TaxTMI 
TaxTMI 
2023 (4) TMI 334
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.... with the order passed by the Commissioner of Income Tax (Appeals)-I, Vadodara ("learned CIT(A)"), prefers an appeal against the same on the following amongst other grounds, which are without prejudice to each other. 1. The order passed by the learned CIT(A) is erroneous and contrary to the provisions of law and facts and therefore requires to be suitably modified. It is submitted that it be so done now. 2. The learned CIT(A) erred on facts and in law in upholding disallowance of administrative expenditure made by the Assessing Officer ("AO") in accordance with Rule 8D of the Income-tax Rules, 1962 ("the Rules") read with Section 14A(2) of the Income-tax Act, 1961 ("the Act") even though the appellant had suo-moto made disallowance of proportionate administrative expenditure of Rs.60,276 relating to the exempt income. It is submitted that it be so held now. 2.1. The learned CIT(A) erred on facts and in law in upholding disallowance of administrative expenses made in accordance with Rule SD of the rules read with Section 14A(2) of the Act despite the fact that the AO had not recorded any satisfaction having regard to the books of accounts of the appellant ....
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....ad reached finality and there was reasonable certainty in respect of such income. It is submitted that it be so held now. 5.1. Without prejudice to the above, the learned CIT(A) erred in not directing the AO to grant deduction of interest on refund in the year in which the same is withdrawn and/or not to tax in the year in which same is accounted for. It is submitted that it be so held now. 5.2. The learned CIT(A) erred on facts and in law in not giving the above direction to the AO by holding that the appellant can file revised return for AY 2014-15 (being the year in which the said interest income has been offered for tax). It is submitted that it be so held now. 6. The learned CIT(A) erred on facts and in law in upholding the disallowance of Rs. 252.77 lacs being the amount of business expenditure incurred for the purpose of setting up of the projects which were abandoned, by holding that the expenditure has been incurred for establishing new projects and are therefore, capital in nature. It is submitted that it be so held now. 6.1. The learned CIT(A) ought to have appreciated that expenditure incurred was either for de-bottlenecking of existi....
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....n facts and in law in not directing to allow the expenditure in AY 2011-12 by holding that the issue has not become final, since the assessee has not claimed the deduction in the return of income and the appeal is pending before the Tribunal., It is submitted that it be so held now. 9. The learned CIT(A) erred on facts and in law in confirming adjustment to the book profit computed under Section 115JB of the Act in respect of proportionate expenditure related to exempt income computed in accordance with the formula prescribed under Rule SD of the rules read with Section 14A{2) of the Act. 9.1. The learned CIT(A) erred in law in not appreciating that the provisions of section I4A of the Act read with rule 8D of the rules is applicable to only computation of total income under chapter IV whereas the book profit is being calculated under chapter XII-B of the Act. It is submitted that it be so held now. Your appellant prays for leave to add, alter and/or amend all or any of the grounds before the final hearing of appeal." 2.1 The Assessee in its ITA No.547/Ahd/2016 has raised the following grounds of appeal:- "1. On the facts and in the circumstan....
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....tion of Rs.3,07,12,378/- towards interest of income tax refund, addition of Rs.2,52,77,000/- towards abandoned project written off and also addition in respect of expense made for obtaining land on lease for a period of 20 years amounting to Rs.4,41,00,000/-. The Assessing Officer further made addition of Rs.24,61,000/- towards obsolete spares & write off. 4. Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee. 5. The Ld. AR submitted that as regards ITA No.624/Ahd/2016 filed by the assessee, the concise grounds of appeal were filed which is reproduced as under:- "CONCISED GROUNDS OF APPEAL "The appellant being dissatisfied with the order passed by the Commissioner of Income Tax (Appeals)-I, Vadodara ("learned CIT(A)"), prefers an appeal against the same on the following amongst other grounds, which are without prejudice to each other. 1. The order passed by the learned CIT(A) is erroneous and contrary to the provisions of law and facts and therefore requires to be suitably modified. It is submitted that it be so done now. 2. The learned CIT(A) erred on f....
