TMI Blog2022 (7) TMI 1442X X X X Extracts X X X X X X X X Extracts X X X X ..... sets. Thus, this ground of appeal of the assessee is allowed for statistical purpose . Correct head of income - Income as other income OR business income - interest on loans to staff and other advances - HELD THAT:- As decided in the case of Odisha Power Generation Corporation Ltd [ 2022 (3) TMI 539 - ORISSA HIGH COURT] no difficulty in accepting the submission of the Assessee that the interest received on advances and loans given to its employees are receipts in normal course of carrying its business and should be considered as income derived from its essential business activities. Likewise, the late payment by GRIDCO for the electricity supplied, is sought to be made up by GRIDCO by issuing bonds on which the Assessee earns interest. This also therefore, has a direct nexus with the essential business activity of the Assessee. We find it fit and proper to direct the Ld. AO to consider the issue afresh upon examining the same in regard to the head of income upon considering the relevant evidence Disallowance of prior period expenses - HELD THAT:- The Coordinate Bench in [ 2020 (11) TMI 301 - ITAT AHMEDABAD] has set-aside the identical issue to the file of the Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellant : Shri M. K. Patel, Advocate For the Respondent : Shri A. P. Singh, CIT DR ORDER PER MADHUMITA ROY, JM: The bunch of appeals preferred by the assessee and the Revenue are directed against the separate orders dated 31.07.2015 17.07.2015 passed by the Ld. CIT(A)-1, Vadodara arising out of the orders passed by the DCIT, Circle-1(1), Baroda dated 13.02.2013 and 05.02.2014 under Section 143(3) of the Income Tax Act, 1961(hereinafter referred to as the Act ) for A.Ys. 201011 2011-12 respectively. ITA No. 2855/Ahd/2015(A.Y. 2010-11):- 2. The Grounds of appeal raised by the assessee are as under: 1.0 The learned Commissioner of Income Tax (Appeals) has erred in law and on facts has confirmed the additions of Rs. 36,52,03,600/- on account of Capital Grants Subsidies and Consumers Contribution on the ground that the appellant should transfer 15% of the total Grants/subsidies/consumer contribution received during the year as against 10% offered by the appellant. 2.0 The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the action of Assessing Officer in treating the income shown under the hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and closing balance thereof was shown as Rs. 48032.37 lakhs for the year under consideration. The Ld. AO was of the view that in the event that grant is in the nature of capital it should have been deducted from the capital fix assets or otherwise if it is revenue in nature then it has to be revenue income in the hands of the assessee. The assessee was asked to explain the nature of grant and treatment of capital asset as per Explanation 10 to Section 43(1) of the Act whereupon the said assessee submitted as follows: It is submitted that considering the importance of Power Sector and the ever increasing demand for electricity, the Central as well State Government had decided to improve various functions associated with the generation, transmission and distribution of electricity. Further since the PSUs connected with power sector were making consistent losses, the Government had decided to, introduce reforms in the direction of State PSUs. Accordingly, under the provisions of Gujarat Electricity Industry (Reorganization Regulation) Act, 2003, the erstwhile GEB was unbundled into seven companies. For the purpose a Financial Restructuring Plan (FRP) was approved by the Govt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the rival submissions made by the respective parties, and we have also perused the relevant materials available on record. 9. We find that on the identical issue as submitted the Ld. A.R. in ITA No. 3441/Ahd/2015 for A.Y. 2012-13 the Coordinate Bench has been pleased to set-aside the issue to the file of the Ld. AO for adjudication afresh for verifying the proportionate amount of grant relevant to different assets and upon apply the actual rate of depreciation relates to those assets. The relevant observation of the Coordinate Bench is as follows: 4. During the course of assessment, the Assessing Officer noticed that assessee has shown deferred government grant subsidies amounting to Rs. 81,113.31 lacs as on 01-04-2011 and Rs. 96,653.59 lacs at the end of the year as on 31st March, 2012 and transferred an amount of Rs. 12868.89 lacs to the P L account. However, the Assessing Officer was of the view that in the earlier years, the assessee has transferred to the P L account 15% of the total grant yearend balance therefore it was asked to explain why not 15% of the total grant yearend balance amount should be transferred to the total income. The assessee explained that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hrough impugned capital grants. In this regard, the ld. counsel has further referred the decision of Co-ordinate Bench of the ITAT in the case of assessee itself for assessment year 2009-10 vide ITA No. 652/Ahd/2013 wherein on the basis of aforesaid decision of the ITAT for assessment year 2008-09 the matter was restored to the file of the Assessing Officer. The ld. Departmental Representative was fair enough not to controvert these undisputed facts reported by the learned counsel. 