Appeal Details
Counselvise Citation
[2019] 117 COUNSELVISE.COM (IT) 3449 (ITAT-AHMEDABAD)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
3 year(s) 4 month(s) 22 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
26-04-2019
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
Not Allotted
Assessment Year
2008-2009
Appeal Filed On
04-12-2015
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH BEFORE: SHR I RAJPAL YADAV , JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER THE DCIT, CIRCLE - 1(1)(1), VADODARA (APPELLANT) VS GUJARAT URJA VIKAS NIGAM LTD. SARDAR PATEL VIDYUT BHAVAN RACE COURSE CIRCLE, BARODA - 390007 PAN: AACCG2861L (RESPONDENT) GUJARAT URJA VIKAS NIGAM LTD. SARDAR PATEL VIDYUT BHAVAN RACE COURSE CIRCLE, BARODA - 390007 PAN: AACCG2861L (APPELLANT) VS THE DCIT, CIRCLE - 1( 1)(1), VADODARA (RESPONDENT) REVENUE BY : S H RI /MS. RITA DOKANIA , SR. D . R. ASSESSEE BY: SHRI J.P. SHAH, A.R. DATE OF HEARING : 29 - 01 - 2 019 DATE OF PRONOUNCEMENT : 26 - 04 - 2 019 / ORDER I T A NO S . 3358, 1988, 3359 & 3360 / A HD/20 15 A . Y. 200 8 - 09 , 2010 - 11, 2011 - 12 & 2012 - 13 ITA NO S . 3437, 2014, 3438 & 3439/AHD/ 2015 A . Y. 2008 - 09 , 2010 - 11, 2011 - 12 & 2012 - 13 I.T.A NOS 3358, 1988, 3359, 3 360, 3437, 2014, 3438 & 3439/AHD/ 2015 PAGE NO DCIT VS. GUJARAT URJA VIKAS NIGAM LTD. 2 P ER : AMARJIT SINGH, ACCOUNTANT MEMBER : - THESE TWO SET OF APPEALS CONTAINING EIGHT APPEALS FOUR FILED BY REVENUE AND ANOTHER FOUR APPEALS FILED BY ASSESSEE FOR 2008 - 09, 2010 - 11, 2011 - 12 & 2012 - 13 , ARI SE FROM ORDER OF THE CIT(A) - 1, VADODARA , IN PROCEEDINGS UNDER SECTION 143(3) & 143(3) R.W.S. 147 OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . ALL THE GROUNDS OF APPEALS FILED BY THE REVENUE AND FILED BY THE ASSESSEE INVOLVED A NUMBER OF COMMON ISSUES THEREFORE FOR T HE SAKE OF CONVENIENCE ALL THESE A PPEALS ARE BEING ADJUDICATED TOGETHER BY THIS COMMON ORDER. AT THE OUTSET WE START WITH THE APPEAL OF THE REVENUE FILED VIDE ITA NO. 3358/A HD /15 FOR THE ASSESSMENT YEAR 2008 - 09 AS UNDER: - 2. THE FACT IN BRIEF IS THAT AS SESSMENT U/S. 143(3) OF THE ACT WAS COMPLETED ON 30 TH DECEMBER, 2010 DETERMINING THE TOTAL INCOME AT RS. NIL AFTER SETTING OFF OF BROUGH T FORWARD LOSS/DEPRECIATION OF RS. 137 , 08 , 55 , 763/ - . THE BOOK PROFIT U/S. 115JB OF THE ACT WAS DETERMINED AT 155 , 29 , 39 , 1 9 0 / - . SUBSEQUENTLY, THE CASE WAS RE - OP ENED U/S. 147 OF THE BY ISSUING NOTICE U/S. 148 OF THE ACT ON 27 TH MARCH, 2012. FURTHER FA C TS OF THE CASE ARE DISCUSSED WHILE ADJUDICATING DIFFERENT GROUNDS OF APPEALS AS UNDER: - ITA NO. 3358/AHD/2015 FILED BY REVEN UE , ASSESSMENT YEAR 2008 - 09 3 . THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(APPEALS) ERRED IN BY ALLOWING TRANSMISSION CHARGES EXPENSES OF RS.6292615912/ - WITHOUT APPRE CIATING THE REAL FACT THAT THE ASSESSEE COMPANY HAS NOT COMPLIED THE PROVISIONS OF TDS AND AS PER THE PROVISIONS OF THE ACT THE ASSESSEE COMPANY HAD TO DEDUCT THE TDS ON THE SAME AMOUNT. FURTHER, AS THE I.T.A NOS 3358, 1988, 3359, 3 360, 3437, 2014, 3438 & 3439/AHD/ 2015 PAGE NO DCIT VS. GUJARAT URJA VIKAS NIGAM LTD. 3 PROVISIONS OF SEC. 40(A)(IA) OF THE ACT DO CONTEMPLAT E SUCH CLEAR DISTINCTION THAT THE PROVISIONS WOULD BE APPLICABLE IF THE EXPENDITURES ARE NOT ACTUALLY PAID OR NOT.' 2. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO TREAT THE INT EREST INCOME OF RS. 13352.48 LACS AS BUSINESS INCOME INSTEAD OF INCOME FROM OTHER SOURCES WITHOUT APPRECIATING THAT THE NATURE OF THE INCOME IS OF PURELY INTEREST AND NOT FROM ANY ACTIVITIES OF BUSINESS OR PROFESSION.' GROUND NO. 1 (ALLOWING TRANSMISSION CHARGES EXP E NSES OF RS. 629 , 26 , 15 , 91 2/ - ) 4. DURING THE RE - ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT ASSESSEE COMPANY HAS PAID AN A MOUNT OF RS. 629,26,15,912/ - TO GUJARAT ENERGY TRANSMISSION C OMPANY LTD. ( GETCO ) BEING TRANSMISSION CHARGES WITHOUT DEDUCTION OF TAXES. THE ASSESSING OFFICER WAS OF TH E VIEW THAT AS PER SECTION 40(A) (IA) OF THE ACT THE SES EXPENDITURE REQUIRED TO BE DISALLOWED FOR NOT DEDUCTING TAX AT SOURCE . THE ASSESSEE EXPLAINED THAT NO TDS ON PAYMENT OF TRANSMISSION C HARGES T O BE MADE AND ON THIS ACCOUNT NO T ANY DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER IN THE PRECEDING ASSESSMENT YEAR . T HE ASSESSING OFFICER HA S NOT AGREED WITH T H E ASSESSEE AND SHE WAS OF THE VIEW THAT TRANSMISSION CHARGES WAS NOT ALLOWABLE EXPE NSES SINCE THE ASSESSEE HA D NOT MADE COMPLIANCE WITH THE PROVISIONS OF TDS . CONSEQUENTLY, THE AFORESAID AMOUNT OF RS. 62 9 , 26 , 15 , 912/ - WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 5. AGGRIEVED ASSESSE HAS FILED APPEAL BEFORE THE LD. CIT(A). T HE LD. CIT (A) HAS ALLOWED THE APPEAL OF THE ASSESSEE HOLDING THAT THE ISSUE WAS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HON BLE ITAT AHMEDABAD VIDE ITA NO. 3381/AHD/2009 FOR ASSESSMENT YEAR 2007 - 08 . THE RELEVANT PART OF THE DECISION OF CIT(A) IS REPRODUCED AS UNDER: - I.T.A NOS 3358, 1988, 3359, 3 360, 3437, 2014, 3438 & 3439/AHD/ 2015 PAGE NO DCIT VS. GUJARAT URJA VIKAS NIGAM LTD. 4 7. THE 4 TH GROUND OF APPEAL IS AS FOLLOWS: THE LEARNED ASSESSING OFFICER ERRED IN LAW AND FACTS AND HAS DISALLOWED THE TRANSMISSION CHARGES PAID AMOUNTING TO RS. 6,29,26,15,912/ - BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE IT ACT WITHOUT APPRECIATING THE FACT THAT THE AMOUNT WAS ACTUALLY PAID AND SECTION 40(A)(IA) IS NOT APPLICABLE TO AMOUNTS ALREADY PAID BEFORE THE END OF THE FINANCIAL YEAR UNDER CONSIDERATION. THE LEARNED ASSESSING OFFICER ALSO FAILED TO APPRECIATE THAT T HE HON'BLE ITAT, AHMEDABAD IN THE APPELLANT'S OWN CASE FOR EARLIER YEARS HAS HELD THAT THE TRANSMISSION CHARGES ARE NOT LIABLE TO TDS UNDER THE IT ACT, 1961.' 7.1. THE AO IN HER ORDER HAS STATED AS FOLLOWS: '(5.0) NON DEDUCTION OF TDS: DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS FOUND THAT THE ASSESSEE COMPANY PAID RS.629,26,15,912 TO GUJARAT ENERGY TRANSMISSION COMPANY LTD(GETCO) BEING TRANSMISSION CHARGES. AS PER THE PROVISION OF SECTION 40(A)(IA) OF IT ACT THE'' WHOLE EXPENDITURE ON WHICH TDS WAS NOT MADE ARE REQUIRED TO BE DISALLOWED. THE ASSESSEE COMPANY VIDE LETTER DATED 07.01,2013 ISSUED SHOW CAUSE NOTICE AS TO WHY THE SAME EXPENSE SHOULD NOT BE DISALLOWED. THE ASSESSEE COMPANY SUBMITTED ITS WRITTEN REPLY WHICH IS REPRODUCED AS FOLLOWS: 'IT IS SUBMITTED THAT THE ISSUE RELATING TO THE DISALLOWANCE OF TRANSMISSION CHARGES PAID TO GETCO WITHOUT DEDUCTION OF TDS WAS SPECIFICALLY RAISED AND EXAMINED WHILE COMPLETING THE ASSESSMENT UNDER SECTION 143(3) OF THE IT ACT. AS A MATTER OF FACT, WE HAD ALSO FILED A WRITTEN SUBMISSION OF THE ISSUE VIDE OUR LETTER DATED 16.12.2010. ON THE BASIS OF OUR EXPLANATION, THE ISSUE WAS DROPPED FROM THE ASSESSMENT, AND NO ADDITIONS WERE MADE ON THIS COUNT. WITHOUT PREJUDICE TO THE ABOVE, IT IS A/SO SUBMITTED THAT THE PR OVISIONS OF SECTION 40(A)(IA) PROVIDES FOR NON - DEDUCTION OF AMOUNT WHICH REMAINS PAYABLE. IT IS NOT APPLICABLE WHERE EXPENDITURE IS PAID, IT IS APPLICABLE ONLY IN CASES WHERE THE PAYMENTS ARE DUE AND OUTSTANDING. REFERENCE IS INVITED TO THE ITAT, AHMEDABA D JUDGEMENT IN CASE OF N K JEWELERS VS ITO AND ITAT, VIZAG IN CASE OF MERILYN SHIPPING & TRANSPORTS VS. ACIT.' THE REPLY OF THE ASSESSEE COMPANY HAS BEEN CONSIDERED AND IS NOT FOUND TO BE ACCEPTABLE. CONTENTION OF THE ASSESSEE THAT THE ASSESSEE COMPANY PAI D TRANSMISSION CHARGES, THEREFORE, TDS IS NOT APPLICABLE IS NOT AS PER THE PROVISION OF THE ACT. AS PER THE PROVISION OF THE IT ACT THE ASSESSEE COMPANY HAD TO DEDUCT THE TDS ON THE SAME AMOUNT. AS THE PROVISIONS OF SECTION 40(A)(IA) DO CONTEMPLATE SUCH CL EAR DISTINCTION THAT THE PROVISIONS WOULD BE APPLICABLE IF THE EXPENDITURES ARE NOT ACTUALLY PAID OR NOT. THEREFORE, THE SAME EXPENSE OF RS.629,26,15,912/ - BEING TRANSMISSION CHARGES IS NOT ALLOWABLE EXPENSES AS THE ASSESSEE COMPANY HAS NOT COMPLIED THE PR OVISION OF TDS. ACCORDINGLY, RS.629,26,15,912/ - IS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE COMPANY.' 7.2. DURING THE COURSE OF THE CURRENT APPELLATE PROCEEDINGS, THE AR OF THE APPELLANT HAS SUBMITTED AS FOLLOWS: 'GROUND NO.3 : DISALLOWANCE OF TRANSM ISSION CHARGES U/S 40(A)(IA) OF THE IT ACT 1.0. THE LEARNED ASSESSING OFFICER HAS DISALLOWED THE TRANSMISSION CHARGES PAID AMOUNTING TO 29,26,15,912/ - BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE I T ACT WITHOUT APPRECIATING THE FACT THAT THE AMO UNT WAS ACTUALLY PAID AND SECTION 40(A)(IA) IS NOT APPLICABLE TO AMOUNTS ALREADY PAID BEFORE THE END OF THE FINANCIAL YEAR UNDER CONSIDERATION. 1.1. IN THIS CONTEXT, IT IS SUBMITTED THAT THE PROVISIONS OF SECTION 40(A)(IA) PROVIDES FOR NON - DEDUCTION OF AMO UNT WHICH REMAINS PAYABLE TO A RESIDENT IN RESPECT OF FEES FOR TECHNICAL SERVICES ETC. IT IS NOT APPLICABLE WHERE EXPENDITURE IS PAID. IT IS APPLICABLE ONLY IN CASES WHERE THE PAYMENTS ARE DUE AND OUTSTANDING. SECTION 40(A)(IA) OTHERWISE BEING A LEGAL FICT ION NEEDS TO BE CONSTRUED STRICTLY IN VIEW OF SUPREME COURT DECISION IN CASE OF CIT VS. MOTHER INDIA REFRIGERATION INDUSTRIES PVT. LTD. 155 ITR 71. THE CBDT IN I.T.A NOS 3358, 1988, 3359, 3 360, 3437, 2014, 3438 & 3439/AHD/ 2015 PAGE NO DCIT VS. GUJARAT URJA VIKAS NIGAM LTD. 5 CIRCULAR NO. 5/2005 DATED 15 - 07 - 2005 HAS ALSO CLARIFIED THAT THE PROVISION OF SECTION 40(A)(IA) IS TO AUGMENT COMPLIANCE OF TDS PROVISIONS IN CASE OF RESIDENTS AND CURB BOGUS PAYMENT TO THEM. IN OUR CASE THE PAYMENTS ARE NOT IN DISPUTE AND WE HAVE ACTUALLY MADE PAYMENT OF THE EXPENDITURE. RELIANCE IS ALSO PLACED ON THE DECISION OF ITAT JAIPUR IN CASE OF JAIPUR VIDYUT VITRAN NIGAM LTD. VS. ITO (TDS) WHEREIN THE SAID VIEWS HAVE AFFIRMED BY THE TRIBUNAL. HENCE THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT ARE NOT APPLICABLE AND NO DISALLOWANCES ARE WARRANTED. 1.2. IT IS ALSO SUBMITTED THAT THAT IN T HE APPELLANT'S OWN CASE FOR THE ASST. YEAR 2007 - 08 TO 2009 - 10, THE HON'BLE ITAT, AHMEDABAD VIDE ITS ORDER DATED 14 - 12 - 2012 HAS CATEGORICALLY HELD THAT THE NO TD5 IS LIABLE TO BE DEDUCTED ON THE TRANSMISSION CHARGES PAYABLE BY THE COMPANY. IT MAY BE NOTED THAT THE SAID ORDER HAS BEEN PASSED EVEN IN RESPONSE TO THE DEPARTMENTAL APPEALS FOR THE SAID YEARS. A COPY OF THE SAID ORDER - IS ENCLOSED HEREWITH FOR IMMEDIATE REFERENCE IN ANNEXURE - LL. 1.3. IN VIEW OF THE FACTS AND CIRCUMSTANCES, IT IS SUBMITTED THAT TH E PROVISIONS RELATING TO TDS ARE NOT APPLICABLE AT ALL TO SUCH TRANSMISSION CHARGES AND HENCE THERE IS NO QUESTION OF INVOKING SECTION 40(A)(IA) OF THE I T ACT. THE APPELLANT, THEREFORE, PRAYS THAT THE DISALLOWANCES OF RS.62926.16 LACS DESERVE TO BE DELETE D IN TOTO.' 7.3. I HAVE CONSIDERED THE FACTS OF THE CASE, THE SUBMISSION OF THE APPELLANT AND THE AO'S OBSERVATIONS. THIS ISSUE IS COVERED IN FAVOUR OF THE APPELLANT BY THE DECISION OF HON'BLE ITAT AHMEDABAD IN ITA NO. 3381/AHD/2009 FOR A.Y. 2007 - 08 IN WHI CH THE BENCH HAS HELD THAT THE AO WAS NOT JUSTIFIED IN HOLDING THAT THE ASSESSEE LIABLE FOR DEDUCTION OF TDS ON PAYMENT MADE OF TRANSMISSION CHARGES. FOLLOWING THIS DECISION, THE DISALLOWANCE MADE BY THE AO IN THE CURRENT YEAR IS DIRECTED TO BE DELETED. 