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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 ..... Project. 2. The Ld. CIT(A) erred in law and on the facts of the case in deleting the disallowance to the extent of Rs. 18,76,968/- out of the total disallowance made by the A.O., on account of prior period expenses of Rs. 76,98,98/- ignoring the fact that the expenditure allowed in respect of (i) Dholu construction - Rs. 7,68,295/- and (ii) J.P. Fabricators Rs. 10,08,360/- related to the period (i) 25.03.2001 to 31.03.2002 and (ii) 24.03.2002 to 31.03.2002 respectively and the fact that bill was raised on 27.05.2002 will not make the expenditure to be pertaining to A.Y. 2003-04. 3. 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 the interest portion out of lease rentals offered as income by the assessee, ignoring the fact that the assessee neither, while filing the return of income u/s. 139 nor during the course of assessment proceeding, had made any such claim to exclude the principal portion of the lease rent from the income applying 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). 4. The Ld. CIT(A) has e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts that the Learned Assessing Officer & also Learned CIT(A) have erred in making additions of Misc. Income of Rs. 1,34,11,961/- of Akri Mota Project and of Rs, 2,25,475/- of Mata - no - Madh Project; which Your Appellant credited the same to the Project Exps. A/c's, and only net expenses were claimed. And without prejudice, Your Appellant further submits that the disallowance in respect of project expenses should be on net expenditure basis only. (8) The Learned Assessing Officer has erred in disallowing Rs. 60,75,409/- 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 at Rs. 2,15,024/-." 3. First we take up Revenue's appeal in ITA No. 1185/Ahd/2007 for A.Y. 2003-04. 3.1 First issue in Revenue's appeal is with regard to estimated disallowance of depreciation of Rs. 5 lacs on the assets of Multi Metal Project. Assessee's claim is that even though machines in the Multi Metal Project were not actually used during the year, still claim of depreciation is allowable since the machineries were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat examination of the details furnished by assessee show that the liability to pay expenditure had crystallized in the previous accounting year itself. As the assessee is following mercantile system of accounting provision should have been made in the earlier years itself. The stand of Authorized Representative has been that complete details of prior period expenses were furnished. Assessing Officer has disallowed the claim by making general observations without discussion of various details in this regard. 4.1 In appeal, CIT(A) having considered the various details, deleted the disallowance of Rs. 18,76,968/- made on account of prior period charges by Assessing Officer. Rest was confirmed. 4.2 Both are in appeal before us. Revenue is opposing relief of Rs. 18,76,968/- on this account while assessee is also in appeal against confirming the disallowance of Rs. 58,22,018/- of prior period charges. In this regard, ld. Departmental Representative supported the order of Assessing Officer while ld. Authorized Representative pointed out that ITAT in ITA No. 402/Ahd/2005 in A.Y. 2001-02, has restored similar matter to Assessing Officer by observing as under: "4.3.2 We have considered t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee that for some assessment years the Department had accepted the transaction as genuine. However, in some assessment years transaction was not regarded as lease transaction but as purely financial year transaction. It was pointed out before CIT(A) that for A.Ys. 1997-98 to 2001-02, the claim of assessee was that nature of transaction entered into with GSRTC was of the type of leasing transaction was accepted and depreciation on buses leased was allowed. However, in A.Y. 2000-01 onwards the CIT(A) sustained the action of Assessing Officer in disallowing the claim of depreciation. Transaction was treated as a pure financial transaction. CIT(A) sustained the disallowance of depreciation. However, CIT(A) also directed Assessing Officer not to tax the entire lease rentals to be taxed. For this year also the disallowance of depreciation was sustained. As transaction is treated as financial transaction, Assessing Officer was directed to only tax the interest portion out of lease rentals offered as income by assessee. 5.1 Before us, ld. Authorized Representative pointed out that in assessee's own case in ITA No. 128/Ahd/2005 for A.Y. 2000-01 vide para 2.1.2 has decided the similar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nceived. CIT(A) considered the arguments of assessee and observed that assessee's past earning and interest free funds and loans funds have lost their individual identities and as these funds formed a common pool, the interest disallowed by Assessing Officer is sustained as disallowance of administrative expenses practically no expenditure was incurred as all that has to be done to realize the interest is to deposit interest warrants in bank. The expenditure incurred is very negligible. No disallowance on this ground is called for. Therefore, disallowance of Rs. 58,68,385/- was deleted. 