TaxTMI 
TaxTMI 
2017 (6) TMI 1172
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....P/2014 The assessee has raised the following grounds of appeal:- "1. The Ld. CIT (A) has erred on facts and in law in confirming the disallowance of 'expenditure of Rs. 45 lacs incurred by the assessee by way of contribution made towards construction of hospital to Medicare Relief Society. Community Health Centre, Ramaganjmandi by holding that the payment is in the nature of charity/donation and the same can be claimed u/s 80G of the IT Act and not as business expenditure. 2. The Ld. CIT (A) has erred on facts and in law in confirming the disallowance of claim of expenditure of Rs. 1,75,000/- out of Rs. 9,10,425/- made by the AO towards social welfare by holding that some element of charity is inbuilt in these expenditure which can be claimed only u/s 80G of the IT Act. 3. The Ld. CIT (A) has erred on facts and in law in holding that expenditure of Rs. 12, 89,767/- incurred on roads and boundary wall and expenses of Rs. 5, 50,798/- for common property work at Kota Thermal Power Station is to be allowed over five years as per findings given in A. Y 09-10 and thus confirming the disallowance of Rs. 14, 72,452/-. 4. The Ld. CIT (A) has erred on f....
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....,05,723/-, and disallowance u/s 36(1)(iii) of Rs. 30,17,564/-. Thus, the AO assessed income of Rs. 2,07,99,71,377/-, against the revised returned income at Rs. 196,31,05,295/-. 3. Aggrieved by this, the Assessee preferred an appeal before Ld. CIT(A), who after considering the submissions partly allowed the appeal. While partly allowing the appeal, the Ld. CIT(A) in respect of disallowance of compensation to the farmers directed the AO to allow such expenditure in equal 20 yearly installments, however, confirmed the disallowance of contribution made to hospitals. In respect of, the contribution made towards construction of roads same was deleted by holding it as the revenue expenditure. In respect of, the disallowance towards social welfare expenses out of total disallowance of Rs. 9,10,425/- the Ld. (CIT) sustained 20% and rest of the disallowance was deleted. Further the Ld. CIT(A), in respect of, disallowance of flying ash handling system expenditure directed the AO to allow 20% of such expenditure in the year under consideration. Further, the Ld. CIT(A) in respect of staff welfare expenses, general charity expenses, gift expenses, sale promotion expenses, garden expenses etc.....
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.... 5. Ground no. 2, is against confirming the disallowance of claim of expenditure of Rs. 1,75,000/- out of Rs. 9,10,425/- made by the AO. 5.1 Ld. Counsel for the assessee reiterated the submissions as made in the written submissions. Ld. Counsel submitted that the assessee company claimed social welfare expenses of Rs. 1,54,01,531/-. Out of the same, Rs. 45 lacs was in respect of contribution made for construction of hospital at Ramganj Mandi and Rs. 1 crores was in respect of contribution made for construction of new railway over bridge with approach road & bye pass. The remaining expenditure of Rs. 9,01,531/- was in respect of contribution made to Gram Panchayat towards its welfare fund, repair of police station at Morak/Dara, supply of sweets for Budhkhan Gram Panchayat. He submitted that the similar grounds was made in the earlier year 2008-09 and AY 2009-10, the Tribunal in ITA No. 81 & 173/JP/2012 for the AY 2008-09, deleted the similar disallowance. 5.2 On the contrary, the Ld. Departmental Representatives supported the order of the AO. He submitted that law is well settled the assessee is required demonstrate that the expenditure which it is claiming was made wholly an....
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....s business and not for acquiring the capital asset. Further, as per para 2.1 of the agreement, RRVUNL has allowed the assessee to install the system only for collection of fly ash free of cost, initially for a period of 5 years, and as per Para 2.12 of the Agreement, the system becomes the sole property of RRVUNL on the expiry/termination of the agreement. Thus, the entire arrangement has benefited the assessee only by way of free supply of fly ash by incurring the expenditure on installation of the system which become the property of RRVUNL. By allowing 20 % of the expenditure, the authorities have accepted that the expenditure is revenue in nature and not a capital expenditure. There is no concept of deferment of expenditure in the IT Act. We also find that this very issue is decided by the ITAT Chennai Bench in case of ACIT Vs. Chettinand Cement Corporation Ltd. 133 ITD 317 where the finding given at Para 33 of the order is reproduced as under:- We have perused the orders and heard the rival submissions. There is no dispute that the assessee had an MoU with TNEB which clearly specified the fly ash system equipment installed by the assessee to be the property of the TNEB....
