Gujarat Energy Transmission Corpon.Ltd., Baroda V. The ACIT.,Circle-1(1), Baroda

ITA 2974/AHD/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 89319 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-05-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 07-04-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 01-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T P KRISHNAKUMAR SHRI J P SHA
• Keywords: Depreciation; Corroborative evidences; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 43B; 115JB

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD .., , BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER SL. NO(S) ITA NO(S) NOS. ASSTT.YEAR APPEAL(S) BY APPELLANT VS. RESPONDENT APPELLANT RESPONDENT 1. 1931/AHD/2010 2006-07 DCIT CIRCLE1(1) BARODA GUJARAT ENERGY TRANSMISSION CORPN.LTD. VIDYUT BHAVAN RC CIRCLE, BARODA PAN:AABCG 4029 R 2. 2974/AHD/2010 2007-08 ASSESSEE REVENUE 3. 3004/AHD/2010 2007-08 REVENUE ASSESSEE REVENUE BY : SHRI T.P.KRISHNAKUMAR, CIT-DR ASSESSEE BY : SHRI J.P. SHAH, AR / DATE OF HEARING 07/04/2015 !' / DATE OF PRONOUNCEMENT 08/05/2015 / O R D E R PER SHRI KUL BHARAT, JUDICIAL MEMBER : THESE THREE APPEALS; ONE APPEAL BY THE REVENUE FOR AY 2006-07 AND THE OTHER TWO APPEALS ARE CROSS-APPEALS BY THE ASSESSEE AND REVENUE HAVE BEEN FILED PERTAINING TO ASSTT.YEAR (AY) 2007 -08. SINCE ALL THESE APPEALS PERTAIN TO THE SAME ASSESSEE (ARISING OUT O F SEPARATE TWO ORDERS PASSED BY THE LD.CIT(A)-I, BARODA DATED 30/03/2010 FOR AY 2006-07 AND I TA NO.1931/AHD/2010-AY 2006-07(BY REVENUE) ITA NO.2974/AHD/2010(BY ASSESSEE) AND ITA NO.3004/AHD/2010(BY REVENUE)-AY 2007-08 DCIT VS. GUJARAT ENERGY TRANSMISSION CORPN.LTD. - 2 - DATED 18/08/2010 FOR AY 2007-08), THESE APPEALS WER E HEARD TOGETHER AND ARE BEING DISPOSED OF BY WAY OF THIS CONSOLIDAT ED ORDER FOR THE SAKE OF CONVENIENCE. 2. FIRST, WE TAKE UP THE REVENUES APPEAL IN ITA NO .1931/AHD/2010 FOR AY 2006-07. THE REVENUE HAS RAISED THE FOLLOW ING GROUNDS OF APPEAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(APPEALS) ERRED IN DELETING THE ADDITION OF R S.1,48,54,169 LACS MADE ON ACCOUNT OF DISALLOWANCE OF EXTRA-ORDINARY I TEMS BEING LOSS DUE TO CYCLONE, FLOOD, FIRE, ETC. AS THE EVIDENCE I N RESPECT OF SUCH CLAIM WAS NOT SUBMITTED DURING THE COURSE OF ASSESS MENT PROCEEDINGS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD.CIT(APPEALS) ERRED IN DELETING THE ADDITION OF R S.8,39,04,550/- MADE ON ACCOUNT OF DISALLOWANCE OF CLAIM OF GUARANT EE FEES PAID TO GOVERNMENT OF GUJARAT. THE DISALLOWANCE WAS MADE B Y DISALLOWING THE CLAIM AS REVENUE EXPENDITURE AS IT IS OF ENDURI NG NATURE IN THE ASSESSEES BUSINESS AND HENCE CAPITAL IN NATURE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD.CIT(APPEALS) ERRED IN DELETING THE ADDITION OF R S.45,24,582/- MADE ON ACCOUNT OF DISALLOWANCE OF CLAIM OF COST OF RAISING FINANCE FOR SPECIALIZED JOB AS REVENUE EXPENDITURE. THE LD .CIT(APPEALS) ERRED IN NOT APPRECIATING THE FACT THAT AS THE RESU LT OF THIS EXPENDITURE, THE ASSESSEE HAD DERIVED BENEFIT OF EN DURING NATURE, HENCE THE EXPENDITURE IS OF CAPITAL NATURE. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD.CIT(APPEALS) ERRED IN DELETING THE ADDITION OF R S.3,13,53,470/- MADE ON ACCOUNT OF DISALLOWANCE OF LOSS OF MATERIAL THROUGH PILFERAGE, SHORTAGE OF MATERIAL IN TRANSIT, SHORTAG E ARISING ON I TA NO.1931/AHD/2010-AY 2006-07(BY REVENUE) ITA NO.2974/AHD/2010(BY ASSESSEE) AND ITA NO.3004/AHD/2010(BY REVENUE)-AY 2007-08 DCIT VS. GUJARAT ENERGY TRANSMISSION CORPN.LTD. - 3 - PHYSICAL VERIFICATION, ETC. THE LD.CIT(APPEALS) ER RED IN NOT APPRECIATING THE FACT THAT THE ADDITION WAS MADE DU E TO THE REASON THAT THE ASSESSEE HAD FAILED TO SUBSTANTIATE THEIR CLAIM DOCUMENTARY EVIDENCE. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD.CIT(APPEALS) ERRED IN DELETING THE ADDITION OF R S.6,29,000/- MADE ON ACCOUNT OF DISALLOWANCE OF CLAIM UNDER THE HEAD PENALTY EXPENSES. THE LD.CIT(APPEALS) ERRED IN NOT APPRECI ATING THE FACT THAT THE ASSESSEE HAD FAILED TO ESTABLISH THEIR CLA IM WITH SUPPORTING EVIDENCE AND THE EXPENSES UNDER THE HEAD PENALTY IS NOT AN ALLOWABLE EXPENDITURE UNDER THE INCOME-TAX ACT. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD.CIT(APPEALS) ERRED IN DIRECTING THE ASSESSING OF FICER TO RE- COMPUTE BOOK PROFIT U/S.115JB OF THE ACT FOR MAT BY ALLOWING CLAIM OF DEPRECIATION UNDER ITEM (II) (A) OF RS.14,32,02, 331/-. 7. THE APPELLANT CRAVES LEAVE TO ADD TO ADD TO AMEND O R ALTER THE ABOVE GROUNDS AS MAY BE DEEMED NECESSARY. RELIEF CLAIMED IN APPEAL THE ORDER OF THE CIT(APPEALS) ON THE ABOVE ISSUE MA Y BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 2.1 BRIEFLY STATED FACTS ARE THAT THE CASE OF THE ASSESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT U/S.143( 3) OF THE INCOME TAX ACT,1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS FRAMED VIDE ORDER DATED 26/12/2008, THEREBY THE ASSESSING OFFICER (AO IN SHORT) MADE VARIOUS DISALLOWANCES/ADDITIONS. THE AO MADE DISAL LOWANCE OF RS.1,48,54,169/- CLAIMED ON ACCOUNT OF LOSSES DUE T O FLOOD, CYCLONE AND FIRE. THE AO FURTHER MADE DISALLOWANCE OF RS.8,39, 04,550/- PAID GUARANTEE FEES TO THE GOVERNMENT OF GUJARAT FOR REP AYMENT OF UNSECURED I TA