Dakshin Gujarat Vij Co. Ltd., Vadodara V. The Dy.CIT.,Circle-1(1), Vadodara

ITA 2857/AHD/2015

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 0161 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 9 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-07-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 09-10-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P SHARMA; L P JAIN SR D R ITA N
• Assessee Lawyers: M K PATEL
• Keywords: Revenue expenditure; Capital expenditure; Set aside
• Section: 73

Judgement Text

, C IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD ( CONVENED THROUGH VIRTUAL COURT ) BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SMT. MADHUMITA ROY, JUDICIAL MEMBER I.T.A. NO. 2857/AHD/2015 ( ASSESSMENT YEAR : 2008-09) DAKSHIN GUJARAT VIJ CO. LTD. SARDAR PATEL VIDYUT BHAVAN, RACE COURSE CIRCLE, VADODARA-390007 / VS. DY. COMMISSIONER OF INCOME TAX CIRCLE 1(1), VADODARA - 390007 ( APPELLANT ) .. ( / RESPONDENT ) & I.T.A. NO. 2788/AHD/2015 ( ASSESSMENT YEAR : 2008-09) THE DY.CIT, CIRCLE 1(1)(1), VADODARA (OLD:- CIRCLE 1(1), BARODA) 1 ST FLOOR, AAYKAR BHAVAN, RACE COURSE CIRCLE, VADODARA - 390007 / VS. DAKSHIN GUJARAT VIJ CO. LTD. SARDAR PATEL VIDYUT BHAVAN, RACE COURSE CIRCLE, VADODARA / / PAN/GIR NO. : AABCD8912C ( APPELLANT ) .. ( / RESPONDENT ) / ASSESSEE BY : SHRI M. K. PATEL, A.R. / REVENUE BY : SHRI O. P. SHARMA, CIT.DR & SHRI L. P. JAIN, SR.D.R. ITA NOS. 2857 & 2788/AHD/15 [DAKSHIN GUJARAT VIJ COMPANY LTD.] A.Y. 2008-09 - 2 - DATE OF HEARING 19/07/2021 !'# / DATE OF PRONOUNCEMENT 20/07/2021 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED CROSS APPEALS HAVE BEEN FILED BY THE ASSESSEE AS WELL AS BY REVENUE AGAINST THE ORDER OF THE COMM ISSIONER OF INCOME TAX (APPEALS)-1, VADODARA (CIT(A) IN SHORT ), DATED 31.07.2015 EMANATING FROM THE ASSESSMENT ORDER DATE D 22.01.2013 PASSED BY THE ASSESSING OFFICER (AO) UNDER S. 143(3 ) R.W.S. 147 OF THE INCOME TAX ACT, 1961 (THE ACT) CONCERNING AS SESSMENT YEAR 2008-09. 2. WE SHALL FIRST TAKE UP REVENUES APPEAL IN ITA N O. 2788/AHD/2015 CONCERNING AY 2008-09. ITA NO. 2788/AHD/2015-AY-2008-09 (REVENUES APPEAL) 3. THE GROUND OF APPEAL RAISED BY THE REVENUE READ S AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD.CIT(APPEALS) ERRED IN DELETING THE ADDITION OF R S.151.81 LAKHS MADE ON ACCOUNT OF DISALLOWANCE OF CLAIM OF GUARANTEE FEES PAID TO GOVERNMENT OF GUJARAT. THE DISALLOWANCE WAS MADE BY DISALLOWING THE CLAIM AS R EVENUE EXPENDITURE AS IT IS OF ENDURING NATURE IN THE ASSESSEES BUSINESS AND HENC E CAPITAL IN NATURE. 