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TMI Blog2015 (1) TMI 1461X X X X Extracts X X X X X X X X Extracts X X X X ..... 13 (9) TMI 520 - ITAT, AHMEDABAD] A.O. has not given this finding that the expense did not crystelise during the present year. Therefore, in our considered opinion, this fact has to be brought out on record as to whether the expenses in question have crystalised during this year and if the assessee is able to do so, no disallowance should be made. The A.O. should pass necessary order as per law. Disallowance of alternative claim of assessee to tax only interest portion of lease rental by disallowance of depreciation on assets leased to Gujarat State Road Transport Corporation ( GSRTC ) - HELD THAT:- As decided in own case [ 2013 (9) TMI 520 - ITAT, AHMEDABAD] we are not inclined to interfere in the finding of CIT(A), who has directed the Assessing Officer to tax the interest portion out of lease rentals offered as income by assessee. Same is uphold. Disallowance u/s 14A - HELD THAT:- No disallowance of interest expenses is required because revenue is expected to establish a nexus between interest bearing funds borrowed and these invested by the assessee. In such situation, disallowance u/s. 14A of Act is not justified. Assessing Officer is directed accordingly. Accordingly appeal o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eous income should be set off against expenditure - HELD THAT:- In the present case, we find that when the A.O. made this addition, there is no discussion as to whether these two incomes were directly connected or incidental to construction of plant by the assessee or not. In the order of Ld. CIT(A) also, there is no finding on this aspect of the matter. Before us also, although reliance was placed by the Ld. A.R. on these two judgements of Hon ble Apex Court BONGAIGAON REFINERY [ 2001 (7) TMI 4 - SUPREME COURT] and BOKARO STEEL LIMITED [ 1998 (12) TMI 4 - SUPREME COURT] but this fact is not available on record as to whether the income in question were directly connected and incidental to construction of plant by the assessee or not. Under these facts, and in the interest of justice, we feel that this issue should go back to the file of the A.O. for a fresh decision. X X X X Extracts X X X X X X X X Extracts X X X X ..... o Learned CIT(A) have erred in rejecting the claim of expenditure of ₹ 55,89,17,419/- incurred in respect of Power Project at Akri Mota, and have further erred in rejecting the claim of interest and financial charges of ₹ 50,33,77,067/- which is forming part of total expenditure of ₹ 55.89, 17, 149/-, and claimed as fully allowable u/s. 36(1)(iii) of the Act. (3) The Learned Assessing Officer and also Learned CIT(A) have erred in law and on facts of the case by disallowing depreciation of ₹ 3,44,364/- and ₹ 1,12,46,815/- on the assets used in implementing the projects at Mata - no - Madh & Power Project at Akri Mota respectively, i.e. total disallowance of depreciation of ₹ 1,15,91,179/-. (4) Your appellant further submits that the Learned Assessing Officer erred in disallowing ₹ 76,98,986/-(gross) being the amount of earlier year's expenses as reported in Tax Audit Report, and Learned CIT(A) has further erred in sustaining the disallowance at ₹ 58,22, 018/-. (5) On facts and circumstances of the case, Your Appellant most respectfully submits that the Learned Assessing Officer and also Learned CIT(A) have erred in rejecting the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g as under: "4.2 It was submitted by the Ld. A.R. that this issue is covered in favour of the assessee by the tribunal decision in assessee's own case for the assessment year 1998-99 and 1999-2000 in I.T.A. No. 1392 and 1422/And/2003. He further submitted that the relevant portion of this tribunal order is at para 19-23 which are available on page 81-82 of the decision paper book. He further submitted that this tribunal order was followed by the tribunal in assessment year 1997-98 in I.T.A. No. 2728/Ahd/2000 and the relevant discussion is in para 84 of the Tribunal order on page 76 of the decision paper book. 4.2.1 Ld. D.R. of the revenue although supported the order of the A.O. but he could not point out any difference in facts in the present year as compared to earlier three years for which the tribunal decision had been cited by the Ld. A.R. Hence, we do not find any reason to interfere in the order of Ld. CIT(A) on this issue. This ground of the revenue is rejected." Similar view has been taken in assessee's own case in ITA No. 1036/Ahd/2006 for A.Y. 2002-03. 