TMI Blog2013 (11) TMI 773X X X X Extracts X X X X X X X X Extracts X X X X ..... f shortfall in quantity can be offset within any of the five subsequent years against excess quantity which may be lifted by GCPTCL and, therefore, the liability to pay in respect of shortfall in quantity will crystallize only after the lapse of five years and till then, even if this amount is paid, it is in the nature of advance payment only and not an expenditure incurred. Under this factual position, we do not find any merit in the main contention of the assessee and therefore, the same is rejected. Regarding the alternative contention, we find force in the submission of the Ld. A.R. because once the liability is disallowed in the present year, no income is taxable in the subsequent year when the amount is credited in the P & L account by writing back the liability already disallowed. Hence, the A.O. is directed to verify this aspect in the next year and if it is found that on the write back of this liability in the next year, any amount was taxed then to this extent, income should be reduced in such next year - Decided partly in favour of Revenue. Disallowance of interest to UTI - Contigent liability - Held that:- UTI has not agreed with the CDR package regarding payment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T-DR ORDER:- Per: A K Garodia: Out of these eight appeals, there are cross appeals of the assessee and the revenue for four assessment years 2004-05 to 2007-08. All these appeals were heard together and are being disposed of by way of this common order for the sake of convenience. 2. First, we take up the appeal of the assessee for the assessment year 2004-05 in I.T.A.No. 4562/Ahd/2007, which is directed against the order of Ld. CIT (A) I, Baroda dated 14.09.2007. 2.1 Ground No.1 is general. 2.2 Ground No.2 is as under: 2. The learned Commissioner of Income Tax (Appeals) has erred in confirming disallowance of Rs.2,07,74,100/- being Corporate Debt Restructuring expenses incurred during the year treating the same in nature of capital expenditure. Your appellant submits that expenses incurred revenue in nature and same be allowed as claimed. It is to be held so and disallowance made by the AO be deleted. 2.2.1 Brief facts regarding this issue till the assessment stage are noted by Ld. CIT (A) in para 4 of his order which is reproduced below: 4. As regards Ground No.(1), the facts are that the appellant is a public limited company engaged in the busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cturing as per the judgement of Hon ble Apex Court rendered in the case of Madras Industrial Development Corporation Ltd. Vs CIT as reported in 225 ITR 802. In reply, it was submitted by the Ld. A.R. that there was no objection of the A.O. on this aspect and there is no finding of any authorities below on this aspect and hence, if considered appropriate, the matter may be restored back to the file of the A.O. for a fresh decision on this aspect if it is found that the expenditure is allowable as revenue expenditure. Ld. D.R. supported the orders of authorities below. He also submitted that the A.O. has placed reliance on two judgements of Hon ble Apex Court rendered in the case of CIT vs Coal Shipping Pvt. Ltd. as reported in 82 ITR 902 and in the case of Devidas Vithaldas and Co. Vs CIT as reported in 84 ITR 277. He also submitted that as per page 15 of the paper book filed by the assessee, the benefit was available to the assessee for a period of 10 years, which is a very long period and, therefore, it has to be accepted that the assessee has received enduring benefit and so, the expenditure is capital expenditure as per these two judgements of Hon ble Apex Court. In rejoinder, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill to the retiring partner for life and thereafter to his widow and son, was capital expenditure or revenue expenditure and under these facts, it was held that acquisition of goodwill of a business is also possession of a capital asset and thus, the same is capital expenditure. In the present case, there is no acquisition of goodwill and hence, this judgement is not at all applicable in the present case. 2.2.6 The 2nd judgement on which reliance was placed by the A.O. is another judgment of Hon ble Apex Court rendered in the case of CIT Vs Coal Shipment Pvt. Ltd. (supra). In that case, the issue in dispute was as to whether the payment made to ward of competition in the business to a rival would constitute capital expenditure if the object of making this payment is to derive advantage by eliminating the competition over some length of time and under these facts, it was held by Hon ble Apex Court that such payment will be of capital nature if it was for eliminating the competition over some length of time but when there is no restraint of advantage or the same can be put to end at any time, it will be a revenue expenditure and it will depending on the circumstances of the facts o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tructuring is only for increase in the period of repayment of existing debt and for reduction of interest rate and there is no conversion of debt into equity. There is no such finding of authorities below also that restructuring of debt has resulted into any conversion of any debt into equity and in the absence of this, we do not find any basis for holding that the expenditure incurred on restructuring of existing debt is a capital expenditure. 