NO.1931/AHD/2010-AY 2006-07(BY REVENUE) ITA NO.2974/AHD/2010(BY ASSESSEE) AND ITA NO.3004/AHD/2010(BY REVENUE)-AY 2007-08 DCIT VS. GUJARAT ENERGY TRANSMISSION CORPN.LTD. - 4 - LOAN. THE AO ALSO MADE DISALLOWANCE OF RS.45,24,58 2/- CLAIMED ON ACCOUNT OF COST OF RAISING FINANCE UNDER THE HEAD COST OF RAISING FINANCE. THE AO ALSO MADE DISALLOWANCE OF THE LOS SES CLAIMED IN P&L A/C. AS MISCELLANEOUS LOSSES AND WRITE OFFS AMOUNTI NG TO RS.3,13,53,470/-. FURTHER, THE AO MADE DISALLOWANCE OF RS.1,48,94,500/- CLAIMED ON EXPENDITURE INCURRED ON REGISTRATION FEE S PAID TO ROC AND STAMPING CHARGES FOR INCREASE IN THE AUTHORIZED CAP ITAL OF THE COMPANY. THE AO MADE DISALLOWANCE OF RS.6.29 LACS CLAIM ON A CCOUNT OF PENALTY EXPENSES. THE AO FURTHER MADE DISALLOWANCE OF RS.5 8,82,406/- ON ACCOUNT OF PRELIMINARY AND INCIDENTAL EXPENSES AND OF RS.57,43,80,598/- ON ACCOUNT OF INTEREST PAID U/S.43B OF THE ACT. TH E AO WHILE COMPUTING THE BOOK PROFIT U/S.115JB OF THE ACT MADE ADDITION OF RS.20,38,15,872/- IN RESPECT OF THE PROVISION FOR DEFERRED TAX LIABIL ITY. THE AO ALSO MADE ADDITION OF RS.14,32,02,331/- IN RESPECT OF THE DEP RECIATION WHILE COMPUTING THE BOOK PROFIT U/S.115JB OF THE ACT. TH E AO ALSO ADDED BACK WHILE COMPUTING THE BOOK PROFIT U/S.115JB OF T HE ACT. THE ASSESSEE FEELING AGGRIEVED BY THE ASSESSMENT ORDER, PREFERRE D AN APPEAL BEFORE THE LD.CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DELETED THE ADDITION OF RS.1,48,54,169/- CLAIMED ON ACCOUNT OF LOSSES DUE TO FLOOD, CYCLONE, FIRE, ETC. THE LD.CIT(A) ALSO DELE TED THE DISALLOWANCE OF RS.8,39,04,550/- CLAIMED ON ACCOUNT OF GUARANTEE FE ES PAID TO GOVERNMENT OF GUJARAT. THE LD.CIT(A) DELETED THE DISALLOWANCE OF I TA NO.1931/AHD/2010-AY 2006-07(BY REVENUE) ITA NO.2974/AHD/2010(BY ASSESSEE) AND ITA NO.3004/AHD/2010(BY REVENUE)-AY 2007-08 DCIT VS. GUJARAT ENERGY TRANSMISSION CORPN.LTD. - 5 - RS.45,24,582/- CLAIMED TO HAVE BEEN INCURRED FOR CO ST OF RAISING FINANCE TREATED AS CAPITAL EXPENDITURE. THE LD.CIT(A) AL SO DELETED THE DISALLOWANCE OF RS.3,13,53,470/- CLAIMED ON ACCOUNT OF WRITE OFF OF LOSS OF MATERIAL THROUGH PILFERAGE, SHORTAGE OF MATERIAL IN TRANSIT, SHORTAGE ARISING ON PHYSICAL VERIFICATION, ETC. THE LD.CIT( A) ALSO DELETED THE ADDITION OF RS.29,78,900/- OUT OF THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF RS.1,48,94,500/- BY APPLYING THE PR OVISIONS OF SECTION 35DD OF THE ACT. THE LD.CIT(A) ALSO DELETED THE D ISALLOWANCE OF RS.6,29,000/- MADE ON ACCOUNT OF PENALTIES CLAIMED BY THE ASSESSEE. THE LD.CIT(A) FURTHER DELETED THE DISALLOWANCE OF R S.57,43,80,598/- MADE BY INVOKING THE PROVISIONS OF SECTION 43B OF T HE ACT. THE LD.CIT(A) FURTHER HELD THAT THE CLAIM OF DEPRECIATI ON WHILE COMPUTING THE BOOK PROFIT REDUCTION BY THE AO WAS NOT JUSTIFIED. THE LD.CIT(A) FURTHER HELD THAT THE ADDITION MADE BY THE AO WHILE COMPUTI NG THE BOOK PROFIT OF RS.1,54,000/- ON ACCOUNT OF WEALTH TAX WAS NOT JUSTIFIED AND THE SAME WAS DELETED. AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. 3. FIRST GROUND RELATED TO DELETION OF ADDITION OF RS.1,48,54,169/-. THE LD.CIT-DR SUBMITTED THAT THE LD.CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION. HE FURTHER SUBMITTED THAT THE LD.CIT (A) OUGHT TO HAVE UPHELD THE FINDING OF THE AO. HE SUBMITTED THAT TH E ASSESSEE FAILED TO FURNISH THE RELEVANT EVIDENCE IN SUPPORT OF THE CLA IM. HE FURTHER I TA NO.1931/AHD/2010-AY 2006-07(BY REVENUE) ITA NO.2974/AHD/2010(BY ASSESSEE) AND ITA NO.3004/AHD/2010(BY REVENUE)-AY 2007-08 DCIT VS. GUJARAT ENERGY TRANSMISSION CORPN.LTD. - 6 - SUBMITTED THAT EVEN IF IT IS PRESUMED THAT THE EXPE NDITURE WAS INCURRED, SUCH EXPENDITURE WAS ESSENTIALLY CAPITAL IN NATURE. THEREFORE, THE SAME WAS ALLOWED AS REVENUE EXPENDITURE. 3.1. ON THE CONTRARY, THE LD.COUNSEL FOR THE ASSESS EE SUPPORTED THE ORDER OF THE LD.CIT(A) AND SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION THERE WERE FLOODS DURING THE PERIOD JUNE/JULY-2005 WHICH CAUSED SEVERE DAMAGE TO THE TRANSMISSION SYSTEM OF ELECTRICAL ENE RGY. FOR THE RESTORATION AND REPAIR WORK, THE COMPANY INCURRED A N EXPENDITURE OF RS.1,48,54,169/- AT VARIOUS CIRCLE AND DIVISION OFF ICES ALL OVER THE GUJARAT WHICH WAS PURELY OF REVENUE NATURE. 4. 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) HAS GIVEN FINDING ON FA CT IN PARA-4.1 & 4.2 OF HIS ORDER, WHICH IS REPRODUCED HEREUNDER:- 4.1. IN APPEAL IT WAS SUBMITTED BY THE LD.AR THAT IN THE YEAR 2005, THERE WERE SEVERE FLOODS IN THE STATE OF GUJARAT AN D THE ASSESSEES POWER PLANT AND OTHER ASSETS WERE INUNDATED CAUSING HEAVY LOSS AND DESTRUCTION OF PROPERTY. THE ASSESSEE COMPANY BEIN G ENGAGED IN THE PRODUCTION OF AN ESSENTIAL COMMODITY, I.E. POWER, I MMEDIATELY TOOK STEPS TO REPAIR ITS DAMAGED ASSETS AND TO RESTORE G ENERATION OF ELECTRICITY. FOR THIS PURPOSE, FOR FULL RECOUPMENT OF THE EXPENDITURE DUE TO DAMAGE, IT SOUGHT FINANCIAL HELP FROM GOVERNMENT OF GUJARAT AND RECEIVED A SUBSIDY AGAINST LOSS DUE TO FLOOD AMOUNT ING TO I TA NO.1931/AHD/2010-AY 2006-07(BY REVENUE) ITA NO.2974/AHD/2010(BY ASSESSEE) AND ITA NO.3004/AHD/2010(BY REVENUE)-AY 2007-08 DCIT VS. GUJARAT ENERGY TRANSMISSION CORPN.LTD. - 7 - RS.16,01,00,000/-. SUBSEQUENTLY, THE COST OF REPAI R OF DAMAGED ASSETS WAS FOUND TO BE RS.1,48,54,169/- ONLY. BOTH THE RE CEIPT OF SUBSIDY AND THE EXPENDITURE ON REPAIR OF DAMAGED ASSETS WERE RE COGNIZED AS REVENUE ITEMS. THE RECEIPT WAS CREDITED TO THE PRO FIT AND LOSS ACCOUNT UNDER THE HEAD REVENUE SUBSIDIES AND GRANT. DETA ILS IN THIS REGARD HAD BEEN DISCLOSED IN SCHEDULE 15 TO THE PROFIT AND LOSS ACCOUNT. AT THE SAME TIME, THE EXPENDITURE WAS ALSO CLAIMED AS A VE NUE EXPENSE. HENCE, THERE WAS NO JUSTIFICATION FOR DISALLOWING R S.1,48,54,169/-. 