TMI Blog2023 (11) TMI 336X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the ld. Counsel for the assessee that the amount paid to the Sales Tax Authorities for late payment of sales tax is to be allowed under Section 37(1) of the Act. The ground of appeal so raised by the assessee is, therefore, allowed. Disallowance of prior period expenses as reported in the Tax Audit Report - Since the assessee was unable to substantiate its claim to the said expenses in the said year on the reasoning that the expenses crystallized in the impugned year, the AO disallowed these expenses - HELD THAT:- ITAT in the Assessment Year 2005-06 [ 2022 (12) TMI 333 - ITAT AHMEDABAD] wherein the order of the Ld.CIT(A) restoring the issue back to the file of the AO for verifying which prior period expenses crystalized during the year and directing him to allow all such prior period expenses, was upheld by the ITAT.In view of the same, we restore this issue back to the Assessing Officer to adjudicate the same afresh. Disallowance made of expenses relating to the earning of exempt income, as per the provisions of Section 14A - HELD THAT:- The issue, therefore, admittedly stands covered in favour of the assessee by the order of the ITAT in the immediately preceding y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is warranted in such circumstances for non-deduction of tax at source. In view of the same, we find merit in the contention of the ld. Counsel for the assessee that there being no TDS liability on the assessee vis- -vis ATIRA, non-deduction to tax at source on the payment made to the assessee would not attract the provisions of Section 40(a)(ia) - disallowance made by the AO under the said section is, therefore, directed to be deleted. This ground of appeal of the assessee is accordingly allowed. Income from other sources - treating the income earned by the assessee from projects which was still under construction - HELD THAT:- e issue, therefore, admittedly stands covered in favour of the assessee by the order of the ITAT in the immediately preceding year i.e. AY 2005-06 [ 2022 (12) TMI 333 - ITAT AHMEDABAD] following which we direct the Assessing Officer to treat the income from projects as Business income. Gross expenditure incurred on projects is to be allowed to the assessee and the income earned from these projects is to be treated as income from business and profession. Claim of depreciation in respect of leased buses to GSRTC - transaction was held to be i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... horities below, we cannot agree with the finding of the Revenue authorities that no trial run was conducted by the assessee. In view of the same, we hold that the assessee had rightly claimed deprecation - direct the Assessing Officer to delete the disallowance of depreciation - Decided in favour of assessee. Addition pertaining to accrued interest on doubtful advance made to GIIC - HELD THAT:- As in the immediately preceding year [ 2022 (12) TMI 333 - ITAT AHMEDABAD] , held no addition on account of interest on advances made to GIIC is tenable in the present year on mercantile basis. The addition therefore made is directed to be deleted. Addition made of lease rental charges and accrued interest on lease rental charges to be recovered from GSRTC - HELD THAT:- We uphold the grievance of the assessee and direct the Assessing Officer to delete the addition made of lease rent and accrued interest on lease rent as what derives from the same is that GSRTC was not paying up the amounts due from it to the assessee. And for this reason the assessee had resorted to accounting for lease rental income from GSRTC on cash basis which aspect we have dealt with above. Besides, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... posed off by a single consolidated order for the sake of convenience. 3. At the outset itself it was pointed out by the ld. Counsel for the assessee that the majority of the issues raised in all appeals before us have already been adjudicated by the ITAT in the case of the assessee in the immediately preceding year, i.e. AY 2005-06, in its order passed in ITA Nos.1747/Ahd/2009 and 1657/Ahd/2015 dated 30.11.2022. Copy of the order was placed before us. A tabular detail was also filed before us pointing out the relevant paragraphs of the ITAT order of the immediately preceding year where the different issues raised were dealt with by the ITAT. Appeal pertaining to Assessment Year 2006-07 was first taken up for hearing. ITA No. 830/Ahd/2011 for AY 2006-07 4. Ground No.1 - 1.2 raised by the assessee, it was pointed out, related to the disallowance of project expenses treating them as capital expenditure. The said grounds raised in Ground Nos. 1 to 1.2 read as under:- 1. The Learned C.I.T. (A) has grossly erred in law and on facts in confirming disallowance of revenue Expenditure incurred on Lignite project at Bhavnagar of Rs. 3131748 on Lignite project at Tadkeshwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istinct from the existing industrial undertaking. The ld.CIT(A), we have noted, has confirmed, disallowance of project expense, as made by the AO in this regard, rejecting the assessee s contentions that it was a vertical integration of the