6 . WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD. DURING THE ASSESSMENT, THE ASSESSING OFFICER HAS DISALLOWED THE CLAIM OF TRANSMISSION CHARGES EXPENSES TO THE AMOUNT OF RS. 6,29,26,15,912/ - U/S. 40(A)(IA) ON THE GROUND THAT THE ASSESSEE HAS NOT DEDUCT TAX ON THIS PAYMENT. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE LD. COUNSEL HAS BROUGHT TO OUR NOTICED THAT THE CO - ORDINATE BENCH OF THE ITAT VIDE IT NO. 3381/AHD/2009 FOR ASSESSMENT YEAR 2007 - 08 HAS HELD THAT THE ASSESSE WAS NOT LIA BLE FOR DEDUCTION OF TDS ON PAYMENT MADE FOR TRANSMISSION CHARGES. WITH THE ASSISTANCE OF THE LD. REPRESENTATIVE WE HAVE GONE THROUGH THE RELEVANT PART OF THE DECISION OF THE ITAT AHMEDABAD VIDE ITA NO. 3381/AHD/2009 FOR ASSESSMENT YEAR 2007 - 08 WHICH IS REPRODUCED AS UNDER: - 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF GENERATING,TRANSMISSION & DISTRIBUTION OF ELECTRICITY. IT PURC HASES ELECTRICITY FROM VARIOUS ELECTRICITY GENERATING COMPANIES AND IN TURN SUPPLIES TO MGVCL FOR ONWARD TRANSMISSION. THE ASSESSEE PAYS TRANSMISSION AND WHOLLY CHARGES FOR TRANSMISSION OF ELECTRICITY. THE DISPUTE IN THE PRESENT APPEAL IS, THEREFORE, WHETH ER THE TRANSMISSION AND WHEELING CHARGES PAID BY THE ASSESSEE I.T.A NOS 3358, 1988, 3359, 3 360, 3437, 2014, 3438 & 3439/AHD/ 2015 PAGE NO DCIT VS. GUJARAT URJA VIKAS NIGAM LTD. 6 FOR TRANSMISSION OF ELECTRICITY CAN BE SAID TO BE IN THE NATURE OF 'TECHNICAL SERVICES' SO AS TO ATTRACT THE PROVISIONS OF DEDUCTION OF TAX U/S 194J? 8.1. IN THE CASE OF JAIPUR VIDYUT VITRAN (SU PRA) THE JAIPUR TRIBUNAL HAS CONCLUDED AS UNDER: 'ASSESSEE, AN ELECTRICITY DISTRIBUTION COMPANY, WAS NOT LIABLE TO DEDUCT TAX AT SOURCE UNDER S.194J FROM THE PAYMENT OF TRANSMISSION/SLDC CHARGES TO THE TRANSMISSION COMPANY RVPN AS THE OPERATION AND MAINTEN ANCE OF TRANSMISSION LINES BY RVPN AND THE USER OF THESE LINES BY THE ASSESSEE FOR TRANSMITTING ENERGY DOES NOT RESULT IN ANY TECHNICAL SERVICES BEING RENDERED TO THE ASSESSEE, APART FROM THE FACT THAT THE PAYMENT OF TRANSMISSION/WHEELING/SLDC CHARGES IS R EIMBURSEMENT OF THE COST AND, THEREFORE, THE PAYMENTS COULD NOT BE DISALLOWED UNDER S.40(A) (IA); PROVISIONS OF S.40(A)(IA) ARE NOT APPLICABLE ALSO FOR THE REASON THAT THEY APPLY ONLY WHEN THE AMOUNT IS PAYABLE I.E., DUE WHEREAS THE ASSESSEE HAS MADE ACTUA L PAYMENT.' 8.2 IN THE CASE OF MAHARASHTRA STATE ELECTRICITY DISTRIBUTION (SUPRA) THE MUMBAI TRIBUNAL HAS RELYING ON THE DECISION IN THE CASE OF JAIPUR VIDYUT HAS HELD THAT WHEELING AND TRANSMISSION CHARGES PAID BY ASSESSEE STATE ELECTRICITY DISTRIBUTION C OMPANY IN CASE OF WHICH PROVISIONS OF ELECTRICITY ACT 2003 IS APPLICABLE ARE NOT LIABLE FOR DEDUCTION OF TAX EITHER U/S 194J OR 194COFTHEACT. 8.3. IN THE CASE OF CHATTISGARH STATE ELECTRICITY BOARD (SUPRA) THE MUMBAI TRIBUNAL HAS CONCLUDED AS UNDER: 'PAYMENT MADE BY THE ASSESSEE, A STATE ELECTRICITY BOARD, TO PGCILFOR TRANSMISSION OF POWER PURCHASED BY IT FROM NTPC WAS MADE FOR THE SERVICES OF TRANSMISSION OF ELECTRICITY AND NOT FOR THE USE OF TRANSMISSION WIRES PER SE IN AS MUCH AS THESE TRANSMISSION LINES ARE USED NOT ONLY FOR TRANSMISSION OF ELECTRICITY TO THE ASSESSEE BUT ALSO FOR TRANSMISSION OF ELECTRICITY TO VARIOUS OTHER ENTITIES, AND THE ASSESSEE HAS NO SAY IN THE MANNER IN WHICH SUCH TRANSMISSION LINES CAN BE CONTROLLED OR USED BY PGCIL AND T HEREFORE, S. 194 - 1 HAS NO APPLICATION.' 9. BEFORE US, THE LD. D.R. HAS RELIED ON THE DECISION IN THE CASE OF KOTAK SECURITIES (SUPRA). THE FACTS OF THE CASE RELIED UPON BY REVENUE ARE DISTINGUISHABLE IN VIEW OF THE FACT THAT IN THAT CASE THE ISSUE WITH RES PECT TO TRANSACTION FEES PAID TO BSE IN RESPECT OF TRANSACTIONS CARRIED OUT THROUGH BOLT SYSTEM OF BSE. IN THE FACTS OF THAT CASE IT WAS HELD THAT THERE WAS DIRECT LINKAGE BETWEEN THE MANAGERIAL SERVICES RENDERED AND THE TRANSACTION CHARGES LEVIED BY THE S TOCK EXCHANGE. THUS THE FACTS HAVE NO APPLICATION IN THE PRESENT CASE. 10. THE CONTENTION OF THE ASSESSEE THAT THE FACTS IN THE PRESENT CASE ARE IDENTICAL TO THAT OF JAIPUR VIDYUT VITARAN, MAHARASHTRA STATE ELECTRICITY DISTRIBUTION HAS NOT BEEN CONTROVERTE D BY THE REVENUE BY BRINGING ANY CONTRARY MATERIAL ON RECORD. HE COULD NOT THUS BRING ON RECORD THE DISTINCTION IN THE FACTS OF THE PRESENT CASE WITH THAT OF JAIPUR VIDYUT & MAHARASHTRA STATE ELECTRICITY. THE REVENUE COULD NOT ALSO PLACE ON RECORD ANY CONT RARY DECISION OF TRIBUNAL OR HIGH COURT ON RECORD. SINCE THE FACTS OF THE PRESENT CASE ARE IDENTICAL TO THAT OF JAIPUR VIDYUT AND THAT OF MAHARASHTRA ELECTRICITY BOARD, RESPECTFULLY FOLLOWING THE DECISIONS OF THE CO - ORDINATE BENCH, WE ARE OF THE CONSIDERED VIEW THAT THE AO WAS NOT JUSTIFIED IN HOLDING THAT THE ASSESSEE IS LIABLE FOR DEDUCTION OF TDS ON PAYMENT OF TRANSMISSION CHARGES PAID BY ASSESSEE IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED AND OF ASSESSEE IS ALLOWED. THESE FACTS HAS NOT BEEN CONTROVERTED BY THE REVENUE BY BRINGING ANY CONTRARY MATERIAL ON RECORD , THEREFORE , , R ESPECTFULLY FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH, WE DO NOT FIND ANY MERIT IN THE GROUND OF THE APPEAL OF THE REVENUE, THEREFORE, THIS GROUND OF APPEAL IS DIS MISSED. I.T.A NOS 3358, 1988, 3359, 3 360, 3437, 2014, 3438 & 3439/AHD/ 2015 PAGE NO DCIT VS. GUJARAT URJA VIKAS NIGAM LTD. 7 GRO UND NO. 2 (TREAT I N G INTE RE ST INCOME OF R S. 13352.48 LACS AS BUSINESS INCOME INST E A D OF INCOME FROM OTHER SOURCES) & GROUND NO. 3 OF ITA 3359/AHD/2015 7. AS THE FACTS IN BOTH THE GROUNDS OF APPEALS ARE SIMILAR, SO, WE TAKE 2 ND GROUND OF ITA N O. 3358/AHD/2015 AS LEAD CASE AND ITS FINDINGS WILL ALSO BE APPLICABLE TO GROUND NO. 3 OF ITA NO. 3359/AHD/2015. 8 . DURING THE COURSE OF ASSESSMENT, THE ASSESSING OFFICER NOTICED THAT AS PER SCHEDULE 14, THE ASSESS EE HAS SHOWN OTHER INCOME CONSISTING OF INTEREST ON LOAN AND ADVANCES , INCENTIVES F R OM CPSU , CASH DISCOUNT , GAIN ON SALE OF FIXED ASSETS, GAIN ON FOREIGN EXCHANGE FLUC TUA TION AND MISCELLANEOUS INCOME ETC. AMOUNT ING TO RS. 13352 .48 LACS. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE SE INCOME WAS TO BE ASSESSED AS INCOME FROM OTHER SOURCES INSTEAD OF BUSINESS INCOME SHOWN BY THE ASSESSEE. ON QUERY , THE ASSESSEE EXPLAINED THAT INTEREST EARNED ON LOAN AND ADVANCES WAS FROM DEPOSIT PLACED WITH MEGA POWER PROJECT TOWARDS ITS SHARING OF POWER A ND INTEREST OF UL POOL ACCOUNT WAS RECEIVED FROM M/S. POWER GRID CORPORATION INDIA LTD. IT WAS ALSO EXPLAINED THAT OTHER INCOME AND MISCELLANEOUS INCOME CANNOT BE TREATED AS INCOME F R O M OTHER SOURCES. THE ASSESSING OFFICER HA S NOT AGREED WITH THE EXPL ANATION OF THE ASSESSEE AND HE WAS OF THE VIEW THAT SUCH INCOME WAS NOT DIRECTLY RELATED TO THE NATURE OF BUSINESS OF THE ASSESSEE , THEREFORE , SHE HAS TREATED THE AFORESAID INCOME AS INCOME FROM OTHER SOURCES. 9 . AGGRIEVED ASSESSE HAS FILED APPEAL BEFOR E THE LD. CIT(A). T HE LD. CIT(A) HAS ALLOWED THE APPEAL OF THE ASSESSEE STATING THAT THE SIMILAR ISSUE I.T.A NOS 3358, 1988, 3359, 3 360, 3437, 2014, 3438 & 3439/AHD/ 2015 PAGE NO DCIT VS. GUJARAT URJA VIKAS NIGAM LTD. 8 WAS DECIDED IN FAVOUR OF THE ASSESSEE BY HIS PREDECESSOR FOR ASSESSMENT YEAR 2009 - 10. 10 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD ON THIS ISSUE. THE ASSESSING OFFICER HAS TREATED THE AFORESAID INCOME UNDER THE H EAD INCOME F R O M OTHER SOURCES WITHOUT CONTROVERTING THE SUBMISSION OF THE ASSESSEE ON THE BASIS OF WHICH IT WAS CLAIMED THAT THESE INCOME WERE OF THE NATURE OF BUS INESS INCOME AS ELABORATED IN PARA SEVEN OF THIS ORDER. THE LD. CIT(A) HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE STA T ING THAT THIS ISSUE WAS DECIDED IN F A VOUR OF THE ASSESSEE FOR ASSESSMENT YEAR 2009 - 10. DURING THE COURSE OF APPELLATE PROCEEDINGS , T HE RE V EN U E HAS FAILED TO CONTROVERT THE AFORESAID CONTENTION AND THE FINDINGS OF THE LD. CIT(A) ,T HEREFORE AFTER CONSIDERING THE MATERIAL FACT THAT INTEREST EARNED ON LOAN AND ADVANCES FROM DEPOSIT PLACED WITH MEGA POWER PROJECT TOWARDS ITS SHARING OF P OWER AND INTEREST OF UL POOL ACCOUNT RECEIVED FROM M/S. POWER GRID CORPORATION INDIA LTD WERE DIRECTLY RELATED TO THE BUSINESS OF THE ASSESSEE , THEREFORE, THIS GROUND OF APPEAL OF THE REVENUE STANDS DISMISSED. ITA NO. 3437/AHD/2015 FILED BY ASSESSEE , A.Y. 2008 - 09 1 1 . THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE OF THE EXPENDITURE OF RS. 3,39,00,000/ - BEING THE PROVISION MADE FOR EMPLOYEES COST FOR ARREARS PAYABLE UPTO 31 ST MARCH, 2008 TREATING THE SAME AS CONTINGENT LIABILITY WITHOUT CONSIDERING THE FACTS THAT, SUCH EXPENDITURE WAS PROVIDED PENDING THE FINAL DECISION OF THE 6 TH PAY COMMISSION BASED ON THE PROVISIONS OF ACCOUNTING STANDARDS AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AND FACTS IN CONFIRMING THE ENHANCEMENT OF THE BOOK PROFIT COMPUTED UNDER SECTION 115JB OF THE INCOME TAX ACT, 1961 ON ACCOUNT OF D ISALLOWANCE OF EXPENSES OF RS. 3,39,00,000/ - BEING PROVISION MADE FOR ARREARS PAYABLE TO THE EMPLOYEES PENDING THE DECISION OF 6 TH PAY COMMISSION. I.T.A NOS 3358, 1988, 3359, 3 360, 3437, 2014, 3438 & 3439/AHD/ 2015 PAGE NO DCIT VS. GUJARAT URJA VIKAS NIGAM LTD. 9 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN LAW AND FACTS AND HAS CONFIRMED THE DISALLOWANC E OF PRIOR PERIOD EXPENSES OF RS.2,28,558/ - BEING POWER PURCHASE ON THE GROUND THAT THE SAME IS NOT AN ALLOWABLE EXPENSE. THE LEARNED COMMISSIONER (APPEALS) HAS FURTHER ERRED IN LAW AND FACTS IN CONFIRMING THE DISALLOWANCE OF DEPRECIATION OF RS.18,77,000/ - AND INTEREST AND FINANCE CHARGES RS. 1,72,56,000/ - ACCOUNTED AS PRIOR PERIOD EXPENSES WITHOUT APPRECIATING THE FACT THAT SUCH EXPENDITURE CRYSTALLIZED DURING THE YEAR. THE LEARNED COMMISSIONER (APPEALS) HAS ERRED IN LAW AND ON FACTS IN ENHANCING THE DISA LLOWANCE OF PRIOR PERIOD EXPENSES ON ACCOUNT OF ADMINISTRATIVE AND OTHER EXPENSES OF RS. 1,30,35,000/ - WITHOUT CONSIDERING THAT THERE WAS A NET INCOME UNDER THIS HEAD WHICH HAS ALREADY BEEN OFFERED TO TAX DURING THE YEAR. 4. THE LEARNED COMMISSIONER OF INC OME TAX (APPEALS) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE CHARGING OF INTEREST UNDER SECTION 234B, 234C AND 234D OF THE INCOME TAX ACT, 1961. GROUND NOS. 1 &2 (DISALLOWANCE OF PROVISION M ADE OF EMPLOYEES COST OF R S. 3 , 39 ,0 0000 &CONFIRMING THE EN HANCEMENT OF THE BOOK PROFIT COMPUTED UNDER SECTION 115JB OF THE INCOME TAX ACT, 1961 ON ACCOUNT OF DISALLOWANCE OF EXPENSES OF RS. 3,39,00,000/ - ) , 1 2 . DURING ASSESSMENT, THE ASSESSING OFFICER NOTICED THAT ASSESSEE COMPANY HAS CLAIMED AN ESTIMATED LIA BILITY OF RS. 339.00 LACS BEING EMPLOYEE COST AND ACCOUNTED THE SAME ON ACCRUAL BASIS. THE ASSESSEE HAS EXPLAINED THAT ADDITIONAL LIABILITY IN THIS RESPECT WOULD BE ASCERTAINED WHEN THE SETTLEMENT WILL BE REACHED. THE ASSESSEE HAS SUBMITTED THAT SUCH PROV ISION WAS BASED ON THE NEGOTIATION WI TH THE EMPLOYEES UNION AS THE WAGE REVISION WAS PENDING AS PER THE DECISION OF SIXTH PAY COMMISSION. THE ASSESSING OFFICER WA S OF THE VIEW THAT AFORE SAID EXPENSES WAS A CONTINGENT LIABILITY AND NOT AN ASCERTAINED L IABILITY WHICH WAS REQUIRED TO BE DISALLOWED FOR THE PURPOSE OF COMPUTATION OF NORMAL INCOME AS WELL AS FOR THE PURPOSE OF DETERMINING OF TAX LIABILITY U/S. 115JB. T HEREFORE, THE ASSESSING OFFICER HELD THAT THE AFORESAID PROVISION WERE MADE FOR UNASCERTA INED LIABILITY WHICH HA D NOT BEEN CRYSTALIZED DURING THE YEAR. THEREFORE, THE SAME WAS DISALLOWED AS BUSINESS EXPENDITURE UNDER THE PROVISION OF SECTION 37(1) OF THE ACT. THE ASSESSING OFFICER HAS ALSO ADDED I.T.A NOS 3358, 1988, 3359, 3 360, 3437, 2014, 3438 & 3439/AHD/ 2015 PAGE NO DCIT VS. GUJARAT URJA VIKAS NIGAM LTD. 10 BACK THE AFORESAID TO T AL AMOUNT FOR COMPUTING BOOK PROFIT U/S. 115JB OF THE ACT. 13 . AGGRIEVED ASSESSE HAS FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS DISMISSED THE APPEAL OF THE ASSESSEE. THE RELEVANT PART OF THE DECISION OF LD. CIT(A) IS REPRODUCED AS UNDER: - 5.3. I HAVE CONSIDERED T HE FACTS OF THE CASE, THE SUBMISSION OF THE APPELLANT AND THE AO'S OBSERVATIONS. IF THE LIABILITY ON ACCOUNT OF IMPLEMENTATION OF SIXTH PAY COMMISSION RECOMMENDATIONS IN APPELLANT COMPANY HAD INDEED CRYSTALLIZED DURING THE FY 2007 - 08, AS CONTENDED BY THE A PPELLANT, GOVERNMENT ORDER TO THIS EFFECT WOULD HAVE BEEN ISSUED DURING THE YEAR FY 2007 - 08 ITSELF. NO SUCH ORDER HAS BEEN FURNISHED BY THE APPELLANT EITHER DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS OR DURING THE COURSE OF THE APPELLANT PROCEEDINGS. IN VIEW OF THIS, DISALLOWANCE OF THIS PROVISION IS CONFIRMED AS PER THE NORMAL PROVISIONS AS WELL AS U/S 115JB ALSO, SINCE THE LIABILITY DID NOT CRYSTALLIZE IN THIS YEAR. 14 . WE HAVE HEARD RIVAL CONTENTIONS ON THIS ISSUE AND PERUSED THE MATERIAL ON RECOR D. THE ASSESSEE COMPANY HAS CLAIMED AN ESTIMATED LIABILITY OF RS. 3339.00 LACS BEING EMPLOYEE COST AND ACCOUNTED THE SAME ON ACCRUAL BASIS. THE ASSESSING OFFICER HAS DISALLOWED THE IMPUGNED CLAIM ON THE GROUND THAT ADDITIONAL LIABILITY WAS YET TO BE ASCE RTAINED. WITH THE ASSISTANCE OF LD. REPRESENTATIVES, WE HAVE GONE THROUGH THE MATERIAL ON RECORD AND IT IS NOTICED THAT THE ASSESSEE COMPANY HAS MADE THIS PROVISIONS FOR ARREARS PAYABLE TO THE EMPLOYEE FOR THE PURPOSE OF WAGE REVISION TO BE MADE ACCORDIN G TO THE 6 TH PAY COMMISSION. THE ASSESSEE HAS STATED THAT THE EMPLOYEE S UNION HAS SUBMITTED THEIR CHARTER OF DEMANDS AND NEGOTIATIONS WITH THE UNION REPRESENTATIVES WER E IN PROGRESS DURING THE YEAR. THE LD. COUNSEL HAS SUBMITTED THAT IDENTICAL ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE ITAT AHMEDABAD VIDE ITA NO. 704/AHD / 2012 IN THE CASE OF GUJARAT ENERGY TRANSMISSION CORP. LTD. FOR A. Y. 2008 - 08 0N 12/06/2015 . IN THE LIGHT OF THE AFORESAID FACTS AND CIR CU M STANC ES, WE RESTORE THIS ISSUE TO T HE FILE OF THE ASSESSING OFFICER FOR ADJUDICATING A FRESH AFTER CONSIDERATION OF I.T.A NOS 3358, 1988, 3359, 3 360, 3437, 2014, 3438 & 3439/AHD/ 2015 PAGE NO DCIT VS. GUJARAT URJA VIKAS NIGAM LTD. 11 THE ABOVE CITED DECISION AND VERIFICATION/EXAMINATION OF THE INFORMATION OF THE RELEVANT INFORMATION TO BE FURNISHED BY THE ASSESSEE IN THE SET A SIDE PROCEEDINGS. T HEREFORE, BOTH THESE GROUND OF APPEAL OF THE ASSESSE ARE ALLOWED FOR STATISTICAL PURPOSES. GROUND NO . 3 ( D ISALLOWANCE OF PRIOR PERIOD EXPENSES) , GROUND NO. 5 OF ITA 3359/AHD/2015, GROUND NO. 3 OF ITA NO. 3438/AHD/2015 AND G ROUND NO. 3 OF ITA NO. 3439/AHD/2015 15 . AS THE FACTS IN ALL THE FOUR GROUNDS OF APPEALS ARE SIMILAR, SO, WE TAKE 3R D GROUND OF ITA NO. 3358/AHD/2015 AS LEAD CASE AND ITS FINDINGS WI LL ALSO BE APPLICABLE TO GROUND NO. 5 OF ITA 3359/AHD/2015, GROUND NO. 3 OF ITA NO. 3438/AHD/2015 AND GROUND NO. 3 OF ITA NO. 3439/AHD/2015 16 . DURING THE ASSESSMENT, THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS CLAIMED PRIOR PERIOD EXPENSES OF RS. 220.54 LACS. THE ASSESSEE HAS EXPLAINED THAT THERE WA S A NET PRIOR PERIOD INCOME OF R S. 2351.38 LACS WHICH HAS ALRE ADY BEEN INCLUDED IN THE NET PROFIT AFTER TAXES, THEREFORE, NO FURTHER DISALLOWANCE SHOULD BE MADE. THE ASSESSING OFFICER HAS NOT ACCEPTED THE REPLY OF THE ASSESSEE AND STATED THAT CLAIM OF PRIOR PERIOD EXPENSES OF RS. 220.54 LACS WAS NOT ALLOWABLE, THERE FORE, THE SAME WAS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSSEE. 17 . AGGRIEVED ASSESSE HAS FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS DISMISSED THE APPEAL OF THE ASSESSEE. THE RELEVANT PART OF THE DECISION OF LD. CIT(A) IS REPRO DUCED AS UNDER: - 6.4. I HAVE CONSIDERED THE FACTS OF THE CASE, THE SUBMISSION OF THE APPELLANT AND THE AO'S OBSERVATIONS. THE ISSUE OF ALLOWABILITY OF ANY PRIOR PERIOD EXPENSE DEBITED IN THE PROFIT & LOSS ACCOUNT IS REQUIRED TO BE ADJUDICATED AS PER RATIO LAID DOWN BY THE HON'BLE HIGH COURT OF GUJARAT IN THE CASE OF SAURASHTRA CEMENT & CHEMICALS LTD 213 ITR 532 (GUJ). IN THIS DECISION THE HIGH COURT, WITH REGARD TO ALLOWABILITY OF PRIOR PERIOD EXPENSE S, HAS O BSERVED AS UNDER: - I.T.A NOS 3358, 1988, 3359, 3 360, 3437, 2014, 3438 & 3439/AHD/ 2015 PAGE NO DCIT VS. GUJARAT URJA VIKAS NIGAM LTD. 12 'HAVING CONSIDERED THE MATER IAL ON RECORD, WE DO NOT FIND ANY JUSTIFICATION FOR THE DISALLOWANCE OF THE CLAIM OF THE ASSESSES ON SUCH AN ABSTRACT PROPOSITION. MERELY BECAUSE AN EXPENSE RELATES TO A TRANSACTION OF AN EARLIER YEAR IT DOES NOT BECOME A LIABILITY PAYABLE IN THE EARLIER Y EAR UNLESS IT CAN BE SAID THAT THE LIABILITY WAS DETERMINED AND CYRSTALISED IN THE YEAR IN QUESTION ON THE BASI S OF MAINTAINING ACCOUNTS ON THE MERCANTILE BASIS. IN EACH CASE WHERE THE ACCOUNTS ARE MAINTAINED ON THE MERCANTILE BASIS IT HAS TO BE FOUND IN RESPECT OR ANY CLAIM, WHETHER SUCH LIABILITY WAS CRYSTALLIZED AND QUANTIFIED DURING THE PREVIOUS YEAR SO AS TO BE REQUIRED TO BE ADJUSTED IN THE BOOKS OF ACCOUNT OF THAT PREVIOUS YEAR. IF ANY LIABILITY, THOUGH RELATING TO THE EARLIER YEAR, DEPENDS UPON MA KING A DEMAND AND ITS ACCEPTANCE BY THE ASSESSEE AND SUCH LIABILITY HAS BEEN ACTUALLY CLAIMED AND PAID IN THE LATER PREVIOUS YEARS IT CA NNOT MERELY ON THE BASIS THE ACCOUNTS ARE MAINTAINED ON MERCANTILE BASIS AND THAT IT RELATED TO A TRANSACTION OF THE PR EVIOUS YEAR. THE TRUE PROFITS AND GAIN OF A PREVIOUS YEAR ARE REQUIRE D TO BE COMPUTED FOR THE PURPOSE OF DETERMINING TAX LIABILITY. THE BASIS OF TAXING INCOME IS ACCRUAL OF INCOME AS WELL AS ACTUAL RECEIPT. IF FOR WANT OF NECESSARY MATERIAL CRYSTALLIZING THE EXPENDITURE IS NOT IN EXISTENCE IN RESPECT OF WHICH SUCH INCOME OR EXPENSES RELATE, THE MERCANTILE SYSTEM DOES NOT CALL FOR ADJUSTMENT IN THE BASIS. IT IS ACTUALLY KNOWN INCOME OR EXPENSES, THE RIGHT TO RECEIVE OR THE LIABILITY TO PAY WHICH HAS COME TO BE CRYSTALLIZED, WHICH IS TO BE TAKEN INTO ACCOUNT UNDER THE MERCANTILE SYSTEM OF MAINTAINING BOOKS OF ACCOUNT. AN ESTIMATED INCOME OR LIABILITY, WHICH IS YET TO BE CRYSTALLIZED CAN ONLY BE ADJUSTED AS A CONTINGENCY ITEM BUT NOT AS AN ACCRUED INCOME OR LI ABILITY OF THAT YEAR. ' 6.4.1. IN THE SUBMISSION MADE BY THE APPELLANT, THE APPELLANT HAS FAILED TO ESTABLISH THAT ALL THESE EXPENSES CRYSTALLIZED DURING THE COURSE OF THE FY 2008 - 09. NON PROVISION OR DEPRECIATION IN EARLIER YEARS DOES NOT ENTITLE THE APPE LLANT TO DEBIT THE DEPRECIATION OF EARLIER YEARS AS PRIOR PERIOD EXPENSES IN THE CURRENT YEAR, NO DETAIL OF OTHER PRIOR PERIOD ADJUSTMENTS OF SMALL AMOUNTS HAVE BEEN FURNISHED TO E STABLISH THAT SUCH EXPENSES HAVE ALSO CRYSTALLIZED DURING THE CURRENT FINANC IAL YEAR. THE APPELLANT HAS FAILED TO EXPLAIN AS TO UNDER WHAT PROVISION OF THE ACT SUCH PRIO R PERIOD EXPENSES CAN BE ALLOWED. 6.4.2. PRIOR PERIOD EXPENSES ON ACCOUN T OF POWER PURCHASE AMOUNTING TO RS. 29.21 LAKHS, THE APPELLANT HAD SUBMITTED INVOICES RA ISED BY NTPC BEFORE THE AO. ALL THESE INVOICES EXCEPT THE INVOICE DATED 6.2.2008, , HAD BEEN RAISED DURING THE CURRENT FINANCIAL YEAR AND HENCE THE AMOUNTS MEN SENDING THEM WAS ALLOWABLE AS A DEDUCTION IN THE COMPUTATION OF INCOME OF THE CURRENT YEAR ITSEL F. THE TOTAL AMOUNT RAISED BY IT WA S DATED 6.2.2008 IS RS. 2,28,558/ - . HENCE, EXCEPT FOR THIS AMOUNT, THE BALANCE AMOUNTS ARE DIRECTED TO BE ALLOWED AS A DEDUCTION IN COMPUTATION OF TOTAL INCOME OF THE CURRENT YEAR. 6.4.3. SO FAR AS PRIOR PERIOD EXPENSES I N THE FORM OF INTEREST AND FINANCE CHARGES AMOUNTING TO RS. 172.56 LAKHS ARE CONCERNED, THOUGH THE APPELLANT HAS FILED THE DETAILS AS TO WHICH YEAR THEY PERTAIN TO, BUT IT HAS FAILED TO ESTABLISH THAT THESE EXPENSES HAVE CRYSTALLIZED DURING THE CURRENT YEA R ITSELF. HENCE THE CONTENTS OF THE APPELLANT ARE NOT ACCEPTABLE. 