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TMI Blog2024 (12) TMI 1339X X X X Extracts X X X X X X X X Extracts X X X X ..... grant - assessee submitted that this issue was remanded back to the file of the A.O. with specific direction by the Co-ordinate Bench of this Tribunal in Gujarat Energy Transmission Corporation Ltd. [ 2022 (8) TMI 1419 - ITAT AHMEDABAD] - HELD THAT:- Respectfully following the same, this issue is remitted back to the file of the Assessing Officer for verification of the proportionate amount of grant relating to different assets and upon applying the actual rate of depreciation relates to those assets and pass fresh order by giving proper opportunity of hearing to the assessee. Disallowance of prior period expenditure - This ground no. 3 raised by the Assessee is hereby setaside to the file of the Assessing Officer for de novo assessment and by giving proper opportunity to the assessee for being hearing. Disallowance of Additional Depreciation u/s. 32[1][iia] - generation of electricity which is covered under clause (i) of section 32(1) is excluded from availing additional depreciation - HELD THAT:- As relying on Kadodara Power Pvt. Ltd. [ 2019 (8) TMI 658 - GUJARAT HIGH COURT] we hold that the assessee is entitled for additional depreciation u/s. 32(1)(viia) of the Act and direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... involved in both the appeals, the grounds raised by both parties are inter connected the same are disposed of by this consolidated order. 2. The Grounds of appeal raised by the Revenue in ITA No. 3164/Ahd/2015 reads as under: 1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in directing the Assessing Officer to allow the Guarantee Fee after verification, by disregarding the applicable statutory provisions contained u/s 37 of the IT Act which do not allow any expenditure of capital nature. 2. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in directing the Assessing Officer to treat the miscellaneous receipts of Rs. 1442.34 lacs as business income instead of income from other sources, without appreciating the fact that the receipt is not covered in Clauses (i) to (vii) of Section 28 of the IT Act under which such income is charged. 3. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the addition/adjustments made to the Book Profit computed u/s 115JB of the IT Act, (a) on account of Prior Period Expenses claimed at Rs. 19,02,80,000/-in view of the Explana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d expenses amounting to Rs. 34,75,000/- without appreciating the fact that such expenditure crystallized during the year and that the same has never been claimed in earlier years. 4.0 The learned Commissioner of Income Tax (Appeals) erred in law and on facts has confirmed the disallowance of the additional depreciation amounting to Rs. 55,03,67,064/- claimed under section 32(1)(iia) of the IT Act on the ground that the appellant is not engaged in the manufacturing or production of article or thing. The appellant had explained that the activity of power generation satisfies the condition of manufacture or production of any article or thing as required by the Act. The learned Commissioner of Income Tax (Appeals), however, brushed aside the appellant's contention and disallowed the claim of additional depreciation. 5.0 The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the action of Assessing Officer in treating the interest income amounting to Rs. 347,27,000/- as Income from Other Sources as against the Business Income and thereby disallowing the claim of set off of business losses of earlier years against the said income. 6.0 The learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of an asset or the acquisition of a right to exploit certain commercial processes, etc. In the instant case, the assessee did not acquire any right to exploit a commercial technology or process, and neither was the benefit enduring , since the payment of guarantee commission was an annual charge. The benefit derived from payment of such commission thus lasted for exactly one year only. Such shortlived benefit cannot be categorized as enduring . Hence, I am inclined to the view that the payment of guarantee commission was a revenue expenditure. 5.3. Further, the jurisdictional Bench of ITAT had occasion to consider the allowability of guarantee commission paid to a Director of the company in respect of loans taken from the bank. In the case of Himalaya Machinery Pvt.Ltd. (ITA No.738/Ahd/2009) for AY 2006- 07, the Tribunal held, vide order dt.5.6.2009, following the decision of the Rajasthan High Court in CIT v. Metalising Equipment Co.Pvt.Ltd., 8 DTR 12, that the payment of commission for guaranteeing repayment of loan was allowable as revenue expense. In the instant case, the loan has been guaranteed by the Government of Gujarat. Hence, quite apart from the other sound reasons fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... identical issue as submitted the Ld. A.R. in ITA Nos. 2885 2886/Ahd/2015 the Coordinate Bench has been pleased to set-aside the issue to the file of the Ld. AO for adjudication afresh for verifying the proportionate amount of grant relevant to different assets and upon apply the actual rate of depreciation relates to those assets. 