TaxTMI 
TaxTMI 
2022 (8) TMI 1419
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....he Grounds of Appeal raised by the assessee reads as under: 1.0 The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the disallowance of prior period expenses amounting to Rs. 1,24,73,000/- without appreciating the fact that such expenditure "crystallized during the year and that the same has never been claimed in earlier years. 2.0 The learned Commissioner of Income Tax (Appeals) has erred in law and on facts has confirmed the additions of Rs. 29,59,47,550/- 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 11.75% offered by the appellant. Without prejudice to the above, the appellant submits that while determining the amount to be transferred to the Profit & Loss Account, the learned Assessing Officer has considered the year-end balance as per the Annual Accounts without reducing the additions/disallowances made in earlier years. 3.0 The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the action of Assessing Officer in tr....
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.... has submitted that similar issue in the case of Group concern Gujarat Urja Vikas Nigam Ltd. was adjudicated by the Co-ordinate Bench of the ITAT vide ITA No. 996/Ahd/2011 for assessment year 1988-89 dated 31st May, 2017 and the issue was remanded back to the file of Assessing Officer for deciding afresh in the light of the decision of Hon'ble High Court in the case of PCIT vs. Adani Enterprises Ltd. in Tax Appeal No. 573 of 2016. The ld. Departmental Representative was fair enough not to controvert these undisputed facts and findings of Co-ordinate Bench. 15. With the assistance of ld. representatives, we have gone through the decision of Co-ordinate Bench of ITAT in the case of Group concern Gujarat Urja Vikas Nigam Ltd. vs. ACIT for assessment year 1988-89 wherein similar issue has been set aside to the file of Assessing Officer for adjudicating afresh 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 submis....
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.... above cited case of Adani Enterprises Ltd. As a result, this ground of appeal of the assessee is allowed for statistical purposes. " 4.1. Respectfully relying upon the order passed by the Coordinate Bench we are disposing of the ground by setting aside the issue to the file of the Ld. AO for de novo adjudication upon giving an opportunity of being heard to the assessee and upon considering the evidence which the assessee may choose to file at the time of hearing of the matter. This ground is allowed for statistical purposes. 5. Ground No.2:- Confirming addition of 15% of Capital Grants as against 10% offered by assessee is under challenged before us. 5.1. During the course of assessment proceeding upon verification of the balance sheet, the assessee was asked to explain the nature of grant and treatment of capital asset as per Explanation 10 to Section 43(1) of the Act whereupon the assessee submitted as follows: "It is submitted that considering the importance of Power Sector and the ever increasing demand for electricity, the Central as well State Government had decided to improve various functions associated with the generation, transmission and distribution of electricit....
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....e to pass order upon verification of the proportionate amount of grant relating to different assets and to pass orders. On this aspect, he has drawn our attention to Page 10 of the said order filed before us, wherein the order cited above passed by the Coordinate Bench of this Tribunal. 6.1. On the other hand, the Ld. D.R. has relied upon the order passed by the authorities below. 7. We find that on the identical issue as submitted the Ld. A.R. in ITA Nos. 2885 & 2886/Ahd/2015 the Coordinate Bench has been pleased to set-aside the issue to the file of the Ld. AO for adjudication afresh for verifying the proportionate amount of grant relevant to different assets and upon apply the actual rate of depreciation relates to those assets. The relevant observation of the Coordinate Bench is as follows: "4. During the course of assessment, the Assessing Officer noticed that assessee has shown deferred government grant subsidies amounting to Rs. 81,113.31 lacs as on 01-042011 and Rs. 96,653.59 lacs at the end of the 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 ear....
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....sment year 2008-09 and the Hon'ble ITAT Ahmedabad vide ITA No. 704/Ahd/2012 for assessment year 200809 has remanded the matter back to the file of Assessing Officer directing him to work out the disallowance by taking the rate of depreciation applicable on various assets financed through impugned capital grants. In this regard, the ld. counsel has further referred the decision of Co-ordinate Bench of the ITAT in the case of assessee itself for assessment year 2009-10 vide ITA No. 652/Ahd/2013 wherein on the basis of aforesaid decision of the ITAT for assessment year 2008-09 the matter was restored to the file of the Assessing Officer. The ld. Departmental Representative was fair enough not to controvert these undisputed facts reported by the learned counsel. 7. We have gone through the decision of Co-ordinate Bench of the ITAT vide ITA No. 652/Ahd/2013 for assessment year 2009-10 wherein after referring the decision of Co-ordinate Bench of the ITAT vide ITA No. 704/Ahd/2012 for assessment year 2008-09 the issue was restored to the file of Assessing Officer for re-adjudication after verification of the proportionate amount of grant relating to the different assets and upon applyi....
