TaxTMI 
TaxTMI 
2023 (4) TMI 334
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.... 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 that the claim of the appellant in respect of expenses incurred for purpo....
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.... 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learned CIT(A) erred in not directing the AO to grant deduction of interest on refund in the year in which the same is withdrawn and/or not to tax in the year in which same is accounted for.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 existing plant to optimise its functioning or was incurred on setting up of projects which were interconnected with the existing business of t....
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.... 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 circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance made out of interest expenses u/s.14A r.w.r. 8D in relation to exempted income of dividend, without taking note that it was up to assesse....
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....00/-. 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 facts and in law in upholding disallowance of administrative expenditure amounting to Rs.2,12,49,050/- made by the Assessing Officer ("AO") in accordance with Rule 8D of the Incometax Rules, 1962 ("the Rules") read with Section 14A(2) of the Income-tax Act, 1961 ("the Act"). It is submi....
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....ssue, 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 current assets. Ld. AR further submitted that if issue of disallowance in respect of Section 14A of the Income Tax Act, 1961 is held in Department's favour the same should be considered. Ld. AR further submitted that the assessee has huge fund of its own and, therefore, the mechanical application under Rule 8D was not proper and justifiable. 8. The Ld. DR submitted that the CIT(A) i....
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....to 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 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 Ld. AR further submitted that burner system is not an independent plant but merely one spare part of the entire DAP plant which was established at total cost of around Rs. 100 ....
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....3/-) 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 Department. During the course of hearing as well as in the written submission the Ld. AR of the assessee submitted that the cost of the entire plant and machinery is around 100 crores and therefore the expenses incurred for replacement of water pipe line and purchase of "Duel fuel burner system" is negligible and therefore it should be treated as revenue expenditure. The contention of the Ld. AR is very general in nature a....
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....s 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 negligible considering the present value of total Plant & Machinery. The Ld. AR relied upon the decision of Ahmedabad Tribunal in the case of Gujarat Industries Power Co. Ltd. (ITA No. 3003/Ahd/2010, 1534/Ahd/2009 a/w CO No. 117/Ahd/2009, 1109/Ahd/2010, 644/Ahd/2010, 521/Ahd/2012 & 495/Ahd/2012 order dated 28.02.2022) wherein on identical facts the Tribunal held that replacement of parts of machinery is not capital expenditur....
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....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 for business and the CSR expenditure are totally different than the contribution to SVPRET. The Ld. DR further submitted that reasoning was given by the CIT(A) while confirming the addition. The Ld. DR submitted that the assessee claimed donation made to SVPRET of Rs. 10,00,00,000/- as expenditure u/s 37(1). The Assessing Officer has disallowed the same as not being incurred wholly and exclusively for the purposes of busine....
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....ects 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/s 80G. The CIT(A) rightly analysed the argument of the assessee company and held that donation given for construction of statue of unity is not wholly and exclusively incurred for the business of the assessee and therefore not eligible for deduction u/s 37(1). It is also a question of fact that there was no mandatorily CSR obligation in the year under appeal and the allowance of any expenses must satisfy its nexus with the business of....
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....y 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 Ld. AR submitted that the same is against the assessee. 19. We have heard both the parties and perused all the relevant material available on record. At the time of hearing, the assessee admitted that the issue is covered against the assessee in respect of interest on income tax refund and, therefore, ground no.5 is dismissed. 20. As regards ground no.5.1, Ld. AR submitted that the same is not pressed and hence dismissed. 21. As regards g....
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....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 any capital assets cannot be claimed as revenue expenditure in the P&L account, only because the project did not materialize or the capital asset could not be acquired. Some of these are as follows: i) 236 ITR 921 (GUJ), Ambica Mills Ltd. In this decision it has been held that the expenditure was incurred by the assessee for getting a feasibility report for setting up a new mini steel plant which project did not materialize. The mini steel plant which ....
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....da 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 manufacturing soda ash in which the industrial salt would be used. Therefore, according to the assessee, the establishment of a new unit would not constitute a new business as such. On the other hand, it was urged on behalf of the revenue that, it was unnecessary to consider whether the new soda ash plant contemplated was a new business or part of the old business. According to the revenue, the very fact that the assessee was going to set up a new unit meant that the aforesaid expenditure incurr....
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....xpenditure, 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 affirmative and against the assessee. (iii) 207 ITR 985 (Bom), J K Chemicals Ltd. In this decision the court has held that: It was an accepted position that if the assessee were do set up its unit at Rajasthan, it would have to acquire land, plant and machinery and incur capital expenditure in that connection for setting up its unit at Rajasthan. The project report was obtained for the purpose of setting up such a unit at Rajasthan. In other words, the expenditure incurred for the project was incurred by the assessee-company in....
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.... 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 iv. Land development charges Therefore, the Ld. AR submitted that the expenditure has been incurred for facilitation to obtain the land on lease for installation of windmill and necessary arrangement cost for installation of wind turbines in connection with the existing business of the assessee i.e. generation of power. The Ld. AR further submitted 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 premium for acquiring land on lease. The....
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....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 premium for acquiring land on lease appears to be not correct. But from the perusal of the record it appears that the expenditure is for the purpose of preparation of land and make it suitable for installation of windmill. Therefore it will be appropriate to remand back this issue to the file of the Assessing Officer for proper verification and adjudication and if the said expenditure appears to be cost of plant and machinery (windmill) and then accordingly the Assessing Officer may allow depreciation in respect of the same. Needless to say, the assessee be given opportunity of hearing by following principles of natural jus....