TMI Blog2015 (6) TMI 1096X X X X Extracts X X X X X X X X Extracts X X X X ..... GH COURT ), disallowance made by the AO was deleted.- Decided in favour of assessee. Excess depreciation claimed on account of capital grant - Held that:- 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 MAT - Enhancement of book profit computed under section 115JB - liability towards arrear payable to the employees pending decision of the 6th Pay Commission - Held that:- We find that the Tribunal in the case of assessee itself in the Asstt.Year 2006-07 and 2007-08, while deciding similar issue held that enh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the relief allowed by the CIT(A) in the Asstt.Year 2006-07 and 2007-08 was appealed against before higher forums, and the order of the CIT(A) was varied by any higher authority. In the absence of any such material, we do not find any good reason to interfere with the order of the CIT(A) on this issue, which is hereby confirmed and the ground of appeal of the Revenue is dismissed. - ITA No. 704/Ahd/2012 and ITA No. 761/Ahd/2012 - - - Dated:- 12-6-2015 - SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI RAJPAL YADAV, JUDICIAL MEMBER. Assessee by : Shri J.P. Shah, AR Revenue by : Shri T.P. Krishna kumar, CIT-DR ORDER PER N.S. SAINI, ACCOUNTANT MEMBER: These are cross-appeals of the assessee and the Revenue against the order of the CIT(A)-I, Baroda dated 30.1.2012. Both these appeals are disposed of with this common order for the sake of convenience. ITA No.704/Ahd/2012 (Assessee s Appeal) 2. The ground no.1 of the appeal of the Revenue is directed against the order of the CIT(A) in confirming, the disallowance of ₹ 62,75,000/- on account of losses due to earthquake. 3. Brief facts of the case are that the assessee claimed loss on account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f loss or expenditure. In the above facts, the Tribunal has held that after treating the receipt amount as revenue receipt, it was not open to the department to treat the corresponding expenditure of the lesser amount as not revenue expenditure. In the instant case, no material has been brought before us to show that any receipt, which was received by the assessee in relation to the expenditure in question, was treated by the department as revenue receipt. Thus, the above decision of the Tribunal does not help the case of the assessee. Further, in the absence of any material or details brought before us to show that the expenditure was incurred only for repairing of building or asset, and not for construction of new building, we do not find any good reason to interfere with the order of the CIT(A), which is confirmed. The ground of appeal of the assessee is dismissed. 8. In the ground no.2 of the assessee s appeal is against the order of the CIT(A) in confirming the disallowance of the expenditure of ₹ 75,38,35,000/- being the provision made for employees cost of arrears payable upto 31st March, 2008. 9. Brief facts of the case are that during the year under considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and as per law. 12. The AR of the assessee submitted that the issue was covered in favour of the assessee by the order of the Tribunal in the case of assessee itself dated 8.5.2015 passed in ITA No.1931/Ahd/2010, 2974/Ahd/2010 and 3004/Ahd/2010 (supra), and the Tribunal held that the CIT(A) has recorded the fact that the Gujarat Government accepted the 6th Pay Commission in December, 2008, and therefore, following the ratio laid down in the judgement of Hon ble High Court of Kerala in the case of CIT Vs. Kerala State Financial Enterprises, 219 CTR 147 (Ker.) and the decision of the Delhi High Court in the case of CIT Vs. Bharat Heavy Electrical Ltd., 352 ITR 88 (Del), disallowance made by the AO was deleted. 13. On the other hand, DR submitted that before the CIT(A) assessee could not submit government order for payment of liability towards employees cost as per 6th Pay Commission recommendation, and the plea of the assessee was that it should be allowed in the year of payment to the assessee. Hence, he submitted that there was no infirmity in the order of the CIT(A), which should be confirmed. 14. We find that the AR of the assessee has filed copy of order of this Ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee is following mercantile system of accounting and the liability to pay arrears of 6th pay commission had actually not been crystallized during the year under consideration, a sum of ₹ 61,00,00,000/- is disallowed and added back to total income being contingent liability. The ld.CIT(A) confirmed the finding of the AO by observing that the report of the 6th Pay Commission was submitted to the Government of India in March- 2008. In respect of the Central Government employees the liability accrued from the day when the report was accepted by the Central Government. In respect of State Governments the report is not binding and it is not to be mandatorily accepted and adopted. In fact, number of State Governments were against accepting the report because of huge financial burden and in fact Government of Madhya Pradesh constituted Pay Commission of its own, to reframe the recommendations. In other words, without acceptance of the report the liability cannot be said to have accrued or crystallized. Crystallization of employee cost liability is contingent upon approval or otherwise from Gujarat Government. The Gujarat Government accepted the six Pay Commission Report in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these requirements are satisfied, the liability is not a contingent one. The liability is in praesenti though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain. 15.3. Further, the High Court held as under:- 6. In this case, the Tribunal had noticed that there was no dispute as regards the terms of employment of the workers and officers. The only question was the exact quantification of the compensation or wage revision. The Tribunal also held that provision for wage revision was based on past experience, interim Pay Commission of government employees, previous Pay Commission's reports of public sector employees, union demands and other relevant factors. The Tribunal also held that with the expiry of one wage settlement or agreement, invariably, there is a time lag when another fresh wage revision agreement is negotiated and entered. The deduction claimed for that period cannot be termed as contingent because the wage and the probable revision or rates of revision would be within the fair estimation of the employer. In this case, BHEL had the benefit of past ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le High Court of Delhi in the case of CIT vs. Bharat Heavy Electrical Ltd.