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TMI Blog2015 (6) TMI 1096X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. On appeal, the CIT(A) held that the assessee has filed details of expenses in question. The expenses were incurred towards construction of GR, SQ and other ancillary buildings for GEB at various earthquake affected areas in Gujarat State. The assessee's contention that the expenditure was towards repairs and maintenance, was not substantiated, and rather from the description of work, as per Memorandum OF payments made to the contractors, the work was of construction of new building, which was clearly of capital nature. Therefore, the disallowance of Rs. 62,75,000/- made by the AO by holding the expenditure to be of capital nature was confirmed. 5. Before us, the AR of the assessee filed copy of the order of this Bench 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 and submitted that the issue was covered in favour of the assessee. The AR of the assessee submitted that only difference in facts was that in that case the loss was due to flood, and in the present appeal, the loss was due to earthquake. 6. The DR on the other hand supported the orders of the lower authorities and submitted in any case t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded Rs. 7538 lakhs towards employees cost for arrears payable upto 31st March, 2008. During the course of assessment proceedings, the assessee was asked to state justification for allowability of the expenditure. The assessee's submission was that the pending final decision of 6th Pay Commission, the company has provided Rs. 7538 lakhs towards employees' cost for arrears payable upto 31st March, 2008, in terms of accounting practice prescribed by the Institute of Chartered Accountants of India. Since the contention about the payment of arrears existed on the balance sheet date, the liability arising from payment of arrears to the employees had to be provided in the accounts in terms of provisions of AS-4 issued by ICAI. 10. The AO, after considering the above submissions, observed that the liability of pay arrears had not crystallized during the year under consideration, since the final decision to pay the same was still awaited. There was no liability fastened upon the assessee to pay the arrears of 6th Pay Commission, and that since the assessee was following mercantile system of accounting, and the liability to pay arrears of 6th Pay Commission had actually not been crystallize ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee's appeal in ITA No.2974/Ahd/2010 for AY 2007-08, wherein following grounds have been raised:- 1.0. The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the disallowance of the expenditure of Rs. 61,00,00,000/- being the provision made for employees cost for arrears payable upto 31st March, 2007 without considering the facts that such expenditure was pending the decision of 6th Pay Commission based on the provisions of Accounting Standards and generally accepted accounting principles. 2.0 The learned Commissioner of Income Tax (Appeals) has erred in law and facts in confirming the enhancement of Book Profit computed under section 115JB of the Income Tax Act, 1961 by Rs. 61,00,00,000/- on account of provision for employees' cost pending the decision of Pay Commission treating the same as unascertained liability. 3.0 The appellant craves leave to add to, alter, delete or modify any of the grounds of appeal either before or at the time of hearing of this appeal. 15.1. First ground of assessee's appeal is against confirming the disallowance of the expenditure of Rs. 61,00,00,000/- being the provision made for employees cost for arrears ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rical Ltd.(supra) has observed as under:- "5. In the earliest decision on the question of whether such liability incurred towards employees' services or fulfilment of their terms of employment which may become payable in future but claimed by the assessee in a given previous year is allowable as deduction, the Supreme Court observed as follows in Metal Box Company of India Ltd. v. Their Workmen, 73 (1969) ITR 53: - "The question that concerns us is whether, while working out the net profits, a trader can provide from his gross receipts his liability to pay a certain sum for every additional year of service which he receives from his employees. This, in our view, he can do, if such liability is properly ascertainable and it is possible to arrive at a proper discounted present value. Even if the liability is contingent liability, provided its discounted present value is ascertainable, it can be taken into account. Contingent liabilities discounted and valued as necessary can be taken into account as trading expenses if they are sufficiently certain to be capable of valuation and if profits cannot be properly estimated without taking them into account. Contingent rights, if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el for the Revenue contended that contractual liability arises only on the date of signing the agreement, we are unable to accept this argument in this case. In the normal course, an agreement called settlement as increase in wages takes effect from the date of expiry of the previous settlement and this case is no exception to it. What is important is not the date of signing the agreement nor the later approval granted by the Government, but the effective date of commencement of the wage revision under the agreement. There is no dispute that the wage increase was granted as a continuous measure from the date of expiry of the previous settlement, i.e. w.e.f. 1st Aug., 1992. Therefore, the liability for wage increase really accrued for the respondent assessee w.e.f. 1st Aug., 1992. The assessee is entitled to claim deduction of such wage increase attributable upto the end of the previous year, no matter exact amount was ascertained and payment made later. In the decision of the Supreme Court referred to above, it is made very clear that what is to be considered is whether the liability is attributable to the previous year or not and it is immaterial if the actual liability was ascert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the direction 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 P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 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(A) was correct, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the employees pending the decision of 6th Pay Commission to book profit computed under section 115JB is confirmed. 