6.2 Revenue is in appeal against relief of Rs. 58,68,385/- by its ground No. 4 while assessee is in appeal against confirmation of disallowance u/s. 14A of Rs. 2,15,024 vide ground No. 8 being pro-rata expenses for tax free bonds of AMC. Ld. Departmental Representative supported the order of Assessing Officer on the issue while ld. Authorized Representative supported the relief granted and opposed the confirming disallowance of Rs. 2,15,024/- being pro-rata expenses for tax free bonds of assessee. Ld. Authorized Representative submitted that assessee corporation earned Rs. 90 lacs tax free inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondent had incurred any expenses for earning dividend income from the amount borrowed, they have rightly not added sum of Rs. 6.62 crore invoking provisions of Section 14A which does not permit deduction of expenditure incurred in relation to income not includible in total income. Similar view has been taken in Amod Stamping (P.) Ltd. (supra), Torrent Power Ltd. (supra) and other decisions relied by assessee. In view of above, 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 of revenue on this issue is dismissed and that of assessee is allowed as discussed above. 7. In result, appeal of Revenue is dismissed. 8. Now we take assessee's appeal in ITA No. 1246/Ahd/2007 for A.Y. 2003-04. 8.1 First issue is with regards to disallowance of Rs. 99,62,450/- being expenditure of lignite project at Mata no Madh holding it to be preoperative expenses. Assessing Officer made disallowance of project expenses of Mata no Madh of Rs. 99,6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.R. of the assessee. Ld. D.R. could not point any difference in the facts in the present year as compared to the earlier years for which Tribunal decisions are available. In the combined tribunal order for the assessment years 1994-95, 1996-96 and 1997-98 in para 25 of this tribunal order, this fact is noted by the tribunal that the issue in dispute was regarding expenses incurred in respect of Boxite project at Ghadsesa and Lignite project at Mata No Madh. It is further noted by the tribunal in para 28 of the tribunal decision that the A.O. disallowed the expenditure of Mata No Madh project by treating the same as capital expenditure. It is further noted by the tribunal that it was submitted by the Ld. A.R. before the tribunal that this issue is covered in favour of the assessee by the tribunal decision in the assessee's own case in I.T.A. No. 3232/Ahd/1996 for the assessment year 1990-91 as per order dated 05.05.2005 and also for assessment year 1992-93 in I.T.A. No. 936/Ahd/1999 as per tribunal order dated 12.07.2005. As per this tribunal order for the assessment year 1994-95, 1996-97 and 1997-98, the issue in dispute was decided in favour of the assessee by respectfully fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of capital borrowed for the purpose of its business being the second caprolactam plant under installation. This tax appeal is, therefore, allowed. The question formulated by this court is answered in the negative, that is, in favour of the assessee and against the Revenue." Nothing contrary was brought to our knowledge. Facts being similar, so following the same reasoning, Assessing Officer is directed to delete the disallowance of Rs. 99,62,450/- on expenditure of project Mata no Madh. 9. Next issue is with regards to disallowance of Rs. 55,89,17,419/- being expenditure on power project at Akri Mota and further rejecting the claim of interest and financial charges of Rs. 50,33,77,067/- forming part of total expenditure of Rs. 55,89,17,419/- being not allowable u/s. 36(1)(iii) of the Act. In this regard, it was fairly admitted by ld. Authorized Representative that this issue has been decided against assessee in assessee's own case in ITA No. 186/Ahd/2005 for A.Y. 2001-02 vide para 3.2 by observing as under: "3.2.4 As per above discussion, we have seen that none of the judgements cited by the Ld. A.R. is rendering any help to the assessee in the present case except the tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reciation of non attract name of Mata no Madh of Rs. 3,44,364/- and on assets of Akri Mota Power project of Rs. 1,12,46,815/-, which are confirmed by CIT(A). 10.1 Before us, ld. Authorised Representative submitted similar disallowance of depreciation of assets used for Mata no Madh Lignite project, has been decided in favour of assessee in ITA No. 1114/Ahd/2006 for A.Y. 2002-03 vide para 5.5 by observing as under: "5.5.2 We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below. Regarding the claim of the assessee in respect of depreciation claimed of Rs. 343800/- on the assets used in Mata No Madh project, we are of the considered opinion that the expenses incurred for this project were allowed as revenue expenditure in earlier year included deprecation on those asset which were used in the implementation of this projects and, therefore, in the present year also, the same is allowable-. Regarding the depreciation claimed on the assets used in Akri Mota Power Project, we are of the considered opinion that since the expenses incurred in respect of Akri Mota Project were not allowable by us in the earlier year, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present case, the expenditure incurred by the assessee is for any purpose which is an offence and/or which is prohibited by law and if it is not so, these provisions of explanation to Section 37(1) is not attracted. As per