TaxTMI 
TaxTMI 
2019 (4) TMI 1840
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....ief is that assessment u/s. 143(3) of the act was completed on 30th December, 2010 determining the total income at Rs. Nil after setting off of brought forward loss/depreciation of Rs. 137,08,55,763/-. The book profit u/s. 115JB of the act was determined at 155,29,39,190/-. Subsequently, the case was re-opened u/s. 147 of the by issuing notice u/s. 148 of the act on 27th march, 2012. Further facts of the case are discussed while adjudicating different grounds of appeals as under:- ITA No. 3358/Ahd/2015 filed by revenue, Assessment Year 2008-09 3. The revenue has raised following grounds of appeal:- "1. "On the facts and in the circumstances of the case and in law, the Ld. CIT(Appeals) erred in by allowing transmission charges expenses of Rs. 6292615912/- without appreciating the real fact that the assessee company has not complied the provisions of TDS and as per the provisions of the Act the assessee company had to deduct the TDS on the same amount. Further, as the provisions of Sec. 40(a)(ia) of the Act do contemplate such clear distinction that the provisions would be applicable if the expenditures are not actually paid or not." 2. "On the facts and in th....
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.... "(5.0) Non Deduction of TDS: During the course of assessment proceedings, it was found that the assessee company paid Rs. 629,26,15,912 to Gujarat Energy Transmission Company Ltd(GETCO) being Transmission Charges. As per the provision of section 40(a)(ia) of IT Act the"" whole expenditure on which TDS was not made are required to be disallowed. The assessee company vide letter dated 07.01,2013 issued show cause notice as to why the same expense should not be disallowed. The assessee company submitted its written reply which is reproduced as follows: "It is submitted that the issue relating to the disallowance of transmission charges paid to GETCO without deduction of TDS was specifically raised and examined while completing the assessment under section 143(3) of the IT Act. As a matter of fact, we had also filed a written submission of the issue vide our letter dated 16.12.2010. On the basis of our explanation, the issue was dropped from the assessment, and no additions were made on this count. Without prejudice to the above, it is a/so submitted that the provisions of section 40(a)(ia) provides for non- deduction of amount which remain....
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....e and we have actually made payment of the expenditure. Reliance is also placed on the decision of ITAT Jaipur in case of Jaipur Vidyut Vitran Nigam Ltd. Vs. ITO (TDS) wherein the said views have affirmed by the Tribunal. Hence the provisions of section 40(a)(ia) of the Act are not applicable and no disallowances are warranted. 1.2. It is also submitted that that in the appellant's own case for the Asst. Year 2007-08 to 2009-10, the Hon'ble ITAT, Ahmedabad vide its order dated 14- 12-2012 has categorically held that the no TD5 is liable to be deducted on the Transmission Charges payable by the Company. It may be noted that the said order has been passed even in response to the Departmental Appeals for the said years. A copy of the said order -is enclosed herewith for immediate reference in Annexure-ll. 1.3. In view of the facts and circumstances, it is submitted that the provisions relating to TDS are not applicable at all to such transmission charges and hence there is no question of invoking section 40(a)(ia) of the I T Act. The appellant, therefore, prays that the disallowances of Rs. 62926.16 lacs deserve to be deleted in toto." 7.3. I have co....
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....ansmitting energy does not result in any technical services being rendered to the assessee, apart from the fact that the payment of transmission/wheeling/SLDC charges is reimbursement of the cost and, therefore, the payments could not be disallowed under s.40(a) (ia); provisions of s.40(a)(ia) are not applicable also for the reason that they apply only when the amount is payable i.e., due whereas the assessee has made actual payment." 8.2 In the case of Maharashtra State Electricity Distribution (supra) the Mumbai Tribunal has relying on the decision in the case of Jaipur Vidyut has held that wheeling and transmission charges paid by assessee state electricity distribution company in case of which provisions of Electricity Act 2003 is applicable are not liable for deduction of tax either u/s 194J or 194CoftheAct. 8.3. In the case of Chattisgarh State Electricity Board (supra) the Mumbai Tribunal has concluded as under: "Payment made by the assessee, a State Electricity Board, to PGCIL for transmission of power purchased by it from NTPC was made for the services of transmission of electricity and not for the use of transmission wires per se in as much as t....