3.2 Nothing contrary has been brought to our knowledge in this regard. Facts being similar, so fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or not. It is further noted by Ld. CIT(A) on page 4 of his order that the A.O. has not given this finding that the expense did not crystelise during the present year. Therefore, in our considered opinion, this fact has to be brought out on record as to whether the expenses in question have crystalised during this year and if the assessee is able to do so, no disallowance should be made. The A.O. should pass necessary order as per law as per above discussion after providing adequate opportunity of being heard to the assessee. Ground No. 2 of the revenue's appeal is allowed for statistical purposes." 4.3 Facts being similar, so following the same reasoning, we restore this issue to Assessing Officer with similar direction and to be more precise. Assessing Officer will pass necessary order as per law after providing due opportunity of being heard to assessee. As a result, this ground in both assessee's and Revenue's appeals, is allowed for statistical purpose. Since, we are restoring this issue for the reasons discussed above, we are refraining to make any comment on the merit of the issue at hand. This will take care of Revenue's ground No. 2 as well as assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not entitled to depreciation, it is also held by the Special bench of the Tribunal in the case of Induslnd Bank Ltd. (supra) that the entire lease rental received by the assessee lesser, cannot be considered as income and only the interest component of lease rental finance charge i.e. interest, should be recognized as income. The decision of Ld. CIT(A) is on this very line and hence, we do not find any reason to interfere in the order of Ld. CIT(A) on this issue. This ground is rejected." 5.2 Facts being similar, so following the same reasoning, we are not inclined to interfere in the finding of CIT(A), who has directed the Assessing Officer to tax the interest portion out of lease rentals offered as income by assessee. Same is uphold. 6. Next issue is with regards to disallowance u/s. 14A of ₹ 58,68,355/-. Assessing Officer made disallowance of ₹ 60,75,409/- u/s. 14A. 6.1 Matter was carried before First Appellate Authority, wherein it was stated on behalf of assessee that assessee has subscribed to bonds issued by Ahmedabad Municipal Corporation and had invested ₹ 10 crores in F.Y. 2001-02 relevant to A.Y. 2002-03. During previous year relevant to ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t as assessee has four more interest free funds in the form of share capital and reserve & surplus and current year profit then it is presumed that investment made from interest free funds. Further as regards to use of interest bearing fund, it is expected of Department to establish nexus between interest bearing funds borrowed and those invested by assessee. In this regard, assessee placed reliance on following judicial pronouncements: "i. Gujarat Industrial Development Corporation Ltd. (Guj.) (para 7) 37 taxmann.com 254 ii. Amod Stamping (P.) Ltd. (Guj.) (para 3.1 & 4) 45 taxmann.com 427 iii. Torrent Power Ltd. (Guj.) (Para 7 & 10) 222 Taxman 367 iv. Raghuvir synthetics Ltd. (Guj.) 354 ITR 222 v. Reliance Utilities & Power Ltd. (Bom.) 313 ITR 340" In this legal and factual background, ld. Authorized Representative submitted that disallowance in question made in respect of interest expenses should be deleted. On other hand ld. Departmental Representative supported the order of CIT(A) on the issue. 6.3 After going through rival submissions and material on record, we find that Hon'ble Gujarat High Court Commissioner of Income-tax v. Gujarat Industrial Developmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee itself had capitalized expenditure as pre-operative expenditure in its books of account. Assessing Officer has also stated in the order that CIT(A) for A.Y. 2000-01 had confirmed similar disallowance in respect of expenses relating to project. Details of expenditure as contained in assessee's letter dated 18.11.2005 to the Assessing Officer are as under: "During the year under review, the assessee company incurred certain expenditure for the project at Mata No Madh, the details of which are as under: All the above expenses were treated as pre-operative expenses in the books of account. The total expenditure incurred during the year under review is ₹ 10450814/-(Closing Balance ₹ 65213851 - Opening Balance ₹ 54763037). Out of the total expenses the company has claimed deduction as under- Pre-operative expenses were capitalized in the books of accounts in accordance with Accounting guidelines issued by the Institute of Chartered Accountants of India. Assessee placed reliance before CIT(A) on the order of CIT(A) for A.Y. 2002-03, wherein similar issue was decided following ITAT observation in assessee's own case as discussed above. In this backgr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent case, the later order should be followed. In the present year also, Ld. D.R. could