TaxTMI 
TaxTMI 
TaxTMI 
2022 (7) TMI 1442
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....nd on facts has confirmed the additions of Rs. 36,52,03,600/- on account of Capital Grants & Subsidies and Consumers' Contribution on the ground that the appellant should transfer 15% of the total Grants/subsidies/consumer contribution received during the year as against 10% offered by the appellant. 2.0 The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the action of Assessing Officer in treating the income shown under the head "Other Income" in the Profit & loss Account amounting to Rs. 1,79,18,000/- as Income from Other Sources as against the Business Income and thereby disallowing the claim of set off of business loss of earlier years against the said income. 3.0 The learned Commissioner of Income Tax (Appeals) has erred in law and on facts has confirmed the disallowance of prior period expenses amounting to Rs. 8,79,06,000/- without appreciating the fact that such expenditure crystallized during the year and that the same has never been claimed in earlier years. 4.0 The learned Commissioner of Income Tax (Appeals) erred in law and on facts has dismissed the ground relating to the initiation of penalty proceedings under section 27....
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....ission and distribution of electricity. Further since the PSUs connected with power sector were making consistent losses, the Government had decided to, introduce reforms in the direction of State PSUs. Accordingly, under the provisions of Gujarat Electricity Industry (Reorganization & Regulation) Act, 2003, the erstwhile GEB was unbundled into seven companies. For the purpose a Financial Restructuring Plan (FRP) was approved by the Govt., of, Gujarat and approval was accorded to provide some financial/capital support to GUVNL. It is submitted that such grant is being given to GUVNL in terms of the Power Reforms for the overall development of the Power Sector. Such grant was not granted to actually meet the cost of assets. It that the Government gives the Grants to the Holding Company GUVNL and then and it is allocated to the assessee company, one of the subsidiary companies. Thus the assessee is not entitled to an amount beyond a certain limit even if it spent large amount on purchase of Fixed Assets. Further the Grant is not with reference to any particular fixed asset. From the above, it is clear that the subsidies/grants received by us are absolutely capital receipts as the....
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....he year as on 31st March, 2012 and transferred an amount of Rs. 12868.89 lacs to the P & L account. However, the Assessing Officer was of the view that in the earlier years, the assessee has transferred to the P & L account 15% of the total grant yearend balance therefore it was asked to explain why not 15% of the total grant yearend balance amount should be transferred to the total income. The assessee explained that the Government disburse the financial assistance in the form of Government grants and the benefit from the same is accrued to the assessee for over a long period of time therefore the amount is written back every year @ 11.75% of the yearend balance and the same was shown as income as per the accounting policy of the company. It was further submitted that up to financial year 2011-12 the assessee company has written back such amount as income @ 10% of the yearend balance. The Assessing Officer has not accepted the submission of the assessee and stated that the subsidy grant received from the state government was in the nature of capital grant and it should have been reduced from the capital asset as per explanation 10 of section 43(1) of the Act. The Assessing Officer....
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....g Officer for readjudication after verification of the proportionate amount of grant relating to the different assets and upon applying the actual rate of depreciation relate to those assets. The relevant part of the decision of the Co-ordinate Bench of the ITAT is reproduced as under:- "12. Ground No.2 The assessee has challenged the confirmation of addition of Rs.24,17,88,400/- on account of Capital Grants & Subsidies and Consumers' Contribution on the ground that the appellant should transfer 15% of the total Grants/subsidies/consumer contribution received during the year as against 10% offered by the appellant. 13. The Learned AO finalized the issue by making an addition of Rs.24,17,88,400/- which was, in turn, confirmed by the Learned CIT(A) and added to the total income of the assessee. While confirming the addition, the Learned CIT(A) observed as follows: "6.3 I have considered the submissions. It has been accepted by the appellant that the grants were for capital purpose and for capital projects specified by the Government. In Schedule-3 of the printed balance sheet as on 31.3.2009, it is clearly mentioned that grants were towards cost of capital assets. Appellant....
