TaxTMI 
TaxTMI 
TaxTMI 
2019 (4) TMI 1840
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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 the circumstances of the case and in law, the Id. CIT(A)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 remains payable. It is not applicable where expenditure is paid, It is applicable only in cases where the payments ar....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 considered the facts of the case, the submission of the appellant and the AO's observations. This issue is covered in favour of the appellant by the de....
X X X X Extracts X X X X
X X X X Extracts X X X X
....imbursement 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 these transmission lines are used not only for transmission of electricity to the assessee but also for transmission of electricity to various other entities, and the assessee has no say in t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....st 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 appeal before the ld. CIT(A). The ld. CIT(A) has allowed the appeal of the assessee stating that the similar issue was decided in favour of the assessee by his predecessor for assessment year 2009-10. 10. W....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 assessee company has claimed an estimated liability of Rs. 339.00 lacs being employee cost and accounted the same on accrual basis. The assessee has explained that additional liability in this respect would be ascertained when the settlement will be re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat 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 ITA No. 3439/Ahd/2015 15. As the facts in all the four grounds of appeals are similar, so, we take 3rd ground of ITA No. 3358/Ahd/2015 as lead case and its findings will also be applicable to Ground No. 5 of ITA 3359/Ahd/2015, Ground No. 3 of ITA No. 3438/....
X X X X Extracts X X X X
X X X X Extracts X X X X
....quired 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 depreciation in earlier years does not entitle the appellant to debit the depreciation of earlier years as prior period expenses in the current year, no detail of other prior period adjustments of small amounts have been furnished to establish that such expenses have also crystallized duri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....curred 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 after affording adequate opportunities to the assessee. The assessing officer is also directed to consider judicial pronouncements referred by the assessee on this issue vide ITA No. 996/Ahd/2011 page 113/6 GUVNL vs. ACIT assessment year 1998-99 and ITA No. 573/Ahd/2016 CIT vs. Adani enterprises Ltd. (Guj) pag....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ook 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/2015 22. During assessment, the assessing officer noticed that assessee has earned dividend income of Rs. 997.78 during the year under consideration. She also noticed that the assessee has claimed huge amount of interest expenditure of Rs. 14527.94 lacs. The assessing officer further noticed that assessee has made investment to the amount of Rs. 68697....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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.com 390 (Delhi), if the expenditure in question has a relation or connection with or pertains to exempt income, it cannot be allowed as a deduction, even if it otherwise qualifies under other provisions of the Income Tax Act. Thus, even if investment in shares etc. was for reasons of commercial expediency and/or expenditure in relation to such investments by way of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....llotted. 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 dividend. Appellant's contention that investments were made out of funds received from State Government and out of the net profit of the appellant company, due to which interest on loans raised after 1.4.2005 can also not be disallowed is now taken up. Appellant has not maintained separate books of account in respect of dividend income. Neither any separate bank acco....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed 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) i.e. Rs. 27.6478 crore Rs. 61.4572 crore Thus, instead of disallowance of Rs. 152.4627 crore u/s 14A made by the Assessing Officer, disallowance of Rs. 61.4572 crore is directed to be made subject to verification by the Assessing 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 of the Act without examining the facts referred above which were very crucial to reach at the final disallowance u/s 14A of the Act. There are series of judgments of the co-ordinate benches that the disallowance u/s 14A of the Act should not exceed the exempt income earned during the year and also decisions wherein the disallowance u/s 14A of the Act on account of interest expenditure are held to be incorrect if the assessee has sufficient equ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t. 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 of the view that assessee has not received any grant or subsidy during the year under consideration but the subsidy or grant which was received in the earlier years was to be taken as a revenue or it to be reduced from the cost of assets as the case may be as per nature of the grant. Therefore, the assessing officer stated that assessee has failed to reduce the capital grant against the cost of capital asset and claimed excess depreciation at 15% of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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, Ground No. 2 of 3439/Ahd/2015 and Ground No. 2 of 3360/Ahd/2016 29. As the facts in all the six grounds of appeals are similar, so, we take 3rd ground of ITA No. 1988/Ahd/2015 as lead case and its findings will also be applicable to 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, Ground No. 2 of 3439/Ahd/2015 and Ground No. 2 of 3360/Ahd/2016 30. During assessment, the assessing officer no....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re 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 Following the above decision of Ld. CIT(A) (i.e. my predecessor) as given for AY 2008-09, for the year under consideration also Guarantee fees of Rs. 3,34,00,000/- 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 loa....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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, 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. I....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pn. (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. 3358/Ahd/2015. Since this issue is based on similar facts, so the decision of ITA 3358/Ahd/2015 is applied to these two grounds of appeals also. 34. The assessee has raised following grounds of appeal:- ITA No. 2014/Ahd/2015, A.Y. 2010-11 2.0 The Commissioner of Income Tax (Appeals) has erred in law and on facts has enhanced the prior period expense and income disallowance to Rs. 6,57,77,519/- by disallowing prior period expense of Rs. 6,50,17,519/-(actual amount Rs. 6,49,12,519/-) without considering the fact that the liability ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ration 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 Lakhs which is a consolidated amount of the following sub heads - i. Power Purchase 593,78 Lakhs ii. Employees cost 12.16 Lakhs iii. Interest & Finance charges 0.00 iv. Admin Expenses 39.39 Lakhs v. Other Adjustments relating prior period 16.96 Lakhs Accordingly, the assessee company had debited a net Prior Period expense of Rs. 653.69 Lakhs to the Profit & Loss a/c, as per in schedule 21. 2) As per the submission of the assessee dated 18/10/2013 the details of prior period income and expenditure is as follows: I Prior Period Income - 7.60 L....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y 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. However, it is clear that, as per mercantile system, even if the invoices are received later in the-period, the expenses are accounted for in the period to which such invoices pertain and not in the year in which the invoices are received. Therefore, plea of the assessee that invoices were received during AY 201011, does not hold good. Considering the facts as mentioned above, your honour may decide the issue on the merits of the case." The ld. CIT(A) has observed at para. 24 of his order that the assessing officer has not made any comment at all on merit in her remand report in respect of prior period expenses of Rs. 12.17 lacs being employee cost and prior period expenses of Rs. 38.39....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gs. (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 officer for deciding de-novo after verification/examination of the complete details with specific findings/reasons after affording adequate opportunities to the assessee. The assessing officer is also directed to consider judicial pronouncements referred by the assessee on this issue vide ITA No. 996/Ahd/2011 page 113/6 GUVNL vs. ACIT assessment year 1998-99 and ITA No. 573/Ahd/2016 CIT vs. Adani enterprises Ltd. (Guj) page 16-18. Therefore, this ground of the assessee is allowed for statistical purposes. Ground No. 3 (Disallowance of depreciation of computer of Rs. 26.93 lacs) 36. During assessment, the assessing officer that assessee has claimed depreciation @ 60% on computerized operational plant and machinery an....