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2022 (6) TMI 341
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....vant to the Asst. Year 2004-05 is taken as lead case for disposal of the above batch of appeals. 3. The grounds of appeal raised by Revenue in ITA No. 1770/Ahd/2012 for A.Y. 2004-05 read as under: "1. On the facts and in the circumstances of the case and in law, the Ld.CIT (Appeals) erred in deleting the addition of Rs.19,33,23,390/- (net of depreciation) made on account of capital expenditure. The Id.CIT(A) erred in not appreciating the fact that huge expenditure incurred towards spare parts which extended the life time of the machinery. Reliance is placed on the decision in the case of Ballimal Naval Kishor vs.CIT 222 ITR 414 (SC) and the Supreme Court decision m the case of CIT vs Saravana Spinning Mills Pvt.Ltd. (2007) 293 ITR 201 (SC) 2. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition of Rs.18,31,26,525/- on account of Corporate Debt Restructuring (CDR) expenses as capital expenditure. The Id.CIT(A) erred in not-appreciating that the assessee has derived all the benefits in the form of restricting of the debt repayment, more convenient and easy rescheduled time-frame for repayments, reduction in i....
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....nd in law in confirming the action of the AO to the extent of making addition of Rs.16,01,04,788 being delayed payment charges to the book profits computed u/s. 115JB of the Act. 2. The learned AO erred in fact and in law in charging interest u/s. 234B on the addition made on account of provision for deferred tax amounting to Rs.41,60,67,000 in the book profits u/s. 115JB despite the fact that the addition was made in view of retrospective amendment in section 115JB by the Finance Act, 2008 whereas the Assessee had filed the return of income on 1-11-2004" 5. As against the Grounds of Appeal raised by both parties, five issues/disallowances were already considered by this Tribunal in ITA No.3003/Ahd/2010 & ors. relating to A.Ys. 2003-04 & ors., vide order dated 28.02.2022. It is being agreed by both the parties that those four issues are already covered in assessee's own case in ITA No.3003/Ahd/2010. Similarly, issue regarding disallowance under s.14A of the Act in computation of book profit under s.115JB of the Act is the issue considered by the Tribunal in ITA No.472/AHD/2013 & Others vide order dated 13-04-2022 relating to assessee's own case for the Asst. Year 2009-1....
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....ed on turbine rotor in inverted furtree slots provided on rotor. Stage # 2 Bucket Kit consists of 92 buckets which when assembled on the rotor forms a series like wheel. The basic function of Buckets is to convert the heat energy of hot flue gases in to mechanical energy and thereby driving the coupled generator, which generates the POWER. Stage # 3 Due to high working temperature of around 800' C and high speed of the turbine (5100 RPM), this component is the most critical in the turbine and failure of this component may lead to catastrophic damage to the machine. The buckets are designed with special profile of airfoil cross section for efficient energy conversion. It is manufactured using precision investment casing process using GTD-1 11 material, which is General Electric. USA proprietary material. To overcome very high operating temperature, Buckets are coated with proprietary Thermal Barrier Coating (TBC)-GT FN33 and designed with cooling provision. Because of the above specialties, buckets are designed and manufactured as per General Electric, USA proprietary material and process under very stringent quality control and tests. ....
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....year under the consideration does not give enduring benefit to the assessee nor it increases the life or capacity of the machines and therefore are in nature of current repairs allowable as revenue expenditure. The assessee being in the business of generation and distribution of power requires specialized machines for generating power. Some of the parts of the machines require replacement from time to time on being used for fixed number of hours. The number of hours after which the machines are to be replaced are prescribed by the original equipment manufacturer (OEM). As soon as the machines complete the prescribed number of firing hours, the same are replaced. Thus the replacement is of parts of machines and not the entire machinery. The classification of spares in the books is not relevant for determining taxability of such items as per Income Tax Act. Further the consumption of spares is 0.50% of the net block of plant and machinery as on 31.03.2005. Every year such expenditure is required to be incurred with regularity considering the nature of business. 14.2. In support of this contention the Ld AR further submitted that this issue is squarely covered by the decision....
