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TMI Blog2023 (11) TMI 938X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee by the decision of the coordinate bench which is been relied upon by the Ld.CIT(A), we do not find any infirmity in his order in deleting the above disallowance. Allowance of deduction u/s 80IA as relying assessee own case 2006-07. Power charges paid by the assessee to Keshav Power Ltd. are allowable as deduction to the assessee. It is also demonstrated that the rates paid to Keshav Power Ltd. are comparable and beneficial to the assessee. The issue has been decided in the favour of the assessee for AY 2006-07 and the Ld. DR fairly agreed that there is no change in the facts and circumstances of the case. Disallowance u/s 14A r.w.r. 8D - Mandation of recording satisfaction - Suo moto addition made by assessee - HELD THAT:- Since the share capital and reserve and surplus are more than the investments there cannot be any disallowance u/s 14A read with Rule 8D(2)(ii).We hold that there cannot be any disallowance u/s 14A read with Rule 8D while computing the income under normal provisions of the Act by the AO in the absence of recording any satisfaction as to why the suo moto disallowance made by the assessee is incorrect. Disallowance made u/s 14A r.w. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the said assessment year. Thus, we direct the AO to consider the claim of the assessee in the AY 2008-09. Disallowance of depreciation on UPS and printers - HELD THAT:- The issue is covered in favour of the assessee by the Hon ble Delhi High Court in the case of CIT Vs. BSES Yamuna Powers Ltd. [ 2010 (8) TMI 58 - DELHI HIGH COURT] which decision was applied by the Ld.CIT(A) in holding that claim for depreciation allowance at 60% on UPS printers is held to be justified. - Shri Challa Nagendra Prasad, Judicial Member And Shri M Balaganesh, Accountant Member For the Assessee : Shri R.M. Mehta, CA For the Revenue : Shri T. James Singson, CIT DR And Shri Vivek Kumar Upadhyay, Sr.DR ORDER PER C.N. PRASAD, J.M. All these appeals are filed by the Revenue and Assessee for the assessment years 2008-09 to 2011-12 against different orders of the Ld. Commissioner of Income Tax (Appeals). 2. First we take up the appeals of the Revenue and Assessee for the AY 2008-09. The grounds of appeal of the Revenue are as under: 1. On the facts and circumstances of the case and in law the Ld.CIT(A) has erred in deleting the addition of Rs. 98,71,544/- made b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 20,00,000/- made by the appellant company u/s 14A of the Income Tax Act, 1961 in its return of income is without any reasonable basis. 3. That on facts and in circumstances of the case, the Ld.CIT(Appeals) has grossly erred in upholding the disallowance made u/s 14A of the Income Tax Act, 1961 to the extent of Rs. 4,14,43,268/- (net of suo-moto disallowance of Rs. 20 lacs made by the appellant). 4. That the Ld.CIT(Appeals), while determining the amount of disallowance u/s 14A of the Income Tax Act, 1961 has failed to appreciate that: (i) Entire amount of interest paid by the assessee company in an amount of Rs. 112,91,43,235/- has been incurred on the term loans and other borrowings made by the assessee company for the purpose of its business of manufacture of commodities and no portion of the same was to be disallowed. (ii) The AO has not brought anything on record to support his contention that borrowed funds of the company had been diverted for purposes of making investments in shares and securities and thus certain amount of interest is liable to be disallowed u/s 14A of the Income Tax Act, 1961; and (iii) Investment in unquoted equity shares of subsi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded in favour of the assessee by dismissing the ground of Revenue, observing as under: 62. We first deal with the appeal of the Ld. Assessing Officer. Ground no.1 is with respect to the disallowance of Rs. 9,447,701/- of remuneration paid to various field sales organizers. This issue is identical to ground no.1 of the appeal of the Ld. Assessing Officer for AY 2006-07 wherein we have confirmed the order of the Ld.CIT(A) deleting the above disallowance wherein the Ld.CIT(A) relied upon the order of the coordinate bench in assessee s own case for earlier years and the Ld. Departmental Representative could not point out any major difference in the facts and circumstances of the case. Therefore, for the similar reasons we dismiss the ground no.1 of the appeal of the Ld.AO. 6. Following the order of the Tribunal in assessee s own case for the earlier assessment years, we dismissed ground no.1 of grounds of appeal of the Revenue. 