not point out any difference in facts and hence, we do not find any reason to take a contrary view in the present year. Therefore, by respectfully following earlier tribunal decisions as discussed above, we decide this issue in favour of the assessee in the present year also. This ground of the assessee is allowed." Similar issue for A.Y. 2001-02 in ITA No. 186/Ahd/2005 has been decided in favour of assessee by observing as under: 3.1 Ground No. 1(a) is regarding confirmation of disallowance of ₹ 2231740/- being the expenditure on project Mata No Madh holding the same as capital in nature. It was agreed by both the sides that this issue is identical to ground No. 2 raised by the assessee in the assessee's appeal for the assessment year 2000-01 and hence, the same can be decided on similar line. In that year, this issue was decided by us in favour of the assessee as per para 2.2.3 above and on the same lines, in this year also, this issue is decided in favour of the assessee. This ground of assessee is allowed." 8.2 Nothing contrary has been brought to our knowledge in this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure will be allowable if it is found that borrowed fund were used for the purpose of setting up of a new unit of the existing running business. As per above discussion, while examining the applicability of various other judgments, we have seen that borrowed funds were not used for setting up of a new unit of an existing running business but it was setting up of a new unit for production of an altogether new product i.e. power whereas the existing business of the assessee was production of lignite. Since this aspect is not fulfilled in the present case, even interest expenditure is not allowable in the present case u/s. 36(1)(iii) because in the present case, the product to be manufactured by the new unit is an altogether new product. 3.2.5 In view of the above discussion, we do not find any reason to interfere in the order of Ld. CIT(A) on this issue. This ground of the assessee is rejected including the alternative contention." Similar view has been taken in assessee's own case in ITA No. 1114/Ahd/2006 for A.Y. 2002-03 against assessee. 9.1 Nothing contrary has been brought to our knowledge in this regard. Facts being similar, so following the same reasoning, we a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing similar, Assessing Officer is directed to allow depreciation of claim of ₹ 3,44,364/- on the assets used in Mata no Madh project for the reason discussed above. Regarding allowability of depreciation of ₹ 1,12,46,815/- for Akri Mota Power Project as discussed above, similar issue has been decided against assessee as discussed above. Ld. Authorized Representative claimed that it was not claimed so no question of disallowance on the point. In view of above, we restore this issue to Assessing Officer with direction to verify the fact of claim of depreciation. In case it was claimed then it has to be disallowed as discussed above and in case it was not claimed there is no question of disallowance of same. Assessing Officer is directed accordingly. So second limb of this issue is allowed for statistical purpose. 11. Next issue is with regards to disallowance of ₹ 58,22,018/- being prior period expenses. This issue has been taken up in this order in ground No. 2 of Revenue's appeal in para Nos. 4 to 4.3 which will take care of this. Assessing Officer is directed accordingly. 12. Next issue is with regards to disallowance of ₹ 2,06,516/- being salary to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing same reasoning, disallowance of ₹ 2,06,516/- being salary to staff at residence of Chairman is directed to be deleted. 13. Next is issue is with regards to disallowance of ₹ 2,00,34,358/-. Assessing Officer made disallowance of ₹ 2,00,34,358/- being depreciation on assets/buses leased to GSRTC. CIT(A) following A.Y. 2000-01 has confirmed the disallowance of ₹ 2,00,34,358/- being depreciation on assets/buses leased to GSRTC. 13.1 Ld. Authorized Representative pointed out that in ITA No. 128/Ahd/2005 for A.Y. 2000-01, this issue has been decided against assessee vide para 2.1 as discussed above to be seen in the light of decision in Revenue's appeal ground No. 3. Accordingly, the order of CIT(A) on this issue is dismissed. 14. Next issue is with regards to addition of miscellaneous income of - Assessee's claim was miscellaneous income should be set off against expenditure. If that was done, there will be no case for disallowance. This issue was considered by CIT(A) for earlier assessment years. The claim was not found acceptable as any income arising before completion of project has to be held taxable. In view of this, this ground was reject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed assessee's appeal on this point. Assessing Officer is directed accordingly. 