 lacs should meet the end of justice. We accordingly, direct the AO to restrict the disallowance to ₹ 5 lacs. Ground no. 9 is accordingly partly allowed. 9. Ground no. 10 and 13 relates to disallowance on account of foreign exchange fluctuations. The facts in this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground no. 10 13 are allowed. 10. Ground no. 11 relates to the consultancy payment in connection with LAN/WAN. The underlying facts in this issue are that during the year under consideration the assessee made the payment of ₹ 29.16 lacs to Engineers India Ltd. (EIL) for the following work:- - Identification of server and node configuration, designing of network topology for LAN and WAN, selection of best suitable protocol and cabling techniques. - Preparation of specification of server, mode, LAN and WAN equipments, printers etc. - Identification of suitable hardware and software for the server. - Selection of suitable gateway package. - Identification of frequency and methodologies of data transfer across GAOL offices. The assessee claimed the said payment as consultancy services rendered by EIL for the purpose of improving operational efficiency of the computer system through LAN/WAN which was already in existence and was functioning satisfactory. The AO and the Ld. CIT(A) were of the firm belief that the said expenditure for identification and installation of new equipment resultant in enduring benefits and therefore is of capital nature. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. 11.1 Before us, Counsel for the assessee pointed out that in assessment year 2001-02 and 2002-03 such claim was allowed by the AO while computing the total income of the assessee. The counsel explained the provisions of Petroleum And Mineral Pipelines Act, 1952 by which the said right to use the land for laying pipelines was exercised by the assessee. The counsel stated that treatment in the books of account is not determinative for the allowability of any expense under the provisions of Act. He placed strong reliance on the decision of the Hon ble Supreme Court of India in the case of Kedar Nath Jute Manufacturing Company vs. CIT 82 ITR 363 and CIT vs. Sutlet Cottons Mills Supply Agency 100 ITR 706 (SC). 11.2 Per contra, Ld. DR strongly supported the findings of the AO. 11.3 We have given thoughtful consideration of the orders of the authorities below. The undisputed fact is that the pipeline being laid down as per the provisions of the Petroleum And Mineral Pipelines Act, 1952. This Act enables the Central Government to acquire, by notification in Official Gazette, right of user in any land under which pipelines may be laid. It is also provided in this Act that the ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al and revenue neutral, we direct the AO to allow the expenditure in the year of its claim. The additional grounds are treated as allowed. 14. In the result, the ITA No. 301/Del/2006 (AY 2000-01) is partly allowed. ITA No. 858/Del/2006 (AY 2001-02) 15. The grievance of the assessee read as under:- 1. That on facts and circumstances of the case and in law, the Commissioner of Income-tax (Appeals) - XV {briefly the CIT (A) }erred in holding that appellant was not entitled to deduction under sections 80 I 80 IA of the Act amounting to ₹ 12589.33 lakhs. 2. That on the facts and circumstances of the case and in law, having accepted that appellant is engaged in manufacture of LPG for which majority of gas was processed, the authorities below erred in holding that appellant is not an industrial undertakings engaged in the manufacture or production of different article or thing. 3. That on the facts and circumstances of the case and in law, the CIT (A) erred in confirming the disallowance of LPG profits on an estimated basis amounting to ₹ 37.50 Crores instead of actual profit of ₹ 39.54 crores. 4. That on the facts and circumstances of the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amend or vary any of the grounds either before or at the time of hearing of appeal. 16. Issues raised vide ground no. 1, 2 3 are identical to the issues considered by the Tribunal in AY 1996-97 in ITA No. 4454 4642/Del/2013 which have been followed by the Tribunal in ITA No. 5775 and 5912/Del/2014 and further in ITA No. 301/Del/2006 (Supra). For the reasons given in ITA No. 4454 and 4642/Del/2013 the ground no. 1, 2 3 are allowed. 17. Ground no. 4 relates to amortization of leasehold expenses. This issue has been decided against the assessee vide ground no.4 in ITA No. 301/Del/2006 (supra). For the reasons given therein this ground is dismissed. 18. Ground no. 5 relates to taxation of sales and interest income relating to new plant. A similar issue has been decided in ITA No. 301/Del/2006 vide ground no. 5 of that appeal (supra). For the detailed reasons therein this ground is allowed. 18. Ground no. 6 relates to the expenditure on feasibility studies for exploring new business opportunities. A similar issue has been decided in ITA No. 301/Del/2006 (supra) vide ground no. 7 and 8 of that appeal. For the reasons given therein this ground is allowed. 19. Groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee drew our attention to Annexure-1 and pointed out that each and every allegation has been replied by the assessee to justify its claim of depreciation. The Counsel in support of the claim relied upon various judicial decisions and concluded by saying that the assessee has successfully commissioned the Jamnagar-Loni Pipeline and the LPG Gas Processing Plant, Gandhar and therefore, the depreciation should be allowed. 22.2 Per contra, the Ld. DR read the relevant findings of the Ld. CIT(A) and stated that Ld. CIT(A) has given effective findings while upholding the disallowance on depreciation and the same deserve to be followed. 