TMI Blog2020 (11) TMI 301X X X X Extracts X X X X X X X X Extracts X X X X ..... -adjudication as directed above after verification of the proportionate amount of grant relating to different assets and upon applying the actual rate of depreciation relates to those assets, therefore, this ground of appeal is allowed for statistical purposes. Correct head of income - interest income from staff loan and advances - income from other sources or business income - HELD THAT:- On perusal of the material on record, we could not find similar component of income treated as business income in the case of group concern of the assessee Gujarat Urja Vikas Nigam Ltd. Under these circumstances, we restore this issue to the file of Assessing Officer for re-adjudication denovo after verification of components of income in the group concern Gujarat Urja Vikas Nigam Ltd. which was adjudicated as business income as per the decision of the Hon'ble Gujarat High Court [ 2020 (3) TMI 232 - GUJARAT HIGH COURT] . In this regard, the assessee is directed to furnish the relevant material/detail in support of its claim in the light of the decision of the Hon'ble Jurisdictional High Court in the case of the group concern as supra. Accordingly, this issue is restored to the file o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as against the Business Income and thereby disallowing the claim of set off of business losses of earlier years against the said income. 3.0 The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the disallowance of prior period expenses amounting to ₹ 4,08,01,000/- without appreciating the fact that such expenditure crystallized during the year and that the same has never been claimed in earlier years. Further, the learned Commissioner of Income Tax (Appeals) failed to appreciate that the appellant had offered net prior income after considering the prior period expense for tax during the year. Thus the learned Commissioner of Income Tax (Appeals) has erred in law in confirming the disallowance of prior period income of ₹ 5,38,06,000/- instead of actual disallowance of ₹ 4,08,01,000/-. 4.0 The learned Commissioner of Income Tax (Appeals) erred in law and on facts has dismissed the ground relating to the initiation of penalty proceedings under section 271(1)(c) of the I.T. Act. 3. The fact in brief is that return of income declaring income of Rs. nil after setting off ₹ 1,94,90,20,824/- under normal p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the ld. CIT(A) @ 15%. grant to offer for the P L A/c. out of every yearend balance. The detailed break-up of the balance government grant/subsidy available to the assessee company was given at page no. 7 of the assessment order totaling to the amount of ₹ 1,03,081.53 lacs out of which the assessee has taken to profit and loss account grant amounting to ₹ 12,868.89 lacs. However, the Assessing Officer has computed the disallowance at 15% of the total grant yearend balance of ₹ 1,03,081.53 lacs which worked out at ₹ 15,462.22 lacs. Accordingly, the remaining amount of ₹ 25,93,63,950/- was added back to the income of the assessee. 5. Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee by referring that similar addition was upheld by his predecessor in the case of the assessee for assessment year 2009-10. 6. During the course of appellate proceedings before us, the ld. counsel has contended that similar issue arised in assessee's own case for assessment year 2008-09 and the Hon'ble ITAT Ahmedabad vide ITA No. 704/Ahd/2012 for assessment year 2008-09 has remanded the matter bac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant in the case of P.3. Chemicals etc. are no longer applicable and cost of assets met directly or indirectly by the Central Government or State Government in the form of subsidy or grant or reimbursement (by whatever name called) is not to be included in the actual cost of asset to the assessee. Accordingly, depreciation is to be allowed only after making necessary adjustment in written down value / actual cost of block of assets in accordance with Explanation 10 below section 43(1). In the case of Dakshin Gujarat Vij Co. Ltd. for A.Y. 2006-07 referred to by the Assessing Officer, CIT(A) distinguished the treatment to be meted out to revenue grants and capital grants and held that revenue grants are to be taxed in entirety in the year of receipt and capital grant towards assets are to be reduced from actual cost of assets as per Explanation 10 below section 43(1). In the case of Dakshin Gujarat Vij Co. Ltd., after noting that grants were only towards cost of capital assets, CIT(A) had held that such grants ought to have been reduced from the cost of capital assets and by not doing so, extra depreciation @ 15% of grants had been claimed. Since 10% of the grants had alr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corded 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 nowhere 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 Paper Industries P. Ltd., 83 CTR 1, which was affirmed by the Hon'ble Supreme Court by observing that the amount of subsidies and grants received by the assessee cannot be reduced from the cost of assets. It was further submitted that the subsidy receiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. ₹ 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 ₹ 9.289 crores plus ₹ 9.641 crores i.e. ₹ 18.93 crores. Thus, instead of net addition of ₹ 30,97,61,800/- made by the AO, addition of ₹ 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, and he after appreciating the entire facts had reduced the disallowance from ₹ 30.97 crores to ₹ 18.93 crores. 