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....t of capital assets and by not doing so, extra depreciation @ 15% of grants had been claimed. Since 10% of the grants had already been offered as income by the assessee, in the decision in the case of Dakshin Gujarat Vij Co. Ltd., CIT(A) had directed addition to be made after reducing income already offered from 15% of the grants. The AO has made addition in the present case as per this appellate order. Hence following the same, the addition made by the AO is upheld and this ground of appeal is dismissed. " 14. However, at the vary onset of the proceeding, the Learned AR has taken us to the order passed by the Co-ordinate Bench in ITA No.704/Ahd/2012 for A.Y. 2008-09 in assessee's own case where we find that the issue has been set aside to the file of the Learned AO for adjudication afresh after verifying proportionate amount of grant relating to different asset. The Learned AR prayed for similar relief. The argument advanced by the Learned AR has been failed to be contradicted by the Learned DR. We find following observation was made by the Hon'ble Co-ordinate Bench while granting relief to the assessee: 15. The ground no. 3 of the appeal of the assessee is directed ....
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.... grants received by the assessee cannot be reduced from the cost of assets. It was further submitted that the subsidy received under scheme cannot be reduced from the actual cost of the assets by applying the provisions of section 43(1) of the Income Tax Act. The AO did not accept the submission of the assessee and held that the submission of the assessee that the grant was not capital in nature, is factually incorrect, and from the resolution, it was clear that the grant received from the State Government was in the nature of capital grant and it should have been reduced from the capital assets. The decisions quoted by the assessee are not applicable after insertion of Explanation 10 of section 43(1) of the Act, as they pertained to earlier years prior to insertion of Explanation 10 of section 43(1) of the Act. After insertion of Explanation 10 of section 43(1) of the Act, the position of law was very clear. Since the assessee failed to reduce the capital grant against the cost of capital assets, and claimed excess depreciation, which was disallowed and worked out at 15% of the capital assets. 17. On appeal, the CIT(A) held that in assessee's case, 10% of grant under three ....
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....re facts had reduced the disallowance from Rs. 30.97 crores to Rs. 18.93 crores. 20. We find that in the instant case, the CIT(A) held that excess depreciation claimed on account of capital grant comes to Rs. 18.93 crores being 15% of Rs. 176,62,04,718/-, i.e. Rs. 26,49,30,708/- minus Rs. 17,20,37,655/-, which amounts to Rs. 9,28,93,053/-, and 15% of Rs. 6427.94 lakhs amounting to Rs. 964.191 lakh. The submissions of the assessee before us is that the uniform rate of 15% adopted by the CIT(A) is not justified. As per provisions of section 43(1) of the Act, the capital grant should be reduced from the cost/WDV of the relevant asset, and thereafter the depreciation is to be calculated. Thus, the capital grant receipt in respect of asset, on which depreciation is allowable at the rate different from 15% should be worked out as per the applicable rate. The DR could not point out any mistake in the above submission of the assessee, which we find is in accordance with law. We, therefore, set aside the orders of the lower authorities on this issue, and restore the matter back to the file of the AO for adjudication afresh after verifying the ....
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....of 2015 and ITA Nos. 24 & 25 of 2009 the issue has been decided otherwise. A copy of the same has also been submitted before us by the Ld. Counsel appearing for the assessee. 8.2. On the other hand, the Ld. D.R. relied upon the order passed by the lower authorities. 9. We have heard the rival submissions made by the respective parties, and we have also perused the relevant materials available on record and also gone through the order passed by the Hon'ble Orissa High Court in the case of Odisha Power Generation Corporation Ltd. (supra). It appears that the Hon'ble Orissa High Court while dealing with the issue the Court was pleased to observe as follows: "12. The Assessee offered an explanation regarding interest income earned by it, from advances given to its employees as well as provision of electricity and water charges collected from water through its employees and contractors for facilities in the township, receipt from transit hostel, sale of scrap, insurance claim etc. The facilities were given to its employees for better conditions of employment. This was to improve the overall efficiency of the undertaking which is devoted to the single purpose of generation of power. ....
