TMI Blog2016 (5) TMI 1320X X X X Extracts X X X X X X X X Extracts X X X X ..... ansaction in question is held to be genuine one and , therefore, we set aside the order of the CJT(A) and direct the assessing officer to allow depreciation to the assessee. Disallowance on account of proportionate interest and administrative expenses - Held that:- Calculation of disallowance u/s 14A as per Rule 8D of the IT Rules, is applicable w.e.f. Asst. Year 2007-08 and we are dealing with appeal for Asst. Year 2005-06 and accordingly the decision of the co-ordinate bench squarely applies on this ground taken up by Revenue and therefore, in the given circumstances, when there is no satisfaction placed on record by Assessing Officer during assessment proceedings nor any specific defect has been pointed out, disallowance made by assessee at its own ₹ 6 lacs. should have been accepted by the Assessing Officer and no further disallowance was called for. Accordingly this ground of Revenue is dismissed. Disallowance on account of reimbursement of holiday home expenses - Held that:- CIT(A) has rightly observed that expenditure on holiday home has been incurred for the purposes of keeping healthy relation with its employees and therefore the same is purely business expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m MGL. Disallowance u/s 14A should be sustained at ₹ 6,00,000/- only which has been suo moto accepted by the assessee as disallowance u/s 14A of the Act while furnishing of income tax return. As the ground of revenue has already been dismissed, the Cross Objection raised by the assessee has become infractuous and is dismissed accordingly. - ITA No.1921/Ahd/2011, ITA No.1950/Ahd/2011, CO No.228/Ahd/2011 - - - Dated:- 17-5-2016 - Shri Shailendra Yadav, JM And Shri Manish Borad, AM For the Appellant : Shri Sanjay R. Shah, AR For the Respondent : Shri Dileep Kumar, Sr.DR ORDER Per Manish Borad, Accountant Member These cross appeals and the Cross Objection by assessee are directed against the order of ld. CIT(A)-VIII, Ahmedabad, dated 13.05.2011 in appeal No.CIT(A)-VIII/JC-4/229/07-08 passed against order under section 143(3) of the IT Act, 1961 for Asst. Year 2005-06 which was framed on 26.12.2007 by Jt.CIT, Range-4, Ahmedabad. 2. Briefly stated facts as culled out from the records are that assessee is a public limited company engaged in the business of processing and distribution of natural gas to domestic, commercial and industrial consumers and b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and customer's safety reasons. The company has a system of disposing scrap material on a quarterly basis by way calling for quotations from approved scrap dealers and the realization from sale of scrap is accounted for as miscellaneous income and the same is offered to tax. 9. On the other hand ld. DR supported the orders of lower authorities. 10. We have heard the rival contentions and perused the material on record. Through this ground assessee is aggrieved with the order of ld. CIT(A) for disallowance of inventory written off of ₹ 12,80,536/- We observe that at pages 180 to 186 of the paper book shows approval note for write off of non-moving items occurred due to project surplus items, discontinued use due to change in specification/abandoned activities, incomplete assemblies, purchase of higher quantity for contingency, obsolete due to technical up- gradation and the technical-cum-approval note is duly signed by Vice President, MS, Director-Technical, Director Finance and other management people. We also observe that item-wise details with proper specification along with year since which these items are lying in the inventory, are placed before us. However, whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 55/-. 16. Ld. DR supported the order of ld. Assessing Officer. 17. On the other hand, Ld. AR submitted that assets of assessee were purchased from Rajasthan State Electricity Board (RSEB) which is a State Government Undertaking, formed under the State Electricity Supply Act and the same were leased back to RSEB. This was done pursuant to a Lease Agreement and it was regularly receiving lease rent from RSEB which also was offered to tax. He also submitted that this issue has already been decided in favour of assessee by the Tribunal in ITA No. 2026/Ahd/2004 for Asst. Years 1995-96 and in ITA No.1264/Ahd/2006 for Asst. Year 2002-03 respectively. Moreover, Hon. Gujarat High Court in the case of CIT vs. Gujarat Gas Company Ltd. in Tax Appeal No.444 of 2008 has dismissed the appeal of Revenue vide order dated 10.09.2008. Further the SLP of the department against the order of Gujarat High Court has been dismissed by Hon. Supreme Court. Thus he submitted that the ld. CIT(A) has rightly allowed the depreciation on plant and machinery covered under sale lease back transaction with RSEB. We observe that similar issue came up before the Tribunal in assessee 's own case of for Asst. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pon by the parties what we are able to understand is that for a transaction of sale and lease back/purchase and lease back to be genuine, following ingredients should be satisfied. (i) The assets involved in the transaction must be physically available and duly identifiable. (ii) The assets in question must be used for the business of the lessee. (iii) Movement of request is required only when the assets in question are purchased from manufacturer/supplier and in that case also it is not necessary that the assts so purchased should first move to the lessor. The assets in question can be directed to be delivered directly to the lessor. In case, the lessee is already having the assets and is in possession of the same, then to raise the funds he can enter into a transaction of sale and lease back and in that case, movement of those assets from lessee to lessor and then back from lessor to lessee is not necessary; meaning thereby that the question of movement of assets is relevant only when the assets in question are to be purchased from a party other than the lessor and lessee. (iv) The intention for entering into the transaction of purchase and lease back or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer to allow depreciation to the assessee. 18. We further observe that co-ordinate bench while dealing with the same issue for Asst. Year 2002-03 in assessee's own case in ITA No.1264/Ahd/2006 vide order dated 30.5.2014 3. Ground No.3 is reproduced below: 3. The learned Commissioner of Income-Tax(Appeals) erred in confirming the action of the learned Assessing Officer in not granting depreciation of ₹ 69,99,834/- being the depreciation on the assets leased back to Rajasthan State Electricity Board (RSEB). It is submitted that since the entire transaction of sale and lease back to RSEB being at arm's length and genuine one, the amount of depreciation eligible on the assets leased back to RSEB be granted to the appellant. It is submitted that it be so held now. Without prejudice to above, it is submitted that if the lease transactions with RSEB are not accepted as genuine, the lease rent received from RSEB which has offered for tax should also be directed to be excluded while computing the income. It is submitted that it be so held now. 3.1 The assessee had claimed depreciation of ₹ 69,99,834/- in respect of assets covered under sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on behalf of the assessee contended that there is no justification in not granting deduction of ₹ 1,24,44,150/- being the depreciation on the assets leased to Rajasthan State Electricity Board (RSEB). He submitted that the assessee had purchased the various assets from RSEB and leased back those assets to the RSEB under a lease agreement and is regularly receiving the lease rent from RSEB. According to the learned AR, the assessee has offered the lease rent so received to tax. He also submitted that the assets are owned and used for the purpose of the business and therefore, the assessee is entitled to depreciation. The learned AR of the assessee further contended that on similar facts, the ITAT, C Bench, Ahmedabad in assessee's own case for the AYs 2003-04 and 2004-05, following their order for the AY 1995-96, have allowed the claim of the assessee. The learned DR, on the other hand, supported the impugned orders of the authorities below. After discussion, both the parties agreed that issue is squarely covered by the decisions of the Tribunal in the assessee's own case for the AYs 1995-96, 2003-04 2004-05. ................... 4.4 In the light of aforesaid dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowance made by the AO on account of proportionate interest and administrative expenses of ₹ 25,41,310/-. 22. Ld. DR supported the order of Assessing Officer. 23. On the contrary ld. AR relied on the order of ld. CIT(A) and further submitted that the assessee itself while filing its return of income disallowed a sum of ₹ 6,00,000/- on an estimate basis considering them as expenses incurred in relation to earning of dividend income u/s 14A of the Act. Even though ₹ 6,00,000/- had already been disallowed u/s 14A, a further disallowance of ₹ 25,41,310/- was made by Assessing Officer without granting credit for ₹ 6,00,000/-. It was also submitted that the investments were made out of assessee's own funds. The Assessing Officer had not considered that the investments were made from own funds, it has not borrowed any funds for making investments into tax free income yielding securities and also not incurred any extra expenditure for earning the tax free income. Further reliance was placed on the decision in the case of Wince Seeding Private Ltd.107 ITD 267 wherein it was held that common expenditure incurred at head office cannot be broken up arti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es to ₹ 10,54,333/- as against ₹ 16,56,938/- made by ld. Assessing Officer; ld. CIT(A) further gave credit to ₹ 6,00,000/- admitted by assessee in its return of income and finally remaining disallowance sustained by ld. CIT(A) was ₹ 454333/- (1054333 - 600000). 