20. We find that in the instant case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer noticed from the P L account that assessee has shown interest income and miscellaneous receipt under the head other income but subsequently in the computation of statement the same was shown as income under the head business income. The break up of such income is as under:- Interest on Staff Loans and advances ₹ 247.57 lakh Interest from Other s ₹ 2.04 lakh Miscellaneous receipts ₹ 1283.58 lakh On query, the assessee explained that it was an ordinary business income because the employee's were retained to run the business of the company and accordingly, these loans were given out of business expediency, therefore, interest earned was treated as business income. The Assessing Officer has not accepted the contention of the assessee stating that from the particular of income it is clear that such income had no direct relation with the business of the assessee, therefore, the same was treated as income from other sources. 9. Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has dismissed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest income is required to be treated as business income instead of income from other sources. The tribunal in its order observed as under:- 10. We have heard the rival contentions and perused the material on record on this issue. The Assessing Officer has treated the aforesaid income under the head income from other sources without controverting the submission of the assessee on the basis of which it was claimed that these income were of nature of business income as elaborated in para seven of its order. The ld. CIT(A) has decided the issue in favour of the assessees taking that this issue was decided in favor of the assessee for assessment year 2009-10. During the course of appellate proceedings, the Revenue has failed to controvert the aforesaid contention and the findings of the ld. CIT(A), therefore after considering the material fact that interest earned on loan and advances from deposit placed with Mega Power Project towards sits sharing of power and interest of UL pool account received from M/s. Power Grid Corporation India Ltd. were directly related to the business of the assessee, therefore, this ground of appeal of the Revenue stands dismissed. 15. In vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od income of ₹ 130.05 lacs after adjustment of prior period expenses for ₹ 408.01 lacs. On query, the assessee has explained that all expenditure booked under this head crystallized in the hands of the company only during the year under consideration therefore same expenditure cannot be added back. The Assessing Officer has not accepted the submission of the assessee stating that assessee was following mercantile system of accounting in which the expenses related to the prior period were not an allowable expenses. Therefore, the prior period expenses amounting to ₹ 408.01 lacs was disallowed and added to the total income of the assessee. 13. Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee stating that assessee has not made any submission showing that the prior period income was crystallized in the previous year relevant to the assessment year under consideration. 14. During the course of appellate proceedings before us, the ld counsel has submitted that similar issue in the case of Group concern Gujarat Urja Vikas Nigam Ltd. was adjudicated by the Co-ordinate Bench of the ITAT vide ITA No. 99 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax advantage accrued to the assessee by the claim of impugned prior period expenses per se. We therefore deem it expedient to restore the issue back to the file of AO for examining the issue de novo after verifying facts as may be considered necessary and expedient in accordance with law. The AO shall bear in mind the ratio laid down by the Hon'ble Gujarat High Court in the case of Adani Enterprises Ltd. (supra) while adjudicating the issue. Needless to say, reasonable opportunity shall be provided to the assessee while adjudicating the issue. Hence, all the contentions of the assessee are kept open. The issue raised as per Ground No. 4 is thus set aside to the file of AO in terms of directions noted above. As a result, Ground No. 4 is allowed for statistical purposes. In the light of the decision of Co-ordinate Bench as cited above, we restore this issue to the file of Assessing Officer for deciding de-novo after verification the facts and material as per the ratio laid down by the Hon'ble Gujarat High Court in the case of above cited case of Adani Enterprises Ltd. As a result, this ground of appeal of the assessee is allowed for statistical purposes. 16. In the r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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