TaxTMI 
TaxTMI 
2018 (9) TMI 1858
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....d in law, the learned CIT(A) erred in treating capital expenditure of Rs. 3,03,04,544/- the purported parts were independent machine giving enduring benefit to the assessee. 2. The Ld. CIT(A) failed to appreciate that the A.O. has adhered to the direction of the ITAT and investigated that the machines were independent aspects capable of functioning for a long period and thus were not replacement items. 3. The Ld.CIT(A) misguided himself in holding that huge machinery worth Rs. 3,03,04,544/- were replacement items of existing assets disregarding the findings of A.O. and ratio laid down by the Hon'ble Supreme Court in the case of CIT vs Sri Mangayarkarasi Mills (P.) Ltd. 315 ITR 114 (SC) wherein law was declared by the Apex Court that replacement of old machineries with new one would constitute bringing into existence a new asset of enduring benefit to the assessee, thus is capital in nature." 4. Since the above three grounds of appeal are effectively relates to treating capital expenditure of Rs. 3,03,04,544/- as revenue expenditure, hence the same are being considered together. 5. Briefly stated facts of the case are that the return of income was fil....
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....e for A.Y. 2010-11. In view of these facts and the decision quoted by the appellant, the AO was directed to treat above net expenditure of Rs. 2,31,99,073/- after reducing depreciation as revenue expenditure. 7. Being aggrieved, the Revenue filed this appeal before the Tribunal. The ld.Departmental Representative (DR) submitted that the CIT(A) was not justified in treating the capital expenditure as revenue expenditure. Further, the Hon'ble Supreme Court in the case of CIT vs. Sri Mangayarkarasi Mills Pvt. Ltd. 315 ITR 114 (SC) has held that replacement of old machine with new one will constitute bringing into existence of new asset of enduring benefit to the assessee. 8. On the other hand, the ld.AR of the assessee submitted that the issue is squarely covered by the decision of ITAT, Surat Bench in ITA No.1363/Ahd/2013 for A.Y. 2009-10 vide para 13 to 17 [paper book, page 140 to 144] : 9. We have heard the rival contentions and find that the issue is covered by the earlier orders of ITAT in ITA No.1363/Ahd/2013 dated 17.05.2018 for A.Y.2009-10 and earlier orders as mentioned in the order of Tribunal in para 13 to 17 which reads as unde....
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.... that case replacement of old machinery with new machinery was treated as capital expenditure, whereas, in the instant case, there is replacement of damaged part of Turbine and machinery, hence, facts are distinguishable. Therefore, the appeal of the revenue in respect of Ground No.1 to 3 are dismissed. 11. In the result, appeal of Revenue for A.Y. 2003-04 is dismissed. I.T.A.No. 2505/Ahd/2014 A.Y. 2010-11 by Assessee: 12. Ground No. 1 relates to rejection of claim of exclusion of carbon credit income written off of Rs. 5,10,73,986/-. 13. The ld. A.R. has not pressed this grounds of appeal on the plea that the ITAT for A.Y. 2009-10 has held that carbon credit are capital receipts and deleted the addition made by the AO in that year. In view of this, the write off of the carbon credit receivable in A.Y. 2010-11 added by the AO while computing income has to be confirmed against the assessee with a direction that if Department do not accept the order of Tribunal and prefers further appeal before Hon`ble High Court and in case of favourable orders by High Court to Department, the claim of the assessee made in A.Y. 2010-11 needs to be allowed.  ....
