TaxTMI 
TaxTMI 
2019 (9) TMI 376
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....009-10 : Revenue has filed following grounds of appeals: "1. On the facts and in the circumstances of the case and in law, the ld.CIT(Appeals) eared in holding that the amount of Rs. 5,11,39,000/- was a revenue expenditure and not a capital expenditure and thereby deleting the addition amounting to Rs. 5,11,39,000/- made on account of disallowance of claim of guarantee fees paid to Government of Gujarat and expenses on cost of raising fund. 2. On the facts and in the circumstances of the case and in law, the Ld.CIT(Appeals) erred in deleting the addition of Rs. 2,36,35,000/- made on account of disallowance of loss of material through pilferage, shortage of material in transit, shortage arising on physical verification etc. The Ld.CIT(Appeals) erred in not appreciating the fact that the addition was made due to the reason that the assessee had failed to substantiate their claim with documentary evidence, and that such claim cannot be made year after year on its face value. 3. The appellant craves leave to add to amend or alter the above grounds as may be deemed necessary. Relief Claimed in Appeal The order of the CIT(Appeals) on the above....
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....re of assets, the date of put-to-use has not been submitted. The assessee also failed to furnish any agreement with the Govt. of Gujarat for charging guarantee fees and method of its computation against the loan amounts. In the absence of these details it was not possible to entertain the assessee's claim. The AO further observed that the cost of raising the finance can also not be considered as revenue expenses for want of details. He, accordingly, disallowed Rs. 5,90,96,000/-. 32. On appeal, the CIT(A) observed that guarantee fee was an annual recurring expenditure incurred by the assessee. Guarantee fee was payable to Govt. of Gujarat every year in respect of loans taken by the assessee and guaranteed by the Govt. of Gujarat. As held by Hon'ble Supreme Court in the case of India Cements Ltd., 60 ITR 52 (SC), loan cannot be treated as asset or advantage resulting in enduring benefits. Guarantee fees paid to Govt. of Gujarat was in connection with raising of loans and enduring benefit or advantage could not be said to have resulted by taking such loans. Only if the assets acquired out of such loans were not put-to-use till the end of previous year i.e. 31.3.2008, the guar....
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....ommercial 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 lasted for exactly one year only. Such shortlived benefit cannot be categorized as "enduring". Hence, I am inclined to the view that the payment of guarantee commission was a revenue expenditure. 5.3. Further, the jurisdictional Bench of ITAT had occasion to consider the allowability of guarantee commission paid to a Director of the company in respect of loans taken from the bank. In the case of Himalaya Machinery Pvt.Ltd. (ITA No.738/Ahd/2009) for AY 2006-07, the Tribunal held, vide order dt.5.6.2009, following the decision of the Rajasthan High Court in CIT v. Metalising Equipment Co.Pvt.Ltd., 8 DTR 12, that the payment of commission for guaranteeing repayment of loan was allowable as revenue expense. In the instant case, the loan has been guaranteed by the Government of Gujarat. Hence, quite apart from the other sound reasons for treating the expenditure as revenue, it would be unrealistic ....
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....the identical issue has already been decided in favour of the assessee, in that absence of any change in the facts and circumstances of the case, respectfully relying upon the aforesaid judgment, we confirm the order passed by the Learned CIT(A). Hence, this ground of appeal preferred by the Revenue is dismissed. 4. Ground No.2 The revenue has also challenged the deletion of disallowance of loss of material through pilferage, shortage etc. to the tune of Rs. 2,36,35,000/-. 5. At the very onset of the proceeding, the Learned AR relied upon the judgment passed by the Co-ordinate Bench in ITA No.761/Ahd/2012 in assessee's own case for A.Y. 2008-09 whereby and whereunder the identicla issue has been decided in favour of the assessee. A copy whereof has also been submitted before us. The Learned DR, however, failed to raise any serious objection to such contentions made by the Learned AR. 6. Heard the respective parties, perused the relevant materials available on record and also the judgment passed by the Co-ordinate Bench in ITA No.761/Ahd/2012 for A.Y. 2008-09. The relevant portion of dealing with the identical issue is as follows: "37. The ground no.2 of the Revenu....
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.... of the expenditure of Rs. 45,81,84,000/- being the provision made for employees cost for arrears payable upto 31st March, 2009 without considering the facts that such expenditure was pending the decision of 6th Pay Commission based on the provisions of Accounting Standards and generally accepted accounting principles. 2.0 The learned Commissioner of Income Tax (Appeals) has erred in law and on facts has confirmed the additions of Rs. 24,17,88,400/- on account of Capital Grants & Subsidies and Consumers' Contribution on the ground that the appellant should transfer 15% of the total Grants/subsidies/consumer contribution received during the year as against 10% offered by the appellant. 3.0 The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the enhancement of Book Profit computed under section 115JB of the Income Tax Act, 1961 by Rs. 45,81,84,000/- on account of disallowance made for provisions related to arrears payable to the employees pending the decision of 6th Pay Commission. 4.0 The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the action of Assessing Officer in t....