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....e Bench while granting relief to the assessee: "15. The ground no. 3 of the appeal of the assessee is directed against the order of the CIT(A) in confirming the action of the AO in transferring 15% of the capital grants as income although the disallowance made under this head has been restricted to Rs.18,93,11,850/- as against the disallowance of Rs.30,97,61,800/- made by the AO. 16. The brief facts of the case are that on verification of subsidies and grants, the AO observed that the assessee has shown deferred government grants, subsidies, contribution at Rs.7305.70 lakhs as on 1.4.2007 and the assessee had shown Rs. 15941.67 lakhs at the end of the year i.e. as on 31.3.2008. On show cause by the AO to explain the treatment in accounts of the subsidy, grants the assessee stated that during the year capital grant received from Government of Gujarat and other. The assessee submitted that in order to improve various functions associated with the generation, transmission and distribution of electricity, and also because the PSUs connected with power section were making consistent losses, the Government decided to introduce reforms in the direction of State PSUs. Accordingly, unde....
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.... 17. On appeal, the CIT(A) held that in assessee's case, 10% of grant under three heads namely "Subsidy towards cost of capital assets", "Grants towards cost of capital assets" and "Consumer contribution for capital assets" i.e. the grants appearing in Schedule -3 of the balance sheet as on 31.3.2008 were offered for tax. The amount of grant on which 10% was calculated was on the opening balance of grants ofRs.73,05,70,492/-, and the grants received during the year was Rs.103,56,34,2267-, aggregating to Rs. 176,62,04,718/-. As these grants were towards cost of capital assets, 15% of the same should have been reduced from the depreciation claimed on account of making adjustment in the 'actual cost' of assts as per Explanation 10 below section 43(1). Since the assessee has already offered for tax, 10% of the opening balance of grants plus grants received during the year under these three heads of Schedule-3 grants, such amount offered for tax was to be reduced from the excess depreciation to be disallowed at the rate of 15% of Rs.176,62,04,718/- i.e. Rs.26,49,30,708/-. The net disallowance on this count worked out Rs.26,49,30,7087- minus Rs.17,20,37,655/-, the amount al....
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.... and applying the actual rate of depreciation which relate to these assets. Thus, this ground of appeal of the assessee is allowed for statistical purpose. Hence, in the absence of any changed circumstances as it appears from the records, we find no other alternative but to remit the issue to the file of the Learned AO for re-adjudication of the same and to pass order upon verification of the proportionate amount of grant relating to different assets and upon applying the actual date of depreciation relates to those assets. Hence, this ground of appeal preferred by the assessee is allowed for statistical purposes." After considering the above cited decisions of Co-ordinate Benches of the ITAT in the case of the assessee itself we restore this issue to the file of Assessing Officer for re-adjudication as directed above after verification of the proportionate amount of grant relating to different assets and upon applying the actual rate of depreciation relates to those assets, therefore, this ground of appeal is allowed for statistical purposes. " Relying upon the observation and the decision taken by the Coordinate Bench we find it fit and proper to remand the issue to the file....
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....ssessee that the interest received on advances and loans given to its employees are receipts in normal course of carrying its business and should be considered as income derived from its essential business activities. Likewise, the late payment by GRIDCO for the electricity supplied, is sought to be made up by GRIDCO by issuing bonds on which the Assessee earns interest. This also therefore, has a direct nexus with the essential business activity of the Assessee." In that view of the matter we find it fit and proper to direct the Ld. AO to consider the issue afresh upon examining the same in regard to the head of income upon considering the relevant evidence in the light of the observation made by the Hon'ble High Court as mentioned hereinabove. We, thus, pass order accordingly. This ground is allowed for statistical purposes. 14. Ground No.3:- Disallowance of prior period expenses of Rs. 8,79,06,000/- is under challenged before us. 15. At the time of hearing of the instant appeal the Ld. Counsel appearing for the assessee submitted before us that the Coordinate Bench in ITA No. 3441/Ahd/2015 for A.Y. 2012-13 has set-aside the identical issue to the file of the Ld. AO. On this a....