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....n the decision of Apex Court in the case of Shri Venkata Satyanarayana Rice Mills Contractors Co. vs. CIT 223 ITR 101 (SC) wherein contribution to the public welfare fund at the instance of the Government Authorities was allowed as the deduction on the ground that it was motivated by commercial contribution. Similarly, the Hon'ble Jurisdictional High Court in the case of assessee in Tax Appeal No.770/1999 with Tax appeal No.77 & 78 / 2008 dated 06.05.2011 has upheld the order of Tribunal wherein the Tribunal has upheld the contribution made to the Chief Minister Earth Quake Relief Fund and contribution to the State Government as business expenditure for A.Y. 1994-95 and 1995-96 by treating the case where in the nature of commercial expediency as allowable as a revenue expenditure. 36. In the light of the above, we find no infirmity in the order of CIT(A), accordingly same is uphold, therefore, this ground of appeal is dismissed." 20. In the light of above facts we find that the issue is covered in favour of the assessee, therefore, respectfully following the same this ground of appeal of the Assessee is allowed. 21. In the result, appeal of the As....
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....the same lease agreement, are allowable as deduction. Further, the AO has allowed the depreciation claimed by the assessee. Hence, following the decision of ITAT for A.Y 2008-09, the order of the CIT(A) is upheld, accordingly this ground of Revenue is dismissed. 30. Ground No.1 (iii) relates to deleting the disallowance of Rs. 14,00,30,337/- claimed on account of loss on fertilizer bonds being received in lieu of subsidy which were invested by assessee to earn interest income. 31. The AO observed that the assessee has claimed loss of Rs. 14,00,30,337/- on sale of fertilizer bonds in the computation of income for the relevant year. It was submitted that the bonds were received from Government of India in lieu of subsidy receivable on sale price of fertilizers. The assessee had offered the subsidy received from the Government of India as part of its sales turn over, but subsequent realisation of the sale price was in the form of above referred bonds. However, the AO did not accept the contention of the assessee and held that the action of the assessee, subsequent to receipt of the bonds determine whether it is investment....
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.... on allotment of 8.30% and 7.95% bond as business loss or revenue loss. Therefore, the actual loss of Rs. 18,62,04,574/- is allowable as business loss. With regard to loss of Rs. 37,77,73,348/- is concerned, the bonds are received in lieu of subsidy which was the additional sale price received from Government of India. The appellant company had offered to tax the subsidy accordingly as part of the sale price, therefore, the realisation to additional sale price by way of subsidy in the form of fertilizer bonds does not make bond an investment, because the bonds were never acquired by the assessee as investment for capital but as debt and also shown as current assets. Accordingly, the loss offered on allotment of bonds and actual sale of the bonds cannot be considered as capital loss but has to be allowed as business loss u/s. 28 read with section 37 of the Act. The ld.Counsel for the assessee has placed reliance on the decision of Hon'ble Coordinate Bench, Ahmedabad in the case of Gujarat State Fertilizer and Chemicals Ltd. in ITA No.319 & 339/Ahd/2012 for A.Y's 2008-09 & 2009-10 dated 29.11.2017 wherein para 35 the Coordinate Bench has observed as ....
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....ee. 39. Being aggrieved, the assessee filed appeal before CIT(A). The CIT(A) observed that the issue is covered by the decision of his predecessor in the case of the Assessee in A.Y.2009-10, vide order dated 27.02.2013. Since the facts of the present case are exactly similar to those as in A.Y. 2009-10, therefore following the same it was held that difference between the cost of an asset and the amount paid in the process of amalgamation constituted goodwill and the same is eligible for depreciation. The AO has misperceived that goodwill arose because of cancellation of investment made by the appellant company, the goodwill cancellation of investment are unrelated matters. As a shareholder of the amalgamated company like other shareholders to appellant was eligible to receive its own shares against shareholding of NCPL. Therefore, it is in past merger balance sheet would have shown share capital on one side of the balance sheet in respect of shares issued to erstwhile shareholders of the NCPL and investment on the other side of the balance sheet in respect of shares allotted to the appellant under the merger scheme. The CIT(A) observed as....