4.2. I HAVE CONSIDERED THE SUBMISSIONS OF THE LD.AR AND THE FACTS OF THE CASE. THE DISALLOWANCE HAS BEEN MADE ONLY ON T HE GROUND THAT THE ASSESSEE COULD NOT SUBSTANTIATE THAT IT HAD INCURRE D EXPENDITURE OF RS.1,48,54,169/- ON REPAIRING ITS ASSETS DAMAGED DU E TO FLOOD. IT IS SEEN THAT THE ASSESSEE HAD RECEIVD FINAICIAL ASSISTANCE AMOUNTING TO RS.16,01,00,000/- FOR THIS PURPOSE. THIS IS EVIDEN T FROM THE GOVERNMENT OF GUJARAT RESOLUTION NOS.GUV-1105-2724-K1 DATED 4. 7.2005, 10.10.2005 AND 13.10.2005 ISSUED BY THE PRINCIPAL S ECRETARY, ENERGY & PETROCHEMICALS DEPARTMENT. THE ASSESSEE HAD INCURR ED LESS EXPENDITURE THAN THE SUBSIDY RECEIVED AND THE EXCES S HAS BEEN DULY OFFERED FOR TAXATION. BEING AN UNDERTAKING WHOLLY OWNED BY THE GOVERNMENT OF GUJARAT, THE ACCOUNTS ARE TO BE AUDIT ED BY THE AUDITORS APPOINTED BY C & AG. AS PER THE ACCOUNTS FURNISHED TO C & AG, THE EXPENSES INCURRED ON REPAIR OF FLOOD DAMAGED ASSETS AMOUNTED TO RS.1,48,54,169/-. THE C & AG HAS CERTIFIED THE EXP ENDITURE. NO FURTHER EVIDENCE IN THIS REGARD WOULD ORDINARILY BE NECESSA RY. IF, HOWEVER, IT WAS FELT THAT THE EXPENSES WERE OVER-STATED, AN IND EPENDENT ENQUIRY COULD HAVE BEEN MADE TO ASCERTAIN THE CORRECT EXPEN SES. HOWEVER, THIS HAS NOT BEEN DONE. LOOKING TO THE CIRCUMSTANCES AN D ALSO THE FACT THAT THE EXCESS SUBSIDY RECEIVED HAS BEEN INCLUDED IN TH E TAXABLE INCOME, IT IS HELD THAT THE AO WAS NOT JUSTIFIED IN MAKING THE ADDITION OF RS.1,48,54,169/-, WHICH IS DIRECTED TO BE DELETED. 4.1. THIS FINDING ON FACT IS NOT CONTROVERTED BY TH E REVENUE BY PLACING ANY CONTRARY MATERIAL ON RECORD. THEREFORE, WE DO NOT FIND ANY REASON TO I TA NO.1931/AHD/2010-AY 2006-07(BY REVENUE) ITA NO.2974/AHD/2010(BY ASSESSEE) AND ITA NO.3004/AHD/2010(BY REVENUE)-AY 2007-08 DCIT VS. GUJARAT ENERGY TRANSMISSION CORPN.LTD. - 8 - INTERFERE WITH THE ORDER OF THE LD.CIT(A), SAME IS HEREBY UPHELD. THUS, THIS GROUND OF REVENUES APPEAL IS REJECTED. 5. GROUND NOS.2 & 3 ARE INTERCONNECTED AND, THEREFO RE, THE SAME ARE DECIDED TOGETHER. SO FAR AS THESE GROUNDS RELATED TO DISALLOWANCE OF CLAIM OF RS.8,39,04,550/- MADE ON ACCOUNT OF CLAIM OF GUARANTEE FEES AND ADDITION OF RS.45,24,5892/- MADE ON ACCOUNT OF CLAIM OF COST OF RAISING FINANCE ARE CONCERNED, THE CIT-DR SUBMITTED THAT THE LD.CIT(A) WAS NOT JUSTIFIED IN DELETING THE DISALLOWANCE/ADDI TION. HE SUBMITTED THAT THE AO TREATED THE EXPENDITURE AS CAPITAL EXPENDITU RE. HE SUBMITTED THAT THE EXPENDITURE IS ESSENTIALLY CAPITAL IN NATURE, T HEREFORE, THE LD.CIT(A) WAS NOT JUSTIFIED IN DELETING THE SAME. 5.1. ON THE CONTRARY, THE LD.COUNSEL FOR THE ASSESS EE SUBMITTED THAT THERE IS NO INFIRMITY IN THE ORDER OF THE LD.CIT(A) . HE SUBMITTED THAT IT IS SETTLED POSITION OF LAW THAT THE GUARANTEE COMMISSI ON IS OF REVENUE NATURE AS WELL AS THE EXPENDITURE INCURRED FOR RAISING THE FINANCE. 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:- I TA NO.1931/AHD/2010-AY 2006-07(BY REVENUE) ITA NO.2974/AHD/2010(BY ASSESSEE) AND ITA NO.3004/AHD/2010(BY REVENUE)-AY 2007-08 DCIT VS. GUJARAT ENERGY TRANSMISSION CORPN.LTD. - 9 - 5.2. I HAVE CONSIDERED THE SUBMISSIONS OF THE LD.A R AND THE FACTS OF THE CASE. THE ISSUE RELATING TO WHETHER AN ITEM OF EXPENDITURE LIES IN THE CAPITAL OR THE REVENUE FIELD HAS EXERCISED THE COUR TS IN NUMEROUS CASES. FROM AN ANALYSIS OF SUCH CASES A FEW GUIDING PRINCI PLES/TESTS CAN BE IDENTIFIED. ONE OF THE IMPORTANT TESTS FOR CATEGOR IZING ANY EXPENDITURE AS CAPITAL IN NATURE IS WHETHER THE LAYING OUT OF T HE IMPUGNED EXPENDITURE RESULTS IN THE ACQUISITION OF CREATION OF ANY NEW ASSET. WHERE NO SUCH ASSET IS CREATED, IT WOULD BE INDICAT IVE OF AN EXPENDITURE WHICH WAS NOT CAPITAL IN NATURE. ANOTHER TEST RELA TES TO THE PRINCIPLE OF ENDURING BENEFIT. ENDURING BENEFIT MAY BE IN T HE FORM OF LONG LASTING USE OF AN ASSET OR THE ACQUISITION OF A RIG HT TO EXPLOIT CERTAIN COMMERCIAL PROCESSES, ETC. IN THE INSTANT CASE, TH E ASSESSEE DID NOT ACQUIRE ANY RIGHT TO EXPLOIT A COMMERCIAL TECHNOLOG Y OR PROCESS, AND NEITHER WAS THE BENEFIT ENDURING, SINCE THE PAYME NT OF GUARANTEE COMMISSION WAS AN ANNUAL CHARGE. THE BENEFIT DERIV ED FROM PAYMENT OF SUCH COMMISSION THUS LASTED FOR EXACTLY ONE YEAR ONLY. SUCH SHORT- LIVED 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 P AID TO A DIRECTOR OF THE COMPANY IN RESPECT OF LOANS TAKEN FROM THE BANK . IN THE CASE OF HIMALAYA MACHINERY PVT.LTD. (ITA NO.738/AHD/2009) F OR AY 2006-07, THE TRIBUNAL HELD, VIDE ORDER DT.5.6.2009, FOLLOWIN G THE DECISION OF THE RAJASTHAN HIGH COURT IN CIT V. METALISING EQUIPMENT CO.PVT.LTD., 8 DTR 12, THAT THE PAYMENT OF COMMISSION FOR GUARANTE EING REPAYMENT OF LOAN WAS ALLOWABLE AS REVENUE EXPENSE. IN THE INST ANT CASE, THE LOAN HAS BEEN GUARANTEED BY THE GOVERNMENT OF GUJARAT. HENCE, QUITE APART FROM THE OTHER SOUND REASONS FOR TREATING THE EXPEN DITURE AS REVENUE, IT WOULD BE UNREALISTIC TO SAY THAT THE APPELLANT COM PANY COULD DERIVE ANY UNDUE ADVANTAGE OR COLLATERAL BENEFIT BY MAKING SUCH PAYMENT TO THE GOG. IN VIEW OF THE TOTALITY OF THE CIRCUMSTAN CES, I AM OF THE OPINION THAT THE AO WAS NOT JUSTIFIED IN TREATING T HE PAYMENT OF I TA NO.1931/AHD/2010-AY 2006-07(BY REVENUE) ITA NO.2974/AHD/2010(BY ASSESSEE) AND ITA NO.3004/AHD/2010(BY REVENUE)-AY 2007-08 DCIT VS. GUJARAT ENERGY TRANSMISSION CORPN.LTD. - 10 - GUARANTEE COMMISSION (RS.8,39,04,550/-) AS CAPITAL IN NATURE. THE ADDITION IS DIRECTED TO BE DELETED. 