the submission of Ld. CIT(A) and as per the finding of Ld. D.R., this expenditure is in violation of the guidelines issued by the Government of Gujarat dated 28.08.1998 and is against Article 192 of the Articles of Corporation. In our considered opinion, this will not tantamount to an offence and also it does not tantamount to an expenditure which is prohibited by law. The guidelines of the Government of Gujarat and the Articles of Corporation cannot be considered as law of the Country. Hence, in our considered opinion, this disallowance is not justified. If the expenditure is incurred in violation of the guidelines of Government of Gujarat and against Article 192 of the assessee corporation then the remedy lies somewhere else and action can be taken as per law against the person responsible for such violation but this cannot be the basis for making disallowance of expenses without proving that it is not for the purpose of assessee's business. This is not the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the plant by the assessee, the same is capital receipt and not income of the assessee from any independent source. 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 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 in the light of these tow judgements of Hon'ble Apex Court relied upon by the Ld. A.R. before us. Hence, we set aside the order of Ld. CIT(A) on this issue and restore the matter back to the file of the A.O. for a fresh decision in the light of above discussion after providing adequate opportunity of being heard to the assessee. This ground of the assessee is allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ject, Bhavnagar, which is for expansion of existing business. (4) Your Appellant further submits that the Ld. A.O. and also Ld. CIT(A) have further erred in rejecting the claim of expenses of Rs. 3,04,93,607/- incurred on Lignite Project, Tadkeshwar, which is also for expansion of existing business. (5) The Learned Assessing Officer and also Learned CIT(A) have erred in law and on facts of the case by disallowing depreciation of Rs. 3,15,881/- and Rs. 1,05,10,539/- on the assets used in implementing the projects at Mata - no - Madh & Power Project at Akri-Mota respectively and Rs. 48,347/- being depreciation in respect of Lignite Project Tadkeshwar i.e. total disallowance of depreciation of Rs. 1,08,74,767/-. (6) Your appellant further submits that the Learned Assessing Officer erred in disallowing Rs. 32,27,718/-(gross) being the amount of earlier year's expenses as reported in Tax Audit Report, holding that the same cannot be allowed as the expenditure pertains to earlier year and learned CIT(A) has further erred in sustaining the said disallowance at Rs. 33,27,718/-. (7) On facts and circumstances of the case, Your Appellant most respectfully submits that the learned Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Y. 2003-04. Facts being almost similar, so following same reasoning, we are not inclined to interfere in the order of CIT(A) who has deleted the disallowance of administrative expenses of Rs. 19,01,476/- made u/s. 14A. Same is upheld. 21. In result, this appeal of Revenue is dismissed. 22. Assessee's appeal in ITA No. 1324/Ahd/2008. 22.1 At the outset of hearing, ld. Authorized Representative pointed out that there is a delay of 40 days in filing assessee's appeal. The reason for the same has stated to be communication gap between different departments of assessee's Corporation. Finding force in the submission of ld. Authorized Representative, we condone the delay. 23. Coming on the merit, first issue in assessee's appeal is with regards to disallowance of Rs. 8,20,38,417/- being expenditure on project of Mata no Madh. Assessing Officer made disallowance of Rs. 8,20,38,417/- being expenditure on project of Mata no Madh. CIT(A) following decision of A.Y. 03-04 has decided the issue against assessee. We have decided this issue in favour of assessee vide para 8 of this order for A.Y. 2003-04, which has been followed by lower authorities. Facts being similar, so fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided against assessee by CIT(A). In second appeal we have set aside similar issue to Assessing Officer vide para 10 of this order. Facts being similar, so following same reasoning, this issue is set aside to Assessing Officer with similar direction. Regarding disallowance of depreciation on assets used for implementation of projects for lignite project at tadkeshwar of Rs. 48,347/-. We find that this issue has bearing of the decision of disallowance of expenses of Rs. 3,04,93,607/- incurred on lignite project at Tadkeshawar, which has been decided in favour of assessee by immediately preceding para. So, on same analogy, this issue is decided in favour of assessee. Thus, this issue is partly allowed. 28. Next issue is with regards to confirmation of disallowance of Rs. 33,27,718/- being prior period expenses. This similar issue arose in assessee's appeal for 03-04, wherein order of this issue has been set aside to Assessing Officer vide para 4. In case, case before us, CIT(A) has already set aside the matter to Assessing Officer, so no interference is called for from us. We uphold the same. 29. Next issue is with regards to disallowance of Rs. 4,080/- being salary to staff at ..... X X X X Extracts X X X X X X X X Extracts X X X X
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