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....treasury stock which could have been sold out by the assessee whenever deemed fit. Then while selling the shares, the assessee would have paid capital gain tax or capital gain loss, but the assessee has reduced the value of investment in NCPL just to create goodwill and claimed the depreciation thereon. Had the assessee not resorted to this, the same would have resulted in amalgamation reserves of Rs. 5266.01 lakhs instead of goodwill of Rs. 1688.99 lakhs as claimed by the assessee. 41. On the other hand, the ld.Counsel for the assessee submitted that the goodwill has arisen because of merger of erstwhile Narmada Chematur Petro Chemicals Ltd. with the assessee by approval of Hon'ble Gujarat High Court. The merger was based on to take business advantage in following terms (a) high production efficiency; (b) leadership position in the market; (c) quality management system and (d) certain contracts and rights owned by marketing company. Therefore, the goodwill of Rs. 16.89 crores represents the difference between asset and liability taken over. The ld.Counsel further submitted that the issue is covered in favour of the assessee by the decision....
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.... payment to the dealers attracting provision of section 194H of that Act. 45. The AO observed that the assessee has deducted TDS on commission payments made by to its dealers, it had failed to deduct TDS u/s.194H of the Act on discounts allowed to its dealers on sales effected through them. The AO held that the discounts were in the nature of commission and the assessee was liable to deduct on the same u/s.194H of the Act which it had failed to do so. Consequently the AO made an addition Rs. 3,86,99,035/-. 46. Being aggrieved, the assessee went into appeal before the CIT(A) wherein detailed submissions were made. The Commissioner of Incometax (Appeals) noted that the issue is covered by the decision of ITAT Ahmedabad vide its order dated 31.10.2013 in ITA.No.1956, 1957, 1958/Ahd/2012 in A.Y. 2008-09, 2009-10 & 2010-11 in the case of M/s.Gujarat Flurochemicals Ltd. Further, similar issue was allowed by the predecessor CIT(A) in A.Y. 2009-10. Accordingly, it was held that the discount given by the appellant company to the dealers cannot be termed as commission. Accordingly, the addition was directed to be deleted as the ....
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....at the issue is covered by the decision of Tribunal in the appellant's own case for A.Y. 2009-10 dated 17.05.2018 in which it was held as under : "55. We have considered the facts and arguments of the parties, we have observed that the sale transactions are regularly taking place between the assessee and the dealers on principle to principle basis. The assessee makes sales to dealers and dealers makes purchases from the assessee. Both the assessee as well as the dealer consistently capture the transaction accordingly in the books of accounts. It is the dealer who makes the payment to assessee i.e. GNF. "credit note and debit note" if any for the agreed terms are issued by the assessee in favour of dealers only. Thus, for all the purpose dealer is a debtor of the company, similarly in case of dealers for all the purpose, the assessee is a creditor, therefore, the transactions of sales and purchases between the two principles i.e. assessee and the dealers were on agreed terms. This is evident from the copy of sample sales register (placed on paper book, page no.250 to 267). Similarly, the copy of purchase register from the books is also pl....
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....nufacture any article or nothing. 53. The AO has observed that the company installed Core Engine in its Captive Power Plant (CPP) for generative electricity and the electricity generated from the CPP amounts to manufacture or production of 'article or thing'. 54. Being aggrieved, the assessee went into appeal before the CIT(A) wherein detailed submissions were made. The Commissioner of Incometax (Appeals) noted that the issue of whether "generation" of electricity is "production" of electricity has been decided by his predecessor in the case of the assessee itself in A.Y. 2009-10, where the CIT(A) has held as under on the issue as under : "The legislature has given the benefit of additional depreciation for attracting more and more investment. This being beneficial provision it should be construed liberally. Simple language of the section says that for claiming the additional depreciation assessee should have acquired and installed plant and machinery after 31st March, 2005 and assessee should be in business of manufacture and production of Article or thing. The AO has not disputed as far as first condition is concerned. Now we have to exa....