existing business of the assessee, stating that generation of electricity requires various other machineries and equipments which are admittedly not manufactured by the assessee, and therefore, the power project cannot be said to be expansion of the assessee s existing business. The relevant findings of the Ld.CIT(A) at para 5.2 of his order is as under: 5.2 I have considered the facts of the case and the submissions of the Ld.A.R. carefully. It is seen that the Akrimota Power Project is entirely a new project which is being set up by the appellant. During the relevant period it was in the process of construction and had not started the generation of electricity. The Ld.A.R's claim that the project is an expansion of appellant's existing business is breft of reasoning. The appellant is engaged in excavation of Lignite which is one of the various inputs used for generation of electricity. Further, the generation of electricity requi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adicted the findings of the A.O. that the project under reference was entirely a new project and the construction thereof was not completed during the relevant period. Further the Ld.A.R. has not brought on record supporting facts to show that the project was an expansion of appellant's existing business. It is a well settled position of law that the expenditure incurred on interest for the money borrowed for setting up a new industrial undertaking is not deductible before its completion. In these circumstances, the A.O. has rightly rejected the appellant's claim for deduction under the provisions of sec.36(1)(iii) of the Act. The claim of depreciation was also disallowed with respect to machineries employed in setting up these projects for identical reason. 14. We shall first deal with the project expenses disallowed vis- vis power projects and two lignite projects and also claim of depreciation on assets vis - vis these projects, all of which are disallowed for the same reasons, that were all treated as new undertaking of the assessee and not an expansion of existing business, since these projects had not commenced operations. 15. The proposition of law wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed as a deduction under Section 36(1)(iii) of the Act. 8. In the instant case, the Tribunal has returned the finding that there is a unity of control and management, in respect of the ferro alloys plant as well as the sugar plant and there is also intermingling of funds and dove7 tailing of businesses. In these circumstances it cannot be said that the respondent/assessee had not commenced its business and hence, interest would have to be capitalized in terms of the ratio of the judgment in the case of Challapalli Sugars Ltd (supra). If that is not so then, the only other conclusion that is possible on these facts, is that, the interest was paid by the respondent/assessee on borrowed capital for the purposes of business. That being the case, in our view, the Tribunal correctly allowed the financial charges i.e., interest paid to the extent of Rs 3,50,83,472/- as deduction under Section 36(1)(iii) of the Act. 9. These being the findings of fact, we do not consider it fit to interfere with the impugned judgment of the Tribunal. Accordingly, we hold that there is no question of law, much less a substantial question, which arises for consideration. In the result, the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h were treated as new business of the assessee and all expenditure incurred prior to the commencement of the business were treated as not allowable. In these facts and circumstances, the decision was rendered by the Hon ble Apex Court holding that the different nature of the business was not a determinative factor for the purpose of deriving whether it is a new business or expansion of exiting business only. On the contrary, it is the unity of management and control and handling of funds which would determine the same. In the case of these projects, the issue has certainly not been examined from this angle. 18. We have also noted that the impugned appeal before us relates to Asst.Year 2005-06 which is more than 17 years old. No purpose, we find, will be achieved by restoring back to the file of the Revenue authorities for deciding this issue on this parameter. On the contrary, interest of justice could be well served by examining the facts from audited annual accounts of the impugned year, which have been placed before us in the paper book which clearly reveal the fact that all these projects were being undertaken under the same management with common control and funds, and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion and ignoring the Supreme Court s decision when the facts of both the cases are similar. 8. The learned Counsel for the assessee pointed out that the amount paid to the Sales Tax Authority had consistently been stated to be in the nature of interest for late payment of sales tax as per Section 47(4)(a) of the Gujarat Sales Tax Act. This was stated before the Assessing Officer which finds mention at paragraph no. 5 of the Assessment Order and was reiterated before the learned CIT(A), which finds mention at paragraph No. 5.2 of the order of the ld. CIT(A). He pointed out that the Hon ble Apex Court in the case of Lachmandas Mathuradas Vs. CIT, reported in [2002] 122 Taxman 828 (SC), had held interest on arrears of sales tax to be compensatory in nature and allowable as deduction in computing profits of the business. 