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....view of recent Bombay High Court judgement in case of Sesa Goa Limited in Tax Appeal No.17 & 18 of 2013 which ought to have been allowed as deduction. The Assessing Officer be directed to allow the said deduction. It is submitted that it be so held now. Since the above additional ground is a pure legal ground and since it goes to the root of the issue, the same may please be admitted for the sake of doing substantial justice in the matter. In this regard, the appellant relies on the following Supreme Court judgements: (1) National Thermal Power Corporation, 229 ITR 353 (2) Jute Corporation of India Limited, 187 CIT 688" 6. The Ld. AR submitted that ground no.1 is general in nature, hence the same is dismissed. 7. The Ld. AR submitted that Ground no. 2 is related to disallowance of administrative expenditure amounting to Rs.2,12,49,050/- to arrive at average total asset for computing disallowance as per formula prescribed by Rule 8D on the opening and closing of gross block of fixed assets should be considered. The Ld. AR further submitted that current liabilities and provisions should not be reduced from the opening and closing stock of cur....
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....tted that in respect of repair and maintenance amounting to Rs. 22,41,225 and Rs. 25,58,693 from the vendor Avlani Enterprise, this expenditure was incurred for replacement of the corroded water pipeline which was used for supply of water to the DAP Plant at Sikka. The said expenditure is for maintenance and does not give rise to any enduring advantage. The expenditure neither brings into existence any new asset nor increases capacity of DAP Plant. The plant and machinery, for which the repairs and maintenance expenditure is incurred, was established at a cost of Rs. 100 crore (approximately) in December 1986. So, expenditure incurred is very negligible considering the present value of total plant and machinery. The disallowance of Rs. 58,25,376 from the vendor Thermax Ltd., the Ld. AR submitted that this expenditure is for replacement of a small part of the DAP Plant. The Burner system being replaced is not capable of functioning on a standalone basis. Accordingly, the expenditure does not give rise to any enduring advantage. The expenditure neither brings into existence any new asset nor increases capacity of DAP Plant. The plant and machinery, for which the repairs and maintenan....
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.... CIT(A) should have considered the same as not eligible for repairs and maintenance expenses as the same is not part of machinery as a whole. The Ld. DR relied upon the assessment order. The Ld. DR submitted that the Assessing Officer has disallowed Rs. 1,33,54,342 being expenses in the nature of capital. The CIT(A) carefully analysed each and every expenses and held that the expenses (Rs. 22,41,225/- + Rs. 25,58,693/-) incurred for replacement of water pipe line from Pipali Pump House of DAP Sikka Plant as capital expenditure as the entire pipe line was replaced by new pipe line. The new pipe line has an enduring benefit and has a significant life, therefore, the CIT(A) as well as the Assessing Officer has rightly held the same has capital expenditure. Similarly, the expenses (Rs.58,25,376/-) incurred for purchase for "Dual fuel burner system" also amounts to purchase of an individual machinery which is a part of the factory of assessee company and has enduring benefit. The CIT(A) has rightly upheld the addition relying on the decision of the Hon'ble Supreme Court in case of Saravana Shipping Pvt. Ltd. (supra). The finding given by the CIT(A) in para 6.2.1 is relied by the Departm....
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..... The assessee submitted that the expenditure on Avlani Enterprise has been incurred for replacement of the corroded water pipeline which was used for supply of water to the DAP Plant in Sikka. The said expenditure is for maintenance and does not give rise to any enduring advantage. The expenditure neither bring into existence any new asset nor increases capacity of DAOP Plant. The Plant & Machinery for which the repairs and maintenance expenditure is incurred was established at a cost of Rs.100 Crores (approximately) in December 1986. So expenditure incurred is very negligible considering the present value of total Plant & Machinery. The expenditure related to Thermax Limited is for replacement of a small part of the DAP Plant. The burner system being replaced is not capable of functioning on a standalone basis. Accordingly the expenditure does not give rise to any enduring advantage. The expenditure neither brings into existence any new asset nor increases capacity of DAP Plant. The Plant & Machinery for which the repairs and maintenance expenditure is incurred was established at a cost of Rs.100 Crores (approximately) in December 1986. So, the expenditure incurred is very neglig....