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....be applicable to ground no. 3 of ITA no. 3359/Ahd/2015. 8. During the course of assessment, the assessing officer noticed that as per schedule 14, the assessee has shown other income consisting of interest on loan and advances, incentives from CPSU, cash discount, gain on sale of fixed assets, gain on foreign exchange fluctuation and miscellaneous income etc. amounting to Rs. 13352.48 lacs. The assessing officer was of the view that these income was to be assessed as income from other sources instead of business income shown by the assessee. On query, the assessee explained that interest earned on loan and advances was from deposit placed with Mega Power Project towards its sharing of power and interest of UL pool account was received from M/s. Power Grid Corporation India Ltd. It was also explained that other income and miscellaneous income cannot be treated as income from other sources. The assessing officer has not agreed with the explanation of the assessee and he was of the view that such income was not directly related to the nature of business of the assessee, therefore, she has treated the aforesaid income as income from other sources. 9. Aggrieved assesse has filed a....
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....on the ground that the same is not an allowable expense. The learned Commissioner (Appeals) has further erred in law and facts in confirming the disallowance of depreciation of Rs. 18,77,000/- and Interest and finance charges Rs. 1,72,56,000/- accounted as prior period expenses without appreciating the fact that such expenditure crystallized during the year. The learned Commissioner (Appeals) has erred in law and on facts in enhancing the disallowance of prior period expenses on account of Administrative and other Expenses of Rs. 1,30,35,000/- without considering that there was a net income under this head which has already been offered to tax during the year. 4. The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the charging of interest under section 234B, 234C and 234D of the Income Tax Act, 1961." Ground Nos. 1 &2 (Disallowance of provision made of employees cost of Rs. 3,39,00000 &confirming the enhancement of the Book Profit computed under section 115JB of the Income Tax Act, 1961 on account of disallowance of Expenses of Rs. 3,39,00,000/-), 12. During assessment, the assessing officer noticed that asse....
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.... we have gone through the material on record and it is noticed that the assessee company has made this provisions for arrears payable to the employee for the purpose of wage revision to be made according to the 6th Pay commission. The assessee has stated that the employee's union has submitted their charter of demands and negotiations with the union representatives were in progress during the year. The Ld. Counsel has submitted that identical issue has been decided in favour of the assessee by the ITAT Ahmedabad vide ITA No. 704/Ahd/2012 in the case of Gujarat Energy Transmission Corp. Ltd. for A. Y. 2008-08 0n 12/06/2015. In the light of the aforesaid facts and circumstances, we restore this issue to the file of the assessing officer for adjudicating a fresh after consideration of the above cited decision and verification/examination of the information of the relevant information to be furnished by the assessee in the set a side proceedings. Therefore, both these ground of appeal of the assesse are allowed for statistical purposes. Ground No. 3 (Disallowance of prior period expenses), Ground No. 5 of ITA 3359/Ahd/2015, Ground No. 3 of ITA No. 3438/Ahd/2015 and Ground No. 3 of I....
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....e and such liability has been actually claimed and paid in the later previous years it cannot merely on the basis the accounts are maintained on mercantile basis and that it related to a transaction of the previous year. The true profits and gain of a previous year are required to be computed for the purpose of determining tax liability. The basis of taxing income is accrual of income as well as actual receipt. If for want of necessary material crystallizing the expenditure is not in existence in respect of which such income or expenses relate, the mercantile system does not call for adjustment in the basis. It is actually known income or expenses, the right to receive or the liability to pay which has come to be crystallized, which is to be taken into account under the mercantile system of maintaining books of account. An estimated income or liability, which is yet to be crystallized can only be adjusted as a contingency item but not as an accrued income or liability of that year. " 6.4.1. In the submission made by the appellant, the appellant has failed to establish that all these expenses crystallized during the course of the FY 2008-09. Non provision or deprec....