9. The ld. DR, however, relied on the order of the ld. CIT(A) drawing our attention to his findings to the effect that after insertion of the Explanation to Section 37 of the Act ,which was inserted by Finance Act, 1998, the payment of interest due to late payment of taxes cannot be allowed as a deduction because by any stretch of imagination it cannot be said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) restoring the issue back to the file of the Assessing Officer for verifying which prior period expenses crystalized during the year and directing him to allow all such prior period expenses, was upheld by the ITAT. Our attention was drawn to paragraph Nos. 26 to 29 of the order as under:- 26. Ground No.4 raised by the assessee is against order of the ld.CIT(A) upholding rejection of claim of prior period expenses amounting to Rs. 67,37,949/-. The ground reads as under: 4. In facts and circumstances of the case, Your Appellant most respectfully submits that the Ld. A.O. erred in rejecting claim of Rs. 67,37,9497- being the amount of prior period expenses even through the said expenditure had, materialized and Crestaiised during this Financial Year and Ld. CIT (A) further erred in rejecting the claim by sending / restoring the matter back on the file of Id. A.O. Your Appellant further submits that both the authorities have failed to follow Hon. ITAT's Judgment in appellant's own case in prior years, in appeals for A.Y. 1989-90 A. Y. 1995-96. 27. As transpires from orders of authorities below the assessee s claim of prior period expenses had been disallowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee is therefore dismissed. 14. The ld. DR was unable to distinguish the issue in the present case before us, either on facts or on law. In view of the same, we restore this issue back to the Assessing Officer to adjudicate the same afresh in accordance with the direction of the ITAT in its order passed for AY 2005-06 (supra). Grounds of appeal Nos. 3-3.1 are allowed for statistical purposes. 15. Ground No.4-4.2, it was pointed out, related to the issue of disallowance made of expenses relating to the earning of exempt income, as per the provisions of Section 14A of the Act. The said grounds read as under:- 4. That the Learned A.O. has erred in making an addition of Rs. 5929382/- U/s.14A of the Act, and Learned C.I.T.(A) has further erred in directing the Learned A.O. to make the disallowance U/s.14A as per Rule 8D, even though the Rule 8D becomes effective from 24.03.2008. 4.1 That both the lower authorities have failed to appreciate the facts that Investment in Tax Free Bonds, Equity Shares Mutual Funds when made were out of own Capital and free Reserves, as there was no borrowed funds when Investments were made, and that the nexus betweenthe Investm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) further erred in directing the Ld. A.O. to make the disallowance u/s 14A as per rule 8D, and Particularly when the Rule 8D has come into existence by IT Rules 2008 Dated 24/03/2008. Your Appellant further submits that both the lower authorities have failed to appreciate the facts that investments made in Tax Free Bonds, Equity Shares or Mutual Funds were out of own Capital free .reserves and not out of borrowed funds. 57. As transpires from orders of the authorities below, the assessee during the impugned year had earned dividend income to the tune of Rs. 65,35,060/- and interest on tax free bonds of Ahmedabad Municipal Corporation of Rs. 1,26,20,421/-. The assessee had shown investment of Rs. 71,71,47,000/- as on 31.3.2005. In response to the query raised by the AO asking details of interest bearing funds utilized for investment in exempt income, the assessee filed reply stating that the investments were out of own interest free funds of the assessee. The AO however worked out disallowance of interest at Rs. 77,487/- and administrative expenses of Rs. 22,72,560/-accordingly disallowing of a sum of Rs. 23,50,047/- under section 14A of the Act. 58. Before the ld.CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... para 6.3 the issue was dealt with by the ITAT deleting disallowance of interest expenses holding that in the case of CIT Vs. Gujarat Industrial Development Corpn 37 taxmann.com 254, the Hon ble Gujarat High Court has held that department is expected to establish a nexus between interest bearing funds borrowed and those invested by the assessee respondent and only when it was shown that interest free funds were not available with the assessee, that question would arise of fastening tax liability on assessee. 60. The ld.DR, on the other hand, relied on the order of the ld.CIT(A). 