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TMI Blog2022 (8) TMI 1419X X X X Extracts X X X X X X X X Extracts X X X X ..... d. A.R. [ 2022 (7) TMI 1442 - ITAT AHMEDABAD] wherein held as per provisions of section 43(1) of the Act, 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 from 15% should be worked out as per the applicable rate. DR could not point out any mistake in the above submission of the assessee, which we find is in accordance with law - set aside the orders of the lower authorities on this issue, and restore the matter back to the file of the AO for adjudication afresh after verifying the proportionate amount of grant relating to different asset, and applying the actual rate of depreciation which relate to these assets. Thus, this ground of appeal of the assessee is allowed for statistical purpose. Correct head of income - interest on loans to staff and other advances - other income or business income - HELD THAT:- As decided in Odisha Power Generation Corporation Ltd. case [ 2022 (3) TMI 539 - ORISSA HIGH COURT] Assessee offered an explanation regarding interest income earned by it, from ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the grant in question was received in terms of the Financial Restructuring Plan from the Government and the company has accounted Government Grants in terms of the mandatory Accounting Standard (AS)-12 on Accounting for Government Grants prescribed by the ICAI -Considering the accounting treatment in the light of the Accounting Standard-12, we do not find any error on facts or in law. Therefore, to this extent the findings of the Id. Principal CIT are reversed. - Ms. Annapurna Gupta, Accountant Member And Shri T.R. Senthil Kumar, Judicial Member For the Appellant : Shri Manish J. Shah, Advocate Shri Rushin Patel, A.R. For the Respondent : Shri A.P. Singh, CIT/DR. ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:- These cross appeals have been filed by the Assessee and the Revenue as against the order dated 23.01.2018 for the Assessment Year 2013-14 and order dated 30.01.2018 for Assessment Year 2014-15 passed by the Commissioner of Income Tax (Appeals)-1, Vadodara, as against the Assessment orders passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) for the respective Asst. years 2013-14 and 2014-15. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.2. Ld. D.R. appearing for the Revenue, could not controvert the above submission. 4. We find that Coordinate Bench on the identical issue disposed of the ground by remitting the same to the file of the Ld. AO to adjudicate de novo with the following observation: 12. During the course of assessment, the Assessing Officer noticed that 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its accounts are subjected to review by CAG and therefore it cannot be postulated that there was any deliberateness in not furnishing relevant details before the revenue authorities. The bonafides of the Assessee is also augmented by the facts that the Assessee has reported staggering carry forward losses in its returned income. Thus, there is no immediate 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assets. Further the Grant is not with reference to any particular fixed asset. From the above, it is clear that the subsidies/grants received by us are absolutely capital receipts as the same have been received for specific projects. Since the benefits from the development of the same is accrued to the company over a longer period of time, the company is being writing back to 10% of the year-end balance every year and the same is shown as income as per the Accounting Policy regularly followed by the Company. 5.2. Relying upon the ratio set in the earlier Assessment Year the Ld. AO computed 15% out of the total grant in the year end balance of Rs. 1,24,329.17 lakhs which worked out to Rs. 18,649.37 lakhs, which according to him, to be transferred to the total income of the assessee. Since the assessee has already transferred an amount of Rs. 15,679.90 lakhs, therefore, the remaining amount of Rs. 29.69 lakhs has been disallowed and added to the total income of the assessee which was, in turn, confirmed by the First Appellate Authority. Hence, the instant appeal before us. 6. At the time of hearing of the instant appeal the Ld. Counsel appearing for the assessee submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 by referring that similar addition was upheld by his predecessor in the case of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 reduced from actual cost of assets as per Explanation 10 below section 43( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overnment decided to introduce reforms in the direction of State PSUs. Accordingly, under the provision of Gujarat Electricity Industrial (Reorgnisation 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et 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. 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. 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 uniform rate at 15% is not justified. 19. On the other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.1. Relying upon the observation and the decision taken by the Coordinate Bench and in order of consistency, we find it fit and proper to remand the issue to the file of the Ld. AO for re-adjudication of the same and to pass orders upon verification of the proportionate amount of grant relating to different assets and upon applying the actual rate of depreciation relates to those assets and to pass orders accordingly. This ground of appeal preferred by the assessee is allowed for statistical purposes. 