6.2. I HAVE CONSIDERED THE SUBMISSIONS OF THE LD.AR AND THE FACTS OF THE CASE. THE JURISDICTIONAL BENCH OF ITAT HAS HEL D IN THE CASE OF SHRI RAMA MULTI TECH VS. ACIT, 92 TTJ 568, THAT IN DETER MINING THE NATURE OF EXPENDITURE INCURRED FOR OBTAINING LOAN, IT IS I RRELEVANT TO CONSIDER THE PURPOSE OF LOAN. THE AMOUNT SPENT ON STAMP DUT Y, LAWYER FEES, ETC. FOR OBTAINING LOAN SECURED BY CHARGE ON ITS FIXED A SSETS 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 MO NEY FOR A CERTAIN PERIOD WAS REVENUE EXPENDITURE. IN THE INSTANT CAS E, THE ASSESSEE HAS SECURED THE LOAN BY CREATING A CHARGE (HYPOTHECATIO N OF ITS ASSETS). HENCE THE RATIO OF THE ABOVE MENTIONED TWO CASES WO ULD SQUARELY APPLY. ACCORDINGLY, IT IS HELD THAT THE AO WAS NOT JUSTIFI ED IN MAKING THE DISALLOWANCE OF RS.45,24,582/-, WHICH IS DIRECTED T O 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 H IMALAYA MAHCINERY 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 NOT SEE ANY REASON TO INTERFERE WIT H THE ORDER OF THE LD.CIT(A), SAME IS HEREBY UPHELD. THUS, THESE TWO GROUNDS RAISED IN THE REVENUES APPEAL ARE REJECTED. I TA NO.1931/AHD/2010-AY 2006-07(BY REVENUE) ITA NO.2974/AHD/2010(BY ASSESSEE) AND ITA NO.3004/AHD/2010(BY REVENUE)-AY 2007-08 DCIT VS. GUJARAT ENERGY TRANSMISSION CORPN.LTD. - 11 - 8. GROUND NO.4 IS AGAINST DELETION OF ADDITION OF RS.3,13,53,470/-. THE LD.CIT-DR HAS SUPPORTED THE ORDER OF AO AND SUB MITTED THAT THE LD.CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITIO N. HOWEVER, LD.COUNSEL FOR THE ASSESSEE SUPPORTED THE ORDER OF THE LD.CIT(A) AND SUBMITTED THAT THE LD.CIT(A) HAS VERIFIED FROM THE RECORDS THAT THERE WAS PILFERAGE, SHORTAGE OF MATERIAL IN TRANSIT, SHORTAG E ARISING ON PHYSICAL VERIFICATION, ETC. 9. 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) HAS GIVEN A FINDING IN P ARA-7.2 OF HIS ORDER, WHICH IS REPRODUCED HEREUNDER:- 7.2. I HAVE CONSIDERED THE SUBMISSIONS OF THE LD.A R AND THE FACTS OF THE CASE. THE AMOUNT WRITTEN OFF CONSISTS OF NUMER OUS ITEMS OF SMALL SPARES AND CONSUMABLE ITEMS. IN A BUSINESS OF THE SIZE OF THE APPELLANT, KEEPING TRACT OF SMALL CONSUMABLE STORES AND SPARES WITH PERFECT ACCURACY IS NOT ALWAYS POSSIBLE. AT THE TIME OF AN NUAL STOCK VERIFICATION, SOME ITEMS WERE FOUND TO BE IN EXCESS OR SHORT OF THE NUMBER/QUANTITY RECORDED IN THE STOCK REGISTER. WH ERE THE QUANTUM WAS FOUND IN EXCESS, THE VALUE OF STOCK HAS BEEN ENHANC ED BY SUCH EXCESS AND WHERE SOME ITEMS WERE FOUND SHORT, THE VALUE OF SHORTAGE HAD BEEN WRITTEN OFF. THE NET EFFECT DURING THE YEAR WAS SH ORTAGE OF THE VALUE OF RS.3,13,53,470/-. AS COMPARED TO THE TURNOVER SUCH LOSS IS LESS THAN 1/20 TH OF 1%. THIS IS QUITE NEGLIGIBLE. THE ASSESSEE HA S ACCOUNTED FOR BOTH GAINS AS WELL AS LOSSES IN RESPECT OF CONSUMAB LE STORES AD SPARES IN A CONSISTENT MANNER. ACCORDINGLY, IT IS HELD THAT THE DISALLOWANCE MADE WAS NOT JUSTIFIED AND IS DIRECTED TO BE DELETED. I TA NO.1931/AHD/2010-AY 2006-07(BY REVENUE) ITA NO.2974/AHD/2010(BY ASSESSEE) AND ITA NO.3004/AHD/2010(BY REVENUE)-AY 2007-08 DCIT VS. GUJARAT ENERGY TRANSMISSION CORPN.LTD. - 12 - 9.1. THIS FINDING OF THE LD.CIT(A) IS NOT CONTROVER TED BY THE REVENUE BY PLACING ANY MATERIAL ON RECORD, THEREFORE WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE LD.CIT(A), SAME IS HEREBY UPHELD. THUS, THIS GROUND OF REVENUES APPEAL IS REJECTED. 10. GROUND NO.5 OF THE REVENUES APPEAL IS AGAINST DELETION OF ADDITION OF RS.6,29,000/- MADE ON ACCOUNT OF CLAIM UNDER THE HEAD PENALTY EXPENSES. THE LD.CIT-DR SUPPORTED THE OR DER OF THE AO AND SUBMITTED THAT THIS EXPENDITURE WAS NOT ALLOWABLE A ND THE LD.CIT(A) WAS NOT JUSTIFIED IN ALLOWING THE SAME. 10.1 ON THE CONTRARY, LD.COUNSEL FOR THE ASSESSEE S UPPORTED THE ORDER OF THE LD.CIT(A) AND SUBMITTED THAT THERE IS NOT INFIR MITY IN THE ORDER OF THE LD.CIT(A). HE SUBMITTED THAT THE EXPENDITURE WAS W RONGLY BOOKED AS UNDER THE HEAD PENALTY EXPENSES. THIS FACT WAS P OINTED OUT BY THE LD.CIT(A), THEREFORE THE LD.CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE LD.CIT(A) HAS GIVEN A FINDING IN P ARA-9.1 OF HIS ORDER, WHICH READS AS UNDER:- 9.1. I HAVE CONSIDERED THE SUBMISSIONS OF THE LD.A R AND THE FACTS OF THE CASE. FROM THE DETAILS FURNISHED, IT IS SEEN T HAT THE SAVARKUNDLA TRANSMISSION DIVISION AND TRANSMISSION DIVISION KOD INAR NORMALLY I TA NO.1931/AHD/2010-AY 2006-07(BY REVENUE) ITA NO.2974/AHD/2010(BY ASSESSEE) AND ITA NO.3004/AHD/2010(BY REVENUE)-AY 2007-08 DCIT VS. GUJARAT ENERGY TRANSMISSION CORPN.LTD. - 13 - ENTERED THE EXPENDITURE INCURRED ON RATES AND TAXES UNDER THE ACCOUNTING HEAR PENALTIES ON STATUTORY LEVIES. F ROM THE SUPPORTING DOCUMENTS FILED IT IS SEEN THAT THE PAYMENTS ACTUAL LY PERTAINED TO RATES AND TAXES BEING IN THE NATURE OF LAND REVENUE. HEN CE THE DISCREPANCY STANDS EXPLAINED. THERE WAS NO PENAL PAYMENT INVOL VED. ACCORDINGLY, IT IS HELD THAT THE AO WAS NOT JUSTIFIED IN MAKING THE DISALLOWANCE OF RS.6,29,000/-, WHICH IS DIRECTED TO BE DELETED. 