TMI Blog2023 (4) TMI 334X X X X Extracts X X X X X X X X Extracts X X X X ..... fication and the adjudication. Ground no.2 of the assessee s appeal is partly allowed for statistical purpose. Nature of expenses - repairs and maintenance expenses - AR said that entire expenditure is in the nature of current repairs and no new enduring benefit has come into existence and, therefore, the expenditure not being in the nature of capital expenditure are allowable under the provisions of the Section 31 - HELD THAT:- From the perusal of the documents, it can be seen that these expenditures were not totally on the replacement but replacement of part of machinery/plant which in totality cannot be treated at par with the repairs and maintenance that of entire Plant Machinery. The pipelines and duel fuel burner system are forming some part of entire plant and machinery and both these parts do not function independently or used independently for the projects of the assessee company. CIT(A) was not right in confirming the addition. In fact, these expenditures are revenue in nature. Ground no.3 of assessee s appeal is allowed. Disallowance of contribution to Sardar Vallabhbhai Patel Rashtriya Ekta Trust - AR submitted that for an expenditure to be eligible as business expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stallation of windmill. Therefore it will be appropriate to remand back this issue to the file of the AO for proper verification and adjudication and if the said expenditure appears to be cost of plant and machinery (windmill) and then accordingly the Assessing Officer may allow depreciation in respect of the same. Ground partly allowed for statistical purpose. Book profit u/s 115JB in respect of expenditure disallowable under Rule 8D read with Section 14A(2) - HELD THAT:- This ground is in consonance Vireet Investment [ 2017 (6) TMI 1124 - ITAT DELHI] and the provisions relating to Section 115JB relating to exempt income we direct the Assessing Officer to verify the same and adjudicate the same as per law. Prior period expenses - cristalisation of expenses - HELD THAT:- CIT(A) has rightly observed that the assessee established that these expenses were crystallised during the current F.Y. and accordingly are eligible for deduction while computing total income of the assessee. There is no need to interfere with the same. Hence, ground no.3 of Revenue s appeal is dismissed. - Ms. Suchitra Kamble, Judicial Member And Shri Waseem Ahmed, Accountant Member For the Assessee : Shri Yoges ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat it be so held now. 3. The learned CIT(A) erred on facts and in law in upholding the disallowance of repairs and maintenance expenses of Rs.1,06,25,294 (being expenditure incurred on replacement of water pipeline and purchase of dual fuel burner system) made by the AO on the ground that the said expenditure incurred by the appellant was in nature of capital expenditure and not in nature of 'current repairs' allowable as deduction under Section 31 of the Act. It is submitted that in the facts and circumstances of the case, the expenses are allowable under Section 31/ 37 of the Act. II is submitted that it be so held now. 3.1. The learned CIT(A) erred on facts in holding that the impugned expenditure was incurred for purchase of individual machinery/ new pipeline whereas such expenditure was incurred to ensure proper functioning of the existing plant and these are not capable of functioning on standalone basis. It is submitted that it be so held now. 4. The learned CIT(A) erred on facts and in law in upholding the disallowance of contribution of Rs.10,00,00,000/- to Sardar Vallabhbhai Patel Rashtriya Ekta Trust (SVPRET) made by the AO as not attributable to the business of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n law in upholding the disallowance of expenditure made by the AO and in not accepting the claim of the appellant that the amount of Rs.4.41 crores incurred by the appellant for obtaining land on lease for a period of 20 years was revenue expenditure and not capital expenditure, and hence, allowable as deduction under Section 37(1) of the Act. It is submitted that it be so held now. 7.1. Without prejudice to the above, the learned CIT(A) erred in not granting depreciation under Section 32(1) of the Act considering that the leasehold right was in nature of intangible asset eligible for depreciation by holding that such type of right does not fall within the definition of any of the intangible assets listed in Section 32 of the Act on which depreciation is admissible. It is submitted that it be so held now. 7.2. Without prejudice to the above, the learned CIT(A) erred on facts and in law in not directing to allow deduction of the said amount in 20 equal instalments over a period of 20 years being the terms of lease agreement by holding that the amount paid by the appellant is capital in nature. It is submitted that it be so held now. 8. The learned CIT(A) erred on facts and in law in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndings of the assessing officer in the assessment order and also ignore the fact that the spares now becoming obsolete and being written off cannot be allowed as a deduction as the amount would have already been debited to profit and loss account as purchases. 5. The appellant craves leave to add to, amend or later the above grounds as may be deemed necessary. Relief claimed in appeal It is prayed that the order of the CIT (Appeals) be set aside and that of the Assessing Officer be restored. 