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TMI Blog2017 (4) TMI 1642X X X X Extracts X X X X X X X X Extracts X X X X ..... lf has allowed such expenditure. Such orders may have been passed after the impugned assessment order was passed respectfully following case of Radha Soami Satsang [ 1991 (11) TMI 2 - SUPREME COURT] we cannot gloss over the obvious legal position that revenue by its AO has allowed the staff welfare expenditure in successive assessment years after direction of Hon'ble High Court and ITAT - Decided in favour of assessee. Allowability of publicity and PR expense - HELD THAT:- As decided in own case amount deserves to be allowed as it is not disputed that it was incurred for sending Gujarat Earthquake relief in the form of a truckload of food items consequent to chittorgarh district Collectors Clarion Call. The amount being for social good and for discharge of corporate social responsibility is allowable as business expenditure u/s 37(1).Decided in favour of assessee. Allowability of depreciation on APGPCL shares - HELD THAT:- As decided in own case it is the intangible asset in form of right to procure power at cost which qualified for depreciation u/s 32 of the Act. Given that there is no separate consideration for value of shares an value of such intangible rights, the asessee a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TMI 2 - SUPREME COURT] we find force into the contention of the revenue that the value of stock is to be adopted either on cost ore net realizable value. The assessee has to demonstrate the value so adopted by furnishing the evidences in support thereof. In the present case, the assessee has failed to discharge this requirement of law, therefore, in order to compute the correct value this issue is restored to the file of the AO for decision afresh. AO is hereby directed to make on the spot enquiry for verification of the correct value of the stocks of ore. We are unable to accept the contention of the assessee that the stock of ore is merely soil and has no realizable value. In our considered view, there has to be same basis for adopting a certain value of such stocks. Revenue's appeal is allowed for statistical purposes. Deduction u/s 80IA - AO as reduced claim u/s 80IA with regard to CPP, Jawar and CPP Debri on the ground that Head Office Expenses have not been allocated - HELD THAT:- As identical issue was in the year 2004-05 we find that the certain expenses which are common to both to the Head Office and Captive Power Plant has not been allocated. Therefore, the issue is r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he IT Act, on captive power plant. 8. Deleting the disallowance on account technical/other consultancy expenses amounting to Rs. 16,88,300/-. 2. Briefly stated the facts are that the case of the assessee was picked up for scrutiny assessment and the assessment u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act) while framing the assessment, the Assessing Officer made disallowance u/s 40A(9) of Rs. 3,20,82,216/- publicity and public relation expenses of Rs. 10,86,920/- disallowance of depreciation on the value of shares held in APGPL of Rs. 10,54,60,000/- on account of undervaluation of closing stocks of ore of Rs. 2,21,21,933/- depreciation of assets retired from active use of Rs. 1,00,63,480/- enabling assets of return of Rs. 34,60,170/- and also disallowance out of technical/other consultancy expenses of Rs. 16,88,300/- and also the Assessing Officer reduced the claim of deduction u/s 80IA of captive power plant amounting of Rs. 4,36,36,093/- Aggrieved by this order the assessee preferred an appeal before ld. CIT(A). It is pertinent to note here that this is second round of litigation in the earlier round, the matter had traveled up to the stage of the ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etailed order, which is relied on. 16.4 We have heard the rival contentions and perused the materials available on record. We find merit in the order of the ld. CIT (A) who has rightly allowed the above expenditure agitated by revenue qua Ground no. 7,8, and 9. This Bench of ITAT vide its order dated 03-03-2016 has allowed similar expenses by following observations. 13.5 we have heard the rival contentions and perused the material available on record. Assessee is a PSU governed by statutory as well as internal regulations for incurring the expenditure, its approval as per a hierarchical administrate frame work. On facts neither of the auditors i.e. statutory and tax auditors have indicated anything adverse in respect of staff welfare expenditure. It is also a fact that the staff welfare expenditure is incurred through various bodies in consultation with such staff unions. These facts coupled with findings of ld. CIT (A) that expenditure is genuine. Wholly for business purposed and allowed in various earlier years even after verification have neither been dislodged by revenue nor controverted in any manner except raising a specious plea that issue may be set aside again. Its vehemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d circumstance qua ground no. 7, and 9 of this year are similar. Therefore, following our decision in assessee's own case (supra) for the assessment year 2001-02, we uphold the order o the ld. CIT(A) in this behalf. Thus, Ground Nos. 7,8, and 9 of the Revenue are dismissed. 