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....han against this finding of the Tribunal. Therefore, taking a consistent view, we hereby direct the AO to delete the disallowance. 7. Ground no. 4, is related to disallowance of various expenses i.e. staff welfare expense, charges general expenses, gift expenses, sales promotion expenses etc. 7.1 The Ld. Counsel for the assessee reiterated the submissions as made in the written submissions. He submitted that in respect of staff welfare expenses, the similar disallowance was made by the AO in respect of the AY 2008-09. The Tribunal had deleted such disallowance. Therefore, he submitted that as there is no change into facts. The disallowance made and confirmed by the Ld. CIT(A), may be deleted. 7.2 On the contrary, the Ld. Departmental Representatives supported the order of the authorities below. 7.3 We have heard the rival contentions, perused the material available on record. We find that the Tribunal in respect of the expenses i.e. staff welfare expenses, charges general expenses, gift expenses sales and promotion expenses in AY 2009-10 in ITA Nos. 361 & 419/JP/2012 deleted the disallowance by observing as under:- 6.6 We have heard the rival submissions and ha....
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....nditure was made for business purposes from the details furnishedbefore the Assessing Officer. It is noticed that the expenditure related to taxi hiring for DRM Railway and other railway employee is also booked, it is not clear whether such railway employee were on official duty and such taxi was hired in inspecting the railway siding in the absence of the material. We are of the considered view that Ld. CIT(A) has rightly confirmed the disallowance of 10% of the expenditure. This ground of assessee appeal is partly allowed. 8. Ground no. 5, is against the confirming of Rs. 9,27,956/- by invoking the provision of section 14A. 8.1 Ld. Counsel for the assessee reiterated the submissions as made in the written submission. He submitted that from the plain reading of Rule 8D, it is evident that recourse to Rule 8D is not automatic. It is submitted that the assessee can claim that having regard to the books of accounts, it has not incurred any expenditure in relation to income not forming part of his total income. If the AO having regard to such account is not satisfied with the correctness of the assessee's claim, then only he can invoke sub clause (2) of Rule 8D of the Income Tax....
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....el for the assessee and supported the Assessment Order. 8.3 We have heard the rival contentions we find merit into the contention of the Ld. Counsel for the assessee that the provisions of section 14A can be invoked in the event of the AO is not satisfied with the correctness of the claim of the expenditure related to the exempt income. The Hon'ble Supreme Court in the recent judgment in the case of CIT vs. Godrej Boyce vs CIT has held that provision of section of 14A can be invoked when the AO is dissatisfied with the claim of expenditure related to the exempt income. 8.4 In the present case the Ld. CIT(A) has recomputed the disallowance by applying rule 8D. He has disallowed interest expenditure of Rs. 2,38,454/- and administrative expenses of Rs. 6,89,497/-. The grievance of the assessee is that the no interest expenditure is related to the exempt income. As it is claimed that the entire investment in mutual funds have been made from own fund. The Ld. CIT(A) has not given any reason as to why the contention of the assessee is not acceptable. Revenue has not placed any material rebutting the claim of the asessee. Therefore, out of disallowance of Rs. 9,27,956/- a sum of Rs.....