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....nce made in this regard is enhanced by this amount of Rs. 130.35 Lakhs. 6.4.5. Besides, the prior period income has crystallized in the current year itself as the appellant has not made any submission in this regard. Thus, it is an admitted fact. Moreover, the prior period expenses have not been incurred for earning such prior period income and hence, no set off of such expenses against such income as made by the "appellant while filing return of income is allowable. Hence, the disallowance made by the AO is upheld on this account also. Thus, this ground of appeal is dismissed. After considering the contentions of both the sides and material on record we observe that the ld. CIT(A) has framed his own opinion on the basis of limited details and verification but without specific finding in support of disallowance of prior period expenses. In view of the aforesaid material facts and similar to our findings in the ITA No. 2014/Ahd/2015 for ground no2 in this order we are of the view that it will be appropriate to restore this issue to the file of assessing officer for deciding de-novo after verification/examination of the complete details with specific findings/reasons a....
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.... 3338/Ahd/2015, Ground Nos. 1 & 4 of 3359/Ahd/2015, Ground No. 1 of 3360/Ahd/2015, Ground No. 1 of ITA No. 2014/Ahd/2015 and Ground No. 1 of ITA No. 3339/Ahd/2015, 3438/Ahd/2015 20. In respect of computing income u/s. 115JB of the act, raised in ground no. 5, the disallowance u/s. 14A of the act amounting to Rs. 167.56 lacs was also added to the book profit of the assessee u/s. 115JB of the act by the assesssee. The ld. CIT(A) has deleted the aforesaid disallowance after following the decision of the ITAT Ahmedabad in the case of Alembic Ltd. for assessment year 2007-08 vide ITA no. 1928/Ahd/2010. We consider that the disallowance made u/s. 14A is not to be added in computing income u/s. 115JB of the act as held by the Special Bench of the ITAT in the case of ACIT vs. Vineet Investment vide 165 ITD 27 (Delhi) (2017). Therefore, this ground of appeal of the Revenue s dismissed. 21 As the facts in all other five grounds of appeals are similar, so, we take 1st ground of ITA No. 1988/Ahd/2015 as lead case and its findings will also be applicable Ground No. 1 of 3358/Ahd/2015, Ground Nos. 1 & 4 of 3359/Ahd/2015, Ground No. 1 of 3360/Ahd/2015 and Ground No. 1 of ITA No. 2014/Ahd/20....
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....T(A) is reproduced as under:- "3.3 The reasons for making disallowance of Rs. 167.56 crores u/s 14A read with Rule 8D as mentioned by the AO in the assessment order as well as above submission of the appellant's AR have been considered. It is mentioned that the similar issue was involved in the case of appellant for AY 2008-09 also. The then CIT(A)-I, Baroda i.e. my predecessor has passed appeal order in the case of appellant for this AY 2008-09 in appeal no. CAB-1/152/10-11 dated 03/02/2012 in appellant's own case and his observation an the above issue as made in such appeal order is reproduced hereunder or reference: "3.2 I have carefully considered facts of the case and appellant's submissions. There is no dispute that appellant had made investments in shares of subsidiaries and other companies, income from which i.e. dividend would be exempt from taxation. As per section 14A of the Income Tax Actf no deduction is to be allowed in respect of expenditure incurred in relation to income which does not form part of the total income under the Income Tax Act. As held by Hon'ble Delhi High Court in the case of Maxopp Investment Ltd. (2011) 15 taxmann.c....
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....is now taken up. Part of the loans appearing on appellant's balance sheet were in fact raised by erstwhile GEB for acquisition of capital assets for generation, transmission of electricity etc. Under the Financial Restructuring Plan, such loans were assigned to the appellant company against which shares in subsidiary companies i.e. GSECL, GETCO etc. were also allotted. The underlying capital assets acquired out of such loans are appearing on the balance sheet of GSECL, GETCO etc. As far as appellant company is concerned, the interest burden on such loans inherited by it from GEB is in relation to such investments in subsidiary companies etc. Thus, merely because the loans were taken prior to Financial Restructuring Plan does not mean that interest on loans inherited from GEB by the appellant company is not at all in relation to investments yielding tax free income. Appellant's contention that dividend income had already suffered dividend distribution tax, due to which there was no logic in disallowing expenditure u/s 14A is not tenable since dividend income is exempt in the hands of appellant whereas dividend distribution tax is to be paid by the company distributing divide....