7. Ground No. 2 3 of grounds of appeal of the Revenue are in respect of deletion of addition on account of disallowance of temple maintenance and puja expenses as well as amount paid to staff recreation clubs. We find that the issues in these two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) and reject ground no. 4 of grounds of appeal of the Revenue. 11. Ground no.5 and 5.1 of grounds of appeal of the Revenue is in respect of deletion of addition made on account of disallowance of power charges paid to M/s KPPL. We find that this issue was also decided in assessee s favour by the Tribunal in para 65 at page 36 of the order observing as under: 65. Ground nos. 5 5.1 with respect to the deletion of the disallowance of power charges paid by the assessee to Messer s Keshav Power Ltd. amounting to Rs. 273,742,954/-. Now the argument of the Ld.AR is that the Ld.CIT(A) has accepted the report of the income tax inspector without affording any approach and the Ld.AO in the matter. We find that the issue is identical to the issue in the case of the assessee for AY 2006-07 wherein we have held that the assessee has paid power charges to Keshav Power Ltd. based on the validly executed power purchase agreement. The assessee has also shown that in earlier years the consumption of power purchased from Keshav Power Ltd. has resulted into substantial benefit to the assessee. It is also demonstrated that the rates paid to Keshav Power Ltd. are comparable and beneficial t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the authorities below and the decision of the Hon ble Supreme Court. We find considerable force in the submissions of the Ld. Counsel for the assessee. In the case of South Indian Bank Ltd. Vs. CIT (supra) the Hon ble Supreme Court held as under: 14. We have heard Mr. S. Ganesh, Mr. S.K. Bagaria, Mr. Jehangir Mistri and Mr. Joseph Markose, learned Senior Counsel appearing for the appellants. Also heard Mr. Vikramjit Banerjee, learned Additional Solicitor General and Mr. Arijit Prasad, learned Senior Counsel on behalf of the respondent/Revenue. 15. The appellants argue that the investments made in bonds and shares should be considered to have been made out of interest free funds which were substantially more than the investment made and therefore the interest paid by the assessee on its deposits and other borrowings, should not be considered to be expenditure incurred in relation to tax free income on bonds and shares and as a corollary, there should be no disallowance under Section 14A of the Act. On the other hand, the counsel for the revenue refers to the reasoning of the CIT(A) and of the High Court to project their case. 16. As can be seen, the contention on beha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner of Income Tax (2016) 383 ITR 529 (Bom) / 2016 SCC Online Bom 1109 , the assessee was a Scheduled Bank and the issue therein also pertained to disallowance under Section 14A. In this case, the Bombay High Court even while remanding the case back to Tribunal for adjudicating afresh observed (relying on its own previous judgment in same assessee s case for a different Assessment Year) that, if assessee possesses sufficient interest free funds as against investment in tax free securities then, there is a presumption that investment which has been made in tax free securities, has come out of interest free funds available with assessee. In such situation Section 14A of the Act would not be applicable. Similar views have been expressed by other High Courts in CIT Vs. Suzlon Energy Ltd. (2013) 354 ITR 630 (Guj)/ 2013 SCC Online Guj 8613 , CIT Vs. Microlabs Ltd. (2016) 383 ITR 490 (Karn)/ 2016 SCC Online Kar 8490 and CIT Vs. Max India Ltd. (2016) 388 ITR 81 (P H) / 2016 SCC Online P H 6788 Mr. S Ganesh the learned Senior Counsel while citing these cases from the High Courts have further pointed out that those judgments have attained finality. On reading of these judgments, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowance made by the AO is insufficient or inadequate to meet the expenditure attributable for earning dividend income the AO proceeded to apply Rule 8D, placing