TaxTMI 
TaxTMI 
2015 (3) TMI 838
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....er the head 'extraordinary items'. As per schedule 18, in this regard, the break up is as under- Amount Rs. Receipts from consumers 234000 Fuel related Gains 28365000 Subsidy against Loss due to Floods 92900000 121499000 Less: Expenses Loss due to flood, cyclone, fire 35390000 (86109000) During the course of assessment proceedings, the assessee was requested to justify its claim of extra ordinary items and was specifically asked to show cause why the expenditure booked under the head Extraordinary Items may not be disallowed: In response, the assessee submitted its reply as under vide letter dated 8-8-2008: "During the year the Company has booked extra ordinary income amounting to Rs. 861.09 lacs, the break-up of which is as under: Particulars Account Code Total Fuel related gains for prior period 65.1 192.38 Prior period adjustment of Head Office 91.27 Receipts from consumers relating to prior period 65.2 2.34 Subsidies against loss due to flood 929.00 INCOME 1214.99 Loss due to flood cyclone fire 79.8 353.90 EXPENSE 353.90 Total 861.09 &nb....
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.... such as nature of loss, how the amount of loss quantified, date when the asset was purchased, depreciation claimed/allowed, WDV, etc. In the absence of such details, assessee's claim could not be examined and verified properly and assessee could not be allowed the claim without such details. Moreover, loss on account of obsolescence could not be allowed after introduction of concept of depreciation on block of assets. As regards loss due to cyclone, fire and flood and sundry debits, no details have been furnished by the assessee despite requirements of this office. Without details assessee's claims cannot be allowed. In view of the above, the assessee's claim of Rs. 2,95,13,000/- under the head extra ordinary items is disallowed and added back to the total income." 6. On appeal, the CIT(A) deleted the addition for Asstt.Year 2006-07 by observing as under: "4.2 I have considered the submissions of the Id. AR and the facts of the case. The disallowance has been made only on the ground that the assessee could not substantiate that it had incurred expenditure of Rs. 353.90 lacs on repairing its assets damaged due to flood. It is seen that the assessee had received financia....
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.... damaged" assets amounted to Rs. 186.99 lacs. The C & AG has certified the expenditure. No further evidence in this regard would ordinarily be necessary. If, however, it was felt that the expenses were over-stated, an independent enquiry could have been made to ascertain the correct expenses. However, this has not been done. Looking to the circumstances and also the fact that the excess subsidy received has been included in the taxable income, it is held that the AO was not justified in making the addition of Rs. 1,86,99,000/-, which is directed to be deleted. So far as the miscellaneous write off of Rs. 82.93 lacs is concerned, it was submitted as under: "The Company has carried out physical verification of material by a specified team as per the standard practices. After completion of physical verification, shortage/excesses of materials were listed out. The detailed reasons of shortage of material were received from respective stores in-charge. Excess material was treated as gain of the materials. However, shortage of material was treated as loss of material after detailed analysis and approved by the Competent Authority. Looking to the no. of transactions and values percentage....
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....see are audited by C&AG, as the assessee is a Government company, and therefore, the disallowance was not justified. We find that the undisputed facts are that the assesseecompany received grant of Rs. 929.00 lakhs from Govt. of Gujarat on account of loss suffered in flood and the said amount was declared as income by the assessee and was also accepted by the Department. 9. Further, the assessee claimed Rs. 353.90 lakhs as actual expenditure incurred on account of damages by flood in the Asstt.Year 2006-07 and Rs. 186.99 in Asstt.Year 2007-08. The assessee also claimed Rs. 82.93 lakhs as Misc. write off in Asstt.Year 2007-08. The AO disallowed the entire amount of loss claimed by the assessee on account of loss due to flood and Misc. write off on the ground that the details of expenditure incurred were not available before him. In our considered view, the fact that the assessee suffered loss has not been disputed by the AO, and therefore, the AO was not justified in disallowing the entire amount of loss claimed by the assessee, and thereby inferring that no actual loss was suffered by the assessee. 10. However, we also find that the details of the expenditure incurred or loss suf....