4. WHEN THE MATTER WAS CALLED FOR HEARING, THE LEAR NED COUNSEL FOR THE ASSESSEE POINTED OUT THAT IDENTICAL ISSUE T OWARDS DISALLOWANCE OF GUARANTEE FEES PAID TO GOVERNMENT O F GUJARAT WAS REVERSED IN THE APPELLATE PROCEEDINGS IN THE OTHER CASE, NAMELY, ITA NOS. 2857 & 2788/AHD/15 [DAKSHIN GUJARAT VIJ COMPANY LTD.] A.Y. 2008-09 - 3 - DCIT VS. GUJARAT ENERGY TRANSMISSION CORPORATION LT D. ITA NO. 633/AHD/2013 CONCERNING A.Y. 2009-10 ORDER DATED 05.09.2019 . THE LEARNED COUNSEL FOR THE ASSESSEE ACCORDINGLY SUBMIT TED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE IN ID ENTICAL FACT SITUATION, THE ORDER OF THE CIT(A) ON THE ISSUE CAN NOT BE FAULTED. 5. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVE NUE, ON THE OTHER HAND, PLACED RELIANCE UPON THE ORDER OF THE A O WITHOUT ANY SPECIFIC REBUTTAL. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND ALSO PERUSED THE ORDERS OF THE AO AND CIT(A). 6.1 THE CIT(A) HAS DISPOSED OFF THE ISSUE IN FAVOUR OF THE ASSESSEE AS UNDER: 5.1.4. I HAVE CONSIDERED THE APPELLANT'S SUBMISSIO N AND THE AO'S OBSERVATIONS. THE GUARANTEE FEE PAID BY THE APPELLA NT TO THE GOG IS FOR THE PURPOSES OF OBTAINING LOAN. SIMILAR ISSUE I N THE CASE OF SISTER CONCERN OF THE APPELLANT NAMELY M/S. GUJARAT ENERGY TRANSMISSION CORPORATION LTD. HAS BEEN DECIDED BY MY PREDECESSOR IN APPEAL NO. CAB-I/333/08-09 VIDE ORDER DATED 30.03.2010 AS FOLL OWS: '5.1. IN APPEAL, THE ARGUMENTS TAKEN AT THE ASSESS MENT STAGE WERE REITERATED. IT WAS FURTHER POINTED OUT THAT T HE ASSESSEE COMPANY WAS ONE OF THE SEVEN RESULTING COMPANIES OUT OF THE DEMERGER OF THE ERSTWHILE GEB. IN THE PAST, GEB HAD ISSUED BONDS AND OTHER FINANCIAL INSTRUMENTS FOR RAISING FUNDS FROM THE PUBLIC AND F ROM FINANCIAL INSTITUTIONS, GOG GUARANTEED TO THE PUBLI C AND THE FINANCIAL INSTITUTIONS THAT IN CASE OF FAIL URE ON THE PART OF GEB TO REDEEM THE BONDS AND OTHER FINAN CIAL INSTRUMENTS, THE SAME WOULD BE MADE GOOD BY THE GOVERNMENT OF GUJARAT, IN LIEU OF THIS, COMMISSION @ 1% OF THE OUTSTANDING VALUE OF UNSECURED LOANS WAS CHARGED FROM THE ASSESSEE. NO CAPITAL EXPENDITURE W AS INVOLVED. HENCE THE ADDITION OF RS, 8,39,04,550/- M AY BE DELETED. 