reliance on the decision of the Spl. Bench of ITAT Delhi in the case of Chem Invest Ltd. Vs. ITO. 19. We observed that Maxopp Investment Ltd. Vs. CIT (supra) the Hon ble Supreme Court held as under: 41. Having regard to the language of Section 14A(2) of the Act, read with Rule 8D of the Rules, the Court made it clear that before applying the theory of apportionment, the AO needs to record satisfaction that having regard to the kind of the assessee, suo moto disallowance under Section 14A was not correct. It will be in those cases where the assessee in his return has himself apportioned but the AO was not accepting the said apportionment. In that eventuality, it will have to record its satisfaction to this effect. Further, while recording such a satisfaction, nature of loan taken by the assessee for purchasing the shares/making the investment in shares is to be examined by the AO. 20. The ratio of this decision applies to the facts of the case of the assessee for the assessment year under consideration. Thus, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs of the warrants were entitled to their warrants converted into equity shares on the expiry period of 7 years from the date of allotment thereof i.e. 11.09.2001 or earlier at the decision of the board by giving two months notice by way of public advertisement in newspapers. Therefore, it was contended that as per the terms of such offer the company decided to call upon the warrant holders to subscribe for the equity shares of the company and in that process Rs. 5,06,011/- was incurred on advertisement in newspapers and Rs. 9,714/- was incurred towards expenditure on postage for dispatch of the share certificates, post the conversion of warrants into equity shares of the company. Therefore, it was contended that it was only routine expenditure and is in Revenue in nature. However, the Ld.CIT(A) upheld the action of the AO in so far as the advertisement expenditure of Rs. 5,06,011/- as capital in nature and allowed the postage expenses of Rs. 9,714/- as Revenue expenditure. Before us, the Ld. Counsel for the assessee reiterated the submissions made before the lower authorities. Ld. DR strongly supported the orders of the Ld.CIT(A). 24. Heard rival submissions, perused the orders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ddition of Rs. 21,78,540/- made by AO on account of disallowance of temple maintenance and pooja expenses. 3. On the facts and circumstances of the case and in law the Ld.CIT(A) has erred in deleting the addition of Rs. 9,46,669/- made by AO on account of disallowance of expenditure reimbursed by the assessee to staff recreation clubs. 4. On the facts and circumstances of the case and in law the Ld.CIT(A) has erred in deleting the addition of Rs. 5,05,57,000/- made by AO on account of disallowance of deduction claimed u/s 80IA. 5. On the facts and circumstances of the case and in law the Ld.CIT(A) has erred in deleting the addition of Rs. 26,85,48,223/- made by AO on account of disallowance of power charges paid to M/s KPPL. 5.1 On the facts and circumstances of the case and in law the Ld.CIT(A) has erred in deleting the addition of Rs. 26,85,48,223/- made by AO on account of disallowance of power charges paid to M/s KPPL on the basis of acceptance of the report of income tax inspector Tricny (submitted in the course of enquiries got conducted by him during the course of appellate proceedings for AY 2007-08) without affording opportunity to the AO. 6. On th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s contention that borrowed funds of the company had been diverted for purposes of making investments in shares and securities and thus certain amount of interest is liable to be disallowed u/s 14A of the I.T. Act. (iii) Investment in unquoted equity shares of subsidiary companies, which are made for purpose of strategic investment, and investment in equity shares of other companies on which no dividend was received also needs to be excluded while computing disallowance under Rule 8D read with Section 14A of the Act. 5. That on the facts and in the circumstances of the case, the Ld.CIT(A) has erred in confirming the disallowance of Rs. 5,99,49,703/- u/s 14A for the purpose of computation of book profit u/s 115JB of the Act. 6. That on the facts and in the circumstances of the case, the Ld.CIT(A) has erred in treating the advance payment of Rs. 43,23,650/- to AP TRANSCO as prior period expenditure under alleged belief that liability thereof was crystallized in FY 2007-08 relevant to AY 2008-09 and which cannot be allowed in the current year but should have been claimed in AY 2008-09. 