2019 (9) TMI 376 - AT - Income Tax

Tribunal Ruling: Various Tax Issues Decided - Revenue Appeals Dismissed, Assessee's Appeals Partly Allowed

The DCIT, Cirlce – 1 (1), Baroda. Versus Gujarat Energy Transmission Corporation Ltd. And Gujarat Energy Transmission Corporation Ltd. Versus The ACIT/The DCIT Cirlce – 1 (1), Baroda.

The Tribunal confirmed the deletion of disallowance of guarantee fees as revenue expenditure, loss of material as revenue nature, and provision for ... Disallowance of guarantee fees - revenue or capital expenditure - HELD THAT:- As decided in own case [2015 (6) TMI 1096 - ITAT AHMEDABAD] observed that guarantee fee was an annual recurring expenditure incurred by the assessee. Guarantee fee was payable to Govt. of Gujarat every year in respect of loans taken by the assessee and guaranteed by the Govt. of Gujarat. Loan cannot be treated as asset or advantage resulting in enduring benefits. Guarantee fees paid to Govt. of Gujarat was in connection with raising of loans and enduring benefit or advantage could not be said to have resulted by taking such loans - claim 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. Disallowance of loss of material through pilferage, shortage - HELD THAT:- As decided in own case [2015 (6) TMI 1096 - ITAT AHMEDABAD] CIT(A) deleted the addition and held that similar issue was decided by the CIT(A) in favour of the assessee in assessee’s own case for the Asst.Year 2006-07 and 2007-08 Addition of the expenditure being the Provision made for Employees cost of arrears payable upto 31st March, 2009 - HELD THAT:- We grant relief to the assessee by allowing the expenditure of ₹ 45,81,84,000/- being the Provision made for employees cost of arrears payable upto 31st March, 2009. The addition made by the authorities below to that effect is, thus, deleted. Hence this ground of appeal is allowed. Addition on account of Capital Grants & Subsidies and Consumers’ Contribution - appellant should transfer 15% of the total Grants/subsidies/consumer contribution received during the year as against 10% offered by the appellant - HELD THAT:- As decided in own case [2015 (6) TMI 1096 - ITAT AHMEDABAD] as per provisions of section 43(1) 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. We, therefore, 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. MAT computation - addition made on provision for employees cost - HELD THAT:- Ultimately, the impugned addition therein was deleted. In fact, the Learned AO observed that the addition in respect of expenditure of 6th Pay Commission under normal provision of the Income Tax Act was made and the same was also disallowable from the book profit u/s 115JB since it was the provision made for meeting liabilities other than ascertain liabilities. Enhancement of book profit u/s 115JB to the impugned amount and hence the addition is hereby deleted. In the result, assessee’s ground of appeal is allowed for statistical purposes. Interest income from staff loans & advances and others - income from other sources as against the business income - disallowing the claim of set off of business losses of earlier years against the said income - HELD THAT:- It appears from the records that the interest income earned from loan to staff and from other loans has been treated to be the income from other sources since the appellant is not in the business of advancing loans to staff. The nature of business carried out by the assessee and the activities of granting loans to the staff is not in accretably linked with each other thus in the absence of direct nexus between the two, We find no reason to treat the income in question as business income and, therefore, we find no justification in interfering with the order passed by the Learned CIT(A) in holding that the interest income arising out of loans advances to staff and others is income from other sources and not business income. Assessee’s appeal, thus is found to be devoid of merit and hence dismissed. Issues Involved:1. Determination of whether guarantee fees paid to the Government of Gujarat are revenue or capital expenditure.2. Deletion of disallowance of loss of material through pilferage, shortage, etc.3. Confirmation of disallowance of provision made for employees' cost for arrears payable.4. Confirmation of addition on account of capital grants, subsidies, and consumers' contributions.5. Enhancement of book profit under section 115JB due to disallowance of provision for employees' cost.6. Treatment of interest income from staff loans and advances as income from other sources.7. Initiation of penalty proceedings under section 271(1)(c).8. Charging of interest under sections 234B, 234C, and 234D.Detailed Analysis:1. Guarantee Fees as Revenue or Capital Expenditure:The revenue challenged the deletion of disallowance of guarantee fees of Rs. 5,11,39,000/- paid to the Government of Gujarat. The Tribunal noted that the issue was already decided in favor of the assessee in its own case for A.Y. 2008-09, where it was held that the guarantee fees paid to the Government of Gujarat were annual recurring expenditures and should be treated as revenue expenditure. The Tribunal confirmed the order of the CIT(A), dismissing the revenue's appeal on this ground.2. Deletion of Disallowance of Loss of Material:The revenue also challenged the deletion of disallowance of loss of material through pilferage, shortage, etc., amounting to Rs. 2,36,35,000/-. The Tribunal referred to its earlier decision in the assessee's case for A.Y. 2008-09, where it was held that such losses incurred in day-to-day business activities were of revenue nature. The Tribunal confirmed the CIT(A)'s order, dismissing the revenue's appeal on this ground.3. Disallowance of Provision for Employees' Cost:The assessee challenged the confirmation of disallowance of Rs. 45,81,84,000/- being the provision made for employees' cost for arrears payable. The Tribunal referred to its earlier decision in the assessee's case for A.Y. 2007-08, where it was held that such provisions, based on the 6th Pay Commission's recommendations, were allowable as the liability had crystallized during the relevant year. The Tribunal allowed the assessee's appeal, deleting the addition.4. Addition on Account of Capital Grants and Subsidies:The assessee challenged the confirmation of addition of Rs. 24,17,88,400/- on account of capital grants and subsidies. The Tribunal noted that the issue was similar to that in the assessee's case for A.Y. 2008-09, where it was remitted to the AO for fresh adjudication after verifying the proportionate amount of grant relating to different assets. The Tribunal followed the same approach and remitted the issue back to the AO for re-adjudication.5. Enhancement of Book Profit under Section 115JB:The assessee challenged the enhancement of book profit by Rs. 45,81,84,000/- due to disallowance of provision for employees' cost. The Tribunal referred to its earlier decision in the assessee's case for A.Y. 2008-09, where such an addition was deleted. The Tribunal deleted the enhancement of book profit under section 115JB, allowing the assessee's appeal on this ground.6. Treatment of Interest Income from Staff Loans and Advances:The assessee challenged the treatment of interest income from staff loans and advances amounting to Rs. 1,45,85,000/- as income from other sources. The Tribunal noted that the interest income from loans to staff and others was not directly linked to the business activities of the assessee. Therefore, it upheld the CIT(A)'s order treating the interest income as income from other sources, dismissing the assessee's appeal on this ground.7. Initiation of Penalty Proceedings:The Tribunal noted that the ground relating to the initiation of penalty proceedings under section 271(1)(c) was consequential and did not require a separate order.8. Charging of Interest under Sections 234B, 234C, and 234D:The Tribunal noted that the grounds relating to the charging of interest under sections 234B, 234C, and 234D were consequential and did not require separate adjudication.Conclusion:The Tribunal dismissed the revenue's appeal and partly allowed the assessee's appeals, remitting certain issues back to the AO for fresh adjudication and confirming the CIT(A)'s orders on other issues.