24. The AR of the assessee submitted that this ground of appeal of the assessee is consequential to ground no.2 raised in this appeal. 25. On the other hand, DR supported the orders of the lower authorities. 26. We find that the Tribunal in the case of assessee itself in the Asstt.Year 2006-07 and 2007-08, while deciding similar issue, vide order dated 8.5.2015 passed in ITA No.1931/Ahd/2010, 2974/Ahd/2010 and 3004/Ahd/2010 held as under: "12. Ground No.6 is against the direction given to the AO to recompute the book profit u/s.115JB of the Act for the purpose of computing MAT by the ld.CIT(A). The ld.CIT-DR supported the order of the AO and submitted that the ld.CIT(A) was not justified in giving direction to the AO for recomputing the book profit u/s.115JB of the Act for MAT. 12.1 On the contrary, ld.counsel for the assessee supported the order of the ld.CIT(A) and submitted that ld.CIT(A) has followed the decision of Hon'ble Jurisdictional High Court rendered in the case of DCIT vs. Vardhman Fabrics (P) Ltd. reported at 122 Taxman 375. 13. We have hear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (P) Ltd., 122 Taxman 375 had occasion to consider the Circular of the Company Law Board which clarified that the rates prescribed in Schedule XIV were minimum rates of depreciation and the company could claim higher depreciation on the basis of a bonafide technological evaluation and proper disclosure thereof in the notes forming part of annual accounts. In the instant case, from the facts as above, I am of the opinion that 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) by Rs. 14,32,02,331/- is held to be unjustified. The AO is directed to recompute the book profit for MAT by allowing the depreciation claimed." 13.1. The ld.CIT(A) has applied the ratio laid down in the judgements of Hon'ble Apex Court rendered in the case of Apollo Tyres Ltd. (255 ITR 273), Malayala Manorama Co.Ltd. vs. CIT (168 Taxman 471) and the judgement of Hon'ble Jurisdictional High Court rendered in the case of DCIT vs. Vardhman Fabrics (P) Ltd. (122 Taxman 375). The ld.CIT-DR could not disting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee did not furnish the details of the purpose for which the loans were taken for which the guarantee fees were claimed. Further, if the fees paid for loans facility in respect of fixed assets, nature of assets, the date of put-to-use has not been submitted. The assessee also failed to furnish any agreement with the Govt. of Gujarat for charging guarantee fees and method of its computation against the loan amounts. In the absence of these details it was not possible to entertain the assessee's claim. The AO further observed that the cost of raising the finance can also not be considered as revenue expenses for want of details. He, accordingly, disallowed Rs. 5,90,96,000/-. 32. On appeal, the CIT(A) observed that guarantee fee was an annual recurring expenditure incurred by the assessee. Guarantee fee was payable to Govt. of Gujarat every year in respect of loans taken by the assessee and guaranteed by the Govt. of Gujarat. As held by Hon'ble Supreme Court in the case of India Cements Ltd., 60 ITR 52 (SC), loan cannot be treated as asset or advantage resulting in enduring benefits. Guarantee fees paid to Govt. of Gujarat was in connection with raising of loans and enduring b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the principle of "enduring benefit". "Enduring benefit" may be in the form of long lasting use of an asset or the acquisition of a right to exploit certain commercial processes, etc. 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, I am inclined to the view that the payment of guarantee commission was a revenue expenditure. 5.3. 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 Himalaya Machinery Pvt.Ltd. (ITA No.738/Ahd/2009) for AY 2006-07, the Tribunal held, vide order dt.5.6.2009, following the decision of the Rajasthan High Court in CIT v. Metalising Equipment Co.Pvt.Ltd., 8 DTR 12, that the payment of commission for guaranteeing repayment of loan was allowable as revenue expense. In the instant case, the loan has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Tribunal, we confirm the order of the CIT(A), and dismiss this ground of appeal of the Revenue. 37. The ground no.2 of the Revenue is directed against the order of the CIT(A) in deleting the addition of Rs. 1,41,15,000/- made on account of disallowance of loss of material through pilferage, shortage of material-in-transit, shortage arising on physical verification etc. 38. Brief facts of the case are that the AO observed that the assessee has claimed Rs. 1,41,15,000/- on account of miscellaneous loss and write offs. In reply to the show cause notice, the assessee submitted that these losses are on account of loss of materials, through pilferage, shortage of material-in-transit, shortage arising on physical verification, obsolescence of materials/stores, loss in sale of scrap etc. It was submitted that the losses have been incurred in the day-to-day business activities and is purely of revenue nature. The AO observed that from the submission of the assessee, it was clear that the assessee's claim was not substantiated with any documentary evidence. Accordingly, he disallowed deduction of Rs. 1,41,15,000/-. 39. On appeal, the CIT(A) deleted the addition and held that similar is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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