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....... interest during the previous which is not directly attributable to any particular income or receipt.....". As per details submitted by appellant, interest of Rs. 167.48 crore was directly attributable to its business of bulk purchase and bulk sale of power, being in relation to working capital borrowings. On other hand, interest of Rs. 33.94 crore on loans raised by GEB and outstanding on 31.3.2008 and certain other items included in total interest were not directly attributable to any particular income. The interest to be apportioned under Rule 8D(2)(ii) would accordingly be as under: Net interest claimed Rs. 131.22 crore Add: Provision of interest on Govt. loans Returned back Rs. 67.80 crore Interest capitalized Rs. 7.16 crore Rs. 206.18 crore Less: Interest claimed to be on working capital Borrowing exclusively for power trading Business Rs. 167.48 crore Rs. 38.70 crore Disallowance under Rule 8D(2)(ii) (38.7 x 552957.24 / 581358.105) Rs. 36.8094 crore Add: Disallowance under Rule 8D(2)(iii) (as per assessment order) ....
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....g officer that interest of Rs. 167.48 crore was in relation to working capital loans or other loans utilized exclusively for power trading business of the assessee company. The ld. CIT(A) also held that the assessee company has established that investment in shares amounting to Rs. 1280.28 crores in the subsidiary companies were made out of the grants received from the State Government of Gujarat, therefore, the same cannot be considered for making disallowance out of interest fund , however, the same has to be considered for making disallowance out of administrative expenses. It was brought to our notice by the ld. counsel that in the case of the assessee itself on the identical issue and similar facts for assessment year 2008-09 the ITAT Ahmedabad vide ITA No. 837/Ahd/2012 has set aside the matter to the file of assessing officer . The Ld. DR could not controvert the above submission with any other material on record. With the assistance of the Ld. Representative we have gone through the above referred decision of the coordinate bench the relevant part of the decision is reproduced as under:- "13. We observe that ld. Assessing Officer has made disallowance u/s 14A ....
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....The assessing officer was of the view that if grant was in the nature of capital nature then it should have been deducted from fixed capital asset in case the grant was in the revenue nature then the same should have been shown as revenue income in the hands of the assessee. The assessing officer asked the assessee to explain the nature of grant and why the same should not be reduced from the capital asset as per explantion-10 to section 42(1) of the act. The assessee explained no new grant was received during the year under consideration. It was further explained that various grants received/receivable during the year from the Govt. of Gujarat were apportioned amongst the subsidiary companies on appropriate basis. The assessing officer has not accepted the explanation of the assessee. The assessing officer noticed that assessee has shown subsidy receivable from the Govt. of Gujarat at Rs. 72773.27 lacs as on 31st March, 2010 compared to the subsidy receivable from the Govt. of Gujarat at Rs. 60364.04 lacs on 31st March, 2009 and capital grant of Rs. 250 crores received and shown in reserves and surplus of the company was distinguishable from other grants. The assessing officer was....
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....hrough the material on record pertaining to the submission of the assessee stating that the assessee has not received any grant during the year and the grants received originally from the Govt. of Gujarat were apportioned against the subsidiary companies on appropriate basis. In F.Y. 2007-08, the State Government vide various GRS decided to convert the grant given during the F.Y. 2005-06 to 2007-08 for implementation of Jyoti Gram Yojna (JGY) into equity share capital. Accordingly, the total grants received during the aforesaid financial years were allocated among the four distribution companies for implementation of the aforesaid scheme of the State Government. In view of the above facts and circumstances, we do not find any infirmity with the decision of the Ld. therefore, the aforesaid grants received cannot be treated as income of the assessee company. Accordingly , this ground of the appeal is dismissed. Ground No. 3 (Deleting addition of Rs. 334 lacs by treating the grantee fee paid capital expenditure as against revenue expenditure claimed by the assessee), Ground No. 4 of ITA No. 2014/Ahd/2015, Ground No. 2 of ITA No. 3359/Ahd/2015, Ground No. 2 of ITA No. 3438/Ahd/2015,....
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....at every year in respect of loans taken by appellant and guaranteed by Government 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 benefit. Guarantee fees paid to Government 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, guarantee fees to such extent, i.e. in respect of such loans only needs to be capitalized as cost of such asset. Appellant has certified that guarantee fees was paid in respect of loans for acquisition of capital assets which were put to use prior to 1.4.2007. Guarantee fees of Rs. 4,76,00,000/- is directed to be allowed as revenue expenditure, subject to verification by the Assessing Officer of the certificate filed during appellate proceedings, i.e. loans on which guarantee fees was paid were utilized for construction of power plants at that time and there was no capital work-in-progress in respect of such loans during FY 2007-08." 7.4....