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.....8.2008 stated as under:- "The company raised loans from banks and financial institution and offered guarantee for, repayment of loan and interest thereon as security. Moreover, during the year under review, the assets and liability; of erstwhile Gujarat Electricity Board was transferred to the company, which also contained loans raised from banks and financial institutions. The guarantee fees are payable to the state government every year on the outstanding balance of guarantee given to banks / financial institutions on the first day of the year. Therefore, it is submitted that it is not a single one time payment but recurring expenditure till repayment of loans." The company has repaid higher interest bearing loans. For the same the bank charges premium on restructuring of loans. As the same reduces the cost of interest expenditure, it is requested to allow the same as revenue expenditure.'' I have gone through the submission of the assessee. It is clear from the details in this respect that the assessee is going to derive all the benefits in the form of restructuring of the debt, rescheduling of repayment schedule, reduction in interest etc. over a long period of tim....
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....the assessee. It is clear from the details in this respect that the assessee is going to derive all the benefits in the form of restructuring of the debt, rescheduling of repayment schedule, reduction in interest etc. over a long period of time which are in the range of more than 5 years. It means that the assessee will derive advantage of enduring nature as a result of restructuring of loans, therefore, the expenses pertaining to the same in the form of premium for restructuring debts have resulted into advantage or benefit of enduring nature to the assessee. It is pertinent here to mention "enduring benefits" has been discussed as under - The Honorable Supreme Court has in case of CIT vs. Coal Shipments Pvt Ltd reported in 82ITR 902 has defined "Enduring benefit" in the following terms - Although and enduring benefit need not be of an everlasting character, it should not at the same time be transitory or ephemeral, so that it can be terminated at any time at the volition of either of the parties. What is the extent durability, or permanence should depend on the facts of each case. The expression "Enduring Advantage" is a relative term, not enduring in the sense of its being per....
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....ission @ 1% of the outstanding value of unsecured loans was charged. Hence the addition of Rs. 20,57,03,000/- may be deleted. 5.2 I have considered the submissions of the Id. AR and the facts of the case. The issue relating to whether an item of expenditure lies in the capital or the revenue field has exercised the courts in numerous cases. From an analysis of such cases a few guiding principles/tests can be identified. One of the important tests for categorizing any expenditure as capital in nature is whether the laying out of the impugned expenditure results in the acquisition or creation of any new asset. Where no such asset is created, it would be indicative of an expenditure which was not capital in nature. Another test relates to the principle of "enduring benefit". "Enduring benefit" may be in the form of long lasting use 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 la....
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....ew is that the test of enduring benefit is not a certain or conclusive test and it cannot be applied without regard to the particular facts and circumstances of each case. It has been generally agreed that where the laying out of such expenditure confers an advantage to the assessee which constitutes of merely facilitating the assessee's trading operations or enabling the management or conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be in the revenue account even though the advantage may endure for the indefinite future. As observed by the Supreme Court in the case of Alembic Chemical Works Co. Ltd. v CIT, 111 ITR 377, "the idea of "once for all" payment and "enduring benefit" are not to be treated as something akin to statutory conditions; nor are the notions of "capital" or "revenue" a judicial fetish. What is capital expenditure and what is revenue are not eternal verities but must needs be flexible so as to respond to the changing economic realities of business. The expression "asset or an advantage of an enduring nature" was evolved to emphasize the element of a suf....
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....n the case of Mihir Textile Ltd. (supra), we confirm the order of the CIT(A) and dismiss this ground of the Revenue for both the years under consideration. 20. The ground no.2 of the appeal of the Revenue for the Asstt.Year 2006-07 is also directed against the order of the CIT(A) in deleting the disallowance of premium claim on restructuring of loan of Rs. 172.71 lakhs. The AO disallowed the claim of premium claim on restructuring of loans by holding as under: "4. Guarantee fees and Premium on debt restructuring: During the financial year under consideration the assessee has paid guarantee fees of Rs. 20,57,03,000/- to the Government of Gujarat in consideration of it issuing guarantee for repayment of unsecured loans. Further the assessee has also paid Rs. 1,72,71,000/- as premium on restructuring of loans. The said premium has been paid to the Financial Institutions from whom Loans have been taken. The said premium was paid for restructuring of the loans in order to reduce the interest burden. Thus the assessee has claimed expenses and also it has obtained several advantages as a result of restructuring of loans and in view of guarantee of, Gujarat Government for repayment of ....