6.4.4. THE AO IN HIS REMAND REPORT HAD STATED THAT THE PRIOR PERIOD EXPENSES IN THE NATURE OF ADMINISTRATIVE EXPENSES HAD BEEN DEBITED BY THE APPELLANT BY NETTING OFF THE PRIOR PERIOD EXPENS ES IN THIS FORM AGAINST THE PRIOR PERIOD INCOME OF THE SAME NATURE. ACCORDINGLY , PERIOD EXPENSES AMOUNTING TO RS. 130.35 LAKHS HAD ALREADY BEEN NETTED OFF WITH PERIOD INCOME AND THEN THE EXPENSES WERE DEBITED IN THE PROFIT AND LOSS ACCOUNT. ACCORDINGLY, TH E AO HAD PROPOSED FOR ENHANCEMENT OF THE INCOME BY THIS AMOUNT. THE AO'S REPORT HAD BEEN CONFRONTED WITH THE APPELLANT AND IN THE REJOINDER TO THE REMAND REPORT, THE SUBMISSION HAS BEEN MADE IN THIS REGARD. THE APPELLANT HAD ALSO FAILED TO ESTABLISH THAT T HE ADMINISTRATIVE EXPENSES DEBITED IN THE PROFIT AND LOSS ACCOUNT HAD CRYSTALLIZED DURING THE COURSE OF THE CURRENT YEAR. UNDER SUCH CIRCUMSTANCES, THE ENTIRE ADMINISTRATIVE EXPENSES IN THE NATURE OF PRIOR PERIOD EXPENSES ARE REQUIRED TO BE DISALLOWED. HE NCE, THE DISALLOWANCE MADE IN THIS REGARD IS ENHANCED BY THIS AMOUNT OF RS. 130.35 LAKHS. I.T.A NOS 3358, 1988, 3359, 3 360, 3437, 2014, 3438 & 3439/AHD/ 2015 PAGE NO DCIT VS. GUJARAT URJA VIKAS NIGAM LTD. 13 6.4.5. BESIDES, THE PRIOR PERIOD INCOME HAS CRYSTALLIZED IN THE CURRENT YEAR ITSELF AS THE APPELLANT HAS NOT MADE ANY SUBMISSION IN THIS REGARD. THUS, IT IS AN ADMITTED FACT. MOREOVER, THE PRIOR PERIOD EXPENSES HAVE NOT BEEN INCURRED FOR EARNING SUCH PRIOR PERIOD INCOME AND HENCE, NO SET OFF OF SUCH EXPENSES AGAINST SUCH INCOME AS MADE BY THE 'APPELLANT WHILE FILING RETURN OF INCOME IS ALLOWABLE. HENCE, THE DI SALLOWANCE MADE BY THE AO IS UPHELD ON THIS ACCOUNT ALSO. THUS, THI S GROUND OF APPEAL IS DISMISSED. AFTER CONSIDERING THE CONTENTIONS OF BOTH THE SIDES AND MATERIAL ON RECORD WE OBSERVE THAT THE LD. CIT(A) HAS FRAMED HIS OWN OPINION ON THE BASIS OF LIMIT ED DETAILS AND VERIFICATION BUT WITHOUT SPECIFIC FINDING IN SUPPORT OF DISALLOWANCE OF PRIOR PERIOD EXPENSES. IN VIEW OF THE AFORESAID MATERIAL FACTS AND SIMILAR TO OUR FINDINGS IN THE ITA NO. 2014/AHD/2015 FOR GROUND NO2 IN THIS ORDER WE ARE OF THE VIEW THAT IT WILL BE APPROPRIATE TO RESTORE THIS ISSUE TO THE FILE OF ASSESSING OFFICER FOR DECIDING DE - NOVO AFTER VERIFICATION/EXAMINATION OF THE COMPLETE DETAILS WITH SPECIFIC FINDINGS/REASONS AFTER AFFORDING ADEQUATE OPPORTUNITIES TO THE ASSESSEE. THE ASSES SING OFFICER IS ALSO DIRECTED TO CONSIDER JUDICIAL PRONOUNCEMENTS REFERRED BY THE ASSESSEE ON THIS ISSUE VIDE ITA NO. 996/AHD/2011 PAGE 113/6 GUVNL VS. ACIT ASSESSMENT YEAR 1998 - 99 AND ITA NO. 573/AHD/2016 CIT VS. ADANI ENTERPRISES LTD. (GUJ) PAGE 16 - 18. THEREFORE, THIS GROUND OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 18 . GROUND NO. 4 PERTAINING TO CHARGING OF INTEREST U/S. 234B, 234C AND 234D ARE NOT REQUIRED TO BE ADJUDICATED AS CHARGING OF INTEREST U/S. 234B, 234C AND 234D ARE MANDATORY UNDE R THE PROVISIONS OF INCOME TAX ACT, THEREFORE , THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. ITA NO. 1988 /AHD/2015 FILED BY REVNEUE FOR A.Y.2010 - 11 19 . THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - I.T.A NOS 3358, 1988, 3359, 3 360, 3437, 2014, 3438 & 3439/AHD/ 2015 PAGE NO DCIT VS. GUJARAT URJA VIKAS NIGAM LTD. 14 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN (I) DIRECTING AO TO RE - WORK THE DISALLOWANCE OF RS. 167. 56 LACS MADE U/S 14A READ WITH RULE 8D, WITHOUT OBSERVING THE PROVISIONS OF RULE 8D. (II) DELETING THE ADDITION OF RS.3705 LACS MADE ON ACCOUNT OF CAPITAL GRANT BEING MADE @15% OF THE TOTAL GRANT OF RS.25,000 LACS, WITHOUT APPRECIATING THE FACT THAT THE SAME WAS NEITHER REDUCED FROM THE COST OF CAPITAL ASSETS NOR TREATED AS REVENUE RECEIPTS AND WAS THEREFORE AGAINST THE ACCOUNTING PRINC IPLES. (III) DELETING THE ADDITION OF RS.334 LACS MADE BY TREATING THE EXPENDITURE CLAIMED AGAINST GUARANTEE FEES PAID AS CAPITAL EXPENDITURE AS AGAINST REVENUE EXPENDITURE CLAIMED BY ASSESSEE, THE ADVANTAGE BEING OF ENDURING IN NATURE. (IV) DEL ETING ADDITION OF RS.187.91 LACS BEING INTEREST INCOME EARNED TREATED AS INCOME FROM OTHER SOURCES, WITHOUT APPRECIATING THE FACT THAT SUCH INCOME WAS PURELY INTEREST, NOT BEEN DERIVED FROM BUSINESS ACTIVITIES CARRIED OUT BY ASAESSEE, (V) DELETING T HE ADDITION OF RS. 167.56 LACS MADE U/S 14A OF THE IT ACT WHILE COMPUTING INCOME U/S 115JB OF THE IT ACT, IGNORING THE FACT THAT THE SAME IS COVERED UNDER CLAUSE (F) OF EXPLANATION 1 TO SECTION 115JB(2) OF THE IT ACT AS HELD IN THE CASE OF DABUR INDIA LTD. VS. ACIT (2013), 37 TAXMANN.COM 289 (MUM) GROUND NO. 1 . ( DISALLOWANCE OF RS. 167.56 LACS U/S. 14A R.W. RULE 8D OF THE IT RULE ) , GROUND NO. 5 (DELETING ADDITION OF RS. 167.56 LACS U/S. 14A WHILE COMPUTING INCOME U/S. 115JB OF THE ACT) , GROUND NO. 1 OF 333 8/AHD/2015, GROUND NOS. 1 & 4 OF 3359/AHD/2015 , GROUND NO. 1 OF 3360/AHD/2015 , GROUND NO. 1 OF ITA NO. 2014 /AHD/2015 AND GROUND NO. 1 OF ITA NO. 33 39 /AHD/2015 , 3438/AHD/2015 20 . IN RESPECT OF COMPUTING INCOME U/S. 115JB OF THE ACT, RAISED IN GROUND NO. 5, THE DISALLOWANCE U/S. 14A OF THE ACT AMOUNTING TO RS. 167.56 LACS WAS ALSO ADDED TO THE BOOK PROFIT OF THE ASSESSEE U/S. 115JB OF THE ACT BY THE ASSESSSEE. THE LD. CIT(A) HAS DELETED THE AFORESAID DISALLOWANCE AFTER FOLLOWING THE DECISION OF THE I TAT AHMEDABAD IN THE CASE OF ALEMBIC LTD. FOR ASSESSMENT YEAR 2007 - 08 VIDE ITA NO. 1928/AHD/2010. WE CONSIDER THAT THE DISALLOWANCE MADE U/S. 14A IS NOT TO BE ADDED IN COMPUTING INCOME U/S. 115JB OF THE ACT AS HELD BY THE SPECIAL BENCH OF THE ITAT IN THE CASE OF ACIT VS. VINEET INVESTMENT VIDE 165 ITD 27 (DELHI) (2017). THEREFORE, THIS GROUND OF APPEAL OF THE REVENUE S DISMISSED. I.T.A NOS 3358, 1988, 3359, 3 360, 3437, 2014, 3438 & 3439/AHD/ 2015 PAGE NO DCIT VS. GUJARAT URJA VIKAS NIGAM LTD. 15 21 AS THE FACTS IN ALL OTHER FIVE GROUNDS OF APPEALS ARE SIMILAR, SO, WE TAKE 1ST GROUND OF ITA NO. 1988/AHD/2015 AS LEAD CA SE AND ITS FINDINGS WILL ALSO BE APPLICABLE GROUND NO. 1 OF 3358/AHD/2015, GROUND NOS. 1 & 4 OF 3359/AHD/2015 , GROUND NO. 1 OF 3360/AHD/2015 AND GROUND NO. 1 OF ITA NO. 2014 /AHD/2015 22 . DURING ASSESSMENT, THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS EARNED DIVIDEND INCOME OF RS. 997.78 DURING THE YEAR UNDER CONSIDERATION. SHE ALSO NOTICED THAT THE ASSESSEE HA S CLAIMED HUGE AMOUNT OF INTEREST EXPENDITURE OF RS . 14527.94 LACS. THE ASSESSING OFFICER FURTHER NOTICED THAT ASSESSEE HAS MADE INVESTMENT TO THE AMOUNT OF RS. 686971.93 LACS AND THIS INVESTMENT IN THE BEGINNING OF THE YEAR WAS AT THE AMOUNT FOR RS. 664856.04 LACS AS REFLECTED IN THE BALANCE SHEET FOR THE YEAR UNDER CONSIDERATION . THEREFORE, THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY DISALLO WANCE SHOULD N OT BE MADE U/S. 14A R.W. RULE 8D OF IT RULE. THE ASSSESSEE EXPLAINED THAT IT HAS RECEIVED DIVIDEND FROM GPSL, GSEG, GPC GAS AND GIPCL , H OWEVER , DURING THE YEAR NO INVESTMENT WAS MADE BY THE ASSESSEE IN THESE COMPANIES , T HEREFORE, THE QUESTI ON O F DISALLOWANCE U/S. 14A R.W RULE 8D DOES NOT ARISE. IT WAS FURTHER EXPLAINED THAT THE ASSESSEE COMPANY HAS NOT CLAIMED THE DIVIDEND INCOME AS EXEMPT AND HAS PAID TAXES ON TOTAL INCOME INCLUSIVE OF DIVID END INCOME . THE ASSESSING OFFICER HAS NOT ACCEP TED THE EXPLANATION OF THE ASSESSEE AND SHE WAS OF THE VIEW THAT ASSESSEE WAS NOT HAVING SURPLUS FUND SINCE ITS SHARE CA P ITAL WAS OF RS. 3 , 41 , 534.32 LACS AND THE RESERVES AND SURPLUS WAS RS. 25,000/ - . THE ASSESSING OFFICER WAS OF THE VIEW THAT ASSESSEE S OWN FUND WILL BE UTILIZED FOR BUSINESS PURPOSE AND IF THERE WAS ANY REMAI NI NG SURPLUS INTEREST FREE FUND THEN ONLY IT CAN BE SAID THAT ASSESSEE I.T.A NOS 3358, 1988, 3359, 3 360, 3437, 2014, 3438 & 3439/AHD/ 2015 PAGE NO DCIT VS. GUJARAT URJA VIKAS NIGAM LTD. 16 WAS HAVING OWN INTEREST FREE FUND. IT WAS FURTHER STATED THAT ASSESSEE HAS F AILED TO SUBSTANTIATE THAT NO I NTE REST BEARING BORROWED FUNDS WERE U S ED FOR INVESTMENT ACTIVITY. THE ASSESSING OFFICER HAS NOT ACCEPTED THE EXPLANATION OF THE ASSESSEE THAT IT HAS OFFERED DIVIDEND INCOME FOR TAXATION PURPOSE ON THE GROUND THAT SAME WAS CONSIDERED ONLY FOR THE MAT PRO VISIONS. THEREFORE, THE ASSESSING OFFICER HAS COMPUTED THE DISALLOWANCE OF EXPENSES FOR INCOME NOT INCLUDED IN THE TOTAL INCOME AS PER RULE 8D AND DISALLOWED AN AMOUNT OF RS. 167 , 56 , 08 , 000/ - U/S. 14A OF THE ACT. 23 . AGGRIEVED ASSESSE HAS FILED APPEAL BEF ORE THE LD. CIT(A). THE LD. CIT(A) HAS DIRECTED THE ASSESSING OFFICER TO COMPUTE THE DISALLOWANCE U/S. 14A R.W. R ULE 8D AFTER EXCLUDING INTEREST AMOUNTING OF RS. 124.26 CRORES AND INVESTMENT IN THE SUBSIDIARY COMPANIES AMOUNTING TO RS. 128.28 CORES. TH E RELEVANT PART OF THE DECISION OF LD. CIT(A) IS REPRODUCED AS UNDER: - 3.3 THE REASONS FOR MAKING DISALLOWANCE OF RS. 167.56 CRORES U/S 14A READ WITH RULE 8D AS MENTIONED BY THE AO IN THE ASSESSMENT ORDER AS WELL AS ABOVE SUBMISSION OF THE APPELLANT'S AR HAVE BEEN CONSIDERED. IT IS MENTIONED THAT THE SIMILAR ISSUE WAS INVOLVED IN THE CASE OF APPELLANT FOR AY 2008 - 09 ALSO. THE THEN CIT(A) - I, BARODA I.E. MY PREDECESSOR HAS PASSED APPEAL ORDER IN THE CASE OF APPELLANT FOR THIS AY 2008 - 09 IN APPEAL NO. CAB - 1/1 52/10 - 11 DATED 03/02/2012 IN APPELLANT'S OWN CASE AND HIS OBSERVATION AN THE ABOVE ISSUE AS MADE IN SUCH APPEAL ORDER IS REPRODUCED HEREUNDER OR REFERENCE: '3.2 I HAVE CAREFULLY CONSIDERED FACTS OF THE CASE AND APPELLANT'S SUBMISSIONS. THERE IS NO DISPUTE THAT APPELLANT HAD MADE INVESTMENTS IN SHARES OF SUBSIDIARIES AND OTHER COMPANIES, INCOME FROM WHICH I.E. DIVIDEND WOULD BE EXEMPT FROM TAXATION. AS PER SECTION 14A OF THE INCOME TAX ACT F NO DEDUCTION IS TO BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE INCOME TAX ACT. AS HELD BY HON'BLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. (2011) 15 TAXMANN.COM 390 (DELHI), IF THE EXPENDITURE IN QUESTION HAS A RELATION OR CONNECTI ON WITH OR PERTAINS TO EXEMPT INCOME, IT CANNOT BE ALLOWED AS A DEDUCTION, EVEN IF IT OTHERWISE QUALIFIES UNDER OTHER PROVISIONS OF THE INCOME TAX ACT. THUS, EVEN IF INVESTMENT IN SHARES ETC. WAS FOR REASONS OF COMMERCIAL EXPEDIENCY AND/OR EXPENDITURE IN R ELATION TO SUCH INVESTMENTS BY WAY OF INTEREST OR OTHER EXPENSES WAS ALLOWABLE U/S 36(1)(HI)/37, THE SAME WOULD NOT BE ALLOWABLE AS DEDUCTION AS PER PROVISIONS OF SECTION 14A. AS HELD BY ITAT'S SPECIAL BENCH IN THE CASE OF CHEMINVEST LTD. (2009) 124 TTJ (D EL)(SB) 577 AND ALSO ITAT AHMEDABAD IN THE CASE OF SHANKER CHEMICAL WORKS (2011) 12 TAXMANN.COM 461 (AHD), IF THERE IS ANY EXPENDITURE IN RELATION TO EARNING EXEMPT INCOME, THE SAME HAS TO BE DISALLOWED EVEN IF THERE IS NO ACTUAL EARNING OF ANY EXEMPT INCO ME. IN THE CASE OF SHANKER CHEMICAL WORKS (SUPRA), IT WAS FURTHER HELD THAT IF INTEREST BEARING BORROWED FUNDS ARE UTILIZED FOR THE PURPOSE OF INVESTMENT IN SHARES AND THERE IS NO RECEIPT OF DIVIDEND INCOME OR IF THERE IS ONLY MEAGER AMOUNT OF DIVIDEND INC OME, EVEN THEN, WHOLE AMOUNT OF INTEREST EXPENDITURE INCURRED FOR THIS PURPOSE WILL BE SUBJECT I.T.A NOS 3358, 1988, 3359, 3 360, 3437, 2014, 3438 & 3439/AHD/ 2015 PAGE NO DCIT VS. GUJARAT URJA VIKAS NIGAM LTD. 17 TO DISALLOWANCE U/S 14A. IT WAS HELD IN THE CASE OF SMT. LEENA RAMCHANDRAN (2011) 10 TAXMANN.COM 109 (KERALA) THAT EVEN WHERE UTILIZATION OF BORROWED FUNDS WAS F OR ACQUIRING CONTROLLING INTEREST IN A COMPANY I.E. FOR BUSINESS PURPOSE, SO FAR AS ACQUISITION OF SHARES WAS IN THE FORM OF INVESTMENT AND ONLY BENEFIT THE ASSESSEE DERIVED THEREFROM WAS DIVIDEND INCOME NOT ASSESSABLE UNDER THE ACT, DISALLOWANCE U/2 14A W AS SQUARELY ATTRACTED. IN VIEW OF THIS, APPELLANT'S CONTENTION THAT DISALLOWANCE WAS MADE U/S 36(L)(III) TILL AY 2006=07, INVESTMENT IN SHARES WAS UNDER FINANCIAL RESTRUCTURING PLAN APPROVED BY GOVERNMENT OF