61. We have heard both the sides. Vis- -vis the issue of disallowance of expenses under section 14A of the Act, we agree with the ld.counsel for the assessee that invocation of Rule 8D is applicable for the purpose of computing the amount of expenditure to be disallowed only w.e.f. Asst.Year 2007-08, when said Rule were brought into force and section 14A of the Act also specifies the invocation of the said rules. This proposition was laid down by the Hon ble High Court in the case of Godrej Boycee (supra) also. Further it is a settled law that where sufficient interest free funds are available the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easonableness of any expenditure for the Assessee unless the transaction is not a genuine or straight forward one or is either colorable or illusory or fraudulent or there was a consideration other than business or is of a personal nature, the expenditure cannot be disallowed. Asian Tools Plastics Co. Ltd. Vs. C.I.T. (551 ITR 392) not followed. The mere fact that it is also for instance motivated by Charity would not justify disallowance. Godavari Sugar Mills Vs. CIT (191 ITR 311) is also not followed. 20. The facts relating to the issue are that contributions made by the assessee to Index B and to Govt. of Gujarat for- celebrating Gujarat Gaurav Day and Sharad Utsav were disallowed by the AO treating them to be non-business in nature, rejecting assesses contention that these expenses were meant for advertisement of the assesses business. Ld.CIT(A) confirmed the disallowance finding that the assessee was unable to substantiate its explanation that these expenses were by way of advertisement expenses. He further noted that these expenses had been incurred on the specific request of the concerned authorities of Government of Gujarat and/ or were in the nature of donations. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore was purely on the principle of commercial expediency. The ld.CIT(A) however rejected the claim of the assessee holding that the assessee had not established what benefit it had derived from the such expenditure. The relevant findings of the Ld.CIT(A) at page 38-39 para 20.2 of his order is as under: 20.2 I have considered the facts of the case and the submissions of the Ld.A.R. carefully. It is seen that the Ld.A.R. neither during the assessment proceedings nor during the appellate proceedings filed any details to establish that the impugned expenses were incurred for the purposes of the business of the appellant. It is also clear from the submissions that how such expenses have helped the appellant in its business of mining during the relevant period. Further it is also not clear the laboratory stated to be set up from the funds provided by the appellant were used by it for its business. If the said laboratory was used during the relevant period, then what kind of reports were obtained therefrom by the appellant. It has not come out in the submissions of the Ld.A.R, therefore, under these circumstances the A.O. has rightly disallowed the claim of the appellant for ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the assessee s claim of contribution to the Office of Commissioner of Geology Mining, Gandhinagar amounting to Rs. 53,84,000/-, being for the purpose of business, is allowable as expenditure under section 37(1) of the Act. 22. The Ld.DR however relied on the order of the Ld.CIT(A) and pointed out that the facts in the present case were different from that in A.Y 2005-06 and the decision of the ITAT in that year could not be followed therefore for deciding the present issue. 23. We have heard both the parties, have gone through the order of the authorities below. We are not impressed with the contention of the Ld.Counsel for the assessee that the issue of allowability of payments made by the assessee to Index B and govt. Of Gujarat for celebrating Gujarat Gaurav Day and Sharad Utsav is squarely covered by the order of the ITAT in the A.Y 2005-06. As rightly pointed out by the Ld.DR,the facts in A.Y 2005-06 were completely different . The assessee in the said case was found to have made payment to Office of Commissioner of Geology Mining, Gandhinagarfor setting up of laboratory for research and testing in the field of mining, which was found to be for the benefit of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d out wholly, necessarily and exclusively for the purpose of business and was not allowable as deduction. In view of the above, the disallowance by the AO is justified. The same is confirmed. 24. We are in complete agreement with the Ld.CIT(A) that these expenses are nothing but donations made by the assessee. These expenses have not been incurred for the purpose of business of the assessee. They are merely contributions made to these entities. That some benefit would accrue to the assessee is only incidental. The purpose of incurring the expenditure is definitely not for the business of the assessee. The same have therefore, we hold, rightly been disallowed by the Ld.CIT(A). the facts being found to be different from A.Y 2005-06, the contention of the assessee that the issue is covered by the order of the ITAT in A.Y 2005-06 is rejected. Grounds of appeal Nos.5 5.1 are accordingly dismissed. 