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....iciently durable depending upon the nature of terms upon which it can be acquired. . The above views were again expressed by the Honorable Supreme Court in the case of Devidas Vitthaldas & Co. Vs. ClT (1972) reported in 84 ITR 277. Therefore, having regard to that discussion and facts of the case as discussed above, the entire expenditure pertaining to CDR is held as capital expenditure. Accordingly, the total amount of Rs. 22,29,74,000/- as claimed by the assessee on this account and discussed above, is held as capital expenditure and the same is disallowed and added to its total income. 21. The CIT(A) has decided the issue by observing as under: "6.2 I have considered the submissions of the Id. AR and the facts of the case. The courts have been repeatedly called upon to pronounce on the issue of capital vs revenue expenditure. The concurrence of judicial opinion now is that there are a number of tests for determining the nature of an expenditure, viz., test of bringing into existence an asset, test of enduring benefit, test of fixed and circulating capital, etc. However, the general view is that the test of enduring benefit is not a certain or conclusive test and it cannot be....
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....eleted the disallowance on the ground that it does not confer any enduring benefit and merely facilitate the assessee's business in more efficient manner. 24. DR relied on the order of the AO. 25. On the other hand, AR of the assessee relied of the decision of the Hon'ble Gujarat High Court in the case of DCIT Vs. Gujarat Narmada Valley Fertilizers Ltd., 356 ITR 460 (Guj) wherein it was held that the expenditure incurred by the assessee on restructuring of loan was revenue expenditure. No contrary decision was cited by the learned DR. Therefore, respectfully following the decision of the Hon'ble Gujarat High Court in the case of Gujarat Narmada Valley Fertilizers Ltd. (supra), we confirm the order of the CIT(A) and dismiss the ground of appeal of the assessee. 26. The ground no.3 of the appeal for the Asstt.Year 2006-07 and the ground no.1 of the appeal for the Asstt.Year 2007-08 are directed against the order of the CIT(A) in confirming the addition on account of Employee's PF contribution of Rs. 37.31 lakhs for Asstt.Year 2006-07 and Rs. 5.23 lakhs in Asstt.Year 2007-08. 27. In the Asstt.Year 2006-07, the CIT(A) has held as under: "7. Ground No. 4 relates to the disallowance....
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....ld be deemed to have been made within time. Moreover, in AIMIL's case, the Delhi High Court has clearly stated that even in the case of employees' contribution to PF, the delayed payment would qualify for deduction, provided it was deposited before the due date for filing of return. In the instant case, the payment has been made before the prescribed due date for filing the return of income. Accordingly, the disallowance of Rs. 5,23,892/- is directed to be deleted." 29. We have heard rival submissions and perused the orders of the lower authorities and material available on record. In the instant case, the AO disallowed deduction for employees' contribution to PF of Rs. 37,31,520/- in Asstt.Year 2006-07 and Rs. 5,23,892/.- in the Asstt.Year 2007-08, as the assessee failed to deposit the contribution with PF authority within the due date prescribed under the PF Act by invoking the provisions of section 36(1)(va) read with section 2(24)(x) of the Act. 30. On appeal, the CIT(A) following the decision of the Hon'ble Delhi High Court in the case of CIT Vs. Aimil Ltd. (supra) deleted the disallowance on the ground that deduction was allowable to the assessee if the contribution....
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.... book profit by this amount. 8.1.1 The Id. AR submitted in appeal that, as held by various judicial authorities, if the provision for gratuity was made on acturial valuation, the same should not be considered as unascertained liability but was to be treated as an ascertained one. The assessee computed the quantum of provision for gratuity based on acturial valuation done by LIC of India, a Government owned company. 8.1.2 I have considered the submissions of the Id. AR and the facts of the case. The issue relating to treatment of provision as unascertained liability was considered by the Supreme Court in Bharat Earth Movers, 245 ITR 428. In that case, the issue was of provision for leave encashment. The principle laid down by the Court was that where the liability could be computed along scientific lines and on a scientific basis regularly from year to year, the provision towards the same could not be said to represent an unascertained liability. Here the assessee has got the computation done through LIC of India on a scientific basis, i.e. following acturial valuation principles. The ITAT, in the case of Etcher Motors Ltd v DCIT, 82 TTJ 61 has also held that provision for gratuit....
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.... 40. DR could cite any contrary decision. He could not controvert the findings of the CIT(A) that the provision for gratuity in the instant case was made by the assessee on actuarial valuation. Therefore, following the decision o the Hon'ble Gujarat High Court in the case of DCIT Vs. Inox Leisure (supra), we dismiss this ground of the Revenue. 41. The ground no.5 in the Asstt.Year 2006-07 is directed against the order of the CIT(A) directing the AO to exclude the amount withdrawn from reserve of Rs. 8990.87 lakhs in the computation of book profit u/s.115B. 42. The CIT(A) has held as under: Ground No. 5.2 relates to disallowance of Rs. 88,90,87,000/-. The AO noted that the assessee had reduced its book profits by the aforesaid amount for the purposes of section 115JB in terms of clause (i) of sec. 115JB (2), Explanation-l. The AO observed that the amount withdrawn from reserves could be reduced from the book profits only if the book profit of the year had been increased by such withdrawal. On examination of balance sheet it is found that the profit and loss account had not been increased by such amount. Accordingly, the AO denied the reduction of the impugned amount while computin....
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....r honour's reference to the provisions of clause (i) to Explanation -1 to sub-section (2) to section 115JB of the I T Act which provide that the amount withdrawn from reserves and credited to profit & loss account shall not be reduced unless the book profits of such year, in which such reserves were created, were increased by the amount transferred to such reserves or provisions (out of which the said amount was withdrawn). From the above, it is clear that only such transfers (from the reserves of earlier years) shall be reduced from the book profits which have already been taxed in earlier years. Thus as explained in preceeding paras, the company has already offered the income for tax in the respective years in which the same was transferred to the Reserves. Out of the same Reserves, the company has withdrawn the amount during the year which are allowable as deduction while computing the bookprofits. The appellant, therefore, prays that the adjustment made on this count while calculating the bookprofits under section 115JB of the I T Act may be deleted." 8.2.2 I have considered the submissions of the Id. AR and the facts of the case. In the case of the appellant, the provisi....
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....e. Accordingly, the AO is directed to recompute the book profits u/s 115JB by allowing the same to be reduced by the impugned amount of Rs. 88,90,87,000/- 43. We have heard rival submissions and perused the orders of the lower authorities and material available on record. In the instant case, the assessee has reduced Rs. 8890.87 lakhs from the book profit under the clause (i) of Explanation to section 115JB of the Act, as the amount withdrawn from the reserve/provisions. The AO added the same to the book profit of the assessee on the ground that from the audited balance sheet submitted by the assessee, it was noticed by him that the profit has not increased by the amount withdrawn from the reserve. 44. On appeal, the CIT(A) allowed the appeal of the assessee by observing that the profit carried to the balance sheet in the reserve account were those profit, which were arrived at after deducting tax and that under the proviso it was not necessary that the amount withdrawn from the reserve should be credited to the profit & loss account of the same year. 45. DR supported the order on the AO, whereas the AR of the assessee relied o the order of the CIT(A). 46. In our considered opi....
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....Assessing Officer has made adjustments under this head on the basis of comments of CAG. During the year the Company adopted the ongoing rates of depreciation as per CERC norms in respect of most of its assets. CERC had revised rates of depreciation of certain assets which the Company could not adopt for the year 2005- 06. The same were applied in the subsequent years. Further the alleged understatement of profit is only due to the accounting entries made in the books of account on account of excess and/or short provision of depreciation. Thus there is no question of adding back the said amount to the net profits. Further since the accounts for the year under consideration were the first accounts after unbundling of GEB, the amount of Rs. 1.30 crore was left to be unadjusted. Hence the learned Assessing Officer has made adjustment on account of such credit balance lying in the Capital Work in Progress. It is submitted that the said credit balance is being allocated and credited to the respective heads of accounts in the subsequent financial year and hence there is no question of reworking of depreciation for the year under consideration. It is submitted that the learned Assessing ....