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....expenditure in 20 annual installments of compensation paid to the farmers. 10.1 Ld. Departmental Representatives supported the Assessment order and submitted that the Ld. CIT(A) was not justified in given the direction or allowing the expenditure over a period of 20 years. 10.2 On the contrary, the Ld. Counsel for the assessee supported the order of the Ld. CIT(A) and submitted that the AO disallowed the expenditure on the basis that the expenditure was incurred to protect the long-term exploitation right over the huge area of mining land is of capital in nature and as such not be allowed u/s 37(1) of the Act. Ld. Counsel placed reliance on the Hon'ble Delhi High Court rendered in the case of Shankar Das Sethi & Sons Vs. CIT 157 ITR 770 (Del.), the reliance in also placed on the decision of the Tribunal rendered in the case of ACIT vs. 144/JP/2014. 10.3 We have heard the rival contentions, perused the material available on record. The Ld. CIT(A) has given a finding on fact by observing as under:- "In my opinion, the main purpose of acquiring the land was to extract lime stones which is the raw material for assessee. After the extraction the land becomes unusable f....
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....s no dispute with regard to the fact that the assessee has not acquired any capital asset giving enduring benefit. It was a contribution towards construction of railway over bridge which facilitated the smooth flow of traffic including the transportation of goods by the assesssee. Therefore, this ground of the Revenue's appeal is dismissed. 12. Ground no. 3, is against deleting the disallowance made by the AO on account of fly ash handling system by directing the AO to allow these expenses over a period of 5 years, consequent giving relief of 1/5^th of the expenses during the year. The parties have adopted the same argument as were adopted in assessee's appeal qua the ground no. 3. 12.1 The ground no. 3, we have decided in favour of the assessee by following the earlier decision of this Tribunal of assessee's own case. For the same reasoning, this ground of Revenue's appeal is dismissed. 13. Ground no. 4,5,6,7 and 8 of the Department and ground no. 4 of the assessee's appeal are related to the disallowance of expenditure in respect of staff welfare expenses and other expenses. The parties have adopted the same argument as were in ITA NO. 354/JP/2014 pertaining to the AY 20....
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.... in their books of accounts during the year. Only because the liabilities are outstanding for more than 3 years, it cannot be presumed that the liability has ceased to exist during the year. He submitted that, it may be noted that during the year also, assessee has written back an amount of Rs. 85,04,477/- which were not payable and offered the same for tax u/s 41(1) of the Act. The fact that assessee has normally written back the liabilities in past is also accepted by the AO. Thus, in the absence of remission or cessation or any unilateral written back of such liability by assessee, the same cannot be treated as assessee's income u/s 41(1) of the Act. Ld. Counsel placed reliance on the decision of the Hon'ble Gujarat High Court in the case of CIT vs. G.K. Patel & Co. 212 Taman 384 (Guj.) (HC). The decision of the Third Member of the Tribunal in the case of Income Tax Officer vs. R.B. Seth Moolchand Nemichand (P.) Ltd. 14 ITD 473 (Jpr.)(Trib.)(TM), other judgment of the Hon'ble Gujarat High court rendered in the case of CIT vs. Nitin S. Garg 71 DTR 73 (Guj.) (HC), and judgment of the Hon'ble Delhi High court rendered in the case of CIT vs. Shri Vardhaman Overseas Ltd. 69 DTR 379 (....
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....h the demurrages was required to be paid by the C & F Agent not by the assessee. It is also not brought on record by the revenue that the assessee had claimed such expenditure from C & F agent. Under these facts, we are of the view that the Ld. CIT(A) has rightly followed the decision of the Hon'ble Delhi High court in the case of Mahalaxmi Sugar Mills Co. Ltd. Vs. CIT and Hon'ble Allahabad High Court in the case of Nanhoomal Jyoti Prasad Vs. CIT (supra). We do not see any merit into the ground of revenue's appeal, same is hereby affirmed. This ground is dismissed. 16. Ground no. 11 is against deleting the disallowance of Rs. 27,51,314/- made by the AO on account of railway siding expenses. 16.1 Ld. Departmental Representatives supported the order of the AO and submitted that Ld. CIT(A) was not justified in deleting the disallowance. He submitted even otherwise also such expenditure was made for enduring benefit. Therefore, the AO has rightly disallowed the claim of the assessee. 16.2 On the contrary, the Ld. Counsel for the assessee reiterated the submissions as made in the written submissions and submitted that the Ld. CIT(A) was justified in deleting the disallowance. L....