22.3 We have given a thoughtful consideration of the orders of the authorities below. The commissioning of the plant can be understood from the following chart:- Particulars Date of commissioning Jamnagar Loni Pipeline (Refer PB pg 226) Despatch Terminal at RPL Jamnagar 19.10.2000 Pipeline Section I Jamnagar to Ajmer 23.11.2000 Pipeline Section II Ajmer to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he jobs for which the final bill had been raised after 31.03.2001 was for the balance works of material reconciliation, submission of drawings, clean up and restoration, having no relevance to commissioning of pipeline. Further the bill itself states that cumulative work done till date was ₹ 45.62 crores [Refer Page 21 of AO order] Refer, pg 228 of the Paper Book, being Completion of Commissioning Certificate issued by Engineers India Ltd certifying as follows: This is to certify that system/ sub-system as detailed below has been successfully commissioned and it under operational control of Client s production department. The minor items will no effect the normal operation of the system/ sub-system . Section 2: Section 2: Final bill of M/s Larson Turbo for an amount of ₹ 1,11,58,121 was raised on 07.07.2001 and was for period up to 31-05-2001, even though the Contractual Date of Completion was 13.01.2001 On the basis of the aforesaid, the AO inferre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal painting of civil jobs, etc. which are the work not related to the completion of and were only for cleanup/restoration which had no relevance to commissioning or capitalization of the pipeline. Different section of the pipelines were commissioned as per the certificate issued by the pipeline - in charge dated 22.02.2001 Section C: Abu Road Intermediate Pumping Station Final bill of M/s Larson Turbo was raised for period up to 31.05.2001, even though the Contractual Date of Completion was 21.11.2000 On the basis of the aforesaid, the AO inferred that since the aforesaid bill was raised after 31.03.2001, the Pipeline could not be said to have been commissioned on or before that date. Only 5% payments related to various jobs which were payable only after completion of work in all respect and acceptance by engineer- in-charge but these had no relevance to the capitalization of the pipeline. Disallowance of depreciation cannot be based merel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipelines projects: Final bill dated 15.12.2001 was raised for the period 16.07.2001 to 31.11.2001m where as the Contractual completion date: 23.07.2000 EIL have certified that the job was finally completed on 31.11.2001 On the basis of the aforesaid, the AO inferred that since the aforesaid bill was raised after 31.03.2001, the Pipeline could not be said to have been commissioned on or before that date M/s Jai Hind Products was awarded the job for laying of spur pipelines for total of ₹ 6 Crores Since spurlines were integrated with Jamnagar - Loni Pipelines and laid before 31.03.2001, the capitalization was done on 31.03.2001 Bills were raised late as their were some complication, not affecting the commissioning, in execution of job by the contractor Gandhar LPG plant All the systems of LPG recovery units, all the utility systems and all the offsite systems had been commissioned, except for those referred at pg 25 of the CIT(A) order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e duty has been provided on this production. Further, following documents were fded before the assessing officer which clearly establishes production of LPG on or before 31.03.2001: Production report, dispatch and closing registers duly certified by Senior Manager (Operations) of the appellant- company. copy of RGI registers stating opening and closing balance, quantity manufactured and quantity removed from the factory copy of invoices raised on the customers details of excise duty on LPG. adjusted through CENVAT/PLA account 22.4 The rebuttal of the assessee mentioned hereinabove have been considered thoroughly with the relevant documentary evidences referred therein and placed in the paper book. Considering the facts in totality, we are of the considered view that assessee has successfully commissioned the Jamnagar Loni Pipeline and the LPG Gas Processing Plant Gandhar and is very much eligible for claim of depreciation on the capitalised cost thereon. We accordingly, direct the AO to allow the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... akh. 4. That on the facts and circumstances of the case and in law the CIT(A)erred in confirming the disallowances of ₹ 54.17 lakh on account of amortization of the cost of lease hold land as a capital expenses. 5. That on the facts and circumstances of the case and in law the Ld. CIT(A) erred in upholding the interest and miscellaneous income of ₹ 78.30 lakh relating to pre-commencement stage of plant as income from other sources, rather than abating the same from the construction cost of the plant. 6. That on the facts and circumstances of the case and in law, the CIT(A)erred in confirming disallowance u/s 14A of ₹ 2236.88 lakh on notional interest burden and administrative charge calculated by assessing authority in its own way to earn tax free dividends. 7. That on the facts and circumstances of the case and in law, the CIT(A) erred in confirming disallowance of ₹ 654.50 lakh of depreciation on account of the capitalization affected due to exchange rate variation. Ld. CIT(A) also erredin not allowing suo moto depreciation on ₹ 153.60 crores which was not allowed by AO in AY 2001-02 (by not accepting capitalization of Jamnagar Loni Pipel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r issue has been considered in ITA No. 301/Del/2006 vide ground no. 9 of that appeal. For the reasons given therein, we direct the AO to restrict the disallowance to a sum of ₹ 5 lacs. Accordingly, this ground is partly allowed. 31. Ground no. 7 and 9 relates to disallowance of depreciation and also on revenue account on account of foreign exchange fluctuations. Similar issue has been decided in ITA No. 301/Del/2006 vide ground no. 10 13 of that appeal. For the reasons given therein the ground no. 7 and 9 are allowed. 32. Ground no. 8 relates to prior period adjustments. Similar issue has been decided in ITA No. 301/Del/2006 in ITA no. 858/Del/2006 (AY 2001-02) vide ground no. 12 of that appeal. For the reasons given therein the ground no. 8 is allowed. 33. Ground no. 10 relates to allowability of depreciation on fixed assets. Identical issue has been decided in ITA No. 858/Del/2006 (AY 2001-02) vide ground 10 of that appeal. For the reasons given therein the ground no. 10 is allowed. 34. Ground no. 11 relates to levy of interest u/s. 234C of the Act. The claim of the assessee is that there was no deferment of advance tax on the total income declared in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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