3. The assessee company is engaged in the business of manufacturing and selling of Fertilizers Chemicals. The assessee filed its e-return of income on 28.09.2011 declaring total income of Rs.8,90,01,99,410/-. During the year under consideration, the assessee has shown total receipts of Rs.492370.07 Lakhs and Gross Profit of Rs.140133.10 Lakhs i.e. 29.47%. In the earlier year, the figures were respectively Rs.401919.29.59 Lakhs and Rs.68891.80 Lakhs i.e. 17.14%. After perusing details furnished by the assessee, the Assessing Officer made disallowance under Section 14A of the Income Tax Act, 1961, thereby making the addition of Rs.3,95,40,410/-. The Assessing Officer further made addition of Rs.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO to grant deduction of interest on refund in the year in which the same is withdrawn and/or not to tax in the year in which same is accounted for. It is submitted that it be so held now. 6. The learned CIT(A) erred on facts and in law in upholding the disallowance of Rs.252.77 lakhs being the amount of business expenditure incurred for the purpose of setting up of the projects which were abandoned. It is submitted that it be so held now. 7. The learned CIT(A) erred on facts and in law in upholding the disallowance of expenditure made by the AO of Rs.4.41 crores incurred for obtaining land on lease for a period of 20 years. It is submitted that it be so held now, 8. The learned CIT(A) erred on facts and in law in not allowing deduction of amount of Rs.30,63,86,072/- of wage revision on payment basis which was disallowed in AY 2010-11 on accrual basis. It is submitted that it be so held now. 9. The learned CIT(A) erred on facts and in law in confirming adjustment to the book profit computed under Section 115JB of the Act in respect of expenditure disallowable under Rule 8D read with Section 14A(2). It is submitted that it be so held now. 5.1 The assessee has also filed addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... invoking the said rule. But the submissions made by the Ld. AR that current liabilities and provisions should not be reduced from the opening and closing stock of current assets should have been taken into account by the Assessing Officer. Therefore, we direct the Assessing Officer to look into the said aspect and verify the same to the extent of the contentions of the revenue that the borrowings were used for the purpose of the business as well as the investment was from assessee s own fund for earning exempt income. Thus, we remand back this issue to the file of the Assessing Officer for proper verification and the adjudication and decide the same as per law. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Ground no.2 of the assessee s appeal is partly allowed for statistical purpose. 10. As regards ground no.3 of the assessee s appeal relating to disallowance of repairs and maintenance expenses, the Ld. AR submitted that it was not an entire plant machinery but the part of the machinery has been repaired. Therefore, the Ld. AR further submitted that the Assessing Officer as well as the CIT(A) was not right in upholding th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or advantage or asset has come into existence and the expenditure not being in the nature of capital expenditure is accordingly, allowable under the provisions of Section 31 of the Act. The Ld. AR submitted that in the books of account this expenditure is debited to Profit and Loss account under the head repairs and maintenance . The assessee s books are audited by the independent CA firm as well as by CAG and no adverse comment is made. The Ld. AR pointed out that the gross block of plant and machinery is more than Rs. 3000.00 crores whereas the repairs and maintenance expenditure is approximately Rs. 62.83 crore only. The Assessing Officer and the CIT(A) are driven by the value of the spares however, the replaced item is very insignificant in compared to total cost of entire plant and it do not add to increasing the capacity of the plant. The Ld. AR relied upon the following decisions: a. CIT vs. Mahalaxmi Textile Mills Ltd. 66 ITR 710 (SC) b. Addl. CIT vs. Desai Bro. 108 ITR 14(Guj) c. CIT vs. Renu Sagar Power Co. 298 ITR 94 (All) d. Precision Wires India Ltd. (2020) 116 taxmann.com 608 (Guj) 11. The Ld. DR submitted that the CIT(A) has confirmed the three items but has distingu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure. In this case, the entire pipe line from Pipali Pump House to plant site at MK was replaced. Similarly, a new fuel burner system was purchased which is an individual/independent machinery capable of functioning independently. The other judgment relied by the assessee is distinguishable on facts and the CIT(A) has rightly relied on the judgment of Sarvana Spinning Mills Pvt. Ltd. 12. In rejoinder, the Ld. AR submitted that the burner system and pipe line are not an independent plant itself but merely one spare part of the entire DAP plant which was established at total cost of around Rs. 100 crore in December, 1986. The Ld. AR further submitted that the contention of the Ld. DR that the said system can function independently is factually incorrect and therefore, reliance on the Hon ble Supreme Court s decision is completely misplaced. The Ld. AR submitted that the issue is very well covered by the decision of the Ahmedabad Tribunal in case of Gujarat Industries Power Co. Ltd. Therefore, the Ld. AR prayed that the aforesaid expenditure are revenue in nature and order of the CIT(A) be reversed. 