15.3 Facts and circumstances of the case being similar to earlier years and also following our own decision in the above grounds of appeal (supra), the ground no. 7,8 and 9 o the Revenue are dismissed. 11.2 Respectfully following the decision of the Co-ordinate Bench in assessee's own case(supra), the ground no. 5 of the Revenue challenging staff welfare expense u/s 40A(9) is dismissed. 4.1 Therefore, taking a consistent view, the Ground no. 1 of Revenue's appeal is dismissed. 5. Apropos to Ground no. 2 it is stated by the representative of the parties, that the issue is covered by the decision of the Co-ordinate Bench in assessee's own case. We find that the Co-ordinate Bench in ITA No. 235/JU/2008, decided this issue in para 12.1 and 12.2 by observed as under: 12.1 As regard ground 6 of the Revenue challenging allowability of publicity and PR expense, we find that the similar issue has been dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilar issue has been decided by us in assessee's own case for the assessment year 2003-04 vide our order dated 11-03-2016 (in ITA No. 537/JU/2007 - Revenue) wherein revenue's Ground No. 4 has been partly allowed by following observations. 14.2 We have heard the rival contentions and perused the materials available on record. We find that Ground No. 6 of the Revenue is similar to Ground No. 6 of the Revenue for the assessment year 2002-03 and this ground is partly allowed by this Bench vide its order dated 09-03-201 by following observations. 15.1 Apropos ground No. 6 regarding deleting disallowance of depreciation of Rs. 19,50,74,094/- on shares of APGPCL claiming it to for acquisition of intangible commercial rights for use of power generated by APGPCL at a cost. Both parties agreed that the issue is similar to AY 2001-02 and the same decision may be applied. 15.2 We have heard the rival contentions and perused the materials available on record. Similar issue came up first time before us n assessment year 2001-02, by a detailed order we have partly upheld the order of the ld.CIT(A) by directing that 2/3rd value of the investment in APGPCL, shares should be attributed for ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above, the value of intangibles are either deduced by way of a residuary methodology where consideration paid over and above the net book value has been considered as value of intangible or there could be a specific consideration agreed with the seller towards acquisition of intangibles. 17.24 In light of above discussion facts, circumstances and case laws of Smiff Securities. Bharti Teletech and others (supra) we hold that to ascribe 2/3rd value of the APGPCL investment to intangible commercial rights of cost effective power supply rights an 1/3rd value to the tangible rights a share holder will be a reasonable estimate ascribable to these constituents. The AO will accordingly word out the eligible depreciation on intangible rights u/s 32(I)(ii) on 2/3rd value of APGPCL investment and 1/3rd to share holder rights and work out the block of asset of intangible rights for depreciation and 1/3rd to value of APGPCL shares. The allowances, claim of LTCG on sale of shares whenever sold will be worked out accordingly. 17.25 In the entirety of facts, circumstances, contentions and case laws we partly upheld the assessee's claim of depreciation in this behalf u/s 32(I)(ii) in terms of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hts do not amount to license, in any case they constitute another genus of other commercial rights of similar nature as envisaged by sec. 32(I)(ii). (ix) The shares are the written means to acquire and enjoy the rights of electricity under a policy formulated by APSEB and AGPGCL under the aegis of policies of AP Govt. Therefore the rights being achieved in the form of zero dividend share certificated cannot militate aginst the real nature of transaction. Our view is fortified by Hon'ble Supreme Court judgments in the case of Kedarnath Jute Mill and Sutlej Cotton Mills (supra), Therefore, acquisition of rights being the dominant and prime motive in impugned transaction, depreciation in terms of sec. 32(I)(ii) is to be allowed in terms of para 17.24 above. (x) Though no adverse judgment has been cited on the interpretation and scope of sec.32(I)(ii) and the issue, assuming even that more than one interpretation is possible, even the one favourable to assessee is to be adopted in view of the Hon'ble Supreme Court judgments in the case of Vegetable Product and Vatika Township(supra) 17.26 in view of the foregoing we partly uphold the order of ld. CIT(A) on this issue on allowin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enefit of depreciation. An actual user was not required as had been contended by the Revenue. Use and discarding were not in the same field and could not stand together. However, a harmonious reading of the expressions used for the purpose of the business and discarded it would show that used for the purposes of the business only means that the assessee had used the machinery for the purpose of the business in earlier years. The expression used for the purposes of the business as found in section 32 when used with respect to discarded machinery would mean that the user in the