25. Ground Nos. 6 6.1 relates to disallowance of expenses for non deduction of tax at source in terms of Section 40(a)(ia) of the Act . The said grounds read as under:- 6. That the Learned C.I.T. (A) has erred in confirming the addition of Rs. 156036/-being the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r plant and machinery, so long as exemption granted is valid, the interest received by the other party is not covered by the Income-tax Act and by virtue of exemption granted by the Central Government, the question of TDS on the above amount does not arise at all. Since there is no requirement of TDS, question of disallowance under section 40(a)(ia) for non deduction of tax also does not arise. Moreover, as seen from the correspondence with the Ministry of Finance by the assessee-company way back in December, 1996 and February, 1997 it can be noticed that the Central Board of Direct Taxes also insisted on verifying the deployment of funds and the assessee vide the letter dated February 7, 1997 enclosed the auditor's certificate certifying the attached statement showing the deployment of funds equivalent to US$ 40.22 million and corresponding invoices for import of capital goods for the hot rolled coils project of the company out of euro convertible bonds issue of US$ 75.00 million. They also placed on record the approval of the Reserve bank of India for the purpose of financing the put option under euro convertible bonds issue of USD 75 million. After examining the relevant cer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was pointed out by the ld. Counsel for the assessee, related to the issue of treating the income earned by the assessee from projects which was still under construction, as income from other sources. The ld. Counsel for the assessee has pointed out that this issue was linked to the issue in Ground No.1 raised by the assessee wherein the expenses incurred in these projects were treated as capital in nature and disallowed. He pointed out that the income earned accordingly was treated as income from other sources since the projects were yet to commence operation. 30. The ld. Counsel for the assessee pointed out that this issue was dealt with by the ITAT in the immediately preceding year, i.e. AY 2005-06 vide order dated 30.11.2022, cited by the ld. Counsel for the assessee, in paragraph nos. 19 20 of the order holding the income to be in the nature of income from business. The relevant findings of the Tribunal for AY 2005-06 in ITA No. 1747/Ahd/2009 read as under:- 19. In view of the above, we hold that all three projects i.e. Akrimota Power Projects, Lignite projects at Bhavnagar and Tadkeshwar are nothing but the continuation of existing projects of the assessee only, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 6958066/- in respect of Leased Buses to GSRTC may be allowed. 34. The issue relates to claim of depreciation on buses purchased from and thereafter leased to GSRTC.The transaction was held to be ingenuine and colorable device intended to avoid taxation by claiming depreciation. 35. The ld. Counsel for the assessee submitted that identical issue was dealt with by the ITAT in assessee s own case for the Assessment Year 2005- 06 vide order dated 30.11.2022 at paragraph Nos. 36-38 of the order holding that the assessee was entitled to claim depreciation on leased assets. Our attention was drawn to paragraph Nos. 36 to 38 of the order which reads as under:- 36. We have heard the rival contentions and gone through the orders of the authorities below as also the case laws referred to before us. After considering the entire facts relating to the issue, we are perplexed with the apparently contradictory stand taken by the Revenue on the impugned issue before us. As is evident, the Revenue had held the lease and buy back arrangement of the assessee with GSRTC to be ingenuine and colorable device while denying claiming of depreciation thereon of the assessee holding tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts or on law. The issue, therefore, admittedly stands covered in favour of the assessee by the order of the ITAT in assessee s own case in the immediately preceding year i.e. AY 2005-06, following which we direct the Assessing Officer to delete the disallowance made on account of depreciation of leased assets of Rs. 69,58,066/-. Ground of appeal No.8 is allowed. 37. Ground No. 9 pertains to disallowance of claim of expenditure incurred for excavation of river diversion amounting to Rs. 3,28,32,791/- treating it to be capital in nature, which in turn was upheld to the extent of 80% by the ld.CIT(A). The said ground reads as under: 9. In Facts and circumstance of the case, Your Appellant respectfully submits that LD AO has further erred in disallowing claim of Rs. 32832791/- in respect of expenses incurred for excavation of River Diversion holding that the Expenditure was incurred giving benefit of enduring nature and hence treated as Capital Expenditure and rejected the claim and Hon. CIT(A) further erred in holding that the said expenditure was for a continuous benefit and thereby directing Ld. AO to allow only 20% of such expenditure in each of the five consecutive ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure was to remove obstacle/ hindrance so as to enable carrying out its activity of mining smoothly. 