GUJARAT, I.E. INVESTMENTS WERE FOR COMMERCIAL EX PEDIENCY, INVESTMENTS WERE STRATEGIC INVESTMENTS TO MAINTAIN CONTROL OF BUSINESS, NO DIVIDEND INCOME OR MEAGER DIVIDEND INCOME WAS EARNED FROM SUCH SHARES IN SUBSIDIARIES ETC. ARE NOT TENABLE. APPELLANT'S CONTENTION THAT INVESTMENTS IN SUBSIDIARIES WERE AS PER NOTIFIED BALANCE SHEET AS ON 1.4.2005 BY GOVERNMENT OF GUJARAT, WHICH WAS ACCEPTED BY APPELLANT COMPANY AS IT IS AND THE LOANS ETC. WERE PRIOR TO SUCH NOTIFICATION, DUE TO WHICH INVESTMENTS IN SHARES OF SUBSIDIARIES COULD NOT BE SAID TO BE OUT OF BORR OWED FUNDS IS NOW TAK EN UP. PART OF THE LOANS APPEARING ON APP ELLANT'S BALANCE SHEET WERE IN FACT RAISED BY ERSTWHILE GEB FOR ACQUISITION OF CAPITAL ASSETS FOR G ENERATION, T RANSMISSION OF ELECTRICITY ETC. UNDER THE FINANCIAL RESTRUCTURING PLAN, SUCH LOANS WERE ASSIGNED TO THE APPELLANT COMPANY AGAINST WHICH SHARES IN SUBSIDIARY COMPANIES I.E. GSECL, GETCO ETC. WERE ALSO ALLOTTED. THE UNDERLYING CAPITAL ASSETS ACQUIRED OUT OF SUCH LOANS ARE APPEARING ON THE BALANCE SHEET OF GSECL, GETCO ETC. AS FAR AS APPELLANT COMPANY IS CONCERNED, THE INTEREST BURDEN ON SUCH LOANS INHERITED BY IT FROM GEB IS IN RELATION TO SUCH INVESTMENTS IN SUBSIDIARY COMPANIES ETC. THUS, MERELY BECAUSE THE LOANS WERE TAKEN PRIOR TO FINANCIAL RESTRUCTURING PLAN DOES NOT MEAN THAT INTEREST ON LOANS INHERITED FROM GEB BY THE APPELLANT COMPANY IS NOT AT ALL IN RELATION TO INVESTMENTS YIELDING TAX FREE INCOME. APPELLANT'S CONTENTION THAT DIVIDEND INCOME HAD ALREADY SUFFERED DIVIDEND DISTRIBUTION TAX, DUE TO WHICH THERE WA S NO LOGIC IN DISALLOWING EXPENDITURE U/S 14A IS NOT TENABLE SINCE DIVIDEND INCOME IS EXEMPT IN THE HANDS OF APPELLANT WHEREAS DIVIDEND DISTRIBUTION TAX IS TO BE PAID BY THE COMPANY DISTRIBUTING DIVIDEND. APPELLANT'S CONTENTION THAT INVESTMENTS WERE MADE O UT OF FUNDS RECEIVED FROM STATE GOVERNMENT AND OUT OF THE NET PROFIT OF THE APPELLANT COMPANY, DUE TO WHICH INTEREST ON LOANS RAISED AFTER 1.4.2005 CAN ALSO NOT BE DISALLOWED IS NOW TAKEN UP. APPELLANT HAS NOT MAINTAINED SEPARATE BOOKS OF ACCOUNT IN RESPEC T OF DIVIDEND INCOME. NEITHER ANY SEPARATE BANK ACCOUNT IS MAINTAINED FOR TAX FREE INCOME AND RELATED EXPENDITURE. AS HELD BY HON'BLE HIGH COURT OF KERALA IN THE CASE OF CIT, THRISSUR VS DHANALAXMI BANK LTD. (2011) 10 TAXMANN.COM 213 (KERALA), IF THE ASSES SEE HAD A CASE THAT SEPARATE FUNDS AVAILABLE OR FUNDS SOURCED OTHER THAN THROUGH BORROWING ONLY WERE UTILIZED FOR INVESTMENT IN SECURITIES, BONDS AND SHARES, WHICH YIELDED TAX FREE INCOME, THEY COULD HAVE MAINTAINED SUCH ACCOUNTS AND PRODUCED THE SAME BEFO RE THE ASSESSING OFFICER WHEN PROPORTIONATE DISALLOWANCE WAS PROPOSED BY THE ASSESSING OFFICER. THE HON'BLE COURT FURTHER HELD THAT BY SUBSEQUENT AMENDMENT THROUGH SUBSECTION (2) AND BY PRESCRIBING RULE 8D THEREIN, WHAT IS ACHIEVED IS TO PRESCRIBE SPECIFIC GUIDELINES ON DISALLOWANCE IN CASES WHERE SEPARATE ACCOUNTS ARE NOT AVAILABLE ON EXPENDITURE INCURRED FOR EARNING TAX FREE INCOME. SINCE APPELLANT DID NOT MAINTAIN SEPARATE ACCOUNTS IN RESPECT OF DIVIDEND INCOME, APPLICATION OF RULE 8D TO APPORTION EXPEN DITURE IN ELATION EXEMPT INCOME IS JUSTIFIED. IT WAS ALSO HELD IN CASE OF DHANUKA & SONE VS. CIT (CENTRAI) - I BY HON'BLE HIGH COURT OF CALCUTTA (2011) 12 TAXMANN.COM 227 (CAL) - THAT MERE FACT THAT SHARES WERE OLD ONES AND NOT ACQUIRED RECENTLY WAS IMMATERIA L; IT WAS FOR ASSESSEE TO SHOW BY PRODUCTION OF MATERIALS THAT THOSE SHARES WERE ACQUIRED FROM FUNDS AVAILABLE IN ITS HAND AT RELEVANT POINT OF TIME WITHOUT TAKING BENEFIT OF ANY LOAN AND SINCE NO SUCH MATERIAL WAS PRODUCED BY THE ASSESSEE, DISALLOWANCE O F PROPORTIONATE AMOUNT OF INTEREST HAVING REGARD TO TOTAL INCOME AND EXEMPT SOURCE WAS JUSTIFIED. APPELLANT'S CONTENTION REGARDING INVESTMENTS BEING OLD AND OUT OF INTEREST FREE FUNDS ETC. IS THEREFORE NOT TENABLE AND IT IS A CASE FALLING U/S 14A(2) OF THE INCOME TAX ACT REQUIRING DETERMINATION OF EXP ENDITURE TO BE DISALLOWED AS PER RULE 8D OF INCOME TAX RULES. ASSESSING 2~,CER HAS APPORTIONED ENTIRE INTEREST OF RS. 13122.56 LAKHS UNDER RULE 5D(2)(II); HOWEVER, THE INTEREST TO BE APPORTIONED U NDER CLAUSE (II) OF RULE 5D(2) IS '...... INTEREST DURING THE PREVIOUS WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT.....'. AS PER DETAILS SUBMITTED BY APPELLANT, INTEREST OF RS. 167.48 CRORE WAS DIRECTLY ATTRIBUTABLE TO ITS BUSINE SS OF BULK PURCHASE AND BULK SALE OF POWER, BEING IN RELATION TO WORKING CAPITAL BORROWINGS. ON OTHER HAND, INTEREST OF I.T.A NOS 3358, 1988, 3359, 3 360, 3437, 2014, 3438 & 3439/AHD/ 2015 PAGE NO DCIT VS. GUJARAT URJA VIKAS NIGAM LTD. 18 RS. 33.94 CRORE ON LOANS RAISED BY GEB AND OUTSTANDING ON 31.3.2008 AND CERTAIN OTHER ITEMS INCLUDED IN TOTAL INTEREST WERE NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME. THE INTEREST TO BE APPORTIONED UNDER RULE 8D(2)(II) WOULD ACCORDINGLY BE AS UNDER: NET INTEREST CLAIMED RS. 131.22 CRORE ADD: PROVISION OF INTEREST ON GOVT. LOANS RETURNED BACK RS. 67.80 CRORE INTEREST CAPITALIZED RS. 7.16 CRORE RS. 206.18 CRORE LESS: INTEREST CLAIMED TO BE ON WORKING CAPITAL BORROWING EXCLUSIVELY FOR POWER TRADING BUSINESS RS. 167.48 CRORE RS. 38.70 CRORE DISALLOWANCE UNDER RULE 8D(2)(II) (38.7 X 552957.24 / 5 81358.105) RS. 36.8094 CRORE ADD: DISALLOWANCE UNDER RULE 8D(2)(III) (AS PER ASSESSMENT ORDER) I.E. RS. 27.6478 CRORE RS. 61.4572 CRORE THUS, INSTEAD OF DISALLOWANCE OF RS. 152.4627 CRORE U/S 14A MADE BY THE ASSESSING OFFICER, DISALLOWANCE OF RS . 61.4572 CRORE IS DIRECTED TO BE MADE SUBJECT TO VERIFICATION BY THE ASSESSING OFFICER THAT INTEREST OF RS. 167.48 CRORE WAS IN RELATION TO WORKING CAPITAL LOANS OR OTHER LOANS UTILIZED EXCLUSIVELY FOR POWER TRADING B USINESS OF APPELLANT COMPANY.' 3.4 FO LLOWING THE DECISION/OBSERVATION OF MY PREDECESSOR AS MADE IN HIS APPEAL ORDER DATED 03/02/2012 FOR AY 2008 - 09 AS REPRODUCED IN EARLIER PARAGRAPH, THE AO FOR THE PURPOSE OF MAKING DISALLOWANCE U/S 14A READ WITH RULE 8 IS DIRECTED TO EXCLUDE THE INTEREST AM OUNTING TO RS. 124.26 CRORES PAID ON WORKING CAPITAL BORROWINGS FOR THE YEAR UNDER CONSIDERATION ALSO SUBJECT TO VERIFICATION BY HIM THAT THIS INTEREST WAS IN RELATION TO WORKING CAPITAL LOANS FOR POWER TRADING BUSINESS ETC. OF THE APPELLANT. 3.5 BESIDES, THE APPELLANT HAS ALSO BEEN ABLE TO ESTABLISH THAT INVESTMENTS IN EQUITY SHARES MADE DURING THE CURRENT YEAR AMOUNTING TO RS. 1280.28 CRORES IN THE SHARES OF SUBSIDIARY COMPANIES WERE MADE OUT OF GRANTS RECEIVED FROM THE STATE GOVERNMENT OF GUJARAT. IN VIE W OF THIS IT CAN BE SAID THAT NO BORROWED CAPITAL HAS BEEN UTILIZED FOR MAKING THESE INVESTMENTS. CONSIDERING THESE FACTS, THE INVESTMENTS IN SUBSIDIARY COMPANIES AMOUNTING TO RS. 1280.28 CRORES CANNOT BE CONSIDERED FOR MAKING DISALLOWANCE OUT OF INTEREST FUNDS, BUT THE SAME HAS TO BE CONSIDERED FOR MAKING DISALLOWANCE OUT OF ADMINISTRATIVE EXPENSES. 3.6 IN VIEW OF THE DISCUSSION AS MADE IN JUST EARLIER PARAGRAPHS, THE AO IS DIRECTED TO COMPUTE THE DISALLOWANCE U/S 14A READ WITH RULE 8D BY EXCLUDING THE INT EREST OF RS. 124.26 CRORES AND ALSO BY NOT CONSIDERING THE INVESTMENTS IN SUBSIDIARY COMPANIES AMOUNTING TO RS. 1280.28 CRORERS. 24 . WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSUE. DURING THE ASSESSMENT, THE ASSESSING OFFICER NOTICED THAT THE ASSESS EE HAS EARNED EXEMPT DIVIDEND OF RS. 997.78 LACS DURING THE YEAR UNDER CONSIDERATION AND HAS CLAIMED INTEREST EXPENDITURE OF RS. 14527.94. THE ASSESSING OFFICER HAS APPLIED SECTION 14A R.W.S. RULE 8D OF THE I.T. RULE LAND DISALLOWED AN I.T.A NOS 3358, 1988, 3359, 3 360, 3437, 2014, 3438 & 3439/AHD/ 2015 PAGE NO DCIT VS. GUJARAT URJA VIKAS NIGAM LTD. 19 AMOUNT OF RS. 167 , 56 , 08 , 000/ - . THE LD. CIT(A) HAS RESTRICTED THE DISALLOWANCE TO THE AMOUNT OF RS. 61.4575 CRORE SUBJECT TO VERIFICATION BY THE ASSESSING OFFICER THAT INTEREST OF RS. 167.48 CRORE WAS IN RELATION TO WORKING CAPITAL LOANS OR OTHER LOANS UTILIZED EXCLUSIVELY FOR POWER TRADING BUSINESS OF THE ASSESSEE COMPANY. THE LD. CIT(A) ALSO HELD THAT THE ASSESSEE COMPANY HAS ESTABLISHED THAT INVESTMENT IN SHARES AMOUNTING TO RS. 1280.28 CRORES IN THE SUBSIDIARY COMPANIES WERE MADE OUT OF THE GRANTS RECEIVED FROM THE S TATE GOVERNMENT OF GUJARAT , THEREFORE , THE SAME CANNOT BE CONSIDERED FOR MAKING DISALLOWANCE OUT OF INTEREST FUND , HOWEVER , THE SAME HAS TO BE CONSIDERED FOR MAKING DISALLOWANCE OUT OF ADMINISTRATIVE EXPENSES. IT WAS BROUGHT TO OUR NOTICE BY THE LD. COUN SEL THAT IN THE CASE OF THE ASSESSEE ITSELF ON THE IDENTICAL ISSUE AND SIMILAR FACTS FOR ASSESSMENT YEAR 2008 - 09 THE ITAT AHMEDABAD VIDE ITA NO. 837/AHD/2012 HAS SET ASIDE THE MATTER TO THE FILE OF ASSESSING OFFICER . THE LD. DR COULD NOT CONTROVERT THE ABOVE SUBMISSION WITH ANY OTHER MATERIAL ON RECORD. WITH THE ASSISTANCE OF THE LD. REPRESENTATIVE WE HAVE GONE THROUGH THE ABOVE REFERRED DECISION OF THE COORDINATE BENCH THE RELEVANT PART OF THE DECISION IS REPRODUCED AS UNDER: - 13. WE OBSERVE THAT L D. ASSESSING OFFICER HAS MADE DISALLOWANCE U/S 14A OF THE ACT WITHOUT EXAMINING THE FACTS REFERRED ABOVE WHICH WERE VERY CRUCIAL TO REACH AT THE FINAL DISALLOWANCE U/S 14A OF THE ACT. THERE ARE SERIES OF JUDGMENTS OF THE CO - ORDINATE BENCHES THAT THE DISALL OWANCE U/S 14A OF THE ACT SHOULD NOT EXCEED THE EXEMPT INCOME EARNED DURING THE YEAR AND ALSO DECISIONS WHEREIN THE DISALLOWANCE U/S 14A OF THE ACT ON ACCOUNT OF INTEREST EXPENDITURE ARE HELD TO BE INCORRECT IF THE ASSESSEE HAS SUFFICIENT EQUITY AND GENER AL RESERVE TO COVER THE INVESTMENTS. 14. WE ARE, THEREFORE, OF THE VIEW THAT APPLYING THE DECISION OF THE CO - ORDINATE BENCH IN ASSESSEE S OWN CASE IN ITA NO.1874 & 1821/AHD/2010 FOR ASST. YEAR 2007 - 08 IS DATED 20.6.2014 THE MATTER IS SET ASIDE TO THE FILE OF ASSESSING OFFICER TO EXAMINE THE FACTS AND FIGURES OF THE CASE IN THE LIGHT OF OUR OBSERVATIONS MADE ABOVE IN ORDER TO ARRIVE AT A FINAL CONCLUSION AS TO WHETHER DISALLOWANCE U/S 14A IS TO BE MADE AND IF SO, THEN THE AMOUNT THEREOF WHICH IN NO CASE SHO ULD EXCEED THE EXEMPTED INCOME EARNED BY ASSESSEE DURING THE YEAR UNDER APPEAL. IT IS NEEDLESS TO MENTION THAT LD. ASSESSING OFFICER SHALL ALLOW REASONABLE AND SUFFICIENT OPPORTUNITY OF HEARING TO THE ASSESSEE BEFORE ADJUDICATING THE SAME. THESE GROUNDS OF ASSESSEE AND THE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES. I.T.A NOS 3358, 1988, 3359, 3 360, 3437, 2014, 3438 & 3439/AHD/ 2015 PAGE NO DCIT VS. GUJARAT URJA VIKAS NIGAM LTD. 20 IN THE LIGHT OF THE ABOVE FACTS AND FINDINGS FOLLOWING THE DECISION OF THE COORDINATE BENCH AS REFERRED AVOBE WE RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR DECIDING A FRESH AS DIRECTED IN THE ABOVE CITED DECISION. THEREFORE, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. GROUND NO. 2 (A DDITION OF RS. 3705 LACS MADE ON ACCOUNT OF CAPITAL GRANT BEING MADE @ 15% OF THE TOTAL GRANT OF RS. 2500 LACS ) , GROUND NO. 4 OF ITA NO. 3438/AHD/2015, GROUND NO. 6 OF ITA NO. 3359/AHD/2015 AND GROUND NO. 3 OF ITA NO. 3360/AHD/2015 25 . AS THE FACTS IN ALL THE FOUR GROUNDS OF APPEALS ARE SIMILAR, SO, WE TAKE 2ND GROUND OF ITA NO. 1988/AHD/2015 AS LEAD CASE AND ITS FINDINGS WILL ALSO BE APPLICABLE TO GROUND NO. 4 OF ITA NO. 3438/AHD/2015, GROUND NO. 6 OF ITA NO. 3359/AHD/2015 AND GROUND NO. 3 OF ITA NO. 3360/AHD/2015 . 