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....d the view of the Ld. CIT(A) by confirming the disallowance of expenditure of account of taxi hiring to the extent of the 10% of the total expenditure. Therefore, for the same reasoning, this ground of the revenue's appeal is dismissed. 18. Ground nos. 13 & 14 are against deleting the disallowance of Rs. 79,39,737/- and Rs. 3,38,996/- respectively, on account of mining rights. 18.1 Ld. Departmental Representatives supported the order of the Assessing Officer and submitted that the Ld. CIT(A) was not justified in deleting the disallowance. He submitted that the AO disallowed the claim by holding that the expenditure is of capital in nature. 18.2 On the contrary, Ld. Counsel for the assessee reiterated the submissions as made in the written submissions and submitted that the Ld. CIT(A) was justified in deleting the disallowance. Ld. Counsel for the assessee submitted that in the AY 2008-09, the AO directed to allow an amount of Rs. 3,82,75,607/- in 6 equal installments and Rs. 3,12,09,385 in 20 installments. Accordingly, an amount of Rs. 79,39,737/- is allowable during the year under appeal. Similarly, in AY 2009-10, the AO has held that payment of Rs. 67,79,925/- to the far....
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....the recent judgment in the case of CIT vs. Godrej Boycer vs CIT has held that provision of section of 14A can be invoked when the AO is dissatisfied with the claim of expenditure related to the exempt income. 8.3 In the present case the Ld. CIT(A) has recomputed the disallowance by applying rule 8D. He has disallowed interest expenditure of Rs. 2,38,454/- and administrative expenses of Rs. 6,89,497/-. The grievance of the assessee is that the no interest expenditure is related to the exempt income. As it is claimed that the entire investment in mutual funds have been made from own fund. The Ld. CIT(A) has not given any reason as to why the contention of the assessee is not acceptable. Revenue has not placed any material rebutting the claim of the asessee. Therefore, out of disallowance of Rs. 9,27,956/- a sum of Rs. 2,38,454/- is deleted and Rs. 6,89,497/- is sustained. This ground is partly allowed." Therefore, taking a consistent view, there is no change into facts and circumstances. This ground of the Revenue's appeal is rejected. 20. Ground no. 16, is against deletion of disallowance of Rs. 30,17,564/- made by the AO under section 36(1)(iii) of the Act. 20.1 L....
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....laimed % Amount Amount Staff Welfare Expenses 1,11,64,033/- 50% 55,82,016/- 5,00,000/- Charges General Expenses 26,67,043/- 20% 5,33,409/- 2,50,000/- Gift Expenses 28,60,604/- 50% 14,30,302 14,30,302/- Sales Promotion Expense 88,45,407/- 20% 17,69,080/- 8,00,000/- Taxi Hiring Expenses 21,77,479/- 20% 4,35,495/- 2,17,747/- 2. The Ld. CIT(A) has erred on facts and in law in confirming the disallowance of Rs. 6,66,297/- u/s 14A r.w.r. 8D(2) ignoring that the assessee has not incurred any interest expenditure or other expenses in earning the income which is not chargeable to tax. 3. The assessee craves to amend, add, alter, or modify any of the ground of appeals. 4. Necessary cost be allowed to the assessee." 23. Ground No. 1 of the assessee in this appeal relates to disallowances out of staff welfare expenses, charges general expenses, gift expenses, sales promotion expenses, taxi hiring expenses. 23.1 Facts in this case are identical to A.Y. 2010-11. We have already decided this issue in ITA No. 354/JP/2014 relating to assessment year 2010-11 whereby we have confirmed ....