11.1. THIS FINDING OF THE LD.CIT(A) IS NOT CONTROVE RTED BY THE LD.CIT-DR BY PLACING ANY CONTRARY MATERIAL ON RECORD, THEREFO RE, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE LD.CIT(A) , SAME IS HEREBY UPHELD. THUS, THIS GROUND OF REVENUES APPEAL IS R EJECTED. 12. GROUND NO.6 IS AGAINST THE DIRECTION GIVEN TO T HE AO TO RECOMPUTE THE BOOK PROFIT U/S.115JB OF THE ACT FOR THE PURPOS E OF COMPUTING MAT BY THE LD.CIT(A). THE LD.CIT-DR SUPPORTED THE ORD ER OF THE AO AND SUBMITTED THAT THE LD.CIT(A) WAS NOT JUSTIFIED IN G IVING DIRECTION TO THE AO FOR RECOMPUTING THE BOOK PROFIT U/S.115JB OF THE ACT FOR MAT. 12.1 ON THE CONTRARY, LD.COUNSEL FOR THE ASSESSEE S UPPORTED THE ORDER OF THE LD.CIT(A) AND SUBMITTED THAT LD.CIT(A) HAS FOLL OWED THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT RENDERED IN THE C ASE OF DCIT VS. VARDHMAN FABRICS (P) LTD. REPORTED AT 122 TAXMAN 37 5. I TA NO.1931/AHD/2010-AY 2006-07(BY REVENUE) ITA NO.2974/AHD/2010(BY ASSESSEE) AND ITA NO.3004/AHD/2010(BY REVENUE)-AY 2007-08 DCIT VS. GUJARAT ENERGY TRANSMISSION CORPN.LTD. - 14 - 13. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE LD.CIT(A) HAS DECIDED THIS ISSUE I N PARAS-12.3 & 12.4 OF HIS ORDER, WHICH ARE REPRODUCED HEREUNDER:- 12.3 THUS, WHAT IS MATERIAL FOR THE PURPOSES OF SEC TION 115JB IS NOT THE PROFIT & LOSS ACCOUNT PREPARED IN TERMS OF THE INCO ME-TAX ACT BUT THAT PREPARED IN TERMS OF SCHEDULE-VI OF THE COMPANIES A CT. PART-II OF SCHEDULE-VI LAYS DOWN THE REQUIREMENT AS TO PROFIT AND LOSS ACCOUNT. AT ITEM NO. 3(IV), IT HAS BEEN LAID DOWN THAT THE PROF IT AND LOSS ACCOUNT SHALL DISCLOSE INFORMATION RELATING TO THE AMOUNT P ROVIDED FOR DEPRECIATION, RENEWALS OR DIMINUTION IN THE VALUE O F FIXED ASSETS. SCHEDULE-XIV LAYS DOWN THE RATES OF DEPRECIATION IN RESPECT OF VARIOUS ASSETS, BOTH IN TERMS OF WRITTEN DOWN VALUE (WDV) A ND STRAIGHT LINE METHOD (SLM). AT THE SAME TIME, THE DEPARTMENT OF C OMPANY AFFAIRS HAS ISSUED CIRCULAR DT. 7.3.2009 WHICH ALLOWS DEPRE CIATION TO BE CLAIMED AT HIGHER RATES ON THE BASIS OF BONA FIDE T ECHNOLOGICAL EVALUATION. IT HAS BEEN CLEARLY STATED THEREIN THAT THE RATES PRESCRIBED IN SCHEDULE - XIV COULD BE VIEWED AS MINIMUM RATES. FR OM PART B (WHEREIN NOTES TO THE ACCOUNTS HAVE BEEN DISCLOSED) IT IS SEEN AT ITEM- 5(VII) RELATING TO DEPRECIATION, THAT THE COMPANY P ROVIDES DEPRECIATION AS PER THE RATES NOTIFIED BY CERC, A REGULATORY COM MISSION BY VIRTUE OF SECTION 76 OF ELECTRICITY ACT, 2003, WHICH ARE DIFF ERENT FROM THE RATES PRESCRIBED UNDER THE COMPANIES ACT, 1956. DURING TH E YEAR SUCH RATES WERE REDUCED, WHICH COULD NOT HOWEVER BE IMPLEMENTE D BY THE ASSESSEE DURING THE YEAR DUE TO THE FACT THAT THE NOTIFICATI ON WAS RECEIVED VERY LATE. THE ASSESSEE HAS COMPLIED WITH THE PROVISIONS OF SCHEDULE-VI OF COMPANIES ACT WHILE PREPARING ITS ACCOUNTS. 12.4 THE SUPREME COURT HAS HELD VERY CLEARLY IN A POLLO (SUPRA) AS WELL AS MALAYALA MANORAMA CO LTD V CIT, 168 TAXMAN 471 THAT THE POWER TO MAKE ENHANCEMENT AND REDUCTION U/S 115J IS LIMITED ONLY TO THE I TA NO.1931/AHD/2010-AY 2006-07(BY REVENUE) ITA NO.2974/AHD/2010(BY ASSESSEE) AND ITA NO.3004/AHD/2010(BY REVENUE)-AY 2007-08 DCIT VS. GUJARAT ENERGY TRANSMISSION CORPN.LTD. - 15 - SPECIFIC ITEMS PROVIDED UNDER CLAUSES (A) TO (I) AN D (I) TO (VIII). THE AO HAS ONLY TO SATISFY HIMSELF THAT THE PROVISIONS OF THE COMPANIES ACT HAVE BEEN COMPLIED WITH WHILE PREPARING THE ACCOUNTS. THE PRO VISIONS OF INCOME-TAX ACT WITH REGARD TO DEPRECIATION ETC., WOULD NOT BE MATERIAL TO THE COMPUTATION. ON SIMILAR FACTS, THE JURISDICTIONAL H IGH COURT OF GUJARAT IN DCIT V VARDHMAN FABRICS (P) LTD., 122 TAXMAN 375 HA D OCCASION TO CONSIDER THE CIRCULAR OF THE COMPANY LAW BOARD WHIC H CLARIFIED THAT THE RATES PRESCRIBED IN SCHEDULE XIV WERE MINIMUM RATES OF DEPRECIATION AND THE COMPANY COULD CLAIM HIGHER DEPRECIATION ON THE BASIS OF A BONAFIDE TECHNOLOGICAL EVALUATION AND PROPER DISCLOSURE THER EOF IN THE NOTES FORMING PART OF ANNUAL ACCOUNTS. IN THE INSTANT CAS E, FROM THE FACTS AS ABOVE, I AM OF THE OPINION THAT THE ASSESSEE HAS CO MPLIED WITH THE PROVISIONS CONTAINED IN SCHEDULE-VI TO THE COMPANIE S ACT READ WITH SCHEDULE-XIY AND CIRCULAR DT. 7.3.2009 OF THE DEPAR TMENT OF COMPANY AFFAIRS. HENCE THE AO'S ACTION IN REDUCING THE CLAI M OF DEPRECIATION UNDER ITEM (II)(A) BY RS.14,32,02,331/- IS HELD TO BE UNJ USTIFIED. THE AO IS DIRECTED TO RECOMPUTE THE BOOK PROFIT FOR MAT BY AL LOWING THE DEPRECIATION CLAIMED. 