5.2. I HAVE CONSIDERED THE SUBMISSIONS OF THE ID . AR AND THE FACTS OF THE CASE. THE ISSUE RELATING TO WHETHER AN ITEM OF EXPENDITURE LIES IN THE CAPITAL OR THE REVENUE F IELD ITA NOS. 2857 & 2788/AHD/15 [DAKSHIN GUJARAT VIJ COMPANY LTD.] A.Y. 2008-09 - 4 - HAS EXERCISED THE COURTS IN NUMEROUS CASES. FROM AN ANALYSIS OF SUCH CASES A FEW GUIDING PRINCIPLES/TES TS CAN BE IDENTIFIED. ONE OF THE IMPORTANT TESTS FOR CATEG ORIZING ANY EXPENDITURE AS CAPITAL IN NATURE IS WHETHER THE LAYING OUT OF THE IMPUGNED EXPENDITURE RESULTS IN T HE ACQUISITION OR CREATION OF ANY NEW ASSET. WHERE NO SUCH ASSET IS CREATED, IT WOULD BE INDICATIVE OF AN EXPENDITURE WHICH WAS NOT CAPITAL IN NATURE. ANOTHE R TEST RELATES TO THE PRINCIPLE OF 'ENDURING BENEFIT' . 'ENDURING BENEFIT' MAY BE IN THE FORM OF LONG LASTI NG USE OF AN ASSET OR THE ACQUISITION OF A RIGHT TO EX PLOIT CERTAIN COMMERCIAL PROCESSES, ETC. IN THE INSTANT C ASE, THE ASSESSEE DID NOT ACQUIRE ANY RIGHT TO EXPLOIT A COMMERCIAL TECHNOLOGY OR PROCESS, AND NEITHER WAS T HE BENEFIT 'ENDURING', SINCE THE PAYMENT OF GUARANTEE COMMISSION WAS AN ANNUAL CHARGE. THE BENEFIT DERIVE D FROM PAYMENT OF SUCH COMMISSION THUS LASTED FOR EXA CTLY ONE YEAR ONLY. SUCH SHORTLIVED BENEFIT CANNOT BE CATEGORIZED AS 'ENDURING'. HENCE, I AM INCLINED TO THE VIEW THAT THE PAYMENT OF GUARANTEE COMMISSION WAS A REVENUE EXPENDITURE. 5.3 FURTHER, THE JURISDICTIONAL BENCH OF ITAT HAD OCCASION TO CONSIDER THE ALLOWABILITY OF GUARANTEE COMMISSION PAID TO A DIRECTOR OF THE COMPANY IN RES PECT OF LOANS TAKEN FROM THE BANK. IN THE CASE OF HIMALA YA MACHINERY PVT. LTD, (ITA NO. 738/AHD/2009) FOR AY 2006-07, THE TRIBUNAL HELD, VIDE ORDER DT. 5.6.200 9, FOLLOWING THE DECISION OF THE RAJASTHAN HIGH COURT IN CIT V METALISING EQUIPMENT CO. PVT. LTD, 8 DTR 12, THAT THE PAYMENT OF COMMISSION FOR GUARANTEEING REPAYMENT OF LOAN WAS ALLOWABLE AS REVENUE EXPENSE. IN THE INSTANT CASE, THE LOAN HAS BEEN GUARANTEED BY T HE GOVERNMENT OF GUJARAT. HENCE, QUITE APART FROM THE OTHER SOUND REASONS FOR TREATING THE EXPENDITURE AS REVENUE, IT WOULD BE UNREALISTIC TO SAY THAT THE APPELLANT COMPANY COULD DERIVE ANY UNDUE ADVANTAGE OR COLLATERAL BENEFIT BY MAKING SUCH PAYMENT TO THE GO G. IN VIEW OF THE TOTALITY OF THE CIRCUMSTANCES, I AM OF THE OPINION THAT THE AO WAS NOT JUSTIFIED IN TREATING T HE PAYMENT OF GUARANTEE COMMISSION (RS. 8,39,04,550/-) AS CAPITAL IN NATURE. THE ADDITION IS DIRECTED TO BE DELETED.' 5.1.5. BESIDES, THE HON'BLE SUPREME COURT OF INDIA IN ITS DECISION IN THE CASE OF SIVAKAMI MILLS LTD. 95 TAXMANN 73 (SC) HAS HELD THAT GUARANTEE COMMISSION PAID TO THE BANK TO SECURE THE DUE PAYMENT OF THE INSTALLMENTS OF LOANS TAKEN FOR THE PURCHASE OF MACHINERY FROM FOREIGN COUNTRY ON DEFERRED PAYMENT BASIS WAS REVEN UE EXPENDITURE AND WAS ALLOWABLE AS SUCH. FOLLOWING THIS DECISIONS AS WELL AS THE DECISION IN THE CASE OF GUJARAT ENERGY TRANSMISSION CORPORATION LTD.