The DCIT, Circle-1(1), Now Circle-1(1)(1), Vadodara V. Gujarat Energy Transmission Corpn. Ltd., Vadodara

ITA 3356/AHD/2015

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 7375 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 1 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 30-01-2020
• Assessment Year: 2012-2013
• Appeal Filed On: 04-12-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Commercial expediency; Revenue expenditure
• Section: 143(3)

Judgement Text

, C IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SMT. MADHUMITA ROY, JUDICIAL MEMBER ./ I.T.A. NO. 3356/AHD/2015 ( ASSESSMENT YEAR : 2012-13) THE DY.CIT CIRCLE-1(1)(1), VADODARA (OLD:- CIRCLE 1(1), BARODA) 1 ST FLOOR, AAYKAR BHAVAN, RACE COURSE CIRCLE, VADODARA - 390007 / VS. GUJARAT ENERGY TRANSMISSION CORP. LTD. SARDAR PATEL VIDYUT BHAVAN, RACE COURSE CIRCLE, VADODARA ./ ./ PAN/GIR NO. : AABCG4029R ( APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI RITESH PARMAR, CIT.D.R. / RESPONDENT BY : SHRI MANISH J. SHAH, A.R. DATE OF HEARING 30/01/2020 !'# / DATE OF PRONOUNCEMENT 31/01/2020 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-1, VADODEARA (CIT(A) IN SHORT), DATED 22.09.2015 ARI SING IN THE ASSESSMENT ORDER DATED 24.02.2015 PASSED BY THE ASS ESSING OFFICER (AO) UNDER S. 143(3) OF THE INCOME TAX ACT, 1961 (THE AC T) CONCERNING AY 2012-13. ITA NO. 3356/AHD/15 [DCIT VS. GUJARAT ENERGY TRANSMISSION CORP. LTD.] A.Y. 2012-13 - 2 - 2. THE REVISED GROUNDS OF APPEAL RAISED BY THE REVE NUE IS REPRODUCED HEREUNDER: 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD.CIT(APPEALS) ERRED IN DELETING THE ADDITION OF RS.262.93 LAKHS MADE ON ACCOUNT OF DISALLOWANCE OF CLAIM OF G UARANTEE FEES PAID TO GOVERNMENT OF GUJARAT DISREGARDING THE APPLICABLE STATUTORY PROVISIONS CONTAINED UNDER S 37 OF INCOME TAX ACT,1961 WHICH DO NOT ALLOW ANY EXPENDITURE OF CAPITAL NATUR E. THE DISALLOWANCE WAS MADE BY DISALLOWING THE CLAIM AS R EVENUE EXPENDITURE AS IT IS OF ENDURING NATURE IN THE ASSE SSEE'S BUSINESS AND HENCE CAPITAL IN NATURE.' 2. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD.CIT(APPEALS) ERRED IN DELETING THE ADDITION OF RS.42.86 LAKHS MADE ON ACCOUNT OF DISALLOWANCE OF CLAIM OF C OST OF RAISING FINANCE FOR SPECIALIZED JOB AS REVENUE EXPE NDITURE. THE LD.CIT(APPEALS) ERRED IN NOT APPRECIATING THE FACT THAT AS THE RESULT OF THIS EXPENDITURE, THE ASSESSEE HAD DERIVE D BENEFIT OF ENDURING NATURE, HENCE THE EXPENDITURE IS OF CAPITA L NATURE.' 3. AS POINTED OUT ON BEHALF OF THE ASSESSEE, BOT H THE AFORESAID GROUNDS ARE COVERED IN FAVOUR OF THE ASSESSEE IN ITS OWN CA SE CONCERNING AY 2008-09 IN ITA NO. 704/AHD/2012 ORDER DATED 12.06.2015 . THE RELEVANT PARA OF THE ORDER OF THE TRIBUNAL IS REPRODUCED HER EUNDER: 29. IN THE REVENUE'S APPEAL, THE GROUND NO.1 OF TH E APPEAL IS DIRECTED AGAINST THE ORDER OF THE CIT(A) IN DELETING THE ADD ITION OF RS.50,90,96,000/- MADE ON ACCOUNT OF DISALLOWANCE O F CLAIM OF GUARANTEE FEES PAID TO GOVERNMENT OF GUJARAT. 