54. It is amply clear therefore that the expense was incurred only for enabling conduct of the business of the assessee, admittedly without any expenditure being incurred on capital account. The ratio settled by the Hon ble apex court in the case of Empire Jute(supra) will therefore squarely apply in the facts of the present case. Accordingly therefore, we hold, that the impugned expenditure is to be treated as revenue in nature. 55. The decision of the Hon ble Bombay High court in the case of Taparia Tools (supra) relied upon by the Ld.CIT(A) while holding the claim of expenditure to be on capital account ,has been pointed out by the Ld.Counsel to have been reversed by the Hon ble Supreme Court. The Ld.DR did not controvert the same. The Decision of the Hon ble apex court in the case of Madras Industrial Investment Corp.(supra) also relied upon by the Ld.CIT(A) is we find distinguishable on facts where the issue before the Hon ble Apex Court was allowability of discount on issue of debentures, which it was held was to be allowed proportionately over the period of ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of Rs. 67,24,96,232/- towards Plant Machinery Boiler in respect of Akrimota power project holding that generation of power is not an article or a thing manufactured by appellant company and the Ld. CIT(A) has further erred by accepting above addition. 43. The depreciation pertaining to Akrimota project of Rs. 66,53,47,522/- was denied on the ground that the project commenced operations in October 2005, though assessee claimed commencement in March 2005 when trial runs were done which contention was rejected by the authorities below. 44. The claim to additional depreciation of Rs. 67,24,96,232/- on Plant and Machinery deployed in the said Akrimota project was denied holding that Power did not qualify as article or thing manufactured by the assessee to make it eligible for additional depreciation. 45. At the time of hearing, the ld. Counsel for the assessee submitted that this issue was dealt with by the ITAT in assessee s own case for the immediately preceding assessment year, i.e. Assessment Year 2005-06, vide paragraph Nos.21-25 of the order dated 30.11.2022 wherein the ITAT held as under:- 21. Now we take up the issue denial of claim of depreciation in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further relied on the decision of Hon ble Madras High Court in the case of Lakshmi General Finance Ltd., [433 ITR 94 (Madras)] for the proposition that where even on trial production, machineries can be said to be ready for use and depreciation thereon allowed. 24. The ld.DR relied on the order of the authorities below. 25. We have beard both the parties and we find that the assessee s case for claiming depreciation rests entirely on the fact that it had conducted trial run of its machinery during the impugned year. The Revenue does not dispute the allowability of claim of depreciation on the machinery on the basis of trial run conducted. The contention/basis for denying depreciation is refuting the claim of any trial run conducted by the assessee. We have noted from the arguments and submissions made before us, and even from the order of the ld.CIT(A) that the assessee had substantiated carrying on trial run, by pointing out that the power generated during the trial run had been sold to GEB which was evidenced by copy of invoices issued by the GEB, meter reading confirmed by the GEB and fact that power generation from the plant being reported in the newspaper. All ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. The AO/CIT(A) however rejected the assesses contention holding that the interest income was due on mercantile basis and therefore interest of Rs. 27.94 lacs, being due on advances made to GIIC, was added to the income of the assessee . 50. The issue raised by the assessee, Ld.Counsel for the assessee pointed out, had been dealt with by the ITAT in the immediately preceding year in ITA No. 1747/A/2009 A.Y 2005-06, at para 35 of the order, ruling in favour of the assessee as under:- 35. He also drawn to para 15-15.5 of the order taxing lease rental and interest on delayed rentals on accrual basis rejecting assesses claim of accounting for on receipt basis as under: 15. The ground No.8 of appeal is regarding taxing of interest and lease rent receivable amounting to Rs. 8,93,10,033/-. The A.O. from the perusal of Directors report found that the statutory auditors of the appellant had observed that certain items of income are accounted on cash basis as stated in accounting policy No.1(A) in Schedule XVI which is not in accordance with Accounting Standard AS 9 Revenue Recognition . In continuation of such note the A.O. found that the appellant had not accounted for l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the lease rentals itself were not recoverable, interest on delayed lease rental was also not provided for. The Learned assessing officer has made addition of Rs. 3,27,89,8737- being interest on delayed payment of lease rentals by GSRTC. 11.8 Your appellant had advanced certain sum to GIIC. Since the said sum itself was doubtful, interest in respect of the same was also not provided relying on the on the decision of Hon'ble Supreme Court in the case of Uco Bank v CIT 237 ITR 889 . The Learned assessing officer has not accepted the contention of your appellant and has made the addition of Rs. 27,94,000/-. 