(SUPRA), THIS GROUND OF APPEAL IS ALLOWED AND DISALLOWANCE MADE BY THE AO IS DIRECTED TO BE DELETED. ITA NOS. 2857 & 2788/AHD/15 [DAKSHIN GUJARAT VIJ COMPANY LTD.] A.Y. 2008-09 - 5 - 6.2 THE ISSUE HAS ALREADY BEEN SUBJECTED TO JUDICIA L CONSIDERATION IN THE DCIT VS. GUJARAT ENERGY TRANSMISSION CORPORATION LT D. ITA NO. 633/AHD/2013 CONCERNING A.Y. 2009-10 ORDER DATED 05.09.2019 AND THUS IS NO LONGER RES INTEGRA. IN PARITY WITH THE VIEW EXPRESSED BY THE CO-ORDINATE BENCH, WE DO NOT SEE ANY ERROR I N THE CONCLUSION DRAWN BY THE CIT(A) IN FAVOUR OF THE ASSESSEE. 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ITA NO. 2857/AHD/2015-AY-2008-09 (ASSESSEES APPEAL ) 8. THE GROUND OF APPEAL RAISED BY THE ASSESSEE REA DS AS UNDER:- 1.0 THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) HAS ERRED IN LAW AND FACTS HAS CONFIRMED THE DISALLOWANCE OF THE ENTIRE PRIOR PERIOD EXPENSE RS.31,01,27,000/- ON THE GROUND THAT THE SAME IS NO T ALLOWABLE EXPENSE WITHOUT APPRECIATING THE FACT THAT SUCH EXPENDITURE CRYSTALIZED DURING THE YEAR AND THAT THE SAME HAS NEVER BEEN CLAIMED TO IN EARLIER YEARS. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HA S ERRED IN LAW AND FAILED TO APPRECIATE THAT THE PRIOR PERIOD EXPENSES INTER-ALIA INCLUDED AN ITEM OF RS.2664.86 LACS BEING THE EXCESS PROVISION WRITTEN BACK WHICH WAS ALREADY OFFERED AS INCOME IN EARLIER YEARS AND HAS BEEN TAXED TWICE BY DISALLOWING DURING THE YEAR. 9. WHEN THE MATTER WAS CALLED FOR HEARING, THE LEAR NED COUNSEL FOR THE ASSESSEE ADVERTED OUR CONTENTION TO THE DEC ISION RENDERED BY THE TRIBUNAL IN GUJARAT URJA VIKAS NIGAM LTD. VS. ACIT ITA NO.996/AHD/2011 ORDER DATED 31.05.2017 AND SUBMITTED THAT THE PRIOR PERIOD EXPENSES CLAIMED IS WITHOUT ANY TAX AD VANTAGE AND REVENUE NEUTRAL IN NATURE. 10. THE LEARNED DR FOR THE REVENUE, ON THE OTHER HA ND, RELIED UPON THE OBSERVATIONS MADE IN ASSESSMENT ORDER AND THE FIRST APPELLATE ORDER. ITA NOS. 2857 & 2788/AHD/15 [DAKSHIN GUJARAT VIJ COMPANY LTD.] A.Y. 2008-09 - 6 - 11. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND PERUSED THE ORDERS OF THE AUTHORITIES AS WELL THE C ASE-LAWS REFERRED. THE ASSESSEE IS AGGRIEVED BY THE DISALLOWANCE OF PR IOR PERIOD EXPENSES OF RS.31,01,27,000/- AS PER ITS GROUND OF APPEAL. THE DISALLOWANCE HAS BEEN MADE ON THE GROUND THAT THE E XPENSES UNDER VARIOUS HEADS AS NOTED IN THE ASSESSMENT ORDER PERT AINED TO EARLIER YEARS AND THE ASSESSEE WHICH IS FOLLOWING SYSTEM OF ACCOUNTING OUGHT TO HAVE MADE PROVISION FOR EXPENSES IN THOSE RESPECTIVE YEARS FOR ELIGIBILITY OF CLAIM. ON PERUSAL OF THE APPELLA TE ORDER, IT IS OBSERVED THAT THE EXPLANATIONS OFFERED BY THE ASSES SEE ARE OSTENSIBLY VAGUE AND DO NOT INDICATE THE NATURE OF CLAIM WITH SUFFICIENT PARTICULARITY. IT IS MERELY SUBMITTED THAT THE MAJO RITY OF EXPENDITURE OUT OF PRIOR PERIOD EXPENSES ON ACCOUNT OF EXCESS P ROVISION WRITTEN BACK. THE EXPLANATION APPEARS OBSCURE IN THE ABSEN CE OF PROPER DETAILS. WE SIMULTANEOUSLY NOTE THAT ASSESSEE IS A STATE GOVERNMENT UNDERTAKING AND ITS ACCOUNTS ARE SUBJECTED TO REVIE W BY CAG AND THEREFORE IT CANNOT BE POSTULATED THAT THERE WAS AN Y DELIBERATENESS IN NOT FURNISHING RELEVANT DETAILS BEFORE THE REVENUE AUTHORITIES. THE BONAFIDES OF THE ASSESSEE IS ALSO AUGMENTED BY THE FACTS THAT THE ASSESSEE HAS REPORTED STAGGERING CARRY FORWARD LOSS ES IN ITS RETURNED INCOME. THUS, THERE IS NO IMMEDIATE TAX ADVANTAGE ACCRUED TO THE ASSESSEE BY THE CLAIM OF IMPUGNED PRIOR PERIOD EXPE NSES PER SE . WE THEREFORE DEEM IT EXPEDIENT TO RESTORE THE ISSUE BA CK TO THE FILE OF AO FOR EXAMINING THE ISSUE DE NOVO AFTER VERIFYING FACTS AS MAY BE CONSIDERED NECESSARY AND EXPEDIENT IN ACCORDANCE WI TH LAW. THE AO SHALL BEAR IN MIND THE RATIO LAID DOWN BY THE HO NBLE GUJARAT HIGH COURT IN THE CASE OF PR.CIT VS. ADANI ENTERPRISES LTD. TAX APPEAL NO. 573 OF 2016 JUDGMENT DATED 20.07.2016 WHILE ADJUDICATING THE ISSUE. NEEDLESS TO SAY, REASONABL E OPPORTUNITY SHALL BE PROVIDED TO THE ASSESSEE WHILE ADJUDICATIN G THE ISSUE. HENCE, ALL THE CONTENTIONS OF THE ASSESSEE ARE KEPT OPEN. THE ISSUE ITA NOS. 2857 & 2788/AHD/15 [DAKSHIN GUJARAT VIJ COMPANY LTD.] A.Y. 2008-09 - 7 - RAISED IN ITS GROUND OF APPEAL IS THUS SET ASIDE TO THE FILE OF AO IN TERMS OF DIRECTIONS NOTED ABOVE. AS A RESULT, THE GROUND OF ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOS ES. 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSES. 13. IN THE COMBINED RESULT, APPEAL OF THE REVENUE I S DISMISSED, WHEREAS, ASSESSEES APPEAL IS ALLOWED FOR STATISTIC AL PURPOSES. SD/- SD/- (MADHUMITA ROY) (PRADIP KUMAR K EDIA) JUDICIAL MEMBER ACCOUNTANT MEM BER AHMEDABAD: DATED 20/07/2021 TRUE COPY S. K. SINHA !'#' / COPY OF ORDER FORWARDED TO:- & / REVENUE 2 / ASSESSEE ( )*+ , / CONCERNED CIT 4 ,- / CIT (A) / 012 33*+4 *+#4 56) / DR, ITAT, AHMEDABAD 7 289 : / GUARD FILE. BY ORDER / 4 /5 *+#4 56) THIS ORDER PRONOUNCED ON 20/07/2021