8. Ground No.3:- Confirming income as other income instead of business income interest on loans to staff and other advances to the tune of Rs. 3,54,59,000/- has been challenged before us by the assessee. 8.1. At the time of hearing of the instant appeal the Ld. Counsel appearing for the assessee with all his fairness submitted before us that the identical issue has been decided by the Coordinate Bench in assessee s own case in ITA Nos. 2885 2886/Ahd/2015 [cited supra]. On this aspect he has drawn our attention to Page 10 of the above order filed before us. However, by and under the order passed by the Hon ble Orissa High Court in the case of Odisha Power Generatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the main case itself is set aside to the Assessing Officer for refresh consideration. ITA No. 852/Ahd/2018 (for A.Y. 2013-14 Revenue s appeal) 11. The Grounds of Appeal raised by the Revenue reads as under: 1. On the facts and in the circumstances of the case and in law, the Ld. CIT (Appeals) erred in deleting the addition of Rs. 218.28.70 lakhs made on account of disallowance of claim of guarantee fees paid to Government of Gujarat which after verification disregarding the applicable statutory provisions contained under S 37 of Income tax Act, 1961 which do not allow any expenditure of capital nature. The disallowance was made by disallowing the claim as revenue expenditure as it is of enduring nature in the assessee's business and hence capital in nature. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT (Appeals) erred in deleting the addition of Rs. 81.60 lakhs made on account of disallowance of claim of cost of raising finance for specialized job as revenue expenditure. -The ld.CIT(Appeals) erred in not appreciating the fact that as the result of this expenditure, the assessee had derived benefit of enduring nature, henc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im as revenue expenditure as it is of enduring nature in the assessee's business and hence capital in nature. 2. On the facts and in the circumstances of the case and in law, the Ld.CIT(Appeals) erred in deleting the addition of Rs. 42.86 lakhs made on account of disallowance of claim of cost of raising finance for specialized job as revenue expenditure. The ld.CIT(Appeals) erred in not appreciating the fact that as the result of this expenditure, the assessee had derived benefit of enduring nature, hence the expenditure is of capital nature. 3. As pointed out on behalf of the assessee, both the aforesaid grounds are covered in favour of the assessee in its own case concerning AY 2008-09 in ITA No. 704/Ahd/2012 order dated 12.06.2015. The relevant para of the order of the Tribunal is reproduced hereunder: 29. In the Revenue's appeal, the ground no.1 of the appeal is directed against the order of the CIT(A) in deleting the addition of Rs. 50,90,96,000/- made on account of disallowance of claim of guarantee fees paid to Government of Gujarat. 30. Brief facts of the case are that the AO observed that the assessee paid guarantee fee of Rs. 5,69,35,00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were not put-to-use till the end of previous year i.e. 31.3.2008, the guarantee fees to such extent i.e. in respect of such loans only could be capitalized as cost of such asset. The assessee has certified that no new project was started or commissioned during the year for which above guarantee was paid, and the guarantee fees was in respect of loans for acquisition of capital assets, which were already put-to-use prior to 1.4.2007. The guarantee fees of Rs. 5,69,35,000/- is directed to be allowed as revenue expenditure, subject to verification by the AO of the certificate filed during the appellate proceedings i.e. there was no capital work-in-progress in respect of loans on which guarantee fees was paid. 33. Regarding cost of raising finance of Rs. 21.61 lakhs is concerned, the CIT(A) observed that the same was an allowable deduction and being revenue expenditure, following the decision in the case of India Cements Ltd. (supra) disallowance of Rs. 21,61,000/- was cancelled. 34. The DR supported the order of the AO, whereas, the AR of the assessee supported the order of the CIT(A) and submitted that the issue was now covered in favour of the assessee by the decision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asons for treating the expenditure as revenue, it would be unrealistic to say that the appellant company could derive any undue advantage or collateral benefit by making such payment to the GOG. In view of the totality of the circumstances, I am of the opinion that the AO was not justified in treating the payment of guarantee commission (Rs. 8,39,04,550/-) as capital in nature. The addition is directed to be deleted. 