TMI Blog2022 (6) TMI 341X X X X Extracts X X X X X X X X Extracts X X X X ..... ing business. Further it is a fact that out of Rs.17.3 crore of total resetting premium paid, as recovery was made from the assessee to the extent of Rs.14.62 crores in the financial year 2004-05 onwards and credited to sales account. This also shows that resetting premium paid was on revenue account. This the assessing officer contention that by incurring expenses in question, the assessee derailed benefit of enduring nature is not tenable in view of the decision of India cements Ltd., [ 1965 (12) TMI 22 - SUPREME COURT] thus addition made by the assessing officer is hereby deleted and expenditure is to be treated only Revenue in nature. Thus issue allowed in favour of the assessee. Additions under section 115 JB on account of TDS on this delayed payment charges - CIT[A] deleted the addition - HELD THAT:- We do not find any infirmity in the order passed by the ld.CIT[A]. Thus no interference is called for and we uphold the order passed by the ld CIT[A]. Thus issue no. (vii) is allowed in favour of the assessee. Upgradation of software expenses - Capital or revenue expenses - HELD THAT:- As Counsel submitted that jurisdictional High Court in the case of CIT -Vs- N.J. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shri Purushot tam Kumar, Sr.DR For the Assessee : Shri Milin Mehta, A.R. ORDER PER BENCH: This is a bunch of four appeals filed by the Revenue and assessee and cross objection filed by the assessee. The details are as under: Sl. No. ITA/CO No. A.Y. Filed by 1 ITA No.1770/Ahd/2012 2004-05 Revenue 2 CO No. 173/Ahd/2012 2004-05 Assessee 3 ITA No. 1485/Ahd/2010 2005-06 Assessee 4 ITA No. 1826/Ahd/2010 2005-06 Revenue 2. The issues involved in these appeals are recurring in nature for all the assessment years, since for the sake of brevity ITA No. 1770/Ahd/2012 and CO No. 173/Ahd/2012 relevant to the Asst. Year 2004-05 is taken as lead case for disposal of the above batch of appeals. 3. The grounds of appeal raised by Revenue in ITA No. 1770/Ahd/2012 for A.Y. 2004-05 read as under: 1. On the facts and in the ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction of the Assistant Commissioner of Income Tax, Circle - 1(1), Baroda [ the AO ] in making addition of Rs. 1,58,585 (net of depreciation) being expenses incurred on software on the ground that the same are capital in nature. 2. Without prejudice to above, the learned CIT(A) erred in fact and in law in confirming the action of the AO in allowing depreciation @ 25 % instead of 60 % on the software expenses treated as capital in nature. 3. The learned CIT(A) erred in fact and in law in confirming the action of the AO in making addition u/s. 14A of the Act. 4. The learned CIT(A) erred in fact and in law in enhancing the addition u/s. 14A to Rs. 8,97,194. 5. The learned CIT(A) erred in fact and in law in confirming the action of the AO in disallowing depreciation on MD's residence amounting to Rs.4,36,389/- Book Profits U/s. 115JB: 1. The learned CIT(A) erred in fact and in law in confirming the action of the AO to the extent of making addition of Rs.16,01,04,788 being delayed payment charges to the book profits computed u/s. 115JB of the Act. 2. The learned AO erred in fact and in law in charging interest u/s. 234B on the addition made on accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of such items while computing taxable income as held by the Hon ble Supreme Court in the case of Kedarnath Jute Manufacturing Co Ltd - 82 ITR 363. Thus the book entries are not conclusive for determining the nature of expenditure. The provisions of law prevail over the book entries. Accordingly, consumption of spares being only replacement of spare parts would qualify under the head current repairs and treated as Revenue Expenditure. The Ld AR submitted before the Bench a Technical Write Up about the machinery and also details of spares consumed at regular intervals for various assessment years as follows: Technical Write up Stage # 1 Bucket Kit- General Electric, USA- G.E.Fr.6 Gas Turbine G.E.Fr.6 (ms6001B) Gas Turbine is 3 Stage turbine having set of Nozzle, Bucket and Shroud in each stage. Bucket set is assembled on turbine rotor in inverted furtree slots provided on rotor. Stage # 2 Bucket Kit consists of 92 buckets which when assembled on the rotor forms a series like wheel. The basic function of Buckets is to convert the heat energy of hot flue gases in to mechanical energy and thereby driving the coupled generator, which generates the POWER. Sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... along with set of hardware for Gas Turbine spare 2,30,61,292 Stage - 2 Nozzle Kit with inter-stage Rush Seals for FR - 9 Gas Turbine 9,79,20,788 Stage - 2 Bucket Kit, Cutter teeth Design For FR - 9 Gas Turbine 6,88,20,943 2005-06 Stage - 1 Bucket Kit along with set of hardware for Gas Turbine 3,35,44,305 Stage - 1 Bucket Kit - Cutter tooth along with set of hardware for Gas Turbine spare 2,30,61,292 2006-07 Compressor Rotor Blade GT Fr. 6 1,63,26,126 Compressor Stator Blade GT Fr. 6 2,19,65,961 Entr Arm (Excitor) 67,69,358 2007-08 Stage - 1 Nozzle Arrangement for GT FR - 6 1,06,01,677 Stage - 1 Bucket Kit for GT FR 6 3,25,68,456 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration of power as discussed by the CIT(A) in his order, there is no intermediate product in the generation of power. It is also a fact on record that the replaced/repaired parts were relating to