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TMI Blog2023 (7) TMI 1556X X X X Extracts X X X X X X X X Extracts X X X X ..... ether convertible into money or not, arising from business or the exercise of a profession is taxable income as per provisions of Section 28(iv) - HELD THAT:- As per the submissions of the Ld. AR., the Assessing Officer's treatment of the same as cessation of liability is not justifiable as the same has been done pending the availability of funds for the redemption of capital by the assessee's advisory. The beneficial ownership of these OCCPS has been transferred in favour of a trust of which the Company is the beneficiary and when the accounting effect of such waiver only in respect of these OCCPS are made at that time when such shares will be redeemed. Therefore, the AO's observations is not justifiable as the right of conversion on these OCCPS lapsed on 22nd August, 2003. Thus, ground no.2 of Revenue's appeal is dismissed. Addition of delayed completion of project as capital receipt as claimed by the assessee - DR submitted that if it is a capital receipt against the cost of power plant, then the assessee would have to reduce this amount from the cost of Plant & Machinery for the purpose of depreciation - HELD THAT:- It is pertinent to note that the issue contested by the Reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... covered in assessee's favour in assessee's own case for A.Y. 1996-97. Besides this, the expenditure incurred at club as membership and other charges viz. entrance fee, subscription, cost of club service etc. were not disputed by the Assessing Officer as well as by the CIT(A). Therefore, ground no.6 of Revenue's appeal is dismissed. Addition of license/registration fees - DR submitted that the company's business is of manufacture and sale of cement and clinkers, membership fee paid to Indian Energy Exchange Limited for DRID connected client and for processing & registration fee for approval of sale of power is not in consonance with the business of the assessee - HELD THAT:- It is pertinent to note that from the perusal of records it appears that the said electricity line is solely used by the assessee and, therefore, the expenses incurred related to sale of power registration and membership is for the business purpose only. Thus, the CIT(A) was right in deleting the said disallowance. Hence, ground no.7 is dismissed. Disallowance u/s 40A(9) - DR submitted that the company is contributing every month almost uniform amount as its contribution and also for maintenance charges - HEL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .) ORDER PER SUCHITRA KAMBLE, JUDICIAL MEMBER : These cross appeals are filed by the Revenue and assessee against the order dated 23.05.2014 passed by the CIT(A), Jamnagar for the Assessment Year 2010- 11. 2. The Revenue has raised the following grounds of appeal: "1. The Ld. CIT(A) has erred in law as well as on facts by deleting the disallowance of damages and settlement expenses of Rs. 6,12,64,000/- made by the AO. 2. The Ld. CIT(A) has erred in law as well as on facts by deleting the disallowance of Rs. 1,74,56,000/- on account of surrender of rights in redemption of OCCPS made by the AO. 3. The Ld. CIT(A) has erred in law as well as on facts by deleting the disallowance of Rs. 3,20,00,000/- received on account of delayed completion of project as capital receipt as claimed by the assessee. 4. The Ld. CIT(A) has erred in law as well as on facts by deleting the disallowance of Rs. 30,23,032/- being differential royalty on ballast considering it as allowable deduction. 5. The Ld. CIT(A) has erred in law as well as on facts by deleting the disallowance of additional depreciation of Rs. 33,85,988/- claimed on new plant and machinery. 6. The Ld. CIT(A) has erred in la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income at Rs. Nil. The case was selected for scrutiny and after issuing statutory notices the assessee filed details as well as the submissions before the Assessing Officer. The Assessing Officer observed that the assessee has claimed Rs. 612.64 Lakhs as expenses in respect of Damages & Compensation Claim Settlement under the head "Manufacturing and other Expenses". After taking cognisance of assessee's reply, the Assessing Officer made disallowance out of damages and settlement expenses amounting to Rs. 612.64 Lakhs as per provisions of Section 40(a)(ia) of the Income Tax Act, 1961. The Assessing Officer further made disallowance out of surrender of rights in redemption of OCCPS amounting to Rs. 174.56 Lakhs, disallowance out of liquidated damages on account of delayed completion of project amounting to Rs. 320 Lakhs, disallowance of penalty amounting to Rs. 30,23,032/- paid on Differential Royalty on Basalt, disallowance of Excessive Depreciation claim on Plant & Machinery amounting to Rs. 33,85,988/-, disallowance of expenditure incurred as Entertainment of Expenses amounting to Rs. 72,054/-, disallowance of Contribution of PWD Road of Rs. 52,34,500/-, disallowance out of Licenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs also part of the settlement expenses. Therefore, the observations made by the Assessing Officer that the same is not of compensatory nature appear to be incorrect. Thus, the CIT(A) was right in deleting the disallowance of damages and settlement expenses. Ground no.1 of Revenue's appeal is dismissed. 8. As regards to ground no.2, the Ld. DR submitted that the CIT(A) erred in deleting the disallowance of Rs. 1,74,56,000/- on account of surrender of rights in redemption of OCCPS made by the Assessing Officer. 