TaxTMI 
TaxTMI 
2022 (6) TMI 341
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....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 interest rates, etc. over a long period of time, i.e. the assessee has derived benefit or advantage of....
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.... 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 2009-10. Thus the recurring issues considered by this Tribunal in assessee's own case for other Asst. Years are as follows: (i) Replacement of parts of machines treated as capital expenditure; ....
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....hereby 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. For a power generating company, these spares are in the nature of consumables spares only notwithstanding its high cost. It is also to be submitted that the Original Equipment Manufacturer which in the case of the assessee company is BHEL / General Electric, USA have very categorically prescribed the operating ....
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....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 of the coordinate Benches of ITAT, Hyderabad in the case of DCIT -Vs- AP Gas Power Corporation Ltd reported in 2014 [ID2]-GJX-0224THYD wherein after detailed discussion of Supreme Courts and other Judgements held as follows: "... ... 15. We have heard the submissions of the parties and perused the orders of the revenue authorities as well as other materials placed on record. It is quite evident fro....
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....e, 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 concerned, the CIT(A) has clearly brought out the distinguishing features. It is to be noted that in the case of CIT V/s. Saravana Spinning Mills, there is a clear observation of the Hon'ble Supreme Court that the Textile Plant consists of different departments having its own independent plants and machinery which produce different intermediate products. However, in the case of the assessee there is no such intermediate ....
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....ws 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 BHEL/General Electric, USA have very categorically prescribed the operating life of the above bucket which helps to ensure trouble free operation and to avoid any catastrophic damage to the machine. e. Further it is also stated that by replacement of the buckets on completion of 48000 hours of continuous operation the power generation capacity is neither increased nor is the power plant efficiency or life of the plant gets increased. f. The cost of the ....
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....he 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 prospective in nature and could not have been made applicable in respect of assessment years prior to 2007 when this rule was inserted w.e.f. March 24, 2008 vide Income Tax (Fifth Amendment) Rules, 2008. Further jurisdictional High Court in the case of Principal Commissioner of Income-tax-4 -Vs- Sintex Industries Ltd. reported [2017] 82 taxmann.com 171 (Gujarat) wherein it is clearly held that the Expenditure incurred in relation to income not includible in total income (Administrative expenses) - Whether where assessee ....
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....P 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 should be allowed as deducting in this year. 28. 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." 8. Thus, the above five issues [though differently numbered] are covered by assessee's own case which is admitted by both the parties. Now we proceed with the remaining five issues. 9. Disallowance of Corporate Debt Restructuring Expenses, this expenses were incurred by the assessee towards resettling of interest rate a....
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....city 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 book profit under section 115 JB unchanged, where the assessing officer added this 78.09 crores in the book profit under section 115 JB. 12. The ld CIT[A] deleted the addition by passing a detailed speaking order which is as follows: "13.2 I have considered facts of the case and appellant's submissions. In brief, facts of the matter are that erstwhile GEB (now GUVNL) created provision of interest towards delayed payment charges (DPC) of Rs.78.1 crore in favour of appellant on 31.3.2004, on which tax of Rs.16.01 crore was deducted at source and deposited to the....
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....econd 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 Registrar of Companies is not concerned with these aspects whether accounts adopted for the previous year are same or not because the Registrar of Companies at best is concerned whether the accounts adopted and laid before the annual general meeting are in accordance with the requirements of Part II and Part III of Schedule VI of the Companies Act, 1956. Therefore, in view of these enlarged requirements, it is held that Assessing Officer has powers to go behind the accounts and see whether same have been prepared in accordance with the requirements of Part II and Part III of Schedule VI of t....
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....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 (which is also raised by the AO) is regarding allowability of credit of entire tax deducted at source of Rs.16.01 crore in A.Y.2004-05. Assessing Officer referred to provisions of section 199 in this regard; however, ultimately held entire amount of Rs,78.1 crore as includible in book profits u/s.115JB for such alternate reasoning. As per section 199, as it stood before its amendment by Finance Act, 2008, credit for tax deducted at source is to given on production of TDS certificate in the assessment year for which income is assessable. It has been held above in para 13.2 above that out of Rs.78.1 crore, ....
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.... 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 addition made by the AO. Thus issue no. (viii) is allowed in favour of the assessee. 16. Charging of interest under section 234B on book profits. The AO charged interest u/s.234B on addition made on account of provision for deferred tax amounting to Rs.41,60,67,000/= in the book profit u/s.115JB relying on restrospective amendment made in section 115JB by the Finance Act, 2008. This issue is squarly covered against the assessee by recent judgement of the Karnataka High Court judgement in the case of CIT -Vs- JSW Steel Ltd. reported in [2020] 121 taxmann.com 39 (Karnataka) as follows: 7. The Supreme Court in....