30. BRIEF FACTS OF THE CASE ARE THAT THE AO OBSERVE D THAT THE ASSESSEE PAID GUARANTEE FEE OF RS.5,69,35,000/- TO THE GOVT. OF GUJARAT IN CONSIDERATION OF GUARANTEE ISSUED BY IT FOR REPAYME NT OF UNSECURED LOAN. FURTHER, THE ASSESSEE ALSO CLAIMED RS.21,61,0 00/- ON ACCOUNT OF COST OF RAISING FINANCE UNDER THE HEAD 'COST OF RAI SING FINANCE' AS PER THE PROFIT & LOSS ACCOUNT. 31. IN REPLY TO SHOW CAUSE NOTICE TO THE ASSESSEE, THE ASSESSEE SUBMITTED THAT ERSTWHILE GEB HAS RAISED VARIOUS LOA NS, GUARANTEE OF WHICH WAS GIVEN BY GOVT. OF GUJARAT, AND FOR THE GU ARANTEE GIVEN BY THE GOVT. OF GUJARAT, THE GEB IS REQUIRED TO PAY GU ARANTEE FEES AS PER RULES. AFTER THE SPLIT OF THE COMPANY, THE SAID LOA N WERE STILL CONTINUED, WHICH WERE GUARANTEED BY THE GOVT. OF GUJARAT. THER EFORE, EVERY YEAR THESE GUARANTEE FEES BECOME PAYABLE TO GOVT. OF GUJ ARAT ON RECURRING BASIS. REGARDING THE COST OF RAISING FINANCE, THE A SSESSEE SUBMITTED THAT THE FINANCE WAS RAISED DURING THE YEAR, AND ACCORDI NGLY, THE COST INCURRED FOR RAISING FINANCE WAS CHARGED TO CURRENT YEAR'S PROFIT & LOSS ACCOUNT. THE AO DID NOT ACCEPT THE ABOVE EXPLANATIO N OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE DID NOT FURNISH THE DETAILS OF THE PURPOSE FOR WHICH THE LOANS WERE TAKEN FOR WHICH TH E GUARANTEE FEES ITA NO. 3356/AHD/15 [DCIT VS. GUJARAT ENERGY TRANSMISSION CORP. LTD.] A.Y. 2012-13 - 3 - WERE CLAIMED. FURTHER, IF THE FEES PAID FOR LOANS F ACILITY IN RESPECT OF FIXED ASSETS, NATURE OF ASSETS, THE DATE OF PUT-TO- USE HAS NOT BEEN SUBMITTED. THE ASSESSEE ALSO FAILED TO FURNISH ANY AGREEMENT WITH THE GOVT. OF GUJARAT FOR CHARGING GUARANTEE FEES AND ME THOD OF ITS COMPUTATION AGAINST THE LOAN AMOUNTS. IN THE ABSENC E OF THESE DETAILS IT WAS NOT POSSIBLE TO ENTERTAIN THE ASSESSEE'S CLAIM. THE AO FURTHER OBSERVED THAT THE COST OF RAISING THE FINANCE CAN A LSO NOT BE CONSIDERED AS REVENUE EXPENSES FOR WANT OF DETAILS. HE, ACCORD INGLY, DISALLOWED RS.5,90,96,000/-. 32. ON APPEAL, THE CIT(A) OBSERVED THAT GUARANTEE F EE WAS AN ANNUAL RECURRING EXPENDITURE INCURRED BY THE ASSESSEE. GUA RANTEE FEE WAS PAYABLE TO GOVT. OF GUJARAT EVERY YEAR IN RESPECT O F LOANS TAKEN BY THE ASSESSEE AND GUARANTEED BY THE GOVT. OF GUJARAT. AS HELD BY HON'BLE SUPREME COURT IN THE CASE OF INDIA CEMENTS LTD., 60 ITR 52 (SC), LOAN CANNOT BE TREATED AS ASSET OR ADVANTAGE RESULTING I N ENDURING BENEFITS. GUARANTEE FEES PAID TO GOVT. OF GUJARAT WAS IN CONN ECTION WITH RAISING OF LOANS AND ENDURING BENEFIT OR ADVANTAGE COULD NO T BE SAID TO HAVE RESULTED BY TAKING SUCH LOANS. ONLY IF THE ASSETS A CQUIRED OUT OF SUCH LOANS WERE NOT PUT-TO-USE TILL THE END OF PREVIOUS YEAR I.E. 31.3.2008, THE GUARANTEE FEES TO SUCH EXTENT I.E. IN RESPECT O F SUCH LOANS ONLY COULD BE CAPITALIZED AS COST OF SUCH ASSET. THE ASS ESSEE HAS