26. We further observe that issue relating to disallowance u/s 14A of the Act was taken up before the co-ordinate bench by the assessee for Asst. Year 2004-05 in ITA No.4488/Ahd/2007 and the issue was decided in favour of assessee vide its order dated 8.2.2013 wherein co-ordinate bench held as under :- 6. Before us, ld. A.R. submitted that the assessee on its own had worked out the disallowance u/s 14A at ₹ 6 lacs on account of administrative expenses for managing the portfolio etc. The disallowance was worked out on the basis of fair and reasonable deployment of man-power and related operational expenses. He further submitted that all the investments were in the demat form and the dividend was also electronically credited to its bank account and therefore, assessee was not required to incur any expenditure to realize the dividend. Ld. A.R. therefore, submitted that since assessee has no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITA No.4488/Ahd/ 2007 relation to the exempt income, no disallowance can be made under section 14A of the Act. Sub-sections (2) and (3) were inserted by the Finance Act, 2006, with effect from April 1, 2007. However, the expression such method as may be prescribed got meaning only by the introduction of rule 8D of the Income-tax Rules, 1962. Sub-section (2) of section 14A of the Act provides the manner in which the Assessing Officer is to determine the amount of expenditure incurred in relation to income which does not form part of the total income. The requirement of the Assessing Officer embarking upon a determination of the amount of expenditure incurred in relation to exempt income would be triggered only if the Assessing Officer returns a finding that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Therefore, the condition precedent for the Assessing Officer entering upon a determination of the amount of the expenditure incurred in relation to exempt income is that the Assessing Officer must record that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enhancing the disallowance u/s 14A made by the assessee. We thus upheld the ground of the assessee. 27. Respectfully following the above decision of the co-ordinate bench, we are of the view that calculation of disallowance u/s 14A as per Rule 8D of the IT Rules, is applicable w.e.f. Asst. Year 2007-08 and we are dealing with appeal for Asst. Year 2005-06 and accordingly the decision of the co-ordinate bench squarely applies on this ground taken up by Revenue and therefore, in the given circumstances, when there is no satisfaction placed on record by Assessing Officer during assessment proceedings nor any specific defect has been pointed out, disallowance made by assessee at its own ₹ 6 lacs. should have been accepted by the Assessing Officer and no further disallowance was called for. Accordingly this ground of Revenue is dismissed. 28. Ground No.3 of the appeal reads as under :- 3. The Ld.ClT(A) has erred in law and on facts in deleting the disallowance made by the A.O. on account of reimbursement of holiday home expenses of ₹ 2,46,652/-. 29. Ld. DR supported the order of ld. Assessing Officer. 30. Ld. AR relied on the order of ld. CIT(A) and submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Years 1993-94 to 1996-96 and Asst. Year 2003-04 2004-05 in assessee's own case has allowed such expenses. Accordingly, ld. CIT(A) has rightly allowed the expenses. No interference is called for in his order. 35. We have dealt with this issue in ground no.3 above, wherein ground raised by the Revenue is dismissed and disallowance of 20% was made by ld. Assessing Officer on estimate basis, without pointing out any defect in the books of account of assessee. Applying our decision of ground no.3 on this issue, the ground raised by the Revenue is dismissed. 36. Ground no.5 of Revenue's appeal reads as under :- 5. The Ld.CIT(A) has erred in law and on facts in deleting the disallowance made by the A.O. on account of Family meet expenses of ₹ 9,90,486/-. 37. Ld. DR supported the order of ld. Assessing Officer 38. Whereas ld. AR relied on the order of ld. CIT(A) and reiterated the submissions made before lower authorities. 39. We have heard the rival contentions and perused the material on record. We observe that this issue has been dealt by us in ground no.3 above, wherein ground raised by the Revenue is dismissed and disallowance of 20% was made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... envat credit is not an advance given to the Government on account of excise payable. The A.O. observed that modvat/cenvat received/claimed by the assessee on purchase of raw material or capital goods is a benefit given by the Government and it can be set off against the liability of the assessee on account of excise duty payable on the finished goods manufactured by the appellant. Once the modvat/cenvat is claimed, it becomes income of the appellant for the previous year in which the claim is granted by the Government. As such modvat/cenvat credit claimed but not utilized becomes part of the income of the appellant. The A.O. relied on various case laws in this regard. In this regard, the A.R. mentioned that unutilized cenvat/modvat credit is in the nature of advance payment to excise department the same is recoverable/adjustable against excise payable on CNG sales. The A.R. also pointed out that to the extent there is modvat receivable a/c, there is corresponding less debit to the purchase a/c and hence to that extent there is already income offered for tax.The A.R. also relied on decision of Hon'ble Ahmedabad ITAT's order in ITA no. 264/Ahd/2007 in the case of Dy. CIT Ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irement. Accordingly at the time of finalizing accounts for any period, it is required to make provision in respect of expenses that pertain to the period under consideration but bills/claims in respect thereof are received after the end of the period. This is reversed in subsequent year and offered as income. Thus ld. CIT(A) has rightly allowed the expenses. His order may be upheld. 