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....iture towards replacement of nozzle, shrouds, buckets etc., from the F.Y. 1998-99 and all along the department has allowed such expenditure. This fact has not been controverted by the learned D.R. It is also a fact that out of the total block of the assets relating to gas turbines of Rs.517 crores, the repair and maintenance to the extent of Rs.20,21,46,278/-. Therefore, considering the quantum of expenditure, it cannot be said that there is replacement of the entire gas turbine so as to bring into existence a completely new asset resulting in enduring benefit to the assessee. It is a further fact on record that the assessee's contention that there is no enhancement of capacity of the gas turbines or generation of power after replacement/repair of the part of the gas turbines remains uncontroverted. Therefore, in the aforesaid circumstances, it cannot be said that the expenditure incurred by the assessee in repair/replacement of the parts of the gas turbine, has resulted in bringing into existence of an asset of enduring benefit to the assessee so as to treat it as capital expenditure. So far as the decision in the case of CIT V/s. Saravana Spinning Mills (supra) is concer....
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....ed the above expenses in its books of account as "Capital" now cannot claim the same as "Revenue" and relied upon the order passed by the Assessing Officer and prayed for confirming the addition since it is recurring in nature. 15. We have given our thoughtful consideration on the materials placed before us namely Technical Write Up, Details of spares consumed at regular intervals for various Asst. years and the case laws relied by the assessee. We need not labour ourself in coming to a conclusion that the Replacement of parts in machineries treated as Not Capital but "Revenue" in nature for the following reasons: a. For a power generating company, these bucket spares are in the nature of consumables spares only notwithstanding its high cost. b. The buckets are designed with special profile of airfoil cross section for efficient energy conversion. c. Due to high working temperature of around 800' C and high speed of the turbine (5100 RPM), this component is the most critical in the turbine and failure of this component may lead to catastrophic damage to the machine. d. It is also seen from the Original Equipment Manufacturer namely B....
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.... there were no administrative expenses were incurred since the tax free income was essentially passive income requiring no efforts on the part of the assessee. The next part namely of financial expenses are concerned the assessee submitted it had not made any investments during the year in the assets yielding the tax free income. The adhoc disallowance of 10% on the exempt income under S.14A of the Act made by the AO is against law and the CIT[A] is also not correct in directing to adopt Rule 8D, since the assessment years are prior to the introduction Rule 8D. In the absence of any administrative expenses and no barrowed funds for such investments, the question of disallowance u/s.14A is unwarrented. 21. Per contra the Ld DR appearing for the Revenue accepted that many rulings by various Court on this issue and however supported the orders of the lower authorities. 22. We have given our thoughtful consideration on the materials placed before us, the issue is now settled by the Hon'ble Supreme Court in the case of Maxopp Investment Ltd. -Vs- Commissioner of Income Tax, New Delhi reported in [2018] 91 taxmann.com 154 (SC) wherein it clearly held that Rule 8D is pro....
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.... that 10% depreciation can be granted on this Building and direct the AO to allow the same. Accordingly the CO filed on this ground is allowed. 25. Issue No.5 relates to disallowance of contribution made to various organizations: The assessee claimed payment of Rs.2,00,000/= to SVADES, Rs.95,65,559/= to DEEP and Rs.15,36,500/= to various NGOs the same were disallowed by the AO. But the Ld CIT[A] granted relief in cases were the assessee has submitted Certificate of Registration of 80G in respect of payments made to SVADES and DEEP and balance amount was confirmed. 26. In our considered view the CIT[A] has granted appropriate relief to the assessee, which does not require any further inference. Accordingly the CO filed on this ground is dismissed. 27. Issue No.6 relates to claim of disallowance under S.43B of the Act. The learned CIT(A) by his detailed order has held that the AO was correct in not allowing the deduction of interest amounting to Rs.2,49,82,597/-. However, the AO is directed to allow this as a deduction in AY 2008-09. Similarly, the interest payment disallowed in the earlier year, which was actually paid in the PY corresponding to AY 2007-08....