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. 4.1. Respectfully following the same, this issue is remitted back to the file of the Assessing Officer for verification of the proportionate amount of grant relating to different assets and upon applying the actual rate of depreciation relates to those assets and pass fresh order by giving proper opportunity of hearing to the assessee. Thus Ground No. 2 fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... afresh in the light of the decision of Hon ble High Court in the case of PCIT vs. Adani Enterprises Ltd. in Tax Appeal No. 573 of 2016. The ld. Departmental Representative was fair enough not to controvert these undisputed facts and findings of Co-ordinate Bench. 15. With the assistance of ld. representatives, we have gone through the decision of Co-ordinate Bench of ITAT in the case of Group concern Gujarat Urja Vikas Nigam Ltd. vs. ACIT for assess ment year 1988-89 wherein similar issue has been set aside to the file of Assessing Officer for adjudicating afresh according to the direction laid down by the Hon ble Gujarat High Court in the case of Adani Enterprises Ltd. in Tax Appeal No. 573 of 2016. The relevant part of the decision of the Co-ordinate Bench in the Gujarat Urja Vikas Nigam Ltd. supra as cited above is reproduced as under:- 6. We have carefully heard the rival submissions and perused the orders of the authorities as well the case-laws referred. The assessee is aggrieved by the disallowance of prior period expenses of Rs. 53.53crores as per Ground No.4 of its appeal. The disallowance has been made on the ground that the expenses under various heads as noted in the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pportunity of being heard to the assessee and upon considering the evidence which the assessee may choose to file at the time of hearing of the matter. This ground is allowed for statistical purposes. 5.3. Respectfully following the above decision by the Co-ordinate Bench of this Tribunal, this ground no. 3 raised by the Assessee is hereby setaside to the file of the Assessing Officer for de novo assessment and by giving proper opportunity to the assessee for being hearing. Thus Ground No. 3 raised by the Assessee is allowed for statistical purpose. 6. Ground No.4 by the assessee: Disallowance of Additional Depreciation of Rs. 55.03 crores u/s. 32[1][iia] of the Act. 6.1. Brief facts, the assessee company is engaged in generation of Power and claimed additional depreciation amounting to Rs. 55,03,67,064/- u/s. 32(1)(viia) of the Act in addition to normal depreciation. The same was disallowed by the Assessing Officer on the ground that generation of electricity which is covered under clause (i) of section 32(1) is excluded from availing additional depreciation. Option given under Rule 5(1) of IT for units generating electricity is for depreciation u/s. 32(1)(iia) and not for additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as follows: 7. We take notice of the fact that the ITAT while allowing the appeal of the assessee observed in Paragraphs-11 and 12 of its impugned order are as under:- 11. We may note that the expression 'article or thing' used in section 32(1)(iia) is not defined in the IT Act, 1961. The Supreme Court in case of State of Andhra Pradesh Vs. NTPC Ltd. 5 SSC 203 held that electricity is 'goods' and therefore production/generation of electricity is production of article or thing. Further, Delhi Tribunal in case of NTPC Ltd. Vs.DCIT (2012) 54 SOT 177 wherein assessee's claim of additional depreciation was disallowed on the ground that power/ electricity generated by assessee could not be equated with an article or thing which was being manufacturing in an industrial undertaking, held that if there can be sale and purchase of electric energy like any movable object, then electric energy is covered by the definition of goods and thus admissibility of additional depreciation could not be denied to assessee merely on the ground that electricity is not an article and thing. In view of the said decisions, P M acquired and installed by assessee for generation of electricit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 2012 and the assessee engaged in the generation of power has expressly been included in the ambit thereof. The Delhi High Court by placing reliance on Supreme Court decision referred to above ultimately took the view that the electricity has all the necessary trappings of articles or things and the benefit of additional depreciation cannot be denied. We quote the relevant observations as under:- 6. Section 32(1)(iia) of the Act as it stood at the relevant time, read as follows: 32. Depreciation: (1) In respect of depreciation of - .... (iia) In the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31st day of March, 2005, by an assessee engaged in the business of manufacture or production of any article or thing, a further sum equal to twenty per cent of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii). 