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....d (ITA No.1438/Del/2009) and Hon'ble Gujarat High Court in the case of Diamines Chemicals Ltd 42 taxmann.com 193 and submitted that the issue has been allowed in favour of the assessee, by Tribunal in A.Y.2009-10. 58. We have considered the facts and find that the issue is covered by the decision of Tribunal in the appellant's own case for A.Y. 2009-10 dated 17.05.2018 in which it was held as under : 25. We have heard the rival contentions and perused the material on record. The AO has disallowed the claim of the additional depreciation on the ground that wind mill does not produce article or thing but generates electricity whereas the provisions of section 32 (1)(iia) requires that the assessee should produce article or thing. We now refer to the provisions of section 32(1)(ii)(a) of the Act which reads as under: "(iia) In the case of any new machinery or plant (other than ships and aircraft) which has been acquired and installed after the 31st Day of March, 2005 by an assessee engaged in the business of manufacture or production of any article or thing or in the business of generation or generation and distribution of power, a further sum equal to tw....
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....ed in case of CIT Vs. VTM Ltd. [2009] 319 ITR 336, assessee was entitled to additional depreciation on the wind mill. 28. We find that Hon`ble Madras High Court in the case of CIT Vs. VTM Ltd. (2009) 319 ITR 336 (Mad.)(HC): In this case, assessee is a company engaged in the business of manufacture of textile goods. It set up a windmill for generation of power and claimed additional depreciation u/s 32(1)(iia). AO held that setting up of a windmill has absolutely no connection with the manufacturing of textile goods and thus assessee is not entitled to claim additional depreciation u/s 32(1)(iia). It was held that to claim additional depreciation u/s 32(1)(iia), what is required to be satisfied is that setting up of a new machinery or plant should have been acquired and installed after 31st March, 2002 by an assessee, who was already engaged in the business of manufacture or production of any article or thing. The said provision does not state that the setting up of a new machinery or plant, which was acquired and installed upto 31st March, 2002 should have any operational connectivity to the article or thing that was already being manufactured by the assessee. Theref....
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....came into existence but it maintains the existing machine. And further claimed that it falls under the current repairs as per section 31(i) of the Act and allowable as revenue expenditure. However, the AO has disallowed Rs. 2,42,80,892/- on the ground that the items are in the nature of independent machine and average life span is 6 years or more and in one item life span is 15 years which suggests that these items can be used independently. 63. The assessee went in to appeal before the CIT(A). The CIT(A) after examining the facts of the case and items of machinery to replace component and relying on various case laws examined the explanation of the assessee and on the basis of explanation furnished by the assessee, deleted the disallowance made by the AO. 64. Being aggrieved, the Revenue has filed this appeal before us. The ld.CIT-DR strongly relied on the orders of the AO. 65. On the other hand, the ld.Counsel for the assessee submitted that the issue is covered by the order of ITAT in assessee's own case for A.Y. 2009-10. Further in the past A.Y. 2000-01, 2002-03 when the matter restored to AO in turn accepted the explanation....
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.... decision of his predecessor in the case of the appellant for A.Y. 2009-10 and 2010-11 and respectfully following the same, the AO directed to allow depreciation on goodwill as eligible business expense. 71. Being aggrieved, the Revenue has filed this appeal before us. The ld.CIT-DR strongly relied on the orders of the AO. 72. On the other hand, the ld.Counsel for the assessee submitted that the issue is covered by the order of ITAT in assessee's own case for A.Y. 2009-10. 73. We have considered the facts and find that the issue is covered by the decision of Tribunal in the appellant's own case for A.Y. 2009-10 dated 17.05.2018 in which it was held as under : "50. We have considered the facts and heard the rival submissions we find that this issue regarding depreciation of goodwill was claimed to have been covered by the order of Tribunal in assessee's own case for A.Y. 2007-08. However, the same by way of additional ground which was admitted and the issue was restored to the file of the CIT(A). Similarly, this ground was also restored to the file of the CIT(A) in assessee's own case in ITA No.2921 & 2930/Ahd/2013 for A.Y. 20....
