TaxTMI 
TaxTMI 
2024 (1) TMI 545
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....d all the details about the dates of commissioning of the assets in support of its claim of depreciation. 2.0 The learned Commissioner of Income Tax (Appeals) erred in law and facts has enhanced the additions made on account of Capital Grants & Subsidies and Consumers' Contribution to Rs. 6.66 crores as against the additions of Rs. 6.31 crores made by the Assessing Officer thereby resulting into an enhancement of assessment by Rs. 0.35 crores. The learned Commissioner of Income Tax (Appeals) erred in law and on facts has also rejected the appellant's alternative plea that the WDV of the assets may allowed to be increased on withdrawal of such subsidies/grants in subsequent years. 3.0 The learned Commissioner of Income Tax (Appeals) Officer erred in law and on facts has enhanced the assessment completed under section 143(3) of the IT Act by disallowing the deferred revenue expenditure amounting to Rs. 41,16,442/- written off during the year without considering the facts in right spirit. 4.0 The learned Commissioner of Income Tax (Appeals) erred in law and on facts has confirmed the disallowance of unpaid service tax amounting to Rs. 13.56,....
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....ferred an appeal before the learned CIT(A) and contended that during the year under consideration, more than 1000 assets were added on different dates. However, for the purpose of presentation, the assets which were commissioned and put to use for more than 180 were entered as on 30th September 2005 in the assets register. Similarly, the assets commissioned and put to use for less than 180 days were entered on 31st March 2006. Therefore, the disallowances made by the AO need to be deleted. 7. The learned CIT(A) after considering the contention of the assessee requested the assessee to provide all necessary details regarding the commissioning of the assets on different dates before the AO to compute the correct depreciation. As such the ld. CIT-A set aside the issue to the AO with clear direction. 8. Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us. 9. The learned AR before us filed a paper book running from pages 1 to 33 but could not point out any fault in the direction given by the learned CIT-A. As such the learned AR submitted before us that the similar direction as given by the ld. CIT-A, should be provided to the AO. 10. On t....
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....ng value of grants & consumer contribution @ 15% and accordingly made addition of Rs. 6,31,02,357/- being an additional amount of 5% of the amount discussed above. 15. On appeal by the assessee, the learned CIT(A) confirmed the order of the AO and further enhanced the addition made the AO by observing as under: "6.4 In response to the enhancement notice it is submitted that the company had received consumer contribution and capital grants amounting to Rs. 1285341794/- and that these contributions and grants were received from State and Central Government towards various schemes of electrification such as Jyoti Gram Yojana Electrification of wells and pumps in tribal areas Kutir Jyoti, SC Basties, electrification of hutments etc. and that these are towards cost of capital assets. It is further submitted that the appellant followed AS-12 relating to accounting for government grants and that part of the grant has been treated as deferred income spread over the useful life of the assets and 10% of the year end balances are transferred to P & L a/c. It is further emphasized that the grants are in the nature of financing arrangement and that non-tribal grants under Jyoti Gram....
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....own as to how the said expenditures / losses crystallized during the year and as to how these are allowable in the current year. When confronted with these facts, the Ld. AR had no explanation. In view thereof, the income is further enhanced by Rs. 41,16,442/-." 16. The learned CIT(A) also rejected the alternate plea of the assessee that in case grant/subsidy withdrawn then the WDV of the capital should be increased by observing as under: "6.8 As regard the alternate plea that the WDV be increased on withdrawal of subsidy in the later years, in my opinion such view is not tenable. All the subsidies have been received after incurring the expenditure and is credited to the books on 31.03.2006. Admittedly the capital subsidy is to be reduced from cost of assets u/s 43 and therefore, on reduction of subsidies from cost of fixed assets there is no amount left in the capital reserve which could be converted into equity or loan. The issue of conversion of grant into equity subsequently is a accounting jugglery and has no relevance for income-tax purposes. Under the Income-tax Act, the amount actually incurred towards fixed assets on receipt of the government grant or in antici....
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....apital assets. Appellant's contention that the grants were not actually for meeting cost of assets is therefore not at all tenable. After insertion of Explanation 10 below section 43(1) by the Finance (No.2) Act, 1998 w.e.f. 1.4.1999, decisions relied upon by the appellant in the case of P. 3. Chemicals etc. are no longer applicable and cost of assets met directly or indirectly by the Central Government or State Government in the form of subsidy or grant or reimbursement (by whatever name called) is not to be included in the "actual cost of asset" to the assessee. Accordingly, depreciation is to be allowed only after making necessary adjustment in "written down value"/"actual cost" of block of assets in accordance with Explanation 10 below section 43(1). In the case of Dakshin Gujarat Vij Co. Ltd. for A.Y.2006-07 referred to by the Assessing Officer, CIT(A) distinguished the treatment to be meted out to revenue grants and capital grants and held that revenue grants are to be taxed in entirety in the year of receipt and capital grant towards assets are to be reduced from "actual cost" of assets as per Explanation 10 below section 43(1). In the case of Dakshin Gujarat Vij Co. Ltd....