7. Learned counsel for the assessee has drawn our attention to the judgment of the Karnataka High Court dated 16.09.2014 in ITA No.08/2014 [Commissioner of Income Tax vs. The Hutti Gold Mines Co. Ltd.] wherein the question of additional depreciation was considered and it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not tangible or cannot be moved or touched like, for instance, a piece of wood or a book it cannot cease to be moveable property when it has all the attributes of such property. It is capable of abstraction, consumption and use which if done dishonestly is punishable under Section 39 of the Indian Electricity Act, 1910. If there can be sale and purchase of electrical energy like any other moveable object, this Court held that there was no difficulty in holding that electric energy was intended to be covered by the definition of goods . However, A.N.Grover, J., speaking for three-Judge Bench of this Court went on to observe that electric energy can be transmitted, transferred, delivered, stored, possessed etc. in the same way as any other moveable property . In this observation we agree with Grover. J., on all other characteristics of electric energy except that it can be stored and to the extent that electric energy can be stored, the ‟ ‟ observation must be held to be erroneous or by oversight. The science and technology till this day have not been able to evolve any methodology by which electric energy can be preserved or stored. 9. The Tribunal's judgment in NTPC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the setting up of new machinery or plant should have been acquired and installed by an assessee, who was already engaged in the business of manufacture or production of any article or thing. Considering the aforesaid facts and circumstances and considering the relevant provisions of Section 32(1)(iia) of the Income Tax Act, which was prevailing at the relevant time, i.e. during the year under consideration, it cannot be said that the ITAT by applying the ratio of decision of the Madras High Court in the case of VTM Ltd (Supra) and in the case of Hi Tech Arai Ltd. (Supra) has committed any error in deleting the addition of Rs. 1,17,98,030/- on account of disallowance of additional depreciation of Wind Electric Generator. 11. In view of the aforesaid, no error not to speak of any error of law could be said to have been committed by the appellate tribunal in passing the impugned order. 12. In the result, this appeal fails and is hereby dismissed. 6.6. Respectfully following the Jurisdictional High Court Judgment, we hold that the assessee is entitled for additional depreciation u/s. 32(1)(viia) of the Act and direct the A.O. to grant the same. 6.8. In the result, Ground No. 4 raised b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iculty in accepting the submission of the Assessee that the interest received on advances and loans given to its employees are receipts in normal course of carrying its business and should be considered as income derived from its essential business activities. Likewise, the late payment by GRIDCO for the electricity supplied, is sought to be made up by GRIDCO by issuing bonds on which the Assessee earns interest. This also therefore, has a direct nexus with the essential business activity of the Assessee. 9.1. In that view of the matter we find it fit and proper to direct the Ld. AO to consider the issue afresh upon examining the same in regard to the head of income upon considering the relevant evidence in the light of the observation made by the Hon ble High Court as mentioned hereinabove. We, thus, pass order accordingly. This ground is allowed for statistical purposes. 