13.1. THE LD.CIT(A) HAS APPLIED THE RATIO LAID DOWN IN THE JUDGEMENTS OF HONBLE APEX COURT RENDERED IN THE CASE OF APOLLO T YRES LTD. (255 ITR 273), MALAYALA MANORAMA CO.LTD. VS. CIT (168 TAXMA N 471) AND THE JUDGEMENT OF HONBLE JURISDICTIONAL HIGH COURT REND ERED IN THE CASE OF DCIT VS. VARDHMAN FABRICS (P) LTD. (122 TAXMAN 375) . THE LD.CIT-DR COULD NOT DISTINGUISH THE FACTS OF THE CASE, THEREF ORE WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LD.CIT(A) , SAME IS HEREBY UPHELD. THUS, THIS GROUND OF REVENUES APPEAL IS R EJECTED. I TA NO.1931/AHD/2010-AY 2006-07(BY REVENUE) ITA NO.2974/AHD/2010(BY ASSESSEE) AND ITA NO.3004/AHD/2010(BY REVENUE)-AY 2007-08 DCIT VS. GUJARAT ENERGY TRANSMISSION CORPN.LTD. - 16 - 14. IN THE RESULT, REVENUES APPEAL IN ITA NO.1931/ AHD/2010 FOR AY 2006-07 IS DISMISSED. 15. NOW, WE TAKE UP THE ASSESSEES APPEAL IN ITA NO .2974/AHD/2010 FOR AY 2007-08, WHEREIN FOLLOWING GROUNDS HAVE BEEN RAISED:- 1.0. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HA S ERRED IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE OF THE EXPENDITURE OF RS.61,00,00,000/- BEING THE PROVISIO N MADE FOR EMPLOYEES COST FOR ARREARS PAYABLE UPTO 31 ST MARCH, 2007 WITHOUT CONSIDERING THE FACTS THAT SUCH EXPENDITURE WAS PENDING THE DECISION OF 6 TH PAY COMMISSION BASED ON THE PROVISIONS OF ACCOUNTING STANDARDS AND GENERALLY ACCEPTED ACCOUNT ING PRINCIPLES. 2.0 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN LAW AND FACTS IN CONFIRMING THE ENHANCEMENT OF BOOK PROFIT COMPUTED UNDER SECTION 115JB OF THE INCOME TAX ACT, 1961 BY RS.61,00,00,000/- ON ACCOUNT OF PROVISION FOR EMPLO YEES COST PENDING THE DECISION OF PAY COMMISSION TREATING THE SAME AS UNASCERTAINED LIABILITY. 3.0 THE APPELLANT CRAVES LEAVE TO ADD TO, ALTER, DE LETE OR MODIFY ANY OF THE GROUNDS OF APPEAL EITHER BEFORE OR AT THE TI ME OF HEARING OF THIS APPEAL. 15.1. FIRST GROUND OF ASSESSEES APPEAL IS AGAINST CONFIRMING THE DISALLOWANCE OF THE EXPENDITURE OF RS.61,00,00,000/ - BEING THE PROVISION MADE FOR EMPLOYEES COST FOR ARREARS. THE LD.COUNSE L FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS SQUARELY COVERED IN FA VOUR OF ASSESSEE BY THE I TA NO.1931/AHD/2010-AY 2006-07(BY REVENUE) ITA NO.2974/AHD/2010(BY ASSESSEE) AND ITA NO.3004/AHD/2010(BY REVENUE)-AY 2007-08 DCIT VS. GUJARAT ENERGY TRANSMISSION CORPN.LTD. - 17 - JUDGEMENT OF HONBLE KERALA HIGH COURT RENDERED IN THE CASE OF CIT VS. KERALA STATE FINANCIAL ENTERPRISES LTD. REPORTED AT (2008) 219 CTR 147(KER.) AND THE JUDGEMENT OF HONBLE DELHI HIGH C OURT RENDERED IN THE CASE OF CIT VS. BHARAT HEAVY ELECTRICAL LTD. RE PORTED AT (2013) 352 ITR 88 (DELHI). 15.2. ON THE CONTRARY, CIT-DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE AO HAD DISALLOWED THE EXPE NDITURE BY OBSERVING THAT I HAVE CONSIDERED THE SUBMISSION OF THE ASSESSEE B UT THE SAME IS NOT ACCEPTABLE. THE LIABILITY TO PAY THE ARREARS OF PA Y HAD NOT CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION SINCE THE FINAL DECISION TO PAY THE SAME WAS STILL AWAITED. THERE WAS NOT LIABILITY FA STENED UPON THE ASSESSEE TO PAY THE ARREARS OF 6 TH PAY COMMISSION. SINCE THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND THE L IABILITY TO PAY ARREARS OF 6 TH PAY COMMISSION HAD ACTUALLY NOT BEEN CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION, A SUM OF RS.61,00,00,000/- IS DISALLOWED AND ADDED BACK TO TOTAL INCOME BEING CONTINGENT LIABILITY. THE LD.CIT(A) CONFIRMED THE FINDING OF THE AO BY OBSERVING THAT T HE REPORT OF THE 6 TH PAY COMMISSION WAS SUBMITTED TO THE GOVERNMENT OF I NDIA IN MARCH- 2008. IN RESPECT OF THE CENTRAL GOVERNMENT EMPLOYE ES THE LIABILITY ACCRUED FROM THE DAY WHEN THE REPORT WAS ACCEPTED B Y THE CENTRAL GOVERNMENT. IN RESPECT OF STATE GOVERNMENTS THE RE PORT IS NOT BINDING I TA NO.1931/AHD/2010-AY 2006-07(BY REVENUE) ITA NO.2974/AHD/2010(BY ASSESSEE) AND ITA NO.3004/AHD/2010(BY REVENUE)-AY 2007-08 DCIT VS. GUJARAT ENERGY TRANSMISSION CORPN.LTD. - 18 - AND IT IS NOT TO BE MANDATORILY ACCEPTED AND ADOPTE D. IN FACT, NUMBER OF STATE GOVERNMENTS WERE AGAINST ACCEPTING THE REPORT BECAUSE OF HUGE FINANCIAL BURDEN AND IN FACT GOVERNMENT OF MADHYA P RADESH CONSTITUTED PAY COMMISSION OF ITS OWN, TO REFRAME THE RECOMMEND ATIONS. IN OTHER WORDS, WITHOUT ACCEPTANCE OF THE REPORT THE LIABILI TY CANNOT BE SAID TO HAVE ACCRUED OR CRYSTALLIZED. CRYSTALLIZATION OF E MPLOYEE COST LIABILITY IS CONTINGENT UPON APPROVAL OR OTHERWISE FROM GUJARAT GOVERNMENT. THE GUJARAT GOVERNMENT ACCEPTED THE SIX PAY COMMISSION REPORT IN DECEMBER-2008. IN VIEW THEREOF, IN MY HUMBLE OPINI ON FOR AY 07-08 THE PROVISION TOWARDS EMPLOYEES COST FOR ARREARS PA YABLE UPTO 31.3.07 IS A CONTINGENT LIABILITY, CONTINGENT UPON THE STATE G OVERNMENT ACCEPTING THE REPORT OF THE PAY COMMISSION. THE HONBLE DE LHI HIGH COURT IN THE CASE OF CIT VS. BHARAT HEAVY ELECTRICAL LTD.