CERTIFIED THAT NO NEW PROJECT WAS STARTED OR COMMISSIONED DUR ING THE YEAR FOR WHICH ABOVE GUARANTEE WAS PAID, AND THE GUARANTEE F EES WAS IN RESPECT OF LOANS FOR ACQUISITION OF CAPITAL ASSETS, WHICH W ERE ALREADY PUT-TO-USE PRIOR TO 1.4.2007. THE GUARANTEE FEES OF RS.5,69,35 ,000/- IS DIRECTED TO BE ALLOWED AS REVENUE EXPENDITURE, SUBJECT TO VERIF ICATION BY THE AO OF THE CERTIFICATE FILED DURING THE APPELLATE PROCEEDI NGS I.E. THERE WAS NO CAPITAL WORK-IN-PROGRESS IN RESPECT OF LOANS ON WHI CH GUARANTEE FEES WAS PAID. 33. REGARDING COST OF RAISING FINANCE OF RS.21.61 L AKHS IS CONCERNED, THE CIT(A) OBSERVED THAT THE SAME WAS AN ALLOWABLE DEDUCTION AND BEING REVENUE EXPENDITURE, FOLLOWING THE DECISION I N THE CASE OF INDIA CEMENTS LTD. (SUPRA) DISALLOWANCE OF RS.21,61,000/- WAS CANCELLED. 34. THE DR SUPPORTED THE ORDER OF THE AO, WHEREAS, THE AR OF THE ASSESSEE SUPPORTED THE ORDER OF THE CIT(A) AND SUBM ITTED THAT THE ISSUE WAS NOW COVERED IN FAVOUR OF THE ASSESSEE BY THE DE CISION OF THIS TRIBUNAL IN THE CASE OF ASSESSEE ITSELF DATED 8.5.2 015 PASSED IN ITA NO.1931/AHD/2010, 2974/AHD/2010 AND 3004/AHD/2010. 35. WE FIND THAT THE TRIBUNAL IN ITS ORDER DATED 8. 5.2015 CITED SUPRA HAS HELD AS UNDER: '6. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE LD.CIT(A) DECIDED THESE ISS UES IN PARAS- 5.2 & 5.3 AND 6.2 RESPECTIVELY BY OBSERVING AS UNDER:- '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 FIEL D HAS EXERCISED THE COURTS IN NUMEROUS CASES. FROM AN ANA LYSIS OF ITA NO. 3356/AHD/15 [DCIT VS. GUJARAT ENERGY TRANSMISSION CORP. LTD.] A.Y. 2012-13 - 4 - SUCH CASES A FEW GUIDING PRINCIPLES/TESTS CAN BE ID ENTIFIED. ONE OF THE IMPORTANT TESTS FOR CATEGORIZING ANY EXP ENDITURE 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, I T WOULD BE INDICATIVE OF AN EXPENDITURE WHICH WAS NOT CAPITAL IN NATURE. ANOTHER 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 EXPLOIT C ERTAIN COMMERCIAL PROCESSES, ETC. IN THE INSTANT CASE, THE ASSESSEE DID NOT ACQUIRE ANY RIGHT TO EXPLOIT A COMMERCIAL T ECHNOLOGY OR PROCESS, AND NEITHER WAS THE BENEFIT 'ENDURING', SINCE THE PAYMENT OF GUARANTEE COMMISSION WAS AN ANNUAL CHARG E. THE BENEFIT DERIVED FROM PAYMENT OF SUCH COMMISSION THUS LASTED FOR EXACTLY ONE YEAR ONLY. SUCH SHORTLIVED B ENEFIT CANNOT BE CATEGORIZED AS 'ENDURING'. HENCE, I AM IN CLINED TO THE VIEW THAT THE PAYMENT OF GUARANTEE COMMISSIO N WAS A REVENUE EXPENDITURE. 5.3. FURTHER, THE JURISDICTION AL BENCH OF ITAT HAD OCCASION TO CONSIDER THE ALLOWABILITY O F GUARANTEE COMMISSION PAID TO A DIRECTOR OF THE COMP ANY IN RESPECT OF LOANS TAKEN FROM THE BANK. IN THE CASE O F HIMALAYA MACHINERY PVT.LTD. (ITA NO.738/AHD/2009) F OR AY 2006-07, THE TRIBUNAL HELD, VIDE ORDER DT.5.6.2009, FOLLOWING THE DECISION OF THE RAJASTHAN HIGH COURT IN CIT V. METALISING EQUIPMENT CO.PVT.LTD., 8 DTR 12, THAT TH E PAYMENT OF COMMISSION FOR GUARANTEEING REPAYMENT OF LOAN WAS ALLOWABLE AS REVENUE EXPENSE. IN THE INSTANT CA SE, THE LOAN HAS BEEN GUARANTEED BY THE GOVERNMENT OF GUJAR AT. 