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....h Part II and Part III of Schedule VI of the Companies Act, 1956. The AO recomputed the book profits and excluded the provisions made in respect of arrears of depreciation. The AO's order was confirmed by the Kerala High Court, and the issue was taken up further before the Ron 'ble Supreme Court. The Supreme Court adjudicated the issue and held as under : "The AO, while computing the book profits of a company under section 115Jofthe IT Act, 1961, has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having properly maintained in accordance with the Companies Act. The AO, thereafter, has limited power of making increases and reductions as provided for in the explanation to section 115J. The AO does not have the jurisdiction to go behind the net profits shown in the P&L A/c except to the extent provided in the explanation. The use of the *words "in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act" in section 115J was made for the limited purpose of empowering the AO to rely upon the authentic statement of accounts of the company. While so looking into the accounts of the ....
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....epreciation worked out by the assessee on the basis of income-tax records and debited to the profit and loss account would not be violative of the provisions of the Companies Act and cancelled the order passed by the Commissioner under section 263. On appeal, the Gujarat High Court affirmed the order passed by the Tribunal. The gist of the decision is as under : "Section 115J, read with section 263, of the Income-tax Act, 1961 and Schedule IV, Parts II and III, of the Companies Act, 1956 - Zero-tax companies - 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 calculated under Schedule XIV of the Companies Act - Commissioner, acting under section 263, held that rate of depreciation claimed was in excess of the rate under the Companies Act and that excess was to be disallowed -Tribunal held that Circular of Company Law Board lays down minimum rate of depreciation for purpose of distribution of dividend and company may decide to claim higher depreciation on basis of a bona fide technological evaluation and proper disclosure is to be made by way of a note forming....
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....ged against the current year's profit. The assessee was of the view that all the entries related to prior period are required to be made below the line and hence such entries cannot be counted for the purpose of arriving at the book profit. The AO had disallowed the said claim following the decision of Kerala High Court decision in case of CIT vs. Apollo Tyres Ltd. reported at 149 CTR 538. On appeal, the IT AT, Delhi Bench allowed the claim of the assessee holding that while working out the book profit under section 115JA, the arrears of depreciation have to be excluded from current year's profit. The appellant also relies on the decision of ITATMumbai in case of Sterlite Industries (Ind.) Ltd. Vs. Addl. CIT, reported at 102 TTJ 53 wherein on exactly cases and following the Supreme Court judgement in case of Apollo Tyres Ltd. (Supra) it was held that while determining the 'book profit' under section 115J, the AO could not recomputed the profits in the P & A/c by excluding provisions made for arrears of depreciation. In view of the foregoing detailed discussion and law prevailing as per the judicial pronouncement, the matter is very clear that in case of differen....
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....ibed in Schedule - XIV could be viewed as minimum rates. From Part A to the notes (wherein accounting policies have been disclosed) it is seen from item-xi relating to depreciation, that up to FY 2003-04 the company was providing depreciation as per Rules framed under the Electricity (Supply Act), 1948. Subsequently, CERC brought out a Notification No. 23.2/2005 R&R dt. 6.1.2006 issued by the Ministry of Power, Government of India. As per the notification, higher rates of depreciation have been prescribed as compared to the rates prescribed under Schedule-XIV of Companies Act, as well as the rates under Electricity Act. The assessee has claimed the higher rates on the basis of a bona fide technological evaluation by the Ministry of Power, Government of India to the effect that depreciation in respect of plant and machinery utlised for generating power needed to be provided at higher rates. Hence the assesse has complied with the provisions of Schedule-VI of Companies Act while preparing its accounts. 8.3.3 The Supreme Court has held very clearly in Apollo (supra) as well as Malayala Manorama Co Ltd v CIT, 168 Taxman 471 that the power to make enhancement and reduction u/s 115J is ....
