TMI Blog2014 (2) TMI 1020X X X X Extracts X X X X X X X X Extracts X X X X ..... e matter has been remitted back to the file of AO for fresh adjudication – Decided In favour of Assessee. - I.T.A. No. 1865/AHD/2010. - - - Dated:- 28-12-2012 - Shri Mukul Kr. Shrawat JM And Shri Anil Chaturvedi A.M.,JJ. For the Appellant : Mr. Vartik R. Chokshi, A.R. For the Respondent : Mr. D. P. Gupta, CIT (D.R) ORDER Per: Shri Anil Chaturvedi, Accountant Member. This appeal is filed by the assessee against the order of the Ld. CIT (A)-XIV, Ahmedabad dated 19-2-2009 for the assessment year 2006-07. 2. The concise grounds raised by the assessee are as under:- 1. In law and in the facts of the case, the Ld. CIT (A) has erred in not adjudicating upon Ground No.1 challenging the validity of the assessment order. 2. In law and in the facts and circumstances of the case, the Ld. CIT (A) has erred in confirming and enhancing addition made by the A.O. by applying the provisions of Section 14 r.w. Rule 8D(2). 3.1. In law and in the facts and circumstances of the appellant s case, the Ld. CIT (A) has grossly erred in upholding the disallowance of deduction for depreciation amounting to Rs.499.91 lacs claimed by the appellant @ 25% applicable to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t there was no warrant or justification for initiating penalty proceedings u/s. 271(1)(c), he ought to have ordered for the cancellation of those proceedings. 6. The appellant craves leave to add, amend and/or alter the ground or grounds of appeal either before or at the time of hearing of the appeal. 3. Out of the various grounds raised, assessee did not press ground No.1 5 and therefore the same are dismissed. Ground No.4 being of consequential in nature and therefore not adjudicated separately. Ground No.6 being general in nature, not adjudicated. Thus the effective grounds before us are ground No.2 and 3. 4. The brief facts culled out from the orders of A.O. and CIT(A) are as under:- 5. The assessee is a company engaged in the business of generation, transmission and distribution of Electricity. Torrent Power AEC Ltd., and Torrent Power General Ltd., amalgamated/merged with Torrent Power Ltd. (Assessee) by order of Hon ble Gujarat High Court dated 12-7-2006 with effect from 1-4-2005. The assessee electronically filed its return of income on 29-12-2006 declaring total income of Rs.265,84,46,020/-. The case was selected for scrutiny and subsequently the assessment w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on employees remuneration and administrative expenses which are attributable to the earning of dividend income. He further observed that the assessee has borrowed interest bearing loans and paid interest and financial charges to the tune of Rs.43.47 crores. He accordingly estimated 1% of interest expenditure on Rs.43.47 crores i.e. Rs.43,47,000/- and disallowed it u/s. 14A. Aggrieved by the addition made by the A.O., assessee carried the matter before the CIT (A). 7. The submissions made by assessee before the CIT (A) were not found acceptable by him. He was of the view that though there may not be direct expenses incurred by assessee for earning exempt income but indirect expenses in the nature of administrative and establishment expenses cannot be denied altogether. CIT (A) relying on the decision of the Special Bench of Tribunal in the case of Daga Capital Management Pvt. Ltd. Others, worked out the disallowance u/s. 14A by applying the provisions of rule 8D of the Income tax Rules, 1962. According to CIT (A), the total disallowance by following the method prescribed under rule 8D worked out to Rs.48,77,592/- but since the A.O. had already disallowed Rs.43,47,000/-, he enh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the magnitude of the mutual fund redemptions, the A.O. was justified in making the disallowance at 1% of the total income. The Ld. D.R. further submitted that in A.Y. 2004-05 the assessee has accepted the fact that interest bearing funds were used for the purpose of making investments and therefore had not pressed for the disallowance of Rs.2,79,851/-. He therefore, submitted that since the assessee has already admitted that it had used interest bearing funds, the A.O. was justified in making the disallowance in the year under appeal. He further submitted that since the facts in the current year are similar to that of A.Y. 2004-05 following the decision of A.Y.2004-05,the disallowance be upheld in the current year. 10. We have heard the rival submissions and perused the material on record. We find that the A.O. has made disallowance of 1% of the interest and finance expenses on account of interest expenses. We further find that A.O. has not given a specific finding of use of interest bearing funds for making investments. We further find that CIT (A) has made enhancement to disallowance u/s. 14A by following the method prescribed under Rule 8D of the Income Tax Rules, 1962. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion statement A.O. observed that assessee has claimed depreciation of Rs.4,99,90,962/- @ 25% on the leasehold land of Rs.8,22,27,955/- in the case of erstwhile Torrent Power A.E.C. (now merged with TPL) and Rs.12,94,59,252/- in the case of erstwhile Torrent Power SEC (now merger with TPL). A.O. was of the view that assessee is not entitled to claim depreciation on the premium paid for acquisition of leasehold land. The A.O. issued show cause notice to the assessee asking him to explain as to why the depreciation on lease hold land should not be disallowed. The assessee interalia submitted that land was taken on lease from Surat Municipal Corporation (SMC) for setting up Receiving Station. SMC gave the assessee the rights of development on land given under lease for a period of 99 years with a very nominal token of Rs.1 per sq. mtr. and charged Rs.2,000/- per sq. mt. as premium. It was further submitted that premium is a cost of commercial rights given to use land at a nominal rent and interest cost on investment. It was pointed out that SMC gave commercial rights to use the land for further development and therefore the assessee had claimed depreciation on cost of using commercial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 23-12-2008 had held against the assessee. CIT (A) further distinguished the decision of Hon ble Gujarat High Court in the case of DCIT vs. Sun Pharmaceuticals Industry Ltd.(2009) 227 CTR (Guj.) 206 and upheld the addition by holding as under:- 4.3. I have considered the facts of the case and the submissions of the appellant. I am not inclined to accept the contentions of the appellant since the A.O. had already considered all such submissions including the ratio of various case laws relied upon and judiciously rebutted or given reasoning for non acceptance of same. Similar issue in the appellant s own case (the erstwhile companies viz. Torrent Power Sec. Ltd. (TPSEC) and Torrent Power AEC Ltd. (PAEC) now amalgamated with appellant s company) the Hon. ITAT Ahmedabad D Bench in the appellant s M/s. Torrent Power SEC Ltd.(ITA No. 198/Ahd/2006 C.O. No.254/Ahd/2006) case for A.Y. 2002-03 vide order 23-12-2008 had already considered the issue in respect of leasehold rights on land so acquired and claim of depreciation and held against the appellant. It is important to look into ground of appeal; taken by appellant vide C.O. No.254/Ahd/2006 as follows:- 1. In law and in the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C was in the nature of capital expenditure for obtaining enduring benefit in possession of land for a period of 99 years. Therefore, the expenditure cannot be allowed as revenue expenditure. Accordingly, the issue of the cross objection of the assessee is dismissed. Since the Hon ble ITAT Ahmedabad after considering all the facts and circumstances including the ratios of various case laws held against the appellant not only in respect of allowability of depreciation being such lease-holding is not an intangible asset, but also held that payment of such amount is capital in nature and as such cost of land so acquired on which no depreciation is permitted as per I.T. Rules and provision besides the same is capital expenditure. The appellant during the course of appellate proceedings referred the applicability of the ratio of Hon. Gujarat High Court s decision in the case of Dy. CIT vs. Sun Pharmaceuticals Industry Ltd. (2009) 227 CTR (Guj.)206, where for A.Y. 1994-95,Hon ble Gujarat High Court on the facts similar to the appellant held that entire premium paid for acquisition of land on lease of 99 years with marking payment of advance rent of Rs.48 cr. and paying nominal monthly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent Power Sec. Ltd.) in ITA No.293/AHD/2008 ITA No.771/AHD/2008 on identical facts Hon ble ITAT has restored the matter to the file of A.O. He therefore submitted that following the aforesaid decision, in the present appeal, similar directions may be issued and the matter may be remitted to the file of A.O. 18. The Ld. D.R. fairly agreed that the matter be remitted back to the file of A.O. for verification in the light of decision in the case of DCIT vs. Sun Pharmaceuticals Industries Ltd. (supra). 19. We have heard the rival submissions and perused the material on record. It is an undisputed fact that the facts and circumstances of the case in the present appeal are identical to that of earlier years. We find that on an identical issue in Assessment Year 2004-05, the co-ordinate Bench of Tribunal in assessee s own case in ITA No.293/Ahd/2008 771/Ahd/2008 has remitted the matter back to the file of A.O. by holding as under:- 3. On this short submission of restoration, Ld. D.R. Mr. Kartar Singh had no objection but stated that once the matter has been decided by the Hon ble High Court, though the A.O. had left with a limited scope but still has to verify the connected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of expenditure pertaining to the said lease. The Hon ble Court has decided only in respect of deductibility of lease rent but since the matter now stood restored back to the A.O., therefore, we hereby direct to keep in mind this subtle distinction and re-decide as per law. Identically, these two grounds may be treated as allowed but for statistical purposes. 20. Since it is an undisputed fact that the facts in the present year are similar to that of earlier year, we are of the view that since for A.Y. 2004-05, the matter has been remitted back to the file of A.O. to examine and decide the issue in line with the directions contained therein, in the year under appeal also the matter be remitted back to the file of A.O. to decide the matter. We respectfully following the decision of the co-ordinate Bench remit the issue to the file of A.O. to examine the facts and decide the issue in the light of decision in the case of DCIT vs. Sun Pharmaceuticals Ind. Ltd., and after giving reasonable opportunity of hearing to assessee. Thus this ground of appeal of the assessee is allowed for statistical purposes. 21. In the result, the appeal of the assessee is partly allowed. Order pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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