9. The Ld. DR submitted that the holders of OCCPS have surrendered their rights in the redemption of 174557 OCCPS aggregating to Rs. 174.56 Lakhs, for benefit of the company. Therefore, the same has resulted into cessation of liability to redeem this amount of Rs. 174.65 Lakhs for the assessee company. The assessee company was required to credit this amount to the profit and loss account being a gain/income to the company. The Ld. DR submitted that however, the assessee company has referred to transfer the beneficial ownership of the OCCPS in favour of a trust of which the company is the beneficiary. No accounting effect of such waiver of redemption has been given in the bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance of Rs. 3,20,00,000/- received on account of delayed completion of project as capital receipt as claimed by the assessee. The Ld. DR submitted that if it is a capital receipt against the cost of power plant, then the assessee would have to reduce this amount from the cost of Plant & Machinery for the purpose of depreciation. The Ld. DR submitted that from the records, it is evident that from the depreciation claim the assessee company has not reduced this amount of Rs. 3,20,00,000/- from the Plant & Machinery block of assets. Thus, the Ld. DR submitted that Assessee Company's action to transfer this amount to capital reserve without showing it in operative part of Profit & Loss account is highly irregular. The Ld. DR relied upon the Assessment Order. 13. The Ld. AR submitted that the assessee received compensation from M/s. Thermax Limited towards liquidated damages for delayed completion of project. The terms of delayed payment was provided in the agreement which was before the Assessing Officer. The Ld. AR further submitted that it is related to assets of the company and, therefore, the same are capital in nature. The Ld. AR relied upon the decision of Hon'ble Supreme C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecords. The amount recovered from the assessee was made in direct proportion of the quantum of the basalt consumed and therefore it was it was part of consumption cost of minerals in the hands of the assessee. The decision of Hon'ble Apex Court in the case of CIT vs. Ahmedabad Cotton Manufacturing Company Limited (supra) is apt in assessee's case. Therefore, ground no.4 of Revenue's appeal is dismissed. 18. As regards ground no.5, the Ld. DR submitted that the CIT(A) was incorrect in disallowing additional depreciation of Rs. 33,85,988/- claimed on new Plant & Machinery. The Ld. DR submitted that the assessee has claimed additional depreciation on power plant which is not a Plant & Machinery eligible for additional deprecation because power is not an article or thing and, therefore, there is an excess claim being additional depreciation. The Ld. DR further submitted that the Assessing Officer was also right in respect of depreciation claim of Rs. 8,304/- on electricity service line owned by PGVCL as the asset is not owned by the assessee Company. 19. The Ld. AR submitted that the Assessing Officer had disallowed the entire amount of additional depreciation as the assessee has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not disputed by the Assessing Officer as well as by the CIT(A). Therefore, ground no.6 of Revenue's appeal is dismissed. 24. As regards ground no.7, the Ld. DR submitted that the CIT(A) was not right in deleting the disallowance of Rs. 11,34,064/- out of license/registration fees made by the Assessing Officer. The Ld. DR submitted that the company's business is of manufacture and sale of cement and clinkers. Therefore, membership fee paid to Indian Energy Exchange Limited for DRID connected client and for processing & registration fee for approval of sale of power is not in consonance with the business of the assessee. Thus, the same is non-business activity or that of capital in nature if related to business. Therefore, the Assessing Officer has rightly disallowed the said amount. 25. The Ld. AR submitted that processing and registration fees paid to Gujarat Energy Transmission Corporation Limited for approval of sales of power Rs. 10,34,064/- and Rs. 1,00,000/- paid on 10.07.2009 reversed on 31.12.2009. The Ld. AR submitted that the electricity line is exclusively being used for the purpose of assessee's business and in substance the assessee company is the beneficial owner of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said disallowance and hence there is no need to interfere with the findings of the CIT(A). Hence ground no.8 is dismissed. 30. As regards to ground no.9, the Ld. DR submitted that the CIT(A) has erred in restricting the disallowance under Section 14A of the Act of Rs. 6,66,000/- as against Rs. 88,35,000/- computed by the Assessing Officer. The Ld. DR submitted that the assessee company made investment in shares of MTZ Industries and MTZ Polyfibers Limited valued at Rs. 635.25 Lakhs. After provision for diminution in value the net value reflect at Rs. 46.50 lakhs. The assessee company made investment of Rs. 3544.87 lakhs in its subsidiary companies. Thus, the net value of this investment after provision for diminution in value is Rs. 1863.60 Lakhs. Other investment was Rs. 34,000/- and, therefore, the total investment for consideration of disallowance under Section 14A is Rs. 1910.36 Lakhs. The Ld. DR submitted that Section 14A does not apply in respect of deductions where expenditure incurred by the assessee is in relation to the income which does not form part of the total income. Thus, the Ld. DR relied upon the Assessment Order. 31. The Ld. AR submitted that the assessee was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted that the entire cost should be allowed as revenue expenditure. 39. The Ld. DR relied upon the Assessment Order and the order of the CIT(A). 40. We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that the ownership of the said electricity line is in the hands of PGVCL and, therefore, the alternate argument with submission made by the Ld. AR that entire cost should be allowed as revenue expenditure is more plausible. Thus, the Assessing Officer is directed accordingly to treat the same as revenue expenditure. Therefore, ground no.1 of assessee's appeal is partly allowed. 41. Ground no.2 is not pressed by the assessee and hence ground no.2 of assessee's appeal is dismissed. 42. As regards to ground no.3 of Assessee's appeal related to confirming disallowance of Rs. 52,34,500/- for contribution made towards PWD Road, the Ld. AR submitted that the contribution towards construction of 4 lane road in order to facilitate infrastructure requirement in the surrounding area was for the smooth conducting of the business. Therefore, the CIT(A) was not right in confirming the said disallowance. 43. The Ld. DR relied upon ..... X X X X Extracts X X X X X X X X Extracts X X X X
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