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....generating power needed to be provided at higher rate. Further, The CIT(A) has also held that the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. Vs. CIT, 255 ITR 273 has held that power to make enhancement and reduction u/s.115J is limited only to the specific items provided under clauses (a) to (i) and (i) to (viii). The AO has to satisfy himself that the provisions of Companies Act have been complied with while preparing the accounts. The CIT(A) also held that on similar facts, the Hon'ble Gujarat High Court in the case of DCIT Vs. Vardhman Fabrics P. Ltd., 122 Taxman 375 after considering the circular of the Company Law Board which clarified that the rates prescribed in Schedule XIV were minimum rate of depreciation and the company could claim higher depreciation on the basis of a bona fide technological evaluation and proper disclosure thereof in the notes forming part of annual accounts. 51. We find that it is not in dispute that the assessee has claimed only that depreciation which was debited in its audited profit & loss account which was laid before the AGM. In our considered view, following the decision of the Hon'ble Supreme Court in the case of Apollo Tyres Ltd.....
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....ntical to the appellant's case. Accordingly, following the ratio of my order in the case of GUVNL, the disallowance made by the A.O. is confirmed. However, the A.O. is directed to verify the correct figure of interest and recalculate the disallowance, if necessary." 54. We have heard rival submissions and perused the orders of the lower authorities and material available on record. In the instant case, the AO found that the assessee has shown exempt income of Rs. 41.32 lakhs. The assessee has not disallowed any expenditure attributable to the earning of such exempt income in its computation of income. Hence, he disallowed Rs. 103.32 lakhs on account of interest expenditure and Rs. 10.26 lakhs on account of administrative expenses and made a total disallowance of Rs. 113.55 lakhs by invoking the provisions of section 14A of the Income Tax Act read with Rule 8D of the Income Tax Rules, 1962. 55. On appeal, the CIT(A) observed that the Hon'ble Gujarat High Court in the case of Gujarat Urja Vikas Nigam Ltd. (supra) following the decision in the case of Daga Capital Management Pvt. Ltd., held that it was mandatory for the AO to apply Rule 8D while computing the disallowance under ....
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....scence of fixed assets of the company. Further, the assessee vide its reply dated 09.07.09 submitted that the loss due to flood was incurred for revival and repair of assets damaged and the sundry debits was on account of written off of deferred revenue expenditure. However, assessee has not submitted any details such as nature of loss, how the amount of loss quantified, date when the asset was purchased, depreciation claimed/allowed, WDV, etc. In the absence of such details, assessee's claim could not be examined and verified properly and assessee could not be allowed the claim without such details. Moreover, loss on account of obsolescence could not be allowed after introduction of concept of depreciation on block of assets. As regards loss due to cyclone, fire and flood and sundry debits, no details have been furnished by the assessee despite requirements of this office. Without details assessee's claims cannot be allowed. In view of the above, the assessee's claim of Rs. 2,95,13,000/- under the head extra ordinary items is disallowed and added back to the total income." 59. On appeal the CIT(A) held as under: "6.5 With regard to the other sundry debits aggregating to....
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.... ground of the assessee is dismissed. 63. The ground no.3 of the appeal of the assessee for the Asstt.Year 2007-08 reads as under: "3. The ld.CIT(A) has erred in law and facts in not adjudicating the ground relating to reduction of amount of capital grants amounting to Rs. 31,37,78,000/- from the total cost of the fixed assets and allowing depreciation after such reduction by invoking the provisions of section 43(1) of the I.T.Act." 64. At the time of hearing, the AR of the assessee submitted that CIT(A) has not adjudicated this ground of the appeal taken before him. He pointed out that from the ground of appeal taken before the CIT(A) this ground was taken as ground no.8 of the appeal filed before the CIT(A). 65. In view of above submissions of the AR of the assessee, we restore this issue to the file of the CIT(A) for adjudication of the same after allowing proper opportunity of hearing to the assessee. Thus, this ground of the appeal of the assessee is allowed for statistical purpose. 66. The ground no.4 of the assessee's appeal is directed against the order of the CIT(A) in confirming the enhancement of book profit computed under section 115JB of the IT Act by Rs. 1,13,55,....