TaxTMI 
TaxTMI 
2019 (9) TMI 376
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.... 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 issue may be set aside and that of the Assessing Officer be restored." 2. Ground....
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....ent 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 guarantee fees to such extent i.e. in respect of such loans only could be capitalized as cost of such asset. The asses....
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....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 to say that the appellant company could derive any undue advantage or collateral benefit by making such payment to the GOG. In view of the totality o....
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....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 Revenue is directed against the order of the CIT(A) in deleting the addition of Rs. 1,41,15,000/- made on account of disallowance of loss of material through pilferage, shortage of material-intransit, shor....
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.... 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 treating the interest income from staff loans & advances and others 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 ....
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.... 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 crystallized. Crystallization of employee cost liability is contingent upon approval or otherwise from Gujarat Government. The Gujarat Government accepted the six Pay Commission Report in December-2008. In view thereof, in my humble opinion for AY 07-08 the provision towards employees cost for arrears pay....
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....ged 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 entered. The deduction claimed for that period cannot be termed as contingent because the wage and the probable revision or rates of revision would be within the fair estimation of the employer. In this case, BHEL had the benefit of past experience of such pay revisions. Its liability could not be characterized as contingent but was in fact ascertained; the quantificatio....
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....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 finalized the issue by making an addition of Rs. 24,17,88,400/- which was, in turn, confirmed by the Learned CIT(A) and added to the total income of the assessee. While confirming the addition, the Learned CIT(A) observed as follows: "6.3 I have considered the submissions. It has been accepted by the appellant that the grants were for capital purpose and for capital projects specified by the Governme....
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....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. 15941.67 lakhs at the end of the year i.e. as on 31.3.2008. On show cause by the AO to explain the treatment in accounts of the subsidy, grants the assessee stated that during the year capital grant received from Government of Gujarat and other. The assessee submitted that in order to improve various functions associated with the generation, transmission and distribution of electricity, and also because the PSUs connected with ....
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....ainst 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 from the depreciation claimed on account of making adjustment in the 'actual cost' of assts as per Explanation 10 below section 43(1). Since the assessee has already offered for tax, 10% of the opening balance of grants plus grants received during the year under these three heads of Schedule-3 grants, such amount offered for tax was to be reduced from the excess depreciation to be disallowed at the rate of 15% of Rs. 176,62,04,718/- i.....
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....tore 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 is allowed for statistical purposes. 14. Ground No.3 The enhancement of Book Profit u/s 115JB of Rs. 45,81,84,000/- in respect of addition made on provision for employees cost has been challenged by the assessee before us. 15. It appears from the records and also from the submissions made by the Learned AR that this issue has already been taken care of by the Hon'ble Tribunal in ITA Nos.704 & 761/Ahd/2012 for A.Y. 2008-09 in assessee's own case where the Tribunal....
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....he 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 in paras-12.3 & 12.4 of his order, which are reproduced hereunder:- 12.3 Thus, what is material for the purposes of section 115JB is not the profit & loss account prepared in terms of the Income-tax Act but that prepared in terms of Schedule-VI of the Companies Act. Part-II of Schedule-VI lays down the requirement as to profit and loss account. At item No. 3(iv), it has been laid down that the profit and loss account shall disclose information relating to the amount provided for depreciation, renewals or diminution in the value of fixe....
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....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 Revenue's appeal is rejected." The DR could not point out any distinguishable features in the above quoted order of the Tribunal. Facts being identical, respectfully following the precedent, we delete the addition of Rs. 75,38,35,000/- and allow this ground of appeal of the assessee." In the absence of changed circumstances relying upon the said order passed by the Hon'ble Tribunal, we find no justification in making enhancement of book profit u/s 115JB to the impugned amount and hence the addition is hereby deleted. In the result, assessee's ground ....
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....reated 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 unabsorbed business losses and unabsorbed depreciation of earlier years by erroneously taking certain assessment orders of erstwhile GEB for the Asst. Years 2003-04, 2004-05 and 2005-06 as base without considering the appellate orders for the said years. The learned Assessing Officer failed to appreciate that the appellant had preferred appeals against the orders of all these years and the said appeals have been allowed favorably by the appellate authorities consequent to which the position of carry forward losses and depreciation has gone changed. The appellant, therefore, prays that the learned Assessing....
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....ard 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 hearing of this appeal." 18. Ground No.1 this Ground has already been decided against the assessee by us in ITA No.652/Ahd/2013 for A.Y. 2009-10 at para 13 hereinabove. In the absence of any change circumstances same shall apply mutatis mutandis. 19. Ground No.2 this Ground has already been decided in favour of the assessee by us in ITA No.652/Ahd/2013 for A.Y. 2009-10 at para 15 hereinabove. In the absence of any change circumstances same shall apply mutatis mutandis. 20. Ground No.3 This ground relates to the order passed by the Learned CIT(A) in not allowing the set off of unabsorbed depreciation of earlier years against interest income assessed as income ....