(supra), the disallowance made by the AO is hereby deleted. Thus, ground of assessee s appeal is allowed. The DR could not point out any distinguishable features in the above quoted order of the Tribunal. Facts being identical, respectfully following the precedent, we delete the addition of ₹ 75,38,35,000/- and allow this ground of appeal of the assessee. 15. The ground no.3 of the appeal of the assessee is directed against the order of the CIT(A) in confirming the action of the AO in transferring 15% of the capital grants as income although the disallowance made under this head has been restricted to ₹ 18,93,11,850/- as against the disallowance of ₹ 30,97,61,800/- made by the AO. 16. The brief facts of the case are that on verification of subsidies and grants, the AO observed that the assessee has shown deferred government grants, subsidies, contribution at ₹ 7305.70 lakhs as on 1.4.2007 and the assessee had shown ₹ 15941.67 lakhs at the end of the year i.e. as on 31.3.2008. On show cause by the AO to explain the treatment in accounts of the subsidy, grants the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 heads namely Subsidy towards cost of capital assets , Grants towards cost of capital assets and Consumer contribution for capital assets i.e. the grants appearing in Schedule -3 of the balance sheet as on 31.3.2008 were offered for tax. The amount of grant on which 10% was calculated was on the opening balance of grants of ₹ 73,05,70,492/-, and the grants received during the year was ₹ 103,56,34,226/-, aggregating to ₹ 176,62,04,718/-. As these grants were towards cost of capital assets, 15% of the same should have been reduced from the depreciation claimed on account of making adjustment in the actual cost of assts as per Explanation 10 below section 43(1). Since the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 proportionate amount of grant relating to different asset, and applying the actual rate of depreciation which relate to these assets. Thus, this ground of appeal of the assessee is allowed for statistical purpose. 21. The ground no.4 of the appeal of the assessee is directed against the order of the CIT(A) in confirming the enhancement of book profit computed under section 115JB of the Act by ₹ 75,38,35,000/-. 22. Brief facts of the case are that the AO observed that the addition in respect of expenditure of 6th Pay Commission under normal provisions of IT Act of ₹ 75,38,35,000/- was made, and same was also disallowable from book profit u/s.115JB, since it was a provision made for meeting liabilities other than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the value of fixed assets. Schedule-XIV lays down the rates of depreciation in respect of various assets, both in terms of written down value (WDV) and straight line method (SLM). At the same time, 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. 12.4 The Supreme Court has held very clearly in Apollo (supra) as well as Malayala Mano ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. The ld CIT(A) has erred in law and on facts in confirming the charging of interest under section 234B, 234C and 234D of the IT Act, 1961. 28. The AR of the assessee submitted that he is not pressing these grounds of appeal. Hence, they are dismissed for want of prosecution. ITA No.761/Ahd/2012 (Revenue s Appeal) 29. In the Revenue s appeal, the ground no.1 of the appeal is directed against the order of the CIT(A) in deleting the addition of ₹ 50,90,96,000/- made on account of disallowance of claim of guarantee fees paid to Government of Gujarat. 30. Brief facts of the case are that the AO observed that the assessee paid guarantee fee of ₹ 5,69,35,000/- to the Govt. of Gujarat in consideration of guarantee issued by it for repayment of unsecured loan. Further, the assessee also claimed ₹ 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue expenditure, subject to verification by the AO of the certificate filed during the appellate proceedings i.e. there was no capital work-in-progress in respect of loans on which guarantee fees was paid. 33. Regarding cost of raising finance of ₹ 21.61 lakhs is concerned, the CIT(A) observed that the same was an allowable deduction and being revenue expenditure, following the decision in the case of India Cements Ltd. (supra) disallowance of ₹ 21,61,000/- was cancelled. 34. The DR supported the order of the AO, whereas, the AR of the assessee supported the order of the CIT(A) and submitted that the issue was now covered in favour of the assessee by the decision of this Tribunal in the case of assessee itself dated 8.5.2015 passed in ITA No.1931/Ahd/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 submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITAT has held in the case of Shri Rama Multi Tech vs. ACIT, 92 TTJ 568, that in determining the nature of expenditure incurred for obtaining loan, it is irrelevant to consider the purpose of loan. The amount spent on stamp duty, lawyer fees, etc. for obtaining loan secured by charge on its fixed assets is a revenue expenditure, because the transactions were entered into directly to facilitate the business of the company and payment of consultancy charges was made on ground of commercial expediency. In India Cements Ltd. vs. CIT, 60 ITR 52, the Supreme Court had also held that the expenditure incurred for securing the use of money for a certain period was revenue expenditure. In the instant case, the assessee has secured the loan by creating a charge (hypothecation 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 ₹ 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 ..... 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