2.3 Ground No.3 is as under: 3. The learned Commissioner of Income Tax (Appeals) has erred in confirming disallowance of Rs.3,05,17,835/- being provisions for 'take or pay rental' charges to GCPTL on the ground that liability is other than ascertained liability, not crystallized during the year and same is 'advance'. Your appellant submits that disallowance confirmed by Hon'ble CIT(A) is unjust and uncalled for. It be held so now and addition be deleted. 2.3.1 Brief facts till the assessment stage are noted by Ld. CIT(A) in para 8 of his order and the relevant portion of which is reproduced below: As regards Ground No.(3), the Assessing Officer noted that the appellant had paid take or pay rental charges to GCPTCL which are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not an ascertained liability and moreover, the same was waived by GCPTCL in the next year and therefore, this is not allowable in the present year. Regarding alternative claim, he submitted that the matter may be decided as per law. 2.3.5 We have considered the rival submissions, perused the material on records and have gone through the orders of authorities below. We find that this is an admitted position of facts that the payment on account of shortfall in quantity can be offset within any of the five subsequent years against excess quantity which may be lifted by GCPTCL and, therefore, the liability to pay in respect of shortfall in quantity will crystallize only after the lapse of five years and till then, even if this amount is paid, it is in the nature of advance payment only and not an expenditure incurred. Under this factual position, we do not find any merit in the main contention of the assessee and therefore, the same is rejected. Regarding the alternative contention, we find force in the submission of the Ld. A.R. because once the liability is disallowed in the present year, no income is taxable in the subsequent year when the amount is credited in the P L account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... next year i.e. on 30.06.2004. He further submitted that in view of the retrospective amendment in the provisions of Section 43B, deduction is allowable to the assessee u/s 43B if the same is made before the due date of filing of return of income and, therefore, as per these amended provisions of Section 43B, the assessee is eligible for deduction in the present year itself. In support of this contention, reliance was placed on the judgement of Hon ble Apex Court rendered in the case of Alom Extrusions as reported in 319 ITR 306. Ld. D.R. supported the orders of authorities below. 2.4.4 We have considered the rival submissions. We find that the first objection of the authorities below is this that deduction is not allowable as per the provisions of Section 43B because the payment was not made by the assessee. In the light of the retrospective amendment of Section 43B and as per the judgement of Hon ble Apex Court cited by the Ld. A.R., this objection does not survive because the payment in question was made by the assessee before the due date of filing of return of income. The 2nd objection of the authorities below is this that deduction is not otherwise allowable also because CD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Hon ble Gujarat High Court is not applicable in the present case because in the present case, the lease rent is not nominal. Now, we consider the applicability of the judgement of Hon ble Apex Court rendered in the case of CIT Vs Madras Auto Service Ltd. (supra). This judgement is also not applicable in the present case because the facts are different. In that case, the dispute was regarding the expenditure incurred by the assessee for demolishing the previous existing structure of leased premises and construct a new building at own expenses and the dispute was not regarding payment of lease rent as such. Therefore, this judgement is also not applicable in the present case. This issue is covered in favour of the revenue and against the assessee by the tribunal order in assessee s own case and the judgements cited by the Ld. A.R. are not rendering any help to the assessee. Therefore, we find no reason to interfere in the order of Ld. CIT(A) on this issue. This ground is rejected. 2.6 Ground No.6 is as under: 6. The learned Commissioner of Income Tax (Appeals) has erred in confirming disallowance of Rs.1,77,00,000/- being contribution to GACL Employees Welfare Trust and R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.9 Ground No.9 is as under: 9. The learned Commissioner of Income Tax (Appeals) has erred in confirming disallowance of Rs.95,54,536/- being water and service charges treating as capital expenditure. Your appellant submits that disallowance made is unjust and uncalled for. It is to be deleted now and same be allowed as claimed. 2.9.1 It was submitted by the Ld. A.R. that the assessee company is not the owner of the assets and for which it paid Rs.1886.82 lacs and the assessee has written the same as deferred revenue expenditure for 20 years from assessment year 1999-2000 and on this basis, the assessee has debited the amount of Rs.95,54,536/- to P account in the present year. It was also submitted by him that the matter may be restored back to the file of the A.O. to check up the fact because Ld. CIT(A) has by mistake recorded that this ground was not pressed. In reply, it was submitted by the Ld. D.R. that when this ground was not pressed before Ld. CIT(A), this issue cannot be raised by the assessee before the tribunal. 