2022 (8) TMI 780 - AT - Income Tax

Tax Tribunal rulings clarify treatment of capital grants, losses, penalties

The Tribunal partly allowed the assessee's appeals for A.Y. 2008-09 and A.Y. 2011-12 for statistical purposes. The Revenue's appeals for the same years ... Depreciation on capital subsidy grant - Reduction of the amount of Capital Grants & Subsidies and Consumers' Contribution from the total cost of the Plant & Machinery for the purpose of allowing depreciation - HELD THAT:- The facts of the present assessee's case are identical to that of Madhya Gujarat Vij Company Limited [2022 (2) TMI 1277 - ITAT AHMEDABAD] decided by the Tribunal. Here also, the uniform rate of 15% was adopted by the CIT(A). As per provisions of Section 43(1) of the Act the capital grant should be reduced from the cost/WDB of the relevant asset and thereafter the depreciation has to be calculated which is 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. Here also the Ld. DR could not point out any mistake in the above submissions of the assessee which are in consonance with law. Therefore, we restore the matter back to the file of Assessing Officer for adjudication after verifying the proportionate amount and grant relating to different asset and applying the actual rate of depreciation which relate to these assets. Ground No. 1 is partly allowed for statistical purpose. Nature of expenditure - Disallowance under head small & low value items written off on the ground that the same is not revenue expenditure - HELD THAT:- It is pertinent to note that the assessee had claimed small and low value items written off under the head 'other misc expenses' in the Profit & Loss account and the same was properly quantified by the assessee. Similar expenses were allowed in subsidiary company i.e. Madhya Gujarat Vij Company Limited [2022 (2) TMI 1277 - ITAT AHMEDABAD] - The facts are identical and hence ground No. 2 is allowed. Miscellaneous losses and write offs - disallowance on the ground that the claim has not been substantiated by any documentary evidences - HELD THAT:- In the subsidiary company of the assessee, similar miscellaneous losses and write-offs were allowed on the ground that these losses are on account of loss of materials through pilferage, shortage of material in transit, shortage arising on physical verification, obsolescence of material/stores, loss in sale of scrap etc. These are loss which incurred in the day-to-day business activities and is purely revenue in nature. Thus, following the observation made in Madhya Gujarat Vij Company Limited 2022 (2) TMI 1277 - ITAT AHMEDABAD] by the Tribunal the facts are similar in the present assessee's case as well. Hence, ground No. 3 is allowed. Addition as prior period income already taxed as income in earlier years - HELD THAT:- It is pertinent to note that the CIT(A) has directed the Assessing Officer to verify the contentions of the assessee and if the prior period income was already taxed then the said relief should be granted to the assessee in the present Assessment Year. There is no need to interfere with the said finding and the Assessing Officer was rightly directed to verify the issue, so if any prior period income was already taxed then the said relief should be given to the assessee. Ground No. 4 is dismissed. Correct head of Income - Interest income from other loans - income from other sources OR business income - AR submitted that the loan to staff members and the interest incurred from the said loans are in the nature of business income as the staff members are part and parcel of the business activities of the assessee - HELD THAT:- The Hon'ble High Court of Gujarat in the case of Gujarat Urja Vikas Nigam Limited[2020 (3) TMI 232 - GUJARAT HIGH COURT] has categorically held that the interest earned on loan and advance from deposits with Mega Power Project towards SITS sharing and power are directly related to business of the assessee. But the said component does not include interest on small loans and advances. The decision given by the Ld. AR in case of Odisha Power Generation Corporation Limited [2022 (3) TMI 539 - ORISSA HIGH COURT] has also not specifically mentioned about the nomenclature of interest derived from loans and advances to the staff. Though the contentions of the assessee therein were quoted by the Hon'ble Orissa High Court but whether the same was accepted is not mentioned in the order. Thus, the decisions quoted by the Ld. AR will not be helpful in the present assessee's case. Loans to staff members cannot be treated as business expenses and therefore interest on these loans and advances given to staff members cannot be treated as business income. The CIT(A) has given detailed finding to this issue and there is no need to interfere with the same. Ground No. 2 for A.Y. 2011-12 filed by the assessee is dismissed. Disallowance and increase in power purchase cost - DR submitted that the purchase claim made by the assessee is without any support of documentary evidences and the assessee failed to prove genuineness of the entire purchase cost of fuel power debited in its books of account - HELD THAT:- There is a categorical finding given by the CIT(A) after calling the remand report from the Assessing Officer that the assessee furnished ledger account of power purchase, reconciliation of actual and estimated units of power purchase, together with copies of journal vouchers and invoices for power purchase which were not produced before the Assessing Officer at the time of assessment proceedings. The CIT(A) further observed that the claim of the assessee was rightly proved with the additional bills, reconciliation of bills and invoices was produced before the CIT(A). In the remand report the Assessing Officer has not pointed out any discrepancy to these details but simply