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....demurrage? (xi) Deleting the disallowance of Rs. 39,35,948/- made u/s 37(1) on account of railway siding expenses? (xii) Deleting the disallowance of Rs. 79,39,737/- claimed as mining rights? (xiii) Deleting the disallowance of Rs. 3,38,996/- claimed as mining rights? (xiv) Reducing the disallowance from Rs. 52,45,149/- to Rs. 6,66,297/- made u/s 14A? (xv) Deleting the disallowance of Rs. 10,00,000/- made u/s 36(1)(iii)? (xvi) The appellant craves liberty to raise additional ground and to modify/amend the ground of appeal at the time of hearing." 26. Ground No. 1 of the department relates to directing the AO that compensation of Rs. 53,44,198 paid to the farmers is to be allowed over a period of 20 years, consequently giving relief of Rs. 2,67,210/- for the current year. 26.1 We have already dealt with the similar issue in revenue's appeal in ITA No. 425/JP/2014 for the A.Y. 2010-11 in para 10.3 above, wherein we have confirmed the order of the ld. CIT (A) by dismissing the ground of the department. Facts are identical for the year under consideration. We, therefore, for the same reasoning, dismiss this ground of the depar....
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.... in Revenue's appeal in ITA No. 425/JP/2014 for the A.Y. 2010-11 in para no. 15.3 above in favour of the assessee. Similar is the case for the assessment year 2011-12. Therefore, for the reasons given therein, we reject this ground of the revenue. 32. Ground No. 11 of the department relates to deleting the disallowance of Rs. 39,35,948/- made u/s 37(1) on account of railway siding expenses. 32.1 Facts are identical for the year under consideration. We have already decided this ground in Revenue's appeal in ITA No. 425/JP/2014 for the A.Y. 2010-11 in para no. 16.3 above in favour of the assessee. Similar is the case for the assessment year 2011-12. Therefore, for the reasons given therein, we reject this ground of the revenue. 33. Ground Nos. 12 & 13 of the department relate to deleting the disallowances of Rs. 79,39,737/- and Rs. 3,38,996/- claimed as mining rights. 33.1 Facts are identical for the year under consideration. We have dealt with these grounds in the revenue's appeal in ITA No. 425/JP/2014 for the assessment year 2010-11 and decided the issue in favour of the assessee in para 18.3 and 18.4 above by rejecting the grounds of the Revenue. Similarly, for the re....
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....penses 26,15,365/- 20% 5,23,073/- 2,61,536/- 3. The assessee craves to amend, add, alter, or modify any of the ground of appeals. 4. Necessary cost be allowed to the assessee." 38. Ground No. 1 of the assessee's appeal relates to confirming the action of the AO in making disallowance of Rs. 96,84,975/- by holding that the expenditure incurred by the assessee towards establishment of clinker grinding unit at Aligarh is capital expenditure. The ld. CIT (A) has further erred on facts and in law in rejecting the alternative claim of the assessee for allowing depreciation on such expenditure. 38.1 The brief facts giving rise to the ground of appeal are that the assessee is engaged in the manufacturing of cement. Clinker is basic ingredient for manufacturing cement. The board in its meeting dt. 13.03.2011 approved for setting up a clinker grinding unit at Hardwaganj, District Aligarh, UP for a total project cost of Rs. 125 crores. Accordingly, necessary application was made to UPSIDC Ltd. for allotment of land and to UP State Pollution Control Board for environment clearance. The possession of the land measuring 1,23,110 sq. mtr. at K-1, Industrial Are....
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....e written submissions submitted by the assessee are placed on record as under :- "1. The issue in the present case is whether the expenditure incurred by the assessee by utilizing common funds for existing business on a project which is abandoned is allowable deduction under the Income Tax Act or not. For this purpose, one is to examine whether any benefit has flown to the assessee by incurring such expenditure. If not, the same is to be allowed as a deduction when a decision to abandon such project is taken. For this reliance is placed on the following cases:- Ajmer Food Products Pvt. Ltd. Vs. JCIT (2017) 145 DTR 57 (Jaipur) (Trib.) Expenditure incurred by the assessee on the development of a resort which was eventually abandoned at the stage of work-in-progress due to change in the Government policy did not result in creation of any new asset or an advantage of enduring nature and therefore, the said expenses which have been written off in the books of account are allowable as revenue expenditure. Indo Rama Synthetics (I) Ltd. Vs. CIT (2011) 333 ITR 18 (Del.) (HC) In this case, the assessee was engaged in the business of manufacturing ....