16. As a result, this appeal of assessee is partly allowed as indicated above. 17. In ITA No. 543/Ahd/2008 for A.Y. 2004-05, Revenue has filed the appeal on the following grounds: "1. The Ld. CIT(A) erred in law and on the facts of the case in deleting the disallowance of ₹ 5,00,000/- made by the A.O. on account of depreciation related to Multi Metal Project. 2. The Ld. CIT(A) further erred in law and on the facts of the case in entertaining the assessee's alternate claim by directing the A.O. to tax only the interest portion out of lease rentals offered as income by the assessee, ignoring the fact that the assessee had not made any such claim while filing the return of income u/s. 139 or during the course of assessment proceedings. The CIT(A) had failed to apply the ratio of the decision of the Hon'ble Supreme Court in the case of Goetze (India) Ltd. v. CIT (2006) 284 ITR 323 (SC). 3. The Ld. CIT(A) has erred in law and on the facts of the case in deleting the disallowance of Administrative Expenses to the tune of ₹ 19,01,476/- u/s. 14A of the I.T. Act." 17.1 In I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Learned Assessing Officer and also Learned CIT(A) have erred in making addition of ₹ 1,20,50,615/- by rejecting the claim of depreciation on assets/buses leased to GSRTC. Your Appellant further submits that Learned Assessing Officer has further erred in holding that the appellant had no ownership rights on the buses which are leased out to GSRTC. (9) The Learned Assessing Officer has further erred in disallowing ₹ 23,44,232/- being Pro-rata expenses calculated by him in respect of Tax Free Income being interest on Tax Free Bonds of Ahmedabad Municipal Corporation & Leaned CIT(A) has further erred in sustaining addition in respect of Pro-rata interest of ₹ 4,42,276/-." 18. First we take Revenue's appeal in ITA No. 543/Ahd/2008 for AY. 2004-05. 18.1 First issue in Revenue's appeal is with regards to estimated disallowance on account of depreciation of ₹ 5 lac related to Multi Metal Project. Assessing Officer made estimated disallowance on account of depreciation of ₹ 5 lacs related to Multi Metal Project. CIT(A) following A.Y. 03-04 has decided the similar issue in favour of assessee. The order of CIT(A) in A.Y. 03-04 has been discussed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h regards to disallowance of ₹ 9,72,58,596/- being expenditure on power project at Akri Mota. CIT(A) following 03-04 has decided this issue against assessee, which has been confirmed by us in A.Y. 03-04 vide para 9 of this order. Facts being similar, so following same reasoning, we are not inclined to interfere in the finding of CIT(A) who has confirmed the disallowance of ₹ 9,72,58,596/- being expenditure on power project at Akri Mota because same is new line of business done by assessee for first time. 25. Next issue is with regards to disallowance of ₹ 23,49,626/- incurred on lignite project at Bhavnagar. Similar issue arose in A.Y. 2003-04 which has been decided in favour of assessee vide para No. 8 of this order. Facts being similar, so following same reasoning, issue is decided in favour of assessee. Assessing Officer is directed accordingly. 26. Next issue is with regards to disallowance of expenses of ₹ 3,04,93,607/- incurred on lignite project at Tadkeshwar. Issue in this ground is similar to that of similar expenses in earlier grounds on lignite project at Bhavnagar. Facts being similar so following same reasoning, this issue is also decided in f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f this order in favour of assessee. Facts being similar, so following same reasoning, disallowance of ₹ 4,080 being salary of staff at the residence of Chairman is directed to be deleted. 30. Next issue is with regards to disallowance of ₹ 1,20,15,615/- being depreciation on assets/buses lease to GSRTC. CIT(A) following 03-04 has decided this issue against assessee, which has been confirmed by us vide para 13 of this order. Facts being similar, so following same reasoning, we are not inclined to interfere in the finding of CIT(A) who has confirmed the disallowance of ₹ 1,20,15,615/- being depreciation on assets/buses lease to GSRTC. 31. Next issue is with regards to disallowance of ₹ 4,42,276/- being interest expense to tax free income u/s. 14A. Similar issue has to be decided in 03-04 vide para 6 of this order. Assessing Officer is directed accordingly. 32. Assessee has raised additional grounds with regards to employees contribution of ₹ 1,11,06,377/- paid after due date but before filing of return of income. This issue has been decided by Hon'ble Gujarat High Court against assessee as reported in CIT v. Gujarat State Road Transport Corporatio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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