7.2. We have gone through the records and found that ld. CIT(A) held that the miscellaneous receipts of Rs. 1442.34 lacs treated as income from business. However the interest income of Rs. 347.27 lacs was treated as income from other sources . Considering the judgment of the Orissa High Court in the case of Odish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses, is required to be made to the same. Moreover, even as per Explanation 1 to section 115JB, no adjustment on account of prior period expenses is required to be made to the net profits reflected in the profit and loss account of the assessee. Therefore we hold that no adjustment of prior period expenses is to be made by the assessee to arrive at the book profits for the purpose of levying tax u/s 115JB. The reliance placed by the Ld. DR on the decision in the case of Sree Bhagwathy Textiles Ltd. (supra) is distinguishable on facts, since in that case it was found the assessee had debited the prior period expenses to the Profit and Loss Appropriation account. The Court in that case held that profit as per Profit and Loss Account is to be taken for computing book profits and any adjustments thereafter in the appropriation account are not to be considered. Since in the present case the prior period expense have been debited to the Profit and Loss Account and not appropriation account the ratio propounded therein will not apply to the present case. 7. In view of the above we hold that no adjustment on account of prior period expenses amounting to Rs. 46,64,504/- is to be made in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 crores being given by Govt. of Gujarat to GUVNL for system strengthening as Share Capital contribution from GUVNL to subsidiaries. Board further authorized MD, GUVNL to decide the quantum of such equity contribution to each of the subsidiaries. As far as DISCOMs are concerned, their equity requirement is being met through consumers' contribution and as such there is hardly any equity requirement which is required to be contributed by GUVNL. Moreover, the capita! grant being released by GoG to GUVNL for various DISCOM related projects, the Board at the meeting held on 04.01.2010 has approved to allocate the same to DISCOMs in the form of Share Capital from GUVNL. Since the DISCOM related grants along with consumers' contribution meet with the equity requirement of DISCOMs it is proposed not to allocate the FRP grant to DISCOMs for the F.Y. 2009-10. As regards to GETCO, they have incurred capital expenditure of Rs. 650 crores upto January'10. Against the said capital expenditure, they have received consumers' contribution to the tune of Rs. 87 crores. Further, the Govt. grant creation of transmission lines and sub-stations ofRs.151 crore (RE) is By meant for GETCO. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim and directed the Assessing Officer to allow the claim of depreciation as per the Income-tax Rules for the purposes of computing the book profit under section 115J. On reference, the High Court reworked the profits of the assessee under section 115J by substituting the rates of depreciation prescribed in Schedule XIV of the Companies act, 1956. In appeal, the Supreme Court held that where assessee was consistently charging depreciation in its books of account at rates prescribed in Income-tax Rules and accounts of assessee had been prepared and certified as per provisions of 1956 Act, Assessing Officer would not have any jurisdiction under section 115J to rework net profits of assessee by substituting rates of depreciation prescribed in Schedule XIV to 1956 Act. We further note that the jurisdictional Gujarat High Court in the case of DCIT v. Vardhman Fabrics (P.) Ltd. [2002] 122 Taxman 375 (Gujarat) has also adjudicated on this issue in favour of the assessee. The brief facts of the case were that assessee calculated depreciation on plant and machinery at 33.33 per cent as permissible under the Income-tax Rules, 1962 as against 30 per cent depreciation required to be calcula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that while calculating total income as per section 115JB, assessee had adopted rate of depreciation as per Income-tax Act instead of Companies Act in profit and loss account. The Andhra Pradesh High Court in the case of Deccan Tools Industries (P.) Ltd.[2014] 52 taxmann.com 55 (Andhra Pradesh) held that where for purpose of section 115J, assessee claimed depreciation at rates provided under Income-tax Rules, action of Assessing Officer in redrawing profit and loss account and adopting rates prescribed under Companies Act, was totally unauthorized. 6.1 In view of the various decisions cited above, we are of the considered view that in the instant facts, PCIT erred in facts and law in holding that the assessment order was erroneous and prejudicial to the interests of the revenue so far as ground number 3 of the assessee s appeal is concerned. 8.6. Respectfully following the above decision, therefore the Ground No.3 [c] raised by the Revenue is devoid of merit and the same is hereby rejected. 9. Ground No.4 by the Revenue and Ground Nos. 6 to 8 by the Assessee are general in nature and does not require any specific adjudication. 10. In the result, the appeal filed by the Assessee in I ..... 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