business was not in the relevant financial year/ previous year but in the earlier financial years. Any other interpretation would lead to an incongruous situation because on the one hand the depreciation was allowed on discarded machinery after allowing, inter alia, an adjustment for scrap value, yet, on the other hand user would be required of the discarded machinery which was not possible because of various reasons. The discarded machinery would not be actually used in the relevant previous year as long as it was used for the purposes of business in the earlier years. The Tribunal was correct in directing th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch vide its order dated 09-03-2016 by following observations; 17.1 Apropos revenue Ground No. 10 regarding deleting disallowance of Rs. 4,19,12,571/- u/s 37(I) on account of enabling assets written off being expenses incurred on Gosunda Dam for procuring water. 17.2 We have heard the rival contentions and perused the materials available on record. This issue is one going one from earlier years. In assessment year 2001-02, this Bench of ITAT vide its order dated 03-03-2016 (supra) has upheld the order of the ld. CIT(A) on this issue by following observations:- 15.1 Revenue ground no. 9 challenging allowance of Rs. 9,33,45,17/- on account of expenses incurred on Ghosunda Dam for procuring water. L. CIT(A) allowed this claim by following observation. 11.2 During the course of appellate proceedings, the ld.AR contended that with reference to the expenditure incurred on alteration effected in the construction of Gosunda Dam were in earlier years also and allowable u/s 37(I) of the Act but the same were not allowed by the AO. He further submitted that the expenditure incurred only enabled a more efficient and economical sate of business operation and that no new asset was created or any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en constructed by the State Govt. and the assessee has made expenditure for its alteration so as to ensure sharing of the water with the State Govt. without having any right or ownership in the Dam or the water. Even the assessee's share of water is also determined by the State Govt. Thus, the expenditure incurred by the assessee for commercial expediency relates with carrying on of business and falls within such expenditure as prudent businessman may incur for the purpose of the business. The operational expenses incurred by the assessee solely intended for furtherance of the enterprise can be no means be treated as expenditure of capital nature. 13. Keeping in view the object and purpose of the expenditure and totality of the facts and circumstances of the case noticed above, in our considered opinion, the benefit received by the assessee company on account of the expenditure incurred cannot be said to be an advantage in the capital field. We are in agreement with the view taken by the CIT(A) and affirmed by the ld. ITAT that the object and effect of the expenditure made by the assessee is to facilitate its trade operation and enable the management to conduct business more ef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that the assessee has been adopting the same value and same has been accepted in ITA No. 95/JU/2007, in pertaining to the assessment year 2002-03 and in the ITA No. 537/JU/2007 pertaining to the assessment year 2003-04 and also in ITA No. 235/JU/2008 pertaining to the assessment year 2004-05. 9.1 We have heard the rival contentions and perused the material available on record and gone through the orders of the authorities below. The Hon'ble Supreme Court in the case of CIT Vs British Paints India Ltd. (supra) has held as under:- Section 145 of the Income-tax Act, 1961, confers sufficient power upon the officer-nay it imposes a duty upon him- to make such computation in such manner as he determines for deducing the correct profits and gains. This means that where accounts are prepared without disclosing the real cost of the stock-in-trade, albeit on sound expert advice in the interest of efficient administration of the company, it is the duty of the income-tax officer to determine the taxable income by making such computation as he thinks fit. Any system of accounting which excludes, for the valuation of the stock-in- trade, all costs other than the cost of raw materials ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31,2002 were valued at 25% of the cost, resulting in decrease of profits by Rs. 98.63 lacs. This is as per perusal of the notes on accounts of the relevant year (scheduled-17 vide note no. 5). The AO increased the value of closing stock by Rs. 98.63 lacs mentioning that the action of assessee company in reducing the stock value by the mines was not in conformity with the accounting policy adopted by the company. Thus the AO has disallowance to the tune of Rs. 98.63 lacs. Or decided the issue in para 2.6 as under: We have heard the rival contentions and perused the materials available on record. It emerges from the record that the valuation of stores and spares expenditure has been consistently followed by the assessee which should not be disturbed on the principle of consistency as held by Hon'ble Supreme Court in the case of Radhaswami Satsang vs. CIT, 193 ITR 321 (SC). Besides, similar disallowance was deleted