26 . DURING ASSESSMENT PROCEEDINGS, ON VERIFICATION OF BALANCE SHEET AND PROFIT AND LOSS ACCOUNT, TH E ASSESSING OFFICER NOTICED THAT OPENING AND CLOSING BALANCE OF CAPITAL GRANT IN THE RESERVES AND SUR P LUS WAS SHOWN AT R S. 2500 LACS. THE ASSESSING OFFICER WAS OF THE VIEW THAT IF GRANT WAS IN THE NATURE OF CAPITAL NATURE THEN IT SHOULD HAVE BEEN DEDUCTE D F ROM FIXED CAPITAL ASSET IN CASE THE GRANT WAS IN THE REVENUE N ATURE THEN THE SAME SHOULD HAVE BEEN SHOWN AS R EVENUE INCOME IN THE HANDS OF THE ASSESSEE. THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN THE NATURE OF GRANT AND WHY THE SAME SHOULD NOT BE REDUCED F ROM THE CAPITAL ASSET AS PER EXPLANTION - 10 TO SECTION 42(1) OF THE ACT. THE ASSESSEE EXPLAINED NO NEW GRANT WAS RECEIVED DURING THE YEAR UNDER CONSIDERATION . IT WAS FURTHER EXPLAINED THAT VARIOUS GRANTS I.T.A NOS 3358, 1988, 3359, 3 360, 3437, 2014, 3438 & 3439/AHD/ 2015 PAGE NO DCIT VS. GUJARAT URJA VIKAS NIGAM LTD. 21 RECEIVED/RECEIVABLE DURING THE Y EAR FROM THE G OVT . OF GUJARAT WERE APPORTIONED AMONGST THE SUBSIDIARY COM P ANIE S ON APPROPRIATE BASIS. THE ASSESSING OFFICER HAS NOT ACCEPTED THE EXPLANATION OF THE ASSESSEE. THE ASSESSING OFFICER NOTICED THAT ASSES S EE HAS SHOWN SUBSIDY RECEIVABLE FROM T HE GOVT . OF GUJARAT AT RS. 72773.27 LACS AS ON 31 ST MARCH, 2010 COMPARED TO THE SUBSIDY RECEIVABLE FROM THE GOVT. OF GUJARAT AT RS. 60 364.04 LACS ON 31 ST MARCH, 2009 AND CAPITAL GRANT OF RS. 250 C RO RES RECEIVED AND SHOWN IN RESERVES AND SURPLUS OF THE COMP ANY WAS DISTINGUISHABLE FROM OTHER GRANTS. THE ASSESSING OFFICER WAS OF THE VIEW THAT ASSESSEE HAS NOT RECEIVED ANY GRANT OR SUBSIDY DURING THE YEAR UNDER CONSIDERATION BUT THE SUBSIDY OR GRANT WHICH WAS RECEIVED IN THE EARLIER YEARS WAS TO BE TAKEN AS A REVENUE OR IT TO BE REDUCED FROM THE COST OF ASSETS AS THE CASE MAY BE AS PER NATURE OF THE GRANT. THEREFORE, THE ASSESSING OFFICER STATED THAT ASSESSEE HAS FAILED TO REDUCE THE CAPITAL GRANT AGAINST THE COST OF CAPITAL ASSET AND CLAIMED EXCESS DEPRECIAT ION AT 15% OF THE CAPITAL GRANT . T HEREFORE, THE ASSESSING OFFICER HAS ALLOCATE D 15% OF GRANT AND SUBSIDY SHOWN IN THE P & L ACCOUNT AS REVENUE RECEIPT . T H E R E FORE, THE ASSESSING OFFICER HAS COMPUTED 15% OF THE TO TAL GRANT OF R S. 2500 LACS TO THE AMOUNT OF RS. 3750 LACS AND ADDED TO THE TO TAL I NCOME OF THE ASSESSEE. 27 . AGGRIEVED ASSESSE HAS FILED APPEAL BEFORE THE LD. CIT (A). THE LD. CIT (A) HAS ALLOWED THE APPEAL OF THE ASSESSEE. THE RELEVANT PART OF THE DECISION OF LD. CIT (A) IS REPRODUCED AS UNDER: - 6.3 I HAVE CONSIDERED THE FACTS OF THE CASE AS WELL AS ABOVE SUBMISSION OF THE APPELLANT. THE APPELLANT HAS RECEIVED THE CAPITAL GRANT FOR MAKING INVESTMENT IN EQUITY CAPITAL OF SUBSIDIARY COMPANIES. SINCE THE APPELLANT HAS NOT ACQUIRED ANY FI XED ASSETS, ON WHICH DEPRECIATION HAS BEEN CLAIMED AND THEREFORE SUCH GRANTS CANNOT BE REDUCED FROM THE COST OF FIXED ASSET OF THE APPELLANT COMPANY. IN THIS CIRCUMSTANCE THE DISALLOWANCE OF RS. 37,50,000/ - AS MADE BY THE AO OF THE 15% I.T.A NOS 3358, 1988, 3359, 3 360, 3437, 2014, 3438 & 3439/AHD/ 2015 PAGE NO DCIT VS. GUJARAT URJA VIKAS NIGAM LTD. 22 OF THE CAPITAL GRANT S IS NOT CORRECT. ACCORDINGLY, THE SAME IS DELETED. THUS, THE GROUND OF APPEAL NO. 5 OF THE APPELLANT IS ALLOWED. 28 . WE HAVE HEARD THE RIVAL CONTENTION AND PRODUCED THE MATERIAL ON RECORD ON THIS ISSUE. DURING ASSESSMENT, THE ASSESSING OFFICER HAS STA TED THAT THE ASSSESSEE HAS NOT RECEIVED THE GRANT OR SUBSIDY DURING THE YEAR BUT WAS OF THE VIEW THAT THE SUBSIDY OR GRANT WHICH WAS RECEIVED IN EARLIER YEARS WERE TO BE TAKEN TO THE REVENUE OR TO BE REDUCED FROM THE CO S T OF ASSETS. THEREFORE , THE ASSESS ING OFFICER HAS ESTIMATED 15% OF GRANT OF RS. 2500 LACS WHICH WORKED OUT AT RS. 3750 LA CS AS INCOME OF THE ASSESSEE. THE LD. CIT(A) HAS DELE TED THE AFORESAID ADDITION HOLDING THAT THE ASSESSEE HAS NO T ACQUIRED ANY FIXED ASSETS ON WHICH DEPRECIATION HAS B EEN CLAIMED , THEREFORE , SUCH GRANTS CANNOT B E REDUCED FROM COST OF FIXED ASSET OF THE ASSESSE E COMPANY . WITH T H E ASSISTANCE OF LD. AUTHORIZED REPRESENTATIVES, WE HAVE GONE THROUGH THE MATERIAL ON RECORD PERTAINING TO THE SUBMISSION OF THE ASSESSEE STATING THAT THE ASSESSEE HAS NOT RECEIVED ANY GRANT DURING THE YEAR AND THE GRANTS RECEIVED ORIGINALLY FROM THE GOVT. OF GUJARAT WERE APPORTIONED AGAINST T H E SUBSIDIARY COMPANIES ON APPROPRIATE BASIS. IN F.Y. 2007 - 08 , THE STATE GOVERNMENT VIDE VARIOUS GRS DECI DED TO CONVERT THE GRANT GIVEN DURING THE F.Y. 2005 - 06 TO 2007 - 08 FOR IMPLEMENTATION OF JYOTI GRAM YOJ NA (JGY) INTO EQUITY SHARE CAPITAL . ACCORDINGLY , THE TOTAL GRANTS RECEIVED DURING THE AFORESAID FINAN C I AL YEARS WERE ALLOCATED AMONG THE FOUR DISTRIBUT ION COMPANIES FOR IMPLEMENTATION OF THE AFORESAID SCHEME OF THE STATE GOVERNMENT . IN VIEW OF THE ABOVE FAC TS AND CIRCUMSTANCES , W E DO NOT FIND ANY INFIRMITY WITH THE DECISION OF THE LD. TH EREFORE, T HE AFORESAID GRANTS RECEIVED CANNOT BE TREATED AS INCOME OF THE ASSESSEE COMPANY. ACCORDINGLY , THIS GROUND OF THE APPEAL IS D IS M I SSED. I.T.A NOS 3358, 1988, 3359, 3 360, 3437, 2014, 3438 & 3439/AHD/ 2015 PAGE NO DCIT VS. GUJARAT URJA VIKAS NIGAM LTD. 23 GROUND NO. 3 (DELETING ADDITION OF RS. 334 LACS BY TREATING THE GRANTEE FEE PAID CAPITAL EXPENDITURE AS AGAINST REVENUE EXPENDITURE CLAIMED BY THE ASSESSEE ) , GROUN D NO. 4 OF ITA NO. 2014/AHD/2015, GROUND NO. 2 OF ITA NO. 3359/AHD/2015, GROUND NO. 2 OF ITA NO. 3438/AHD/2015, GROUND NO. 2 OF 3439/AHD/2015 AND GROUND NO. 2 OF 3360/AHD/2016 29 . AS THE FACTS IN ALL THE SIX GROUNDS OF APPEALS ARE SIMILAR, SO, WE TAKE 3RD GROUND OF ITA NO. 1988/AHD/2015 AS LEAD CASE AND ITS FINDINGS WILL ALSO BE APPLICABLE TO GROUND NO. 4 OF ITA NO. 2014/AHD/2015, GROUND NO. 2 OF ITA NO. 3359/AHD/2015, GROUND NO. 2 OF ITA NO. 3438/AHD/2015, GROUND NO. 2 OF 3439/AHD/2015 AND GROUND NO. 2 OF 3360/AHD/ 2016 30 . DURING ASSESSMENT, THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS PLAID GRANTEE FEE OF RS. 3.34 C RORES TO THE GOVT. OF GUJARAT, THEREFORE, THE ASSESSEE WAS ASKED TO EXPLAIN WHY THE GRANTEE FEE SHOULD NOT BE DISALLOWED AS CAPITAL EXPENDITURE. TH E ASSESSEE EXPLAINED THAT AFORESAID AMOUNT OF GRANTEE FEE WAS PAID TO THE GOVT. OF GUJARAT FOR THE LOAN RAISED BY ERSTWHILE GE B AND THE SAME WAS ALLOCATED TO GU VNL POST RESTRUCTURING OF GE B . IT WAS FURTHER EXPLAINED THAT PAYMENT OF GRANTEE FEE WAS AN AN NUAL RECURRING EXPENDITURE AND NOT A ONE - OFF TRANSACTION AND THE BENEFIT OF GRANTEE FEE PAID WAS DERIVED FOR THAT YEAR ONLY AND FOR NOT SUBSEQUENT YEARS. THE ASSESSING OFFICER HAS NOT ACCEPTED THE EXPLANATION OF THE ASSESSEE AND SHE WAS OF THE VIEW TH AT ASSESSEE HAD DERIVED ALL THE BENEFITS IN THE FORM OF RESTRUCTURING OF THE DEBIT , RESCHEDULING OF REPAYMENT SCHEDULE, REDUCTION IN INTEREST ETC. THEREFORE, TREATED THE ENTIRE EXPENDITURE PERTAINING TO CDR AS CAPITAL EXPENDITURE AND ADDED TO THE TOTAL I NCOME OF THE ASSESSEE. I.T.A NOS 3358, 1988, 3359, 3 360, 3437, 2014, 3438 & 3439/AHD/ 2015 PAGE NO DCIT VS. GUJARAT URJA VIKAS NIGAM LTD. 24 31 . AGGRIEVED ASSESSE HAS FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS ALLOWED THE APPEAL OF THE ASSESSEE. THE RELEVANT PART OF THE DECISION OF LD. CIT(A) IS REPRODUCED AS UNDER: - 7.3 THE REASONS AS MENTIONED BY THE A O IN THE ASSESSMENT ORDER FOR MAKING ADDITION OF RS. 3,34,00,000/ - BEING GUARANTEE FEES AS WELL AS ABOVE SUBMISSION OF THE APPELLANT HAVE BEEN CONSIDERED. IN THIS REGARD IT IS MENTIONED THAT THE SIMILAR ISSUE WAS INVOLVED IN THE CASE OF APPELLANT FOR AY 20 08 - 09 ALSO. THE THEN LD. CIT(A) - I, BARODA (I.E. MY PREDECESSOR) HAS MADE HIS OBSERVATION/DECISION VIDE HIS APPEAL ORDER IN APPEAL NO. CAB/I/152/10 - 11 IN APPELLANT'S OWN CASE FOR AY 2008 - 09 AND THE SAME IS REPRODUCED HEREUNDER FOR REFERENCE: I 'I HAVE CONSI DERED FACTS OF THE CASE AND APPELLANT'S SUBMISSIONS. GUARANTEE FEES WAS AN ANNUAL RECURRING EXPENDITURE INCURRED BY THE APPELLANT. GUARANTEE FEES WAS PAYABLE TO GOVERNMENT OF GUJARAT EVERY YEAR IN RESPECT OF LOANS TAKEN BY APPELLANT AND GUARANTEED BY GOVER NMENT 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 IN ENDURING BENEFIT. GUARANTEE FEES PAID TO GOVERNMENT OF GUJARAT WAS IN CONNECTION WITH RAISING OF LOANS AND ENDURING BENEFIT OR ADVANTAGE COULD NOT BE SAID TO HAVE RESULTED BY TAKING SUCH LOANS. ONLY IF THE ASSETS ACQUIRED OUT OF SUCH LOANS WERE NOT PUT TO USE TILL THE END OF PREVIOUS YEAR, I.E. 31.3.2008, GUARANTEE FEES TO SUCH EXTENT, I.E. IN RESPECT OF SUCH LOANS ONLY NEEDS TO BE CAPITALIZED AS COST OF SUCH ASSET. APPELLANT HAS CERTIFIED THAT GUARANTEE FEES WAS PAID IN RESPECT OF LOANS FOR ACQUISITION OF CAPITAL ASSETS WHICH WERE PUT TO USE PRIOR TO 1.4.2007. GUARANTEE FEES OF RS. 4,76,00,000/ - IS DI RECTED TO BE ALLOWED AS REVENUE EXPENDITURE, SUBJECT TO VERIFICATION BY THE ASSESSING OFFICER OF THE CERTIFICATE FILED DURING APPELLATE PROCEEDINGS, I.E. LOANS ON WHICH GUARANTEE FEES WAS PAID WERE UTILIZED FOR CONSTRUCTION OF POWER PLANTS AT THAT TIME AND THERE WAS NO CAPITAL WORK - IN - PROGRESS IN RESPECT OF SUCH LOANS DURING FY 2007 - 08.' 7.4 FOLLOWING THE ABOVE DECISION OF LD. CIT(A) (I.E. MY PREDECESSOR) AS GIVEN FOR AY 2008 - 09, FO R THE YEAR UNDER CONSIDERATION ALSO GUARANTEE FEES OF RS. 3,34,00,000/ - IS DIRECTED TO BE ALLOWED AS REVENUE EXPENDITURE, SUBJECT TO VERIFICATION BY THE ASSESSING OFFICER OF THE CERTIFICATE FILED DURING APPELLATE PROCEEDINGS, I.E. LOANS ON WHICH GUARANTEE FEES WAS PAID WERE UTILIZED FOR CONSTRUCTION OF POWER PLANTS AT THAT TIME AND THERE WAS NO CAPITAL WORK - IN - PROGRESS IN RESPECT OF SUCH LOANS DURING FY 2009 - 10. THUS, THIS GROUND OF APPEAL NO. 6 OF THE APPELLANT IS ALLOWED SUBJECT TO THIS DIRECTION. 32 . D URING THE COURSE OF APPELLATE PROCEEDINGS, THE LD. COUNSEL HAS BROUGHT TO OUR NOTICED THAT IDENTICAL ISSUE ON SIMILAR FACTS HAS BEEN ADJUDICATED BY THE CO - ORDINATE BENCH IN FAVOUR OF THE ASSESSEE VIDE ITA NO. 837/AHD/2012 FOR ASSESSMENT YEAR 2008 - 09. THE RELEVANT PART OF THE DECISION IS REPRODUCED AS UNDER: - 38. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD AND GONE THROUGH THE DECISION REFERRED AND RELIED UPON BY BOTH THE PARTIES. THROUGH THIS GROUND REVENUE HAS CHALLENGED THE AC TION OF LD. CIT(A) DELETING THE DISALLOWANCE OF GUARANTEE FEES AT RS.4.76 CRORES. 39. WE OBSERVE THAT LD. AR HAS REFERRED AND RELIED ON THE DECISION OF THE CO - ORDINATE BENCH IN THE CASE OF GUJARAT ENERGY TRANSMISSION CORPN. LTD. (SUPRA), WHEREIN SIMILAR I SSUE REGARDING I.T.A NOS 3358, 1988, 3359, 3 360, 3437, 2014, 3438 & 3439/AHD/ 2015 PAGE NO DCIT VS. GUJARAT URJA VIKAS NIGAM LTD. 25 THE CLAIM OF GUARANTEE FEES PAID TO GOVERNMENT OF GUJARAT HAS BEEN DEALT WITH BY THE TRIBUNAL AS TO WHETHER THE GUARANTEE FEES IS AN EXPENDITURE OF CAPITAL IN NATURE OR REVENUE IN NATURE AND HAS OBSERVED AS UNDER : - 35. WE FIND THAT THE TRIB UNAL IN ITS ORDER DATED 8.5.2015 CITED SUPRA HAS HELD AS UNDER: '6. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE LD.CIT(A) DECIDED THESE ISSUES IN PARAS - 5.2 & 5.3 AND 6.2 RESPECTIVELY BY OBSERVING AS UNDER: - '5.2. I HAVE CONSIDERED THE SUBMISSIONS OF THE LD.AR AND THE FACTS OF THE CASE. THE ISSUE RELATING TO WHETHER AN ITEM OF EXPENDITURE LIES IN THE CAPITAL OR THE REVENUE FIELD HAS EXERCISED THE COURTS IN NUMEROUS CASES. FROM AN ANALYSIS OF SUCH CASES A FEW GUIDING PRINCIPLES/TESTS CAN BE IDENTIFIED. ONE OF THE IMPORTANT TESTS FOR CATEGORIZING ANY EXPENDITURE AS CAPITAL IN NATURE IS WHETHER THE LAYING OUT OF THE IMPUGNED EXPENDITURE RESULTS IN THE ACQUI SITION OF CREATION OF ANY NEW ASSET. WHERE NO SUCH ASSET IS CREATED, IT 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 LASTIN G USE OF AN ASSET OR THE ACQUISITION OF A RIGHT TO EXPLOIT CERTAIN COMMERCIAL PROCESSES, ETC. IN THE INSTANT CASE, THE ASSESSEE DID NOT ACQUIRE ANY RIGHT TO EXPLOIT A COMMERCIAL TECHNOLOGY OR PROCESS, AND NEITHER WAS THE BENEFIT 'ENDURING', SINCE THE PAYME NT OF GUARANTEE COMMISSION WAS AN ANNUAL CHARGE. THE BENEFIT DERIVED FROM PAYMENT OF SUCH COMMISSION THUS LASTED FOR EXACTLY ONE YEAR ONLY. SUCH ITA NO.704 AND 761/AHD/2012SHORTLIVED 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 RESPECT OF LOANS TAKEN FROM THE B ANK. IN THE CASE OF HIMALAYA MACHINERY PVT.LTD. (ITA NO.738/AHD/2009) FOR AY 2006 - 07, THE TRIBUNAL HELD, VIDE ORDER DT.5.6.2009, FOLLOWING THE DECISION OF THE RAJASTHAN HIGH COURT IN CIT V. METALISING EQU IPMENT 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 THE GOVERNMENT OF GUJARAT. HENCE, QUITE APART FROM THE OTHER SOUND REASO NS 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 GOG. IN VIEW OF THE TOTALITY OF THE CIRCUMSTANCES, I AM OF THE OPINIO N THAT THE AO WAS NOT JUSTIFIED IN TREATING THE PAYMENT OF 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 JURISDICTION AL BENCH OF ITAT HAS HELD 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 LOAN. THE AMOUNT SPENT ON STAMP DUTY, LAWYER FEES, ET C. FOR OBTAINING LOAN SECURED BY CHARGE ON ITS FIXED ASSETS IS A REVENUE EXPENDITURE, BECAUSE THE TRANSACTIONS WERE ENTERED INTO DIRECTLY TO FACILITATE THE BUSINESS OF THE COMPANY AND PAYMENT OF CONSULTANCY CHARGES WAS MADE ON GROUND OF COMMERCIAL EXPEDIEN CY. IN INDIA CEMENTS LTD. VS. CIT , 60 ITR 52, THE SUPREME COURT HAD ALSO HELD THAT THE EXPENDITURE INCURRED FOR SECURING THE USE OF MONEY FOR A CERTAIN PERIOD WAS REVENUE EXPENDITURE. IN THE INSTANT CASE, THE ASSESSEE HAS SECURED THE LOAN BY CREATING A CHARGE (HYPOTHECATION OF ITS ASSETS). HENCE THE RATIO OF THE ABOVE MENTIONED TWO CASES WOULD SQUARELY APPLY. ACCORDINGLY, IT IS I.T.A NOS 3358, 1988, 3359, 3 360, 3437, 2014, 3438 & 3439/AHD/ 2015 PAGE NO DCIT VS. GUJARAT URJA VIKAS NIGAM LTD. 26 HELD THAT THE AO WAS NOT JUSTIFIED IN MAKING THE DISALLOWANCE OF RS.45,24,582/ - , WHICH IS DIRECTED TO BE DELETED.' 6.1 THE LD.CIT(A) HAS FOLLOWED THE DECISION OF THE TRIBUNAL PASSED IN ITA NO.738/AHD/2009 FOR AY 2006 - 07 IN THE CASE OF HIMALAYA MACHINERY PVT.LTD., DATED 5.6.2009 AND IN THE CASE OF SHRI RAMA MULTI TECH VS. ACIT REPORTED AT 92 TTJ 568. 6.2. THE LD.CIT - DR COULD NOT DISTINGUISH THE FACTS OF THE CASE, THEREFORE WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE LD.CIT(A), SAME IS HEREBY UPHELD. THUS, THESE TWO GROUNDS RAISED IN THE REVENUE'S APPEAL ARE REJECTED.' 36 . DR COULD NOT POINT OUT ANY GOOD REASON AS TO WHY THE ABOVE QUOTED ORDER OF THE TRIBUNAL SHOULD NOT BE FOLLOWED FOR THE YEAR UNDER CONSIDERATION. IN THE ABSENCE OF DISTINGUISHING FEATURES BEING POINTED OUT BY THE DR, AND THE FACTS BEING IDENTICAL, RESPECT FULLY FOLLOWING THE ABOVE QUOTED DECISION OF THE TRIBUNAL, WE CONFIRM THE ORDER OF THE CIT(A), AND DISMISS THIS GROUND OF APPEAL OF THE REVENUE. 40. WE ARE OF THE VIEW THAT THE ISSUE RAISED IN THIS GROUND IS SQUARELY COVERED BY THE DECISION OF CO - ORDINATE BENCH REFERRED ABOVE IN THE CASE OF GUJARAT ENERGY TRANSMISSION CORPN. (SUPRA) AND RESPECTFULLY FOLLOWING THE SAME, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) AND UPHOLD THE SAME. THIS GROUND OF REVENUE IS DISMISSED. RESPECTFULLY FOLLOWI NG THE DECISION OF THE CO - ORDINATE BENCH OF THE ITAT AS CITED ABOVE, WE DO NOT FIND ANY MERIT IN THE APPEAL OF REVENUE ON THIS ISSUE, THEREFORE, THE SAME STANDS DISMISSED. GR OUND NO. 4 (DELETING ADDITION OF RS. 187.91 LACS BEING INTEREST INCOME TREATED AS INC OME FROM OTHER SOURCES) & GROUND NO. 4 OF ITA NO. 3360/AHD/2015 33 . THESE TWO GROUND S OF APPEAL S ARE SIMILAR TO THE GROUND NO. 2 OF THE REVENUE WHICH HAS BEEN ADJUDICATED ABOVE IN THIS ORDER VIDE ITA NO. 3358/AHD/ 2015 . SINCE THIS ISSUE IS BASED ON SIMILAR FACTS, SO THE DECISION OF ITA 3358/AHD /2015 IS APPLIED TO THESE TWO GROUND S OF APPEAL S ALSO. 34 . THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - ITA NO. 2014 /AHD/2015 , A.Y. 2010 - 11 2.0 THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRE D IN LAW AND ON FACTS HAS ENHANCED THE PRIOR PERIOD EXPENSE AND INCOME DISALLOWANCE TO RS. 6,57,77,519/ - BY DISALLOWING PRIOR PERIOD I.T.A NOS 3358, 1988, 3359, 3 360, 3437, 2014, 3438 & 3439/AHD/ 2015 PAGE NO DCIT VS. GUJARAT URJA VIKAS NIGAM LTD. 27 EXPENSE OF RS. 6,50,17,519/ - (ACTUAL AMOUNT RS. 6,49,12,519/ - ) WITHOUT CONSIDERING THE FACT THAT THE LIABILITY TO ACCOUNT S UCH PRIOR PERIOD EXPENSES CRYSTALLIZED DURING THE YEAR. GROUND NO. 2 (DISALLOWANCE OF PRIOR PERIOD EXPENSES) 35 . DURING ASSESSMENT, THE ASSESSING OFFICER NOTICED THAT ASSESSEE I TSELF DISALLOWED PRIOR PERIOD EXPENSES TO THE EXTENT OF RS. 6.53 C RORES WHEREA S IT HAS CLAIMED PRIOR PERIOD EXPENSE S OF RS. 661.29 LACS. THEREFORE, THE ASSESSING OFFICER HAS DISALLOWED T H E REMAINING AMOUNT OF RS. 7.60 LAC S AS THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUN TI N G. HOWEVER, THE LD. CIT(A) HAS OBSERVED THAT P RIOR PERIOD EXPENSE S OF RS. 653.69 LACS AF T ER SETTING OFF THE PRIOR PERIOD INCOME OF R S. 7.60 LACS WAS NOT ADDED BACK BY T H E ASSESSING OFFICER THEREFORE THE ASSESSEE WAS SHOW CAUSE D TO EXPLAIN WHY NOT THE PRIOR PERIOD EXPENSES BE ENHANCED BY THE ABOVE AMOUNT OF RS. 653.69 . THE ASSESSEE HAS EXPLAINED THAT NO DISALLOWANCE CAN BE MADE ON ACCOUNT OF PRIOR PERIOD EXPENSES AND IT WAS FURTHER SUBMITTED THAT IT HAS ALREADY FILED DETAILED SUBMISSION FROM TIME TO TIME ON THIS ISSUE. AFTER CONSIDERING THE SUBMIS SION OF THE ASSESSEE PRIOR PERIOD EXPENSES TO THE AMOUNT OF RS. 12.17 LACS CLAIMED UNDER THE HEAD EMPLOYEE COST WAS DELETED CONSIDERING THE SAME WAS CRYSTALIZED DURING THE YEAR. HOWEVER THE LD. CIT(A) HAS ENHANCED THE DISALLOWANCE UNDER THE PRIOR PERIOD EXPENSES UNDER THE FOLLOWING HEADS. 1. OTHER ADJUSTMENT RS. 16.96 LACS 2. ADM. EXPENSES RS. 0.11 LACS 3. MATERIAL RELATED EXP. RS. 38.27 THE LD. CIT(A) HAS FURTHER ENHANCED THE PRIOR PERIOD EXPENSES BY RS. 5 9 , 37 , 8 , 016/ - MAINLY PERTAINING TO THE P OWER PURCHASED EXPENSES. IN VIEW OF THE ABOVE THE LD. CIT(A) HAS ENHANCED THE PRIOR PERIOD EXPENSES BY THE I.T.A NOS 3358, 1988, 3359, 3 360, 3437, 2014, 3438 & 3439/AHD/ 2015 PAGE NO DCIT VS. GUJARAT URJA VIKAS NIGAM LTD. 28 AMOUNT OF R S. 6,49,12519/ - . IT IS NOTICED DURING THE COURSE OF ENHANCEMENT OF PRIOR PERIOD EXPENSES , THE LD . CIT(A) HAS CALLED FOR SPECIFIC FIND INGS OF THE ASSESSING OFFICER WITH REGARD TO CLAIM OF PRIOR PERIOD EXPENSES OF THE ASSESSEE. THE ASSESSING OFFICER HAS FURNISHED A BRIEF REPORT VIDE LETTER NO. BR D /CIR . 1(1)GUVNL/2013 - 14 DATED 17 - 02 - 2014 WHICH IS REPRODUCED AS UNDER : - 'WITH REFERENCE TO THE ABOVE AS PER, THE DIRECTION GIVEN BY LD. CIT(A) , THE UNDERSIGNED HAS GIVEN OPPORTUNITY TO THE ASSESSEE COMPANY VIDE HER LETTER DATED 07/10/2013 TO PRODUCE DETAILS FOR THE VERIFICATION OF THE PRIOR PERIOD INCOME AND EXPENSES. IN RESPONSE, THE ASSESSEE COMPANY SUBMITTED A LETTER DATED 18/10/2013 WHICH HAS BEEN DULY CONSIDERED IN THE PREPARATION OF THE REMAND REPORT. AFTER PERUSAL OF THE REPLY OF THE ASSESSEE AND, FACTS OF THE CASE, FOLLOWING REMAND REPORT IS SUBMITTED FOR YOUR KIND PERUSAL: 1) DURING TH E YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY HAS SHOWN A PRIOR PERIOD INCOME OF RS. 7.60 LAKHS AS PER THE SCHEDULE 21 FORMING PART OF PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31 ST MARCH/T 2010, UNDER THE HEAD 'POWER PURCHASE'. FURTHER, DURING THE YEAR UNDER CONSIDERATION, AS PER SCHEDULE 21 FORMING PART OF PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31 ST MARCH, 2010, THE ASSESSEE COMPANY HAS SHOWN A PRIOR PERIOD EXPENDITURE OF RS. 661.29 LAKHS WHICH IS A CONSOLIDATED AMOUNT OF THE FOLLOWING SUB HEADS - I . POWER PURCHASE 593,78 LAKHS II . EMPLOYE ES COST 12.16 LAKHS I II . INTEREST & FINANCE CHARGES 0.00 IV. ADMIN EXPENSES 39.39 LAKHS V. OTHER ADJUSTMENTS RELATING PRIOR PERIOD 16.96 LAKHS ACCORDINGLY, THE ASSESSEE COMPANY HAD DEBITED A NET PRIOR PERIOD EXPENSE OF RS. 653.69 LAKHS TO THE PROFIT & LOSS A/C, AS PER IN SCHEDULE 21. 2) AS PER THE SUBMISSION OF THE ASSESSEE DATED 18/10/2013 THE DETAILS OF PRIOR PERIOD INCOME AND EXPENDITURE IS AS FOLLOWS: I PRIOR PERIOD INCOME - 7.60 LAKHS REVERSAL OF EXCESS PROVISIONS MADE FOR WAGE REVISION IN 2008 - 9 512840.00 EXCESS PROVISION CREDITED FOR PRINTERS BY STORES DEPT. IN FY 2008 - 091RECTIFIED 242661.12 EXCESS PROVISION CROCHETED FOR F AX MACHINES BY STORES DEPT. IN FY 2008 - 09 RECTIFIED 4590.00 760091.12 II) PRIOR PERIOD EXPENDITURE 661.29 LAKHS I. POWER PURCHASE 59 3.78 LAKHS II. EMPLOYEES COST 12.17 LAKHS II I. OTHER ADJUSTMENTS 16. 