three gas turbines. A book let submitted by the assessee regarding operation and maintenance of heavy duty gas turbine clearly shows that a well planned maintenance programme is required for getting the maximum equipment availability and optimization of maintenance costs. The said book let further specifically notifies the parts which require careful attention and maintenance are those associated with the combustion process together with those exposed to the hot gases discharged from the combustion system. This include combustion liners, end caps, fuel nozzles assemblies, cross fire tubes, transition pieces, turbine nozzles, turbine stationery shrouds and turbine buckets. The said book let mentions about periodic inspection and repair/refurbish/replacement of the aforesaid parts of the gas turbine. It also mentions that when the parts are not repairable, they are to be replaced. From this, it is very much clear that the entire gas turbines are not replaced but some of its parts are either ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arts of a air conditioner or a T.V. is replaced, it does not amount to replacement of entire unit. Therefore, applying the same logic to the facts of the assessee s case, it can be said that there is no replacement of the gas turbine as a whole but certain repair and replacement to some of the parts of the gas turbine, which does not result in bringing into existence a new asset of enduring nature, rather, the repair and maintenance are of recurring nature and essentially required for smooth running of business of the assessee i.e, generation of power. The other decision of the Hon ble Supreme Court relied upon by the learned D.R. in the case of CIT V/s. Sri Mangayarkarasi Mills (P) Ltd. 315 ITR 114 also following the decision in the case of CIT V/s. Saravana Spinning Mills (supra), has laid down the same proposition of law. On the other hand, the decisions relied upon by the assessee as noted in the order of the CIT(A) clearly supports the view that the expenditure incurred by the assessee cannot be treated as capital expenditure. In the aforesaid view of the matter, we do not find any reason to interfere with the findings of the CIT(A) in this regard. We therefore, confirm the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of CIT V/s. Saravana Spinning Mills and CIT V/s. Sri Mangayarkarasi Mills (P) Ltd. 315 ITR 114 wherein held that when certain parts of an air-conditioner or a T.V. is replaced, it does not amount to replacement of entire unit. h. Thus this issue is already dealt by the co-ordinate Benches of ITAT, Hyderabad in the case of DCIT -Vs- AP Gas Power Corporation Ltd wherein after detailed discussion held that expenditure incurred by the assessee cannot be treated as capital expenditure but Revenue expenditure only. i. Thus, applying the same logic to the facts of the assessee s case, it can be said that there is no replacement of the gas turbine as a whole but certain repair and replacement to some of the parts of the gas turbine, which does not result in bringing into existence a new asset of enduring nature, rather, the repair and maintenance are of recurring nature and essentially required for smooth running of business of the assessee i.e, generation of power. j. Therefore we have no hesitation in holding that the replacement of spares in the machineries would be allowable as Revenue expenditure only and addition made by the AO is directed to be deleted. Thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Pr. CIT v. India Gelatine Chemicals Ltd. [2015] 376 ITR 553/[2016] 66 taxmann.com 356 wherein it is observed that when the assessee had sufficient interest-free funds out of which concerned investments had been made, disallowance under Section 14A is not justified. Thus we clear in our mind the direction given by the Ld CIT[A] to apply Rule 8D is not proper and there being the surplus funds were invested by the assessee and there were no administrative expenses, the disallowance made u/s.14A is unwarranted and liable to be deleted. Thus the Cross Objection filed by the assessee is allowed by deleting the addition made u/s.14A of the Act. 23. Issue No. 4 relates to depreciation on building used for Managing Director s residence. Ld AR submitted that as per the depreciation chart in the tax audit report, an addition of Rs.87,27,750/- on account of GIPCL House under the head factory building. The assessee claimed MD s house is residence-cumoffice building is used for the purpose of residence/office of the Managing Director and he discharges his official duties 365 days for official meetings, therefore the rate of depreciation of 10% is claimed by the assessee. Per Cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... schedule. As a result of restructuring activity no asset comes into existence nor it leads to improvement of efficiency or productivity of any existing assets. There is no increase in capital, production capacity remains the same. Thus the assessee relied upon Supreme Court judgement in the case of India cements Ltd s 60 ITR 52, CIT versus GSFC 358 ITR 323 Gujarat, and other decisions on similar lines and claimed that the AO is not correct in making the disallowance. 