submitted that the addition be sustained without verifying these documents. The CIT(A) has given detailed finding and there is no need to interfere with the same. Hence, ground No. 1 of Revenue's appeal for A.Y. 2011-12 is dismissed. Miscellaneous receipts - business income OR income from other sources - HELD THAT:- The miscellaneous receipts received from the assessee from the customers/suppliers relating to penalty and other charges were received during the regular course of business of the assessee and thus the same are taxed as business income. The evidences produced by the assessee during the assessment proceedings were totally ignored by the Assessing Officer and hence the CIT(A) has rightly directed the Assessing Officer to tax this amounts as business income. There is no need to interfere with the findings of the CIT(A). Penalty proceedings under section 271(1)(c) - HELD THAT:- Penalty in respect of excess depreciation which was disallowed by the Assessing Officer, in respect of Ground No. 1 therein we are remanding back the main quantum issue to the file of the Assessing Officer. Therefore, the penalty issue at present does not sustain. Besides this, the CIT(A) has rightly deleted the penalty as the final computation under Section 115JB of the Act and disallowance of depreciation made by the Assessing Officer had no effect on income computed under Section 115JB of the Act. Hence Appeal filed by the Revenue is dismissed. Issues Involved:1. Reduction of Capital Grants & Subsidies and Consumers' Contribution from the total cost of Plant & Machinery for depreciation purposes.2. Disallowance of small and low-value items written off.3. Disallowance of miscellaneous losses and write-offs.4. Addition of prior period income already taxed in earlier years.5. Initiation of penalty proceedings under Section 271(1)(c) of the IT Act.6. Addition of Capital Grants & Subsidies and Consumers' Contribution for A.Y. 2011-12.7. Classification of interest income from other loans as Business Income vs. Income from Other Sources.8. Deletion of addition on account of disallowance of increase in power purchase cost.9. Classification of income from miscellaneous receipts as Business Income vs. Income from Other Sources.10. Deletion of penalty under Section 271(1)(c) of the IT Act.Detailed Analysis:1. Reduction of Capital Grants & Subsidies and Consumers' Contribution from the total cost of Plant & Machinery for depreciation purposes:The Tribunal restored the matter back to the Assessing Officer (AO) for adjudication after verifying the proportionate amount and grant relating to different assets and applying the actual rate of depreciation. The facts were found identical to a previous case (Madhya Gujarat Vij Company Limited vs. ITO), where a similar issue was remanded back.2. Disallowance of small and low-value items written off:The Tribunal allowed the assessee's claim of Rs. 35,000 towards small and low-value items written off, noting that similar expenses were allowed in a subsidiary company (Madhya Gujarat Vij Company Limited).3. Disallowance of miscellaneous losses and write-offs:The Tribunal allowed the assessee's claim of Rs. 18,98,964 towards miscellaneous losses and write-offs, noting that similar losses were allowed in the subsidiary company. These losses were deemed to be incurred in day-to-day business activities and were purely revenue in nature.4. Addition of prior period income already taxed in earlier years:The Tribunal upheld the CIT(A)'s direction to the AO to verify the assessee's contention that the prior period income was already taxed in earlier years. If verified, relief should be granted to avoid double taxation.5. Initiation of penalty proceedings under Section 271(1)(c) of the IT Act:The ground relating to the initiation of penalty proceedings was not pressed by the assessee and hence dismissed.6. Addition of Capital Grants & Subsidies and Consumers' Contribution for A.Y. 2011-12:The Tribunal remanded the issue back to the AO with similar observations as in the case for A.Y. 2008-09, directing the AO to verify and apply the actual rate of depreciation.7. Classification of interest income from other loans as Business Income vs. Income from Other Sources:The Tribunal upheld the CIT(A)'s decision that loans to staff members cannot be treated as business expenses, and therefore, interest on these loans and advances cannot be treated as business income. The decisions cited by the assessee did not specifically support the claim.8. Deletion of addition on account of disallowance of increase in power purchase cost:The Tribunal upheld the CIT(A)'s finding that the assessee had furnished necessary documents to prove the genuineness of the power purchase cost. The AO's failure to verify these documents was noted, and the detailed finding of the CIT(A) was upheld.9. Classification of income from miscellaneous receipts as Business Income vs. Income from Other Sources:The Tribunal upheld the CIT(A)'s decision that miscellaneous receipts from customers and suppliers were received during the regular course of business and should be taxed as business income.10. Deletion of penalty under Section 271(1)(c) of the IT Act:The Tribunal upheld the CIT(A)'s deletion of the penalty, noting that the final computation under Section 115JB of the Act and the disallowance of depreciation had no effect on income computed under Section 115JB. The penalty issue was also linked to the main quantum issue, which was remanded back to the AO.Conclusion:The appeals filed by the assessee for A.Y. 2008-09 and A.Y. 2011-12 were partly allowed for statistical purposes, while the appeals filed by the Revenue for A.Y. 2011-12 and A.Y. 2008-09 were dismissed. The Tribunal's detailed findings and directions provided a comprehensive resolution to the issues raised in the appeals.