(SUPRA) HAS OBSERVED AS UNDER:- 5. IN THE EARLIEST DECISION ON THE QUESTION OF WHE THER SUCH LIABILITY INCURRED TOWARDS EMPLOYEES' SERVICES OR FULFILMENT OF THEIR TERMS OF EMPLOYMENT WHICH MAY BECOME PAYABLE IN FUTURE BUT CLAIMED BY THE ASS ESSEE IN A GIVEN PREVIOUS YEAR IS ALLOWABLE AS DEDUCTION, THE SUPREME COURT O BSERVED AS FOLLOWS IN METAL BOX COMPANY OF INDIA LTD. V. THEIR WORKMEN, 7 3 (1969) ITR 53: - 'THE QUESTION THAT CONCERNS US IS WHETHER, WHILE WO RKING OUT THE NET PROFITS, A TRADER CAN PROVIDE FROM HIS GROSS RECEIP TS HIS LIABILITY TO PAY A CERTAIN SUM FOR EVERY ADDITIONAL YEAR OF SERVICE WHICH HE RECEIVES FROM HIS EMPLOYEES. THIS, IN OUR VIEW, HE CAN DO, I F SUCH LIABILITY IS PROPERLY ASCERTAINABLE AND IT IS POSSIBLE TO ARRIVE AT A PROPER DISCOUNTED PRESENT VALUE. EVEN IF THE LIABILITY IS CONTINGENT LIABILITY, PROVIDED ITS DISCOUNTED PRESENT VALUE IS ASCERTAINA BLE, IT CAN BE TAKEN I TA NO.1931/AHD/2010-AY 2006-07(BY REVENUE) ITA NO.2974/AHD/2010(BY ASSESSEE) AND ITA NO.3004/AHD/2010(BY REVENUE)-AY 2007-08 DCIT VS. GUJARAT ENERGY TRANSMISSION CORPN.LTD. - 19 - INTO ACCOUNT. CONTINGENT LIABILITIES DISCOUNTED AND VALUED AS NECESSARY CAN BE TAKEN INTO ACCOUNT AS TRADING EXPE NSES IF THEY ARE SUFFICIENTLY CERTAIN TO BE CAPABLE OF VALUATION AND IF PROFITS CANNOT BE PROPERLY ESTIMATED WITHOUT TAKING THEM INTO ACCOUNT . CONTINGENT RIGHTS, IF CAPABLE OF VALUATION, CAN SIMILARLY BE T AKEN INTO ACCOUNT AS TRADING RECEIPTS WHERE IT IS NECESSARY TO DO SO IN ORDER TO ASCERTAIN THE TRUE PROFITS.' IN BHARAT EARTH MOVERS (SUPRA) (DECIDED BY THE SUPR EME COURT), THE QUESTION WHICH THE COURT HAD TO CONSIDER WAS WHETHER THE PRO VISION FOR MEETING EARNED-LEAVE-ENCASHMENT BY THE EMPLOYEE WAS AN ADMI SSIBLE DEDUCTION IN THE HANDS OF THE EMPLOYER. THE COURT REITERATED AND APP LIED ITS PREVIOUS DECISION IN METAL BOX' CASE (SUPRA) AND HELD AS FOLLOWS: '(I)F A BUSINESS LIABILITY HAS DEFINITELY ARISEN IN THE ACCOUNTING YEAR, THE DEDUCTION SHOULD BE ALLOWED ALTHOUGH THE LIABIL ITY MAY HAVE TO QUANTIFY AND DISCHARGE AT A FUTURE DATE. WHAT SHOUL D BE CERTAIN IS THE INCURRING OF THE LIABILITY. IT SHOULD ALSO BE CAPAB LE OF BEING ESTIMATED WITH REASONABLE CERTAINTY THOUGH THE ACTUAL QUANTIF ICATION MAY NOT BE POSSIBLE. IF THESE REQUIREMENTS ARE SATISFIED, THE LIABILITY IS NOT A CONTINGENT ONE. THE LIABILITY IS IN PRAESENTI THOUG H IT WILL BE DISCHARGED AT A FUTURE DATE. IT DOES NOT MAKE ANY D IFFERENCE IF THE FUTURE DATE ON WHICH THE LIABILITY SHALL HAVE TO BE DISCHARGED IS NOT CERTAIN. ' 15.3. FURTHER, THE HIGH COURT HELD AS UNDER:- 6. IN THIS CASE, THE TRIBUNAL HAD NOTICED THAT THE RE WAS NO DISPUTE AS REGARDS THE TERMS OF EMPLOYMENT OF THE W ORKERS AND OFFICERS. THE ONLY QUESTION WAS THE EXACT QUANTIFIC ATION OF THE COMPENSATION OR WAGE REVISION. THE TRIBUNAL ALSO HE LD THAT PROVISION FOR WAGE REVISION WAS BASED ON PAST EXPER IENCE, INTERIM PAY COMMISSION OF GOVERNMENT EMPLOYEES, PRE VIOUS PAY COMMISSION'S REPORTS OF PUBLIC SECTOR EMPLOYEES, UN ION DEMANDS AND OTHER RELEVANT FACTORS. THE TRIBUNAL ALSO HELD THAT WITH THE EXPIRY OF ONE WAGE SETTLEMENT OR AGREEMENT, INVARIA BLY, THERE IS A TIME LAG WHEN ANOTHER FRESH WAGE REVISION AGREEME NT IS I TA NO.1931/AHD/2010-AY 2006-07(BY REVENUE) ITA NO.2974/AHD/2010(BY ASSESSEE) AND ITA NO.3004/AHD/2010(BY REVENUE)-AY 2007-08 DCIT VS. GUJARAT ENERGY TRANSMISSION CORPN.LTD. - 20 - NEGOTIATED AND ENTERED. THE DEDUCTION CLAIMED FOR T HAT PERIOD CANNOT BE TERMED AS CONTINGENT BECAUSE THE WAGE AND THE PROBABLE REVISION OR RATES OF REVISION WOULD BE WIT HIN THE FAIR ESTIMATION OF THE EMPLOYER. IN THIS CASE, BHEL HAD THE BENEFIT OF PAST EXPERIENCE OF SUCH PAY REVISIONS. ITS LIABILIT Y COULD NOT BE CHARACTERIZED AS CONTINGENT BUT WAS IN FACT ASCERTA INED; THE QUANTIFICATION, HOWEVER, HAD NOT HAPPENED. 15.4. THE HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS. KERALA STATE FINANCIAL ENTERPRISES LTD.(SUPRA) HELD AS UNDER:- 3. EVEN THOUGH LEARNED STANDING COUNSEL FOR THE REVEN UE CONTENDED THAT CONTRACTUAL LIABILITY ARISES ONLY ON THE DATE OF SIGNING THE AGREEMENT, WE ARE UNABLE TO ACCEPT THIS ARGUMENT IN THIS CASE. IN THE NORMAL COURSE, AN AGREEMENT CALLED SETTLEMENT AS IN CREASE IN WAGES TAKES EFFECT FROM THE DATE OF EXPIRY OF THE PREVIOU S SETTLEMENT AND THIS CASE IS NO EXCEPTION TO IT. WHAT IS IMPORTANT IS NO T THE DATE OF SIGNING THE AGREEMENT NOR THE LATER APPROVAL GRANTED BY THE GOVERNMENT, BUT THE EFFECTIVE DATE OF COMMENCEMENT OF THE WAGE REVI SION UNDER THE AGREEMENT. THERE IS NO DISPUTE THAT THE WAGE INCREA SE WAS GRANTED AS A CONTINUOUS MEASURE FROM THE DATE OF EXPIRY OF THE P REVIOUS SETTLEMENT, I.E. W.E.F. 1ST AUG., 1992. THEREFORE, THE LIABILIT Y FOR WAGE INCREASE REALLY ACCRUED FOR THE RESPONDENT ASSESSEE W.E.F. 1 ST AUG., 1992. THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTION OF SUCH WAG E INCREASE ATTRIBUTABLE UPTO THE END OF THE PREVIOUS YEAR, NO MATTER EXACT AMOUNT WAS ASCERTAINED AND PAYMENT MADE LATER. IN THE DECI SION OF THE SUPREME COURT REFERRED TO ABOVE, IT IS MADE VERY CL EAR THAT WHAT IS TO BE CONSIDERED IS WHETHER THE LIABILITY IS ATTRIBUTA BLE TO THE PREVIOUS YEAR OR NOT AND IT IS IMMATERIAL IF THE ACTUAL LIABILITY WAS ASCERTAINED AND SETTLED ONLY IN THE NEXT YEAR. EVEN THOUGH THE OTHE R TWO DECISIONS CITED BY THE ASSESSEE ARE NOT DIRECTLY ON THE POINT, THE PRINCIPLES LAID DOWN THEREIN ARE APPLICABLE TO THE FACTS OF THIS CASE. I T IS CLEAR FROM THE ORDERS THAT BY THE TIME THE ACCOUNTS WERE FINALISED AND RETURNS WERE FILED, THE ASSESSEE HAD ASCERTAINED THE ACTUAL LIAB ILITY ATTRIBUTABLE TO THE I TA NO.1931/AHD/2010-AY 2006-07(BY REVENUE) ITA NO.2974/AHD/2010(BY ASSESSEE) AND ITA NO.3004/AHD/2010(BY REVENUE)-AY 2007-08 DCIT VS. GUJARAT ENERGY TRANSMISSION CORPN.LTD. - 21 - PREVIOUS YEAR AND THEREFORE THE ACTUAL AMOUNT PAYAB LE ONLY WAS CLAIMED BASED ON MERCANTILE SYSTEM OF ACCOUNTING FO LLOWED BY THE ASSESSEE. 