15.3 I have considered the facts of the case and the submissions of the Ld.A.R. carefully. It is an admitted fact that the appellant is following mercantile system of accounting. The provisions of sec. 145 of the Act are very clear in this regard after its amendment w.e.f. 1.4.1997, that an assessee has to follow either cash system of accounting or the mercantile system of accounting. The hybrid system of accounting is not permissible now. Under the mercantile system of accounting the income has to be recognized on accrual basis only. It may be pointed out that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounting followed by the assessee and the interest was waived only after the accrual. The Commissioner of Income-tax (Appeals) affirmed the views of the Assessing Officer. The resolution forgoing interest was passed a few days before the close of the accounting year in respect of the assessment year 1977-78 and another resolution was passed after the close of the accounting year in respect of the assessment year 1978-79. The Tribunal held that what was waived by the assessee was income which had already accrued to it according to the method of accounting regularly employed by it. On a reference: Held, that the taxability is attracted not only when income was actually received but also when it accrued. Income accrues when it falls due, that is to say when it becomes legally recoverable, irrespective of whether it is actually received or not and accrued income is that income which the assessee has a legal right to receive. Therefore, the income by way of interest, waived by the assessee, was includible in its total income for the assessment years 1977-78 and 1978-79. 15.5 The reliance placed by the Ld.A.R. on the decision of Hon'ble Supreme Court in the case of UCO Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther words, the effective steps were not taken by the appellant to recover the outstanding debt. There is no evidence of any correspondence which were made by the appellant with the defaulting party. The appellant reversed the entries in its books of accounts of subsequent year. Therefore, under these circumstances it can not be held that the debt under reference became bad during the relevant period. In this regard reliance is also placed on the decision of the Hon'ble Gujarat High Court in the case of Dhall Enterprise and Engineers Pvt. Ltd Vs. CIT 295 ITR 481 has held that under clause (vii) of section 36(1) of the Income-tax Act, 1961, the requirement for allowing deduction on account of bad debt is that the bad debt should be written off as irrecoverable. Merely debiting the amount is not sufficient. The requirement is that the assesses should also prove that the debt has become bad in that particular year. (emphasis supplied). 18.3 Therefore, the appellant has to prove two vital points for claiming a deduction u/s.36(1)(vii) with regard to bad debt namely the debt has become bad, and it became bad during the relevant period. The debt claimed by the appellant in resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee was following mercantile system of accounting and even section 145 of the Act directs following of either cash or mercantile system and not hybrid system. But as rightly pointed out by the Ld.Counsel for the assessee, even as per the accrual basis only those amounts certain for recovery are to be accounted for. In the present case the contention of the assessee was that GSRTC being in stringent financial position was not paying lease rentals .This is evident from the fact that the assessee had written off lease rentals of earlier years unrecovered of Rs. 11.75 Crs. Therefore even as per the accrual system of accounting the assessee was not required to account for lease rentals which were not certain of recovery and the method therefore adopted by the assessee of accounting for such income on cash basis was, we hold, justified . The addition made of Rs. 8,93,10,033/- on account of lease rental income and interest on delayed rentals accordingly is directed to be deleted. 41. Taking up now the last aspect of claim of bad debts with respect to lease rentals written off amounting to Rs. 11,75,96,450/-, we find that the same was denied for the reason that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t for the purpose of levy of tax w/s 115JB of the IT act and Ld. CIT(A) has further erred by confirming the addition of Rs 59,29,382/- of expenditure pertaining to exempt income in calculating book profit u/s 115JB of the Income Tax Act, 1961 58. The addition in challenge before us being that relating to disallowance of expenses made under normal provisions of the Act in terms of Section 14A of the Act and the amount of Fringe Benefit Tax (FBT) paid by the assessee amounting to Rs. 60,00,000/-. The ld. Counsel for the assessee, at the outset itself, pointed out that the Hon ble Karnataka High Court in the case of PCIT Vs. J.J. Glastronics (P.) Ltd., reported in [2022] 139 taxmann.com 375 (Karnataka), has held that the amounts disallowed under Section 14A of the Act could not be added to net profit while computing book profit under Section 115JB of the Act. He further pointed out that ITAT, Mumbai Bench in the case of Rashtriya Chemicals Fertilizers Ltd. Vs. CIT, reported in [2018] 91 taxmann.com 104 (Mumbai-Trib.), has held that Fringe Benefit Tax not being part of income-tax cannot be added back for arriving at Book Profits under Section 115JB of the Act. He, therefore, sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as new project, since the no commercial production have been commenced instead of treating the same as extension of existing business as appellant is already engaged in the business of Mining activities of Lignite since last several years. The Ld. CIT(A) has further erred by upholding such addition and not following the ratio as specified by Gujarat High Court in the case of CIT vs. Alembic Glass India Ltd. (103 ITR 715) (Guj. HC) and CIT vs. Core Health Ltd, (251 ITR 61) (Guj.). 