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....ents made to specified organizations are eligible for deduction of the entire amount of payment. It there is specific section for allowability of certain payments, then it overrules any general section. Any donation paid otherwise than in conformity with section 80G would not be an allowable deduction, but would only be application of income. 78. The assessee went in to appeal before the CIT(A), wherein the CIT(A) after examining the facts of the case directed the AO to delete the disallowance of expenditure of Rs. 16,42,500/-. 79. Being aggrieved, the Revenue has filed this appeal before us. The ld.CIT-DR strongly relied on the orders of the AO. 80. Per contra, the ld.Counsel relied on the decisions of CIT Vs. Madras Refinery Ltd (266 ITR 170) (Mad HC), CIT Vs. Kattabomman Transport Corporation Ltd (2004) (268 ITR 507) (Mad), CIT Vs. Cheran Transport Corporation Ltd (219 ITR 203)(Mad.), dcit Vs. Bajaj Hindustan Ltd (2009)(2009- TIOL -505-ITATIMum), JCIT Vs. IN THE CASE OF Ltd (2008-TIOL-128-ITAT-Kol-SB), Maharashtra State Finance Corporation Vs. DCIT (12 SOT 466) (Mum) and Hindustan Petroleum Corporation Ltd. Vs. DCIT (2005) (92 TTJ ....
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....efer to 'any sum paid' and therefore, tax at source under these sections is to be deducted from the sum paid & reimbursement cannot be separated out. 84. Brief facts of the case are that the assessee company had given discounts of Rs. 4,38,56,790/- to its dealers on the sales made to them for which the ld.AO disallowed the discount amount of Rs. 4,38,56,790/- u/s.40(a)(ia) as tax was not deducted u/s.194H of the Act. 85. The assessee went in to appeal before the CIT(A), wherein the CIT(A) after considering the facts of the case and submissions made by the appellant stated that the issue is covered in favour of the appellant by decision of his predecessor in the case of the appellant for A.Y. 2009-10 and 2010-11 and respectfully following the same, the AO directed to delete the disallowance of Rs. 4,38,56,790/- made u/s.40(a)(ia) of the Income Tax Act, because the discount given to the dealers is not in the nature of commission liable for deduction of tax at source u/s.194H of the Act and allowed depreciation on goodwill as eligible business expense. 86. Being aggrieved, the Revenue has filed this appeal before us. The ld.CIT-DR strongly rel....
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.... accept the contention of the revenue that the definition of 'commission or brokerage' as contained in Explanation to section 194H is so wide that it would include any payment receivable, directly or indirectly, for services in the course of buying or selling of goods and that, therefore, the discount availed of by the stamp ve,ndors constitutes commission or brokerage within the meaning of section 194H. To fall within the Explanation, the payment received or receivable, directly or indirectly, is by a person acting on behalf of another person (i) for services rendered (not being professional services), or (ii) for any services in the course of buying or selling of goods, or (iii) in relation to any transaction relating to any asset, valuable article or thing. The element of agency is to be there in case of all services or transactions contemplated by Explanation (i) to section 194H." 89. In the light of above facts and respectfully following the decision of Hon'ble Courts and ITAT, the issue is covered in favour of the assessee, therefore, following the same this ground of appeal of the Revenue is dismissed. 90. Ground No.5 states that the ld.CIT(A)....
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....sp; Under these circumstances, the change of accounting policy in respect of the insurance claim by the appellant is totally justified. Therefore, the CIT(A) held that the claim of the appellant that it does not amount to change in method of accounting regularly employed by the appellant is upheld. Accordingly, addition of Rs. 347,27 lakhs made by the AO was deleted. 93. Being aggrieved, the Revenue filed this appeal before the Tribunal. The ld.DR vehemently relied on the assessment order and submitted that the note 14 of the accounting policy clearly laid down that there is change in accounting policy. Hence, AO has rightly brought to tax Insurance claim on accrual basis. 94. On the other hand, the ld.AR relied on the submissions made before the CIT(A) and submitted that in major claims there is a prolonged survey procedure coupled with bulky documentation which leads to delay in settlement of claim. Further, the amount actually sanctioned by the insurance company is far lower than the assessed value. Therefore, there is no change in the method of accounting, but change in accounting policy, hence, change being bonafide which is ....