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....fresh according to the direction laid down by the Hon'ble Gujarat High Court in the case of Adani Enterprises Ltd. in Tax Appeal No. 573 of 2016. The relevant part of the decision of the Co-ordinate Bench in the Gujarat Urja Vikas Nigam Ltd. supra as cited above is reproduced as under:- "6. We have carefully heard the rival submissions and perused the orders of the authorities as well the case-laws referred. The assessee is aggrieved by the disallowance of prior period expenses of Rs.53.53crores as per Ground No.4 of its appeal. The disallowance has been made on the ground that the expenses under various heads as noted in the assessment order pertained to earlier years and the assessee which is following system of accounting should have made provision for expenses in those respective years and claimed them as deduction. We have gone through the break-up of the expenses as noted in para-8 of the assessment order and observe that certain expenses declared under the head 'other adjustments Rs.30.75 crores'; 'other charges Rs.79.34 lakhs'; 'depreciation under provided Rs.7.86 crores' etc. are ostensibly vague and does not indicate the nature of claim with suff....
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....2015 for A.Y. 2010-11 as Ground No. 1 therein. In the absence of any changed circumstances the same shall apply mutatis mutandis. 22. Ground No.2:- Identical ground has already been decided by us in ITA No. 2855/Ahd/2015 for A.Y. 2010-11 as Ground No. 2 therein. In the absence of any changed circumstances the same shall apply mutatis mutandis. 23. Ground Nos. 3 & 4 has not pressed by the assessee. Hence, both the grounds raised by the assessee are dismissed as not pressed. ITA No. 2790/Ahd/2015(A.Y. 2010-11)(Revenue's Appeal):- 24. Ground No.1:- Deletion of guarantee fees paid to the Government of Gujarat to the amount of Rs. 3,38,64,000/- is the subject matter before us. 25. The Ld. DR relied upon the order passed by the authorities below. 26. On the other hand, the Ld. Counsel appearing for the assessee submitted before us that the issue is also covered by the judgment passed by the Coordinate Bench on assessee's own case. On this aspect he has drawn our attention to the observation made by the Coordinate Bench. 27. We have heard the rival submissions made by the respective parties, and we have also perused the relevant materials available on record. 28. We have carefully....
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....rstwhile GEB has raised various loans, guarantee of which was given by Govt. of Gujarat, and for the guarantee given by the Govt. of Gujarat, the GEB is required to pay guarantee fees as per rules. After the split of the company, the said loan were still continued, which were guaranteed by the Govt. of Gujarat. Therefore, every year these guarantee fees become payable to Govt. of Gujarat on recurring basis. Regarding the cost of raising finance, the assessee submitted that the finance was raised during the year, and accordingly, the cost incurred for raising finance was charged to current year's profit & loss account. The AO did not accept the above explanation of the assessee on the ground that the assessee did not furnish the details of the purpose for which the loans were taken for which the guarantee fees were claimed. Further, if the fees paid for loans facility in respect of fixed assets, nature of assets, the date of put-to-use has not been submitted. The assessee also failed to furnish any agreement with the Govt. of Gujarat for charging guarantee fees and method of its computation against the loan amounts. In the absence of these details it was not possible to entertai....
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....e ld.CIT(A) decided these issues in paras- 5.2 & 5.3 and 6.2 respectively by observing as under:- "5.2. I have considered the submissions of the ld.AR and the facts of the case. The issue relating to whether an item of expenditure lies in the capital or the revenue field has exercised the courts in numerous cases. From an analysis of such cases a few guiding principles/tests can be identified. One of the important tests for categorizing any expenditure as capital in nature is whether the laying out of the impugned expenditure results in the acquisition of creation of any new asset. Where no such asset is created, it would be indicative of an expenditure which was not capital in nature. Another test relates to the principle of "enduring benefit". "Enduring benefit" may be in the form of long lasting use of an asset or the acquisition of a right to exploit certain commercial processes, etc. In the instant case, the assessee did not acquire any right to exploit a commercial technology or process, and neither was the 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 ....