96 LAKHS IV. ADMINISTRATIVE EXP. 38.3 9 LAKHS 661.30 LAKHS ------------------ 3) THE ASSESSEE COMPANY HAS STATED VIDE ITS LETTER DATED 18/10/2013 THAT THE NET PRIOR PERIOD EXPENSE OF RS. 653.F9LAKHS WAS IN CLUDED IN THE PROFIT & LOSS ACCOUNT THE RELEVANT PORTION OF THE ASSESSEE'S SUBMISSION IS REPRODUCED BELOW' I.T.A NOS 3358, 1988, 3359, 3 360, 3437, 2014, 3438 & 3439/AHD/ 2015 PAGE NO DCIT VS. GUJARAT URJA VIKAS NIGAM LTD. 29 'IT IS SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION THE COMPANY HAD ACCOUNTED VARIOUS PERIOD INCOME ACCOUNTING TO RS. 7.60 LACS AND PRIOR PERIO D EXPENSES AMOUNTING TO RS. 661.29JACS AND ACCORDINGLY A NET PRIOR PERIOD EXPENSE OF RS. 653.69 LACS WAS INDUCED IN THE PROFIT & LOSS ACCOUNT OF THE YEAR UNDER CONSIDERATION' THE ASSESSEE FAILED TO ESTABLISH THE NEXUS BETWEEN PRIOR PERIOD INCOME AND PRIOR PERIOD EXPENDITURE DURING THE COURSE OF REMAND REPORT PROCEEDINGS. 4) AN ANALYSIS OF THE ABOVE CLEARLY REVEALS THAT THERE IS NO NEXUS BETWEEN THE PRIOR PERIOD INCOME AND PRIOR PERIOD EXPENDITURE. THEREFORE NETTING CANNOT BE ALLOWED AND BOTH THE PRIOR PERI OD INCOME AND PRIOR PERIOD EXPENDITURE NEEDS TO BE TREATED SEPARATELY AND INDEPENDENTLY. DURING THE ASSESSMENT PROCEEDINGS FOR THE YEAR UNDER CONSIDERATION THE SAME WAS DONE DUE TO THE OVERSIGHT OF THE UNDERSIGNED. SINCE, IT IS APPARENT FROM THE RECORDS, T HEREFORE SEPARATE TREATMENT IS METED OUT TO THE PRIOR PERIOD INCOME AM/EXPENSES. 5) IT IS FURTHER OBSERVED FROM THE 'ANALYSIS OF THE VOUCHERS & DOCUMENTARY EVIDENCES PRODUCED BY THE ASSESSEE THAT IT CANNOT BE CONCLUDED FROM SUCH EVIDENCE THAT THE LIABILITY GOT CRYSTALLIZED DURING AY 2010 - 11. A SYMBOLIC EXPENSES WISE ANALYSIS OF THE SAME IS AS FOLLOWS: I) POWER PURCHASE RS. 593.78 LACS AS PER THE ASSESSEE'S SUBMISSION DATED 18/10/2013 THE SAID AMOUNT WAS PAID TO GETCO ON ACCOUNT OF TRANSMISSION CHAR GES PAYABLE FOR THE FINANCIAL YEAR 2007 - 08. THE SAID LIABILITY, AS PER THE ASSESSEE, CRYSTALLIZED DURING THE YEAR IN TERMS OF THE ORDER PASSED BY GERC. HOY EVER, AN ANALYSIS OF THE ORDER SHOWS THAT IT WAS PASSED ON 26/03/2008. THEREFORE IT IS SEEN THAT, IF AT ALL, THE LIABILITY HAD CRYSTALLIZED EARLIER AND NOT DURING THE CONCERNED ASSESSMENT YEAR. II) OTHER ADJUSTMENTS RS. 16.96 LACS AS PER THE ASSESSEE'S SUBMISSIONS - DATED 18/10/2003 THE SAME IS ON ACCOUNT OF CERTAIN CHARGES PAID DURING THE YEAR AS TH E INVOICES WERE RECEIVED DURING THE YEAR OR THE AMOUNT WAS FINALLY PASSED APPRDVED FOR PAYMENT DURING THE YEAR ON COMPLETION OF THE WORK. HOWEVER, IT IS CLEAR THAT, AS PER MERCANTILE SYSTEM, EVEN IF THE INVOICES ARE RECEIVED LATER IN THE - PERIOD, THE EXPENS ES ARE ACCOUNTED FOR IN THE PERIOD TO WHICH SUCH INVOICES PERTAIN AND NOT IN THE YEAR IN WHICH THE INVOICES ARE RECEIVED. THEREFORE, PLEA OF THE ASSESSEE THAT INVOICES WERE RECEIVED DURING AY 2010 - 11, DOES NOT HOLD GOOD. CONSIDERING THE FACTS AS MENTIONED ABOVE, YOUR HONOUR MAY DECIDE THE ISSUE ON THE MERITS OF THE CASE.' THE LD. CIT(A) HAS OBSERVED AT PARA . 24 OF HIS ORDER THAT T H E ASSESSING OFFICER HAS NOT MADE ANY COMMENT AT ALL ON MERIT IN HER REMAND REPORT IN RESPECT OF PRIOR PERIOD EXPENSES OF RS . 12.17 LACS BEING EMPLOYEE COST AND PRIOR PERIOD EXPENSES OF RS. 38.39 LACS BEING ADMINISTRATIVE EXPENSES. IT WAS ALSO POINTED OUT THAT T HE ASSESSING OFFICER WAS REQUIRED TO VERIFY THE RELEVANT BOOKS OF ACCOUNTS AND BILLS VOUCHERS ETC . OF THE YEAR UNDER C ONSIDERATION TO WHICH THE PRIOR PERIOD EXPENSES AS CLAIMED BY THE ASSESSEE WERE ACTUALLY PERTAINED AND WHICH HAD BEEN CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION. THE LD. CIT(A) HAS FURTHER OBSERVED THAT THE ASSESSING OFFICER HAS NOT GIVEN ANY FIND INGS AS REQUIRED AS PER REMAND REPORT. WITH THE ASSISTANCE OF LD. REPRESENTATIVES, WE HAVE GONE THROUGH T H E MATERIAL ON I.T.A NOS 3358, 1988, 3359, 3 360, 3437, 2014, 3438 & 3439/AHD/ 2015 PAGE NO DCIT VS. GUJARAT URJA VIKAS NIGAM LTD. 30 RECORD AND NOTICED THAT IN VIEW OF THE AFORESAID LACUNA IN THE REPORT OF THE ASSESSING OFFICER , THE LD. CIT(A) HAS ADJUDICATED THE ISSU E ON THE BASIS OF THE INFORMATION RECEIVED FROM THE ASSESSEE IN RESPONSE TO THE SHOW CAUSE NOTICE ISSUED BY T H E LD. CIT(A). HOWEVER, IT IS OBSERVED THAT LD. CIT(A) HAS NOT GIVEN SPECIFIC FINDING WITH REGARD TO DISALLOWANCE OF CLAIM . IN THE APPELLATE O RDER AT PA G E NO. 30 IN RESPECT OF DISALLOWANCE TH E CLAIM OF R S. 569302/ - , THE LD. CIT(A) HAS STATED THAT THE SUBMISSION OF THE ASSES S EE WAS NOT FOUND TO BE ACCEPTABLE. BU T THE LD. CIT(A) HAS NOT DISCUSSED ANY SPECIFIC MATERIAL ON THE BASI S OF WHICH THE CL AIM WAS NOT ACCEPTED . SIMILARLY AT PARA 4.14 REGARDING DISALLOWANCE OF R S. 11,26,511/ - , IT IS STATED THAT T H E SUBMISSION OF THE ASSESSEE WAS NOT FOUND TO BE ACCEPTABLE AND THE ASSESSEE HAS NOT EXPLAINED THE TERMS AND CONDITIONS WHICH WERE NOT FULFILLED B Y THE TCS. IT IS NOTICED THAT THE LD. CIT(A) HAS NOT SPECIFIED THE DETAILS AND MATERIAL WHICH WAS NOT PRODUCED BY THE ASSESSEE AND DETAILS OF REMINDER/SHOW CAUSE FOR MAKING SUCH DISALLOWANCE ETC. HAS NOT BEEN ELABORATED IN HIS FINDINGS . SIMILARLY FOR OT HER DISALLOWANCE UNDER THE HEAD PRIOR PERIOD , THE LD. CIT(A) HAS MADE DISALLOWANCES AS PER HIS OPINIONS AND STATED THAT ASSESSEE HAS FAILED TO FURNISH THE RELEVANT MATERIAL. IN RESPECT OF TRANSMISSION C H ARGE S THE LD. CIT(A) WAS OF THE OPINION THAT IT WAS N OT THE LIABILITY OF THE ASSESSEE AND THE SAME CANNOT BE CLAIMED BY T H E ASSESSE AS PRIOR PERIOD EXPENSES . IN THE LIGHT OF THE FACTS AND CIRCUMSTANCES BRIEFLY STATED ABOVE THE FOLLOWING FACTS ARE E MERGED : - (I) THE ASSESSING OFFICER HAS STATED THAT T HE PRIOR PER IOD EXPENSES WERE REMAINED TO BE DISALLOWED DUE TO OVERSIGHT. (II) THE LD. CIT(A) HAS ENHANCED THE PRIOR PERIOD EXPENSE S DISALLOWED DURING THE COURSE OF APPELLATE PROCEEDINGS . I.T.A NOS 3358, 1988, 3359, 3 360, 3437, 2014, 3438 & 3439/AHD/ 2015 PAGE NO DCIT VS. GUJARAT URJA VIKAS NIGAM LTD. 31 (III) THE ASSESSING OFFICER HAS FAILED TO GIVE ANY FIN DING S AS REQUI RED IN THE REMAND REPORT BY THE LD. CIT(A) (IV) UNDER THE AFORESAID CIRCUMSTANCES, THE LD. CIT(A) HAS FRAMED HIS OWN OPINION ON THE B A S IS OF LIMITED DETAILS AND VERIFICATION BUT WITHOUT SPECIFIC FINDING IN SUPPORT OF DISALLOWANCE OF PRIOR PERIOD EXPENSES. IN VIEW OF THE AFORESAID MATERIAL FACTS, WE ARE OF THE VIEW THAT IT WILL BE APPROPRIATE TO RESTORE THIS ISSUE TO THE FILE OF ASSESSING OFFICER FOR DECIDING DE - NOVO AFTER VERIFICATION/EXAMINATION OF THE COMPLETE DETAIL S WITH SPECIFIC FINDINGS/REASONS AFTER AFFORDING ADEQUATE OPPORTUNITIES TO THE ASSESSEE. THE ASSESSING OFFICER IS ALSO DIRECTED TO CONSIDER JUDICIAL PRONOUNCEMENTS REFERRED BY THE ASSESSEE ON THIS ISSUE VIDE ITA NO. 996/AHD/2011 PAGE 113/6 GUVNL VS. ACIT ASSESSMENT YEAR 1998 - 99 AND ITA NO. 57 3/AHD/2016 CIT VS. ADANI ENTERPRISES LTD. (GUJ) PAGE 16 - 18. THEREFORE, THIS GROUND OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. GROUND NO. 3 (DISALLOWANCE OF DEPRECIATION OF COMPUTER OF RS. 26.93 LACS) 36 . DURING ASSESSMENT, THE ASSESSING OFFICE R T HAT ASSESSEE HAS CLAIMED DEPRECIATION @ 60% ON COMPUTERIZED OPERATIONAL PLANT AND MACHINERY AND HE WAS OF THE VIEW THAT COMPUTERIZED MACHINE S CANNOT BE TREATED AS ASSETS BEING COMPUTER FOR CLAIMING DEPRECIATION @ 60%, THEREFORE, SHE HAS RESTRICTED THE CLAIM OF DEPRECIATION @ 15% . 37 . AGGRIEVED ASSESSE HAS FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. I.T.A NOS 3358, 1988, 3359, 3 360, 3437, 2014, 3438 & 3439/AHD/ 2015 PAGE NO DCIT VS. GUJARAT URJA VIKAS NIGAM LTD. 32 38 . DURING THE COURSE OF APPELLATE PROCEEDINGS, THE LD. COUNSEL HAS BROUGHT TO OUR NOTICE THAT SIMILAR ISSUE ON IDENTICAL FACTS HAS BEEN RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR DECIDING ON EXAMINATION OF THE MATERIAL TO BE FURNISHED BY THE ASSESSEE VIDE ITA NO. 837/AHD/2012 FOR ASSESSMENT YEAR 2008 - 09. THE RELEVANT PART OF T HE DECISION OF THE CO - ORDINATE BENCH AS REFERRED ABOVE IS PRODUCED AS UNDER: - 24. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THROUGH THIS GROUND, ASSESSEE IS AGGRIEVED WITH THE DISALLOWANCE OF DEPRECIATION OF RS.9174986/ - CLAI MED ON THE COMPUTERS. WE FIND THAT DURING THE ASSESSMENT PROCEEDINGS ASSESSEE HAS HIMSELF SUBMITTED THE REVISED COMPUTATION OF DEPRECIATION ON THE COMPUTERS AND HAS AGREED THAT DEPRECIATION HAS BEEN CLAIMED EXCESS BY RS.9174986/ - . THEREAFTER THE MATTER WHI CH WAS ALMOST CLOSED DUE TO THE SUBMISSION MADE BY ASSESSEE, WAS REVIVED BACK BY THE ASSESSEE BY RAISING GROUND AGAINST THIS ADDITION BEFORE LD. CIT(A) AND GAVE VARIOUS DETAILS AND DOCUMENTS SUPPORTING THE GROUND THAT DEPRECIATION DISALLOWED NEEDS TO BE RE - WORKED AS VARIOUS TYPES OF EXPENDITURE WHICH ARE FULLY ALLOWABLE DURING THE YEAR ARE INCLUDED IN ADDITION OF BLOCK OF ASSETS, COMPUTERS AND SIMILARLY THERE ARE VARIOUS MACHINES WHICH ARE ACTUALLY ELIGIBLE FOR DEPRECIATION @ 60% HAVE BEEN SUBJECTED TO DEP RECIATION @ 15% ONLY. WE FURTHER OBSERVE THAT LD. CIT(A) HAS LOOKED INTO THIS ASPECT AND HAS OPEN THE WAY FOR EXAMINING THE RELATES FACTS TOWARDS CALCULATION OF CORRECT DEPRECIATION IN THE BLOCK OF ASSETS RELATING TO COMPUTERS BY WAY OF OBSERVING THE RELAT ED FACTS IN HIS DECISION. 25. WE ARE, THEREFORE, OF THE VIEW THAT IN THE GIVEN CIRCUMSTANCES THIS ISSUE NEEDS TO GO BACK TO THE FILE OF LD. ASSESSING OFFICER FOR RE - EXAMINATION AND CALCULATION OF DEPRECIATION ON COMPUTERS IN THE LIGHT OF SUBMISSIONS MADE BY ASSESSEE BEFORE LD. CIT(A) AFTER GIVING SUFFICIENT AND REASONABLE OPPORTUNITY TO THE ASSESSEE FOR PROVIDING NECESSARY DETAILS SO AS TO ARRIVE AT THE CORRECT AMOUNT OF DEPRECIATION ON COMPUTERS FOR WHICH THE ASSESSEE IS ELIGIBLE. ACCORDINGLY THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. IN THE LIGHT OF THE ABOVE FACTS AND FINDINGS THIS ISSUE IS ALSO RESTORED TO THE FILE OF ASSESSING OFFICER FOR DECIDING AFRESH AS DIRECTED IN THE AFORESAID DECISION BY THE CO - ORDINATE BENCH AFTER AFFORDING ADEQUATE O PPORTUNITY TO THE ASSESSEE. THEREFORE, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 39. IN THE RESULT, APPEAL I.T.A 3358/AHD/2015, 3359 /AHD/2015 , 3360 /AHD/2015 AND 1988 /AHD/2015 FILED BY REVENUE ARE DISMISSED AND I.T.A NOS 3358, 1988, 3359, 3 360, 3437, 2014, 3438 & 3439/AHD/ 2015 PAGE NO DCIT VS. GUJARAT URJA VIKAS NIGAM LTD. 33 APPEAL ITA 3 437 /AHD/2015 , 3438 /AHD/2015, 2014 /AHD/2015 & 3439/AHD/201 5 FILED BY THE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PR ONOUNCED IN THE OPEN C OURT ON 26 - 04 - 201 9 SD/ - SD/ - ( RAJPAL YADAV ) ( AMARJIT SING H ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 26 /04 /2019 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,
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