2.9.2 We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below. We find that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e have considered the rival submissions, perused the material on record and have gone through the orders of authorities below. We find that the basis of the decision of Ld. CIT(A) is this that the assessee will get enduring benefit for availing bank term loan from UTI bank in place of existing loan carrying higher rate of interest. While deciding the similar issue as per ground No.2 i.e. expenditure for debit restructuring, we have held that this is revenue expenditure but should be allowed proportionately during the years for which the assessee will get benefit and accordingly for this issue also, we direct the A.O. to examine the number of years for which the assessee will get the benefit on account of reduction in rate of interest and this expenditure will be allowed to the assessee proportionately during that period. The A.O. should pass necessary order as per law as per above direction after providing reasonable opportunity of being heard to the assessee. This ground is allowed for statistical purposes. 2.11 Ground No.11 is as under: 11. The learned Commissioner of Income Tax (Appeals) has erred in confirming book profit by adding back 'Provisions for Take or pay charg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t does not help the assessee because adjustment is as per the provisions of Section 115JB and the book profit declared by the assessee in the P L account has not been disturbed by the A.O. and hence, this argument is of no help to the assessee. This ground of the assessee is rejected. 2.12 In the result, appeal of the assessee is partly allowed in terms indicated above. 3. Now, we take up the revenue s appeal in I.T.A.No. 4556/Ahd/2007 for the assessment year 2004-05. 3.1 Ground No.1 is as under: On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the disallowance of Rs.2,27,467/- u/s 14A towards interest and other expenses incurred in relation to exempted income of dividend and tax-free interest, without taking note of the landmark decision in the case of CIT(A) vs Abhishek Industries Ltd. 286 ITR 01 (P H), laying down that, in view of section 106 of the Indian Evidence Act, the facts being in the special knowledge of the assessee, it was up to him to adduce evidence that all the borrowings were used for the purposes of business and it is assessee's own surplus funds that were invested in the shares and deposits earning exem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mption that there is bound to be some expenditure for earning exempt income. At this juncture, a query was raised by the bench as to whether the assessee was holding the investment in Dmat account or in physical form and whether any expenditure was incurred by the assessee in respect of Dmat account because this observation is made by the A.O. in the assessment order that at least some expenditure incurred by the assessee in respect of Dmat account has to be there. In reply, it was submitted by the Ld. A.R. that there may be some expenditure in respect of Dmat account. Ld. D.R. supported the orders of authorities below. 3.1.2 We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below. We find that since the own funds of the assessee are much more than the investment and there is no nexus established by the A.O. between the investment and interest bearing borrowed funds, it cannot be said that any interest expenditure is incurred by the assessee for earning exempt dividend income and hence, no disallowance can be made u/s 14A out of interest expenditure. Regarding other expenditure, it cannot be said that there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting such liability of gratuity and superannuation benefit as at par with the liability of leave salary when the latter crystallizes year to year on account of the eligible employees not availing of leave during the year in contrast with the provision for gratuity and superannuation benefits provided with reference to the contingency of employees' retirement in remote future. 4. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in negating the adjustment of provision for interest on debentures issued to UTI under clause (c) of the Explanation below section 115JB, when this contractual liability of interest was disputed and had not yet finally settled and hence constituted a contingent and unascertained liability as per law settled in the case of CIT vs Swadesi Cotton Flour Mills Pvt. 53 ITR 134 (SC) and Alembic Chemical Works Ltd. vs DCIT 266 ITR 47 (Guj). 3.2.1 Ld. D.R. supported the assessment order whereas the Ld. A.R. supported the order of Ld. CIT(A). He further submitted that there are 4 types of issues involved in these grounds. Regarding the first issue i.e. provision for bad debt of Rs.3,25,77,089/-, it is fairly conceded that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome under section 115JB, by ignoring the language of clause (iv) of the Explanation below section 115JB(2) referring to amount of profits eligible for deduction u/s 80HHC as computed under section 80HHC(3) subject to the conditions specified in section 80HHC, which includes the condition laid down in Explanation (baa) below section 80HHC. (b) The CIT(A) erred in placing an interpretation which is discriminatory between an assessees paying tax on the normal total income and an assessee paying tax on the deemed total income under section 115JB, making only the latter entitled to benefit unintended in the letter as well as the scheme of the Act. 3.3.1 Ld. D.R. supported the assessment order whereas it