64. Ground no.1 raised therein relates to the disallowance of expenditure incurred on lignite project, holding it as new project treating it as capital expenditure. The issue raised by the assessee, it was common ground,isidentical to the issue raised by the assessee in its appeal bearing No.830/Ahd/2011, Ground No.1 (supra), which has allowed in favour of the assessee, following the decision of ITAT in assessee s own case for the immediately preceding year, i.e. AY 2005-06.Our findings in this regard are at para 4-6 of the order.In view of the same, and respectfully following the decision of the Co-ordinate Bench in assessee s own case for the immediately preceding year, we uphold the grievance of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.3 is thus allowed. 69. Ground No.4 reads as under: 4. In facts Circumstances of the case, Your Appellant, most respectfully submits that the Ld. Assessing officer has erred by making addition of Rs. 76,63,967/- in respect of advertisement expense by treating the same as contribution to Government and not eligible as business expense instead of appreciating the fact that by mistake it has been debited as contribution to government but actually it is in nature of Advertisement Expense. The Ld. CIT(A) has further erred by Confirming such addition not treating such as Advertisement Expense. The Ld. CIT(A) has further erred by not following the ratio as specified by the High Court in the case of Asian Tools Plastic Co. vs. CIT 53 ITR 392 and Godavari Sugar Mills vs. CIT 191 ITR 311. 70. Ground no.4 raised by the assessee relates to the disallowance of expenditure being advertisement expenditure by treating it as contribution to Government and not eligible business expenses. The aforesaid issue raised by the assessee , it was contended, was similar to the issue raised by the assessee in its appeal bearing No.830/Ahd/2011, Ground No.5 (supra), and also in assessee s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of amounts paid to commissioner, geology and Mining finding it to be incurred for the purpose of business of the assessee. At the same time in A.Y 06-07, we have denied this claim with respect to contribution made to Index B Fund at para 23-24of our order.The issue of allowability of above two payments therefore are covered by the orders of ITAT following which we allow the payment made to commissioner, geology and Mining and disallow that made to Index B Fund. As for payments made to advertisement agencies, we see no justification in the orders of the authorities below denying it for the reason that assessee not dealing it branded products it was not required to advertise its products. As long as the incurrence of the expenditure is not in dispute and there is also no dispute that it is for the purpose of business of the assessee, the claim cannot be denied by the Revenue gauging its necessity.The claim to expenses for advertisement in dailies is therefore allowed. Ground of appeal No. 4 is partly allowed. 73. Ground No.5 reads as under: 5. In facts Circumstances of the case, Your Appellant, most respectfully submits that the Ld. Assessing officer has erred by maki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not appreciating the facts of the case. 76. The issue raised in the aforesaid ground is similar to the issue raised by the assessee in its appeal bearing No.2817/Ahd/2013 for AY 2006-07, in Ground Nos. 2 3 (supra), which was allowed in favour of the assessee, following the decision of ITAT in assessee s own case for AY 2005-06, at para 44-47. In view of the above, and respectfully following the decision of the Co-ordinate Bench in assessee s own case for the AY 2005-06, we uphold the grievance of the assessee and direct the Assessing Officer to allow the claim of additional depreciation on Plant Machinery. Grounds of appeal No. 6 is accordingly allowed. 77. Ground No. 7 relates to the addition made to the book profits of the assessee for the purposes of paying tax thereon in terms of Section 115JB of the Act. The said ground reads as under:- 6. In facts Circumstances of the case Your Appellant, most respectfully submits that the Ld. Assessing officer has erred by making addition of Rs. 59,29,382/-made in the original assessment order pertaining to the exempt income calculated u/s 14A of the Income Tax Act, 1961 and Rs. 60,00,000/- pertaining to the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X
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