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....ing the year under consideration since the final decision to pay the same was still awaited. There was not liability fastened upon the assessee to pay the arrears of 6th pay commission. Since the assessee is following mercantile system of accounting and the liability to pay arrears of 6th pay commission had actually not been crystallized during the year under consideration, a sum of Rs. 61,00,00,000/- is disallowed and added back to total income being contingent liability." The ld.CIT(A) confirmed the finding of the AO by observing that the report of the 6th Pay Commission was submitted to the Government of India in March2008. In respect of the Central Government employees the liability accrued from the day when the report was accepted by the Central Government. In respect of State Governments the report is not binding and it is not to be mandatorily accepted and adopted. In fact, number of State Governments were against accepting the report because of huge financial burden and in fact Government of Madhya Pradesh constituted Pay Commission of its own, to reframe the recommendations. In other words, without acceptance of the report the liability cannot be said to have accrued or cr....
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....d discharge at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied, the liability is not a contingent one. The liability is in praesenti though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain. "" 15.3. Further, the High Court held as under:- "6. In this case, the Tribunal had noticed that there was no dispute as regards the terms of employment of the workers and officers. The only question was the exact quantification of the compensation or wage revision. The Tribunal also held that provision for wage revision was based on past experience, interim Pay Commission of government employees, previous Pay Commission's reports of public sector employees, union demands and other relevant factors. The Tribunal also held that with the expiry of one wage settlement or agreement, invariably, there is a time lag when another fresh wage revision agreement is negotiated and entere....
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.... 6th Pay Commission in December2008. Therefore, respectfully following the ratio laid down in the judgement of Hon'ble High Court of Kerala in the case of CIT vs. Kerala State Financial Enterprises Ltd.(supra) and in the judgement of Hon'ble High Court of Delhi in the case of CIT vs. Bharat Heavy Electrical Ltd.(supra), the disallowance made by the AO is hereby deleted. Thus, ground of assessee's appeal is allowed." In the absence of any change of facts and the circumstances of the case respectfully relying upon the aforesaid order, we grant relief to the assessee by allowing the expenditure of Rs. 45,81,84,000/- being the Provision made for employees cost of arrears payable upto 31st March, 2009. The addition made by the authorities below to that effect is, thus, deleted. Hence this ground of appeal is allowed. 12. Ground No.2 The assessee has challenged the confirmation of addition of Rs. 24,17,88,400/- on account of Capital Grants & Subsidies and Consumers' Contribution on the ground that the appellant should transfer 15% of the total Grants/subsidies/consumer contribution received during the year as against 10% offered by the appellant. 13. The Learned AO fina....
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....he vary onset of the proceeding, the Learned AR has taken us to the order passed by the Co-ordinate Bench in ITA No.704/Ahd/2012 for A.Y. 2008-09 in assessee's own case where we find that the issue has been set aside to the file of the Learned AO for adjudication afresh after verifying proportionate amount of grant relating to different asset. The Learned AR prayed for similar relief. The argument advanced by the Learned AR has been failed to be contradicted by the Learned DR. We find following observation was made by the Hon'ble Co-ordinate Bench while granting relief to the assessee: "15. The ground no.3 of the appeal of the assessee is directed against the order of the CIT(A) in confirming the action of the AO in transferring 15% of the capital grants as income although the disallowance made under this head has been restricted to Rs. 18,93,11,850/- as against the disallowance of Rs. 30,97,61,800/- made by the AO. 16. The brief facts of the case are that on verification of subsidies and grants, the AO observed that the assessee has shown deferred government grants, subsidies, contribution at Rs. 7305.70 lakhs as on 1.4.2007 and the assessee had shown Rs. 15941.6....
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....nd it should have been reduced from the capital assets. The decisions quoted by the assessee are not applicable after insertion of Explanation 10 of section 43(1) of the Act, as they pertained to earlier years prior to insertion of Explanation 10 of section 43(1) of the Act. After insertion of Explanation 10 of section 43(1) of the Act, the position of law was very clear. Since the assessee failed to reduce the capital grant against the cost of capital assets, and claimed excess depreciation, which was disallowed and worked out at 15% of the capital assets. 17. On appeal, the CIT(A) held that in assessee's case, 10% of grant under three heads namely "Subsidy towards cost of capital assets", "Grants towards cost of capital assets" and "Consumer contribution for capital assets" i.e. the grants appearing in Schedule -3 of the balance sheet as on 31.3.2008 were offered for tax. The amount of grant on which 10% was calculated was on the opening balance of grants of Rs. 73,05,70,492/-, and the grants received during the year was Rs. 103,56,34,226/-, aggregating to Rs. 176,62,04,718/-. As these grants were towards cost of capital assets, 15% of the same should have been reduced f....