48. We have heard rival contentions and perused the material on record. Revenue is aggrieved with the order of ld. CIT(A) in deleting the disallowance made by the Assessing Officer on account of provision of traveling expenses of ₹ 1,06,796/-. From going through the submissions made by ld. AR, we find that at the time of finalizing of accounts at the end of the year some provisions are required in respect of expenses which have been incurred in the last month of the financial year but the bills/claim in respect thereof are still awaited and, therefore, provisions of such expenses are necessary to be made. Certainly the provisions involve some elements of estimation but in the next year such provisions are reversed and actual expenses are booked and accordingly if there is any expenditure the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere with the order of ld. CIT(A). We uphold the same. This ground of revenue is dismissed. 50. Ground No.8 of the appeal reads as under :- 8. The Ld.CIT(A) has erred in law and on facts in deleting the addition made by the A.O. on account of project loss of ₹ 7,49,000/- in relation to amount receivable from Mahanagar Gas Ltd. 51. Ld. DR supported the order of Assessing Officer. 52. Ld. AR submitted that this is the amount receivable from Mahanagar Gas Ltd. towards the amount to be received from them for installation of gas connection for which corresponding credit was offered as income in earlier assessment year. This amount was not written off and hence was written off during the year. As it is the loss arisen in the course of carrying on business and since the business of gas distribution is carried on in the year under consideration it is to be allowed u/s 37 r.w.s. 28 of the Act. Moreover this issue was allowed by ld. Assessing Officer in favour of assessee in Asst. Year 2002-03. Accordingly, ld. CIT(A) has rightly allowed the expenses. 53. We have heard rival contentions and perused the material on record. Revenue is aggrieved by the action of ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso. We, therefore, find no reason to interfere with the order of ld. CIT(A) who has rightly deleted the disallowance made on account of project loss from MGL at ₹ 7,49,000/-. Accordingly this ground of Revenue is also dismissed. 55. Ground no.9 of the appeal reads as under :- 9. The Ld.CIT(A) has erred in law and on facts in directing to allow the consequential depreciation on software license fee of ₹ 20,90,051/- of A.Y. 2002-03 on the current year. 56. Ld. DR supported the order of ld. DR whereas ld. AR submitted that that in Asst. Year 2002-03 ld. CIT(A) had confirmed the disallowance of expenditure on software license fees and therefore, consequential effect to grant depreciation on expenditure capitalized would be allowable. Accordingly ld. CIT(A) has rightly allowed depreciation on software license fees. However, now the Tribunal has decided this issue in favour of assessee in Asst. Year 2002-03, so the ground becomes infructuous. 57. We have heard the rival contentions and perused the material on record. Revenue has raised this ground against the action of ld. CIT(A) allowing consequential depreciation on software license fees for Asst. Year 2002-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c) Software requirement study Rs.l08125/- d) Computer software development expenses ₹ 38,020/- e) Power Builder upgradation in systems ₹ 55000/- f) MS Project 2000 Software License ₹ 18950/- g) MS Office User license ₹ 15250/- 8.2. However, the AO was not convinced and held as under: In view of unambiguous provision in the Income Tax Act, 1961 with regard to expenditure towards license the aforesaid expenditures (excluding the expenditure for software development and software study) incurred by the assessee company is held to be eligible for depreciation at the rate of 25%. Such expenses are not eligible for deduction as revenue in nature. Thus the expenditure to the tune of ₹ 2090051/- is disallowed as revenue expenditure and depreciation at the rate of 25% is allowed on such amount. It leads to net disallowance of ₹ 1567538/- 8.3 Learned CIT(A) has considered the nature of the expenditure, as discussed by the AO, but held that the expenditure was capital in nature because the assessee has acquired intangible right for use of software. Being aggrieved, the assessee is further in appeal. 8.4 Heard both ..... X X X X Extracts X X X X X X X X Extracts X X X X
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