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 PAYM ENT TO THE GOG. IN VIEW OF THE TOTALITY OF THE CIRCUMSTANC ES, I AM OF THE OPINION THAT THE AO WAS NOT JUSTIFIED IN TRE ATING THE PAYMENT OF GUARANTEE COMMISSION (RS.8,39,04,550/-) AS CAPITAL IN NATURE. THE ADDITION IS DIRECTED TO BE D ELETED. 6.2. I HAVE CONSIDERED THE SUBMISSIONS OF THE LD.AR AND THE FACTS OF THE CASE. THE JURISDICTIONAL BENCH OF ITAT HAS H ELD IN THE CASE OF SHRI RAMA MULTI TECH VS. ACIT, 92 TTJ 568, THAT IN DETERMINING THE NATURE OF EXPENDITURE INCURRED FOR OBTAINING LOAN, IT IS IRRELEVANT TO CONSIDER THE PURPOSE OF L OAN. THE AMOUNT SPENT ON STAMP DUTY, LAWYER FEES, ETC. FOR O BTAINING LOAN SECURED BY CHARGE ON ITS FIXED ASSETS IS A REV ENUE EXPENDITURE, BECAUSE THE TRANSACTIONS WERE ENTERED INTO DIRECTLY TO FACILITATE THE BUSINESS OF THE COMPANY AND PAYMENT OF CONSULTANCY CHARGES WAS MADE ON GROUND O F COMMERCIAL EXPEDIENCY. IN INDIA CEMENTS LTD. VS. CI T, 60 ITR 52, THE SUPREME COURT HAD ALSO HELD THAT THE EXPENDITURE INCURRED FOR SECURING THE USE OF MONEY FOR A CERTAIN PERIOD WAS REVENUE EXPENDITURE. IN THE INST ANT CASE, THE ASSESSEE HAS SECURED THE LOAN BY CREATING A CHA RGE (HYPOTHECATION OF ITS ASSETS). HENCE THE RATIO OF T HE ABOVE MENTIONED TWO CASES WOULD SQUARELY APPLY. ACCORDING LY, IT IS HELD THAT THE AO WAS NOT JUSTIFIED IN MAKING THE DISALLOWANCE OF RS.45,24,582/-, WHICH IS DIRECTED T O BE DELETED.' ITA NO. 3356/AHD/15 [DCIT VS. GUJARAT ENERGY TRANSMISSION CORP. LTD.] A.Y. 2012-13 - 5 - 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 O F HIMALAYA MACHINERY PVT.LTD., DATED 5.6.2009 AND IN THE CASE OF SHRI RAMA MULTI TECH VS. ACIT REPORTED AT 92 TTJ 568. 6.2. THE LD.CIT-DR COULD NOT DISTINGUISH THE FACTS OF THE CASE, THEREFORE WE DO NOT SEE ANY REASON TO INTERFERE WIT H THE ORDER OF THE LD.CIT(A), SAME IS HEREBY UPHELD. THUS, THESE T WO GROUNDS RAISED IN THE REVENUE'S APPEAL ARE REJECTED.' 36. DR COULD NOT POINT OUT ANY GOOD REASON AS TO WH Y THE ABOVE QUOTED ORDER OF THE TRIBUNAL SHOULD NOT BE FOLLOWED FOR TH E YEAR UNDER CONSIDERATION. IN THE ABSENCE OF DISTINGUISHING FEA TURES BEING POINTED OUT BY THE DR, AND THE FACTS BEING IDENTICAL, RESPE CTFULLY FOLLOWING THE ABOVE QUOTED DECISION OF THE TRIBUNAL, WE CONFIRM T HE ORDER OF THE CIT(A), AND DISMISS THIS GROUND OF APPEAL OF THE RE VENUE. 4. IN PARITY WITH THE ORDER OF THE TRIBUNAL, WE AR E OF THE OPINION THAT CIT(A) HAS RIGHTLY ADJUDICATED THE ISSUE IN FAVOUR OF THE ASSESSEE. WE THUS DECLINE TO INTERFERE WITH THE ORDER OF THE CIT (A). 5. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. SD/- SD/- (MADHUMITA ROY) (PRADIP KUMAR K EDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: DATED 31/01/2020 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 IN OPEN COURT ON 31/01/2020