by ITAT in assessee's own case in earlier years. The Hon'ble Supreme Court in the case of CIT vs. Excel Industries (2013), 358 ITR 295 has held that such type of valuation based stock, additions are essentially revenue neutrals as closing stock become opening ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ower plant and also looked after same activities was the case with the auditors. He further submitted that charity and donation is given as an entity as a whole. The assessee ought to have apportioned this expense between the Head Office and the captive power plant. Which has not been done that goes to show that the working of the assessee is not in accordance with the law. 10.1 On the contrary, the ld. Counsel for the assessee supported the orders of the ld. CIT(A) he submitted that the Assessing Officer has reduced claim u/s 80IA by Rs. 4,36,36,093/- with regard to CPP, Jawar and CPP Debri on the ground that Head Office Expenses have not been allocated. He submitted that the expense are: depreciation on residential premises, computers, furniture, motor-vehicles at HO Rs. 91,29,936 and other Head Officer Expenses of Rs. 68,92,62,690/-. It is contended that these expenses have been allocated to eligible unit in the ratio of turnover. On the ground that the term derived from used in the section reference to both income and expenditure. Reliance is placed on: Cambay Electric Supply Company Vs. CIT (1978) 113 ITR 84 (SC) and CIT Vs. Sterling Foods (1999) 237 ITR 579. On the ground tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial decision and settled by Hon'ble supreme Court. This crucial omission has resulted in AO's conclusion that: (i) The proportionate depreciation of other common assets is allocable to be reduced from the profits of eligible CPP unit. (ii) The proportionate part of the employees' remuneration and benefits, administrative and selling expense such a remuneration of managers, directors, auditors, financial advertisers, amenities and Head Officer assets is also require to be allocated to CPP Debari. (iii) Ld. AO instead of establishing any direct of proximate relation between these unconnected proportionate expenses reduced them from eligible profits under a notion that even the remote and unconnected proportionate expenses are allocable. (iv) The ld. AO held that HO is not a profit earning centre and Captive Power Plant, Debari, is not a standalone unit, having independent functioning and a separate profit center and on such erroneous assumption reduced the deduction u/ 80IA by aforesaid expenses of other independent and functionally different units. Ld. Counsel has demonstrated that other units of the Company cannot use the fixed assets, like permanent residential buildin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nses on assumptions. f) The aforesaid expenses of salary and wages, contribution to provident fund etc. and other benefits to employee' insurance, consultancy and other administrative expense as alleged by ld. AO, have in fact, been incurred at Udaipur Office for goods manufactured i.e. zinc and lead by the appellant . Consequently, such expenditure is deductible while computing the profit of assessee's manufacturing business of zinc and lead. Any part thereof cannot be hypothetically attributed to independent CPP unit situated at Debri. Such presumptive and notional reduction of claim u/s 80IA is arbitrary and unsustainable. g) The words derived from have been used by the Legislature in the restricted sense and therefore, there must be direct nexus between the expenditure and industrial activity. Since there is no direct nexus of the alleged expense with CPP unit, neither allocation nor reduction of 80IA claim has justification. It is settled law that allocation, if any, cannot be made by demonstration of direct nexus between alleged proportions of expenses with power generation operations of PP unit situate at Debari, ld. CIT(A) has rightly deleted the reduction in 80IA c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es should not be reduced while calculating deduction u/s 80IA. Hon'ble Bombay High Court upheld assessee's claim. Ld. CIT(A) in this case while deleting the reduction from assessee's claim u/s 80IA has applied nearly similar observation. In view thereof no infirmity can be attributed to the order of ld. CIT(A) which is upheld. In the given facts, circumstances and legal position, we hold that the said HO Expenses with the eligible industrial undertaking i.e. CPP, therefore the unrelated proportionate HO expenses cannot be reduced while computing deduction u/s 80IA. This ground no. 12 of the Revenue is dismissed. However, we find that the certain expenses which are common to both to the Head Office and Captive Power Plant has not been allocated. Therefore, the issue is restored to the file of the Assessing Officer for re-computation of reduction. The Assessing Officer would re-work allocation of the expenses related to the director's fees, auditor's fees and donation for charity. To this extent, the order of the Ld. CIT(A) is modified. This ground of the Revenue's appeal is partly allowed for statistical purposes. 11. Ground no. 8 is against deletion of disal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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