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....ction of State PSUs. Accordingly, under the provision of Gujarat Electricity Industrial (Reorgnisation & Regulation) Act, 2000, the erstwhile GEB was split into seven companies, for the purpose of financial restructuring plan, and the approval was accorded to provide some financial/capital support to GUVNL. The grant was given 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. Further, the grant was given to the holding company, GUVNL and then it was allocated to the assessee company, one of the subsidiary companies. The assessee was not entitled to an amount beyond a certain limit, even if it is spent large amount on purchase of fixed assets. Further, the grant was not with reference to any particular fixed assets. It was further submitted that the resolution sanctioning the grant no where indicated that the grant was meant to offset the cost of the capital assets purchased by the company. Reliance was placed on the decision of the Hon'ble Supreme Court in the case of CIT Vs. P.J. Chemicals Ltd., 121 CTR 201, wherein the decision of the Gujarat High Court in the case of CIT Grace Paper Indu....
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....s. 17,20,37,655/-, the amount already offered for taxation i.e. Rs. 9,28,93,053/-. Since no portion of grant of Rs. 6427.94 lakhs being capital grant for capital support appearing in Schedule-2 of the balance sheet as on 31.3.2008 was offered as income nor it was reduced from the cost of assets, 15% of the same i.e. Rs. 964.191 lakh needed to be disallowed as excess depreciation claimed in respect of the same. The total disallowance towards excess depreciation, therefore, worked out to Rs. 9.289 crores plus Rs. 9.641 crores i.e. Rs. 18.93 crores. Thus, instead of net addition of Rs. 30,97,61,800/- made by the AO, addition of Rs. 18.93 crore was directed to be made on this count. 18. Before us, the AR of the assessee argued that uniform rate of 15% cannot be applied for making disallowance. He submitted that the grant should be apportioned according to the value of the asset given in the balance sheet. He argued that the rate of depreciation on land was zero percent, building was 5% and the plant & machinery was 15%, and hence, the disallowance at the uniform rate at 15% is not justified. 19. On the other hand, the DR argued and submitted that the order of the CIT(....
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....eby restore the issue to file of the AO for fresh adjudication in accordance with the direction of the ITAT in the above-mentioned order and as per the provisions of law. Hence, the ground of appeal of the assessee is hereby allowed for statistical purposes. 22. The next issue raised by the assessee vide ground No. 3 of its appeal is that the learned CIT(A) erred in enhancing the assessed income by making disallowances of deferred revenue expenses of Rs. 41,16,442/- 23. During the appellate proceeding the learned CIT(A) disallowed deferred revenue expenditure of Rs. 41,16,442/- by observing as under:- "6.7 It is also noticed that appellant had written off and treated Rs. 41,16,442/- as deferred revenue expenditure and in the computation of income such write off was not added back. There is no concept of deferment of revenue expenditure under the Income-tax Act and furthermore, it is not shown as to how the said expenditures / losses crystallized during the year and as to how these are allowable in the current year. When confronted with these facts, the Ld. AR had no explanation. In view thereof, the income is further enhanced by Rs. 41,16,442/-." 24. Being aggriev....
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....ice. This provision itself gives an indication that even if the appellate authority wants to process a new source of income which forms part of either return of income or the order of assessment, but was not in challenge in appeal before the appellate authority, the appellate authority has to give a reasonable opportunity of hearing before processing such a source of income and enhancing the assessment." 29. In view of the above discussion and respectfully following the finding of the Hon'ble jurisdictional High Court in the above-mentioned case, we hereby set aside the finding of the learned CIT(A). Hence the ground of appeal of the assessee is hereby allowed. 30. The next issue raised by the assessee vide ground No. 4 of its appeal is that the learned CIT(A) erred in confirming the disallowances of unpaid service tax under section 43B of the Act. 31. The necessary facts are that the assessee during the assessment proceeding submitted that it inadvertently disallowed the unpaid amount of service tax for Rs. 13,56,000/- in the computation of income, however the provision of section 43B of the Act is not applicable on the same. 32. The AO found that any sum payable by th....
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....hand, the learned DR before us vehemently supported the order of the authorities below. 37. We have heard the rival contentions of both the parties and perused the materials available on record. The issue on hand has a direct bearing of the provision of sections 43B of the Income Tax Act. As per the provision of section 43B of the Act, any sum payable by assessee by way of tax, fee, or duty then such sum shall be allowed as deduction in the year in which same was actually paid. In the present case, the assessee had unpaid service tax liability which was suo-moto disallowed by the assessee in the computation of income. Subsequently, the assessee before the assessing officer as well as before the learned CIT(A) claimed that such unpaid liability of service tax should be allowed as deduction. However, the same was concurrently rejected by the lower authorities. The learned AR for the assessee at the time of hearing before us seek direction from us to be given to the AO that the deduction on account of service tax liability shall be allowed in the year in which such service tax liability shall be paid. In terms of unambiguous provision of second 43B of the Act that the certain sums ....