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2015 (5) TMI 926 - AT - Income TaxDisallowance of extra-ordinary items being loss due to cyclone, flood, fire, etc. - assessee could not substantiate that it had incurred expenditure on repairing its assets damaged due to flood - CIT(A) deleted the addition - Held that:- It is seen that the assessee had receivd finaicial assistance amounting to ₹ 16,01,00,000/- for this purpose. This is evident from the Government of Gujarat Resolution NOs.GUV-1105-2724-K1 dated 4.7.2005, 10.10.2005 and 13.10.2005 issued by the Principal Secretary, Energy & Petrochemicals Department. The assessee had incurred less expenditure than the subsidy received and the excess has been duly offered for taxation. Being an undertaking wholly owned by the Government of Gujarat, the accounts are to be audited by the auditors appointed by C & AG. As per the accounts furnished to C & AG, the expenses incurred on repair of flood damaged assets amounted to ₹ 1,48,54,169/-. The C & AG has certified the expenditure. No further evidence in this regard would ordinarily be necessary. If, however, it was felt that the expenses were over-stated, an independent enquiry could have been made to ascertain the correct expenses. However, this has not been done. Looking to the circumstances and also the fact that the excess subsidy received has been included in the taxable income, it is held that the AO was not justified in making the addition of ₹ 1,48,54,169/-, which is directed to be deleted - Decided against revenue. Disallowance of claim of guarantee fees paid to Government of Gujarat - disallowance of claim of cost of raising finance for specialized job - CIT(A) deleted the addition - Held that:- 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 only. Such shortlived benefit cannot be categorized as “enduring”. Hence, inclined to the view that the payment of guarantee commission was a revenue expenditure. Further, the jurisdictional Bench of ITAT had occasion to consider the allowability of guarantee commission paid to a Director of the company in respect of loans taken from the bank. In the case of CIT v. Metalising Equipment Co.Pvt.Ltd [2001 (2) TMI 21 - RAJASTHAN High Court] that the payment of commission for guaranteeing repayment of loan was allowable as revenue expense. The addition is directed to be deleted. - Decided in favour of assesse. Disallowance of loss of material through pilferage, shortage of material in transit, shortage arising on physical verification, etc. - CIT(A) deleted the addition - Held that:- The amount written off consists of numerous items of small spares and consumable items. In a business of the size of the appellant, keeping tract of small consumable stores and spares with perfect accuracy is not always possible. At the time of annual stock verification, some items were found to be in excess or short of the number/quantity recorded in the stock register. Where the quantum was found in excess, the value of stock has been enhanced by such excess and where some items were found short, the value of shortage had been written off. The net effect during the year was shortage of the value of ₹ 3,13,53,470/-. As compared to the turnover such loss is less than 1/20th of 1%. This is quite negligible. The assessee has accounted for both gains as well as losses in respect of consumable stores ad spares in a consistent manner. Accordingly, it is held that the disallowance made was not justified - Decided in favour of assesse. Disallowance of claim under the head ‘penalty’ expenses - CIT(A) deleted the addition - Held that:- From the details furnished, it is seen that the Savarkundla Transmission Division and Transmission Division Kodinar normally entered the expenditure incurred on rates and taxes under the accounting hear ‘Penalties on Statutory Levies’. From the supporting documents filed it is seen that the payments actually pertained to rates and taxes being in the nature of land revenue. Hence the discrepancy stands explained. There was no penal payment involved. Accordingly, it is held that the AO was not justified in making the disallowance - Decided in favour of assesse. Recomputation of book profit u/s.115JB of the Act for the purpose of computing MAT by allowing claim of depreciation under item (ii) (a) as directed by CIT(A) - Held that:- What is material for the purposes of section 115JB is not the profit & loss account prepared in terms of the Income-tax Act but that prepared in terms of Schedule-VI of the Companies Act. the Department of Company Affairs has issued Circular dt. 7.3.2009 which allows depreciation to be claimed at higher rates on the basis of bona fide technological evaluation. It has been clearly stated therein that the rates prescribed in Schedule - XIV could be viewed as minimum rates. From Part B (wherein notes to the accounts have been disclosed) it is seen at item- 5(vii) relating to depreciation, that the company provides depreciation as per the rates notified by CERC, a regulatory commission by virtue of section 76 of Electricity Act, 2003, which are different from the rates prescribed under the Companies Act, 1956. During the year such rates were reduced, which could not however be implemented by the assessee during the year due to the fact that the notification was received very late. The assessee has complied with the provisions of Schedule-VI of Companies Act while preparing its accounts. In the instant case, from the facts as above, the assessee has complied with the provisions contained in Schedule-VI to the Companies Act read with Schedule-XIY and Circular dt. 7.3.2009 of the Department of Company Affairs. Hence the AO's action in reducing the claim of depreciation under item (ii)(a) is held to be unjustified. The AO is directed to recompute the book profit for MAT by allowing the depreciation claimed - Decided against revenue. Disallowance of the expenditure being the provision made for employees cost for arrears - Held that:- In the present case, the ld.CIT(A) has recorded the fact that the Gujarat Government accepted the 6th Pay Commission in December- 2008. Therefore, respectfully following the ratio laid down in the case of CIT vs. Kerala State Financial Enterprises Ltd.(2008 (2) TMI 383 - HIGH COURT OF KERALA) and CIT vs. Bharat Heavy Electrical Ltd.(2012 (9) TMI 515 - DELHI HIGH COURT), the disallowance made by the AO is hereby deleted. - Decided in favour of assessee.
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