13. We have heard both the parties and perused all the relevant material available ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t replacement of part of machinery/plant which in totality cannot be treated at par with the repairs and maintenance that of entire Plant Machinery. The pipelines and duel fuel burner system are forming some part of entire plant and machinery and both these parts do not function independently or used independently for the projects of the assessee company. Thus, the CIT(A) was not right in confirming the addition. In fact, these expenditures are revenue in nature. Ground no.3 of assessee s appeal is allowed. 14. As regards grounds no.4, related to disallowance of contribution of Rs.10 Crores to Sardar Vallabhbhai Patel Rashtriya Ekta Trust, the Ld. AR submitted that for an expenditure to be eligible as business expenditure, merely the Trust is registered under Section 80G would not debar the expenditure, provided it satisfies the test of business expenditure. In the given facts, the Ld. AR relied upon the decision of Hon ble Gujarat High Court in the case of Gujarat Narmada Valley Fertilisers Co. Ltd. (Tax Appeal No. 770 of 1999 with Tax Appeal No. 77 of 2008 with Tax Appeal No. 78 of 2008 judgment dated 06.05.2011), wherein on identical facts the claim was allowed by the Tribunal a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he value of the Sardar Brand under which the company s products are sold, is farfetched. It is nowhere shown that the appellant has been allowed by the trust, which is constructing the statue of unity, to utilise the images of such statue for advertisement of its products. Until and unless the appellant can show that by making this donation, it has acquired right to utilise the images and other details of Statue of Unity for selling its products, only because its produce are sold under the name Sardar Brand and this word occurs in the name of Sardar Patel, it cannot be said that the donation made is wholly and exclusively for the business purposes of the appellant. The AO has also pointed out there are large number of social and educational and other project and scheme in the name of Hon ble Sardar Vallabhbhai Patel which are running and are established. Therefore, contributing to each schemes does not in any way, is fruitful for the business of the appellant. Hence, the AO s action of not allowing entire expenditure as a deduction is upheld. The AO has rightly allowed the deduction u/s 80G of the Act of this payment. Hence, this ground of appeal is dismissed. The Ld. DR further su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilar as there was similar contribution was made for Rs. 7 Crore along with other donations in A.Y. 2011-12. The Ld. AR pointed out the relevant paras of the assessment order and the Tribunal s order for A.Y. 2011-12 and also the para of the High court s order for A.Y. 2010-11 and 2011-12. Thus, the Ld. AR submitted that the nature of expenses in the case of Gujarat Narmada Valley Fertilizers Co. Ltd. is same as compared with the facts of the current case. Therefore, amount of contribution of Rs. 10 crores should be allowed as deduction under Section 37 of the Act. The Ld. AR submitted that the Ld. DR has not brought any contrary decision of the jurisdictional High Court or Supreme Court and therefore, the decision in case of Gujarat Narmada Valley Fertilizers Co. Ltd. has to be followed and the deduction be allowed under Section 37 of the Act. 17. We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that the Agro Products of the assessee company are sold under the brand name Sardar which is very popular amongst the farming community since more than four decades. It was an apprehension of the assessee that the construction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of Hon ble Supreme Court in the case of Veecumsees vs. CIT, 220 ITR 185 (SC) and Standard Refinery and Distillery Limited, 79 ITR 589 (SC). The Ld. AR also relied upon the decision of Hon ble Gujarat High Court in case of CIT vs. Alembic Glass Industries Limited, 103 ITR 715 (Guj.). The Ld. AR further submitted that Tribunal in assessee s own case for A.Y. 2000-01 held that where the expenditure is for expansion of existing business, such expenditure may be allowed as deduction if the project does not take off. 22. The Ld. DR submitted that no evidence as to abandoned project relating to the business of the assessee was produced before the Assessing Officer by the assessee. The Ld. DR further submitted that it should be claimed when it was incurred and not afterwards. The Ld. DR relied upon the Assessment Order and the order of the CIT(A). The Ld. DR submitted that the Assessing Officer has held that the aforesaid expenditure is not allowable in view of the fact that the project have been abandoned midway and expenditure has been incurred before the commencement of project. Since the business has not commenced the expenditure incurred for setting off a new plant in the nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid fee of Rs. 15,000. It also consulted Dr. G. M. Pandya for the manufacture of soda ash and paid his fee of Rs. 500. In the course of income-tax assessment for the assessment year 1973-74, the assessee claimed deduction of the aforesaid two amounts, namely, Rs. 15,000 and Rs. 500 as revenue expenditure. The ITO prepared draft assessment order and called upon the assessee by his letter dated 12-2-1976 to show cause why the aforesaid two amounts should not be disallowed as capital expenditure. The assessee, in its reply dated 6-3-1976, explained as to why the said expenditure was revenue