28. The ground nos. 1 to 4 of grounds of appeal of the assessee and ground no.6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Revenue is in respect of deletion of addition on account of disallowance of expenditure in relation to laying of transmission towers and lines treating the same as capital expenditure. 32. Brief facts are that the AO while completing the assessment noticed that the assessee debited expenditure of Rs. 6,54,59,535/- to profit and loss account on account of laying transmission towers and lines from sub-station to plant site of the assessee. The assessee was required to explain as to why the said expenditure incurred should be allowed as Revenue expenditure. The assessee submitted that it had expanded its cement manufacturing capacity by setting up a cement plant at Village Chinnalor Mela District Kadapa, Andhra Pradesh and Village Govind Puram, district Ariyalur in Tamil Nadu. The assessee submitted that accordingly it had applied for HT Electrical connection with Electricity Department in order to obtain electricity to run its plant. The assessee submitted that it had made payments to AP TRANSCO for supply of electrical energy and the payments comprises of development charges and line laying charges. Thus, the assessee contended that it had incurred Rs. 6,97,83,185/- as dev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tricity connection for supply of high tension power to its plants under construction at Kadapa and Ariyalur. Evidently, in terms of the guidelines of AP TRANSCO and TNEB, the assets created through such expenditure were not to be the property of the appellant company. The appellant company was in the same business of manufacturing of cement and the underlying objective for setting up new plants at Kadapa and Ariyalur was to ensure expansion of its existing business. Under the circumstances, the facts of the case of the appellant are not different from the case of CIT vs. Saw Pipes Ltd. (Supra), and CIT vs. Dart Mfg. India Pvt. Ltd. (Supra), in which the judicial High Court had clearly held that the expenditure incurred on expansion of business is revenue in nature. I do not agree with the contention of the AO that the facts in the appellant's case are materially different from Saw Pipes Ltd. case. 7.5.2 Regarding the revised enhanced claim, which was filed before the Ld. AO of Rs. 6,97,83,185/- against the claim of Rs. 6,54,59,535/- made in the return of income, I find that the Ld. AO had taken no cognizance of the same in the impugned order. Therefore, the revised claim w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year, such a liability is 'prior period expenditure' in nature, which cannot be allowed in the current year. The appellant's plea that the payment was made to the contractor of TNEB and not to the AP TRANSCO is of no relevance in ascertaining the nature. In view of this, the claim of the appellant to allow enhance claim of Rs. 6,97,83,185/- is not acceptable. As I have already allowed this ground in favour of the appellant, the appellant gets relief of Rs. 6,54,59,535/- only, which is the amount of addition made by the AO on this ground. 37. On careful perusal of the order of the Ld.CIT(A), we observe that the claim of the assessee for the expenditure in respect of laying transmission line and tower was allowed as Revenue expenditure following the decision of the Delhi High Court in the case of CIT Vs. Saw Pipes Ltd. (supra) and the decision in the case of CIT Vs. Dot Manufacturing India Pvt. Ltd. 38. In the case of CIT Vs. Saw Pipes Ltd. (supra) the assessee was in the business of manufacturing pipes and had three running units. The assessee incurred service charges of Rs. 52 lakhs to the electricity board for running service line for the purpose of the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Gujarat Electricity Board, that did not mean that the assessed had acquired any capital asset or an enduring benefit or advantage and the object of making the payment was purely one of commercial expediency. On this basis, it was held that the payment made to the Gujarat Electricity Board towards the cost of laying the overhead service lines constituted revenue expenditure and was an allowable deduction. 