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....nd in law, the ld.CIT(A) erred in directing the Assessing Officer to treat the miscellaneous receipts as business income instead of income from other sources without appreciating the fact that the receipt is not covered in clauses (i) to (vii) of sec. 28 of the Income Tax Act under which such income is charged." 4. "On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the following addition made in book profit:" Prior period expenses of Rs. 124.73 lacs without appreciating the fact that the assessee is following mercantile system of accounting in which expenses related to prior period are not allowable expense and also in view of the decision of Hon'ble High Court in Kerela in the case of Shree Bhagawathy Textiles Ltd. vs. ACIT (2011) 199 Taxmann 14 (Ker.) Capital Grants amounting to Rs. 2969.475 lacs without appreciating the fact that the assessee neither credited this grant to the profit and Loss account directly nor debited the capital assets from the capital grant nor it defer the amount of grant for certain period as provided. 12. Ground No.1:- Deletion of guarantee fees paid to the Government of Gujarat to the amount ....
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....n. Further, the assessee also claimed Rs. 21,61,000/- on account of cost of raising finance under the head "cost of raising finance" as per the profit & loss account. 31. In reply to show cause notice to the assessee, the assessee submitted that erstwhile 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....
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....2010, 2974/Ahd/2010 and 3004/Ahd/2010. 35. We find that the Tribunal in its order dated 8.5.2015 cited supra has held as under: "6. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that the 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 ins....
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....othecation of its assets). Hence the ratio of the above mentioned two cases would squarely apply. Accordingly, it is held that the AO was not justified in making the disallowance of Rs. 45,24,582/-, which is directed to be deleted." 6.1 The ld.CIT(A) has followed the decision of the Tribunal passed 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....
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....hat the said addition cannot be made to the Book Profit as this item has not been mentioned in any of the Clauses of the Explanation to Section 115JB of the Act. He, therefore, directed the Ld. AO to delete such addition. He has further relied upon the order dated 15.04.2011 passed by the Co-ordinate Bench in assessee's own case in ITA No. 1777/Ahd/2009 & 2028/Ahd/2009 for A.Y. 2006-07. 16.3. 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 period expenses. As discussed above, this Net Profit, is in compliance with Schedule-VI Part-II of the Companies Act and the prescribed Accounting Standard, i.e. AS-5. No adjustment, on account of prior period expenses, is required to be made to the same. Moreover, even as per Explanation-1 to section 115JB, no adjustment on account of prior period expenses is required to be made to th....
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...., contribution. 10.1 Where the government grants are of the nature of promoters' contribution, i.e., they are given with reference to the total investment in an undertaking or by way of contribution towards its total capital outlay (for example, central investment subsidy scheme) and no repayment is ordinarily expected in respect thereof, the grants are treated as capital reserve which can be neither distributed as dividend nor considered as deferred income. 17.3. The relevant Office Note needs special mention here:- Sub: Allocation of FRP Grant as Share Capital contribution to subsidiaries. At the Board Meeting held on 29.06,2009, Board approved to allocate the FRP grant of Rs. 250 crores being given by Govt. of Gujarat to GUVNL for system strengthening as Share Capital contribution from GUVNL to subsidiaries. Board further authorized MD, GUVNL to decide the quantum of such equity contribution to each of the subsidiaries. As far as DISCOMs are concerned, their equity requirement is being met through consumers' contribution and as such there is hardly any equity requirement which is required to be contributed by GUVNL. Moreover, the capita! grant being releas....
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....sallowance has resulted into double taxation. 2.0 The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in setting aside the issue relating to addition of Prior Period Income of Rs. 5,73,08,000/- for verification despite the fact that all the details were submitted before the Commissioner (Appeals) for clearly deciding the issue. 3.0 The learned Commissioner of Income Tax (Appeals) has erred in law and on facts has confirmed the additions of Rs. 33,45,25,450/- 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 11.75% offered by the appellant. The learned Commissioner of Income Tax (Appeals) has further erred in law and on facts in totally ignoring to give any findings on the appellant's explanation that the appellant on its own has given cumulative effect in each year of the additions made in earlier years and hence no additions were required on this count. 4.0 The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the action of Assessin....