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.... in ITA No.738/Ahd/2009 for AY 2006-07 in the case of Himalaya Machinery Pvt.Ltd., dated 5.6.2009 and in the case of Shri Rama Multi Tech vs. ACIT reported at 92 TTJ 568. 6.2. The ld.CIT-DR could not distinguish the facts of the case, therefore we do not see any reason to interfere with the order of the ld.CIT(A), same is hereby upheld. Thus, these two grounds raised in the Revenue's appeal are rejected." 36. DR could not point out any good reason as to why the above quoted order of the Tribunal should not be followed for the year under consideration. In the absence of distinguishing features being pointed out by the DR, and the facts being identical, respectfully following the above quoted decision of the Tribunal, we confirm the order of the CIT(A), and dismiss this ground of appeal of the Revenue." 4. In parity with the order of the Tribunal, we are of the opinion that CIT(A) has rightly adjudicated the issue in favour of the assessee. We thus decline to interfere with the order of the CIT(A)." In the absence of any changed circumstances we do not find any reason to deviate from the stand taken by the Coordinate Bench. Hence, we do not find any reason to interfere of ....
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....order passed by the Ld. CIT(A) in the appeal preferred by the Revenue in ITA No. 761/Ahd/2012 for A.Y. 2008-09 in assessee's own case the Coordinate Bench has been pleased to observe as follows: "37. The ground no.2 of the Revenue is directed against the order of the CIT(A) in deleting the addition of Rs.1,41,15,000/- made on account of disallowance of loss of material through pilferage, shortage of material-in-transit, shortage arising on physical verification etc. 38. Brief facts of the case are that the AO observed that the assessee has claimed Rs.1,41,15,000/- on account of miscellaneous loss and write offs. In reply to the show cause notice, the assessee submitted that these losses are on account of loss of materials, through pilferage, shortage of material-in-transit, shortage arising on physical verification, obsolescence of materials/stores, loss in sale of scrap etc. It was submitted that the losses have been incurred in the day-to-day business activities and is purely of revenue nature. The AO observed that from the submission of the assessee, it was clear that the assessee's claim was not substantiated with any documentary evidence. Accordingly, he disallowed deducti....
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....amount. Furthermore, when the set of is disallowed and the prior period expenses are added back no further addition of prior period income is required to be made as addition of equivalent amount has already been made. In that view of the matter, we do not find any infirmity in the order passed by the Ld. CIT(A). Hence, this ground of appeal preferred by the Revenue is found to be devoid of any merit and thus, dismissed. 47. Ground No.4:-This Ground relates to the deletion of addition of Prior Period Expenses made while computing Book Profit computed under Section 115JB of the Act to the tune of Rs. 7,10,85,000/-. 48. The brief facts leading to the issue is this that the Ld. AO made addition of Rs. 7,10,85,000/- to the Book Profit under Section 115JB of the Act on account of prior period expenses is also added back to the book profit of the assessee. 49. Before the First Appellate Authority the assessee submitted that in assessee's own case for A.Y. 2006-07 the Ld. CIT(A) has deleted the addition. In that view of the matter considering the order dated 17.07.2015 passed by his predecessor, the Ld. CIT(A) hold that the said addition cannot be made to the Book Profit as this item ha....
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.... the earlier years but disallowed while computing its assessed income and if, the same is found to be correct, then will allow deduction of this amount in the computation of the total income as per the normal provisions of the Act. 10.3 It may also be mentioned here that provisions for payment of arrear salary to the employees were disallowed by the AO in the earlier years i.e. Asst. Year 2007-08 to Asst. Year 2009-10 and the same has been upheld in the appellate orders by the CIT(A)-I, Baroda. The appellant is in appeal against such order before ITAT Ahmedabad. If the ITAT Ahmedabad decides such issues in favour of the appellant in earlier years, then the deduction allowed in the current year on account of actual payment of these amounts shall stand withdrawn." 53. We have further considered the order passed by the Chandigarh Bench in the case of M/s. Ashirwad Hgiene Pvt. Ltd. vs. ITO in ITA No. 72/Chd/2014 for A.Y. 2010-11 while deciding the issue in favour of the assessee the Coordinate Bench was pleased to observe as follows: "In the present case the undisputed fact is that the Net Profit shown in the profit & loss account has been arrived at after reducing the prior perio....