is submitted by the Ld. A.R. that in the assessee s own case for the assessment year 2003-04 in I.T.A.No. 4553/Ahd/2007, this issue was restored to the file of the A.O. with the direction to consider all the case law. He submitted that in the present year also, this issue may be restored back to the file of the A.O. for a fresh decision and he should be directed to consider latest judgement of Hon ble Apex Court rendered in the case of Ajanta Pharma Ld. vs CIT as reported in 327 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra) is not applicable in the present case and the issue raised by the revenue in the additional ground is not legal issue and hence, this additional ground is admitted. It was submitted by the Ld. D.R. that it is admitted by the assessee that various lease taken by the assessee are financial lease as has been noted by the A.O. in para 7 of the assessment order. He further submitted that as per the recent decision of Special bench of the Tribunal rendered in the case of Indusind Bank as reported in 135 ITD 165 (Mum.) (SB), in respect of financial lease, the lessee is entitled for deduction on account of interest expenditure i.e. lease rent (-) principle repayment whereas the lessor has to be taxed only for interest income i.e. lease rent received less principle repayment received and depreciation on leased asset is allowable to the lessee. He submitted that the matter may be restored back to the file of the A.O. for a fresh decision in the light of this decision of Special bench of the Tribunal. Ld. A.R. could not point out as to how this decision of Special bench of the Tribunal is not applicable in the present case and hence, we set aside the order of Ld. CIT(A) on this issue and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year 2004-05 as per para 2.5.2 above, we have rejected this ground of the assessee and accordingly in these three years also, this issue is decided against the assessee. 4.4 Regarding Ground No.4 in assessment year 2005-06, it was submitted by the Ld. A.R. that the same is similar to ground No.6 in assessment year 2004-05 and while deciding this issue in assessment year 2004-05 as per para 2.6.1 above, we have decided this issue against the assessee and accordingly, in the assessment year 2005-06 also, this issue is decided against the assessee. 4.5 Regarding ground No.5 in assessment year 2005-06, it was submitted by the Ld. A.R. that the same is identical to ground No.9 in assessment year 2004- 05. While deciding this issue in assessment year 2004-05, this issue was restored back by us to the file of the A.O. for a fresh decision as per para 2.9.2 and accordingly, in assessment year 2005-06 also, this issue is restored back to the file of the A.O. for a fresh decision with the same direction. 4.6 Regarding ground No.3 raised by the assessee in assessment year 2007- 08, it was submitted that this disallowance has been made u/s 43B of the Income tax Act, 1961 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal order in assessee s own case for the assessment year 2003-04 that in assessment years 1993-94 to 1995- 96, the A.O. has allowed claim of the assessee as revenue expenditure and in assessment year 1999-2000 and 2000-01 also, the issue was decided in favour of the assessee and no material is placed before us showing any difference in facts with the years in which, this claim of the assessee was allowed. Accordingly, in these two years also, the claim of the assessee is allowed and the relevant ground of the revenue being ground no.2 in assessment year 2005-06 and ground No.3 in assessment year 2007-08 are dismissed. 5.2 Ground No.3 in assessment year 2005-06 is regarding deletion of adjustment in book profit made by the A.O. u/s 115JB on account of the provisions for gratuity of Rs.108.77 lacs and provision for superannuation of Rs.246.58 lacs. It was agreed by both the sides that these issues are identical to ground no.3 of the revenue s appeal in assessment year 2004-05. While deciding the appeal for 2004-05, we have decided both these issues in favour of the assessee as per para 3.2.1 above and accordingly in assessment year 2005-06 also, these issues are decided in favo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... islative mandate from selling power to any person other than GEB and the rates fixed by GEB was Rs.1.86 per unit only but the GEB is asking the assessee to pay at Rs.4.55 per unit and hence, he has directed the A.O. to allow deduction u/s 80-IA as claimed, being the market rate of Rs.4.55 per unit of power. No contrary decision was brought to our notice by the Ld. D.R. and hence, we do not find any reason to interfere in the order of Ld. CIT(A) on this issue which is in line with various tribunal decisions. This issue is decided in favour of the assessee and these grounds of the revenue in all the three years are rejected. 5.4.2 Regarding the contention raised by the revenue in this regard in the grounds of appeal itself that the Ld. CIT(A) as well as the Tribunal have relied upon the decision of the tribunal rendered in the case of Chetinar .. in I.T.A.No. 1026/Mds/2005 for assessment year 2001-02, we find that in this ground itself, it is stated by the revenue that the Tribunal decision was not followed by the Tribunal and Ld. CIT(A) on this ground that the assessee has captive power generation plant and therefore, the claim was not allowable. Since the revenue itself has give ..... X X X X Extracts X X X X X X X X Extracts X X X X
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