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....bunal and affirmed by the Hon'ble Gujarat High Court. The Agro Products of the assessee company are sold under the brand name 'Sardar' which is very popular amongst the farming community since more than four decades. The said brand has been derived from the iconic character of Vallabhbhai Patel who was referred to as 'Sardar'. The construction of a statue of Sardar Vallabhbhai Paltel would significantly enhance the value of the brand name under which the assessee carries on its business. This would help enhance sales as well as exports of the company's agro products and would as a corollary enhance the brand value of other products of the company. As a part of its obligation to contribute towards the society, the assessee has incurred such expenditure as a part of CSR (Corporate Social Responsibility). Accordingly, the expenditure was incurred wholly and exclusively for the purpose of business on account of commercial expediency and accordingly is allowable under Section 37 of the Act. In alternate, the Ld. AR submitted that the amount of contribution of Rs 10 Crores should be allowed as deduction under Section 37 of the Act. 15. The Ld. DR submitted that the expenditure is not ....
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....ssed. The Ld. DR further submitted that during the course of hearing the Ld. AR of the assessee relied on various decision including the decision of Hon'ble Gujarat High Court in the case of Gujarat Narmada Valley Fertilizers Co. Ltd. wherein identical facts, the claim was allowed by the ITAT and affirmed by Hon'ble Gujarat High Court. The nature of expenses in that case was quite different and same were incurred per various projects including (i) purchasing Charkhas for tribal women, (ii) construction of hostel for boys and girls in Bhekhadia Village, (iii) contribution for providing potable drinking water in the villages of Bharuch District, (iv) providing computers to entrepreneurs, (v) contribution to conferences on socio-economic issues, (vii) sponsorships of various programmers / events, (viii) contributions to various health projects of various organizations, (ix) contribution to independence Day celebrations by GOG, Rajpipla and (x) contribution to DST, Govt. of Gujarat for two satellites. The Ld. DR further submitted that in the instant case, there was no mandatory CSR obligation and in fact expenses incurred is purely donation in nature and eligible for deduction u/....
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....ion of the assessee that the construction of a statue of Sardar Vallabhbhai Paltel would significantly enhance the value of the brand name under which the assessee carries on its business. This would help enhance sales as well as exports of the company's agro products and would as a corollary enhance the brand value of other products of the company. Thus, the contention of the Ld. AR that the expenditure was incurred wholly and exclusively for the purpose of business on account of commercial expediency and accordingly is allowable under Section 37 of the Act, appears to be genuine. Further, it appears that the funding was for State Government. The decision of the Hon'ble Gujarat High Court in the case of Gujarat Narmada Valley Fertilisers Co Ltd. (supra) under identical facts held that, the said expenditures were allowed related to deduction under Section 37 of the Act. Noting contrary was placed on record by the Ld. DR in respect of the decision of the Hon'ble Gujarat High Court. Thus, these expenditures are allowable and hence ground no.4 of the assessee's appeal is allowed. 18. As regards ground no.5 related addition of interest on income tax refund of Rs.3,07,12,378/-, the L....
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....diture incurred for setting off a new plant in the nature of capital loss and not allowable. The CIT(A) after carefully analysing the fact of the case upheld the addition with following remark:- "I have considered the appellant's submissions and the AO's observations. From the perusal of the assessment order as well as the submissions made by the appellant, it is evident that these expenses had been incurred by the appellant for establishing new projects. The appellant had obtained feasibility study and cost benefit analysis for the purposes of the establishment of these new projects and on the basis of the same, decided not to execute the commencement of the projects and the projects were abandoned. The appellant has itself stated that it had written off net balance in capital work in progress of Rs. 91.72 lakhs on account of Jathropa Project and had written off expenditure of Rs. 161.05 lakhs incurred on feasibility study and other incidental expenses on another project. There are series of decisions including the decision of the Jurisdictional High Court in which it has been decided that capital expenditure incurred on establishment of a new project or on acquisition of....