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....m paid was on revenue account. This the assessing officer contention that by incurring expenses in question, the assessee derailed benefit of enduring nature is not tenable in view of the decision of the hon'ble Supreme Court in the case of India cements Ltd., thus addition made by the assessing officer is hereby deleted and expenditure is to be treated only Revenue in nature. Thus issue no. vi is allowed in favour of the assessee. 11. Additions under section 115 JB on account of TDS on this delayed payment charges. The assessee charged interest to Gujarat Electricity Board [GEB] on account of delayed payments for the period 1-4-2003 to 31-3-2004 a sum of rupees 78.09 crores. The matter was referred to high-power committee by GEB. On 11-06-2004, after finalisation of accounts. The TDS Certificate received from GEB wherein GEB deducted TDS to the tune of Rs.16.01 crores on late payment charges of Rs.78.09 crores, the assessee offered this Rs.16.01 crore actually received and no change made in 115 JB profits as the accounts where already finalised. Therefore roof revise return filed on 31-03-2006 offering entire amount of Rs. 78.09 crores to tax under normal solutions leaving the ....
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....nt of the preparation of accounts, it can be seen that originally the requirement was only limited that accounts shall be prepared in accordance with the provisions of Part II and Part III of Schedule VI of the Companies Act, 1956. But this requirement has been enlarged under section 115JB. As per the 1st proviso the requirement is that while preparing the accounts it should be ensured that Accounting Policies and Accounting Standard etc., adopted for preparing the accounts shall be the same as per the accounts laid down before the company in its annual general meeting. As per the second proviso it has been provided that if the company has adopted the financial year which is different from the previous year, then it should be ensured that while adopting such accounts same Accounting Policies and Accounting Standard etc. are followed. Thus, the Act has recognized that there may be cases where financial year of the company may be different from the previous year and if the financial accounts are adopted in the previous year then such accounts must have similar Accounting Policies and Accounting Standard etc. (Para 9) Now, who is going to check this aspect ? Obviously, the Re....
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....counts to be presented before the AGM by recognizing revenue of Rs.16.01 crore in accordance with appellant's accounting policy on revenue recognition. However, appellant did not recognize delayed payment charges of Rs.16.01 crore in its P & L account. Since the accounts presented before the AGM were not prepared as per accounting policy on revenue recognition of delayed payment charges, it would be justified to alter net profit arrived at by the appellant by adding amount of Rs.16.01 crore, being delayed payment charges recovered to the book profit u/s.115JB. As far as balance amount out of Rs.78.1 crore is concerned, the same was not recovered and should not have been recognized as income/revenue in A.Y.2004-05 for the purpose of section 115JB as well as normal provisions of the Act. To sum up, it is held that in A.Y.2004-05, out of Rs.78.1 crore, only Rs.16.01 crore should have been included in the book profits u/s.115JB as well as in the income chargeable to tax under normal provisions of the Act. In view of above, addition to the book profit u/s.115JB is confirmed at Rs.16.01 crore out of Rs.78.1 crore and balance is deleted. 13.2.1 Another aspect of the matter (w....
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....in favour of the assessee. 14. Disallowance on upgradation of software expenses of Rs.1,58,585/-. The assessee incurred upgradation of software expenditure to integrate the internal communication system email to Lotus notes within the company. This expenditure has been incurred only for facilitating the trading operation leaving the fixes untouched. However the assessing officer has disallowed the above expenditure under treated as capital expenditure being enduring the nature. The ld CIT[A] also confirmed this addition after allowing Depreciation on this expenses. 15. Before us the Ld Counsel submitted that jurisdictional High Court in the case of CIT -Vs- N.J. India Invest (P.) Ltd. reported in [2013] 32 taxmann.com 367 (Gujarat) held that Expenditure on maintenance, back-up and support services to existing hardware and software is revenue in nature, and therefore allow the expenditure as revenue in nature. Per contra the Ld DR could not contravent this decision and could not produce any decision in favour of the Revenue. Therefore respectfully following the jurisdictional judgement in the case of the NJ India Invest P Ltd [cited supra] we allow this ground and delete the a....