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.... impugned expenditure results in the acquisition of 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 lasted for exactly one year only. Such ITA No.704 and 761/Ahd/2012shortlived 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, follo....
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.... why the above quoted order of the Tribunal should not be followed for the year under consideration. In the absence of distinguishing features being pointed out by the DR, and the facts being identical, respectfully following the above quoted decision of the Tribunal, we confirm the order of the CIT(A), and dismiss this ground of appeal of the Revenue. 40. We are of the view that the issue raised in this ground is squarely covered by the decision of co-ordinate bench referred above in the case of Gujarat Energy Transmission Corpn. (supra) and respectfully following the same, we find no reason to interfere with the order of ld. CIT(A) and uphold the same. This ground of Revenue is dismissed." Respectfully following the decision of the Co-ordinate Bench of the ITAT as cited above, we do not find any merit in the appeal of Revenue on this issue, therefore, the same stands dismissed. Ground No. 4 (Deleting addition of Rs. 187.91 lacs being interest income treated as income from other sources) & Ground No. 4 of ITA No. 3360/Ahd/2015 33. These two grounds of appeals are similar to the ground no. 2 of the revenue which has been adjudicated above in this order vide ITA no....
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....cer with regard to claim of prior period expenses of the assessee. The assessing officer has furnished a brief report vide letter No. BRD /Cir. 1(1)GUVNL/2013-14 dated 17-02-2014 which is reproduced as under:- "With reference to the above as per, the direction given by Ld. CIT(A), the undersigned has given opportunity to the assessee company vide her letter dated 07/10/2013 to produce details for the verification of the prior period income and expenses. In response, the assessee company submitted a letter dated 18/10/2013 which has been duly considered in the preparation of the remand report. After perusal of the reply of the assessee and, facts of the case, following remand report is submitted for your kind perusal: 1) During the year under consideration, the assessee company has shown a prior period income of Rs. 7.60 lakhs as per the schedule 21 forming part of Profit & Loss account for the year ended 31st March/t 2010, under the head "Power Purchase". Further, during the year under consideration, as per schedule 21 forming part of Profit & Loss account for the year ended 31st March, 2010, the assessee company has shown a prior period expenditure of Rs. 661.29 ....
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....e treatment is meted out to the prior period income am/expenses. 5) It is further observed from the 'analysis of the vouchers & documentary evidences produced by the assessee that it cannot be concluded from such evidence that the liability got crystallized during AY 2010-11. A symbolic expenses wise analysis of the same is as follows: i) Power Purchase Rs. 593.78 Lacs As per the assessee's submission dated 18/10/2013 the said amount was paid to GETCO on account of transmission charges payable for the financial year 2007-08. The said liability, as per the assessee, crystallized during the year in terms of the order passed by GERC. Hoy ever, an analysis of the order shows that it was passed on 26/03/2008. Therefore it is seen that, if at all, the liability had crystallized earlier and not during the concerned assessment year. ii) Other Adjustments Rs. 16.96 lacs As per the assessee's submissions-dated 18/10/2003 the same is on account of certain charges paid during the year as the invoices were received during the year or the amount was finally passed apprdved for payment during the year on completion of the work. Howeve....
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.... for other disallowance under the head prior period, the ld. CIT(A) has made disallowances as per his opinions and stated that assessee has failed to furnish the relevant material. In respect of transmission charges the ld. CIT(A) was of the opinion that it was not the liability of the assessee and the same cannot be claimed by the assesse as prior period expenses. In the light of the facts and circumstances briefly stated above the following facts are emerged :- (i) The assessing officer has stated that the prior period expenses were remained to be disallowed due to oversight. (ii) The ld. CIT(A) has enhanced the prior period expenses disallowed during the course of appellate proceedings. (iii) The assessing officer has failed to give any findings as required in the remand report by the ld. CIT(A) (iv) Under the aforesaid circumstances, the ld. CIT(A) has framed his own opinion on the basis of limited details and verification but without specific finding in support of disallowance of prior period expenses. In view of the aforesaid material facts, we are of the view that it will be appropriate to restore this issue to the file of assessing off....