15.5. IN THE PRESENT CASE, THE LD.CIT(A) HAS RECORD ED THE FACT THAT THE GUJARAT GOVERNMENT ACCEPTED THE 6 TH PAY COMMISSION IN DECEMBER- 2008. THEREFORE, RESPECTFULLY FOLLOWING THE RATIO LAID DOWN IN THE JUDGEMENT OF HONBLE HIGH COURT OF KERALA IN THE CA SE OF CIT VS. KERALA STATE FINANCIAL ENTERPRISES LTD.(SUPRA) AND IN THE JUDGEMENT OF HONBLE HIGH COURT OF DELHI IN THE CASE OF CIT VS. BHARAT H EAVY ELECTRICAL LTD.(SUPRA), THE DISALLOWANCE MADE BY THE AO IS HER EBY DELETED. THUS, GROUND OF ASSESSEES APPEAL IS ALLOWED. 16. GROUND NO.2 OF ASSESSEES APPEAL IS AGAINST CON FIRMING THE ENHANCEMENT OF BOOK PROFIT COMPUTED UNDER SECTION 1 15JB OF THE ACT BY RS.61,00,00,000/- ON ACCOUNT OF PROVISION FOR EMPLO YEES COST PENDING THE DECISION OF PAY COMMISSION TREATING THE SAME AS UNASCERTAINED LIABILITY. THE CIT-DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW, WHEREAS THE LD.COUNSEL FOR THE ASSESSEE RELIED UPO N THE JUDGEMENT OF HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS. KE RALA STATE FINANCIAL ENTERPRISES LTD.(SUPRA) AND THE JUDGEMENT OF HONBL E DELHI HIGH COURT IN THE CASE OF CIT VS. BHARAT HEAVY ELECTRICAL LTD. (SUPRA). 17. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. I TA NO.1931/AHD/2010-AY 2006-07(BY REVENUE) ITA NO.2974/AHD/2010(BY ASSESSEE) AND ITA NO.3004/AHD/2010(BY REVENUE)-AY 2007-08 DCIT VS. GUJARAT ENERGY TRANSMISSION CORPN.LTD. - 22 - SINCE WE HAVE ALLOWED THE GROUND NO.1 OF ASSESSEES APPEAL(SUPRA) BY FOLLOWING THE JUDGEMENT OF HONBLE HIGH COURT OF KE RALA IN THE CASE OF CIT VS. KERALA STATE FINANCIAL ENTERPRISES LTD.(SUP RA) AND THE JUDGEMENT OF HONBLE HIGH COURT OF DELHI IN THE CASE OF CIT VS. BHARAT HEAVY ELECTRICAL LTD.(SUPRA), THIS GROUND OF ASSESSEES A PPEAL IS ALSO ALLOWED. THE AO IS DIRECTED TO RECOMPUTED THE BOOK PROFIT U/ S.115JB OF THE ACT IN THE LIGHT OF THE AFORESAID JUDGEMENT(S) OF THE HON BLE HIGH COURTS. THUS, APPEAL OF THE ASSESSEE IN ITA NO.2974/AHD/201 0 FOR AY 2007-08 IS ALLOWED. 18. LASTLY, WE TAKE UP THE REVENUES APPEAL IN ITA NO.3004/AHD/2010 FOR AY 2007-08, WHEREIN FOLLOWING GROUNDS HAVE BEEN TAKEN:- 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.679.95 LACS MADE ON ACCOUNT OF DISALLOWANCE OF CLAIM OF GUARANTEE FE ES PAID TO GOVERNMENT OF GUJARAT. THE DISALLOWANCE WAS MADE B Y DISALLOWING THE CLAIM AS REVENUE EXPENDITURE AS IT IS OF ENDURING N ATURE IN THE ASSESSEES BUSINESS AND HENCE CAPITAL IN NATURE. 2. ON THE FACTS AND I THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD.CIT(APPEALS) ERRED IN DELETING THE ADDITION OF R S.16.38 LACS MADE ON ACCOUNT OF DISALLOWANCE OF CLAIM OF COST OF RAISING FINANCE FOR SPECIALIZED JOB AS REVENUE EXPENDITURE. THE LD.CI T(APPEALS) ERRED IN NOT APPRECIATING THE FACT THAT AS THE RESULT OF THI S EXPENDITURE, THE ASSESSEE HAD DERIVED BENEFIT OF ENDURING NATURE, HE NCE THE EXPENDITURE IS OF CAPITAL NATURE. I TA NO.1931/AHD/2010-AY 2006-07(BY REVENUE) ITA NO.2974/AHD/2010(BY ASSESSEE) AND ITA NO.3004/AHD/2010(BY REVENUE)-AY 2007-08 DCIT VS. GUJARAT ENERGY TRANSMISSION CORPN.LTD. - 23 - 3. 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.26.68 LACS MADE ON ACCOUNT OF DISALLOWANCE OF EXTRA-ORDINARY ITEMS BEI NG LOSS DUE TO CYCLONE, FLOOD, FIRE, ETC. AS THE EVIDENCE IN RESPE CT OF SUCH CLAIM WAS NOT SUBMITTED DURING THE COURSE OF ASSESSMENT PROCEEDIN GS. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD.CIT(APPEALS) ERRED IN DELETING THE ADDITION OF R S.301.62 LACS MADE ON ACCOUNT OF DISALLOWANCE OF LOSS OF MATERIAL THRO UGH PILFERAGE, SHORTAGE OF MATERIAL IN TRANSIT, SHORTAGE ARISING O N PHYSICAL VERIFICATION, ETC. THE LD.CIT(APPEALS) ERRED IN NO T APPRECIATING THE FACT THAT THE ADDITION WAS MADE DUE TO THE REASON THAT T HE ASSESSEE HAD FAILED TO SUBSTANTIATE THEIR CLAIM DOCUMENTARY EVID ENCE. 5. THE APPELLANT CRAVES LEAVE TO ADD TO AMEND OR AL TER THE ABOVE GROUNDS AS MAY BE DEEMED NECESSARY. RELIEF CLAIMED IN APPEAL THE ORDER OF THE CIT(APPEALS) ON THE ABOVE ISSUE MA Y BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 18.1. IDENTICAL GROUNDS HAVE BEEN RAISED IN THE AY 2006-07 IN REVENUES APPEAL, I.E. ITA NO.1931/AHD/2010(SUPRA). 18.2. PARTIES HAVE ADOPTED THE SAME ARGUMENTS AS WE RE MADE FOR AY 2006-07 IN ITA NO.1931/AHD/2010(SUPRA). SINCE WE H AVE REJECTED THE REVENUES APPEAL FOR AY 2006-07(SUPRA), TAKING A C ONSISTENT VIEW, WE ALSO REJECT THE GROUNDS RAISED BY THE REVENUE IN TH IS YEAR ALSO. THUS, REVENUES APPEAL FOR 2007-08 IS DISMISSED. I TA NO.1931/AHD/2010-AY 2006-07(BY REVENUE) ITA NO.2974/AHD/2010(BY ASSESSEE) AND ITA NO.3004/AHD/2010(BY REVENUE)-AY 2007-08 DCIT VS. GUJARAT ENERGY TRANSMISSION CORPN.LTD. - 24 - 19. IN THE COMBINED RESULT, REVENUES APPEALS FOR A YS 2006-07 & 2007-08 ARE DISMISSED, WHEREAS ASSESSEES APPEAL FO R AY 2007-08 IS ALLOWED. ORDER PRONOUNCED IN THE COURT ON FRIDAY, THE 8 TH DAY OF MAY, 2015 AT AHMEDABAD. SD/- SD/- ( .. ) ( ) ( N.S. SAINI ) ( KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 08/ 05 /2015 (..,.../ T.C. NAIR, SR. PS !'#$#%! / COPY OF THE ORDER FORWARDED TO : 1. )* +, / THE APPELLANT 2. -.+, / THE RESPONDENT. 3. /0/12 3 / CONCERNED CIT 4. 3 ( )* ) / THE CIT(A)-I, BARODA 5. 45-12 , )* )12' , )0 / DR, ITAT, AHMEDABAD 6. 5789 / GUARD FILE. / BY ORDER, .4*- //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD