2024 (12) TMI 1339 - AT - Income Tax

Gujarat guarantee fees allowed as revenue expenditure, capital grant and depreciation issues remanded for fresh assessment

The ITAT Ahmedabad dismissed revenue's appeal regarding guarantee fees paid to Gujarat government, upholding CIT(A)'s decision to allow it as revenue ... Disallowance of guarantee fees paid to Govt. of Gujarat - This guarantee fees paid by the assessee to Govt. of Gujarat in consideration of guarantee issued by it for repayment of unsecured loans - CIT(A) deleted the above addition following assessee’s own case for the Assessment Year 2008-09 [2015 (6) TMI 1096 - ITAT AHMEDABAD] by holding that the guarantee fees is directed to be allowed as revenue expenditure but directed the Ld AO to verify the above claim - HELD THAT:- Ground No. 1 raised by the Revenue is devoid of merits and the same is hereby dismissed. Since Ld CIT[A] directed the AO to verify the Certificate filed by the assessee during appellate proceedings whether the loans on which guarantee fee was paid were utilized for construction of plant or not, questioning this direction by the assessee in its Ground No.1 is hereby rejected and dismissed. Addition being 15% of year-end balance of capital 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 the A.O. to grant the same. Treatment of interest income and miscellaneous receipts as “income from other sources” as against the claim as “business income” - CIT(A) held that the miscellaneous receipts treated as income from business. However the interest income was treated as “income from other sources”. Considering the judgment of Odisha Power Generation Corporation Ltd. [2022 (3) TMI 539 - ORISSA HIGH COURT] we direct the Ld AO to consider the issue afresh and pass orders accordingly. Thus the Ground No. 5 raised by assessee is allowed for statistical purpose and Ground No. 2 raised by the Revenue is dismissed. Additions while computing book profit u/s. 115JB - Prior period Expenses - HELD THAT:- This issue is decided in favour of the assessee in the case of Gujarat Energy Transmission Corporation Ltd. [2022 (8) TMI 1419 - ITAT AHMEDABAD] which was followed in assessee’s own case in [2023 (8) TMI 1597 - ITAT AHMEDABAD] relating to Asst. Years 2014-15 & 2012-13 wherein no adjustment on account of prior period expenses is to be made in the net profit of the company for arriving at the book profits u/s 115JB. Addition of capital grant - This issue is also decided in favour of the assessee in the case of Gujarat Energy Transmission Corporation Ltd. [2022 (8) TMI 1419 - ITAT AHMEDABAD] Addition being excess depreciation - Issue of excess depreciation is decided in favour of the assessee in the case of Kansara Popatlal Tribhuvan Metal Pvt. Ltd. [2022 (8) TMI 618 - ITAT AHMEDABAD] as held 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 - Decided in favour of assessee. Issues Involved:1. Disallowance of Guarantee Fees as a Revenue Expenditure.2. Addition of Capital Grant as Income.3. Disallowance of Prior Period Expenses.4. Disallowance of Additional Depreciation.5. Treatment of Interest Income and Miscellaneous Receipts.6. Deletion of Additions in Book Profit Computation under Section 115JB.7. General Grounds by Revenue and Assessee.Detailed Analysis:1. Disallowance of Guarantee Fees as a Revenue Expenditure:The Tribunal addressed the issue of guarantee fees paid to the Government of Gujarat for securing loans. It was argued that such fees should be treated as revenue expenditure. The Tribunal relied on precedents, including the decision in the case of Gujarat Energy Transmission Corporation Ltd., where it was held that the payment of guarantee commission does not result in the acquisition of a new asset or enduring benefit and thus qualifies as a revenue expenditure. Consequently, the Tribunal dismissed the Revenue's appeal on this issue, affirming the CIT(A)'s direction for verification.2. Addition of Capital Grant as Income:The assessee contested the addition of 15% of the year-end balance of capital grants as income. The Tribunal remanded the issue back to the Assessing Officer (AO) for verification of the proportional amount of grants related to different assets and the application of the actual depreciation rate. This approach aligns with the Tribunal's earlier decision in the case of Gujarat Energy Transmission Corporation Ltd., ensuring consistency in the treatment of such grants.3. Disallowance of Prior Period Expenses:The Tribunal set aside the disallowance of prior period expenses amounting to Rs. 34.75 lakhs, remanding the issue to the AO for a fresh examination. This decision was based on the precedent where similar issues were remanded for a de novo assessment to verify the crystallization of such expenses during the relevant year.4. Disallowance of Additional Depreciation:The Tribunal addressed the disallowance of additional depreciation claimed by the assessee engaged in power generation. It referred to the Gujarat High Court's decision in PCIT vs. Kadodara Power Pvt. Ltd., which affirmed that electricity generation is akin to manufacturing, thus entitling the assessee to additional depreciation under Section 32(1)(iia). The Tribunal directed the AO to allow the claim, following the jurisdictional High Court's judgment.5. Treatment of Interest Income and Miscellaneous Receipts:The Tribunal considered the classification of interest income and miscellaneous receipts. It directed the AO to re-examine the treatment of these incomes, taking into account the Orissa High Court's decision in Odisha Power Generation Corporation Ltd., which recognized the business nature of such receipts when linked to the assessee's primary business activities.6. Deletion of Additions in Book Profit Computation under Section 115JB:The Tribunal upheld the deletion of additions made to the book profit under Section 115JB for prior period expenses, capital grants, and excess depreciation. It relied on precedents that clarified the treatment of these items in computing book profits, emphasizing adherence to accounting standards and legal precedents that support the assessee's position.7. General Grounds by Revenue and Assessee:The Tribunal noted that the remaining grounds raised by both the Revenue and the Assessee were general in nature and did not require specific adjudication.Conclusion:The Tribunal's judgment resulted in the partial allowance of the assessee's appeal and the dismissal of the Revenue's appeal. The decision underscores the importance of consistent application of legal precedents and accounting standards in resolving disputes related to income classification, depreciation claims, and computation of book profits.