6.2. I have considered the submissions of the ld.AR and the facts of the case. The jurisdictional Bench of ITAT has held in the case of Shri Rama Multi Tech vs. ACIT, 92 TTJ 568, that in determining the nature of expenditure incurred for obtaining loan, it is irrelevant to consider the purpose of loan. The amount spent on stamp duty, lawyer fees, etc. for obtaining loan secured by charge on its fixed assets is a revenue expenditure, because the transactions were entered into directly to facilitate the business of the company and payment of consultancy charges was made on ground of commercial expediency. In India Cements Ltd. vs. CIT, 60 ITR 52, the Supreme Court had also held that the expenditure incurred for securing the use of money for a certain period was rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deciding the ground in favour of the assessee by upholding the order passed by the Ld. CIT(A) in the appeal preferred by the Revenue in assessee s own case. 15.1. In the absence of any changed circumstances we do not find any reason to deviate from the stand taken by the Coordinate Bench. Hence, we do not find any reason to interfere of the order passed by the Ld. CIT(A) in deleting the disallowance of claim of cost of raising finance to the amount of Rs. 81.60 lacs and allowing as Revenue expenses. The ground preferred by Revenue is, therefore, fails and thus, dismissed. 16. Ground No.4 (a):- This Ground relates to the deletion of addition of Prior Period Expenses made while computing Book Profit computed under Section 115JB of the Act to the tune of Rs. 124.73 lakhs. 16.1. The brief facts leading to the issue is this that the Ld. AO made addition of Rs. 1,24,73,000/- to the Book Profit under Section 115JB of the Act on account of prior period expenses is also added back to the book profit of the assessee. 16.2. Before the First Appellate Authority the assessee submitted that in assessee s own case for A.Y. 2012-13 the Ld. CIT(A) has deleted the addition. In that v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 115JB of the Act. The appeal of the assessee is therefore allowed. 16.4. Having regard to the facts and circumstances of the case and the judgments passed by the different Bench. We do not find any reason to interfere with the order passed by the Ld. CIT(A) in deleting addition. The ground of appeal preferred by the Revenue is found to be devoid of any merit and hence dismissed. 17. Ground No.3 (b) :- This issue relates to the treatment of Government Grant of Rs. 2969.475 lacs u/s. 115JB of the Act. 17.1. The assessee company has received capital grant of Rs. 2969.47 lacs which was transferred to the Reserve Surplus account. The Id. Principal CIT was of the view that the same should have been reduced from the cost of assets and since the same has not been done, the company has claimed excess depreciation thereby offering lesser Book Profits. 17.2. We find that the ld. Principal CIT has ignored the fact that the grant in question was received in terms of the Financial Restructuring Plan from the Government and the company has accounted Government Grants in terms of the mandatory Accounting Standard (AS)-12 on Accounting for Government Grants prescribed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Share Capital contribution to GETCO directly (without routing through GUVNL). Thus, GETCO is already having Equity Share Capital contribution to the tune of Rs. 238.20 crores in addition to consumer's contribution of Rs. 87 crores whereas in case of GSECL whose equity requirement is substantially higher than that of GETCO, they have been given only Rs. 60.77 crores as Equity Share Capital contribution from GUVNL. Considering the above position, it is proposed to allocate entire FRP grant of Rs. 250 crores to GSECL as Equity Share Capital contribution from GUVNL for their projects. 17.4. Considering the accounting treatment in the light of the Accounting Standard-12, we do not find any error on facts or in law. Therefore, to this extent the findings of the Id. Principal CIT are reversed. ITA No. 754/Ahd/2018 (for A.Y. 2014-15 Assessee s appeal) 18. The Grounds of Appeal raised by the assessee reads as under: 1.0 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. 13,63,23,000/- without appreciating the fact that such expenditure was already disallowed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld.CIT(Appeals) erred in deleting the addition of Rs. 182.70 lakhs made on account of disallowance of claim of guarantee fees paid to Government of Gujarat which after verification disregarding the applicable statutory provisions contained under S 37 of Income tax Act, 1961 which do not allow any expenditure of capital nature. The disallowance was made by disallowing the claim as revenue expenditure as it is of enduring nature in the assessee's business and hence capital in nature. 2. On the facts and in the circumstances of the case and in law, the Ld.CIT(Appeals) erred in deleting the addition of Rs. 171.51 lakhs made on account of disallowance of claim of cost of raising finance for specialized job as revenue expenditure. -The Id.CIT(Appeals) erred in not appreciating the fact that as the result of this expenditure, the assessee had derived benefit of enduring nature, hence the expenditure is of capital nature. 3. On the facts and in the circumstances of the case and in law, the ld.CIT(A) erred in directing the Assessing Officer to treat the miscellaneous receipts as business income instead of income from other sources without appreciating the fact that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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