13. Our attention has also been drawn to CIT v. Madras Auto Service (P) Ltd . [1998] 233 ITR 468, wherein the Supreme Court summarized the law as laid down in Assam Bengal Cement Co. Ltd. v. CIT in the following words: 1. Outlay is deemed to be capital when it is made for the initiation of a business, for extension of a business, or for a substantial replacement of equipment. 2. Expenditure may be treated as properly attributable to capital when it is made not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade.... If what is got rid of by a lump sum payment is an annual business expense chargeable against revenue, the lump sum payment should equally be regarded as a business expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness of exhibition of cinematographic films. 17. Similarly, in CIT v. Modi Industries Ltd. (No .3) [1993] 200 ITR 341 (Delhi) , the assessed was carrying on the manufacture of various commodities like sugar, vanaspati, soaps, paints and varnish, torch and lantern, etc. It started manufacturing a new commodity, that is, special alloy wire and billets. This was held by this Court to be an extension of the same business because there was a common fund utilized by the assessed and what was done by the assessed was only to start manufacturing a new item altogether. It was held to be an extension of the existing business and not the start of a new business. 39. The ratio of the decision applies to the facts of the assessee s case, thus, we sustain the order of the Ld. CIT(Appeals) and reject ground no.7 of Revenue s appeal. 40. With respect to the claim of Rs. 43,23,650/- as part of payment made to AP TRANSCO for the purpose of laying service lines, we observe that the Ld.CIT(A) held that the said expenditure was crystallized in the FY 2007-08 relevant to the AY 2008-09 and, therefore, cannot be allowed as deduction in the current assessment year i.e. 2009-10. Since, we h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charges paid to M/s KPPL on the basis of acceptance of the report of income tax inspector Tricny (submitted in the course of enquiries got conducted by him during the course of appellate proceedings for AY 2007-08) without affording opportunity to the AO. 6. On the facts and circumstances of the case and in law the Ld.CIT(A) has erred in reducing the addition of Rs. 29,76,59,761/- to Rs. 6,05,65,481/- made by AO under normal provisions on account of disallowance u/s 14A r.w. Rule 8D. 6.1 On the facts and circumstances of the case and in law the Ld.CIT(A) has erred in reducing the addition of Rs. 29,76,59,761/- to Rs. 6,05,65,481/- made by AO u/s 115JB on account of disallowance u/s 14A r.w. Rule 8D. 7. On the facts and circumstances of the case and in law the Ld.CIT(A) has erred in deleting the addition of Rs. 3,72,126/- made by AO on account of disallowance of depreciation claimed by assessee @60% instead of@15% on UPS Printers. 8. On the facts and circumstances of the case and in law the Ld.CIT(A) has erred in deleting the addition of Rs. 10,00,519/- made by AO on account of disallowance of depreciation claim by the assessee @60% on UPS and Printers instea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 44. Ground no.7 and 8 of grounds of appeal of Revenue is identical to ground no.8 for AY 2009-10. Facts being identical, decision taken therein shall apply mutatis mutandis to the appeal for AY 2010-11. 45. Ground nos.6 and 6.1 of Revenue s appeal and ground nos.1 to 5 of assessee s appeal are identical to ground nos.6 and 6.1 of Revenue s appeal and ground nos.1 to 5 of assessee s appeal for AY 2009-10 and facts being identical the decision taken therein shall apply mutatis mutandis to the AY 2010-11. ITA No.5677/Del/2016 (AY 2011-12 Revenue s appeal) ITA No.5019/Del/2016 (AY 2011-12 Assessee s appeal) 46. The Revenue raised the following grounds of appeal: 1. On the facts and circumstances of the case and in law, Ld.CIT(A) has erred in deleting the addition of Rs. 84,691/- made by the AO on account of disallowance of expenditure reimbursed by the assessee to staff recreation clubs. 2. On the facts and circumstances of the case and in law, Ld.CIT(A) has erred in deleting the addition of Rs. 73,024/- made by the AO on account of disallowance of temple maintenance and pooja expenses. 3. On the facts and circumstances of the case and in law, Ld ..... 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