7. We have gone through the decision of Co-ordinate Bench of the ITAT vide ITA No. 652/Ahd/2013 for assessment year 2009-10 wherein after referring the decision of Co-ordinate Bench of the ITAT vide ITA No. 704/Ahd/2012 for assessment year 2008-09 the issue was restored to the file of Assessing Officer for readjudication after verification of the proportionate amount of grant relating to the different assets and upon applying the actual rate of depreciation relate to those assets. The relevant part of the decision of the Co-ordinate Bench of the ITAT is reproduced as under:- 12. Ground No.2 The assessee has challenged the confirmation of addition of Rs.24,17,88,400/- on account of Capital Gran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome already offered from 15% of the grants. The AO has made addition in the present case as per this appellate order. Hence following the same, the addition made by the AO is upheld and this ground of appeal is dismissed. However, at the vary onset of the proceeding, the Learned AR has taken us to the order passed by the Co-ordinate Bench in ITA No.704/Ahd/2012 for A.Y. 2008-09 in assessee's own case where we find that the issue has been set aside to the file of the Learned AO for adjudication afresh after verifying proportionate amount of grant relating to different asset. The Learned AR prayed for similar relief. The argument advanced by the Learned AR has been failed to be contradicted by the Learned DR. We find following observation was made by the Hon'ble Co-ordinate Bench while granting relief to the assessee: 15. The ground no. 3 of the appeal of the assessee is directed against the order of the CIT(A) in confirming the action of the AO in transferring 15% of the capital grants as income although the disallowance made under this head has been restricted to Rs.18,93,11,850/- as against the disallowance of Rs.30,97,61,800/- made by the AO. 16. The b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee and held that the submission of the assessee that the grant was not capital in nature, is factually incorrect, and from the resolution, it was clear that the grant received from the State Government was in the nature of capital grant and it should have been reduced from the capital assets. The decisions quoted by the assessee are not applicable after insertion of Explanation 10 of section 43(1) of the Act, as they pertained to earlier years prior to insertion of Explanation 10 of section 43(1) of the Act. After insertion of Explanation 10 of section 43(1) of the Act, the position of law was very clear. Since the assessee failed to reduce the capital grant against the cost of capital assets, and claimed excess depreciation, which was disallowed and worked out at 15% of the capital assets. 17. On appeal, the CIT(A) held that in assessee's case, 10% of grant under three heads namely Subsidy towards cost of capital assets , Grants towards cost of capital assets and Consumer contribution for capital assets i.e. the grants appearing in Schedule -3 of the balance sheet as on 31.3.2008 were offered for tax. The amount of grant on which 10% was calculated was on the open ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 lakh. The submissions of the assessee before us is that the uniform rate of 15% adopted by the CIT(A) is not justified. As per provisions of section 43(1) of the Act, the capital grant should be reduced from the cost/WDV of the relevant asset, and thereafter the depreciation is to be calculated. Thus, the capital grant receipt in respect of asset, on which depreciation is allowable at the rate different from 15% should be worked out as per the applicable rate. The DR could not point out any mistake in the above submission of the assessee, which we find is in accordance with law. We, therefore, set aside the orders of the lower authorities on this issue, and restore the matter back to the file of the AO for adjudication afresh after verifying the proportionate amount of grant relating to different asset, and applying the actual rate of depreciation which relate to these assets. Thus, this ground of appeal of the assessee is allowed for statistical purpose. Hence, in the absence of any changed circumstances as it appears from the records, we find no other alternative but to remit the issue to the file of the Learned AO for re-adjudication of the same and to pass order upon ver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed by the Hon ble Orissa High Court in the case of Odisha Power Generation Corporation Ltd. (supra). It appears that the Hon ble Orissa High Court while dealing with the issue the Court was pleased to observe as follows: 12. The Assessee offered an explanation regarding interest income earned by it, from advances given to its employees as well as provision of electricity and water charges collected from water through its employees and contractors for facilities in the township, receipt from transit