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....where it was to be undertaken had a poor quality of soil and all the construction already damaged. The other articles bought by the assessee also got damaged and, therefore, in that fact situation, the Tribunal was fully justified in holding that such expenditure which may be pre-operational expenditure for a project can be treated to be a revenue expenditure actually and not a capital expenditure. Binani Cement Ltd. Vs. CIT & Anr. (2015) 118 DTR 61/233 Taxman 340 (Cal.) (HC) Expenditure made for construction/acquisition of new facility subsequently abandoned at the work-in-progress stage was allowable in the year of write off as incurred wholly and exclusively for the purpose of assessee's business. There would have been no occasion to claim the deduction if the work-in-progress had completed its course. Because the project was abandoned, the work-in-progress did not proceed any further. The decision to abandon the project was the cause for claiming the deduction. The decision was taken in the relevant year. It can therefore be safely concluded that the expenditure arose in the relevant year. Excel Industries Ltd. Vs. DCIT 86 TTJ 840 (Mum.) (Trib.) ....
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....d that the expenditure was incurred for the purpose of setting up a new project. On this factual aspect it was held that the expenditure was in the capital field and not in that of revenue. Fact that assessee subsequently abandoned the project does not on that score convert the expenditure into revenue expenditure. Triveni Enginerring Works Ltd. Vs. CIT 100 Taxman 19 (Delhi) (HC) In this case, assessee spent some amount on project reports on manufacturing insecticide formulation, an item to be used for improving the quality of cane produced in the area by individual agriculturists and societies. He also spent certain amount for survey report on extra melkral alcohol. The assessee wanted these reports to put to a better use its byproducts, namely, molasses. On these facts, Tribunal held that all the three items of expenditure were incurred with a view to manufacturing new products and utilising byproducts of the sugar units and thus, the question of allowance of these expenses as business expenses did not arise as they were definitely of capital nature being expenses preliminary to manufacturing the various products. The High Court held that the amount spent on the....
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....see by utilizing common funds of the existing business. The Delhi High Court in case of Jay Engineering Works Ltd. Vs. CIT 311 ITR 405 held that where the new project undertaken by the assessee company was under the control of same management and administration and managed from common funds, it was only an extension of the existing business and therefore, expenditure incurred on the new project constituted revenue expenditure. 5. In view of above, the disallowance made by AO and confirmed by CIT(A) is uncalled for and the same be deleted." 38.8 The ld. D/R opposed the submissions and supported the orders of the authorities below. 38.9 We have heard rival contentions, perused the material available on record and gone through the orders of the authorities below. We find that the ld. CIT (A) has given a finding of fact that a new Unit has been established and the expenses incurred in establishing a new Unit are capital in nature and accordingly disallowed the claim of the assessee. The ld. Counsel for the assessee insisted that it is an extension to the earlier unit. We do not see any merit into the contention of the assessee as admittedly even if the assessee's new pro....
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....isallowance of Rs. 28,29,670/- made u/s 37(1) on account of railway siding expenses? (xii) Deleting the addition of Rs. 12,54,748/- made u/s 41(1) on account of unexplained outstanding liabilities? (xiii) The appellant craves liberty to raise additional ground and to modify/amend the ground of appeal at the time of hearing." 41. Ground No. 1 of the department relates to directing the AO that compensation of Rs. 1,36,29,693/- paid to the farmers is to be allowed over a period of 20 years, consequently giving relief of Rs. 6,81,485/- for the current year. 41.1 We have already dealt with the similar issue in revenue's appeal in ITA No. 425/JP/2014 for the A.Y. 2010-11 in para 10.3 above, wherein we have confirmed the order of the ld. CIT (A) by dismissing the ground of the department. We, therefore, dismiss this ground of the department for the year 2011-12. 42. Ground No. 2 of the department relates to deleting the disallowances of Rs. 2,45,909/-, Rs. 79,39,737/- and Rs. 3,38,996/- claimed as mining rights. 42.1 Facts are identical to A.Y. 2010-11. We have dealt with this ground in the revenue's appeal in ITA No. 425/JP/2014 for the assessment year 2010-....