10. We have given our thoughtful consideration and perused the material available on record. This issue is been settled by the judgement of the honourable Supreme Court in the case of India cements Ltd wearing it is held that loan is not an asset or a advantage of enduring nature and expenditure incurred in connection with obtaining loan is not capital expenditure. Further in the case of Compton engineering Co Ltd 242 ITR 317 honourable Madras High Court held that professional fee paid to management consultant for comprehensive restructuring of business could not be treated as capital expenditure, since the report was not for the purpose of any new business, but for efficient carrying on of existing business. Furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 28 crore u/s. 143(1), appellant revised its return of income for A.Y.2004-05 on 31.3.2006 to include entire amount of Rs.78.1 crore, being delayed payment charge receivable from GEB as its income under the normal provisions of Act. In the revised return filed, appellant did not include the delayed payment charges of Rs.78.1 crore or for that matter even TDS of Rs.16.01 crore in the book profit u/s.115JB on the plea that its accounts were prepared in accordance with Part II and Part III to Schedule VI of the Companies' Act accounting standards applicable there under and net profit shown in the profit and loss account could be altered only for prescribed items of adjustments specified in that section. Reliance was placed on decision in the case of Apollo Tyres Ltd. vs. CIT 255 ITR 273 (SC) in this regard. Decision in the case of Apollo Tyres (supra) was in the context of section 115J and not section 115JB. In the case of Sumer Builders Pvt. Ltd. (2012) 19 taxman.com 43 (Mumbai), distinction was drawn between provisions of section 115J and provisions 'of section 115JB and it was held that u/s.115JB, AO has powers to go behind accounts of a company and see as to whether same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I of Schedule VI to the Companies' Act and secondly if accounting policies accounting standards were incorrectly adopted for preparation of profit and loss account laid before the annual general meeting. Appellant's contention that for the purpose of section 115JB, no alteration at all, under any circumstances is permitted to the net profit arrived at in the accounts prepared in accordance with Parts II III of Schedule VI of the Companies Act is therefore not tenable. As discussed henceforth, the profit loss account placed before the AGM in appellant's case was not as per its accounting policy of revenue recognition in respect of delayed payment charges. As per 'Significant Accounting Policies' contained in Schedule 21 of appellant's Annual Report for 2003-04, delayed payment charges under Power Purchase Agreements were to be recognized as revenue, on grounds of prudence, as and when recovered. Tax of Rs.16.01 crore was deducted at source from provision of delayed payment charges of Rs.7.1 crores before 31.3.2004. Out of total delayed payment charges of Rs.78.1 crore, amount of Rs.16.01 crore was undisputedly recovered/received by appellant and should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore in full had already been included in taxable income of A.Y.200405 as per normal provisions of the Act. Since only Rs.16.01 crore out of DPC of Rs.78.1 crore'hns been directed to be assessed as income of A.Y.2004-05 under normal provisions of the Act; consequently, in A.Y.2006-07, delayed payment charges of Rs.23 crore are directed to be assessed under normal provisions of the Act besides being included in book profits for the purpose of section 115JB. In accordance with section 199, credit to be allowed in A.Y.2004-05 out of tax deducted at source of Rs.16.01 crore would be on proportionate basis only. Credit of balance TDS out of Rs.16.01 crore is to be allowed on proportionate basis in A.Y.2005-07 2007-08, where remaining income was assessable and was in fact credited in the books of accounts also. In other words, credit of TDS of Rs.16.01 crore to be allowed in various assessment years would be Rs.3.2819 crore (16.01/78.1) in A.Y.2004-05, Rs.4.7149 crore (23/78.1) in A.Y.2006-07 and remaining, i.e. Rs.8.0132 crore in A.Y.200708, subject to verification by the Assessing Officer of the calculations with reference to income assessable in each year. 13. On going throu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot have paid advance tax in case of a deferred tax liability in respect of Assessment Year 2005-06, when the amendment was brought into force in 2008. However, it is pertinent to mention here that clause (h) to second proviso to section 115JB(2) of the Act has been incorporated with effect from 1-4-2001. The retrospective operation of the aforesaid provision has not been challenged by the assessee and therefore, the aforesaid provision has to be given effect to. The Tribunal clearly acceded to its jurisdiction in holding that no interest could be levied under section 234B of the Act. In the result, the second substantial question of law is answered in favour of the revenue and against the assessee. 17. Respectfully following the above judgement in the case of the JSW Steel Ltd we reject this ground and the confirm the addition made by AO. Thus issue no. (ix) is allowed in favour of the Revenue. 18. Loss due to foreign exchange difference rate: 19. The assessee incurred a loss of Rs.21,26,000/- due to foreign exchange rate difference, which is a actual loss and not notional loss. The assessee-company itself availed foreign currency demand loan from various banks. As part o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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