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....ts business, which was already carried on prior to the date the expenditure was incurred. It was submitted that, soda ash project, which the assessee proposed to establish, had to be regarded only as part of the existing business and not a new and separate business. The ITO, in his assessment order held that he did not propose to disallow the aforesaid expenditure totalling to Rs. 15,500 as preliminary expenditure. The technoeconomic feasibility report and consultation fees paid for the soda ash plant were for the purpose of expanding the business either by putting up a plant similar to the plant already in existence or launching upon a new activity. The ITO, therefore, held that the expenditure, which the assessee had incurred for technoeconomic feasibility report and consultation was nothing but capital expenditure even if the new activity would not be a separate business but part of the same business carried on by the assessee. This view taken by the ITO was confirmed in appeal by the AAC. In the further appeal to the Tribunal it was urged on behalf of the assessee that the assessee was already manufacturing industrial salt and it merely wanted to expand its activities by manufa....
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....oduction of soda ash and it was for the purpose of establishment of this new unit that it had incurred expenditure for obtaining techno-economic feasibility report and consulted Dr. Pandya. The Tribunal has found that the expenditure was incurred for acquiring a new asset and, consequently, it was an expenditure of capital in nature. We do not see any reason to disturb this finding. Once it is found that the expenditure in question was incurred for acquiring capital asset, the expenditure would be capital in nature. Deduction of expenditure, which is capital in nature, cannot be allowed under Section 37. In the view which we are taking, the decision of the Supreme Court in India Cements Ltd. v. CIT [1966] 60 ITR 52 and Alembic Chemical Works Co. Ltd. v. CIT [1989] 177 ITR 377 and the decisions of the Gujarat High Court in Sayqji Iron & Engg. Works (P.) Ltd. v. CIT [1974] 96 ITR 240 and CIT v. Alembic Glass Industries Ltd. [1976] 103 ITR 715 (Guj.) cannot be of any assistance to the assessee. In our opinion, the expenditure in question, being capital expenditure, its deduction was rightly disallowed by the Tribunal. We, therefore, answer the question which is referred to us in the a....
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.... the existing plant. The decision relied by the CIT(A) is squarely applicable in the fact of the case and the decision relied by the Ld. AR of the assessee is distinguishable in facts. 23. We have heard both the parties and perused all the relevant material available on record. Abandoned project was part of the business of manufacturing of chemicals and once the said plant if would have been a possibility, then the business expenditure of the assessee would have been much more. Therefore, the expenditure written off by the assessee has to be considered as business revenue expenditure. Therefore, ground no.6 of the assessee's appeal is allowed. 24. As relates to Ground No. 7 regarding disallowance of expenditure made by the Assessing Officer of Rs. 4.41 crores incurred for obtaining land on lease for a period of 20 years, the Ld. AR submitted that the charges were paid for the following purposes as per Purchase Order dated 03.04.2010 and 22.10.2010 entered into by the assessee with M/s Suzlon Windpark Gujarat Ltd. (SWGL): i. Land identification and arrangement cost ii. Infrastructure charges iii. Obtaining various statutory / Govt. approvals ....
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....of total income but has merely been claimed by way of notes forming part of the return of income. Further without prejudice to the above, the Ld. AR submitted that the assessee had claimed the aforesaid expenditure by way of notes forming part of return of income and had neither debited the said expenditure to the profit & loss account for the year under consideration nor had reduced the said amount from statement of computation of total income. Despite the same, the Assessing Officer has made an addition of Rs. 4,41,00,000 to the total income of the assessee resulting into incorrect addition to the total income of the assessee. Accordingly, the Ld. AR submitted that the Assessing Officer be directed to rectify this mistake and reduce the total income of the assessee accordingly. 25. The Ld. DR relied upon the assessment order and the order of the CIT(A). 26. We have heard both the parties and perused all the relevant material available on record. The contentions of the Ld. AR that the expenditure is in nature of expenditure on facilitation of lease land and other expenditure necessary for identification and development of land and is not in the nature of cost of land or prem....