expenditure. The submission of the assessee was that it had established Singach Salt Works at Singach, near Jamnagar in 1963 with a view to manufacturing certain chemicals like soda ash and caustic soda eventually at a later stage in which the basic raw material is industrial salt. Therefore, according to the assessee, the expenditure, which it had incurred on obtaining techno-economic feasibility report of soda ash and on payment of consulting fees to Dr. Pandya, was in furtherance of its business, which was already carried on prior to the date the expenditure was incurred. It was submitted that, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , at its instance, under section 256(1) of the Income-tax Act, 1961 ( Act ): Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the sum of Rs. 15,000 and Rs. 500 paid for obtaining techno-economic feasibility report and consultation for soda ash plant were rightly disallowed as being capital expenditure 3. In order that an expenditure can be allowed as business expenditure under section 37 of the Act, the following essential conditions have to be satisfied: (i) It must be expenditure in the nature of revenue expenditure and not in the nature of capital expenditure. (ii) It must be laid out or expended wholly and exclusively for the purpose of the business or profession. (iii) It must not be of the nature described in section 30 to 36 and section 80W of the Act [vide CIT v. Navsari Cotton Silk Mills Ltd. [1982] 135 ITR 546 (Guj.)]. 4. In the instant case, the finding of the Tribunal is that the assessee proposed to establish a new unit for the manufacture or production of soda ash and it was for the purpose of establishment of this new unit that it had incurred expenditure for obtaining techno-economic feasibility report and con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de by the Jurisdictional High Court. The expenses incurred were for establishing a new project and hence these will remain capital expenditure in nature even if these projects did not materialized. Hence, the claim of the appellant cannot be allowed. Accordingly, the AO s action is upheld and this ground of appeal is dismissed. Thus, the Ld. DR submitted that the CIT(A) has rightly upheld the addition of Rs. 252.77 lacs. During the course of hearing, the Ld. AR of the assessee argued that the expenses were incurred for extension of the existing business but unable to prove the same from the fact of the case. In fact, it was a new unit being proposed to be set up at different locations. Same can be seen from the submission of the assessee because the project was abandoned for various reasons such as unfavourable soil conditions, saline water quality, local agitation etc. This proves that the new plants were being set up at different locations and hence cannot be said as extension of the existing plant. The decision relied by the CIT(A) is squarely applicable in the fact of the case and the decision relied by the Ld. AR of the assessee is distinguishable in facts. 23. We have heard b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed as deduction in 20 equal instalments over a period of 20 years being the terms of the lease agreement. The Ld. AR relied upon the following decisions: i. CIT vs. Sun Pharmaceuticals Ltd. ii. CIT vs. Cinecita (P.) Ltd. 10 Taxman 82 (Bom.) iii. CIT vs. Hoechst Pharmaceuticals Ltd. (1978) 113 ITR 877 (Bom.) iv. CIT vs. Herdillia Chemicals Ltd. (1995) 216 ITR 742 (Bom.) Without prejudice to the above, the Ld. AR submitted that the expenditure is for the purpose of preparation of land and make it suitable for installation of windmill and accordingly, the said expenditure should be considered to be cost of plant and machinery (windmill) and direction be given to the Assessing Officer to allow depreciation in respect of the same. The Ld. AR further submitted that error in computation of total income due to addition / disallowance of expenditure which has not been reduced from statement of computation of total income but has merely been claimed by way of notes forming part of the return of income. Further without prejudice to the above, the Ld. AR submitted that the assessee had claimed the aforesaid expenditure by way of notes forming part of return of income and had neither debited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound no.2 of assessee s appeal and hence it is in consonance Vireet Investment, and the provisions relating to Section 115JB relating to exempt income we direct the Assessing Officer to verify the same and adjudicate the same as per law. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Ground No.9 is thus partly allowed for statistical purpose. 31. ITA No 624/Ahd/2016 filed by the assessee is partly allowed for statistical purpose. 32. As regards Cross Objection No.58/Ahd/2016 filed by the assessee, since the assessee has filed regular appeal, Cross Objection does not survive and hence the Cross Objection filed by the assessee is dismissed. 33. As regards Revenues appeal ITA No.547/Ahd/2016, in respect of ground no.1 the same is identical to ground no.2 of assessee s appeal. Hence, the same is partly allowed for statistical purpose. 34. As regards ground no.2, the same is related to addition on account of repairs and maintenance which is identical to ground no.3 of the assessee s appeal. Hence, the same is dismissed. 35. As regards to ground no.3 related to prior period expenses made by the Assessing Officer, the Ld. DR submi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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