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....cost/WDV of the relevant asset, and thereafter the depreciation is to be calculated. Thus, the 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. The DR could not point out any mistake in the above submission of the assessee, which we find is in accordance with law. We, therefore, set aside the orders of the lower authorities on this issue, and restore the matter back to the file of the AO for adjudication afresh after verifying the proportionate amount of grant relating to different asset, and applying the actual rate of depreciation which relate to these assets. Thus, this ground of appeal of the assessee is allowed for statistical purpose. Hence, in the absence of any changed circumstances as it appears from the records, we find no other alternative but to remit the issue to the file of the Learned AO for re-adjudication of the same and to pass order upon verification of the proportionate amount of grant relating to different assets and upon applying the actual date of depreciation relates to those assets. Hence, this ground of appeal preferred by the assessee i....
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....nsequential to ground no.2 raised in this appeal. 25. On the other hand, DR supported the orders of the lower authorities. 26. We find that the Tribunal in the case of assessee itself in the Asstt.Year 2006-07 and 2007-08, while deciding similar issue, vide order dated 8.5.2015 passed in ITA No.1931/Ahd/2010, 2974/Ahd/2010 and 3004/Ahd/2010 held as under: "12. Ground No.6 is against the direction given to the AO to recompute the book profit u/s.115JB of the Act for the purpose of computing MAT by the ld.CIT(A). The ld.CIT-DR supported the order of the AO and submitted that the ld.CIT(A) was not justified in giving direction to the AO for recomputing the book profit u/s.115JB of the Act for MAT. 12.1 On the contrary, ld.counsel for the assessee supported the order of the ld.CIT(A) and submitted that ld.CIT(A) has followed the decision of Hon'ble Jurisdictional High Court rendered in the case of DCIT vs. Vardhman Fabrics (P) Ltd. reported at 122 Taxman 375. 13. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that the ld.CIT(A) has decided this issue....
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....tes of depreciation and the company could claim higher depreciation on the basis of a bonafide technological evaluation and proper disclosure thereof in the notes forming part of annual accounts. In the instant case, from the facts as above, I am of the opinion that the assessee has complied with the provisions contained in Schedule-VI to the Companies Act read with Schedule-XIY and Circular dt. 7.3.2009 of the Department of Company Affairs. Hence the AO's action in reducing the claim of depreciation under item (ii)(a) by Rs. 14,32,02,331/- is held to be unjustified. The AO is directed to recompute the book profit for MAT by allowing the depreciation claimed." 13.1. The ld.CIT(A) has applied the ratio laid down in the judgements of Hon'ble Apex Court rendered in the case of Apollo Tyres Ltd. (255 ITR 273), Malayala Manorama Co.Ltd. vs. CIT (168 Taxman 471) and the judgement of Hon'ble Jurisdictional High Court rendered in the case of DCIT vs. Vardhman Fabrics (P) Ltd. (122 Taxman 375). The ld.CIT-DR could not distinguish the facts of the case, therefore we do not find any reason to interfere with the order of the ld.CIT(A), same is hereby upheld. Thus, this ground of R....
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....ssing the interest income from staff loans & advances amounting to Rs. 1,45,85,000/- as Income from Other Sources as against the Business Income and thereby disallowing the claim of set off of business losses of earlier years against the said incomes. 1.1 It is submitted that the interest received from staff loan and advances Rs. 1,45,85,000/- during the year under consideration does not fall in any of the incomes which are always taxable under the head "Income from other sources" as per sec 56(2) of the I T Act. Such interest on loans is ordinary business income and cannot be treated as income from other sources. This is particularly because the employees are retained to run the business of the company and accordingly the loans given to them is out of such business expediency and the interest earned thereon is business income. 1.2 In view of the facts and circumstances, the appellant prays that the learned Assessing Officer may be directed to assess the above income as ordinary business income. 1.3 It is further submitted that while allowing the set off of unabsorbed business, the learned Assessing Officer restricted the claim of carry forward of unabsor....
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....s and others amounting to Rs. 1,77,06,000/- as Income from Other Sources as against the Business Income and thereby disallowing the claim of set off of business losses of earlier years against the said income. 3.0 Without prejudice to the Ground No. 2.0 above, the learned Commissioner of Income Tax(Appeals) has erred in law and on facts in not allowing the set off of unabsorbed depreciation of earlier years against the interest income of Rs. 1,77,06,000/- assessed as Income from Other Sources. 4.0 The learned Commissioner of Income Tax(Appeals) erred in law and on facts has set aside the restriction of the claim of carry forward of unabsorbed business losses and unabsorbed depreciation of earlier years by erroneously taking certain assessment orders of erstwhile GEB for the Asst. Yea-s 2003-04, 2004-05 and 2005-06 with the direction to re-verify the claim. 5.0 The learned Commissioner of Income Tax(Appeals) has erred in law and facts in charging interest under section 234B, 234C and 234D of the Income Tax Act, 1961. 6.0 The appellant craves leave to add to, alter, delete or modify any of the grounds of appeal either before or at the time of heari....