hostel, sale of scrap, insurance claim etc. The facilities were given to its employees for better conditions of employment. This was to improve the overall efficiency of the undertaking which is devoted to the single purpose of generation of power. The Court, therefore, has no difficulty in accepting the submission of the Assessee that the interest received on advances and loans given to its employees are receipts in normal course of carrying its business and should be considered as income derived from its essential business activities. Likewise, the late payment by GRIDCO for the electricity supplied, is sought to be made up by GRIDCO by issuing bonds on which the Assessee earns i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted 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. 996/Ahd/2011 for assessment year 1988-89 dated 31st May, 2017 and the issue was remanded back to the file of Assessing Officer for deciding afresh in the light of the decision of Hon ble High Court in the case of PCIT vs. Adani Enterprises Ltd. in Tax Appeal No. 573 of 2016. The ld. Departmental Representative was fair enough not to controvert these undisputed facts and findings of Co-ordinate Bench. 15. With the assistance of ld. representatives, we have gone through the decision of Co-ordinate Bench of ITAT in the case of Group concern Gujarat Urja Vikas Nigam Ltd. vs. ACIT for assessment year 1988-89 wherein similar issue has been set aside to the file of Assessing Officer for adjudicating afresh according to the direction laid down by the Hon ble Gujarat High Court in the case of Adani Enterprises Ltd. in Tax Appeal No. 573 of 2016. The relevant part of the decision of the Co-ordinate Bench in the Gujarat Urja Vikas Nigam Ltd. supra as cited above is reproduced as under:- 6. We have carefully heard the rival submissions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterprises Ltd. As a result, this ground of appeal of the assessee is allowed for statistical purposes. 18. Respectfully relying upon the order passed by the Coordinate Bench we are disposing of the ground by setting aside the issue to the file of the Ld. AO for de novo adjudication upon giving an opportunity of being heard to the assessee and upon considering the evidence which the assessee may choose to file at the time of hearing of the matter. This ground is allowed for statistical purposes. 19. Ground Nos. 4 6 has not pressed by the assessee. Hence, both the grounds raised by the assessee are dismissed as not pressed. 20. Ground No.5:- This ground is consequential in nature and no separate order needs to be passed. ITA No. 2856/Ahd/2015(A.Y. 2011-12):- 21. Ground No.1:- Identical ground has already been decided by us in ITA No. 2855/Ahd/2015 for A.Y. 2010-11 as Ground No. 1 therein. In the absence of any changed circumstances the same shall apply mutatis mutandis. 22. Ground No.2:- Identical ground has already been decided by us in ITA No. 2855/Ahd/2015 for A.Y. 2010-11 as Ground No. 2 therein. In the absence of any changed circumstances the same sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid grounds are covered in favour of the assessee in its own case concerning AY 2008-09 in ITA No. 704/Ahd/2012 order dated 12.06.2015. The relevant para of the order of the Tribunal is reproduced hereunder: 29. In the Revenue's appeal, the ground no.1 of the appeal is directed against the order of the CIT(A) in deleting the addition of Rs.50,90,96,000/- made on account of disallowance of claim of guarantee fees paid to Government of Gujarat. 30. Brief facts of the case are that the AO observed that the assessee paid guarantee fee of Rs.5,69,35,000/- to the Govt. of Gujarat in consideration of guarantee issued by it for repayment of unsecured loan. Further, the assessee also claimed Rs.21,61,000/- on account of cost of raising finance under the head cost of raising finance as per the profit loss account. 31. In reply to show cause notice to the assessee, the assessee submitted that erstwhile GEB has raised various loans, guarantee of which was given by Govt. of Gujarat, and for the guarantee given by the Govt. of Gujarat, the GEB is required to pay guarantee fees as per rules. After the split of the company, the said loan were still continued, which were gua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital work-in-progress in respect of loans on which guarantee fees was paid. 33. Regarding cost of raising finance of Rs.21.61 lakhs is concerned, the CIT(A) observed that the same was an allowable deduction and being revenue expenditure, following the decision in the case of India Cements Ltd. (supra) disallowance of Rs.21,61,000/- was cancelled. 34. The DR supported the order of the AO, whereas, the AR of the assessee supported the order of the CIT(A) and submitted that the issue was now covered in favour of the assessee by the decision of this 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. 35. We find that the Tribunal in its order dated 8.5.2015 cited supra has held as under: 6. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that the ld.CIT(A) decided these issues in paras- 5.2 5.3 and 6.2 respectively by observing as under:- 5.2. I have considered the submissions of the ld.AR and the facts of the case. The issue relating to whether an item of expenditure lies in the capital or the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red for obtaining loan, it is irrelevant to consider the purpose of loan. The amount spent on stamp duty, lawyer fees, etc. for obtaining loan secured by charge on its fixed assets is a revenue expenditure, because the transactions were entered into directly to facilitate the business of the company and payment of consultancy charges was made on ground of commercial expediency. In India Cements Ltd. vs. CIT, 60 ITR 52, the Supreme Court had also held that the expenditure incurred for securing the use of money for a certain period was revenue expenditure. In the instant case, the assessee has secured the loan by creating a charge (hypothecation of its assets). Hence the ratio of the above mentioned two cases would squarely apply. Accordingly, it is held that the AO was not justified in making the disallowance of Rs.45,24,582/-, which is directed to be deleted. 6.1 The ld.CIT(A) has followed the decision of the Tribunal passed in ITA No.738/Ahd/2009 for AY 2006-07 in the case of Himalaya Machinery Pvt.Ltd., dated 5.6.2009 and in the case of Shri Rama Multi Tech vs. ACIT reported at 92 TTJ 568. 6.2. The ld.CIT-DR could not distinguish the facts of the case, therefore we do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing finance to the amount of Rs. 2,17,79,000/-. The ground preferred by Revenue is, therefore, fails and thus, dismissed. 35. Ground No.3:- Deleting disallowance of loss due to pilferage, shortage of material in transit etc. to the amount of Rs. 1,10,91,000/- is challenged before us. 36. The Ld. DR relied upon the order passed by the authorities below. 37. On the other hand, the Ld. Counsel appearing for the assessee submitted before us that the issue is also covered by the judgment passed by the Coordinate Bench on assessee s own case. On this aspect he has drawn our attention to the observation made by the Coordinate Bench. 38. We have heard the rival submissions made by the respective parties, and we have also perused the relevant materials available on record. 39. We have carefully considered the judgment passed by the Coordinate Bench in ITA No. 761/Ahd/2012 for A.Y. 2008-09. While deciding the ground in favour of the assessee by upholding the order passed by the Ld. CIT(A) in the appeal preferred by the Revenue in ITA No. 761/Ahd/2012 for A.Y. 2008-09 in assessee s own case the Coordinate Bench has been pleased to observe as follows: 37. The ground no.2 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same shall apply mutatis mutandis. 41. Ground No.2:- Identical ground has already been decided by us in ITA No. 2790/Ahd/2015 for A.Y. 2010-11 as Ground No. 2 therein. In the absence of any changed circumstances the same shall apply mutatis mutandis. 42. Ground No.3:- This ground relates to deleting separate addition made in respect of prior period income to the tune of Rs. 1,92,78,000/- is the subject matter before us. 43. The brief facts leading to the issue is this that the amount of Rs. 192.78 lakhs to the prior period income should be treated as current year and not as earlier year after netting of the prior period income. 44. At the time of hearing of the matter the Ld. DR relied upon the order passed by the authorities below. 45. We have heard the rival submissions made by the respective parties, and we have also perused the relevant materials available on record. 46. It appears that the appellant had set of prior period expenses against the prior period income of equal amount. Furthermore, when the set of is disallowed and the prior period expenses are added back no further addition of prior period income is required to be made as addition of equivalent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent year. Hence, this claim is disallowed. 10.2. But, at the same time, if the provision has been disallowed in the earlier year and the appellant has made payment in the current year which is an allowable expenditure as per the provisions of IT Act, 1961, then the same is allowable white assessing the total income of the appellant for the current year. It is seen that the appellant vide letter dated 1.2.2013 had put such claim before the AO for allowing deduction of amount of Rs. 63,94,89,643 on actual payment basis. But the AO has not mentioned such facts in her assessment order. Besides in the appellate order for the Asst. Year 2008-09 and AY 2009-10 in appellant's case, the CIT(A) had held that the claim made by the appellant for allowing such expenses on payment basis had to be made before the AO. Hence the AO was bound to consider such claim on merit. Hence, the AO is directed to verify the facts regarding payment of such arrear salary to the appellant's employees against the provisions made in the earlier years but disallowed while computing its assessed income and if, the same is found to be correct, then will allow deduction of this amount in the computation ..... X X X X Extracts X X X X X X X X Extracts X X X X
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